Introduction

This is a rather conjectural report on the evolutionary role of decision biases— at both the level of individuals and of organizations—and, in particular, on their importance to the processes of corporate entry and the evolution of industrial structures. A growing and quite robust body of evidence highlights the pervasiveness of various types of biases in individual decision making, which accounts for systematic departures from predictions of the canonical model of rational choice (see, for example, Kahneman & Tversky, 1973, 1986, Shafir & Tversky, 1992). For our purposes, we will mainly concern ourselves with overconfidence or optimism, which frequently leads to bold forecasts of the consequences of one's own actions. Also, by way of example, we will examine risk seeking in the domain of losses, which often yields escalating commitments in the face of failures. Interestingly, these biases appear to carry over from the level of individuals to that of groups and organizations and, indeed, might even be amplified in the latter circumstances (see, for example, Kahneman & Lovallo, 1993, Lovallo, 1996a, and the literature discussed there). In this respect, a challenging domain of investigation – with vast ramifications into the analyses of the nature of entrepreneurship, technological change, and industrial dynamics – is that of corporate entry into an industry.

Technological changes offer firms some of the most important opportunities for maintaining corporate vitality. Indeed, there are many well known cases of firms capitalizing on technological opportunities. For instance, Sun Microsystems was among the first few firms in the computer industry to initiate the development of RISC chips that are now revolutionizing the computer industry (Alster, 1987). 3M has reaped benefits from its Post-it Notes as has Sony from its Walkman (Nayak & Ketteringharn, 1986). There are many other instances of such “technological foresights.”

There are also several instances of firms failing to capitalize on technological opportunities. For instance, RCA, a recognized leader in broadcasting, chose not to invest in FM technology (Hughes, 1989). Xerox Corporation was among the first few firms to develop many of the elements of the personal computer that we now use but was unable to reap commercial benefits from its efforts (Smith & Alexander, 1988). There are many other instances of such “technological oversights.”

Why do such technological oversights and foresights occur? One view is that oversights and foresights are inevitable because technological outcomes are uncertain and contingent upon a match between the internal capabilities of a firm and its external environments, and because technological choices are complex and constrained by the past. These are the challenges that the chapters in this book attempt to address in an effort to develop a theory of technological innovation.

Introduction

Despite increasingly experienced management, the majority of new products fail to achieve their anticipated level of success in the marketplace. The causes for that lack of consistent market success have been the subject of much academic study (Lilien & Yoon, 1989). That literature is consistent with the results of a recent survey by a consulting firm, Ltd., that reports that among 154 senior marketing officers of U.S. corporations:

• 79% believe the new product development process could be improved

• 58% do not rate R&D as a successful source of new products

• 46% do not rate R&D's contribution to new product development as significant.

As for the reasons for their perception of why this process is less than ideal, consistent with the findings of Booz, Allen, and Hamilton (1982) they report:

• Products don't offer a competitive point of difference (52%)

• Product doesn't deliver as promised (43%).

In addition, 61% of the respondents expect that 30% or more of their sales will come from new products within the next 3–5 years. Finally, EFO reports that they have conducted this research periodically and the companies are getting more concerned: firms see new products as a source of hope, but they are showing ever more frustration over their internal processes for developing successful new products.

Innovation, even technological innovation, has a distinctly human face. It is a serious technological oversight to ignore the human side of innovation – the motivation driving those who create new technologies. In particular, it is important to consider the impact of the work environment surrounding these individuals, an environment that emerges from management attitudes toward technological progress and risk-taking. Such attitudes are likely to be significantly affected by major organizational change. In this chapter we consider the effects of the work environment on innovation and, in particular, the effects of organizational downsizing on the work environment for innovation. What happens to entrepreneurial, risk-taking activity among scientists and technicians during periods of turbulence? If there is an impact on such behaviors, it is likely that technological innovation itself will be affected as well.

In chapter 3 in this volume, Garud, Nayyar, and Shapira treat technological oversights and foresights as consequences of choices by firms to invest or withhold investment in a particular technology. The focus is on risk-taking behavior by key managers in the firm. At a more microscopic level, however, the creation and development of new ideas for technological innovations depends on appropriate risk-oriented thinking among the inventors themselves. Garud, Nayyar, and Shapira briefly suggest that such behavior depends, at least in part, on the organizational environment that top management has established in the firm. This is the central thesis that we present here.

Are technological oversights and foresights the realization of some random process, or are there systematic forces influencing the predisposition to one outcome or another? Clearly, there is a wealth of management literature that suggests that there are some systematic forces at work – a literature that strives to highlight the levers available to managers to direct those forces. If there is to be some intelligence to the process of decision making regarding technological opportunities, then it must be the case that some existing knowledge is being applied to inform judgments about these new opportunities. Absent divine inspiration, this existing knowledge, or wisdom is presumably the result of past experiences. The organizational challenge, the paradox that must be confronted, is that this knowledge based on prior experiences may not be an appropriate guide to the new circumstances the organization faces. However, if the organization is not leveraging its past knowledge, how is it to have a competitive advantage in confronting the future? To address this paradox, one must address the multifaceted nature of organizational learning.

Organizational learning has many virtues. One of the most commonly articulated virtues is the tendency for organizations to become more proficient at their current activities with experience (Alchian, 1959). A different virtue, often cited (Senge, 1990), is that learning processes facilitate an organization's adaptation to changing circumstances in its competitive environment.

Ideas beget ideas. This adage captures both the genesis of this book and its central theme. It all began when Avijit Ghosh, then Director of the Center for Entrepreneurial Studies at the Stern School of Business, New York University, called to ask if we would be interested in exploring entrepreneurship using a technology lens. Having already spent time exploring the notion of oversights and foresights, we quickly decided that exploring entrepreneurship through a technology lens would be a fruitful endeavor, especially if it were to be a cross-disciplinary one.

Deciding to put together a collection of thought-provoking ideas on this subject, we contacted many leading thinkers from several disciplines. We were gratified by the overwhelmingly enthusiastic response. Rather than ask each author to contribute independently, we concluded that it would be productive to organize a workshop where ideas could generate ideas.

To emphasize the multidisciplinary nature of the phenomenon, we organized the workshop by major “disciplines” that we had identified (technology, marketing, decision making, organizational processes and strategy). Our strategy was to bring together leading thinkers in each of these disciplines and ask them to present their ideas at the workshop so that contributors could get a more holistic perspective. We wanted each participant to have an opportunity to benefit from this cross-pollination process. Consequently, we decided to hold each presentation sequentially. In addition to the presenters, each session had a chairperson and a discussant. We requested discussants to address papers contained in each session both individually and collectively. We kept the task of integrating the papers across disciplines to ourselves.

At the Museum of Natural History in New York, a series of panels graphically depicts natural selection at work. In one panel, a fox runs after a rabbit. In another, a tiger is poised to kill a fox. And so on.

To survive, each animal must rely on the competitive advantages stemming from its own unique abilities. Nothing else matters. Ultimately, outcomes are inevitable and determined. There is no choice in such a world. All that animals have to rely on is what they do best. Pursued by a fox, it makes a lot of sense that a rabbit should run as fast as possible. In the circumstances, it is the best thing to do. Looking at the panel, though, it is not clear that running will be enough to save the rabbit.

The inevitability of outcomes in such a naturally selected world strikes home as one gazes at a magnificent display of dinosaurs. Despite their size, and indeed because of it, dinosaurs became extinct when the earth's atmospheric temperatures soared when either a volcanic eruption occurred or a meteorite hit the earth. Helpless to adapt, dinosaurs became extinct as a species, to be replaced by others better suited to survive the changed ambient conditions.

Subsumed in the natural selection process depicted in these panels are the four challenges to a theory of technological innovation that we articulated (Garud, Nayyar, and Shapira, chapter 1, this volume). These challenges stem from the inevitability of the occurrence of technological oversights and foresights. Oversights and foresights are inevitable because technological outcomes are uncertain and contingent upon a match between the internal capabilities of a firm and its external environments.

Technology is a double-edged sword. While it can create wealth, it can also consume and destroy it. This duality strikes at the very heart of strategic management because technological changes offer firms some of the most important opportunities for revitalization. Entire industries can emerge from new technologies, as illustrated by the overnight delivery and video games businesses. At the same time, however, technological changes can threaten firms' very existence. New technologies can make products offered by incumbent firms obsolete, as illustrated by the audio cassette recorder's superiority over phonograph records.

The ad was unusually bold for the Wall Street Journal. The headline read, “A Chance to Earn Big Bucks.” The fine print went on to describe a contest to be held the next week at a large auditorium in New York City. The contest was going to be simple one, with simple rules. Upon arrival, each contestant would be given a quarter. In the first round of the contest, all contestants would flip their coins. Contestants who flipped a “head” would continue in the contest; those who flipped a “tail” would be eliminated. The contest would continue through a series of coin flipping rounds, until there was only one person left. This person would then collect all the quarters from all the contestants. To ensure that there would be a single winner, if all those in the contest flipped “tails” in a particular round, they would all be allowed to continue in the contest. The ad described only one requirement for those seeking to enter this contest: they must be either highly educated, or have a great deal of experience, in the management of technology.

Of course, this ad created a great stir among the business and technological elite in the nation. The Internet was full of people discussing the contest, arguing about whether or not they should attend, and debating the relative merits of alternative coin-flipping methodologies. As the day of the contest approached, it became clear that the number of people who wanted to be in the contest was larger than what could be safely accommodated in an auditorium, and the contest organizers moved the contest from the auditorium to the Meadowlands stadium, in New Jersey.

Introduction: Setting my sights

In the context of corporate research, questions of foresight and oversight are always present. But there are different ways to address them. From a theoretical point of view, many of the issues are clear. From a practical point of view, however, attempts to discern unfolding technological and social trajectories are always clouded by what I call “the fog of reality.” What I'd like to do in this chapter is take the practical rather than theoretical road and address the topic of foresight and oversight from my practical experience of life in the fog.

In particular, I'd like to talk about ways in which the fog is getting thicker. This is because the game of corporate research is itself changing even as we play it. (One of the changes, as I hope to make clear, is that we in the labs can no longer afford to regard the rest of the corporation as the opposing team!) Rapid and continuous changes are making it inevitable that we not only learn to live with the fog of reality, but that we learn to thrive on it – and I'll try to suggest some ways we're trying to do that.

From my own experience, however, I don't think oversight and foresight can be discussed without first introducing another “sight” and that is “hindsight.” Corporate research is a ripe field for Monday morning quarterbacks telling the players what they should have seen and done.

We human beings are odd compared with our nearest animal relatives. We've lost most of our hair, we wear clothes, and according to the writer Mark Twain, we are the only animal who blushes, or who needs to. But our oddest characteristic is our language.

Unlike animals, we humans can say what we want, when we want. ‘Alfred burned the cakes’, ‘Amanda plans to breed bandicoots’ and ‘Mermecolions intrigue me’, are all possible utterances, even though Alfred burned the cakes over 1,000 years ago, Amanda's bandicoot-breeding plans are in the future, and mermecolions are mythical creatures, a cross between a lion and an ant with sex organs the wrong way round.

This open-endedness, the ability to talk about anything at any time is uniquely human. In contrast, many animals are limited in the signals they can send. One species of grasshopper selects between six possible chirps, meaning roughly: ‘Life is good’, ‘Get off my patch!’, ‘I'm feeling sexy’, ‘That female's mine!’, ‘How about making love?’ and finally, ‘I did enjoy that!’

Is our language sick? You might think so, judging from complaints: ‘The standard of speech and pronunciation in England has declined so much … that one is almost ashamed to let foreigners hear it’, moaned a writer in a daily newspaper. ‘The language the world is crying out to learn is diseased in its own country’, ranted another. ‘We are plagued with idiots on radio and television who speak English like the dregs of humanity, to the detriment of our children’, lamented yet another.

But why? At a time when English is a major world language, is it really in need of hospital treatment? A wide web of worries, a cobweb of old ideas, ensnares people as they think about language – any language – and this must be swept away.

But clearing the cobwebs is only the first stage. The language web is the overall title of this book. Webs, especially cobwebs, may entangle.

ET, the well-known Extra-Terrestrial, learnt human language fast: ‘His ear-flap opened and he listened intently… His… circuits buzzed, assimilating, synthesizing… Thus inspired, the language centre of his marvellous brain came fully on…’ Yet ET's magical ability is almost matched by that of human children. As the American statesman Benjamin Franklin once said: ‘Teach your child to hold his tongue; he'll learn fast enough to speak.’

Children talk so readily because they instinctively know in advance what languages are like. As in a spider's web, the outline is preprogrammed, and the network is built up in a preordained sequence. The predictable way in which the language web develops is the topic of this chapter, including how adults can help, or sometimes even slow down a child's progress.

Language has a biologically organized schedule (see figure 3.1). Children everywhere follow a similar pattern. In their first few weeks, babies mostly cry. As Ronald Knox once said: ‘A loud noise at one end, and no sense of responsibility at the other.‘

All normal human beings talk. Many find it hard to imagine living without language, so much so that they sometimes fantasize about a world in which animals can speak, as when a character in a children's storybook encountered a chattering toad:

Language, then, is taken for granted. But its nearness and naturalness cause two problems. First, people do not usually spend time observing it. The situation is somewhat like that in a Sherlock Holmes story, in which the fictional detective questioned a visitor about a flight of stairs:

Similarly, language speakers see, but they do not observe. More accurately, they hear, but they do not perceive. Language is all around them, but most are unable to answer even straightforward questions, such as ‘When do children become competent speakers?’ ‘How do language changes happen?’, and so on.

The second problem overlaps with the first. Because everyone talks, many confidently assume that they can therefore pronounce authoritatively on their language.