A cheap input as vehicle of diffusion

Due to the exclusion mechanisms we have been discussing, the appearance of revolutionary new technologies will not automatically guarantee adoption from branch to branch and on a world scale. Diffusion in the early phase demands a simple vehicle of propagation, accessible to millions of individual decision agents and coherent with their decision-making criteria. That vehicle is long-term cost effectiveness. Although many of the products of each technological revolution can be inaccessibly expensive at first (such was the case with computers, for instance), at the core of each of these great waves of innovation there is a key input, which is very cheap, offers to remain cheap and, in conjunction with a constellation of generic innovations, radically transforms -in its favor- the relative cost structure confronting entrepreneurs, managers and engineers[14] .

Behind the spread of railways and the steam engine, in mid-19th Century, there was abundance of cheap coal. Behind the spread of electricity, heavy chemistry and heavy civil engineering at the turn of the century, we find the Bessemer and Siemens Martin processes that made steel as cheap as iron. Behind the spread of asphalt roads and automobiles, electricity in every home and plastics and synthetics for every purpose, we find cheap petroleum and technologies that made energy and petrochemical products less and less expensive. Behind the present information and telecommunications revolution, we find ever cheaper and more powerful electronic "chips"[15] .

In each case, the key input -or "key factor," as we have termed it[16] - represents the new generic technologies in economic terms and steers engineering and investment decisions towards its intensive use.
        

Diffusion is self-reinforced

So, we are suggesting that there are two main reasons why a set of truly new technologies is able to spread in a world still amply dominated by the old: First, the exclusion mechanisms have been weakened by the signs of exhaustion of the prevailing technologies and, second, there are obvious changes in the relative cost structure, which are seen to be permanent and act in favor of the new technologies. So, investment in search of better profits sees a good direction in which to plunge.

The process of switching over becomes self-reinforcing through several feedback loops. The greater the diffusion of its applications, the greater the demand for the "key factor" which leads to economies of scale and lower costs, which widens the range of applications. The more the new technology spreads, the more profitable it is to set up as a supplier to it or as a distributor, which further facilitates propagation. The more investment tends to incorporate the new technologies and equipment, the more the product mix of equipment producers moves to respond to this new dynamic demand and the more difficult it becomes to find the old type of equipment in the market. (This occurs even in consumption, suffice it to imagine the difficulties experienced by someone in the 1990's insisting on buying or finding maintenance services for a traditional mechanical -or even electrical- typewriter). The more consumers learn about using the products associated with the new technologies, the easier it is for them to accept the next product or the next generation of the previous. The more the process of innovation leads to extraordinary profits and growth in new industries and firms, the more likely are the waves of imitation, and so on and so forth.
        

A new paradigm as a quantum jump in potential productivity for all

Yet, the process overflows beyond the propagation of the key factor and the growth of the industries related to it. Each technological revolution generates also a wave of organizational innovation, which, in synergy with the new generic technologies of widespread applicability, offers a quantum jump in productivity for all industries, however old and established [17] .

The principles of mass production, which achieved the continuous flow of the chemical industry for the assembly of identical products, were first fully developed for the automobile, but they then diffused across all sectors. Ford's dictum in the 1920's: "You can have any color, as long as it is black" could still have been applied to mass charter tourism in the 1960's and 70's. Sloan and Du Pont's organizational innovations for the corporate structure, with its many layers, functional departments and divisions were originally made for their own firms, but they became the model for effectiveness and efficiency in all industries until very recently. Today, the adaptability of the Japanese managerial network has been found to be one of the most appropriate forms of organization to take advantage of the flexibility of information technology. So, it is diffusing in more and more sectors and being adopted and creatively adapted to different conditions locally and globally.

So each technological revolution brings at the same time a set of new industries, with a low cost input at the core, and a set of generic all-pervasive technologies and organizational principles capable of renewing all the other productive activities.
           

A techno-economic paradigm as an overarching logic for the technology systems of a period

This set of interrelated technical and organizational innovations, gradually comes together as a best-practice model or -as we have called it, a "techno-economic paradigm" [18] - capable of guiding the diffusion of each specific technological revolution. As it spreads, this new paradigm gradually takes root in collective consciousness, replacing the old ideas and becoming the new "common sense" of engineers, managers and investors for the most efficient and "modern" productive practice across the board.

Although for the direct actors this is often largely an unconscious process in response to changing circumstances, the underlying logic of change can be observed and analyzed and its common general principles can be identified. Doing so -and helping change to occur- has become the business of thousands of consultants in this transition.

What this means is that each technological revolution establishes an overarching paradigm as the techno-economic common sense for a long period of five or six decades. This general logic guides not only the course of incremental innovations during each period but also the search for radical innovations and the evolution of successive and mutually reinforcing new technology systems. It also guides the upgrading and modernization of existing industries to bring them into harmony and synergy with the new dynamic industries.
       

Difficult assimilation: The shaping of a paradigm takes decades

The process we have been describing does not flow easily and it can take decades. The construction and propagation of a paradigm is protracted and difficult, due to the many obstacles encountered in the economic actors themselves and in their environment.

At first there are the pioneers and the early adopters and they can go a long way in impressive growth of production and profits. But they soon encounter the limits to their full development within the environment of the old paradigm.

One of the areas of strong resistance to diffusion is found in the leadership of established firms. It is difficult to believe that the "normal" way of doing things has become old style and ineffective. In the table in Figure 2-A, we give an idea of what it means to change managerial common sense, aspect by aspect, element by element[19] . Those who had vast experience in applying the old principles find themselves forced to learn a new way of thinking and behaving in order to get optimum results.

THE NEW vs. THE TRADITIONAL PARADIGM
A RADICAL AND DIFFICULT SHIFT IN MANAGERIAL COMMON SENSE

Yet, this internal resistance tends to be overcome by the threat to profits and growth from the exhaustion of the old technologies and practices, together with the increasing examples of success with the new paradigm and sometimes by the direct pressure in the market from competitors who have adopted it.

Another set of obstacles comes from the lack of adequate externalities. Each paradigm develops in strong feedback interaction with a particular infrastructural network. The deployment of information technology propels and is propelled by vast telecommunications systems, which must be reliable, low cost, powerful and of high capacity and flexibility. Without that, diffusion is stalled. That same sort of interaction characterized the deployment of automobiles and truck transport which both facilitated and were spurred by the establishment of the networks of roads and fuel distribution services. And a similar feedback loop takes place in relation to specific types of related suppliers and distributors, rules and regulations, trained personnel at various levels, etc.

In other words, those elements that, when in place, are destined to generate a virtuous circle of self-reinforced diffusion are, at first, by their absence, its main obstacles. This is because each technological revolution must make its way in a world fully adapted to the requirements of the previous techno-economic paradigm.

So, as all these changes take place in the economy, many -even most- of the adaptations and readaptations that the social, cultural and institutional environment had effected have suddenly become obsolete and counterproductive. However, this is not visible at first.