Diffusion of Innovations

Diffusion of innovations

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The study of the diffusion of innovation is the study of how, why, and at what rate new ideas and technology spread through cultures. But first, we have to define innovation and difussion.

Innovation is defined as the process of making improvements by introducing something new or the act of introducing something new, which have the following criteria:

 Has not been seen before
 Adopted by the customers
 Changes the basis of competition
 Transform the innovator’s business for the better

However, some innovations are so fundamental that they shake the very foundation of an industry, group or society, fitting Joseph Schumpeter’s definition of innovation as a force for creative destruction. Scholars generally classify innovations into two categories: discontinuous and incremental.

Discontinuous innovations are infrequent and result in dramatic cost or performance improvement. e.g Jet propulsion, incandescent light bulb, etc.

Incremental innovations, in contrast, are innovations at the margins, either small steps forward or new applications. E.g. microchips with more switches etc.

Designed_For_Disruptive_Innovation_IMPA

Figure 1: Discontinuous and Incremental Innovations over Time

Innovation may foster creative destruction, whereby the creation of new products and production methods simultaneously destroys the monopoly position of firms, idea, and views protecting existing products, methods and techniques. Another view suggests that creative destruction is not inevitable or automatic.

In general, innovation improves economic efficiency, but in some cases it can increase monopoly power. It is also defined as the first successful commercial use of a new product or method or the creation of a new form of business or organization. There are two major type of innovation:

Product Innovation and Process Innovation

Product Innovation, which involves new and improved products or services, and enhace allocative efficiency by giving society more preferred mixture of goods and service;

Process Innovation, which involves new and improved production and distribution methods and improves productive efficiency by increasing the productivity of inputs and reducing average total cost

On the other hand, diffusion is defined in business, sociology and economics as the process by which a new idea or new product is accepted by the market. It is the process of spreading of an innovation through imitation and copying. New and existing organization copy or imitate successful innovation of other organization to profit from new opportunities or to protect their profit and market position.

Theories of Innovation Diffusion

Innovation Diffusion Theory is concerned with the manner in which a new technological advances, idea, artifact or technique, or a new use of an old one, migrates from creation to use. According to innovation diffusion theory, technological innovation is communicated through particular channels, over time, among the members of a social system.

Gabriel Tarde (1843-1904) a French sociologist and social psychologist who conceived originally, claimed that sociology was based on small psychological interactions among individuals, the fundamental forces being imitation and innovation.

Among the concepts that Tarde initiated were the “group mind”, taken up and developed by Gustave Le Bon, and sometimes advanced to explain so-called herd behavior or crowd psychology, and economic psychology, where he anticipated a number of modern developments. However, Emile Durkheim’s sociology developed Tarde’s insights, and it wasn’t until US scholars took up his theories, such as the Chicago school, that they became famous.

Moreover, diffusion of innovations theory was formalized by Everett Rogers in a 1962 book called Diffusion of Innovations. Rogers stated that adopters of any new innovation or idea could be categorized as innovators (2.5%), early adopters (13.5%), early majority (34%), late majority (34%) and laggards (16%), based on a bell curve. Each adopter’s willingness and ability to adopt an innovation would depend on their awareness, interest, evaluation, trial, and adoption.

Diffusion is the process by which an innovation is adopted by members of a certain community. There are four factors that influence adoption of an innovation. These include 1) the innovation itself, 2) the communication channels used to spread information about the innovation, 3) time, and 4) the nature of the society to whom it is introduced (Rogers, 1995). The work of Ryan and Gross (1943) in rural sociology is cited as the beginning of diffusion research. They used interviews as their main method of data collection. This has been a trend in diffusion research since. Rogers (1995) explains that there are four major theories that deal with the diffusion of innovations. These are the innovation-decision process theory, the individual innovativeness theory, the rate of adoption theory, and the theory of perceived attributes.

The Innovation-Decision Process Theory

The innovation-decision process theory is based on time and five distinct stages.
Rogers proposed a five stage model for the diffusion of innovation:

1. Knowledge – Potential adopters must first learn about the existence and function of the innovation.

2. Persuasion – Potential adopters must be persuaded and be convinced of the merits and value of the innovation.

3. Decision – Potential adopters must decide to commit to the adoption of the innovation.

4. Implementation – Once they adopt the innovation, adopters must implement it (putting it to use).

5. Confirmation – Adopters must confirm their appropriate decision (ultimate acceptance or rejection) of the innovation.

Once these stages are achieved, then diffusion results (Rogers, 1995).

Individual Innovativeness Theory

The individual innovativeness theory is based on who adopts the innovation and when. A bell-shaped curve is often used to illustrate the percentage of individuals that adopt an innovation.

 The first category of adopters is innovators (2.5%). These are the risk-takers and pioneers who lead the way.

 The second group is known as the early adopters (13.5%). They climb on board the train early and help spread the word about the innovation to others.

 The third and fourth groups are the early majority and late majority. Each constitutes 34% of the potential adopting population. The innovators and early adopters convince the early majority. The late majority waits to make sure that adoption is in their best interests.

 The final group is the laggards (16%). These are the individuals who are highly skeptical and resist adopting until absolutely necessary. In many cases, they never adopt the innovation (Rogers, 1995).

Some of the characteristics of each category of adopter include:

 innovators – venturesome, educated, multiple info sources, greater propensity to take risk

 early adopters – social leaders, popular, educated

 early majority – deliberate, many informal social contacts

 late majority – skeptical, traditional, lower socio-economic status

 laggards – neighbors and friends are main info sources, fear of debt

Rate of Adoption Theory

The theory of rate of adoption suggests that the adoption of innovations is best represented by a s-curve on a graph. The theory holds that adoption of an innovation grows slowly and gradually in the beginning. It will then have a period of rapid growth that will taper off and become stable and eventually decline (Rogers, 1995).

Figure 2. The bell Curve and S-curve and Adoption of Inovation.

The adoption curve becomes a s-curve when cumulative adoption is used.

 Adoption is similar to diffusion except that it deals with the psychological processes an individual goes through, rather than an aggregate market process. In economics it is more often named “technological change“.

The speed of technology adoption is determined by two characteristics of the speed at which adoption takes off, and the speed at which later growth occurs. A cheaper technology might have a faster adoption rate for example, taking off more quickly. While a technology that has network effects (like a fax machine, where the value of the item increases as others get it) may have a higher adoption growth and expansion rate.

Perceived Attributes Theory

The theory of perceived attributes is based on the notion that individuals will adopt an innovation if they perceive that the innovation has the following attributes. First, the innovation must have some relative advantage over an existing innovation or the status quo. Second, it is important the innovation be compatible with existing values and practices. Third, the innovation cannot be too complex. Fourth, the innovation must have trial-ability. This means the innovation can be tested for a limited time without adoption. Fifth, the innovation must offer observable results (Rogers, 1995).

Rogers theorized that innovations would spread through society in an S curve, as the early adopters select the technology first, followed by the majority, until a technology or innovation is common.

Caveats and Criticism

Critics of this model have suggested that it is an overly simplified representation of a complex reality.

A number of other phenomena can influence innovation adoption rates, such as:

Customers often adapt technology to their own needs, so the innovation may actually change in nature from the early adopters to the majority of users.

Disruptive technologies may radically change the diffusion patterns for established technology by starting a different competing S-curve.

Lastly, path dependence may lock certain technologies in place, as in the QWERTY keyboard.

Other Models and Theories

There are several theories that purport to explain the mechanics of diffusion:

 The two-step hypothesis – information and acceptance flows, via the media, first to opinion leaders, then to the general population.

The trickle-down effect – products tend to be expensive at first, and therefore only accessible to the wealthy social strata – in time they become less expensive and are diffused to lower and lower strata.

 Crossing the Chasm model developed by Geoffrey Moore – This is basically a modification of Everett Rogers’ theory applied to technology markets and with a chasm added. According to Moore, the marketer should focus on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries (early adopters) and pragmatists (early majority). This is the chasm that he refers to. If a successful firm can create a bandwagon effect in which the momentum builds, then the product becomes a de facto standard.

 Technology driven models – These are particularly relevant to software diffusion. The rate of acceptance of technology is determined by factors such as ease of use and usefulness.

The Bass diffusion model was developed by Frank Bass and describes the process how new products get adopted as an interaction between users and potential users. The model is widely used in forecasting, especially product forecasting and technology forecasting. Mathematically, the basic Bass diffusion is a Riccati equation with constant coefficients. Frank Bass published his paper “A new product growth for model consumer durables” in 1969. Prior to this, Everett Rogers published Diffusion of Innovations, a highly influential work that described the different stages of product adoption. Bass contributed some mathematical ideas to the concept. This model has been widely influential in marketing and management science. In 2004 it was selected as one of the ten most frequently cited papers in the 50-year history of Management Science. It was ranked number five, and the only marketing paper in the list. It was subsequently reprinted in the December 2004 issue of Management Science.

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