The Technology Life Cycle

The Technology Life Cycle

The Technology Life Cycle (TLC) is an important tool The diagram below illustrates the typical life-cycle of a manufacturing process or production system from the stages of its initial conception to its culmination as either a technique or procedure of common practice or to its demise. The Y-axis of the diagram shows the business gain to the proprietor of the technology while the X-axis traces its lifetime. Some technologies, such as steel, paper or cement manufacturing, have a long lifespan (with minor variations in technology incorporated with time) whilst in other cases, such as electronic or digital devices/processes, or in pharmaceutical technologies, the lifespan may be quite short.

It is to be noted that the TLC associated with a product or technological service is different from Product Life Cycle (PLC) dealt with in Product Life Cycle Management. The latter is concerned with the life of a product in the market-place in respect of timing of introduction, marketing measures and business costs. The "technology" underlying the product (which,say, for instance is a uniquely 'flavored tea') may be quite marginal but the process of creating and managing its life as a branded product will be very different.

The technology life cycle is concerned with the time and cost of developing the technology, the timeline of recovering cost and modes of making the technology yield a profit proportionate to the costs and risks involved. The TLC may, further, be protected during its cycle with patents and trademark seeking to lengthen the cycle and to maximize the profit from it.

The 'product' of the technology may just be a commodity such as the polyethylene plastic or a sophisticated product like the ICs used in a smartphone.

It is important to note that the development of a "competitive product" or process can have a major effect on the lifespan of the technology, making it shorter. Equally, the loss of patent rights through litigation, or loss of its secret elements (if any) through leakages also work to reduce its lifespan. Thus, it is apparent that the 'management' of the TLC is an important aspect of technology development.

The Four Phases of the Technology Life Cycle

Referring to the diagram above, the TLC may be seen as comprised of four phases:

::(a) the research and development (R&D) phase (sometimes called the "bleeding edge") when incomes from inputs are negative and where the prospects of failure are high ::(b) the ascent phase when out-of-pocket costs have been recovered and the technology begins to gather strength by going beyond some Point A on the TLC (sometimes called the "leading edge") ::(c) the maturity phase when gain is high and stable, the region , going into saturation, marked by M, and ::(d) the decline (or decay phase), after a Point D, of reducing fortunes and utility of the technology.

Licensing Options

In current world trends, with TLCs shortening due to competition and rapid innovation, a technology becomes technically licensable at all points of the TLC, whereas earlier, it was licensed only when it was past its maturity stage.

Large corporations develop technology for their own benefit and not with the objective of licensing. The tendency to license out technology only appears when there is a threat to the life of the TLC (business gain) as discussed later.

Licensing in the R&D phase

There are always smaller firms (SMEs) who are inadequately situated to finance the development of innovative R&D in the post-research and early technology phases. By sharing incipient technology under certain conditions, substantial risk financing can come from third parties. This is a form of quasi-licensing which takes different formats.

Even large corporates may not wish to bear all costs of development in areas of significant and high risk (e.g aircraft development) and may seek means of spreading it to the stage that proof-of-concept is obtained.

In the case of small and medium firms, entities such as venture capitalists ('angels'), can enter the scene and help to materialize technologies. Venture capitalists accept both the costs and uncertainties of R&D, and that of market acceptance, in reward for high returns when the technology proves itself. Apart from finance, they may provide networking, management and marketing support. Venture capital connotes financial as well as human capital.

Large firms may opt for Joint R&D or work in a consortium for the early phase of development. Such vehicles are called strategic alliances - strategic partnerships. With both venture capital funding and strategic (research) alliances, when business gains begin to neutralize development costs (the TLC crosses the X-axis), the ownership of the technology starts to undergo change.

In the case of smaller firms, venture capitalists help clients enter the stockmarket for obtaining substantially larger funds for development, maturation of technology, product promotion and to meet marketing costs. A major route is through Initial Public Offering (IPO) which invite risk funding by the public for potential high gain. At the same time, the IPOs enable venture capitalists to attempt to recover expenditures already incurred by them through part sale of the stock pre-alloted to them (subsequent to the listing of the stock on the stock exchange). When the IPO is fully subscribed, the assisted enterprise becomes a corporation and can more easily obtain bank loans, etc if needed.

Strategic alliance partners, allied on research, pursue separate paths of development with the incipient technology of common origin but pool their accomplishments through instruments such as 'cross-licensing'. Generally, contractual provisions among the members of the consortium allow a member to exercise the option of independent pusuit after joint consultation; in which case the optee owns all subsequent development.

Licensing in the Ascent Phase

The ascent stage of the technology usually refers to some point above Point A in the TLC diagram but actually it commences when the R&D portion of the TLC curve inflects (only that the cashflow is negative and unremunerative to Point A). The ascent is the strongest phase of the TLC because it is here that the technology is superior to alternatives and can command premium profit or gain. The slope and duration of the ascent depends on competing technologies entering the domain, although they may not be "as successful" in that period. Strongly patented technology extends the duration period.

The TLC begins to flatten out (the region shown as M) when equivalent or challenging technologies come into the competitive space and begin to eat away marketshare.

Till this stage is reached, the technology-owning firm would tend to exclusively enjoy its profitability, preferring "not" to license it. If an overseas opportunity does present itself, the firm would prefer to set up a controlled subsidiary rather than license a third party.

Licensing in the Maturity Phase

The maturity phase of the technology is a period of stable and remunerative income but its competitive viability can persist over the larger timeframe marked by its 'vital life'. However, there may be a tendency to license out the technology to a third-parties during this stage to lower risk of decline in profitability (or competitivity) and to expand financial opportunity.

The exercise of this option is, generally, inferior to seeking participatory exploitation; in other words, engagement in joint-venture, typically in regions where the technology would be in the "ascent phase",as say, a developing country. In addition to providing financial opportunity it allows the technology-owner a degree of control over its use. Gain flows from the two streams of investment-based and royalty incomes. Further, the vital life of the technology is enhanced in such strategy.

Licensing in the Decline Phase

After reaching a point such as D in the above diagram, the earnings from the technology begin to decline rather rapidly. To prolong the life cycle, owners of technology might try to license it out at some point L when it can still be attractive to firms in other markets. This, then, traces the lengthening path, LL'. Further, since the decline is the result of competing rising technologies in this space, licensees may be attracted to the general lower cost of the older technology (than what prevailed during its vital life).

Licenses obtained in this phase are 'straight licenses'. They are free of direct control from the owner of the technology (as would otherwise apply,say, in the case of a joint-venture). Further, there may be fewer restrictions placed on the licensee in the employment of the technology.

The utility, viability, and thus the cost of straight-licenses depends on the estimated 'balance life' of the technology. For instance, should the key patent on the technology have expired, or would expire in a short while, the residual viability of the technology may be limited, although balance life may be governed by other criteria viz. knowhow which could have a longer life if properly protected.

"It is important to note that the licensee has no way of knowing the stage at which the prime, and competing technologies, are on their TLCs". It would, of course, be evident to competing licensor firms, and to the originator, from the growth, saturation or decline of the profitability of their operations.

The licensee may, however, be able to approximate the stage by vigorously negotiating with the licensor and competitors to determine costs and licensing terms. A lower cost, or easier terms, "may" imply a declining technology.

In any case, access to technology in the decline phase is a large risk that the licensee accepts. (In a joint-venture this risk is substantially reduced by licensor sharing it). Sometimes, financial guarantees from the licensor may work to reduce such risk and can be negotiated.

There are instances when, even though the technology declines to becoming a technique, it may still contain important knowledge or experience which the licensee firm cannot learn of without help from the originator. This is often the form that "technical service" and "technical assistance" contracts take (encountered often in developing country contracts). Alternatively, consulting agencies may fill this role.

References

Manual on Technology Transfer Negotiation, United Nations Industrial Development Organization (A Reference for Policy-Makers and Practitioners on Technology Transfer] . UNIDO, Vienna 1996, UNIDO Publication, ISBN 92-1-106302-7


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