Entrepreneurs and technology diffusion How ... - Semantic Scholar

Technology in Society 22 (2000) 445–465 www.elsevier.com/locate/techsoc

Entrepreneurs and technology diffusion How diffusion research can benefit from a greater understanding of entrepreneurship Damian Miller *, Elizabeth Garnsey Judge Institute of Management Studies, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, UK

Abstract This study builds on the work of Schumpeter and others who have recognised the role of entrepreneurs in the formation of entirely new industries around technological innovation. With this in mind, it critically reviews diffusion research, finding this work to be lacking in its treatment of entrepreneurship and its ability to integrate the wide range of factors that affect the diffusion process. In an effort to address these theoretical gaps, this study draws on management literature on the growth of the entrepreneurial firm, which puts entrepreneurs at the centre of analysis, and serves to integrate many of the traditional concerns of diffusion research. The authors hope that the proposed analytical framework will be applied to future case studies of technology diffusion in order that we might continue to better understand and explain the rate of technological advance in society.  2000 Elsevier Science Ltd. All rights reserved. Keywords: Entrepreneurs; Innovation; Technology diffusion; Growth of the firm

1. Introduction What affects the speed with which a technology spreads throughout a society? This is a question which should concern us greatly today. It is a question which matters as much to the policy maker seeking to introduce a socially beneficial technology, as it does to the investor or businessman hoping to cash in on the latest technological innovation. * Corresponding author. E-mail addresses: [email protected] (D. Miller), [email protected] (E. Garnsey). 0160-791X/00/$ - see front matter  2000 Elsevier Science Ltd. All rights reserved. PII: S 0 1 6 0 - 7 9 1 X ( 0 0 ) 0 0 0 2 1 - X

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D. Miller, E. Garnsey / Technology in Society 22 (2000) 445–465

However, literature which addresses the diffusion of technological innovations — diffusion research — has largely failed to integrate the wide range of factors that can affect a technology’s progress. More often than not, the analyst must delve into several different disciplines to pull together an explanation of why a technology has, or has not, diffused rapidly. Moreover, the central theme of this study is that diffusion research fundamentally fails to take sufficient account of what Schumpeter identified as “the agency of entrepreneurs” [1]. A prominent feature of capitalist economies is that entrepreneurs have played, and continue to play, a catalytic role in bringing technological innovations to market. Consider for instance, Edison and incandescent lighting, Ford and the automobile, Remington and the typewriter, Wozniak & Jobs and the personal computer, etc. Yet, despite this well recognised role, diffusion research does not satisfactorily explain what enables or limits entrepreneurs in propagating technological innovations. In an effort to provide a more integrated approach that gives due account to the influence of entrepreneurs, this study turns to management literature on the growth of the entrepreneurial firm. Logically, such literature is related to technology diffusion, since by establishing a firm around a technological innovation, an entrepreneur is essentially creating a vehicle for its diffusion, and potentially laying the groundwork for the growth of an entire industry. To build our case, we start by considering the work of Schumpeter and others, who have written extensively on the role of entrepreneurs in bringing technological innovations to market. Their findings are subsequently contrasted with diffusion research, where a review of the dominant perspectives reveals the absence of an integrated approach, and a failure to explain how entrepreneurs can influence the diffusion process. In an effort to address these gaps, we turn to literature on the growth of the entrepreneurial firm which not only integrates many of the traditional concerns of diffusion research, but provides us with a better understanding of how and why some entrepreneurs are successful in catalyzing a process of technology diffusion. Based on the above literature and the analytical framework it provides, we conclude with a list of essential questions that any analyst should ask when seeking to explain the diffusion of technological innovation.

2. The agency of entrepreneurs 2.1. Why concentrate on entrepreneurs? It is commonly accepted that though it is “but one agent for the diffusion of technology”, the commercial enterprise has historically served as an “important one” [2, p. 166]. While larger corporations have the R&D facilities and resources to introduce and more widely diffuse innovative technologies [3], these corporations might also find their existing markets destabilised by the more radical technologies; leaving them without an interest in introducing them [4,5]. For example, neither General Electric nor Westinghouse sought to push new energy efficient light bulbs into the


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market place “for fear of alienating power utilities that purchased their lamps, generators, and other electrical equipment” [4, p. 73]. Moreover, the capability of the larger established corporations to introduce and diffuse the more radical technological innovation has been questioned. Porter has concluded “it is hard for firms steeped in an old technological paradigm to perceive the significance of a new one. It is even harder for them to respond to it”, noting for example, the failure of the established US vacuum tube competitors to enter the semi-conductor market [6, p. 46]. Similarly, every wave in the innovation and diffusion of lighting technologies from gas lighting, to incandescent, to fluorescent lighting was “originated and carried forward by industry outsiders” [4, p. 74]. Outsiders may be established firms from another sector, but often they are entrepreneurs building a new firm around technological innovation. 2.2. Entrepreneurs as agents of change In evolutionary economics “…firms are the key actors”, while “…individuals are viewed as interchangeable and their actions determined by the firms they are in” (Nelson, 1995, p. 68). However, new firms are innovative largely because they are propelled by singular individuals [7]. One of the few economists to have recognised the profound impact of enterprising individuals was Schumpeter, who wrote passionately about the agency of entrepreneurs. For an adequate definition of what is meant by agency we can look to sociologists, who describe an agent as an individual with “transformative capacity” [8, p. 15], such that “whatever happened would not have happened had that individual not intervened” [8, p. 9]. In this way, agency does not refer so much to intentions, as to capabilities: action depends upon the capability of the individual to “make a difference to a pre-existing state of affairs” or course of events. An agent ceases to be such if he or she loses the capability to “make a difference”, that is, to exercise some sort of power [8, p. 14] For Schumpeter, to be an entrepreneur was to be an agent of change: “…the entrepreneur and his function are not difficult to conceptualise: the defining characteristic is simply the doing of new things or the doing of things that are already being done in a new way (innovation)” [1, p. 223]. Yet, the entrepreneur was not to be confused with the inventor, for while “the inventor produces ideas, the entrepreneur gets things done…” [1, p. 224]. In line with Schumpeter, other prominent analysts have defined entrepreneurs as individuals that create “a new market” with a “new customer” [9, p. 19]. The implication of this more rigid definition is that to be in charge of a new, small business does not make one an entrepreneur. Rather, entrepreneurs are individuals that “create something new, something different: they change and transmute values.” [9, p. 20] Insofar as mainstream economics has attended to entrepreneurs, it has been to assign them the role of risk bearer, e.g. in Knight’s classic analysis [10]. However

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empirical studies have not found a propensity to pursue risk among all entrepreneurs [9]. Hewlett and Packard, for example, were overtly risk averse [11]. Many entrepreneurs actively seek to reduce risk by obtaining resources in ingenious ways or forming unusual alliances. Even for Schumpeter, who stressed the dangers that entrepreneurs encounter, it was not the pursuit of risk as such, but rather the capacity to bring about change that was the key attribute of entrepreneurs [1, p. 224]. 2.3. Entrepreneurs and technology diffusion Initially, entrepreneurs will often struggle to find a commercial market for their technological innovation. However, if they are successful, they set a precedent which others can choose to follow: …as soon as the success is before everybody’s eyes, everything is made much easier by this very fact. It can now, with much diminished difficulty, be copied, even improved upon, and a whole crowd invariably does copy it… [12, p. 385] In this way, entrepreneurs’ early efforts in the market place can set off a series of competitive pressures, leading to greater allocation of resources to improved design, marketing, and aggressive pricing, all of which have been found to encourage more rapid diffusion [13, p. 4]. For example, the successful introduction of the type-writer by Remington encouraged the entrance of competitors with better designs, such as visible typing, lower cost products, and increased sales and promotion activities. The cumulative impact of Remington’s early commercial initiative was that the typewriter eventually became “a ubiquitous fixture of the workplace” [4, p. 8]. The role of entrepreneurs in bringing technological innovations to market and stimulating the growth of entirely new industries around these innovations, suggests that explanations of technology diffusion must in turn seek to fully explain why some entrepreneurs have this impact. Yet, as we shall see, diffusion research generally fails to provide this level of analysis.

3. A critical review of diffusion research Diffusion research is an excellent source of information as to the factors that can limit or expedite the diffusion of a technology. In an effort to categorise the wealth of such research, this study refers to a typology of perspectives developed by Brown [14], which has received broad-based support [15–18,73], and has been applied, for instance, by Warkov and Meyer [19]. For easy reference, a tabular summary of these perspectives is included in Table 1. 3.1. The communication perspective Those who subscribe to a communication perspective are primarily concerned with the psycho-sociological processes that affect the adopter’s decision making when


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Table 1 A summary of perspectives on technology diffusion Perspective

Discipline

Basic assumption

Unit of analysis Factor of significance

Process

Communication Rural sociology, Majority of perspective communication individuals are studies, risk averse geography, marketing

The adopter

Adopters’ uncertainty and perceived risks/benefits of adoption

Uncertainty reduction; particularly through referencing

Economic history perspective

Economic history, public policy

Individuals are rational economic agents

The new and old technology

Declining costs Technological and improved problem-solving performance of the new versus old technology

Development perspective

Economics, development studies, agricultural economics

Unequal distribution of resources in society

The adopter

Adopters’ relative purchasing power

Access to resources, particularly money and credit

Market infrastructure perspective

Geography

Opportunity to adopt is unequal

The diffusion agency

Availability of the new technology

Diffusion agency establishment and actions

confronted with an innovation1. This perspective is most closely associated with Rogers [20–22], whose work provides the basis for the vast majority of diffusion studies [23]. The communication perspective rests its analysis on a two-fold assumption. First, that the novelty of an innovation will generate a sense of uncertainty in the potential adopter. Second, that save for a select group of innovators, potential adopters are generally risk averse. As such, the rate of diffusion is to be explained by communication that serves to reduce the average adopter’s perception of risk and accentuate the perceived benefits of an innovation. In this way Rogers concludes, “diffusion is fundamentally a social process” [22, p. 34]. In particular the referencing of more innovative members of society by their more cautious peers, has been found to be the most effective form of communication in the diffusion process. In seeking to explain the rate of hybrid corn diffusion in the United States, Ryan and Gross [24, p. 22] — the forefathers of diffusion research — concluded, 1

Brown [14] actually calls this perspective the adoption perspective. But since all four perspectives are fundamentally concerned with adoption, which after all is the precursor to diffusion, this study prefers to use the term communication perspective; as used by Rahm [66].

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there is no doubt but that the behavior of one individual in an interacting population affects the behavior of his fellows. Thus, the demonstrated success of hybrid seed on a few farms offers a changed situation to those who have not been so experimental. The very fact of acceptance by one or more farmers offers new stimulus to the remaining ones. [24, p. 22] These findings on the importance of communication among peer groups would ultimately provide the foundations for the communication perspective, and would be widely applied and refined by other disciplines such as Marketing [25] and Geography [26]2. They have also been applied more recently by management analysts interested in the growth of the high-technology firm [27, pp. 26–36]. However, over time, the communication perspective has evolved. In reaction to earlier research which had a tendency to blame the individual adopter for non-adoption, Rogers has cautioned that diffusion analysts must be careful to include “system level explanations” [21]; for example social norms of behaviour. Furthermore, analysts must take into account the reaction of key opinion leaders, to whom individual adopters look for guidance [22,28,29]. Finally, attributes of an innovation itself can also affect its progress [30]). For example, the “trialability” of hybrid corn was said to have promoted its diffusion [24], while “the perceived complexity” of computers was found to have been “a negative force in their rate of adoption in the early 1980s” [22, p. 243]. Furthermore, Rogers [22] goes on to incorporate economic variables in explanations of diffusion, noting that for “high cost” or “highly profitable innovations” the “economic aspects of relative advantage may be the most important single predictor for the rate of adoption”. Referring to the example of the VCR, which fell from 1200 USD to 300 USD in the space of a few years, Rogers concludes that “when the price of a new product decreases during its diffusion, a rapid rate of adoption is encouraged” [22, p. 213]. However, such findings are qualified by earlier assertions that …what really determines the rate of adoption of an innovation is the adopter’s perception of profitability and not objective profitability. There is a vast tradition of social psychology research which indicates the importance of group interaction in determining the selectivity of perception, including perceptions of profitability. [31, p. 414]

2 Bass [25], writing on marketing, sought to explain the diffusion of consumer durables by aggregating adopter categories into two groups — innovators and imitators — wherein imitators are “influenced in the timing of their initial purchase by the number of people who have already bought the product”. In this way, “the probability that an initial purchase will be made simply becomes a linear function of the number of previous buyers.” [25, p. 216]. In the Geography discipline, Hagerstrand [26] also makes the assumption that communication underpins diffusion, but seeks to explain the rate of diffusion by the spatial distances separating adopters and the terrestrial barriers that impede, divert, and channel information about an innovation.


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Moreover, Rogers later writes that “to expect that economic factors are the sole predictors of the rate of adoption is unlikely”, since studies have shown non-economic factors to be equally relevant [22, p. 213]. Yet, in concentrating on consumer–adopters’ perceptions of risk and reward, the communication perspective tends to be overly demand-side oriented, failing to take sufficient account of the importance of supply-side processes and actors. On the supply-side, Rogers has recognised the importance of the “change agent”, defined as “a professional who influences innovation decisions in a direction deemed desirable by a change agency” — e.g. an agricultural extension agent or salesperson — and he concludes that “most change is not a haphazard phenomenon, but the results of the planned premeditated actions by change agents” [22, p. 227]. Nonetheless, the communication perspective fails to consider the full range of economic, financial, managerial, and political processes behind the change agent that can influence the course of an innovation. For this level of analysis, it is necessary to look at the organisation of which the salesperson or extension agent is a part. As an anthropologist points out, “major barriers to change…lie in the structure and dynamics of innovating organizations”, but “unfortunately, methodologically and conceptually [this organization] has largely been taken for granted”. Needless to say, this is viewed as “a major shortcoming” of existing research [32, p. 177]. 3.2. The economic history perspective Some of the most powerful analyses of technology diffusion have been provided by economic historians. These authors pay useful attention to the role of supply-side actors in diffusion [33], and in particular, how such actors reduce the costs of an innovation and improve its usefulness to the end-user. Ryan and Gross’ [24] findings were challenged by Griliches [34, p. 516], who proposed that the diffusion of hybrid corn could instead be explained by “…differences in the profitability of the change over from open pollinated to hybrid seed”. This hypothesis was itself based on the findings of agricultural extension agencies that “the greater the efficiency of the new technology in producing returns…the greater its rate of acceptance” [35, p. 6]. Griliches’ findings had considerable implications for the communication perspective, since it was now said to be “possible to account for a large share of the spatial and chronological differences in the use of hybrid corn with the help of ‘economic’ variables”3. Indeed, he went on to conclude that “sociological variables…tend to cancel themselves out, leaving the economic variables as the major determinant of the patterns of technological change” [34, p. 522]4. Mansfield [36] subsequently lent further support to Griliches’ economic explanations of diffusion, leading economic 3

Twenty years later, the same study was conducted using more complete data, and the conclusions were “supportive of Griliches’ findings of a close association between the variability in the rates of diffusion across states on the one hand, and yield per acre and acres per farm on the other.” [67, p. 1460] 4 This conclusion set off a flurry of correspondence between the two camps resulting in a concession by Griliches that sociological variables still mattered [31,68].

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historians to later conclude that “Griliches and Mansfield have clearly demonstrated the power and scope of purely economic explanations in diffusion of individual inventions” [33, p. 6]5. Having assumed that adopters are rational economic agents, the economic historian is free to explain diffusion by improvements to the technological innovation in question: a better understanding of the timing of diffusion is possible by probing more deeply at the technological level itself, where it may be possible to identify factors accounting for both the general slowness as well as the wide variations in the rate of diffusion (italics added, [33, p. 6]). When a new technology is invented, it is often found to be crude and inefficient, offering few advantages over existing technologies. But, through a “continuum of inventive activity” the newer technology is found to become increasingly competitive, with consequent impacts on its diffusion: if it is true that inventions in their early forms are often highly imperfect and constitute only slight improvements over earlier techniques, it also follows that the pace at which subsequent improvements are made will be a major determinant of the rate of diffusion. [33, p. 12] In this way, diffusion of a technological innovation is directly linked to the “persistent, sweaty, sometimes grim, comparatively monotonous experience” that “is often called development” of the innovation [37, p. 425]. Or as another author concludes, “the diffusion of technology is inextricably interwoven with its development” [38, p. 4]. Historic examples include Diesel’s engine which required more than 20 years of development to find an “economic role”, and only then began to take over “…surprisingly fast: ships in the 1920s, trucks in the 1930s, and locomotives in the 1950s” [39, p. 446]. Similarly, improvements to the incandescent bulb by Edison’s team of engineers are considered central to the diffusion of grid electrification [37]. Finally, Rosenberg explains the diffusion of the steam engine by Watt’s improvements to the Newcomen engine which opened “…the way to continuing advances in efficiencies that eventually brought the steam-engine within the reach of all branches of the economy and made of it a universal prime mover” [33, p. 6]. When addressing the impact of entrepreneurs on diffusion, economic historians tend to concentrate on the entrepreneur’s “problem solving” abilities [33], by which they mean technical problem solving. But, by limiting its analysis to entrepreneurs’ successes in product development, the economic history perspective ignores the myriad of other non-technical problems that entrepreneurs must solve in finding a com-

5 However, later work by Mansfield [36] is interpreted as including sociological variables such as adopter uncertainty, and the rate at which that uncertainty is reduced [69].


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mercial market for their innovations — problems related to marketing, distribution, pricing, regulations, finances, politics, or otherwise. Indeed, Hughes’ [37] analysis of the diffusion of grid electricity in the United States shows that it is not sufficient to explain diffusion by the technical achievements of the “inventor–entrepreneur”, and that diffusion analysts must also consider the impact of the “manager entrepreneur” and “finance entrepreneur”. Similarly, marketing analysts have found that explanations of diffusion must account for “management capacity decisions related to product availability” (italics added [40, p. 90]). Thus, in short, the economic history perspective could benefit from a broader consideration of the problems entrepreneurs must solve in bringing innovations to market. 3.3. The development perspective The development perspective starts from the assumption that potential adopters in a society have unequal access to the resources for adoption [14]. Of central importance amongst such resources are money, and, or credit [41]. Illustrative of this perspective is the question of one development analyst, “…where the potential adopter does not have the cash for the innovation which needs financial expenditure, then how can he/she be enabled to acquire the innovation?” [23, p. 363]. The above question refers to diffusion in developing countries, where it is perhaps most applicable given the wider disparities and irregular flows of disposable income. However, the theoretical point is broadly applicable: it instructs that the diffusion analyst take account of the purchasing power of the potential adopter in relation to the innovation. For instance, a capital intensive technology that is targeted at businesses may have a greater chance of diffusing rapidly given these organisations’ ready access to cash or credit. Because of its concern with affordability, the “divisibility” of a technology is important to the development perspective [42]. By divisibility is meant the extent to which an innovation can be divided into small functional and affordable units. In so far as access to credit makes an indivisible technology more divisible, it is found to play a key role in the diffusion of technologies: “the most important factor which facilitates access of poor people to new technology is the availability of credit…” [41, p. 31]. We might for instance consider how rapidly the automobile would have diffused throughout industrialised countries without the financial infrastructure of 0% finance and leasing mechanisms that developed around it. The development perspective has made a valuable contribution to diffusion research. In relation to the communication perspective, it instructs that instead of grouping adopters as “innovators” and “laggards”, adopters should be grouped as high and low access with respect to resources [43]. Rogers [22] has responded by recognising that the “innovativeness” of an adopter can be tied to his/her purchasing power. However, the communication perspective still does not go far enough in examining how broad macro-economic factors, such as the cost of capital, and more micro-level factors, such as adopter’s access to credit, can influence the diffusion process. Furthermore, in relation to the economic history perspective, the development per-

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spective instructs that even the most cost-competitive and effective technological innovation can diffuse slowly where the target customers do not have sufficient capital or credit to pay for it. For instance, Havens and Flin [44] found that although the adoption of green revolution technologies was potentially profitable, diffusion was restricted in certain developing countries by farmers’ limited access to credit. The corollary of this finding is that the up-front cost of similar agricultural innovations has not tended to pose the same limitations for American farmers, who are often “a relatively prosperous and commercially oriented sample” [30, p. 248]. However, the development perspective has tended to suffer from an overly structural, static analysis in which entrepreneurs, and businesses broadly, are uninterested in reacting to the purchasing power limitations of certain segments of society. This perspective ignores the fact that entrepreneurs can respond quickly to make their technological innovations more affordable, whether through radically revised design, enhanced economies of scale, providing company credit, or developing alliances with banks and other finance companies. A classic example is the forty dollar wind-up radio, now sold widely throughout rural Africa and the world [45]. As such, the development perspective needs to account for how entrepreneurs react to make seemingly unaffordable innovations more affordable to even those with limited purchasing power. 3.4. The market infrastructure perspective The market infrastructure perspective is most closely associated with the geography discipline and Brown [14] in particular. This perspective builds on the finding that diffusion can be constrained by the availability of a product, and as such “focus is upon the process by which innovations and the conditions for adoption are made available to individuals or households, that is, the supply aspect of diffusion.” [14, p. 7]. The need to pay greater attention to the availability of an innovation was recognised by Grilliches [34, p. 507][34], who noted that “it does not make sense to blame the Southern farmers for being slow in acceptance, unless one takes into account the fact that no satisfactory hybrids were available to them before the middle nineteen forties.” Those from a marketing background have also recognised that “an empirically observed diffusion pattern may however be governed by bottlenecks on the supply side (production capacity, distribution, etc.) so that the natural demand process is decelerated or retarded” [46, p. 460]6. The research corollary of identifying availability as a constraint on adoption is to direct attention to institutional rather than individual behaviour [14]. The “diffusion agency” is defined as a “public or private entity through which an innovation is distributed or made available to society at large” [14, p. 50]. Diffusion agencies are

6

Because “limitations in production capacity or difficulties encountered in setting up distribution systems” can create a stream of waiting adopters, authors recommend that the Bass model [70] be refined to include supply-side restrictions [40, p. 83].


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of several types: commercial, such as retail outlets; governmental, such as local agricultural extension offices; and non-profit, such as local family planning units. The significance of these agencies is such that, “unless some government, entrepreneurial, or non-profit organization makes the innovation available at or near the location of the potential adopter…that person or household will not have the option to adopt in the first place.” [14, p. 50]. Examination of diffusion agencies and their activities is particularly relevant to what Brown calls “infrastructure constrained innovations”. Obvious examples include cable television [47], or high yielding varieties of seeds which are dependent on irrigation technology [74]. Less obvious are innovations that “must be serviced regularly”, or “where access to maintenance and repair services is critical”, such as photo-copying equipment. Where an innovation is infrastructure constrained, the implication is that “…diffusion will in general occur only where there is the required infrastructure and not elsewhere” [14, p. 104]. Brown also looks behind the local diffusion agency to the propagator, defined as “…profit or non-profit motivated organizations or government agencies acting to induce the rapid and complete diffusion of the innovation” [14, p. 52]. Diffusion is explained by the propagator’s establishment of diffusion agencies and the strategies adopted to promote diffusion, including pricing, promotional communications, market segmentation, and infrastructure development, etc. Of the relevant propagators, it is found that diffusion “may in large part be explained by entrepreneurial actions rather than social interactions” [14, p. 31], and, ultimately, that “the traditional social science models of diffusion, which focus on adoption behaviour, are found wanting in not considering the role of the entrepreneur in propagating innovations” [14, p. xiv]. 3.5. An agenda for future diffusion research Brown [14] has gone further than most diffusion analysts in recognising the variety of ways in which entrepreneurs, as propagators of technological innovation, can affect the diffusion process. As one commentator writes, Brown’s analysis represents a shift “…away from the adopter of a new technology to the individuals or organizations working hard to push innovation into the marketplace,” and as such it offers “…a way to look at diffusion as a result of entrepreneurial activity, a point of view that is particularly important in assessing the spread of high-technology.” [17, p. 317]7. That being said, the market infrastructure perspective fails to take sufficient account of how the entrepreneurs’ environment can limit or accelerate the diffusion of an innovation:

7 And more generally, Brown is praised for introducing business concepts such as market segmentation, pricing, and target marketing to diffusion research [18,49].

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on the one hand [Brown] expresses the view…that individual behavior does not represent free will so much as choices within a constraint set and that it is government and private institutions which establish and control the constraints. On the other hand, Brown also believes very much in entrepreneurship. Paradoxically the free will of entrepreneurs does not appear to be constrained as much as that of other individuals. (italics added [18, p. 392]) As such, the above author concludes that “we also need to have a conceptualization of the relationship between entrepreneurship and institutional structures” [18, p. 392]. In a similar vein, others have found that “the structural characteristics of the industry offering the innovation affect the speed of diffusion and the total market potential realized” [13, p. 4]. In addition, the above authors find that diffusion research needs to give greater attention to the “resource commitments” of propagating firms [13, p. 2]. Brown recognises that a propagator’s access to capital can affect the rate of diffusion [14, p. 60], but does not develop a specific proposition about the impact of this variable. By contrast, the above authors propose that “the greater the allocation of marketing resources, the more rapid the diffusion process and the higher the diffusion level”, and lament that “diffusion research almost totally ignores these intentions and resource allocations of the firms marketing innovation.” [13, p. 6]. Finally, many have recognised that diffusion research has been historically divided along the lines of academic disciplines, and that future research needs to concentrate on identifying the complementarities between the different perspectives [15,16,48,49,73]8. Brown shares this point of view: “let us then go on with the task of exploring the complementarities between paradigms and working towards including all in a comprehensive model…rather than arguing which is best.” [14, p. 191]. Yet, 10 years later the same point was still being made as to the need to integrate “demand and the supply sides of the diffusion process” [40, p. 90], and today, this call remains largely unanswered. However, management literature on the growth of the entrepreneurial firm would appear to address the agenda for future diffusion research. Such literature puts entrepreneurs at the centre of analysis, and considers how structural features of the industry, as well as the entrepreneurs’ access to capital, can affect sales of an innovation. Furthermore, it helps to integrate many of the concerns raised by different perspectives in diffusion research. After all, a concern with a technology’s perceived risks and benefits, its cost and utility compared to substitutes, its affordability, and its availability are all relevant to the growth of the entrepreneurial firm that champions an innovation.

8 Indeed, Griliches [68] concedes in the end that the communication and economic history perspectives are in fact complementary.


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4. Explaining the growth of the entrepreneurial firm A firm built on an innovative technology serves as an incubator and carrier of that innovation, and the fate of the firm and of its innovation are often linked [50]. If the firm folds, then the innovation can die with it. If the firm continues to grow, then we can expect other firms to enter the market, creating competitive pressures for enhanced marketing, cost and quality improvements, and further development of the infrastructure for widespread availability. 4.1. The growth of the entrepreneurial firm Within literature on the growth of the firm there are two broad strands of thinking [51]. At one end of the spectrum there is the more voluntaristic approach of Penrose [52], known as the resource based theory of the firm. This approach explains the growth of the firm by the unique competence developed in its members over time, and through experience [7]. In contrast, there is the more deterministic approach of Porter, which finds its origins in industrial economics, and explains the growth of the firm by the structural features of the industry in which a firm operates [6]. Yet, Porter, has also later concluded that a “stress on resources must complement, not substitute for stress on market positions” [53]. This suggests that the two approaches are not entirely at variance with each other, and can be reconciled. Like Porter, Garnsey [7] recognises that the structural characteristics of an industry can strongly influence the opportunities for growth of the entrepreneurial firm. Yet, Garnsey also recognises that growth of the firm will depend on the matching of resources to these opportunities — the key function of the entrepreneur. Successful entrepreneurs are those that have the capacity to identify opportunities and mobilise resources in such a way that promotion of the technological innovation leads to a growth in sales, and generates a healthy margin for further expansion of the firm’s operations. If we apply the above work to the process of technology diffusion, we arrive at an alternative analytical framework for explaining this process. Namely, that the capacity of entrepreneurs to successfully match resources and opportunities can strongly influence the rate at which a technological innovation diffuses throughout society. 4.2. Opportunities An analysis of opportunities by management literature encompasses many of the concerns of diffusion research. First and foremost, an entrepreneurial firm will only grow if the product or service addresses a customer need [54,55], and if the founding entrepreneurs can limit the perceived risk of adoption [27, pp. 26–36]. Similarly, in line with the economic history perspective, an entrepreneurial firm will need to market a technological innovation that is competitive with existing substitutes [6], where the competitiveness of the innovation can be influenced by broader technological and regulatory change [6,9]. Furthermore, like the development perspective, it is

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recognised that the purchasing power of a customer segment can strongly limit or enhance the opportunities for growth [9]. Finally, an entrepreneurial firm that can utilise an existing distribution or retail infrastructure, can generally grow more quickly; as was the case with Apple Computers [56]. However, there is a risk in speaking about opportunities as immutable truths. As sociologists have found, “all structural properties of social systems are enabling as well as constraining” [8, p. 177]. This is the same approach taken by Penrose, who offers a more voluntaristic explanation of the growth of the firm: …the set of opportunities for investment and growth that its entrepreneurs and managers perceive, is different for every firm, and depends on its specific collection of human and other resources. Moreover, the environment is not something “out there”, fixed and immutable, but can itself be manipulated by the firm to serve its own purposes. [52, p. xiii] In short, one entrepreneur may be able to find opportunity where others do not [55]; or put another way, “different entrepreneurs in the same circumstances might well achieve different results” [52, p. 39]. This approach starts to move away from a deterministic analysis of opportunities, to an examination of the unique capacities that entrepreneurs bring to their venture. 4.3. Capacities Porter has taken a more eclectic approach than orthodox industrial economists in his later work [51], recognising that “outsiders”, such as entrepreneurs, may be better placed to exploit emergent opportunities since they “…may possess the different expertise and resources required to compete in a new way” [6, p. 49]. This reminds us of Schumpeter, who found that …in most cases only one man or a few men can see the new possibility and are able to cope with the resistances and difficulties which action always meets with outside the ruts of human practice. [1, p. 224]. Schumpeter placed particular emphasis on entrepreneurial vision, energy and tenacity, rather than managerial capacity [57]. Successful innovation, he felt “is a feat not of intellect, but of will” [12, p. 379], ultimately reliant on “supernormal energy and courage” [12, p. 384]9. Yet, in explanations of entrepreneurial performance today, analysts tend to give greater emphasis to effective management. For instance, the relatively high rate of failure for entrepreneurial start-ups is to be explained by the fact that entrepreneurs: 9 This view is reaffirmed in later writing, where Schumpter contends that “entrepreneurial performance involves, on the one hand, the ability to perceive new opportunities that cannot be proved at the moment at which action has to be taken, and, on the other hand, will power adequate to break down the resistance that the social environment offers to change.” [1, p. 229].


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…lack the methodology. They violate elementary and well-known rules. This is particularly true of high-tech entrepreneurs.…But even high-tech entrepreneurship need not be high-risk.…It does need, however, to be systematic. It needs to be managed. [9, p. 26]. Hughes [58] found, for instance, that although the introduction of centralised power generation was reliant on the determination and problem solving capacities of an “inventor–entrepreneur” — Edison — it was up to a “manager entrepreneur” — Samuel Insull — whose “…conceptual syntheses involved social and market needs, financial trends, political (especially regulatory) policies, economic principles, technological innovations, engineering design, and managerial techniques” [58, p. 148] to turn Edison’s urban-based system into a region-wide system that stretched to the suburbs and ultimately, the rural areas. Yet, how do we account for an entrepreneur’s relative capacities? Analysts of entrepreneurial performance find that “know-how may be the most critical in influencing the ultimate success or the failure of an enterprise” [59, p. 170], while others speak of “competence-building” [52]. Such analysts agree that this quality derives from prior experience [7], especially prior involvement in well managed companies [59]. Similarly, it has been found that “repetition”, and thus “an intimate detailed knowledge of the business”, greatly improves new venture performance [60, p. 124]. In this way, an entrepreneur who spins out of an existing company has a distinct advantage over an inexperienced entrepreneur in the same sector [7]. 4.4. Resources Authors have identified six major categories of resources that assist the growth of the firm: financial resources, physical resources, human resources, technological resources, reputation, and organisational resources [61]. This study concentrates on financial resources, since this is the most versatile, enabling the entrepreneur to procure most other kinds of resources [5]. Moreover, financial resources can be considered indispensable to the new venture. Schumpeter emphasised that the commercialisation of an innovation “requires large expenditure previous to the emergence of any revenue” and as such, “credit becomes an essential element of the process” [12, p. 381]. This is particularly relevant in the high-tech sector where marketing start up, and product development is expensive, and can be prohibitive for the small company [3]. Thus in studies of hightech entrepreneurship it is concluded that while “entrepreneurial people provide the initiative, the energy, and the vision to launch a new company…money provides ”the grease“, the wherewithal to make it happen…” [62]. Similarly, other analysts find that, every dynamic process needs to be fuelled. The fuel for the entrepreneurial process is capital. Capital is the catalyst for the entrepreneurial chain reaction. It is the lifeblood of the emerging and expanding enterprises. Capital provides the

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financial resources through which the ideas of the entrepreneur can be developed, tested, and commercialized. [59, p. 167] But in trying to raise the requisite capital, the entrepreneur will often lack “power on the money market”; which is not the case for the larger firm [12, p. 384]. Recognition of this difficulty has led to a host of studies, which consider how the entrepreneur might catch the financier’s eye [63,64,75]. To a certain extent, different entrepreneurs will have different capacities to affect the flow of finances to their venture; some will create more confidence among financiers than others [52]. For example, Edison relied on another individual, a “financeentrepreneur”, with more “knowledge of the world of legal, business, and financial affairs” to raise the requisite capital for his incandescent lighting projects [58]. Yet, though entrepreneurs show more or less capacity for raising funds, successful fundraising will also be influenced by institutional and local arrangements for investment in new ventures [7]. Where investors lack a knowledge of the technological innovation in question, entrepreneurs will struggle to raise the necessary resources (Mason and Rogers, 1996). For example, banks were initially ill-suited to fund early entrepreneurs in Silicon Valley, since they “were unprepared to evaluate the potential of start-up electronic companies that made products that were difficult to understand” [65, p. 22]. Furthermore, where banks only offer debt capital, entrepreneurs will be reliant on business angels and venture capitalists coming forward, such as in the case of bio-technology [57]. Thus it is safe to conclude that the financier can play a key selection role in an economy, making decisions that influence which innovations will diffuse, and which will not.

5. Conclusions That we should take account of entrepreneurs in the technology diffusion process is confirmed by Schumpeter and his followers. However, a review of diffusion research has shown that such literature largely fails to provide an integrated explanation of how and why propagating entrepreneurs are able to influence technology diffusion. By drawing on management literature on the growth of the entrepreneurial firm we have sought to provide the analyst with an alternative analytical framework for explaining and understanding technology diffusion. Namely, that the diffusion of a technological innovation can be strongly influenced by the capacities of the early entrepreneurs to match resources and opportunities. 5.1. Three critical questions In those situations where entrepreneurs are the pioneers of a technological innovation, the above framework suggests that the diffusion analyst ask the following three questions:


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5.1.1. What are the opportunities for the growth of the entrepreneurial firms in question? As we have found, many of the questions asked by diffusion analysts are also the questions asked by management analysts in assessing the ‘opportunities’ presented to entrepreneurs in trying to sell their technological innovation. To what extent do customers view the investment in the innovation as risky or beneficial? Is the innovation competitive on cost and service with conventional alternatives? Can target customers afford the innovation? Is there a supply infrastructure to make the product and after-sales service readily available, or do the entrepreneurs need to build this infrastructure? These typical concerns of diffusion research fit comfortably within an overall consideration of the entrepreneurs’ opportunities. To consider them as such has two benefits. First, it recognises that the dominant perspectives in diffusion research are in fact complementary, and each has a role to play in explaining an innovation’s uptake in the market place. Secondly, it reminds us that the factors advancing or hindering the diffusion of a technological innovation should not be considered fixed or immutable, but as with opportunities, should be assessed in relation to the propagating entrepreneurs’ unique capacities and access to resources. 5.1.2. What are the capacities of the founding entrepreneurs? Under the general heading of ‘capacities’, it is necessary to consider how the prior experiences of the propagating entrepreneurs have enabled them to successfully or unsuccessfully manage their realm of opportunities, as well as whether learning is taking place as problems are solved. This is where management literature can significantly add to the concerns of diffusion research, as it provides a greater explanation of why some entrepreneurs are better able than others to perceive and convert latent opportunities for a technological innovation into actual sales, profits, and the growth of an entirely new industry. 5.1.3. Do the founding entrepreneurs have sufficient resources? Given the capital intensive nature of most technological innovations, it is essential to consider the entrepreneurs’ access to ‘resources’, in particular financial resources. In relation to this, the diffusion analyst should investigate the prospects for obtaining funding in the sector, and why financiers are, or are not, willing to finance the innovation in question. Institutional factors are relevant here, but so is the question of whether some entrepreneurs are more successful than others in winning-over hesitant financiers. 5.2. How applicable is the analytical framework? These three sets of questions are particularly relevant to technologies at the outset of their life cycle. In such cases, entrepreneurs can play a defining role in the technology’s diffusion by launching it in the market place, making it available for adoption, and subsequently managing the growth of a firm around it. If entrepreneurs are

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successful, history shows that other companies will follow, to the point where a whole industry can develop. However, at later stages in the technology’s life cycle it is unlikely that the issues raised in this study retain the same explanatory power. At this stage, several established corporations tend to promote the product or service in question, and analysts can rely on the more aggregate concerns of diffusion research such as referencing of early adopters, cost reductions, etc. That being said, even as maturity sets in, entrepreneurs may continue to exert influence on a particular industry by, for instance, using new means to give products and services wider distribution. There is no reason why the issues raised in this study should be any more applicable in some countries rather than others. Except that analysis in those countries where the public sector strongly intervenes or where market institutions are not equally strong, should take greater account of how legislation, government policies, and other structural features of the economy and society serve to restrict or enhance the opportunities facing the entrepreneur. In such conditions, even the most capable of entrepreneurs can fail to introduce a promising technological innovation. Finally, this approach should be relevant beyond the case of entrepreneurs launching start-up companies, to the analysis of long-standing, yet innovative companies. The defining characteristic of entrepreneurs as agents of change can still find expression in larger companies where sufficient freedom of action reigns. In such cases, analysts should continue to adopt the individual propagators of an innovation as their units of analysis. But, they must also consider the entrepreneurs’ access and mobilisation of organisational resources (such as reputation and brand equity) and human resources (such as easy access to skilled colleagues), as well as the extent to which the entrepreneurs are successful in managing organisational constraints (such as centralised decision making or internal dissent). 5.3. Summing up The question of who influences the rate of technology diffusion, and how they are able to do so, is of fundamental interest in societies where economic growth, environmental protection, and social change continue to be strongly tied to technological innovation. The role of entrepreneurs in diffusing technologies points to the capacity of enterprising individuals to introduce sweeping change with cumulative impact. Future diffusion research should therefore, continue to improve its understanding of what enables or limits these key individuals in propagating technological innovations.

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