Hall, J.K et al., (2005)

Disruptive technologies, stakeholders and the innovation value-added chain:a framework for evaluating radical technology developmentJeremy K.Hall1and Michael J.C.Martin21University of Calgary,Calgary,Canada.jeremy.hall@haskayne.ucalgary.ca2University of Exeter,Exeter,UK.m.j.c.martin@Contemporary frameworks for evaluating technological innovations contend that innovative success is dependent upon the ability offirms to acquire and assimilate new knowledge without disrupting value chain members such as suppliers,customers and complementary innovators.These frameworks,however,provide little advice on how to deal with radical,controversial innovations that may also introduce new undesirable environmental,health,and social side affects.In addition to technological,commercial and organisational uncertainties,the developers of such technology typically must resolve social uncertainties,a particularly difficult activity because of the added complexities and often conflicting and/or difficult-to-reconcile concerns from secondary stakeholders.Attempts must be made to address the potential unintended and unforeseen consequences of the technology,as well as its potential benefits,if it is to be successfully ing Monsanto’s development of agricultural biotechnology as an illustration,we suggest an evaluation framework that incorporates stakeholder theory,innovation management concepts and Popper’s evolutionary learning methodology of science and its extension to social issues.1.Introduction:radical technologydevelopmentT echnological innovation has long been recog-nised as a difficult and expensive activity,yet often a key to survival and a main source of sustained growth forfirms(Schumpeter,1934, 1942;Penrose,1959).It has the potential to generate unique,difficult to imitate organisa-tional capabilities and competencies leading to competitive advantage(Teece et al.,1997;Eisen-hardt and Martin,2000;Zollo and Winter,2002),but can also be competency destroying(Tushman and Anderson,1986)or disruptive(Christensen, 1997).Current management of technology ap-proaches emphasise the need to recognise the disruptive potential of an innovation on indus-tries(Utterback,1994;Christensen,1997),firms (Tushman and Anderson,1986;Henderson and Clark,1990;Leonard,1995)and innovating sup-ply chains/networks(Afuah and Bahram,1995; Afuah,1998).These approaches may be sufficient for an innovation that solely disrupts its existing industry and market base,as has happened withR&D Management35,3,2005.r Blackwell Publishing Ltd,2005.Published by Blackwell Publishing Ltd,273 9600Garsington Road,Oxford OX42DQ,UK and350Main Street,Malden,MA02148,USA.for example digital photography(Munir,2002). However,they pay scant attention to innovations that may have potentially controversial disruptive impacts on societal third parties,those that Free-man(1984)calls secondary stakeholders.For the purpose of this paper,the term radical technology development is applied to radical technological innovations(often initiating new industries)that are controversial and potentially disruptive to secondary stakeholders.A recent example is the development of genetic technology in agriculture.Given the potentially widespread implications of such developments,consideration must be made for the innovatingfirm’s compe-tencies as well as its impact on secondary stake-holders that may affect,or be affected by the technology.We thus suggest the inclusion of a broader stakeholder analysis,as originally sug-gested by Freeman(1984)and specifically devel-oped within the context of innovation by Hall and Vredenburg(2003)and R&D management by Elias et al.(2002).However,we note that there are added challenges because of the presence of many interacting stakeholders(i.e.greater com-plexity),which may not be easily identified and/or may have contradictory demands,goals or inter-ests(i.e.greater stakeholder ambiguity).To manage these additional challenges,we suggest a framework for considering the added complexity and uncertainty of innovation when stakeholder perceptions and information are especially important.Such situations include ap-plications of emerging radical technologies such as genetic technology and nanotechnology,where the public understanding of science may be a factor and where there is concern about possible environmental,health and social side effects. Building on Afuah’s(1998)innovation value-added chain and Freeman and Soete’s(1997) innovation uncertainties,we distinguish between largely well-recognised technological,commer-cial,and organisational uncertainties as well as the more elusive uncertainties from social side effects.Under circumstances of relatively low complexity and stakeholder ambiguity(e.g.pri-mary stakeholders such as suppliers,customers and complementary innovators),a trial-and-er-ror-elimination learning approach(Popper,1959) is appropriate.In the wider societal secondary stakeholder context of not immediately recog-nised higher complexity and ambiguity,a piece-meal social engineering approach(Popper,1945)is appropriate.We illustrate our approach with Monsanto’s attempts to develop genetic technol-ogy in global agriculture markets.12.Managing innovative uncertainty2Like all innovation,radical technology develop-ment can be viewed as a knowledge quest and creation process within thefirm’s social networks (Nonaka et al.,2000)requiring the reduction of uncertainty(Katz and Shapiro,1985;Arthur, 1988;Freeman and Soete,1997).Uncertainty is particularly high for radical technology develop-ment because it may involve new science,tech-nology,markets,industrial structures,regulatory frameworks,etc.(Ansoff,1957;Utterback,1994). There are thus greater degrees and types of uncertainties for radical technology develop-ments,which for the purpose of this discussion, can be categorised as being concerned with tech-nological feasibility,commercial viability,orga-nisational capability and social acceptability. These levels roughly correspond to Freeman’s (1982)categories of innovation uncertainty(tech-nical,market and political/economic uncertainty) and Rice et al’s(2001)radical technology-to-organisation links(technology,market,and cor-porate strategy-related issues)and are discussed in more detail below.The new knowledge quest typically concen-trates on technological,commercial and organi-sational variables from the perspective of the individualfirm.For example,seminal work by Henderson and Clark(1990)recognised the diffi-culties if introducing new technological knowl-edge(either architectural,component or both)on incumbentfirms,whereas Abernathy and Clark (1985)and Martin(1994)emphasised the impor-tance of new market knowledge.Teece’s(1986) appropriability arguments address organisational uncertainties(i.e.even if a new product or process is technologically and commercially viable,there is no guarantee that the innovator will appropri-ate the benefits of the innovation).Synthesising these concepts,Afuah(1998)and Afuah and Bahram(1995)expanded the scope of this quest by arguing that innovations should also be viewed from the perspectives of a wider social network of suppliers,customers and complementary innova-tors.They give several examples of how compe-tency destroying attributes for customers, suppliers or complementary innovators can have detrimental affects on a new product or process, and that the key to innovative success is to minimise the disruption within the innovation value-added chain.Although an important con-tribution,it is incomplete in that it does not look beyond the innovation value-added chain mem-bers but concentrates only on what FreemanJeremy K.Hall and Michael J.C.Martin274R&D Management35,3,2005r Blackwell Publishing Ltd.2005(1984)terms the primary stakeholders of thefirm. We argue that the disruptive implications of such innovations must also be considered from the perspective of secondary stakeholders,particu-larly those innovations that,while likely to offer substantial benefits,may also introduce potential new adverse environmental,health and social side affects.3.Radical technology development andstakeholder managementAccording to Freeman(1984)stakeholders are ‘any group or individual who can affect or is affected by the achievement of thefirm’s objec-tives’(p.46)and may be either primary(those that have a direct impact on thefirm)or second-ary(those that are not directly involved with the firm but may indirectly influence thefirm via primary stakeholders).Stakeholder management thus differs from conventional input–output perspectives in that it recognises that there is a two-way relationship between thefirm and its stakeholders(Donaldson and Preston,1995),and thus draws parallels with systems thinking(Senge, 1990)and complexity theory(Simon,1962,1969). An important stakeholder management issue concerns the ethical perspective taken by thefirm. Donaldson and Preston(1995)distinguish be-tween normative and instrumental approaches to stakeholder relations.The former is concerned with how managers should deal with corporate stakeholders,whereas the latter suggests that firms view their stakeholders as part of an envir-onment that must be managed in order to assure shareholder value.Phillips et al.(2003)makes the distinction between‘normative stakeholders’, those to whom the organisation has a direct moral obligation,such asfinanciers,employees, customers,suppliers,and local communities,and ‘derivative stakeholders’,those to whom the or-ganisation has no direct moral obligation,but who can harm or benefit the organisation(e.g. competitors,activists,terrorists,the media). Jones(1995)argues that the instrumental benefits of stakeholder management cannot be disenfran-chised from a genuine commitment to ethical principles,and thatfirms that create and sustain stakeholder relationships based on mutual trust and cooperation will have a competitive advan-tage over those that do not(see also Barney and Hansen,1994;Hart and Sharma,2004).A key issue facing stakeholder management is the identification of which stakeholders are most important.Mitchell et al.(1997)argue that salient stakeholders are those that possess power(the ability of one entity to influence another),legiti-macy(socially accepted and expected behaviour), and urgency(the degree to which an issue is regarded as important or time sensitive).These attributes are of course dynamic(Beaulieu and Pasquero,2002;Elias et al.,2004),changing the importance of which stakeholders are important at any given time.Others have recognised that there are different types of stakeholders,and that these differences play an important role in how firms should engage with them.For example, Clarkson(1995)argues that stakeholders have different‘interests,claims or rights’.He narrows Freeman’s primary/secondary stakeholder defini-tion by arguing that the former are those that the corporation needs to survive,such as investors, employees,customers,suppliers,governments and communities that provide infrastructures and markets.Secondary stakeholders can influ-ence,affect(or be influenced or affected by)the firm,but are not engaged in transactions with the corporation and are not essential for its survival. Post et al.(2002)further delineate stakeholder distinctions by characterising them as falling within a corporate,resource base(customers and users,investors,employees),industry struc-ture(regulators,supply chain members,alliance partners)and social–political setting(private or-ganisations,governments,local communities and citizens).They argue that the management of ‘critical’stakeholder relations,a potential core competence for management,can involve stake-holders from all categories.Empirical studies by Berman and Wicks(1999)support the importance of effective stakeholder management:‘Managers not currently considering the effects of decisions regarding resource allocations vis-a-vis key stake-holders are at a competitive disadvantage to those whose thinking is more holistic’(p.503). Tipping et al.(1995)have explicitly recognised the importance of stakeholder analysis in technol-ogy development by noting that there is a var-iance in interests and perspectives among R&D stakeholders.More recently,Elias et al.(2002) recognise the importance of secondary stake-holders,arguing that R&D projects affect differ-ent stakeholders in different ways.They suggest an eight-stage analysis for R&D projects that includes the identification and mapping of key issues and stakeholders as well as the potentially dynamic nature of stakeholder salience.Drawing on the innovation literature discussed above,Hall and Vredenburg(2003)make the distinction be-Disruptive technologies,stakeholders and the innovation value-added chain r Blackwell Publishing Ltd.2005R&D Management35,3,2005275tween stakeholders within the innovation value-added chain and those that are not.They argue that innovation value-added chain stakeholders have similar interests,claims and rights,whereas those outside of the innovation value-added chain are often motivated by different values and ob-jectives,and thus more ambiguous in that they are often difficult to identify as salient,or present conflicting pressures that cannot be reconciled through traditional market transactions.For this reason,they argue that traditional innovation management techniques are often inadequate for dealing with secondary stakeholder pressures. Stakeholder analysis is crucial for radical tech-nology development because it may have wide-spread social and environmental implications that are often controversial(cf.Lipsey and Bekar, 1995;Freeman and Soete,1997).Nelson and Winter(1982)for example argue that technical change leads to human progress,but is uneven among economies and industries,and generates new externalities that must be later dealt with in some way or another.Because of these wide-ranging affects,radical technologies often affect, or are influenced by both primary and secondary stakeholders.Yet the innovation literature fo-cuses only on primary(innovation value-added chain)stakeholders,even though secondary stakeholders such as advocacy groups(e.g.envi-ronmental,anti-globalisation,safety,etc.),inter-governmental organisations,local communities, etc.are playing an increasingly important role in business activities(Waddock et al.,2002;Hall and Vredenburg,2003).A key challenge in radical technology development is the ability to accom-modate such pressures.That is,to exploit the potential benefits as well as assess,manage and minimise the perceived or unforeseen unintended negative consequences of the technology.A wider stakeholder analysis brings the addi-tional challenges of greater complexity and plexity,a situation where there are many interacting variables,may lead to compro-mises or less than ideal options as managers may not fully understand how all variables interact (Simon,1962,1969;Franken,2001;Gatignon et al.,2002).The recognition of more stakeholders thus means that there are that many more inter-acting variables that must be addressed.Accord-ing to Hall and Vredenburg(2003),stakeholder ambiguity is a situation where various stake-holders with disparate goals,demands and opi-nions interpret the same situation differently. They argue that ambiguity can emerge when for example a technology is based on a new science that has yet to be fully accepted(e.g.biotechnol-ogy),or simply because stakeholders have irre-concilable differences based on ethical,religious, cultural or social issues.For example,those within the innovation value-added chain are more likely to have similar‘interests,claims or rights’(Clarkson,1995)because of common goals and pressures associated with a market relation-ship,and have a clear concept of what is expected from the relationship.In contrast,those outside of the innovation value-added chain may have quite dissimilar goals and their behaviour mod-erated by non-market concerns and pressures. Complexity thus requires greater resources to figure out what is going on,whereas stakeholder ambiguity recognises that some stakeholders play by different rules.The inclusion of a broader stakeholder analysis within the innovation value-added chain ap-proach is a useful means by which managers can identify potentially disruptive affects of their radical technology.However,we also suggest that,in addition to identifying salient stake-holders,it is also important to recognise that some stakeholders have differing objectives,and that these variances can lead to conflicting goals. We thus expand on the work of Elias et al.(2002) by arguing that managers need different techni-ques for managing stakeholders depending on their relationship with the innovator.Figure1is an illustration of the innovation value-added chain and secondary stakeholders concerning the development of radical technol-ogy.In the upper left corner is the original Afuah innovation value-added chain model concerned with the degree to which an innovation affects the technological competencies of customers,suppli-ers and complementary innovators.Other pri-mary stakeholders include investors and government entities(e.g.regulators,trade minis-tries,industry promoters,etc).Governments and regulators perhaps straddle both the primary and secondary category as they can directly influence the innovatingfirm and other innovation value-added chain members.The scientific community may also represent both primary and secondary stakeholders,depending on whether or not the innovatingfirm sponsors the research.On the right are examples of secondary stakeholders that may play a disruptive role in radical technol-ogy development by presenting political chal-lenges and creating difficulties and/or disrupting the competencies of innovation value-added chain stakeholders.In contrast to innovation value-added chain stakeholders,the identification ofJeremy K.Hall and Michael J.C.Martin276R&D Management35,3,2005r Blackwell Publishing Ltd.2005salient secondary stakeholders is often elusive (hence the ‘?’stakeholder box).Furthermore,in many cases there may be contradicting pressures (Hall and Vredenburg,2003).For example,ad-vocacy groups may be opposed to a radical technology because of its potentially uncertain health and safety side effects.Conversely inves-tors may not be willing to fund large-scale re-search (with little or no potential for short-term gains)if the technology is only going to have incremental implications on an industry.4.Controversial technology development:the case of MonsantoWe now illustrate our framework of the innova-tion value-added chain for radical technology development with US-based Monsanto’s cele-brated attempts to apply the revolutionary science of biotechnology to agriculture.Of interest is the fact that they were able to satisfy the demands of regulators and most stakeholders within the in-novation value-added chain,but they encoun-tered considerable opposition with disruptive effects,mostly from secondary (non-innovation value-added chain)stakeholders.Genetic technology can allow the design of living organisms through DNA manipulation to produce crops with more marketable character-istics,such as faster growth,higher yields,better taste qualities,etc.Proponents claim that it offers a wide range of environmental and social benefits by reducing pesticide,herbicide,water and soil quality requirements (Hart,1997;Hart and Mil-stein,1999).Monsanto,a former chemicals andnow life sciences company,was a pioneer of the technology.One of their main products is Round-up s herbicide,which kills all plants except those bio-engineered to resist it,which in turn are proprietary products of Monsanto.Farmers that buy Monsanto’s ‘Round-up s ready’bio-engi-neered seeds thus need only one herbicide.The then CEO of Monsanto,Robert Shapiro,argued that biotechnology allows more efficient produc-tion by replacing ‘stuff with information’(Ma-gretta,1997).He claims that up to 90%of conventional herbicides sprayed on crops are wasted.By genetically designing products to act only on targeted problems such as specific pests and weeds,efficiencies are greatly increased.In theory,farmers would find this system attractive as it offers a lower cost-to-output ratio and allows farmers to use herbicides in a more precise way.From an innovation value-added chain perspective,farmers would see this as an incremental innova-tion as it allows them to improve their business operations without disrupting their competences.The potential of this technology appeared to be both financially and environmentally promising.However,a number of academics and advocacy groups were,for example,concerned about the long-term health implications,the risk of gene transfer from GMOs to wild plants,the unin-tended migration of GM seeds,the risk of re-duced gene pools and thus increased vulnerability because of mono-crop techniques,and the possi-bility of increased pest resistance (Hall and Crowther,1998;Goldsmith,2002;Leiss,2002).Other stakeholders were concerned about the social implications.For example,farmers may become increasingly dependent upon seedRange of StakeholdersRelatively Low Stakeholder Complexity and AmbiguityRelatively High Stakeholder Complexity and AmbiguityPrimary StakeholdersSecondary StakeholdersIVC Stake-holdersFigure 1.The innovation value-added chain (IVC),secondary stakeholders and radical technology development.Disruptive technologies,stakeholders and the innovation value-added chainr Blackwell Publishing Ltd.2005R&D Management 35,3,2005277companies,many of whom are located in devel-oping countries.This issue became quite conten-tious when Monsanto attempted to introduce the so-called terminator gene,or one that made seeds sterile,thus preventing the spread of maverick GMOs and cross-fertilisation with other species. In the past,seed companies had the rights tofirst generation seeds,but not the following genera-tions,so farmers could then generate their own. With the sterile genetically modified seeds,farm-ers must continually purchase from the seed companies,increasing their dependence on the latter and relinquishing control over breeding. The loss of tacit farming techniques such as seed breeding may never be recovered and Third World farmers will become increasingly depen-dent upon Western seed companies,thereby in-creasing the wealth gap between rich and poor nations(Charles,2001).Monsanto decided to drop the terminator gene after considerable pres-sure from social and environmental advocates (Graham,2001).The terminator gene illustrates the difficult paradoxes often faced by innovators.Monsanto must try to balance the demands of economic risk (protect their intellectual investments and receive afinancial return),environmental risk(attempt to prevent the spread of unwanted GMOs)and social risk(farmers in the Third World becoming increasingly dependent upon developed nations). This situation generates considerable variance in stakeholder perceptions that cannot be appeased without provoking others.Secondary stake-holders such as representatives of developing nations and anti-globalisation advocates per-ceived the technology as a disruptive social force, and in turn attempted to disrupt the innovation value-added chain by demanding the right for consumers to choose GMO-free bel-ling and the right of consumer choice became particularly contentious in1997when the US Food and Drug Administration(FDA)estab-lished a policy that genetically engineered soy-beans did not have to be separated at source.This was welcomed by the agricultural biotechnology industry,which argued that GMOs were funda-mentally equivalent to natural bel-ling implies that there is something potentially dangerous,and thus increases consumer resis-tance.As a major component of processed food, producers rather than end consumers primarily purchase soybeans.The FDA policy essentially meant that food producers did not have to label their products to indicate whether(or not)they contained GMOs.This conflicted with the pre-dominantly European view that all food contain-ing GMOs should be clearly labelled.Stiff resistance from consumers led to considerable pressure and public protest by Greenpeace con-cerning the sale of unlabelled soy products.This pressure was not exclusively targeted at Mon-santo,but also food producers and European supermarket chains.Soon afterwards the Eur-opean Parliament ruled that in the future all newly approved genetically modified foodstuffs must be labelled,although products already approved could continue to be unlabelled(Buck-ley,1997).Reflecting consumer concerns,some European governments refused to accept the latter concession and in Britain,some super-market chains and restaurants started GMO-free policies.Like the terminator gene,the labelling issue is another case of how secondary stakeholders can disrupt the innovation value-added chain.An original attractive attribute of the technology was that it offered products that had the same processing properties as non-GMO products,thus avoiding any disruption for complementary inno-vators like food belling disrupted the food producers and forced them tofind GMO-free sources,such as Brazil(Reuters,March20, 2003).It also gave consumers the perception that there was indeed a difference between genetically modified and traditional products.By1999there was widespread opposition to GMOs in Europe and developing countries, which was stimulated by increased awareness generated by the media,environmental pressure groups and the ability to spread information quickly via the Internet.Anti-GMO sites sprang up to challenge the scientific facts,most of which they argued were generated by the industry to promote the industry’s interests.The European offices of Monsanto were under considerable pressure to deal with an increasingly hostile pub-lic,to a point where they were starting to avoid public discussions.In2000Monsanto underwent major restructuring,including a change in com-pany leadership and ownership,with some ar-guing that it was because of the poor handling of stakeholder concerns(Barrett,2000;Champy, 2000).They also established thefive-part‘New Monsanto Pledge’that involves greater secondary stakeholder participation.Post et al.(2002)argue that if they fail to meet the pledge,they may very well fail as a company.As of2002,Monsanto continued to suffer,with the abrupt resignation of Shapiro’s replacement,Hendrick Verfaillie(Econ-omist,December21,2002).Jeremy K.Hall and Michael J.C.Martin278R&D Management35,3,2005r Blackwell Publishing Ltd.20055.Radical technology development andPopper’s approaches to science andsocietyWe suggested that radical technology develop-ment could be viewed as a new knowledge quest requiring the reduction of technological,commer-cial,organisational and social uncertainties.Be-cause of its potentially wide-ranging implications, radical technology development may be contro-versial and therefore may be disruptive to a broader range of stakeholders than only those suggested by the innovation value-added chain. Like Elias et al.(2002)and Post et al.(2002),we therefore argue that a more comprehensive sta-keholder analysis,one that includes secondary stakeholders,is thus required.However,we ex-pand on these authors’work by recognising that, because of conflicting and or contradicting goals, interests and interpretations,different techniques for addressing non-innovation value-added chain stakeholders may be needed.Given that these are for the most part philosophical differences,we suggest two approaches derived from Popper’s work on the philosophy and methodology of science.5.1.Popper’s conjecture–refutationapproachUnder relatively non-complex circumstances,i.e. where there are relatively few stakeholders and little or no stakeholder ambiguity,Popper’s (1959)‘trial-and-error-elimination learning’or ‘conjecture–refutation’approach to the evolution of scientific knowledge is appropriate(Hall and Martin,2003).His methodology is widely ac-cepted in research communities and is a common approach to managerial decision-making(cf. Martin,1983,1994;Harper,1996;Dudik,2000, Kaplan and Norton,2001).Such rational ap-proaches are implicitly reflected in such influential writers as Ansoff(1957),Andrews(1971),and Porter(1980).Thus,Popper’s‘trial-and-error-elimination learning’approach may be applied at three levels,within the innovatingfirm and its associated innovation value-added chain:1.Technological uncertainty:It must be demon-strably feasible(i.e.withstand refutations) technologically,based upon corporate scienti-fic and technological competencies.mercial uncertainty:It must be demonstra-bly feasible commercially,especially since the highest status of any technological innovationis an‘as yet unrefuted product’(Martin,1994;Harper,1996).For operations,customers, suppliers,etc.stakeholder ambiguity is com-paratively low as decisions are based on eco-nomic merit.anisational uncertainty:The developmentand exploitation of the technology should be congruent with the overall strategy and cap-abilities of thefirm.Overall Monsanto was successful in overcom-ing the technological,commercial and organisa-tional hurdles.They were able to meet regulatory approval,a key technological hurdle.They were also able to market their technically sophisticated products to farmers,a critically salient stake-holder group,who generally lacked an under-standing of biotechnology.Since the output from their products had no apparent differences than non-GM products,there was no apparent reason to believe that complementary innovators or end consumers would be disrupted.Monsanto was successful in making the difficult transition from a chemicals to a bioscience company(a potentially competency destroying innovation) via in-house development and strategic alliances (McDonald and Cadot,2001).They possessed the requisite competencies and strong intellectual property protection as suggested by Teece (1986).As of2003,there was in fact a black market for their products in GMO-banned Brazil (Reuters,March20,2003),a testament to its technological and commercial appeal.So what went wrong?We argue that Monsanto failed to appreciate that economic,technical and regula-tory pressures are not the only constraints that can hinder the development of a new technology or innovation.5.2.Popper’s piecemeal engineeringapproachPopper’s conjecture refutation approach is only valid if appropriate error-elimination criteria are applicable,which becomes increasingly unlikely under high degrees of complexity and stakeholder ambiguity(Hall and Martin,2003).This can be true when we look at controversial radical tech-nology development at the fourth societal level, where another approach is required.Popper (1945)recognised similar issues when he turned his attention to political and social(as against natural)science matters.Perceiving the threats of communism,fascism and other examples of uto-pian social engineering to society and humanDisruptive technologies,stakeholders and the innovation value-added chain r Blackwell Publishing Ltd.2005R&D Management35,3,2005279。