Applying Diffusion of Innovations Theory

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Applying Diffusion of Innovations Theory

November 14, 2010
COM 126
K. Vook

Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. In 1962, Everett Rogers proposed that the life cycle of innovations can be described using the “s-curve” or diffusion curve. The s-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point consumer demand increases and product sales expand more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return.

Innovative companies will typically be constantly working on new innovations that will eventually replace older ones. Successive s-curves will come along to replace older ones and continue to drive growth upwards. In the figure above the first curve shows a current technology. The second shows an emerging technology that currently yields lower growth but will eventually overtake the current technology and lead to even greater levels of growth. The length of life will depend on many factors (DeFleur, M. & Ball-Rokeach, S. (1989).

The Bass diffusion model developed by Frank Bass in 1969 illustrates the process by which a new innovative product is adopted by new users, then is overtaken by products imitating the innovation. The model is widely used in forecasting, especially product forecasting and technology forecasting (DeFleur, M. & Ball-Rokeach, S. (1989).

In the 1980s, Veneris (1984, 1990) developed a systems dynamics computer simulation model which takes into account business cycles and innovations. Innovation diffusion is studied by economists in a variety of contexts, for example in theories of entrepreneurship or in Paul Romer's New...
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