Technology S-curve

New technologies tend to improve along a recognisable arc. Knowing where you sit on it is a strategic advantage.

The technology S-curve describes how the performance of a technology improves over time relative to the effort invested in it: slowly at first while the fundamentals are worked out, then rapidly as understanding matures, then slowly again as it approaches its natural limits. Plotted against effort, the path forms an S.

The three phases

In the early phase, progress is frustratingly slow; much effort yields little, because the basics are still being learned. In the middle phase, returns to effort surge as the technology hits its stride. In the late phase, the curve flattens: the technology is mature, and ever more effort produces ever smaller gains as it nears its physical or economic ceiling. Each phase calls for a different posture, from patience, to aggressive investment, to harvesting.

The danger at the top

The flattening at the top is where incumbents are most exposed. A firm that has mastered a maturing technology keeps pouring effort into squeezing out diminishing gains, just as a new technology begins its own slow phase on a separate, higher curve. The newcomer looks inferior at first, which is reassuring, but it has far more headroom. By the time it crosses the old curve, the leader has invested heavily in a dead end.

Jumping curves

The strategic skill is recognising when one's current technology is near its limit and being willing to jump to the next S-curve before the old one is exhausted. This is wrenching, because it means abandoning a technology the firm has mastered for one it has not, often while the old one is still profitable. Firms that cling to the familiar curve until its returns vanish usually jump too late.

The S-curve is a reminder that today's rate of progress is not permanent, and that the most dangerous moment is often the one that feels most comfortable: high on a curve that is quietly running out of room.