Technology

It refers to the development and use of machinery, products and processes. For several reasons, individual firms, especially smaller ones with limited capital, must usually adapt to technological advances (rather than control them).

Many firms are dependent on other companies to develop and perfect new technology, such as computer microchips and only then can these firms use the new technology in their products, such as automated gasoline pumps at service stations, talking toys, or electronic sensors in smoke detectors for office buildings.  And when new technology is introduced, the inventor often secures patent protection, which excludes competitors from using that technology (unless the inventor licenses the rights to others for a fee).

In a number of areas, companies have just been unable to achieve practical technological breakthroughs. For example, no firm has been able to develop and market a cure for a common cold, a good-testing nontobacco cigarette, a car powered by electricity, or a totally effective and safe diet pill.

When new technology first emerges, it may be expensive and in short supply, both for companies using the technology in their products and for final consumers. The challenge is to mass produce and mass market the technology efficiently. For example, it took a decade for battery-operated pocket calculator to reach peak sales.

Some technological advances require employee training and consumer education before they can succeed in marketplace. Thus, company emphasis on user-friendliness can speed up the acceptance of new technology. That is why the current generation of personal computers focuses so much on ease of use, and personal selling and customer service are so important.

Certain advances may not be compatible with goods and services already on the market and/or require significant retooling by firms wanting to use them in their products or operations. For instance, every time an auto maker introduces a significantly new car model, it must invest hundreds of millions of dollars to retool facilities.

Each time a firm buys new computer equipment to supplement existing equipment,  it must determine whether the new equipment is compatible (Can it run all the computer programs used by the firm and ‘talk to’ the firm’s existing equipment?).

To be successful, technological advances must be accepted by each firm in the distribution process (the manufacturer/service provider, the wholesaler, and the retailer). Should anyone of these firms not use a new technology, its benefits may be lost. For example, if a small retailer does not have electronic scanning equipment at cash registers, its cashier must ring up prices by hand, even though each package has been computer-coded by manufacturers.

A firm’s technological abilities are also affected by the availability of scarce resources. Over the past twenty years, sporadic shortage and volatile price changes have occurred for a variety of basic commodities, such as home heating oil, other petroleum-based products, plastics, synthetic fibers, aluminum, chrome, silver, tungsten, nickel, steel, glass, grain, fertilizer, cotton and wool. And despite efforts at conservation, some raw materials, processed materials, and component parts may remain or become scarce over the next decade.

Resource shortages and/or rapid cost increases would require one of three actions by a company. First, substitute materials could be used in constructing products, requiring intensified research and product testing. Second, prices could be raised for products that cannot incorporate substitute material. Third, companies could abandon products where resources are unavailable or used ineffectively and demarked others where demand is great than it is able to satisfy.