The dynamics of process technology adoption and the implications for upgrade decisions

Abstract

The need for fundamental, as opposed to incremental change, presents managers with major uncertainty. Such change is likely to involve significant capital cost, but may also bring significant collateral costsjom, for example, retraining, and plant downtime and customer supply disruption during change implementation. This article focuses on a gstem dynamics model that captures the situation of an industry experiencing the switching of competitors' production plants to a new process technology. The model is typical of industries in commodip chemicals or other bulk manufacturing, and enables the complexity of technology moves to be represented. This facilitates a clearer understanding of the expected industry dynamics. The results show that an individual firm facing the upgrade decision must consider the impacts of the change across a number of dimensions, and demonstrates that the point in time along these industries' typical endemic capacig-building/price cycle may haue an important impact on the economics of the decision. The article is also able to draw some comparisons between this and other approaches to modelling technology change decision-making.