Assessment of innovation diffusion process in automotive supplier industry using system dynamics modeling

The prime objective is to explore mechanisms for the diffusion of industrial innovationswithin industries. Technological change is a main factor of economic growth, andinnovation diffusion, a major research area in technological change, is presented in aframework by synthesizing innovation diffusion literature from marketing, managementand economics.Understanding structures and forces driving the processes of innovation and diffusionrequire complex models. In this study, an industrial innovation or new technology is both aproduct innovation from the aspect of supplier firm and a process innovation from theperspective of buyer firms who adopt and use it in their processes. Often well intentionedefforts to solve pressing organizational problems such as technological change causeunanticipated side effects which are termed as ?counterintuitive behavior of socialsystems?. System dynamics provides the use of feedback loops with mutual or recursivecausality when studying complex systems.The innovation diffusion framework consists of six areas: technology, market (i.e. firms inan industry), suppliers, customers (end users) and public policies. Causal loop diagrams(CLDs) have been drawn for each area. Based on CLDs, system dynamics model isestablished primarily focusing on suppliers and secondarily on market. The model consistsof 11 stock variables and 23 parameters. Automotive parts industry has been selected forexecutive interviews in order to provide meaningful values for model parameters whilebuilding the system dynamics model.Model results and testing have been carried out such that it reproduces the behavior seen inthe real world. Sensitivity analyses are done for policy formulation and evaluation. Themodel enables managers of technology suppliers to investigate complex relationshipsamong demand, backlog and capacity. Determining approriate sales price is one of themost important conclusions for lifecycle profit of a certain technology. The systemdynamics model enables managers and policy makers to apply and change various pricingpolicies over time. Both word-of-mouth demand and demand from advertising influencedecision for adoption/use of technology.Keywords: diffusion, innovation, system dynamics, technology lifecycle, technical change