Davids vs. Goliaths in the Small Satellite Industry:
The Role of Technological Innovation Dynamics in Firm Competitiveness
Elias G. Carayannis, PhD
Management of Science, Technology and Innovation Program
School of Business and Public Management
The George Washington University
Washington, DC 20052
(202) 994-4062
(202) 994-4930 (Fax)
Email: [email protected]
Robie I. Samanta Roy, PhD
Research Staff Member
Institute for Defense Analyses
1801 N. Beauregard Street
Alexandria, VA 22311-1772
Accepted for publication, International Journal of Technovation
Best Paper Award, PICMET 1999
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Davids vs. Goliaths in the Small Satellite Industry:
The Role of Technological Innovation Dynamics in Firm Competitiveness
Abstract
In this paper, a conceptual framework of the nature, structure, and dynamics of
technological innovation is developed and applied to the small satellite industry.
Important components of this framework include: a) the speed and acceleration of
technological innovation, and b) the linear and non-linear interactions between
technology producers and users (technology and market push and pull mechanisms).
We conceptualize technology development and commercialization as an ongoing
cooperative and competitive (co-opetitive) process involving enabling and inhibiting
factors or mechanisms which govern the speed and acceleration of technological
innovation. Enabling factors may include CRADAs, strategic alliances, spin-offs,
intellectual property rights, SBIRs, and mentor-protege relationships. Inhibiting factors
may include excessive regulation at state, national, and international levels, technological,
structural or financial barriers to market entry, competitor response to market entry, and
culture clashes such as engineering versus marketing culture or firm versus government
versus university cultures. These enabling and inhibiting factors influence and are also
influenced by technological and market pulling and pushing forces.
We postulate that the size of a firm, in addition to its ability to adapt to and / or
absorb technological and market discontinuities, determines the rate at which it innovates
(speed of innovation), as well as the rate at which it varies its innovation speed
(acceleration of innovation). It is also postulated that a firm's speed and acceleration of
innovation are directly proportional to its long term competitiveness and market success.
This conceptual framework was employed to evaluate the capability of small and
large firms to develop and commercialize new technologies in the small satellite industry.
Three firms that are active players in the small satellite industry were examined. These
firms are small relative to the large aerospace giants (such as Lockheed Martin and
Boeing) but they vary in size and age. Two of the firms studied are US start-ups and one
is a British university spin-off. Our findings were synthesized to derive insights that
could be generalized for the benefit of technology entrepreneurs as well as policy makers
in other technology-driven and alliance-rich industries.
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I.
Introduction
The purpose of this paper is to evaluate the capability of small and large firms to
develop and commercialize new technologies in the small satellite industry. To aid in this
evaluation, a conceptual framework focusing on the nature, structure and dynamics of
technological innovation was developed.
Typically, government-led technology life-cycles tend to be longer and they shrink
slower than commercial-led ones (although recent government initiatives such as the
Advanced Concept Technology Demonstrators or ACTDs aim to reduce the gap). This
tendency can act as a barrier to entry for small start-ups in government-dominated market
niches as will be discussed in our case studies. Moreover, in technology areas where the
speed and acceleration of innovation are significant competitive factors, such barriers to
entry can become truly prohibitive for small or even medium size companies leading to
the creation of oligopolistic or even monopolistic market profiles. Hence, understanding
and evaluating the presence and competitive importance of the speed and acceleration of
innovation in a given market where government presence and regulations are significant,
can have serious science and technology, as well as competitiveness and national security
policy implications.
The space industry has been one of the most pioneering sectors in terms of high
technology development. Technological spin-offs from the space program ranging from
advanced life support systems to direct broadcast TV have infiltrated directly or indirectly
into almost all aspects of our daily life. However, the vast majority of the research and
development efforts over the last four decades were almost entirely funded by the
government for national security purposes. Government funding provided the fuel for the
technology development engines, and aerospace companies greatly profited. Almost all
current big businesses in the space industry such as Lockheed Martin and Boeing (which
now includes two former key independent companies North American Rockwell and
McDonnell Douglas) were pioneers in the Space Race starting in the late 1950’s and were
nurtured in the Cold War environment by the deep pockets of the government military
and civil space communities. While a degree of competition was present, US concerns
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over maintaining a strong industrial base and the urgency of the Space Race with the
former Soviet Union kept these industries in a sheltered position. With the end of the
Cold War and subsequent declining government budgets as well as industry consolidation
(see Figure 1), the emergence of small startup firms with new ideas and a fresh
entrepreneurial spirit has begun to change the landscape of the space industry.
In broad terms, the space industry can be divided into three sectors: 1) activities
relating to launchers and launch services; 2) satellite providers; and 3) activities in ground
segment services. Companies in launch services develop rocket launchers that loft
satellites (produced by the satellite providers) into orbit. The ground segment sector
encompasses operations and control centers to monitor and control satellites for
customers that may be using the broad range of space-based services such as remote
sensing, communications, or navigation. Historically, the launch and satellite sectors
have contained more “high technology” components than the ground segment and hence
this paper will concentrate on these two areas.
Lockheed
Gen Dynamics (Aircraft)
Martin Marietta
GE Aerospace
Gen Dynamics (Space)
Loral
Proposed
Merger
Cancelled
Boeing
Rockwell
McDonnell Douglas
Raytheon
E-Systems
Texas Instruments
Hughes
Northrup
Grumman
Vought Aircraft
Westinghouse
1993
1994
1995
1996
1997
1998
1999
Figure 1. Aerospace Industry Consolidation Patterns in the 1990s
(Adapted from Lockheed Martin presentation, 3/1998)
The space industry provides an interesting arena to investigate the differences in
technological development between large and small businesses. Recently, there has been
growth in the development of two areas: 1) small “micro-satellites” based upon advances
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in miniaturization and performance; and 2) fully reusable and other innovative concepts
of rocket launchers to drive down the cost of placing payloads into orbit. Aggressive
startup firms are now competing with the established giants on the basis of their
technological advantages, as well as a strong emphasis on cost versus performance. In
the launcher arena, large firms such as Lockheed Martin are engaged in new launcher
development, but still continue to aggressively market expensive launchers that have their
heritage from the Intercontinental Ballistic Missile programs of the 1950’s. On the other
hand, new startup firms such as Orbital Sciences Corp. and Kistler Aerospace are
marketing smaller, newer, and less expensive launchers. For satellite development, the
large companies such as Hughes Space and Communications are competing with small
firms such as Spectrum Astro and Aero Astro. Hughes builds very large, expensive
satellites, while Aero Astro has entered the market with small, cheap satellites that take
advantage of miniaturization.
We investigated what structural advantages, if any, small high-tech firms enjoy over
large businesses in these space sectors. For example, the government provides funds to
promote the transfer and commercialization of technology through programs like the
Small Business Innovation Research Programs (SBIRs) housed at Federal Government
agencies such as the DOE, DOD, NIH, NSF, and NASA, that foster the creation of high
technology start-ups. Similarly, NASA’s recent emphasis on "faster, better, cheaper”
approaches coincides with the business philosophies of many of the new high-tech space
firms. It is important to examine what hurdles and barriers to entry from the financial and
regulatory points of view small businesses must overcome to gain a foothold in this
industry. In addition, it is important to understand how companies approach incremental
versus breakthrough technologies, and to gain a better appreciation of how the corporate
cultural differences between big and small businesses influence technology development,
as well as the rates of technological change.
II. A Technological Development Framework
This section discusses some of the theoretical background of the technological
development process to aid in understanding the dynamics of small firm creation and
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growth in the satellite industry. Moreover, we introduce and discuss the concepts of speed
and acceleration of technological innovation as well as the meaning and implications of
market and technology push and pull. The technological development process consists of
an ongoing competition between market pull which is oriented towards solving a
problem, and technology push which is predominantly focused on accommodating a
solution. A depiction of the technological development cycle is shown in Figure 2.
Technologies
Commercialization
Process
Market
Figure 2. The Commercialization Process
II.1. Technology Development and Commercialization Enablers and Inhibitors
The commercialization process is the flow or transfer mechanism from a technology
pool to goods or services in a market. This process has enablers and inhibitors, outlined
in Table 1, where the competition between them leads to success or failure in the
marketplace (Carayannis & Alexander, 1998).
Enablers include, Cooperative Research and Development Agreements between
industry and government laboratories and agencies (CRADAs), strategic alliances, spinoffs, intellectual property rights (IPR) licensing, governmental Small Business Innovation
Research grants (SBIRs), and learning-enabling mechanisms such as mentor / protege
programs (Meyer et al, 1995; Rogers et al, 1995; Rogers et al, 1996; Rogers &
Carayannis, 1998; Carayannis & Rogers, 1998; Carayannis & Alexander, 1998a).
Inhibitors include excessive regulations (potentially at the state, national, and
international levels), financial barriers to market entry, competitor response, and culture
clash (i.e. engineering vs. management or private firm vs. government vs. university
cultures and standard operating procedures) (Carayannis & Alexander, 1998b).
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Table 1. Technology Transfer (T2) and Commercialization
Enablers and Inhibitors
T2 & COMM. ENABLERS
T2 & COMM. INHIBITORS
•
CRADAs
•
EXCESSIVE REGULATIONS
•
STRATEGIC ALLIANCES
•
BARRIERS TO MARKET ENTRY
•
SPIN-OFFS
•
COPMPETITOR RESPONSE
•
IPR LICENSING
•
CULTURES MISALIGNMENT
•
SBIRs
(ENGINEERING VS MARKETING /
•
MENTOR / PROTÉGÉ
(LEARNING CATALYSIS)
FIRM VS GOV. VS UNIVERSITY)
II.2. Technology and Market Pull and Push Mechanisms
The forcing functions for technological innovation and the interactions between the
market and technology areas may be shown as such in Tables 2 and 3. The primary
difference between a pull or push scenario is solving a problem versus accommodating a
solution. In the pull scenario case, the focus is on solving a problem by providing a
technical answer to a market need (which can be either anticipated or existing). In the
push scenario case, the focus is on identifying a market need to accommodate an existing
technical solution. The dynamic balancing act between technology push and market pull
drives the speed and acceleration of technological change and in the process creates
significant windows of market opportunity as well as competitive threats to the
established technologies.
The terms push and pull can be defined from either a technology or market point of
view:
i)
Technology push has been historically defined by an innovation-cycle-driven
culture focused on marketing / technology management analysis. In this
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context, the R&D division of a firm brings an idea from the invention stage
to its fruition in the commercial markets.
ii)
The not-so-typical technology pull is best described as the reaction to demand
in the market. The desire for more efficient technologies by customers creates
incremental improvements in these technologies that may eventually lead to a
critical mass of innovations and possibly to radical improvements.
iii)
On the other hand, market pull has been historically defined by marketing.
The marketplace dictates the products that are to be supplied by a firm. In
order to meet demand, a firm must constantly strive to increase performance
and customer satisfaction.
iv)
Market push is also a not-so-traditional term that addresses the creation of
markets through marketing-driven efforts that along with technology pull can
lead to the creation of technological standards that define and enable the
emergence of new markets (see Tables 2 and 3).
The terminology of push / pull can be associated with the transformation from a
static linear to a dynamic non-linear innovation process where both the speed and the
acceleration of innovation become important factors in understanding and anticipating the
dynamics of technological change. The non-linear aspects of the technological
development process have been discussed in some depth (Rycroft & Kash, 1994) (see
Figures 3a and 3b). In Figure 3a, we observe the traditional linear concept of technology
development. In either case (technology push or market (user) pull), the forcing function
is single actor limited. With technology push, the technical community says, “Here, use
this widget…” In the other case, the user community says, “I have a problem…do you
have a solution?” Interaction is held to a bare minimum, if existent at all.
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User Pull
User
Community
Technology
Community
Technology Push
Figure 3a: From a Linear Technology Push - Market Pull to ...
Technology Push
User
Community
Technology
Community
User Pull
Figure 3b: ...a Non-linear Technology Push and Market Pull
Technology Pull
User
Community
Technology
Community
User Push
Figure 3c: ... or a Non-linear Technology Pull and Market Push
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In Figures 3b and 3c, we note that the nature of the interaction between the two
communities is guided by the level of feedback and synergism. The forcing function now
is driven by both actors. In the first case, the technical community offers a solution, but
the user community is actively involved in refining the solution to meet its needs. In the
second case, the user community has a specific need, and this drives the technical
community to focus its R&D efforts for that specific effort.
Table 2. Technology vs. Market Push and Pull:
Relative Technology Dominance Perspective
Technology Pull
Market Pull
Market Push
------------
Technology Satisfying
Market Seeding
Technology Push
Market Satisfying
-------------
Technology Seeding
Table 3. Technology vs. Market Push and Pull:
Relative Market Dominance Perspective
Technology Pull
Market Pull
Market Push
------------
Anticipating Demand
Seeding Demand
Technology Push
Reacting to Demand
------------
Meeting Demand
In Tables 2 & 3, where the dominant forces (technology vs. market) are identified
with larger font characters, we interpret the possible configurations combining market
and technology push and pull from a technology and a market perspective. We postulate
that for any given pull / push configuration there is a range of relative perspective (market
or technology) dominance. This can range from one extreme of pure technology
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dominance (Table 2) to another extreme of pure market dominance (Table 3) with
combinations of technology and market dominance in-between (Carayannis, 1998).
II.3. The S-Curve and the Speed and Acceleration of Innovation
As denoted in Figure 4, the principal agent that is acted upon (or the actee) can either
be the technology or the market depending upon the stage along the development S-curve.
Technology plays a proactive role during the emergence and growth phases, but becomes
more reactive once the product or service becomes mature and eventually declines.
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Decline
(D)
Technology
Performance/Price
Maturity
(M)
LEGEND
Market Pull
Technology Push
Technology Pull
Market Push
Emergence
(E)
Growt
h
Time
Note: The length of the arrows at each stage indicates the relative influence of factor in shaping the development of the
technology. In the earlier stages of technological development (E and G), market pull (such as customer demands) and
technology push (standards development) are more influential in shaping the technology. In later stages
(M and D), technology tends to react more to market factors, such as the emergence of new applications.
Figure 4. Technological Development “S-curve”
The management of an R&D portfolio includes the careful timing for the
introduction of new products. This aspect is often referred to as the “scheduling” of
breakthroughs, and is constrained by what stage in the S-curve the technology is in at
either the product or process and the firm or industry levels.
The time history of the contribution of technology to the innovation process is shown
below in Figure 5. It is important to realize that there are multiple life-cycles that can
occur during the S-curve cycle. The number of such sub-cycles will depend upon the
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strength of non-linear processes of technological change (the speed and acceleration
of technological innovation) and the degree of feedback - both technological and
market driven - during the commercialization process, depending upon the novelty of
the technology and the maturity of the market. Figures 6 and 7 depict the feedback
mechanisms.
TC
TI
Contribution
Dominance
E
G
TECH. LEADS COMM.
M
D
TECH. LAGS COMM.
Figure 5. Technological Innovation (TI) vs. Technological Commercialization (TC)
Dominance during the Technology Life-cycle
Tech Push
Commercialization Process
M
T
Market Feedback
Figure 6. Market Feedback Loop
In the first case in Figure 6, technology is the driver, with the market providing
feedback, while in Figure 7, the opposite is true. The dominance of either technology or
market is partly determined by what life-cycle stage (see Figure 4) the respective product,
13
process, firm, industry, and market find themselves. To complicate the picture, more than
one process can take place in parallel as we can see in Figure 8.
Mkt Push
Technological Innovation
T
M
Technological Feedback
Figure 7. Technology Feedback Loop
The points of view of the various players in the technological development arena are
important to understand. For industry, perspectives between large and small businesses
vary. Large companies want to maintain their market share, and small firms want to enter
usually a niche market, and want to push new technologies (over which they have
technical superiority and hopefully proprietary know-how), and / or initiate new ways of
doing business.
From the government’s perspective, there is the struggle between risk-taking and risk
adversity. On one hand, the government wants to encourage new technologies and a
competitive industrial environment, as well as lower costs. On the other hand, in terms of
being a customer, it seeks past performance history and proven technologies. Due to the
fact that the government is a primary customer of new technology satellites, it plays an
important role in terms of industrial development and the competition between large and
small firms.
When examining the national and international competitive landscape for strategic
technology partnerships, one must examine the various types such as the partnering of
firms with the government, firms with universities, and firms with other firms as well as
combinations of the above. With the last category, firms with other firms, differences in
the size of the partnering firms (i.e. small / large, small / small, or large / large) can have a
large impact on the technological development cycle.
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In the early stages of the technology life-cycle (emergence and growth), the
technology leads the market while in the latter stages of the technology life-cycle
(maturity and decline) the technology lags the market (see Figures 4 & 5), while both
technological and market processes evolve in parallel and complement and reinforce each
other’s effects (see upper part of Figure 8). Around the inflexion point (the transition
between the growth and the maturity stages), the technological and market processes
exhibit both “push” and “pull” attributes.
III. The Satellite Sector
Satellites can be classified according to their mass.
Table 4 describes the
nomenclature for how satellites may be classified (University of Surrey Website).
The trend towards small satellites (“small satellites” - which encompasses pico
through mini) actually began in the military world. The cost to launch a satellite into
Low Earth Orbit (LEO) - which means anywhere from 200-1000 km above the Earth ranges from $5,000-$10,000 per kg of satellite (Jilla & Miller, 1995).
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Technological Innovation
and
Commercialization Processes
M
M
T
T
Decline
(D)
Maturity
(M)
Emergence
(E)
Tech Push
Mkt Pull
Growth
(G)
Tech Push
Mkt Pull
Tech Pull
Tech Pull
Mkt Push
Mkt Push
Figure 8. Interdependence of Market and Technology: Pull vs. Push
Table 4. Satellite Classification by Mass
Satellite Type
Large
Medium
Mini
Micro
Nano
Pico
Mass (kg)
>1000
500-1000
100-500
10-100
1-10
<1
A typical large communications satellite can weigh well over 4,000 kg, hence
resulting in significant launch costs.
satellites to reduce launch costs.
Thus, the military wanted to develop smaller
In addition, the military was exploring large
constellations of satellites for ballistic missile defense purposes, and the sheer cost of
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these proposed programs drove down the size and cost of the individual satellites.
However, the civil world (commercial and NASA) did not jump into the "small satellite"
wagon right away.
In the commercial world, the most typical satellite is a large
communications satellite located in geo-synchronous orbit that provides telephone, TV,
and data services. The larger the satellite, more transmitting channels are available, and
hence more revenues may be generated. Thus, there was little incentive to build smaller
satellites. Similarly, NASA was building increasingly larger scientific satellites in order
to increase their performance and data gathering capabilities.
However, this trend has begun to change. In the commercial sector, large satellite
constellations such as the 66 satellite Iridium system by Motorola, or the approximately
300 satellite system by Teledesic are being designed to be placed in LEO. Since they will
be closer to the Earth (by a factor of around 60 compared to geo-synchronous orbit), large
power and antenna requirements are not necessary, and the overall satellite can be built
smaller. For NASA, the string of high visibility accidents that it was plagued with in the
late 1980’s and early 1990’s - namely the initially flawed Hubble Space Telescope and
the partial failure of the billion dollar Galileo spacecraft to Jupiter - caused it to reexamine its scientific spacecraft design practices. Public scrutiny, and the businessoriented leadership of Dan Goldin, who became the NASA Administrator in 1991,
sparked the trend for a “faster, better, cheaper” approach to satellite manufacturing.
Instead of pure performance goals, performance per cost became the driving goal given
that government budgets in space were becoming mere shadows of what they were during
the Apollo era.
Thus, the “small satellite revolution” emerged - the development of low cost, but
high risk, satellites. The trend was away from large satellites, like the Intelsat-6 which
provides much of the Pacific region with telecommunications and weighs 4,600 kg, is
6x4x12 m, and produces up to 2600 W of power, and towards a typical micro-satellite
that weighs around 50 kg, is 0.6x0.4x0.3 m, and produces a mere 30 W of power.
Corresponding costs for the satellite are reduced from hundreds of millions to a few
million dollars. The cost of launching can also be significantly decreased not only due to
the smaller mass, but also due to the use of the emerging lower-cost small launcher
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market. In addition, manufacturing timelines are reduced from up to several years to less
than a year. However, small satellites have not yet evolved to a fully mature technology,
and much work has yet to be done in developing supporting technologies such as:
1) multi-functional structures that integrate electronics, thermal control systems, and
structural functions;
2) nano-technologies
and
micro-electromechanical
systems
(MEMS)
for
communications, guidance and control, and propulsion sub-systems; and
3) distributed satellite systems, i.e. linking satellites in a constellation via data links
to enable them to operate in a cooperative fashion that can be autonomous from
ground control.
The drawback to small satellites is that due to their size and high risk approach, they
may be subjected to single point failures. However, the philosophy is that it is more
advantageous to launch many small satellites that are less capable, but cheaper, compared
to launching a few more capable, but much more expensive satellites since if a small
satellite fails, it is much easier, cheaper, and faster to replace compared to a large satellite.
IV. Comparison of Large vs. Small Businesses
In order to understand the various issues associated with entering the small satellites
industry, a small startup satellite firm that specializes in small satellites, Aero Astro, was
approached and a key employee associated with business development was interviewed.
(Jilla, 1995). Aero Astro, located in Herndon, VA, was founded in 1988 and has so far
successfully built 19 spacecraft that range in sizes and costs from less than 1 kg and
approximately $100,000 to around 250 kg and a few million dollars. The firm specializes
in quick turnaround times due to its size (about 40 employees). Their latest product is
“Bitsy”, a 1 kg satellite that has applications in remote sensing, data and message store
and forward services, tracking, and space environmental testing and qualification of
components and materials (Goldberg, 1997).
The road that Aero Astro has treaded has not been an easy one. At the present, the
commercial satellite sector is not keen on the low end of satellites (i.e. small satellites),
and hence the primary customers are the government - both the military and civil sectors.
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Thus, in terms of leading edge technology small satellites, the government has basically
defined and captured the market. Aero Astro, as well as other firms, are basically
producing experimental scientific satellites for NASA and the US Air Force, and these
satellites are not mass produced - only one to two of a kind at a time are built since they
are for experimental purposes. It remains to be seen how long it will take before the
government begins to acknowledge the value of small satellites, and evolve towards
programs that will require production of batches of satellites for actual applications.
Financial and Regulatory Factors
The dominant role of the government as a customer has led to a plethora of problems
that startup firms must face. Since a company is dealing with the government, it is
subjected to the Federal Acquisition Rules (FARs), which in general are not very
favorable to small businesses. One of the key points of the FARs is the specification of
how much overhead can be charged on a contract. This gives large firms a strategic
advantage in that they usually have the necessary supporting staff to deal with these
regulatory issues, and are big enough so that they can absorb the cost into their overhead
structure. Whereas for small firms, such as Aero Astro, this overhead (or “nonrecoverables”) eats into their profit margins.
For typical research contracts, the government pays a contractor the cost plus a “fee”,
where that “fee” can be on the order of 5-6% of the contract. Depending upon the
organization involved, the overhead associated with the project can be 3% or more,
leaving only 1-2% for profits. Small firms are generally in dire need for cash, and are
paying interest and probably finance charges on loans needed to start up. Moreover, since
the contracts are not volume orders (i.e. money can not be made on a multiple unit
production run), small firms are decidedly at a disadvantage.
It is true that the government has initiated programs to encourage small businesses,
such as the SBIR program. However, Phase I of an SBIR generally only awards up to
$75,000 for a proposal, and the Phase II process can take up to 4-5 years (where awards
may be around $750,000). Since the satellite sector is very capital intensive, the amounts
of money awarded are not truly sufficient. In addition, private investment firms will not
19
invest in such high-tech and high risk projects unless the company in question has a
strong heritage, has very well known connections including corporate and government
sponsors, or there is some strong guarantee that the technology will actually take off
beyond the scope of government R&D. Given investors’ current horizons of seeking a
return within 2-3 years, they are reluctant to invest in such high risk projects.
Standards and Cultural Factors
Another consideration that acts against small firms that are engaged in government
R&D is the issue of standards. Hardware for the Department of Defense must conform to
certain military specifications (MILSPECS), although there are initiatives now being
undertaken to reduce the rigidity of this process. The overhead burden associated with
conforming to these standards can be quite overwhelming, especially for firms that have
not had any prior experience in this area. In contrast, large aerospace firms that have
worked with the government for decades in many cases, have a whole system
institutionalized to deal and conform with these standards.
The last aspects of technology management that will be discussed are the human and
cultural influences. Small firms like Aero Astro have very streamlined organizational
structures that have few layers of management, and managers are multi-functional, i.e.
they may handle business development as well as technical work, or they may be a project
leader and handle company-wide finances. This approach is quite different from large
established firms where personnel in general have more narrow tasks. However, the way
that large companies structure themselves can be situation-specific.
In the case of Hughes Aerospace, it has not positioned itself into the small satellite
market, and hence it is deriving all its business from large conventional satellite
production. Thus, its organizational structure is very matrix oriented:
engineering
disciplines are assigned to projects, and a central laboratory supports research and
development. On the other hand, Lockheed Martin is exploring the small satellite field,
and it is doing so by employing organizational structures more similar to small firms.
Lockheed was the originator of the “Skunk Works”, a lean aggressive organization
focused on R&D and rapid development of cutting-edge technologies. However, the
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engineers in the group are unencumbered with overhead issues which are handled by
other resources within the company at large. From the cultural point of view, aside from
the infrastructure a large company has to handle regulatory matters, as well as financial
support, a small firm and a “Skunk Works” of a large firm can be very similar.
The central question is whether Aero Astro is singular in its disadvantaged position,
or whether it has not developed a suitable business plan or whether its marketing skills
are not sufficient. Even after almost ten years in business, it is quite apparent that Aero
Astro is still in the entrepreneurial stage of the organizational life cycle, i.e. it is still
asking what must be done to survive. An assessment of other firms that work in this
sector such as Spectrum Astro based in Arizona, shows that their clientele is also solely
the government. This company has also entered the small satellite market, but many of
their other products are in the medium satellite category, so they are more diversified and
stable. Hence, they are in a better position to absorb initial startup costs in the new small
satellite arena.
It should also be pointed out that academia has started to be a player in developing
small experimental satellites, with the University of Surrey in the UK being the dominant
player in this regard. They have actually spun-off a private company and are marketing to
other universities as well as governmental agencies in Europe.
The University of Surrey Satellite Technology Ltd. (SSTL) is a wholly owned
subsidiary of the University of Surrey that specializes in the development and
manufacture of small satellites for a wide array of customers. SSTL works in close
collaboration with the University’s Center for Satellite Engineering Research (CSER).
Founded in 1985 by the Dept. of Electrical Engineering, the Surrey activities with small
satellites had their inception with the amateur radio satellite organization, AMSAT, and
the University helped supply personnel and facilities.
SSTL’s strategy in the beginning was to work with other research organizations and
to make small research satellites. As their expertise developed, they started to work for
commercial companies.
Most of these satellites were ultimately for government
customers, but by working for a larger firm, they were able to buffer themselves from
dealing with any excessive legal/regulatory environments. An example is the Cerise
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satellite which was for the French Ministry of Defense. However, SSTL had a contract
through Alcatel, the French telecommunications firm.
Recently, SSTL has started working directly with governments, but they have
included smaller countries such as Brazil and Thailand – countries that have not
developed yet too cumbersome acquisition bureaucracies. SSTL feels that the market for
small satellites lies in the commercial arena, as well as with governments that have not
been historically large space-faring nations.
In other words, they are addressing
governments who prefer, small, cheap satellites.
However, SSTL has also won contracts with NASA and the USAF, but they do
not seem to be facing excessive regulation. Perhaps this is because these contracts are
going through some streamlined foreign technology acquisition process which could
create an unfair advantage for foreign firms versus small US start ups. However, it is
important to realize that it was NASA and the USAF that came to SSTL specifically
because they had developed a strong reputation as leaders in the field of small satellites –
SSTL was not looking specifically to large government space programs as their customer
base.
In addition, SSTL’s market strategy is focused on technology transfer. SSTL will
provide training and technology and licensing to others with regard to small satellite
expertise. They are not concerned about giving their technology away (as long as their
intellectual property rights (IPRs) are respected), because they feel they have sufficient
experience that they will always allow them to remain ahead on the technology
development curve. So while they sell a current technology, they are already working on
the next technology cycle.
These findings shed a different light on this sector in contrast to our discussion
with Aero Astro, which may have suffered by being almost a captive supplier to the US
government and possibly ignoring other technology commercialization opportunities in
the open markets. Along with possibly passing up on commercial opportunities for global
growth, dealing mostly with the US government has inherent risks in overcoming
regulatory hurdles associated with government procurement processes and this may have
also impacted Aero Astro's fortunes. Moreover, dealing mostly with the government
22
injects a bias for large, long term contracts which translates into a competitive
disadvantage when pursuing smaller commercial or even government bids where
flexibility and responsiveness are determinants of success when competing in a very
dynamic, global environment. By comparison and contrast, SSTL through being
aggressive and flexible in the commercial arena, has won NASA’s attention and has been
included in NASA's satellite catalog that lists preferred satellite vendors 1.
V.
Discussion of our Empirical Findings in the Context of our Conceptual
Framework
The firms examined in our study appear to be sensitive to the dynamics of
technological innovation discussed above, as their behavior in terms of strategic R&D
decisions and partnering indicates. Moreover, they seem to be susceptible to both
technology push / market pull as well as technology pull / market push in terms of their
responsiveness to market, technological and regulatory forces. Currently, the small
satellite market appears to be dominated by technology push forces.
However, the "Davids" (the small firms), seem much more sensitive to market and
technology influences and given their small size, are able to react faster to such changes.
They seem to be more driven by technology push and pull rather than market pull or push.
Technology seems to make the difference in the strategic choices these firms make and in
the way they evolve along the S-curve (see Figure 4 & 8).
The "Goliaths" (the large firms), seem to have a harder time keeping up with
technology and market changes, given their larger size and they are also less sensitive to
such influences compared to the "Davids". They also seem to be more market pull and
push-driven rather than technology pull or push-driven compared to the smaller firms and
this may have to do with their size as well as the nature, structure and dynamics of the
small satellite industry.
1
Notes on discussion with Mark Allery, Business Manager, U. of Surrey Satellite
Technology Ltd. (SSTL), 22 July 98.
Also see: http://www.ee.surrey.ac.uk/EE/CSER/UOSAT/
23
The large firms operate on larger budgets with longer timelines and longer lead
contractual obligations that both protect and constrain them in terms of the changes they
can adopt in mid-course. The small firms have to be more opportunistic to survive and
prosper especially through leveraging their technological core competencies by
identifying and pursuing emerging opportunities derived from the technologies they
develop and own.
Comparing the large versus the small firms in terms of their emphasis on and
sensitivity to pull versus push influences, it seems that the smaller firms are more "pushdriven" whereas the larger firms are more "pull-driven". This may well be the result of the
factors visited above that distinguish the two groups as well as cultural and regulatory
factors. The smaller firms are much more entrepreneurial and innovation-driven whereas
the larger firms are more linear in their behavior, heeding to anti-trust considerations,
established customer relations and industry norms that significantly limit their ability to
be proactive and instigate change unlike their smaller competitors and complementors.
The "Goliaths" are often able to influence broad market practices and consumer
preferences thus establishing technical and market standards and hence, they often rely on
market "push". The "Davids" try to make up for the lack of critical size and market
influence with their technological competence and thus try to pry open current and
potential market niches through either technology "push" or "pull".
This approach
enables the "Davids" to use the power of new and better, faster, cheaper products or
services that could convert existing consumers of competing products and services or
make consumers out of previous non-consumers.
VI.
Conclusions
The satellite and launcher sectors of the space industry have been examined to
evaluate the opportunities for large versus small businesses in developing new
technology. It appears that if a company wants to focus on a specific new technology,
and the government is the sole customer the opportunities for technology development
may not be so promising compared to those of a large firm that decides to enter that
sector, unless they are able to reach production status versus only R&D status. A possible
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solution may be the formation of strategic alliances between large firms that have the
financial capital and infrastructure to handle regulatory issues, and small firms that
possess the technological capital (Carayannis et al, 1996).
According to DeWar and Dutton (1986), it appears that “larger firms are likely to
have both more technical specialists and to adopt more radical innovations” compared to
smaller firms. This observation, however, was drawn from a study of footwear
manufacturers. It should be noted that any such trends or generalizations are heavily
context-specific and are dependent upon many factors such as, the degree of
governmental involvement (i.e. sole investor or market creator), and the environment –
including economic, social, and political factors, the state of development of technology,
and information about technology (Utterback, 1974).
One can say that compared to other sectors, the commercial space industry is still in
its early development in terms of being driven by a private market versus government
direct involvement. In a number of years, it may be possible to conduct a study similar to
an interesting study conducted on industrial biotechnology and how government policy
and other factors have shaped the different patterns of industrial development which have
evolved in the US and the UK (Senker, 1991).
Like other industries such as perhaps the semiconductor industry, if small
satellites technology evolves to a critical technology for the US, then it would be
paramount to foster a thriving, sustainable, and competitive indigenous industry
comprising large as well as small firms. This could ensure national competitiveness and
security benefits for the long term.
25
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