Technology Forecasting

In my last article, Technology Management, I had brought out aspects related to what is technology management, why technology needs to be managed, its components, the process and its affect on business. Continuing with the same topic, in this article I intend to bring out some important aspects related to technology forecasting.

Lets start with the basic question, what is technology forecasting? Well, technology forecasting comprises forecasting the future characteristics of useful machines, procedures or techniques. The forecast is neither prediction nor pure speculation. It is a scientific and artistic approach to understand the technologies that may be available for commercialisation in the future. This forecasting would depend on what is the state of research in applied sciences as well as in pure sciences. It takes into consideration the work done till now, the rate of absorption of various technologies and the rate of development in the area of interest. 

The main functions of any technology forecasting are:-
  • Identify what is possible?
  • Establish the rate at which progress can be made.
  • Describe the various alternatives that can be developed/ used.
  • Indicate what can be achieved.
  • Provide a reference standard plan.
  • Furnish signals when to discontinue the current activities if the goal is met or cannot be met.

Why do we need to do it? Technology forecasting is required to determine the direction in which technology and hence consumer preference may move to. This is required to plan out the focus area for technology and product development. This would prepare the firm for the expected  future challenges and competition. It would also indicate the way ahead for developing competitive advantage to strengthen own position.
The main aspects of technology forecast, as in any business decision are, utility of the activity and cost of the activity.

Utility of forecast - the utility of forecast depends upon:-
  • Value of forecast in terms of quantitative probability of the event occurring.
  • The confidence in the forecast.
  • Time period of forecast.
All the aforementioned components interact with  each other to determine how useful the forecast is to the firm. The forecast value increases with increase in time and then tapers off. If the time period of forecast is large, say 15 or 20 years, then the confidence in the forecasted value would be low. In fact, the longer the time period, the lesser is the confidence. As a result, the utility of the forecast to the marketer or the product developer will keep reducing if the confidence reduces. Hence, the time period for forecast should be selected in such a way that the utility of the forecast is maximum.

Cost of Forecasting -  Next issue is the relationship between the accuracy of forecast and the forecasting process. A number of forecasting processes can be used, these may vary from pure intuition to extrapolation to statistical models to regression to advanced mathematical models. The accuracy of the forecast and hence its utility increases as we move from intuition to mathematical models. However, the cost of forecast increases exponentially from intuition to mathematical model. Hence again, an optimal accuracy of forecast needs to be determined.  

Once the accuracy and utility acceptable has been determined, the process can be started using the relevant process or methodology listed above. Technology forecasting is also used by countries and business associations to determine  road maps for development of technologies and competencies at national or industry level and to develop various policies related to industry and technology.