DEFINING TECHONOMIC METRICS

One key element of this book is to demonstrate how to develop a techonomic metric.
A metric is a key measurement that is used to monitor the progress of a system.
The amount of gasoline in an automobile is an example of a key metric frequently
monitored by the driver to determine when refueling is necessary. As the fuel gauge
moves from full to empty, there comes a point in time where the operator needs to
take action to refuel. The timing of the refueling decision may have many other
contributors (availability of refueling stations, capacity of the fuel tank, fuel efficiency
of the vehicle, even the accuracy of the fuel gauge itself), but the simple,
trustworthy fuel gauge is the primary metric used by the driver to decide to refuel.
Techonomic metrics for the marketplace are similar to the fuel gauge for the
automobile, with the additional proviso that they measure a set of factors governing
both technology (performance) and economy (cost). Continuing with the automotive
analogy, a techonomic metric would divide the vehicle fuel efficiency (miles/gallon
or km/l) by the cost of fuel ($/gallon or $/l) to create a techonomic metric of vehicular
operating efficiency (miles/$ or km/$). Increase the fuel efficiency by better design
(lighter weight, reduced aerodynamic drag, etc.) or decrease the fuel cost by using
an alternative source, and the techonomic metric will increase. Techonomic progress
for a single fuel type (i.e., gasoline) can be measured over time, or a techonomic
comparison of the best practices for two different fuels can be simultaneously
compared (i.e., hybrid-electric vs. gasoline). Good techonomic metrics provide a
value that can be consistently determined by different observers combining technology
and economic information into a single observable quantity.

To qualify as “techonomic,” a metric must include data for both performance (technology) and
price (economy) into a single quantity representing key elements of the endeavor
being monitored.

Understanding any marketplace requires observation of the key transactions
related to endeavors.

Transactions expose the societal value of endeavors allowing
their observation.

Once the significant contributors to the performance and cost of
endeavors are determined, the next step is to consider how shifts in technology affect
those key contributors. Technology may affect production, distribution, source location,
financial exchange, publicity, shelf life of goods, or a host of other factors that
ultimately determine the quality/cost proposition provided to the end user.
In bullet form, here is the simplified thought process for developing a techonomic
metric for a give marketplace endeavor:

Find the technology and economic components required to deliver the
fundamental endeavor in the market and combine them into a techonomic
metric.
• Gather historic market data for the technology and economic components,
paying close attention to any major shifts relative to technology introductions
that have affected the techonomic metric. Where historical data in
terms of dollars are not available, consider the use of a timeless economic
equivalent such as labor hours, land mass, or production speed.
• Project the effect of emerging technologies or economies of scale on the
future of the techonomic metric.
• Visualize key technological opportunities that could restructure the
techonomic metric for a given endeavor.
This process seeks insight into the timing and magnitude of the possibilities as
well as the magnitude. Once we have established the techonomic metric established
for a given endeavor, the relationship between technology advance and economic
results is defined. But it is also critical to understand that the time required for the
technology to impact the marketplace is critical to the wise deployment of resources.
How many failed entrepreneurs lament that they were 5 years ahead of their time?
The desire is to be 5 minutes ahead of your time, utilizing new technologies to
master a receptive marketplace. Advances in mass communications have increasingly
made the marketplace adoption of technological developments more rapid. Often,
the determining factor of the market readiness of a new technology is the cost for
widespread deployment.

The cost acceptable to the marketplace may not be the initial cost that a supplier
can offer profitably. As a product gains market share, economies of scale in production
and distribution enable cost reductions in the product that were never imagined
by the original developers. In
Crossing the Chasm, Geoffrey A. Moore elegantly
describes the reducing cost curve for new product introductions as they find an everincreasing
market.

Increasing market presence allows mass production techniques
and spreading of development costs over a larger product base, thereby reducing the
product price.

The reduction of production costs is most evident in the field of electronics. An
embedded (self-contained) control system for the first generation of a product may
be cost prohibitive but required to become the first to market. A loss-leader price
may be required to capture the initial marketplace, but the combination of quantity
production and progressively diminishing electronic costs may ultimately reward
the successful first mover as the marketplace embraces the product.
Before finishing our discussion, let us note
techonomic metrics can be used for
comparison of different categories of information depending on the insight sought
.
Metrics may be applied to simultaneous operations at different locations or using
different processes to discover and understand the best approach for an endeavor.
Metrics may be applied to the same endeavor at different points in time to determine
how technology changes have affected the endeavor or might affect it in the future.
In the end, the metric is only as good as its components and the data used in its
calculation, but the value of including functional and financial information in an overarching measurement is the key of techonomics. This framework provides
a point of observation giving perspective and insight into diverse and complex
decisions.