1

Davids vs. Goliaths in the Small Satellite Industry:The Role of Technological Innovation Dynamics in Firm Competitiveness

Elias G. Carayannis, PhDManagement of Science, Technology and Innovation Program

School of Business and Public ManagementThe George Washington University

Washington, DC 20052(202) 994-4062

(202) 994-4930 (Fax)Email: caraye@gwu.edu

Robie I. Samanta Roy, PhDResearch Staff Member

Institute for Defense Analyses1801 N. Beauregard StreetAlexandria, VA 22311-1772

Accepted for publication, International Journal of TechnovationBest Paper Award, PICMET 1999

2

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 oftechnological innovation is developed and applied to the small satellite industry.Important components of this framework include: a) the speed and acceleration oftechnological innovation, and b) the linear and non-linear interactions betweentechnology producers and users (technology and market push and pull mechanisms).

We conceptualize technology development and commercialization as an ongoingcooperative and competitive (co-opetitive) process involving enabling and inhibitingfactors or mechanisms which govern the speed and acceleration of technologicalinnovation. Enabling factors may include CRADAs, strategic alliances, spin-offs,intellectual property rights, SBIRs, and mentor-protege relationships. Inhibiting factorsmay include excessive regulation at state, national, and international levels, technological,structural or financial barriers to market entry, competitor response to market entry, andculture clashes such as engineering versus marketing culture or firm versus governmentversus university cultures. These enabling and inhibiting factors influence and are alsoinfluenced 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 / orabsorb 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 ofinnovation are directly proportional to its long term competitiveness and market success.

This conceptual framework was employed to evaluate the capability of small andlarge 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. Thesefirms are small relative to the large aerospace giants (such as Lockheed Martin andBoeing) but they vary in size and age. Two of the firms studied are US start-ups and oneis a British university spin-off. Our findings were synthesized to derive insights thatcould be generalized for the benefit of technology entrepreneurs as well as policy makersin other technology-driven and alliance-rich industries.

3

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

4

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.

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

LockheedGen Dynamics (Aircraft)Martin MariettaGE AerospaceGen Dynamics (Space)Loral

BoeingRockwellMcDonnell Douglas

RaytheonE-SystemsTexas InstrumentsHughes

NorthrupGrummanVought AircraftWestinghouse

1993 1994 1995 1996 1997 1998

ProposedMerger

Cancelled

1999

5

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

6

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.

TechnologiesMarket

Commercialization Process

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, spin-

offs, 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).

7

Table 1. Technology Transfer (T2) and Commercialization

Enablers and Inhibitors

T2 & COMM. ENABLERS T2 & COMM. INHIBITORS

• CRADAs

• STRATEGIC ALLIANCES

• SPIN-OFFS

• IPR LICENSING

• SBIRs

• MENTOR / PROTÉGÉ (LEARNING CATALYSIS)

• EXCESSIVE REGULATIONS

• BARRIERS TO MARKET ENTRY

• COPMPETITOR RESPONSE

• CULTURES MISALIGNMENT

(ENGINEERING VS MARKETING /

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

8

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.

9

Figure 3a: From a Linear Technology Push - Market Pull to ...

Figure 3b: ...a Non-linear Technology Push and Market Pull

Figure 3c: ... or a Non-linear Technology Pull and Market Push

TechnologyCommunity

UserCommunity

User Pull

Technology Push

TechnologyCommunity

UserCommunity

User Push

Technology Pull

TechnologyCommunity

UserCommunity

User Pull

Technology Push

10

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

Market Pull Market Push

Technology Pull ------------ Technology Satisfying

Market Seeding

Technology Push Market Satisfying

Technology Seeding

-------------

Table 3. Technology vs. Market Push and Pull:Relative Market Dominance Perspective

Market Pull Market Push

Technology Pull ------------ 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

11

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.

12

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

Emergence(E)

Growth

Maturity(M)

Decline(D)

Market Pull

Technology Push

Technology Pull

Market Push

LEGEND

TechnologyPerformance/Price

TimeNote: The length of the arrows at each stage indicates the relative influence of factor in shaping the development of thetechnology. In the earlier stages of technological development (E and G), market pull (such as customer demands) andtechnology 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”

13

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.

Figure 5. Technological Innovation (TI) vs. Technological Commercialization (TC)

Dominance during the Technology Life-cycle

T M

Commercialization ProcessTech Push

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,

TI TC

E G M D

ContributionDominance

TECH. LEADS COMM. TECH. LAGS COMM.

14

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.

M T

Technological InnovationMkt Push

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.

15

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).

16

Figure 8. Interdependence of Market and Technology: Pull vs. Push

Table 4. Satellite Classification by Mass

Satellite Type Mass (kg)Large >1000Medium 500-1000Mini 100-500Micro 10-100Nano 1-10Pico <1

A typical large communications satellite can weigh well over 4,000 kg, hence

resulting in significant launch costs. Thus, the military wanted to develop smaller

satellites to reduce launch costs. In addition, the military was exploring large

constellations of satellites for ballistic missile defense purposes, and the sheer cost of

Emergence(E)

Growth(G)

Maturity(M)

Decline(D)

Tech PushMkt Pull

Tech PushMkt Pull

Tech PullMkt Push

Tech PullMkt Push

M

Technological Innovationand

Commercialization Processes

TT

M

17

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 re-

examine its scientific spacecraft design practices. Public scrutiny, and the business-

oriented 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

18

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.

19

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 “non-

recoverables”) 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

20

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

21

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

22

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

23

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 SatelliteTechnology Ltd. (SSTL), 22 July 98.Also see: http://www.ee.surrey.ac.uk/EE/CSER/UOSAT/

24

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 "push-

driven" 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

25

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.

26

References:

Aero Astro website: http://www.aeroastro.com/industry/aeroastro/home.html

Carayannis, E.G., et al, “Strategic Alliances as a Source of Early-Stage Seed Capital inTechnology-Based, Entrepreneurial Firms”, Proceedings of the 29th Annual HawaiiInternational Conference on System Sciences, IEEE, p. 211-216, 1996

Carayannis Elias, Profile of Federal R&D Management Practices in the United States:Focus on NIST ATP, NSF ERC, NIH, USDA, and DOE Programs [Sponsored by theDirectorate General XII of the European Commission], May 1998

Carayannis Elias, “Knowledge Transfer through Technological Hyperlearning in FiveIndustries”, International Journal of Technovation, 1999

Carayannis Elias and Jeffrey Alexander, “Winning by Co - Opeting in Knowledge -Driven, Complex Environments: The Formation of Strategic Technology Government -University - Industry (GUI) Partnerships”, Journal of Technology Transfer, 1999

Carayannis Elias, “Higher Order Technological Learning as Determinant of MarketSuccess in the Multimedia Arena; A Success Story, a Failure, and a Question Mark:Agfa / Bayer AG, Enable Software, and Sun Microsystems”, International Journal ofTechnovation, v. 18, n. 10, 1998

Carayannis Elias and Jeffrey Alexander, “The Wealth of Knowledge: ConvertingIntellectual Property To Intellectual Capital In Co-opetitive Research and TechnologyManagement Settings”, International Journal of Technology Management, v. 17, n. 3/4,1998

Carayannis Elias and Jeffrey Alexander, “Secrets of Success and Failure inCommercializing US Government R&D Laboratories Technologies: A Structured CaseStudies Approach”, International Journal of Technology Management, v. 17, n. 3/4, 1998

Carayannis Elias, Everett Rogers, et al, “High-Technology Spin-offs from GovernmentR&D Laboratories and Research Universities”, Technovation, vol. 18, n. 1, pp. 1-11,1998

DeWar, R.D. and Dutton, J.E., “The Adaptation of Radical and Incremental Innovations:An Empirical Analysis”, Management Science, Vol. 32, No. 11, pp. 1422-1433,November 1986

Peter Goldberg, Authors interview, Aero Astro, November 1997

27

Gover James and Elias Carayannis, “Technology Transfer between Sandia NationalLaboratories and Sematech: A Success Story”, Sandia Report 1024, May 1998

Jilla, C. and Miller, D., “Satellite Design: Past, Present, and Future”, Int. J. of SmallSatellite Engineering, Vol. 1, Issue 1, December 1995.

Rogers Everett, Elias Carayannis, et al, “Technology Transfer from Government R&DLaboratories in the United States and in Japan: Technological Innovation and DiffusionMechanisms in High-Technology Industry” [Part of a five year study sponsored by theJapanese Ministry of International Trade and Industry (MITI) and the US Air ForceOffice of Research], 1996

Meyer Richard, Raymond Radosevich, Elias Carayannis, Michael David, and JamesButler, “The 1995 National Census of Early-Stage Capital Financing”, Orion TechnicalAssociates, Albuquerque, NM, 1995

Rogers Everett, Elias Carayannis, Manabu Eto, et al, “Technology Transfer fromGovernment R&D Laboratories in the United States and in Japan: Focus on NewMexico”, [Part of a five year study sponsored by the Japanese Ministry of InternationalTrade and Industry (MITI) and the US Air Force Office of Research], 1995

Rogers Everett, Elias Carayannis, et al, “Cooperative Research and DevelopmentAgreements (CRADAS) as Technology Transfer Mechanisms”, R&D Management,Spring, 1998

Rycroft, R.W. and Kash, D.E., “Technology Policy in a Complex World”, Technology inSociety, Vol. 16, No. 3, pp. 243-267, 1994

Senker, J., “National Systems of Innovation, Organization, and Learning and IndustrialBiotechnology”, Technovation, Vol. 16, No. 5, pp. 219-229, 1991

University of Surrey Space Engineering Research Center website:http://www.ee.surrey.ac.uk/CSER/UOSAT/

Utterback, J., “Innovations in Industry with the Diffusion of Technology”, Science, Vol.183, pp. 620-626, 15 February 1974