MASTER’S THESIS
Diffusion of a new technology:
A case of Real Time Locating Systems
Name: Frederik Daugaard Andersen
Study: It Management and Business Economics – cand.merc.(it.)
Supervisors: Professor Niels Bjørn-Andersen and Professor Jonas Hedman, ITM, CBS Number of characters: 168.807
Date: 31/5-2013
Table of contents
1.0 Abstract ...5
1.1 Introduction ...5
1.2 Methodology...7
1.3 Research question ...10
2.0 RTLS...11
2.1 Definitions ... 11
2.2 RTLS and RFID – Difference in usage and understanding... 12
2.3 Technical background... 14
2.4 Wireless technologies ... 17
2.5 How and where does RTLS fit in?... 20
2.6 Standards ... 21
2.7 Gartner’s hype cycle ... 24
3.0 RTLS Barriers ...27
4.0 Theory...30
4.1 Innovation ... 31
4.2 Public funding ... 32
4.3 Alliances ... 35
4.4 Standards ... 39
4.5 Technology brokering ... 43
5.0 Case studies ...45
5.1 Fritz Hansen ... 45
5.1.1 About... 45
5.1.2 RTLS features ... 47
5.1.3 Analysis ... 47
5.2 Post Danmark ... 51
5.2.1 About... 51
5.2.2 RTLS features ... 53
5.2.3 Analysis ... 53
5.3 The new university hospital (DNU) ... 56
5.3.1 About... 56
5.3.2 RTLS features ... 59
5.3.3 Analysis ... 59
5.4 Container Centralen ... 62
5.4.1 About... 62
5.4.2 RTLS features ... 64
5.4.3 Analysis ... 64
5.5 Copenhagen Airport ... 66
5.5.1 About... 66
5.5.2 RTLS features ... 67
5.5.3 Analysis ... 68
6.0 Discussion ...69
6.1 Drivers and Barriers... 74
7.0 Conclusion ...78
8.0 Appendix...80
9.0 Bibliography...92
List of figures and tables Figure 1 - Electromagnetic Spectrum ... 15
Figure 2 - RTLS system ... 17
Figure 3 - Gartner’s Hype Cycle ... 25
Figure 4 - Proprietary vs. Open Standards ... 40
Figure 5 - The Integration challenge (DNU) ... 59
Table 1 – Barriers of RTLS... 30
Table 2 - RTLS vs. RFID # 1... 75
Table 3 - RTLS vs. RFID # 2... 76
Table 4 - RTLS vs. RFID # 3... 77
Acknowledgements
The value of this thesis is based on foremost interviews with some of the most influential people in the industry. Without the help and collaboration from these the thesis would not have been complete.
The process of contacting different people has been an extremely positive experience where almost every contact made has resulted in concrete meetings.
A special gratitude should go to Henrik Granau, Chairman RFID Denmark, whose contributions has been indispensable. His help in connecting me to influential people in the industry has affected the quality of the gathered data immensely.
I would like to thank Professor Niels Bjørn-Andersen, and Professor Jonas Hedman, ITM faculty, Copenhagen Business School, for their useful comments, remarks, and support throughout the learning process of writing this master’s thesis.
I should also like to thank the following people and the companies they represent for allowing me to use their cases in my thesis:
Rasmus Nørgaard Andersen, Morten Buur, Jens Jørgen Abrahamsen, Niels Bjøl, Esben Wolf, Mikkel Harbo, Steen Johansen and Jan Zacho.
Lastly I would like to thank all the people who volunteered for questioning expanding my field of knowledge in the process whilst having had major contributions to the shape of this thesis.
Allan Reichenbach, Sacha da Silva, Douglas Hill, Claus Jensen, Michael Hansen, Al Salour, Ulrik Havsager, Klaus Nissen, Bodil Madsen, Torben Utoft Petersen, Lasse Cederqvist, Rita Westergaard and Hanne Frosch.
Diffusion of a new technology – a case of Real Time Locating Systems
1.0 Abstract
Real Time Locating Systems (RTLS) is one of the latest solutions for tracking objects in real time. RTLS has many advantages and can be combined with many different technologies depending on the context in which it is applied. RTLS is situated within a huge technological field, which makes generalizing of it difficult - There is no one-fit-all solution. Acknowledging the potentials of the new technology this thesis sets out to identify factors influential to the diffusion of RTLS, and provide suggestions for how to ensure the technology could become more widely adopted in the future.
1.1 Introduction
Imagine a world where anything can be found at any time at any place, and at the same time reveal all relevant information there is to be found on a given asset.
…you are late for an important meeting but can’t find your car keys. A simple application on your smartphone can tell you exactly where in the house you left your keys.
…when grocery-shopping; long queues at the counter can be completely avoided. In the supermarket of tomorrow products are pulled down from smart shelves into shopping carts which automatically identify products and prizes. At the exit your personal ID card is recognized by readers as well as all the groceries in the cart. The amount is then automatically withdrawn from your account.
…In the future supply chain; supermarkets can measure all relevant and necessary data regarding a tomato’s travel from Chile to Germany. Time, temperature and humidity are some of the factors companies can measure supplier performance by to ensure only the best products are sold to the customer and only the best suppliers chosen.
The thesis starts out by introducing the concept of RTLS. It is argued that RTLS is closely related, and often confused, with the concept of RFID (Radio Frequency Identification) technology. This correlation is investigated in more details.
The essence of the thesis remains to; find out why the technology has not yet been utilized to the extent the potential allows it to, which is firstly sought explained through identifying barriers behind RTLS.
Secondly, and more importantly, drivers of RTLS are identified through five different cases of successful RTLS implementation. Conclusively the thesis presents suggestions on how RTLS as a technology can become more diffused.
“The need for accurately tracking and monitoring assets and personnel in today's competitive business environment is leading to high demand for RTLS solutions worldwide. RTLS is the preferred choice as it provides
precise, real-time critical business information.” Nandini Bhattacharya, senior research analyst, Auto Identification and Data Capture, Frost & Sullivan. (http://www.zebra.com/us/en/about-zebra/media-
center/press-releases/2013/one-million-tags.html) Examples of RTLS application
Below follows two examples of successful RTLS adoption and usage. These show how RTLS is currently being applied.
The two largest airplane manufacturers in the world; The Boeing Company and Airbus are not only competing on producing the best airplanes, they are also entering a new area of competition – RTLS.
Preceding the two companies’ experiences with RTLS technology follows a history of other performance enhancing investments. First of all extravagant numbers of sensors now track performance of the aircrafts in real time (such as engine sensors), secondly both companies have started to “tag” life vests and seats to save time on safety and maintenance procedures. RTLS is the latest investment in this row. The two companies have the necessary capital to investigate in the latest technologies in the market to test and see whether any of these are capable of solving internal business challenges.
Both Boeing and Airbus own several assembly plants of enormous capacity in order to produce their aircrafts, and with thousands of square feet at their disposal, things get lost more often than not.
In the two cases RTLS works by locating important tools through; tags attached to the tools which are then identified and located by installed readers.
Contemporary RTLS technologies used for this process are mainly: Wi-Fi and Ultra Wide Band (UWB). Features of RTLS technologies will be introduced later.
More specifically RTLS is proven through triangulation techniques, mostly known from GPS, which makes it possible to pinpoint the exact location of objects. The extent of the systems obviously differs from Airbus to Boeing, but the same techniques apply.
Also within RTLS different performances can be expected depending on the supplier and manufacturer of the solutions as a lot of research and development is still ongoing. For instance, on the topic of reading distances, British UWB provider, Ubisense, claim their RTLS system can read tags up to 160 meters with a precision of 30 centimeters. (http://www.rfidjournal.com/articles/view?7408)
Though GPS has previously been known as one of the only outdoors positioning technologies (Interview with Rita Westergaard, Solution Manager at RFID Specialisten) Boeing has decided to look at the opportunities of UWB utilization outdoors as issues with lost tools do not only apply within the four walls. (Mail from Al Salour, Boeing Research and Technology)
Both companies have gained massively from their investments in RTLS already. Not having to spend time looking for needed objects they have ensured a more efficient business flow which means time is now being spent on activities adding more value to the business. Furthermore both businesses have gained an
infrastructure from which more value can be added through installation of more tags and sensors, and certainly both companies are in the process of scaling up. (http://www.rfidjournal.com/articles/view?7408) 1.2 Methodology
The commencement of the thesis was based on personal interests and a curiosity to why RTLS has not been more widely applied. The goal was to find specific factors that influence the diffusion of the technology.
Previous research on the topic of RTLS is vague to say the least, and most of the literature published on the technology has been white papers and case studies. Theory has therefore been based on the field of new/emerging technology, innovation and its diffusion.
Besides identifying drivers and barriers of RTLS, this thesis attempts to fill a gap in the theory on the technology so that it can receive more attention in the future.
The approach to attain knowledge of the subject has been of empirical inductive character. There has been no premise prior to what specific results may look like as the field of RTLS is widely unexplored when it comes to generalizing and theory making.
RTLS is a new technology and so far no specific models or theories have been formed on the basis of it. This argument is based on several observations one being that the one journal that does publish RTLS articles (RFID journal) only brings white papers or use cases. Key word searches in the large databases: EBSCO, JSTOR, and Elsevier, for the following phrases: RTLS, Real time locating/location system(s) did not produce any articles of relevance to the topic in the theory gathering process. Other pseudonyms for RTLS such as: asset tracking or asset tracing have also been attempted with the same result of “only” whitepapers or use cases. It is
acknowledged that literature within RTLS and beyond this research may exist.
The data gathering process consisted of: Interviews with non-profit organizations, experts and companies, white papers, case studies, and theory on the diffusion of new technology and innovation.
In the preliminary processes knowledge to the field was acquired through readings of material on the main characteristics of radio waves on which most wireless technologies, including RTLS is based.
Once an acceptable level of technical understanding to the field was attained Danish RTLS experts were
approached. Expert opinions were sought firstly as these would help to draw an unbiased picture of the current status of RTLS in the market as well as to obtain an understanding of the crucial elements behind the potential success of the technology. After a couple of interviews had been arranged and conducted focus was directed towards companies and real life cases. Many connections were based on introductions made early on. The frame of the interviews was broad.
The idea was to speak to companies who had:
- purchased RTLS-like technology - produced RTLS-like technology - shown interest in RTLS
The reason why the phrase “RTLS-like” is used was simply because very few Danish companies were involved with RTLS in its ideal shape such as seen exemplified through the Boeing and Airbus case. One example is Lyngsoe Systems, the biggest producer of RFID systems in Denmark. Even though their core business is not RTLS based, it was assumed speaking to them could provide relevant information on RTLS technology, as large parts of RTLS tend to build on RFID technology (which is shown later). Business cases of RTLS usage were preferred as they would reveal ideal settings for identifying drivers of RTLS.
Because RTLS cases would most likely reveal factors influential to project realization, the first priority of the interviews was the following: Attaining general knowledge of why so few investments in RTLS technology have been made in Denmark.
Data gathering was based on a great amount of qualitative data. The qualitative direction was chosen for different reasons. Because RTLS is a phrase only half of every CIO/CTO have heard of, according to the chairman of RFID Denmark, Henrik Granau, the quantitative method would only be relevant if all CTO/CIO’s were reached, which in itself was unrealistic. Acquiring answers from all of them remained an even more difficult task especially as many would not know about the technology.
Semi structured interviews allowed people to open up and talk about the projects they were involved in and which they had knowledge to. Loosely structured interviews were preferred in many respects because some companies were reluctant to open up and talk about their technology.
Each interview took point of reference in a specific case of the company in question. This allowed for a broader discussion later in the interview. In most of the interviews this strategy worked because the company’s own case could be related to the general discussion of RTLS and its diffusion. This also provided very useful and detailed answers. It is claimed that the most important and influential companies and experts in Denmark have been spoken to or mentioned at some point.
The biggest RTLS providers are situated outside of Denmark and both American Aeroscout and British Ubisense were approached without luck. The only foreign company spoken to was The Boeing Company and took place over Cisco’s WebEX.
Results from interviews were used to find similarities and dissimilarities in conceptions, and opinions of RTLS.
One potential outcome could be to find that what one company would see as a major issue with RTLS another would see as a major potential thus suggesting further research into this gap.
A goal from conducted interviews was to gain an understanding of the current state of RTLS and its main challenges. In many interviews issues of price of complex technology was reiterated.
In the cases where RTLS had been implemented it was interesting to find out, why that was, when many other companies and experts had pointed out strong barriers of the technology.
From approximately ten potential cases, five were eventually chosen, each relevant to discuss in agreement with theory on diffusion of innovation and technology. In each of the cases different factors seemed to have spurred on project realization. Identifying these and their advantages could help to explain how RTLS could become more widely adopted. From the five cases four different factors were ultimately identified.
By the end of the data gathering process findings in regards to the drivers and barriers of RTLS were discussed with an unbiased RFID consultant to obtain comments before the final writing process.
The writing process in general was approached in a structured way. Interviews were examined in order to retrieve general conceptions and opinions, and summaries were made. The Research Question was re-phrased on a few occasions before its final outline. The five cases were analyzed in agreement with theory in order to identify factors influential to realization of RTLS projects.
Use of interviews
The interviews have been used for mainly two reasons. First to gain an understanding of the main challenges behind the technology, illustrated in the section ‘RTLS barriers’ and secondly to gain important insights to the drivers of RTLS in specific cases introduced in the case-section.
To gain most qualitative data people with knowledge regarding RTLS have been spoken to. Particularly helpful in this process has been introductions made by RFID chairman, Henrik Granau.
Because many of the interviews revealed general knowledge of the RTLS field references from these will be used throughout the thesis to illustrate certain points or remarks. In the appendix summaries from all interviews are listed along with the official titles of the interviewed people, which may prove useful as references from interviews are used.
1.3 Research question
What factors influence the diffusion of RTLS technology?
In order to address this question the following sub questions were asked:
Sub questions
• What are the differences between RFID and RTLS and how is this discussion relevant to the diffusion of RTLS?
• When and how are RTLS projects realized?
• How can the following factors influence the diffusion of RTLS positively? Standards, alliances, technology brokering, and public funding
2.0 RTLS
In the following sections RTLS as a concept and technology is scrutinized. Because RTLS shares characteristics with RFID, the two concepts and their differences are discussed in depth.
RTLS stands for Real Time Locating System and is a phrase covering different technologies capable of identifying and locating objects in real time.
RTLS has been frequently confused with other technologies depending on the context in which it is presented.
RTLS often builds on other technologies and should therefore not be thought of as one specific technology.
In the process of writing this thesis different conflicting definitions have been encountered. Below follows a brief discussion on how to understand and apply the concept of RTLS.
2.1 Definitions
Before looking at the different definitions and perceptions of RTLS a delineation is made between “location”
and “locating” used in the acronym. In some instances “location” is used by British Ubisense and Finnish Ekahau (RTLS providers), whereas ISO (International Standards Organization) use “locating” in their definition.
At RFID Journal “Real Time Location Systems” is used in most articles, but their official definition of RTLS is
“Real Time Locating Systems”. This would indicate that the meaning of RTLS is perceived similarly in the two definitions, by this journal at least. Being a verb ‘locating’ symbolizes the process of finding objects, where
‘location’ is more absolute in its meaning. Locating has been used in this thesis, mainly because official and formal definitions tend to do so.
RTLS has been defined, and probably will continue to be defined, differently depending on the situation in which it is applied. Some official definitions have however been attempted.
One definition is provided by ISO (International Organization for Standardization): “RTLS are wireless systems with the ability to locate the position of an item anywhere in a defined space (local/campus, wide
area/regional, global) at a point in time that is, or close to, real time”
(http://www.iso.org/iso/home/store/catalogue_tc/catalogue_detail.htm?csnumber=38840)
In one of the few books solely written on the topic of RTLS, Malik Ajay states that: “A real time location system enables you to find, track, manage, analyze, leverage and otherwise use the information regarding where assets or people are located. “ (p. 9, RTLS for Dummies)
Though the former of the two provides the most practical of definitions, the author finds the most precise and useful definition of RTLS the one provided by RFID Journal:
“A system of finding the position of assets using active RFID tags. The tags broadcast a signal, which is received by three reader antennas. The time each signal is received is passed on to a software system that uses
triangulation to calculate the location of the asset. “
The definition is very precise compared to other definitions, and more importantly it “dares” to say that RTLS is built on active RFID tags. What exactly this means will be illustrated later.
The next section illustrates great variations of the perception of RTLS. These variations are especially due to RFID which is becoming a more and more used technology - often mistakenly confused with RTLS.
2.2 RTLS and RFID – Difference in usage and understanding
RFID stands for Radio Frequency Identification, and is a way of identifying objects through radio waves.
Practically RFID works through a “tag” used to identify an object.
In the interviews with CIO at Berendsen Textile Service, Klaus Nissen, and Head of logistics section at Danish Technological Institute, Finn Olesen, it became apparent that RFID has received increasing attention over the last couple of years, especially within the supply chain of consumer goods. As implied in the definition of RTLS by RFID Journal confusion is bound to happen between the two concepts as RTLS tends to build on RFID through “active RFID tags”. A general misconception is to mix the two acronyms assuming they are the same thing.
Adding to the confusion is the definition provided by The RFID Handbook (Klaus Finkenzeller) that defines RFID as “contactless ID systems” (p. 1) This definition is interesting because it adds “system” to the definition which the acronym itself does not contain.
At this point the difference between RFID and RTLS may seem confusing, and it appears that a discussion of the boundaries between the two concepts has not previously been attempted.
However in this thesis RFID is understood as the technology used for identifying objects, whereas RTLS is concerned with communicating the location of objects.
According to DANTERMcentret (Danterm), a terminology center at Copenhagen Business School, diffusion of new technological terms are crucial to the success of the technology, which precedes time and resources spent understanding these.
In the case of the new university hospital project (DNU) in Region Midtjylland, Denmark (a case introduced later) Danterm was asked to clarify some of the new terminologies that may arise from the project. It could be argued that used terminologies would have higher impact when implemented from the start instead of at the end of the project – because the people involved would then have the opportunity to align perceived terms.
According to the leader of the center, Bodil Madsen, greater diffusion and usage of terminologies are incredibly important and useful to companies. A particular example is in development of it-systems and user interfaces, where missing terminologies can affect the usability of these, and become dysfunctional. When asked whether this could even have consequences for companies, Madsen concurs but also states that directly proving it is difficult (interview 1:15:30 – 1:15:50)
Taking active part in the new university hospital project one of the issues Madsen and her team looked at was the differentiation in meaning of the terms ‘positioning’ and ‘localization’ (interview, 51:50-52:00). They defined localization as the process of finding out where the object is located, and positioning as finding out the exact location of an object through coordinates.
In relation to the discussion of RTLS the term ‘positioning’ could become an important part of internal communication on topics regarding RTLS. Such discussions could prove important to have initially if potential misunderstandings are to be avoided.
Though the question of the right terminology is not attempted answered in this thesis, the issue does appear to have relevance in the discussion of understanding and perceiving acronyms correctly.
Based on the above discussion it does not seem strange that the two concepts are often confused. Though RFID appears to be a far more used expression by both scholars (confirmed in keyword searches in databases such as EBSCO and Elsevier) and companies (Google-search), examples of companies actively branding themselves through RTLS are: Aeroscout (U.S.), Ekahau (Finland), Ubisense (United Kingdom) and Zebra (U.S.).
This section has attempted to illustrate differences in perceptions between RFID and RTLS and stated the importance of terminological alignment.
2.3 Technical background
The technical background of RTLS is intended to provide the reader with an overview of the major issues and challenges related to the technology.
From the definition of RTLS it was seen that RTLS is to be understood as a system capable of locating objects in real time through active RFID tags. In doing so one wireless technology may be chosen over another depending on the particular need.
Most of the technologies used in RTLS are based on electromagnetic waves. Here some of the basic elements are outlined in order to provide a more nuanced picture of the technology - its advantages and disadvantages.
Radio waves work at different frequencies; outlined by the radio spectrum - part of the electromagnetic spectrum.
Figure 1 - Electromagnetic Spectrum
Here the most frequently mentioned and used today in relation to RFID and RTLS are low frequencies (LF), high frequencies (HF), and ultra high frequencies (UHF). Others exist, but these are the most common.
LF is defined within: 30kHz to 300 kHz; HF within: 3 to 30 MHz, and UHF within: 300 to 3000MHz. Because of interference, the same frequencies cannot be used by everyone for everything. Regulatory institutions such as FCC (Federal Communications Commission) in the U.S. and ETSI (European Telecommunications Standards Institute) in Europe govern usage of different bandwidths. One example is that the frequencies used for the mobile network in the U.S. are higher than the GSM network in Europe.
In most RTLS systems radio frequency is used to first identify objects and secondly locate them. This process consists of several technical elements with the most notable being: tag, reader and antenna.
The tag is the thing that is placed on objects companies wish to track, and consists of different parts. One important one is the memory, which is part of the microchip or integrated circuit (IC) - The bigger memory the more data the tag can file, such as unique product codes. Another part of the chip is transistors capable of directing the flow of current and amplifying the received signal from the reader.
The antenna is another important element of the tag, and generally the larger the antenna the better the signal strength.
Today different technological advancements have provided antennas with characteristics that would have appeared unlikely years back. Henrik Granau (2nd interview) even described the development as some companies being able to “bend the laws of physics”.
The reader sends out signals at a specified frequency to register any object and its identity. Once retrieved this data is sent to the server from where middleware and software can make the data accessible and readable.
The reader is also equipped with antenna(s).
Tags can be both cheap and expensive. The cheapest tags are the passive tags. These are tags that do not themselves transmit any signals, but can reuse a very small amount of energy from the readers to signal back.
As already mentioned, the advantage of these is that they are cheap, and small, which could be an important argument if your goal is to convince manufacturers to tag their products.
Expensive tags are generally bigger. They have more memory, larger antennas and more powerful microchips.
But the thing that usually makes tags more expensive is when they are active, which implies that an external energy source needs to be connected to the tag - most often a battery. An active tag differs from passive tags by being able to signal, on its own, its location to the readers autonomously. Because a battery is connected to the tag its lifetime is automatically not the same – therefore, in the cases where active tags are applied, they should be placed in a way that battery change can happen somehow effortlessly.
In between these two groups of tags, a third one exists: the semi-passive. Both active and semi-passive tags have a power source. Semi passive tags work the same way as passive tags in that they use the energy from the readers’ signals, but the power source is used to strengthen the signal which also allows for semi-passive tags to have more complex microchips. Semi passive tags are useful in sensor networks where data can be
transmitted from one tag to another. Another advantage is that the tags can be placed farther away from the reader because the battery allows the tag to convert enough energy from the reader into a signal of its own.
Semi passive tags have gained more popularity as they are cheaper than the active tags, and solve some of the issues of short battery life.
As the technology has matured higher frequencies have become widely available and more economically feasible. Traditionally high frequency tags provide better range, but at a higher cost.
The choice of frequency is crucial to any system as each frequency has different advantages and disadvantages.
High frequency tags provide better reading distance for instance, but have issues with reading through liquids.
On the contrary, low frequency tags do not have the same issues with reading tags through liquids, but they are not capable of reading tags farther than a couple of feet away. (Chapter 1-3, RFID Sourcebook)
Besides the tag and RFID technology RTLS is foremost based on different triangulation techniques. Various methods have been developed to ensure higher precision such as room specific readers and readers that only read tags within a specified area. RTLS shares similar features with GPS because it uses at least three readers analyzing the time difference of signal reception, angle of the signals, strengths of the signals etc. The more ways of calculating the position of an asset (and the more complex an algorithm), the higher the reading precision becomes. The challenge at the moment is agreeing on standards on how to share data using active tags. Some attempts have been made, but have come to a standstill. It appears that proprietary solutions will compete for a while before another attempt is made to standardize. (http://rfid.net/basics/rtls/246-rtls- market-overview)
The following figure, provided by Finnish Ekahau, who utilizes Wi-Fi technology for their RTLS system, explains visually how RTLS works.
Figure 2 - RTLS system
2.4 Wireless technologies
This section takes on the task of summarizing a range of wireless technologies useful in the context of RTLS.
As previously mentioned RTLS technologies are based on electromagnetic waves within the radio spectrum.
Outside the radio spectrum for instance, frequencies such as: microwaves, infrared, visible light, and gamma ray are found. Of these only the first two are realistically applied within RTLS as the latter work at extremely high frequencies, and with extreme energy charges, impractical in commercial settings.
The radio spectrum is defined within 0,003MHz to 300.000MHz, and as previously stated one of the most used frequency ranges is UHF which works around 300 to 3000MHz.
Here is a list of some of the most adopted RFID and RTLS technologies:
RFID GSM/GPRS Zigbee
Wi-Fi Bluetooth WMN/WSN
GPS UWB NFC
All of these are based on the abilities of radio waves. The technologies can of course only be recognized as RTLS technology if they form part of a system which goal it is to locate assets in real time.
The Handbook of RF and Wireless Technologies (2003) has been a helpful resource for outlining the
technologies. The technologies are presented in order of their capability to read objects over long distances - from short to long range.
Near Field Communication (NFC) is running on the high frequency of 13,56MHz. NFC has a very short read range, a few centimeters - but is incredibly secure, because other readers cannot pick up the signal. With a safety protocol installed on top, companies such as Google have developed apps utilizing the technology as a method of payment using scanner-functionalities downloaded onto the smartphone. With NFC, the RFID tag and RFID reader are installed in the same unit. (http://www.rfidjournal.com/articles/view?10467) (Rita Westergaard interview)
The basics of RFID have already been clarified as the process of identifying objects using radio waves and tags.
RFID is typically applied indoors and in the supply chain of consumer goods. RFID usually utilizes LF, HF, and UHF frequencies.
Zigbee and Bluetooth are technologies (or standards) belonging to the Wireless Personal Area Network
(WPAN) and works at the same frequency but have different features. Zigbee does automatic control of remote locations often through mesh networks (explained below). Zigbee has low data rate transmission, a range of up to 100 meters and is cheap because its nodes can go to sleep like semi-passive tags, and “wake up” when requested. Usage of the Zigbee standard is seen in for instance smart metering (a device that measures electric energy consumptions and report back to for instance a smartphone). Bluetooth is a more expensive WPAN solution, and is less effective over longer distances, but has a high data rate which is why its main application is within the office space. (http://www.differencebetween.net/technology/difference-between-zigbee-and- bluetooth/)
Wi-Fi is well known and installed everywhere, but interestingly hotspots (providing internet coverage) can be combined with RFID and gain RTLS features. Because the technology is constantly developing it is difficult to say exactly what reading distances Wi-Fi networks have, but at the moment it is thought to be around 40-50 meters indoors. (http://www.tagsense.com/ingles/products/product_mw.html) Because many organizations already have Wi-Fi coverage in their buildings utilizing this in combination with RFID has ensured that Wi-Fi is currently receiving increased attention.
Global System for Mobile Communications (GSM) is the standard for mobile communication transmitting signals through antennas of different sizes. The advantage of the network is its great coverage and wide adaptation. The disadvantage is its lesser precision (in RTLS context), high price and high power consumption.
New innovations within RTLS have made it possible to combine GSM with RFID, so that tracking of objects could be made more precise outdoors.
Ultra Wide Band (UWB) works on high frequencies – approximately 3.1 to 10.6 GHz (7.5GHz bandwidth). Most important is its bandwidth exceeding 500MHz at all time which allows UWB to send large amounts of data, without experiencing the same challenges as narrow bandwidths. UWB could for example transmit several HD TV signals at the same time, which for instance Wi-Fi would not be able to. UWB is strongly considered the successor of Bluetooth, even though it does have other advantages.
(http://www.itnews.com.au/News/135223,personal-sharing-device-beams-info-over-uwb.aspx)
Furthermore UWB does not have the same issues with liquids and metal as narrowband frequencies and the technology is becoming an integral part of RTLS providers’ solutions. As UWB is already relatively cheap in power consumption competition is about getting the highest precision and reading distance, which at the moment is about 1 meter and 30 meters respectively. Because UWB has not been widely standardized solutions are of proprietary character, and precede expensive infrastructural investments.
Wireless Mesh Networks (WMN) and Wireless Sensor Network (WSN) are used to describe larger areas of wireless interconnectivity. The concepts are generally recognized and used, though more as general concepts than actual applied technologies. WMN is usually concerned with providing internet access for large areas.
WSN also covers large areas, but through a network of node sensors that automatically transfer registrations made in the network from one node to another.
Together with radar, GPS is by far the technology with the best read range. The issues with GPS are the same as with GSM only at a bigger scale. RTLS is often compared to GPS because both use triangulation.
Although this overview is simplified, it provides a basic understanding of what features each technology offers in relation to RTLS.
2.5 How and where does RTLS fit in?
For any of these technologies to partake in a RTLS system their abilities must be exploited to provide real time location information. Cases of RTLS usage are many and a majority of the above technologies will be seen in concrete examples with Danish companies later.
One of the biggest companies in the world to brand themselves as an RTLS manufacturer is British Ubisense. If we were to say they represent how RTLS can be practically applied their solutions combine the technologies;
UWB and WSN.
RTLS is usually applied for the same reasons RFID is. In extension of lean initiatives RTLS provides opportunities for increased control over production. Some of the issues solved by the technology could be time saved from looking for important tools entering the production process, another could be to measure the conditions of a product on its way to the retailer, and a third question could even be to locate staff (particularly useful when working in and around hazardous areas.)
One industry that has been repeatedly accentuated through cases in the RFID journal is consumer goods. UHF tags cover the needs of the customer in regards to all of; range, price, safety, and cost. Specifically, readers are set-up at the exit(s) and entrance(s), of (usually) storage rooms providing the store with the exact number of, for instance packages of tomatoes arrived - saving the store time counting the number of received items, providing them with the opportunity to react (complain) if the number does not match the ordered amount.
Such a system does not provide a lot of location specific information as it only reads tags in specific zones (exits, entrances) using passive tags. But if the technology was combined with sensors installed in trucks (measuring temperature, shaking, humidity etc.) owned by the distributors and if the trucks utilized their GPS in integration with the IDs of the packaged goods, this chain of solutions would gain characteristics of RTLS.
2.6 Standards
Because RTLS is a new technology few standards have been created supporting its usage. Instead companies offering RTLS products and systems develop their own ways of sharing data wirelessly. Maybe one day some of these will be the basis on which new standards are created.
RFID has been standardized to a larger extent than RTLS because the technology has been around for a longer period of time, and at the moment RFID remains more economically feasible to a lot of companies.
Some of the major standard organizations are introduced next.
The International Telecommunication Union (ITU) is an organization under the United Nations. The union allocates: “global radio spectrum and satellite orbits, develop technical standards that ensure networks and technologies seamlessly interconnect and strive to improve access to ICT’s (Information Communication Technologies)”. The organization has the ideology to connect people all over the world and focuses on: Radio communications, Standardization and Development. (www.itu.int/en/about/Pages/default.aspx) The U.S.
counterpart is the Federal communication commission (FCC).
The European Telecommunications Standards Institute (ETSI) is a recognized organization, within EU, for Standards Development, which: “produces globally-applicable standards for Information and Communications technologies (ICT), including fixed, mobile, radio, converged, broadcast and internet technologies”
(www.etsi.org/about). A similar U.S organization is the American National Standards Institute (ANSI), though its focus is not directly focused at ICT. ANSI is also a broad organization in the sense that it seeks to help companies from many different industries.
The institute’s mission is to: “enhance both the global competitiveness of U.S. business and the U.S. quality of life by promoting and facilitating voluntary consensus standards and conformity assessment systems, and safeguarding their integrity”
(www.ansi.org/about_ansi/overview/overview.aspx?menuid=1#.UUM9LRdhWHg). Though it may not be implicit the organization does create its own standards, similar to ETSI.
An example is the ANSI INCITS 371 series regarding RTLS, proclaiming that three standards define two Air Interface Protocols and a single Application Programming Interface. The standard is: “intended to allow for compatibility and to encourage interoperability of products for the growing RTLS market” (p. iv, INCITS standards pdf.) Regarding the standards, Manager of Network Engineering and Network Operations for Ford Motor Co. Anthony Cataldo is quoted saying:
“With real-time locating system applications running in many of the Ford factories worldwide, we were already big believers in this technology, but it was critical that a standard be developed. Now, with an international standards body backing the technology, I would expect a flood of new end users in a variety of industries[…]”
(http://www.incits.org/press/2003/pr200307t20rtls.htm)
Another example of a more industry specific standard organization is the Automotive Industry Action Group (AIAG) whose primary goal is to create standards for the automotive industry focused on reducing costs and complexity within the supply chain of the automotive industry. The organizations work would be relevant to a company such as BMW who have adopted RTLS technology in their manufacturing facilities.
(http://www.rfidjournal.com/articles/view?667)
ISO: “the world’s largest developer of voluntary international standards”
(http://www.iso.org/iso/home/about.html), is one of the organizations to have officially developed an RTLS standard; called the ISO 24730 (introduced later). The organization consists of over 160 member countries.
Denmark’s participation in ISO is represented through the Danish Standards foundation (DS). Each member country advocates different experts for different committees. There are over 250 committees in total and it is here any suggestions to create or change a standard are presented.
The institute of Electrical and Electronic Engineers Standards (IEEE) is known for setting many standards within the computer and electronic industry. Some of the most adopted is the 802 standards for wireless networking.
The foundation, is argued to have relevance to RTLS because of the development that has seen RTLS combined with Wi-Fi solutions. (http://www.ieee.org/about/index.html)(http://standards.ieee.org/)
Many of the technologies introduced in the previous section have their own institutions responsible for suggesting changes to and updating, or removing, of standards.
One of the organizations that could potentially become relevant to RTLS is GS1 which has already developed many standards for RFID, mainly seen in use within the supply chain of consumer goods and is supported by the consumer goods forum (CGF). GS1 regulates product codes such as the EAN, GTIN and UPC.
Parts of GS1 are involved with the electronic product code (EPC) - a unique identification number that was initially thought of as the successor of the barcode: “A company that uses bar codes in its operation today can have a migration path to RFID using EPC” (RFID sourcebook, Lahiri, Sandip; 2005; Pearson plc, p. 214). This development of the EPC did not just happen because the technology became available, but because of: “[…] a business need to capture data more effectively at point of sale (POS) and in the various stages of the supply chain” (p. 400, Chapter 18, Douglas Hill)
Though GS1 has a focus on the supply chain of consumer goods and the integration of EPC and barcodes, their
‘Electronic Product Code Information Service’ (EPCIS) is the next step forward in ensuring better and higher connectivity in the supply chain. Hill defines EPCIS as: “[…] the service by which data about the product is stored and made available to others in the supply net” (p. 401). There is no doubt that future RTLS solutions will have to consider the EPC standards. Though the market may still be maturing and though other proprietary standards have been made, the potential of EPCIS and: “[…] being able to retrieve data in a distributed network environment” (p. 401, Hill) is promising. EPCIS is however not all about gathering whichever information is available, so to avoid redundant data, filters are instated ensuring only the most relevant information is presented. On the question of whether RTLS is important to GS1 and EPCIS Hill states that: “it is absolutely integral to the entire system” (mail, Douglas Hill)
The above section has made a brief introduction to some of the important standard organizations that have had and will continue to have an influence on the development of RTLS standards.
2.7 Gartner’s hype cycle
This section will try to establish the current state of RTLS and its relation to RFID, through the use of Gartner’s Hype Cycle.
The cycle, first developed in 1995, by the Gartner Group, helps to: “[…]characterize a typical progression of an emerging technology to its eventual position in a market” (p. 3, Gartner's hype cycle and information system research issues, O’Leary, 2008) Other work on the hype cycle has been done by Feen and Raskino (2008).
The model is highly practical and on Gartner Group’s website it is claimed that many of their clients use it to estimate the promise of a technology, which can help them in decisions on whether to invest in a given technology or not (p. 3, O’Leary)( (http://www.gartner.com/technology/research/methodologies/hype- cycle.jsp)
Before introducing the different steps and phases of the model it is imperative to emphasize that the model is not absolute. Rather it should be seen as a useful tool for analyzing contemporary technologies and their movement towards the market. The model works as a dynamic framework proving that technologies can move both back and forth in the cycle over periods in time.
Five stages make up the cycle, which is illustrated in fig. 2. These are: Technology trigger, Peak of inflated expectations, Trough of disillusionment, Slope of enlightenment, Plateau of productivity.
Figure 3 - Gartner’s Hype Cycle
Technology trigger
At this stage rumors about the technology are spread, typically through media who visualize its potential in order to sell a good story. Stories can be based on actual prototypes of a product.
Because the technology has not been tested or used in any organizational setting, further research is encouraged which is why scholars and researchers become involved and information about the technology starts to diffuse.
Peak of inflated expectations
This is the “frenzy” stage and the top of the hype cycle. The ones benefitting most from the technology are media. Information at this stage is still positive, and limitations of the technology are not discussed. The technology receives a lot of attention. Only a few companies have adopted the technology which means research in the technology is still scarce.
Trough of disillusionment
At this stage people realize that the adoption and integration of the technology does not happen as seamlessly as first hoped. In fact many issues not previously discussed appear. At the peak stage many researchers were ecstatic about the potential of the technology, but after a few examples of poor integration and adoption the limitations of the technology are revealed. Quickly thereafter support changes leading researchers to focus mainly on the limitations of the technology.
Slope of enlightenment
At this stage only 5% of the market has adopted the technology. However analysis of actual implementations and work routines is now possible, and research can illuminate some of the shortcomings of the technology.
Results may however be biased because of the small amount of data (5%), and can hardly be representatives of the general movement of the technology, though obviously an improvement from previous phases.
Plateau of productivity
At this stage more companies have implemented the technology as it has overcome most of its flaws. Case studies are becoming less relevant to researchers as companies have adopted the technology (case stories at this stage will exist in abundance).
Instead research will be focused on how the technology is used and how it creates value for the company. Also at this stage research can focus on the parts that make up the technology and delve into the possible
combinations of these and analyze how the independent artifacts create value under different prerequisites.
A sixth phase, not originally a part of the model but included by O’leary and reproduced here, is the rapid growth stage. This is the stage where many companies implement the technology. Because many of the issues with the technology have been solved, companies see investments as less risky. As more companies are using the technology the empirical base increases and an argument for even greater usage is made.
Common to all of the above stages is that a particular development in the technology, that affects the outcome and performance of it, can push the technology back in the hype cycle.
So far, it has been argued that RTLS and RFID are closely related and that RTLS often builds on RFID. Having had this discussion it would be relevant to analyze their current state according to the hype cycle.
RFID as a technology has been around for many decades, which has seen the technology move around the first phases of the model for a while. In 2005 Walmart decided to take a giant step towards global RFID usage by demanding its 100 largest suppliers to start “tagging” their products with RFID chips. (Henrik Granau, 1st interview) Without this being the only reason, it would appear the Electronic Product Code has become more widely adopted since.
RFID may not be in O’leary’s sixth phase yet (Rapid Growth Stage), but it is not unlikely to find it somewhere close to. On the other hand RTLS has not been standardized to the same extent, and many companies still find the active tags economically unfeasible. However some of the companies that have adopted RTLS are not insignificant. A list of customers, from Ubisense’s website, show companies such as: BMW, Aston Martin, Airbus, Boeing, Shell, Deutsche Telekom, Caterpillar as well as the U.S. army, having deployed RTLS.
(http://www.ubisense.net/en/customers/)
As many of the technological challenges with RTLS have been solved it would be unfair to place RTLS under the Trough of Disillusionment. Instead the Slope of Enlightenment may be a more appropriate and realistic phase to find RTLS in at the moment. Few larger companies from various industries are beginning to prove the functionality of the technology, which can help create a better understanding of it in general.
It could be argued that because RTLS is often built on RFID technology it has an advantage. The technology may still not be at the Plateau of Productivity for the reason that only a small percentage of the market in general has adopted it, which was confirmed in the two interviews with Henrik Granau. The contemporary issue with RTLS appears to be prize and high switching costs (which will be elaborated later), but once standards are agreed upon RTLS could move up the hype cycle.
Having introduced the two concepts and their current state through the Hype Cycle it is argued that RTLS is still behind RFID based mainly on issues of standardization.
3.0 RTLS Barriers
With the potential of RTLS, why haven’t more companies adopted the technology?
In this section the main barriers of RTLS are presented. Later cases provide practical evidence of companies having successfully overcome the barriers and invested in RTLS technology. By lining these barriers and drivers up against each other the hope is to find suggestions on how to ensure higher diffusion of RTLS in the future.
Identifying the main barriers was accomplished through interviews. Mainly the question of: “why haven’t more companies adopted RTLS?” was asked.
As the previous sections have revealed RTLS often builds on RFID, which means that some of the barriers of RFID should be the same with RTLS. Through a brief case of the Danish company, Kopenhagen FUR, some of the issues faced are presented.
About: Kopenhagen FUR is the largest fur auction house in the world. Five times per year auctions are held where 20 million fur skins are sold at 20-30 % above the average market price because of the high quality. The headquarters is situated in Glostrup, Denmark, where the fur is sorted according to quality in 70,000 square meter locations. Danish mink fur breeders are among the best in the world and mink fur alone stands for 1/3 of the total Danish export to China (Hong Kong). In 2011 the auctions reached revenues of approximately 8 billion DKK. (http://www.kopenhagenfur.com/da/om-os)
Kopenhagen FUR was interested in tagging their trolleys used for their mink auctions, because the company was not always able to locate the trolleys when needed. Also the company experienced bottleneck issues, as well as issues with stolen/lost trolleys. Although considering RFID for a while the company decided not to invest.
According to Henrik Granau it is very common that when a general rollout of RTLS and/or RFID is considered, it comes to a halt when it is learned that a major infrastructure investment is needed. (2nd interview)
Even though many CIO’s have understood the importance of the technology, more often than not they lack the strategic power to push investments through - the paradox being that RFID and RTLS projects fall under the category of it-infrastructure investments. In the case with Kopenhagen FUR, the CIO and his staff would, according to Granau, have serious difficulties in pushing a decision for RTLS and RFID through - because final decision making has to be run by Production and Logistics. (Granau interview #1, 1:02:30)
Another issue, which will be briefly touched upon later, was that tagging metal trolleys using passive tags proved difficult because of radio wave interferences caused by the heavy presence of metal trolleys. . When contemplating active tags as the other solution, pricing became an issue as active tags are more expensive because of the external power source attached (explained in the ‘Technical background’ section). Kopenhagen
FUR could perhaps have addressed their business need using active tags instead of passive, but because of the higher price the project became economically unfeasible.
The case of Kopenhagen FUR presented some of the general issues with RTLS. Others reasons for the vague diffusion of RTLS were identified in the interviews.
In the first interview with Henrik Granau (Chairman, RFID Denmark) several topics were discussed regarding barriers of RTLS. One of the things mentioned was that few CIO/CTO’s are familiar with the RTLS acronym, an observation confirmed by Account Manager, Allan Reichenbach, at Danish Radio Communications company - Zenitel, which is an issue when being approached by RTLS suppliers. Another issue was that the technology represents a large complex field making differentiation between the many technologies difficult. On the topic of major it-suppliers taking active part in introducing RTLS to companies it was stated that these are hesitantly awaiting the general development before making a move.
In an interview with Finn Zoëga Olesen, Head of Logistics Section at the Danish Technological Institute, a major reason for why RTLS has not yet been adopted was simply the high price. There is still not enough economic incentive for using active tags. This was confirmed in many interviews, for instance with Rasmus Andersen (CEO at Munin Spot Technology), Morten Buur (Head of Development and Operations at Post Danmark), and Henrik Granau.
In a meeting with Sacha Da Silva and Douglas Hill at GS1 Denmark (Market Development Manager, and COO respectively) a main reason behind RTLS’ shortcomings was the lack of standardization. The importance of standards was reiterated by Esben Wolf (Project responsible for DNU) and Mikkel Harbo (Director of Business Development and Operations in Systematic) who see GS1 standards as crucial to the DNU project, which will be presented later.
Another major factor working against the diffusion of RTLS is lack of technological insight. In this context a common frustration with both RTLS providers and potential RTLS customers exists; for providers because they have to tell customers about how the technology works, and with customers because they don’t want to spend the necessary time learning how to implement the technology. Phil Coop, Program Manager for The Boeing Company’s Automated Identification Technology, described the issue the following way: "the customer was saying to us, 'We get it, but how would we implement it?'" (http://www.rfidjournal.com/articles/view?8099)
This barrier of technological complexity is recognized by it-manager at Computer City - Michael Hansen, who could not understand the reluctance from potential customers towards the technology. From the interview it was apparent that people naïvely see RTLS as a stand-alone investment. Such issues are not easily addressed without insight to the technical background of the technologies which could require additional education.
John Paulin Hansen, Associate professor at the IT University, Copenhagen, said that people want proven and tested technologies, not new and trendy ones, which would underline the importance of having sales references when approaching potential customers.
Lastly the economic downturn is argued to have had an influence, which was confirmed in the first interview with Henrik Granau.
This section has summarized results from more than 20 interviews and presented the case of Kopenhagen FUR in an attempt to outline the main barriers of RTLS. These barriers help to explain why the diffusion of RTLS has still not picked up pace. Five cases (presented later) provide practical evidence of companies having overcome the barriers and successfully implemented RTLS.
Table 1 – Barriers of RTLS 4.0 Theory
There seems to be four bodies of theory relevant to the diffusion of new technology.
From interviews four factors appeared to be of particular relevance to the diffusion of RTLS. Specifically these factors are proven through five cases of Danish companies.
• Standards
• Alliances
High price Technological complex
Missing standards
Missing action from established it-suppliers Economic downturn
• Technology brokering
• Public funding for innovation
Theory from each of the four factors was used with the intention of highlighting their importance and influence to the diffusion of RTLS.
4.1 Innovation
Being a new technology RTLS has not yet gained general market acceptance. The most relevant topic in relation to this is how new technologies, or innovations, diffuse.
This section takes a look at some of the historic literature on the subject of innovation.
Having introduced RTLS as a new technology a connection to innovation is made. Howells and Michie (1997) discuss the differences and linkages between the terms ‘technology’ and ‘innovation’.
Without entering a deeper discussion on the correct interpretation of the term they argue that the concept of
‘technology’ has been wrongly linked to the processes which prescribe the development of a technology in the past. Instead the concept of ‘innovation’ should be preferred as it is a more suitable word for describing the technological diffusion process. This delineation is useful because it acknowledges a clear difference between the concepts, but also that they are historically attached. (p. 12)
An old definition by Schumpeter (1934) is reproduced by Sundbo (1998), who sees innovation as: “[…] the introduction of new elements or a new combination of old elements in industrial organizations” (p.1).
Obviously this broad definition covers many aspects of innovation. The pivotal point here is on technological innovations, both through new and old elements, but with a focus on the former.
In a discussion based on the work of Taylor and his Scientific Work Management Systems Sundbo tries to define the role of technology in innovations. According to Sundbo the concept of science has transformed from being about forcing production into supporting technological development (p. 62). The same idea of seeing science as a catalyst to innovative ideas and solutions, is applied throughout the section. It is important to stress that Sundbo’s examples are mainly based on the manufacturing apparatus.
The traditional linear model of innovation shares features with this line of thought as it bases innovation output on basic research done. The model: “[…]postulates that innovation starts with basic research, then adds applied research and development, and ends with production and diffusion” (p. 3, Godin, 2005)
The importance of innovations in relation to technological development is emphasized by Andergassen &
Nardini (2005). In an attempt to show the dynamic effects of innovation they introduce General Purpose Technologies (GPT) (e.g the steam engine) to provide examples of successful innovation technologies. Drawing on work by Aghion and Howitt (1998) and the adoption of GPT’s they argue that new technologies do not gain momentum instantly but develop gradually as other companies learn about it. (p.2) In other words they suggest that the potential spillover effects from GPT’s (or other new innovations) could be great, as similar industries come to learn of the innovation, though exploitation is only possible if resources are spent in gaining enough knowledge and information to exploit that into R&D activities of their own.
4.2 Public funding
One of the factors that remained a concern in the discussion of the diffusion of RTLS was the issue of public funding, and the role of government in this respect.
The inclusion of public funding and its influence on innovation and technology has been based on the argument that it can play an integral part in ensuring that innovative ideas have a chance of penetrating markets.
When discussing the value of public funding in technological innovation projects it is interesting to look at how scholars within the field measure success of governmental influence. The field is complex with a lot of
theoretical models, many of which have grown from an economic and mathematical standpoint, for instance how to calculate innovation productivity and their effects. (Furman et al., 2001) This section does not question the functions and models, nor does it delve deeper into discussions on the subject of how previous historic results have been gathered and concluded upon. Instead conclusions relevant to RTLS are presented.
On the question on how to measure positive governmental influence on innovation and new technology, many scholars have looked at R&D as an important criterion (Pavitt, 1980; Hayes et. al. 2001). This is because
outcomes could be directly related to specific types of R&D investments. In his article “Industrial R&D and the British economic problem” (1980), Keith Pavitt equals the poor economic performance in Britain with the R&D activities in the country.
Furman et al. (2001) describe the innovative productivity levels through the variable of patents, and according to Furman and Hayes (2004) the relationship between patents and innovations is more or less linear. They see, for instance, Denmark as an “emerging innovative country” that has dramatically increased its focus on innovation by having filed more patents relative to other market economies (p. 18). The inclusion of patents as a variable has been used by many scholars. (Furman et al. 2001, Davis, 2005, Patel and Pavitt, 1991)
Within the field of economic effects of R&D it is generally recognized that a minimum level of R&D activities is important for the overall economic performance of a country. These activities may differ, such as favoring the public sector more than the private or vice versa. This discussion of public vs. private investments is picked up by Sunil Mani (2002) who explains the phenomenon of the spillover gap as the result of the difference between
“social return” and “private return”. (p.22, Government, Innovation and technology policy). A pattern appears to be that when governmental spending in R&D decreases industries are likely to follow: “…the correlation between government investments in R&D and that of private sector investments in the same are
complementary, any cutback in the former will necessarily lead to cutbacks in the latter” (p. 23) The reason for this relationship, Mani explains, is that: “[…] as government makes more contract R&D money available to industry, firms increase their own R&D spending in the hope of capturing more government funds” (p. 24). This proves that companies receiving governmental funds re-invest them in R&D activities in the hope of receiving more funds creating a continuous circle of higher activity. This correlation is important because it proves interdependencies relevant when discussing public funding behavior, and their policies towards applicants.
Of course there is a long way from having high R&D investment levels to superior economic performance.
Whenever governments decide to invest in a technology certain incentives or subsidies have to be in place, to ensure development in the right direction.
In the U.S. the government has different ways of supporting innovation depending on the type of project.
Different institutions are in place for this process. Furthermore the government encourages partnerships between industry, government and universities. “[…] with the explicit aim of faster commercialization of innovations” (p. 24)
Furman et al. (2001) prove that a balance between private and public investments exists, and for a majority of the countries they investigate, consensus seems to be to diminish the fluctuations and keep industry-
government R&D spending around a 50-50 ratio.
Besides proving that countries have an interest in keeping a balance Furman et al. show that countries capable of increasing their innovative capacity, through most importantly R&D activities, are generally more likely to commercially exploit emerging technologies.
How does a country then gain most from its investments? According to Mani, in the U.S. the government spends over twice the amount of money on basic research in comparison to industry. Interestingly many of the industrially filed patents derive from government funded research (73%). Obviously this division in R&D
spending differs from country to country and the U.S. economy is particularly more dependable on government funding than European countries (p. 24)
The U.S. is obviously not the only country with innovation programs and foundations, but their fixed goal of
“faster commercialization” is interesting, especially when compared to four Danish funding organizations introduced later.
Though the discussion could continue into types of subsidies that influence the balance and outcomes of government and industry R&D, the field is too large for this notion.
According to Mani, industry specific R&D is more focused on bringing a product to market and filling the gaps that keep the product from doing that, where government spending looks into basic research and collaboration opportunities that can help society and companies (for instance with patents based on government supported research) (p. 24, Mani).
The following confirmed hypothesis by Azadegan et al. (2012) encapsulates the potential benefits of public funding when taking active part and interest in a specific company: “A firm’s innovation performance is
positively affected through the presence of R&D partnerships with government research institutions” (p. 5, The influence of R&D partnerships on innovation in manufacturing firms: The moderating role of institutional attachment)
In a working Harvard paper Chai and Shih analyzed Højteknologifonden (introduced later) to assess the effects of their work which generally seeks to fund partnerships between private companies and universities. Their results showed that the partnerships formed on the basis of governmental monetary support directly hinder bankruptcies, and increase the number of job positions in a company. Also, as previously mentioned, they found a link between governmental support and patents filed which again increased chances of commercial success.
