Evolution of industries based on systemic technologies : How demand environment influences firm investment strategy?

Purpose – The extant “supply‐side” frameworks of industry evolution fail to predict the evolutionary patterns in industries based on systemic technologies. This paper aims to describe the complex demand environment in industries based on systemic technologies and to explain how the continuously evolving demand structure influences the choice and level of firm investments in the above context. Design/methodology/approach – The paper identifies a conceptual gap in the “technology‐centric” literature on industry evolution by conducting a detailed interpretive survey of the literature that focuses on the demand‐side determinants of firm‐ and industry‐level technological processes underlying industry evolution, and co‐evolution of the technological system underlying an industry and the consumer applications based on the same. Practical implications – The paper provides a set of empirically verifiable mechanisms to explain competing firms' choice and level of investment under conditions of technological and demand uncertainty in industries based on systemic technologies. On one hand, firms' investments influence the evolution of both the technological system(s) and their constituent components that underlie such industries and, on the other, firms' investments influence the consumption of the array of consumer applications that are generated in these industries. Originality/value – The theoretical explanation provided herein not only enhances the understanding of the role of demand‐side factors as determinants of rate and direction of technological advances but also lies central to the understanding of the evolution of industries based on systemic technologies. More specifically, the paper explains how the interaction between continuously evolving demand structure in the downstream market(s) for consumer applications and the technological components comprising the technological system influences competing firms' choice and level of investments.