Right Tech, Wrong Time9 November, 2016 / Articles
For the past 30 years, “creative destruction” has been a source of fascination at top-tier business schools and in magazines like this one. The almost obsessive interest in this topic is unsurprising, given the ever-changing, never-ending list of transformative threats—which today include the internet of things, 3-D printing, cloud computing, personalized medicine, alternative energy, and virtual reality.
Our understanding of the shifts that disrupt businesses, industries, and sectors has profoundly improved over the past 20 years: We know far more about how to identify those shifts and what dangers they pose to incumbent firms. But the timing of technological change remains a mystery. Even as some technologies and enterprises seem to take off overnight (ride sharing and Uber; social networking and Twitter), others take decades to unfold (high-definition TV, cloud computing). For firms and their managers, this creates a problem: Although we have become quite savvy about determining whether a new innovation poses a threat, we have very poor tools for knowing when such a transition will happen.
The number-one fear is being ready too late and missing the revolution (consider Blockbuster, which failed because it ignored the shift from video rentals to streaming). But the number-two fear should probably be getting ready too soon and exhausting resources before the revolution begins (think of any dot-com firm that died in the 2001 technology crash, only to see its ideas reborn later as a profitable Web 2.0 venture). This fear of acting prematurely applies both to established incumbents being threatened by disruptive change and to innovating start-ups carrying the flag of disruption.
To understand why some new technologies quickly supplant their predecessors while others catch on only gradually, we need to think about two things differently. First, we must look not just at the technology itself but also at the broader ecosystem that supports it. Second, we need to understand that competition may take place between the new and the old ecosystems, rather than between the technologies themselves. This perspective can help managers better predict the timing of transitions, craft more-coherent strategies for prioritizing threats and opportunities, and ultimately make wiser decisions about when and where to allocate organizational resources.
You’re Only as Good as Your Ecosystem
Both established and disruptive initiatives depend on an array of complementary elements—technologies, services, standards, regulations—to deliver on their value propositions. The strength and maturity of the elements that make up the ecosystem play a key role in the success of new technologies—and the continued relevance of old ones.
The new technology’s ecosystem
In assessing an emerging technology’s potential, the paramount concern is whether it can satisfy customer needs and deliver value in a better way. To answer that question, investors and executives tend to drill down to specifics: How much additional development will be required before the technology is ready for commercial prime time? What will its production economics look like? Will it be price-competitive?
If the answers suggest that the new technology can really deliver on its promise, the natural expectation is that it will take over the market. Crucially, however, this expectation will hold only if the new technology’s dependence on other innovations is low. For example, a new lightbulb technology that can plug into an existing socket can deliver its promised performance right out of the box. In such cases, where the value proposition does not hinge on external factors, great product execution translates into great results.
However, many technologies do not fall into this plug-and-play mold. Rather, their ability to create value depends on the development and commercial deployment of other critical parts of the ecosystem. Consider HDTV, which could not gain traction until high-definition cameras, new broadcast standards, and updated production and postproduction processes also became commercially available. Until the entire ecosystem was ready, the technology revolution promised by HDTV was bound to be delayed, no matter how great its potential for a better viewing experience. For the pioneers who developed HDTV technology in the 1980s, being right about the vision brought little comfort during the 30 years it took for the rest of the ecosystem to emerge.
An improved lightbulb and an HDTV both depend on ecosystems of complementary elements. The difference is that the lightbulb plugs into an existing ecosystem (established power generation and distribution networks; wired homes), whereas the television requires the successful development of co-innovations. Improvements in the lightbulb will thus create immediate value for customers, but the TV’s ability to create value is limited by the availability and progress of other elements in its ecosystem.
The old technology’s ecosystem
Successful, established technologies—by definition—have overcome their emergence challenges and are embedded within successful, established ecosystems. Whereas new technologies can be held back by their ecosystems, incumbent technologies can be accelerated by improvements in theirs, even in the absence of progress in the core technology itself. For example, although the basic technology behind bar codes has not changed in decades, their utility improves every year as the IT infrastructure supporting them allows ever-more information to be extracted. Hence in the 1980s, bar codes allowed prices to be automatically scanned into cash registers; in the 1990s, aggregating the bar code data from daily or weekly transactions provided insight into general inventory; in the modern era, bar code data is used for real-time inventory management and supply chain restocking. Similarly, improvements in DSL (digital subscriber line) technology have extended the life of copper telephone lines, which can now offer download speeds of 15 megabytes per second, making copper-wire services competitive with newer cable and fiber networks.
The War Between Ecosystems
When a new technology isn’t a simple plug-and-play substitution—when it requires significant developments in the ecosystem in order to be useful—then a race between the new- and the old-technology ecosystems begins.