It is innovation that drives the modern economy. In developed countries, more than half of the economic growth is derived from the innovative application of new technology and scientific discovery. Few would now doubt that the long term survival prospects of a business hinges on its ability to deliver meaningful innovation. Businesses typically arrive on the wave of an innovation and commonly leave because they cannot find a new wave to ride. Some call this the “incumbent's curse”: That is the inability of the current market leaders to sustain their position. They will cite the deaths of the likes of Blockbuster, who famously turned down an offer to buy Netflix for $50MM (which now has a market value of $34B), or Kodak, who invented digital photography and could be said to have died by their own sword, or Sony that saw mobile music stolen from beneath its very nose (or ears) by Apple. In each of these cases, and many more, the incumbent was best placed to exploit the key enabling technology (web-enabled fulfillment, digital photography or mpeg compression software respectively) but chose not to.
Others will cite something called “Disruptive Innovation”. Here the current players are so focused on over-tweaking their existing offerings that they fail to spot entrants taking their least demanding customers with cheaper offerings. Eventually the new entrants move up the margin food chain and eat the incumbent’s lunch. Commonly cited examples of this are Southwest Airlines and the so-called Steel “mini-mills”. Here the incumbents did not see what was about to happen (but should have!). And others still have suggested another mode of destruction called “Big Bang Disruption”. Here exponential advances in digital technologies, in which new offerings are cheaper, better and more appealing than those of the incumbents, lead to overnight disruptions. Think of Skype, Facebook, Twitter and Google Maps.
There are plenty of models describing how innovation occurs and what happens to you if you’re not part of it. Which of these models applies to your business may be unclear, but certainly one (or more) does, and you can be sure that somewhere in the world someone is plotting your demise through technology-driven innovation. We believe understanding and deploying the right technology to innovate the next generation of products should play an important role in incumbent’s business strategies.
It’s easily said but tough to do. I was reminded of just how tough it is to find, select and engage the right emerging technology when looking over the latest Gartner Hype Cycle. For each of the past 20 years, Gartner, a US-based IT consulting firm, has constructed a set of decision-making tools for a wide variety of emerging technologies that are aggregated into a “Hype Cycle”. In the 2014 version, shown in part in the figure attached, Gartner positions technologies along a (arguably) set innovation roadway from trigger, through the peaks and troughs of expectations and ultimately to a “plateau of productivity”. Gartner also attempts to predict when (and if) a given technology will make it to the plateau. What its latest cycle suggests is that technologies such as Internet of Things, Autonomous Vehicles and Wearable User Interfaces are most hyped when Cloud Computing and NFC are passing through, what Gartner calls, “Trough of Disillusionment”. You can, of course, infer risk-adjusted valuation from expectations, with certainly those technologies at or around their peak of (inflated) expectations representing the greatest investment risk (can you wait until it moves towards the the trough?!). In our next blog in this series we will explore some technologies that have made it through the cycle, and some that are still in it, and discuss what this means for you as you seek to engage in the risky but vital business of innovation!
I'm busy working on my blog posts. Watch this space!