- October 12, 2019
- Posted by: webo
- Category: Strategy
Importance of predicting emerging next tech disruption
Companies need to track emerging technologies and innovation that can reshape an entire industry to predict the next tech disruption. It is essential to anticipate important innovations ahead of the competition as it can significantly increase growth and shareholder value. Hence for companies the ability to predict if and how fast new technologies will take off is invaluable.
New technologies often prompt a vision of fleeting changes but companies wait till it becomes viable to use these technologies or is able to add value to customers at affordable costs. Till it reaches this point, wide spread adoption of these technologies will not be possible.
Companies that fail to anticipate or adapt to new technologies risk of getting obsolete. Their share prices plummet and valuations drop.This is because investors react faster than customers to potential disruption. Numerous examples like BlackBerry losing more than 90% of its market value following iPhone release is a testimony to this fact.
The ability to react to an innovation even months ahead of the competition can be a huge advantage. In shared mobility sector, Uber launched its model just three years ahead of Lyft, but that still gave Uber a huge edge over Lyft which is evident from their valuations.Similarly Netflix anticipated video on demand model and the potential of internet movie streaming a year ahead of Hulu. Today Netflix valuation is more than 10 times that of Hulu.
How to predict the next tech disruption?
Four conventional approaches primarily used in strategic forecasting can be combined together to predict the next tech disruption. We shall look at each of these four strategic approaches below.
Tech disruption approach 1 – The experience curve
- The experience curve tracks the pace at which the production costs of the new technology will reduce.As the learning curve increases, the unit cost comes down.
- Customers are more likely to adopt an new innovation when the price matches their perception of value. Companies need to track how much the production costs of a new technology should decline to identify a tipping point when the customers decide to switch to the new technology.
- At the same time, experience curves cannot predict which technological innovation will push costs down.
- In some cases, costs are not a factor to determine the customer decision but it is the additional value provided by the new technology.
- Let us take the case of Cloud computing where increased value and not costs propelled customers demand. Cloud computing provides additional capabilities like high storage capacity, improved network performance and utilization which reduced the total price of the service when compared to an on-premise model.
- Another example would be the music industry where recording music evolved from cassette to Walkman to mp3 player to music streaming service.In all these cases, the price remained the same but new features were added that improved customer experience and convenience prompting them to switch.
Tech disruption approach 2 – The elements of value
- The elements of value framework provided by Bain Consulting can help in identifying the tipping points when an additional value in product would prompt customers to switch to a new product.
- Customers can switch to a new product/service even when its prices are higher than the existing products. This is because customers perceive that the new products offer additional value.This added value would be a quantum leap in quality or features over the existing products which improved the customer experience.
- The value added addresses functional, emotional, life changing and social impact of customer experience. Functional elements include reducing cost, improving quality, saving time and product simplicity that make up the basic features of the product.
- The emotional elements addresses design and aesthetics, wellness, fun and entertainment.The life changing elements include motivation to own the product.
- Amazon ecommerce model disrupted the retail landscape by addressing customers unmet basic needs.Amazon improved customer online experience by reducing cost and saving time. Amazon prime further increased the value of their service on multiple dimensions like faster delivery, easier check out process etc.
- An analysis of elements that customers value most can help enterprises accurately predict when new technologies will take off.
Tech disruption approach 3 – The Adoption Curve
- The adoption curve is a tool that predicts how quickly customers will switch to a new product/service by forecasting increase in sales of the new product over time.
- The adoption curve should predict how fast adoption will occur based on historical trends of comparable products and important features that customers value in a product.
- The adoption curve first identifies the tipping point when the customer switches to a new product/service, then how fast different customers segments will adopt the new product and the maximum level of adoption.
- Customers will switch to a new product/service if its capabilities or price are more attractive or provide quantum leap in benefits over the existing products.
- Speed of adoption will vary based on different customer segments and the product appeal to each segments.Hence to forecast the adoption rate, needs of different customer segments are identified in order to identify the tipping points for each customer segment.This would help to forecast the adoption rate.
Tech disruption approach 4 – Barriers and Accelerators
- There can be industry specific barriers or accelerators which can increase or decrease the adoption of new products.
- Regulations, technology, economics and consumer behavior can either slow down or accelerate the adoption of new products.
- Barriers and Accelerators give companies a realistic perspective on the speed at which new products will take off.
- Data privacy in health care can act as a barrier for adoption of Cloud computing.At the same time government regulations to push for electric vehicles can act as an accelerator for the adoption of electric vehicles over combustion driven vehicles.
- In this age of rapid digital tech disruption, companies need to have a robust strategic framework to help them identify which technology they should bet on in the near future to improve growth and profitability.
- By combining popular strategic frameworks like Experience curve, Elements of value and Adoption curve, enterprises can build a model to identify the next technology that can disrupt the market in near future.