How to assess new technologies ?

Published by Rodolphe Wilhelm, 22 Apr 2015

Using the tech industry’s own models to inform your technology adoption strategy

The answer to the question of whether or not your business should invest in new technology is very simple. It is yes. After that, things become a little more complicated.

First you must identify what new technologies will make a real difference to you and your customers, helping you to remain competitive or even gain market share. And then you need to decide when to make the leap, how to do it, and with whom.

Understanding how vendors bring new innovations to market, and how they are adopted at different stages of the product cycle – and who buys them – can help you decide which technologies might be right for your business and, perhaps more importantly, give you a good indication of when you should be investing in them.

It doesn’t change the fact that predicting the future is still more of an art than a science, but when you’re playing a game with stakes this high every little helps.

What Type of Buyer Are You?

Most businesses (and, indeed, consumers) are followers, which means they are characterised as late adopters of new technologies. There is nothing ‘wrong’ with being a follower if it is the right thing for your business.

For example, if you operate in a low-added value, commoditised sector the risks of being more innovative than your competitors probably vastly outweigh the potential rewards. In this case you will wait to see what the take up is on a new technology andallow the vendors to iron out any deployment issues. If both of those show good traction and stability you might then build it into your strategy plan for the coming years.

On the other hand, if you are an organisation that is an early adopter of technologies you can create a competitive advantage, but only if you settle on the right technology for your business, and can accelerate the adoption process as well as work through the initial teething problems (there will be some!), allowing you to come to market quicker, or with a better product, than other innovators. It is a risky plan for some and an opportunity to steal market share for others.

In an outsourced environment, it’s fair to say that clients will expect providers to be somewhere near the cutting edge, at least with regards to whatever technologies are relevant to the service provided. But equally the client can also be the leader, working with the provider to explore new possibilities.

It is also important to understand that you will be a different type of buyer for different technologies. You might be an early adopter when it comes to big data, but a late adopter for a well-established technology such as speech recognition, for example.

Appraising any new technology means making a judgement on the risks versus the potential rewards of both adoption and non-adoption, as well as understanding how the balance between these changes over time.

There are a few models we can use to help make the assessment.

 

The Hype Cycle of Innovation

 

 

On the graph above (courtesy of Gartner), the bottom axis shows time elapsed and the vertical shows expectations in relation to that particular technology stack. Within the graph itself you have marked points that show how far each technology has travelled along theHype Cycle, and how many more years it will be until it is anticipated to reach the plateau (far right). All technologies go through a cycle similar to this, even if some make much faster progress than others.

You can probably think of a technology, now ubiquitously adopted, and remember it going through the cycle. Mobile phones and the Internet, for example, moved fairly quickly from stage to stage and are now well off the right-hand edge of the graph. On the other hand there’s a technology like AI, which has been repeatedly through the first 3 stages but has yet to establish itself (although with the likes of Watson and Siri it might well make it this time).

Of course your own experience of any given technology will not necessarily follow the Hype Cycle exactly. A technology which in general will not plateau for 10 years could accelerate much quicker for you if it suits your organisation’s sector, strategy and development timeline.

 

The Chasm Model

In 1991 a Silicon Valley consultant named Geoffrey Moore invented a model for marketing and selling disruptive, mainly technology, products. If you are looking at new technologies with potentially high pay-offs, but correspondingly high risks, then understanding this model can help you. As the model is also handily expressed in a graph, we can map it directly on to the Hype Cycle:

 

 

This model has different groups of buyers on the X axis, which also displays time, and the number of those buyers on the Y axis. Its defining feature is the Chasm, which any innovative new technology must jump over in order to be widely adopted by the mainstream.

What the Chasm Model helps you to understand is exactly who is buying (or buying into) a technology at any point along the Hype Cycle. For any given technology the specific characteristics and motivations of these buyers will vary, however each group has a few things in common.

Innovators are risk-takers, on the very cutting edge of their field. They maybe fail more often than they succeed. If you are an Innovator, you probably know it. In the BPO market being an Innovator can of course bring advantages, but if clients are more interested in SLAs and reliability than innovation then the risks of adopting any new technology while it is at such an early stage will probably be too great.

Early Adopters wait to see how a new technology plays out with Innovators before they jump on board, normally at the point when the media hype reaches its apogee. There is still a high level of risk involved in adopting a technology at this point because it has not yet proven itself by navigating the Chasm, which corresponds to the Trough of Disillusionment in the Hype Cycle model.

It is these Early Adopters – not the Innovators – who form the real proving ground for any product. If they accept a product, and prove its use, word spreads and it climbs the Slope of Enlightenment to mainstream adoption by the Early Majority.

Vis-à-vis any given technology, you should be able to place yourself into one of the five groups of buyers. Charting the current position of whatever technology you are assessing on the Hype Cycle can then give you an indication of whether or not it has reached the right stage of maturity for your business.

So let’s take a closer look at some of the characteristics of each stage of the cycle to see if we can tease out any further insights to help us make investment decisions.

 

The Stages of the Innovation Cycle

Innovation Trigger: It is a product’s very early adopters (the Chasm Model’s Innovators) who give it its first lease of life and demonstrate whether or not – in its current form – it is capable of creating value for its intended user base. This first phase begins with R&D, followed by educating the market and attracting these influential early buyers:

  • Start-up companies attain first round funding on the basis of a working prototype and expected market impact.
  • First Generation of products hits the consumer market for real world testing. This generally triggers version updates and ultimately starts to drive down the initial inflated price.
  • Innovators investigate and essentially look to identify positives and negatives.

Peak of Inflated Expectations: The next stage of a product’s maturity is characterised by media hype and a growing user base. The product is still far from the mainstream and is still undergoing rapid development:

  • Mass media hype begins. Substantial press coverage from trade journals leads to high expectations.
  • Supplier proliferation accelerates to meet expected demand or to control market flow to keep prices high, if you view it from a cynical angle.
  • The backlash begins. No product can quite live up to the market’s early expectations. Negatives are highlighted in the press, whether these are doubts about the technology platform itself, the asking price, its ease of use or its supposed benefits.

Trough of Disillusionment: A product able to carry enough momentum into this phase – in terms of users, suppliers and advocates – can leap the Chasm, become stable and see the uplands of the mass market opening up for it:

  • Supplier consolidation and failures. Suppliers may have more stock of the technology than they can move and previous versions will need to be moved at a lower value than anticipated.
  • Second and third rounds of venture capital funding. Regardless of technology failures, if its initial impact was substantial enough in terms of profits, additional rounds of funding will help iron out the issues for subsequent re-launch.
  • Less than 5% of the potential audience has fully adopted. Perhaps this is an indicator that the original hype fell well short of expectations, but if suppliers can get the newer versions right they still have a large purchasing base.
  • Second Generation products and some services. Widget 2.x is now more stable with additional features. Feedback from the user base has been adopted and there is now a services base to deliver and support the product.

Slope of Enlightenment:The product now starts to be adopted by the Early Majority. It is established that the product can deliver its promised benefits and it is also supported by a wide range of suppliers, platform and services:

  • Methodologies and best practices are developing. The technology is now mature and has a framework for delivery that is repeatable and stable with a projected development path.
  • Third Generation products, out-of-the-box product suites. Simplification is now being designed into the technology and the focus is on improving the interface and consolidating functionality into product suites.

Plateau of Productivity: Any product making it this far can be considered a roaring success:

  • High-growth adoption phase starts. 20-30% of the potential audience has adopted the innovation.
  • Eventually growth will peak when market penetration reaches a certain point. Prices may also fall considerably as the once-innovative product becomes commoditised.

What becomes clear when you look at the broad characteristics of each stage, is that risk gradually decreases and so does price. Furthermore as the product is honed by successive groups of users the potential rewards it offers increase. By attempting to predict the values of these three factors for any technology we are assessing, we can make a more informed buying decision.

 

Plotting Risk, Reward and Price

 

 

 

The above diagram illustrates the following general trends:

  • Risk generally decreases at an increasing rate as a technology becomes more established.
  • Price decreases as vendors take advantage of the economies of scale a growing market brings, but there is for most products a rate below which it cannot go, which is generally the marginal cost of producing it.
  • Known rewards increase – in both volume and value – throughout the product lifecycle but can tail off towards the end of the cycle as saturation point is reached.

Of course these are just general trends. There are huge potential rewards for a few lucky innovators and early adopters towards the left of the graph, and the crossing points of the three lines will inevitably vary for different technologies and even for different companies assessing the same technology. Measuring the expected evolution of risk, reward and price enables you to pick the right time for you to invest.

If your business plan requires you to be conservative – for example you make widgets and only need to increase efficiency by a few percent every decade – you will probably wait until after the Known Rewards line crosses either the Risks or Price line, or both. On the other hand, if your business requires you to be innovative to keep your competitive edge you may choose to jump in well ahead of any of the projected crossing points.

Wherever on the spectrum from innovator to late majority your business lies – for any given technology – once you’ve gathered your intelligence and done your analysis you should be able to find the sweet spot that works for you.