Replacing an old technology or adopting a new technology for your business is a more complex task than it seems. For the past couple of decades, CIO’s have significantly improved their ability to understand the technology shifts that disrupt businesses, industries, and sectors. They understand far more about how to identify those shifts and what risks they may represent to incumbent companies. But the timing of technological change remains a true mystery.
Even as some technologies and companies seem to take off overnight (such as Uber, Snapchat and Twitter), others take decades to unfold (such as HDTV and cloud computing), and this can be a problem for many executives. Still there are too few tools and indicators when such transition should take place and, even knowing that many CIO’s are now more aware whether a new innovation or technology poses a threat, the doubt is still there in the back of their minds: whenever a superior new technology emerges on the horizon should CIO’s simply follow conventional wisdom and strive to make a seamless transition to this new technology?
Many CIO’s do that, although they can’t admit to themselves that they actually don’t have the proper strategy in place, neither the necessary wherewithal and IT ecosystem to perform such transition, and so they fail disastrously and may even jeopardize their companies’ businesses.
A few years ago, someone from NASA said that “an Apollo rocket is actually on course only two or three percent of the time? At least 97% of the time it takes to get from the earth to the moon, it’s off course”. Unfortunately, that’s how most IT executives run their projects to adopt new technologies or to update existing ones, they just start a new project without any previous analysis of market maturity for that technology, IT ecosystems and how soon those technologies will become old, and that goes without mentioning the impact on their current business value proposition, and then just fix it as it evolves, many times causing significant financial loses and negative impact within the time-to-market.
Based on a research by Prof. Ron Adner and Prof. Rahul Kapoor, it’s possible to understand that the number-one concern coming from CIO’s is being ready too late and missing the market momentum (for example, Blockbuster, which has failed due to having ignored the shift from video rentals to streaming). But on the other hand, the number-two concern should probably be getting ready too soon and exhausting resources before the market momentum starts (think of the many dot-com companies that died in the 2001 technology crash, only to see their own ideas and concepts reborn later as a profitable Web 2.0 venture). This prematurely acting concern applies both to established incumbents being threatened by disruptive technologies and to innovating start-ups carrying the flag of disruption.
In order to better understand why some of the new technologies quickly supplant their predecessors while others take much more time, it’s necessary to consider two topics in different ways. First, it’s necessary not only to comprehend the new technology itself, but also the broader ecosystem that is needed in order for it to perform according to the expected. Second, it’s necessary to understand that competition may take place between the new and the old ecosystems, rather than between the technologies themselves, and this perspective enables executives to better foresee the timing of transitions, plan more coherent strategies for mitigating threats and leverage opportunities and, ultimately, make far better decisions about when and where to allocate organizational resources.
A range of complementary items is necessary to deliver the value proposition of both established and disruptive initiatives, such as technologies, service agreements, standards and regulations. The strength and maturity of these elements that compose the ecosystem play a key role in the success of new technologies and the continued relevance of old ones.
Emerging ecosystems for new technologies
While evaluating a new technology and what is its potential for business, it is primordial to understand if it can meet clients and customers expectations, needs, fulfill latent needs or even cover new markets, delivering value in a better way. Executives and developers must have a clear picture on how much additional development will be required before this new technology is ready to be commercialized in the market, if its price will be competitive and if it is feasible to be operationalized.
If this assessment suggests that this new emerging technology is able to deliver and perform as expected, it will naturally take over the targeted market. Crucially, however, this expectation will hold only if the new technology’s dependence on other innovations is low. For example, a new light bulb 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 are not in a plug-and-play mold, such as the previous example. Rather, their ability to create value depends on the development and commercial deployment of other critical parts of the ecosystem. For example, HDTV could not be feasible for the market until high definition cameras, new broadcast systems and regulations, and updated production and postproduction processes also became available, meaning that without an entire new and ready ecosystem, the technology revolution expected by HDTV would be delayed, no matter how great its potential for a better experience it had. The main difference between both examples is that the first one can be plugged into an existing ecosystem
Existing ecosystems for old technologies
When we think of well-established technologies, we may think of those that have overcome their emergence challenges and are incorporated within stable and established ecosystems. Whereas new technologies can be held back by their ecosystems, existing technologies can be potentialized by improvements in theirs, even if there isn’t any progress or advance within its core technology. As an example, we can mention that although the basic technology behind bar codes has not changed in decades, their utility improves every year as the IT infrastructure supporting them allows more information to be extracted.
Similarly, improvements in DSL 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.
Whenever we picture a market in which a new technology is born and is to replace an existing one, if this situation were to be uneventful or with no other elements that could influence its flow, we would have something similar to the one shown in the graphic below:
Unfortunately, the utopic situation shown above only happens in a few plug-and-play situations, where the same ecosystem and the same external factors are just enough for the new technology as it was for the old technology. Normally, new technologies require a more sophisticated and agile ecosystem, and then it conflicts with the existing one. That is, as mentioned before, the competition between the ecosystems.
For a new technology, the most important factor is how quickly its ecosystem becomes sufficiently operational and available for users to realize the technology’s potential. In the case of cloud-based applications and storage, for example, success depended not just on figuring out how to manage data in server farms, but also on ensuring the satisfactory performance of critical complements such as broadband and online security. For an old technology, what’s important is how its competitiveness can be increased by improvement in the established ecosystem. In the case of desktop storage systems (the technology that cloud-based applications would replace), extension opportunities have historically included faster interfaces and more robust components. As these opportunities become exhausted, replacement will be faster.
Although the pace of replacement is defined by the rate at which the new technology’s ecosystem can overcome its emergence challenges relative to the rate at which the old technology’s ecosystem can exploit its extension opportunities. To consider the interplay between these forces, a framework to help managers assess how quickly disruptive change is coming to their industry was built considering four possible scenarios: creative replacement, hefty resilience, hefty coexistence, and illusive resilience, as shown in the graphic below:
Whenever the ecosystem emergence challenge for the new technology is low and the ecosystem extension opportunity for the old technology is also low, the new technology can be expected to achieve market dominance and replace the old technology quite rapidly. The new technology’s ability to create value is not held back by bottlenecks elsewhere in the ecosystem, and the old technology has limited potential to improve in response to the threat. This quadrant aligns with concept of creative destruction—the idea that an innovative upstart can swiftly cause the demise of established competitors. While the old technology can continue serving niches for a long time, the bulk of the market will abandon it relatively quickly in favor of the new technology. As an example, consider the rapid replacement of dot matrix printers by inkjet printers.
Whenever the new technology’s ecosystem confronts serious emergence challenges and the old technology’s ecosystem has strong opportunities to improve, the pace of replacement will be quite slow. The old technology will be able to maintain a strong leadership position for an extended period of time. This scenario is most consistent with technologies that seem revolutionary when they’re first released but appear overhyped in retrospect. A very good example are bar codes and radio frequency identification (RFID) chips, once RFID chips hold the promise of storing far richer data than bar codes ever could, but their adoption has been quite delayed due to the slow deployment of suitable IT infrastructure and nonuniform industry standards.
Meanwhile, IT improvements have extended the usability of bar code data, as we’ve already discussed, relegating RFID to niche applications and keeping the RFID innovation at the parking lot for the past two decades, and that shows that the opportunity cost of waiting for the rest of the system to catch up can mean that being in the right place too soon can be more costly than missing the revolution completely. When substitution is slow, there are also implications for the new technology’s required performance levels. Whenever IT improvements make old technologies more useful, the quality threshold for the new technology is increased. Thus performance expectations for the innovation keep ratcheting upward, even as its wide adoption is held back by the underdeveloped state of its ecosystem.
Whenever the ecosystem emergence challenge for the new technology is low and the ecosystem extension opportunity for the old technology is high, competition will be very hefty. The new technology will make inroads into the market, but improvements in the old technology ecosystem will enable it to defend its market share. There will be a longer period of coexistence. Although extension opportunities are unlikely to reverse the rise of the new technology, they will materially delay its market leadership and dominance.
A good example is the competition between hybrid (gas-electric) engines and traditional internal-combustion engines. Unlike fully electric engines, which need a supporting network of charging stations, hybrids were not held back by ecosystem emergence challenges. At the same time, however, traditional gas engines have become more fuel-efficient, and the ecosystem for the traditional technology has improved, too, as gas engines have become better integrated with other elements in the vehicle, such as heating and cooling systems.
Whenever the ecosystem emergence challenge is high for the new technology and the ecosystem extension opportunity is low for the old technology, not much will change until the emergence challenge is resolved, and then substitution will be fast. Examples here are HDTVs versus traditional TVs, and e-books versus printed books. Both of those revolutions were delayed not by advances in the old technology’s ecosystem but by ecosystem-emergence challenges in the new technology.
The graphic below illustrates how the dynamics of this analytical framework is established within the market:
CIOs and executives must understand that ecosystems are just as important as technologies, so they can better understand how quickly change is going to occur and be more accurate in deciding what level of performance they need to target in the meantime. They must consider how to tackle these questions rapidly, as well as pay attention to a few general truths that emerge within this perspective.