by Brian Hopkins

3 Ways to Invest in Emerging Technology in the Age of Digital Disruption

Sep 26, 20124 mins
Data CenterFinancial Services IndustryIT Leadership

In today's world, digital disruption can strike in the blink of an eye, which has IT executives rethinking competitive strategies. In order to compete with digital disruptors businesses must take a new investment approach to emerging technology.

While there is an insatiable appetite for new technologies that fuel growth, most emerging technology investments languish — and ultimately fail. But, the ones that succeed cause rapid and dramatic disruptions that would have exceeded our imaginations a decade ago.

Past disruption followed a classic pattern: Innovators created a new product or service at a dramatically lower price point than currently exists. Eventually, buyers abandon the old products for cheaper upstarts. But in today’s world, digital disruption happens in the blink of an eye. Consider’s disruption of the print media industry and Apple’s disruption of the music industry via iTunes. Compared to other disruptions, these happened almost overnight.

Digital disruption has executives rethinking competitive strategy, and has sent product strategists scrambling for ideas on how to use digital and software capabilities to leverage new products and complement existing ones. While firms are counting on these technologies to have a big impact, they tend to fail, wasting resources and damaging relationships. In fact, in 2011, only 9% of enterprise architects said their businesses were completely satisfied with the level of new technology introduction, and 26% were totally dissatisfied.

In Forrester’s Emerging Technology Playbook, my colleagues and I maintain that in order to compete with digital disruptors, firms must take a new investment approach to emerging technology.

Step 1: Categorize and Prioritize Opportunities

To justify investment, firms must realize that emerging technology impacts their business in different ways and requires different approaches. For example:

Business critical investments require project discipline. Technology investments that have a high operational impact and low potential for growth typically touch critical systems and processes. These require project management discipline to ensure that inappropriately managed risk and scope creep do not jeopardize service or create delays.

Back-office investments require tangible returns. Investments in back-office and support areas (such as human resources and infrastructure) almost always have two objectives: be more efficient and reduce service cost. The bottom-line nature of these investments requires tangible benefits and a relatively short payback.

Strategic technology investments are part of larger business transformation. Strategic emerging technology opportunities have both high business growth potential and operational impact. They often require bet the business moves where failure is not an option. For this reason, it’s critical that these decisions be part of a larger business transformation program that deeply considers all elements of change needed for success.

Future potential investments require experimentation. Technology investments with low operational impact but high growth potential offer the most opportunity to experiment because failure is not catastrophic and potential benefits are high. Ideas that begin as experiments in future potential can mature into other impact areas before commercialization. Success means the potential for more profit, and if significant enough, an initial investment in future potential could lead to substantial business transformation.

Step 2: Evaluate Current Architecture Alignment

Hot opportunities create considerable pressure to deliver commercial capabilities; however, failures are commonly caused by a lack of understanding. Forrester suggests first developing an opportunity road map that matches emerging technology capabilities to tactical and strategic business needs.

To leverage emerging technology in terms of benefits, timing, cost, and risk rather than focus on the technology, identify: 1) the business evolutions that will be unlocked by the emerging technology, 2) the strategic and tactical business requirements that are necessary for successful implementation, and 3) whether or not your firm has the appropriate skills, process, capacity to carry out that implementation.

Step 3: Select the Best Funding Approach

Once you determine opportunities that can be aligned with existing architecture, you are ready for initial investment. Forrester suggests utilizing the below technology investment framework to determine the appropriate business case approach. The framework identifies our recommendations, alternatives, and approaches not recommended for each category of investment. For example, we do not recommend using a transformation program to invest in back-office support opportunities, as programs that are typically show and thorough in their analysis and prevent capturing the rapid return on investment that this class of technology investment demands.

Forrester Investment Justification

For each recommendation, remember that:

1. Investments in critical opportunities are best justified as part of a comprehensive business case.

2. Investments in back-office opportunities require tangible benefits in a definite and short time frame.

3. Business transformation programs must be willing to absorb the opportunity and justify the cost of strategic investments.

4. Emerging technology opportunities in future business potential require incubation and experimentation.

Business evolutions unlocked by emerging technology can be chaotic, but through a deep understanding of high-priority opportunities and smart, venture-style investments, you can keep your company relevant in the era of digital disruption.

Brian Hopkins is a Principal Analyst at Forrester Research serving Enterprise Architecture professionals.