Identifying Disruptive Technologies

Disruptive technology eventually does everything the old technology did plus adding brand new capabilities

Published: 20-Jan-2004

son, Wis. -- For the last few weeks journalists and industry forecasters have flooded magazines and Web sites with predictions of the big technological breakthrough for 2004. Many people wonder: Is there actually a way for knowledgeable consumers to predict the next big thing? According to Scott Converse there is. Converse, the information technology director for the UW-Madison school of business, discussed a model for predicting, spotting and learning from disruptive technologies during a presentation for the World Future Society’s monthly meeting last Thursday called “What’s Inside that Crystal Ball? Using Disruptive Technologies as a Tool for Forecasting.” Converse used the music recording industry as a case study and audience members participated to predict disruptive technologies that foreshadowed Apple’s dominance in the music industry.

Disruptive technologies, according to Converse, are revolutionary discoveries that “change the way people do things.” Digital cameras, cell phones and electric-hybrid cars are all examples of technologies that disrupted the status qoa. Any technology that “rapidly leapfrogs over the competition” by performing the tasks of an existing technology but in a much improved manner can be considered a disruptive technology.

These technologies have “ironic characteristics,” according to the model. They are initially ignored by the established technology’s faithful and are consequently not profitable. In order to succeed, “forward thinkers” inside a niche market must adopt the technology. Within that specialized market, the technology can be developed and refined until it eventually outperforms the established technology.

“[The disruptive technology] eventually does everything the old technology did plus all these new capabilities,” Converse said.

He went on to explain that disruptive technologies only need to leapfrog what consumers are concerned with, not the performance standards set by the existing technology. He illustrated his point with a reference to duck hunting, one of his hobbies.

“Ford is making a D-12 engine, capable of pulling half-a-dozen duck boats but I don’t actually care if it can pull a half-dozen duck boats—I need to pull one. A disruptive technology only needs to be able to leapfrog what people and the market are concerned about, not what the existing technology had,” Converse explained.

However, some technologies may appear revolutionary but are simply sustaining or “iterative.” Converse distinguished the two by their rate of improvement: A sustaining technology slowly improves over time whereas a disruptive technology experiences exponential performance growth. It is the difference between a minivan that gets three more miles to the gallon than the previous model and an electric-hybrid car, he added.

This model, like any other, is not without its weaknesses. The function of time within the theory is a major shortcoming because the model cannot predict exactly when the leapfrog effect will occur.

The recording industry has experienced disruptive technologies almost every year since 2001, Converse said, and it is because of the industry’s failure to adopt that they now have an unlikely competitor—Apple.

“Apple introduced [iPod] in 2001. Apple is not a player in the recording industry; they’re completely outside the loop, so to speak. And when I saw that happen I immediately said ‘That’s a disruptive technology,’” Converse said. “If I were a betting man, I would say that in five years the recording industry made up of the big five players will be down to the big two and Apple will be one of them.”

After the presentation, conversation turned toward how disruptive technologies can effect business investments.

“I thought [the presentation] was great,” said Gary Wagner. “If you’re an entrepreneur this is the way to get into a new business; to be a developer of that technology.”

“It is a way to forecast the future in terms of stocks if nothing else,” said Mike Brunet. “Everyone will have to manage their own retirement portfolio and you have to be an informed consumer. So this helps in becoming an informed consumer.”

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