Socio-Economic Faces of Disruptive innovation
Is disruptive-innovation-driven economy socially healthy?
The limelight of global economic scene has been stolen by fourth industrial revolution and its propellant like frontier technologies and robotics. The industrial revolution is almost at our doorsteps with invasion of artificial intellegence in our daily lives. Examples of little idea that have wrecked ‘the philosophy of listening to market needs today and developing products and services based on a predicted future’ have been well established in fields of SMAC (social, mobile, analytics and cloud) technologies. It is impossible to accurately predict the markets created by these ideas before they are really launched and tested. These ideas of disruptive innovation cannot be rigorously analyzed like sustainable innovation, they may be planned and projected in a dynamic and short termed fashion to secure financial capital and to assure their goals are met. These plans are everevolving based on the challenges in developmental phase and so creator cannot foresee the long term impact it may bring. Thus the crests of optimism of creating a new market through disruptive innovation is always followed by a trough of pessimism towards the unsustainable impacts it can create. Disruptive innovation can increase the productivity of modern life by unleashing an enormous amount of digital capacity through platforms. But, at times, it can also be of personal or political risks as such technology may not be able to quickly respond to damage that it may incur.
Example: Data misuse involving Facebook Inc.
Facebook’s CEO, Mark Zuckerberg on the testimony to UNITED STATES SENATE, started out on an apologetic note, saying “We didn’t take a broad enough view of our responsibility, and that was a big mistake. It was my mistake, and I’m sorry.” and later in the subject of Russian Interference on US Election, admits “We were too slow to spot and respond to Russian interference, and we’re working hard to get better” (US SENATE, 2018). He acknowledges that data from upto 87 million profiles have been used by a political consulting company connected to President Donald Trump (The New York Times, 2018). Of all the unethical activity Facebook has been used for, this leakage of personal data to politically manipulative cause, can be counted amongst one of the biggest misuse of SMAC technology.
Example: Implications of being a Uber driver
Ridesharing apps like Uber had created gig workers for on- demand jobs, but, it actually did not much support these driver against locally existing legal hurdles, neither has it been liable to the drivers through social protection policies like health insurance or pension plans as the drivers are usually classified as freelancers or independent contractors (Bruurmijn, 2017). The key point here is, in absence of a long term vision, an idea today may disrupt into avalanche of negative consequences which may even overshadow the goods that it can do, making it unsustainable. Though, in a race between innovation and policies that govern them, innovation will always win and governance policies will evolve after and based on consequences of these riskes, the developers with long term vision will always sneak through that peep hole to foresee all the implications. Tootle in Nepal has faced similar challenge when government started bullying their riders.
Example: Automation and prospect of Job loss
Frontier technologies may have created one of the biggest boom in economics and investment domain. But, the impacts they have created are no less. In considering only 15 major developed and emerging economies, the World Economic Forum predicts that frontier technological trends will lead to a net loss of over 5.1 million jobs by 2020 (World Economic Forum, 2016). Effects on least developed countries are shockingly higher. According to (World Bank, 2016) ,in countries like Nepal and Combodia, more than 40% of jobs can be automated. For now, the chance of losing jobs to robotic replacement is higher in the developed economies than in least developed economies (LDE) due to technological un-affordability and cheaper labour in LDC. But, I assume, price of technology will go cheaper and labour cost will increase as LDE develop in the future. And if automation goes
disruptive in LDE too, market economies will choose the most cost-effective method of production, thereby creating a higher risk of job losses to robotic substitutes.
Another risk in emerging frontier tech, Internet of Things (IoT), is on data security, ownership and privacy. The user of IoT enabled device may not be clear what data is being tracked and how it may be misused.
The technology developer and investors may not be interested to identify these kinds of long term social risk, like in the case of robotic substitution over humans work. Or, they may not be able to quickly respond these risks, like Facebook’s example. But, apart from investors themselves and the developers, the firm may get a fair share of capital investment through investment management companies.
So, can portfolio managers focus on impacts oriented investment?
There is another problem on the investment management side. The managers are usually concerned with maximizing returns of an investors through alluring short term profits. Their competency is judged based on their ability to yield the best return from the portfolios they design, rather than the long term value they may create on social or environmental aspects. It is upon the investor to be conscious if unhealthy trade-off between short term profits and long term impacts is being done. The central purpose of creating sustainable impact for people and the planet alongside financial returns should also be accessed alongside, when crunching profit and loss numbers. A growing domain of socially responsible investment, called the impact investment, motivates analysts and decision makers to prioritize long-term performance (both impact and financial). According to “Eyes on the Horizon”, a study by J.P. Morgan, impact investors allocated only 3 percent of capital to seed and early-stage ventures, major cause to this low interest was the unavailability of data from high quality impact investment (J.P. Morgan , 2015). Seemingly, impact investors need numbers to account all aspects of impact and they need business models that have been proven working, which is less available. Risk should be taken, so that more examples of successful impact investment can be analyzed in days to come.
It may be easier to set examples from other source of investment, venture capitalism. Start-up culture has been so successful for a reason, they have immense possibilities of creating disruptive innovation at reasonably lower investments, lower when compared to funding requirements of a pre-established firm looking for sustaining innovation. Angel investors can be more uncomplicated source of investment, as it should be easier to convince one person to fund prototyping the impact oriented product.
If start-ups can disrupt an incumbent, how have business giants survived?
Although, one may argue that everything has a shelf life and the end is inevitable, but, its evolution that can help preserve what wants to live. Tech giants like Nokia and Yahoo have learnt/taught a lesson when they failed to compete with their disruptive competitors. Clayton Christensen, who has been Professor of Business Administration at the Harvard Business School and business consultant to many, had been able explain the reason to why and how these classic cases of failure occur. Way earlier than the events with Nokia and Yahoo, in 1997, through his book, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail”. There-in he focused that, the power of disruption cause market leaders to fail as technologies and industries change and what incumbents can do to secure their market leadership for a long time. Christensen’s original idea was that an excessive reliance on the known and presumed needs of current customers could be harmful when a novel technology disrupts the market. To rephrase in innovation terms, sustainable innovation should secure their markets through timely improvements or else the newly developed disruptive innovation may even cause these huge firms to defunct. He had noticed this during the computer hardware market shifts in US in 1980s (Christensen, 1997). To alleviate the risk of being engulfed by a new comer, the firms have to equip themselves newer innovations that can improve over their previous limitation.
Example: Amazon buys Diaper.com
Story behind e-commerce titans Amazon.com buying Quidsi’s Diaper.com is a classic example of companies trying to equip themselves with another retail technology company (Fortune 500, 2010). Diaper.com was a rapidly growing company that has already figured out ways to profitably store and deliver goods to its dedicated client base, a point of threat to Amazon. This classic example can also depict how tech giants can build monopolies by buying any promising new comer. Similar is the case of Daraz.np in Nepal, a multinational owned by Alibaba that has taken up huge share of Nepalese online market.
Examples: 54 Fortune 500 Companies on the list since the start
History also presents some companies that evolved over time and learned to project a long term vision. From among all the Fortune 500 companies in 1955, only 54 are still standing strong till 2018 since they started out, no year in between did they miss to be on the list. Of these are only 9 companies have been on the list ever since the first list release in 1955. These long term players had evolved through weathering economic climates, disruption from newer players, and methodological changes on Fortune’s end in calculating the list (Fortune 500, 2018). These long-term players must have been open to changes in market and must have accepted their shortcomings.
What’s the point of this essay?
From the very beginning of the essay, I have walked you through a issue, that is going to recur at various points in our future, it’s the phrase disruptive growth. I have showcased numerous samples to show various faces of disruptive innovation and its implications. These have a potential of shifting paradigms at any moment, thus the Leaders of Tomorrow have to have a clear picture of how capital involved in disruptive innovation may benefit or cause damage to our society tomorrow.