Technology expert Erik Brynjolfsson once remarked about artificial intelligence (AI) that we tend to hold it to a standard of perfection and therefore can be pessimistic about its prospects. This is a very common mistake with any disruptive technology. In fact, it is not so much that we hold disruptive technologies to a standard of perfection, but that we judge their performance against the dominant criteria of existing technology. Let’s explore this and see why it matters and how it leads to disaster.
As disruptive innovation specialist Clayton Christensen has noted, a particular difficulty with disruptive technologies is that incumbents set the bar too high for them; they want them to be at the level of current technology on the dominant criterion. As long as the new technology is not able to reach the level of the current technology, the incumbents tend to neglect it or, conversely, invest significant amounts of money to improve it, thus delaying its introduction into the market. As a result, the incumbents do not benefit from the new technology. Meanwhile, new entrants work to find new applications where not only weaknesses in the dominant criterion do not matter, but strengths in other criteria become real advantages.
A good example Christensen gives is the transistor. When it was invented, the transistor was not powerful enough to be used in radios and televisions (compared to vacuum tubes). As a result, radio manufacturers spent fortunes over a long period of time trying to improve the transistor without coming up with a new product. The small size and low power consumption of the transistor were of no interest to them because they were making tabletop radios and, more importantly, transistors allowed only mediocre audio quality. The only thing manufacturers were looking for was to replace the tubes with transistors, i.e. to do the same thing, but better.
In fact, the first commercially successful application of the transistor was… for hearing aids, and we can understand why: this is an area where small size and low power consumption are paramount. In this application, if the sound quality was not good, it did not matter, because for the hearing impaired at that time, it was that or nothing. The hearing aid was competing with non-consumption, so its quality was necessarily good enough.
Then, in 1959, Sony introduced a portable transistor radio, another area where small size and low power consumption were paramount. The transistor radio was an instant hit with teenagers. For the first time, they could listen to the music of their choice with their friends. Again, poor sound quality was not an obstacle: it was either listen to poor quality sound or listen to their parents’ music on the large radio console in the family living room. For the music lover used to the high quality of tuned radio sets, the transistor radio was certainly a step backwards, but for the teenager it was a revolution.
In short, while it may have seemed natural for tabletop radio manufacturers to make decisions based on “always put the customer first,” this mantra actually embodied the essence of their mistake. They made decisions based on the existing market, the existing value network of the company, and more generally, the existing business model of the company. They tried to “shoehorn” the new technology into their business model. A better approach is always to start with the technology itself and ask what new market and what new value network could correspond to this new technology, and then work to build these and a corresponding new business model. In short, instead of trying to “cram” the new technology into the existing business model, try to create a new business model around the new technology. If you think banks and other existing organizations are making the same mistake with AI, you’re probably right. Instead of asking, “What business can we invent with AI?”, they tend to ask, “How can AI save our legacy business?”, leaving the field open to disruptive new entrants.
This is an adapted extract from my book “A Manager’s Guide to Disruptive Innovation“.
On the same topic, read my article “How We Underestimate the Disruptive Potential of a New Technology“. Source for Sony: Clayton Christensen, The Innovator’s Dilemma.
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