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Saturday, November 22, 2014

The New Wave of Scalable Innovation: Dealing With Distortion in the Digital Era 11-22

The New Wave of Scalable Innovation: Dealing With Distortion in the Digital Era

The Digitized Economy is shifting value away from established players unable to evolve quickly enough. The speed and size of this shift is tremendous, fueled by yet another wave of new technology powerhouses — the young “unicorn” companies wielding billion-dollar valuations to shape entirely new markets, with a glut of private capital lubricating their engines. Such exponential super-startups are even taking the Internet giants by surprise. The disruptors are now facing their own disruption.
Today, startups don’t need to buy infrastructure when it’s available to rent ‘as a service’. They can focus on operations. This capacity enables change to happen much more quickly – and lets 60 employees at WhatsApp deploy services to half a billion people.
This is a shock for policymakers, incumbents, and regulators who hoped the last wave of tech-enabled transformations would settle into stability. Instead, we see fast-moving disruption multiplying itself, brought on by a new wave of scalable innovation.
The accelerating pace of change, the blur of commentary, and the glut of private capital further distort our view of the shifting landscape. For most, there’s too much noise and not enough information. This information asymmetry between the establishment, the Giants, and the new class of unicorns is driving the distortion factor.
The level of distortion is rising so quickly that many are unable to discern between cyclical bubbles and tectonic shifts. The trend away from public IPO’s makes it even harder to effectively evaluate innovations when the books are closed to most. It has become a contest of competing visions for the future, seen imperfectly by many, and brutally clearly by a few.
For regulators who struggle to react to large market transformations caused by fast-moving technologies before they become overly-disruptive, distortion is especially challenging. Many older businesses that have been regulated for decades now face a looming risk of job and revenue losses from new, unregulated competitors. The attacks on Google buses in San Francisco and the taxi protests against Uber across Europe are less about technology and more about uneven regulatory environments.
Tech unicorns often reduce the core business of older incumbents into commodities by reconfiguring their value into lightweight, scalable digital services. They then focus on emerging adjacencies that are not even seen by incumbents or regulators until it’s too late. Uber has leveraged mobile technologies to attack glaring inefficiencies in the cab and livery industries, shedding burdensome capex and grabbing a $17 billion valuation from private capital.
Cabbies and medallion owners struggle with the burdens of regulatory bodies unable to clearly see the threat. Their hard-won socio-economic protections are shredded by fast-moving innovations. By the time regulators understand the impact, Uber has already become big enough to leverage its base in support of its broader objectives.
So, how can stakeholders caught in this shift gain some clarity and conquer the distortion factor? With a sort of digital laissez-faire, fear-based distortion and emotional rhetoric must be overcome by pragmatic analysis and rational experimentation. We don’t yet know, for example, whether unicorns like Uber create jobs or commodify them. Regulators must make a proactive effort to understand shifts in technology and to allow time for these experiments to be fairly evaluated; otherwise we risk further constraining the culture of innovation.
Regulatory actors must also collaborate and iterate with the private sector to better understand the balance between disruption and economic benefit to the social commons. In many cases, problems have arisen simply due to lack of cooperation.
Business leaders must accept that the innovation that will matter most to your company is likely coming from outside. Many companies are now learning how to work with startups as collaborators rather than threats. To collaborate with potential disruptors while they’re young, corporate-sponsored startups and incubators in companies like Orange are mushrooming everywhere. Policymakers should join this conversation to help align strategic disruption with economic growth and prosperity. This is, after all, the value of good regulatory oversight.
No one knows where the next giants will emerge from. But we all know disruption will continue, so we should hop on the wave before it becomes a tsunami, and leverage the momentum towards opportunity, hope, and optimism.

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