Technological change as a risk

Niko J.K. Järnberg

1. Historical view

2. Dynamics of technological change

3. Properties of Technological change as

risk

4. Hype and risk

5. Current disruptive trends

6. Mitigation

Contents

3

What technological change does to companies?

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What technological change does to companies?

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Nokia Eon

Modern smartphones overtake the

market and Nokia is unable to adjust

Push for renewable energy makes

traditional powerplants unprofitable

“There is no reason anyone

would want a computer in their

home.” — Ken Olson, president, chairman and founder of Digital Equipment Corp. (DEC), maker of big business mainframe computers, arguing against the PC in 1977

“There is practically no chance

communications space satellites will

be used to provide better telephone,

telegraph, television, or radio service

inside the United States.” — T. Craven, FCC Commissioner, in 1961 (the first commercial communications satellite went into service in 1965)

“Flight by machines heavier than air

is unpractical (sic) and insignificant,

if not utterly impossible.”

– Simon Newcomb; The Wright Brothers

flew at Kittyhawk 18 months later.

The Americans have need

of the telephone, but we

do not. We have plenty of

messenger boys." -Sir William Preece, Chief

Engineer, British Post Office,

1878

5

Technology keeps changing and we keep being unprepared

1850-1900 1900-1950 1950-1970 1970-1990 1990-2000 2000-2020

Neither RedBox nor Netflix are

even on the radar screen in terms

of competition," - Blockbuster CEO Jim Keyes,

Comment on regarding competition in

video rental business 2 years before

bankruptsy

“I predict the Internet will soon go

spectacularly supernova and in 1996

catastrophically collapse."— Robert Metcalfe, founder of 3Com.

The development of mobile phones

will be similar to PCs. Even with the

Mac, Apple has attracted much

attention at first, but they have still

remained a niche manufacturer. That

will be in mobile phones as well." - Anssi Vanjoki, Nokia's chief strategist

2 years after iPhone was launched

6

Well… on the flip side

Dynamics of

technological change

Previous view

8

Can we predict technology disruption?M

ark

et sh

are

5%

10%

15%

Slowly growing

market share

50%

100%

Time

Disruption

Saturation

10

Threats that originate from technology change

Indirect disappearing of

markets

Non-competing technology

indirectly makes company's

product not needed.

Think:

• Accessory technologies

• Combustion engine parts

producer after electric cars

• Printing paper after email

Competition from new

technology

Competing technology takes over

and is the preferred choice by

customers, due to its superior

performance.

Think:

• Floppy vs CD

• CD vs digital music

• Feature phone vs Smartphone

Competitors cost

optimize

Competitor uses superior

technology to gain competitive

advantage in existing product

segment.

Think:

• Online everything vs. traditional

• Retail

• Banking

• Booking

• Transportation

• Media

Organization cannot

adapt

Technology change means that

old organizational resources are

not well suited for the task.

Think:

• Online banks vs. traditional

banks

• Car manufacturers vs. Electric

car manufacturers

Properties of

technological change risk

12

Key things to keep in mind when assessing

Risk is continuous

One cannot identify a distinct

realization of this risk, and thus no

damage per event, can be

assessed

Consequences:

• Likelihood x Frequency is not

appropriate way to assess risk

Risk is cumulative

Effects of risk, pile up on previous

year.

Consequences:

• Longer horizon risk assessment

is needed

Risk is persistent

Once the risk effects are felt, the

situation is unlikely to return to

normal

Consequences:

• Impact on company value can

be enormous even after 1 bad

year

• Assess the solvency risk

Is often hidden

Risk is often hidden by hindsight

bias, where the change seemed

inevitable looking from todays

vantage point

Consequences:

• Risk tends to be underestimated

+ +

Hype & risk

14

Hype cycle

15

Risk in both sidesE

xp

ecta

tio

ns

Time

Actual development of

technologyRisk of

getting

carried away

Risk of

“Sleeping on

the wheel”

Risk of

“losing faith”

Risk of

failing to

adapt

16

Risk in both sides

Time

Actual development of

technologyOpportunity

to be

restrained

Opportunity

to be a

pioneer

Opportunity

to double

down

Opportunity

to adapt

Exp

ecta

tio

ns

Current disruptive

technology trends

18

Current disruptive technology trends

How would I know?Remember all the famous people from before

• Blockchain

• AI

• IoT

• Advanced materials

What to actually do

about all this

20

What is unlikely to work

Predict trends

Making business decisions based

on longer term predictions

Problem:

• Accuracy of the predictions is

historically really bad

Wait and see

Being patient and waiting to see

which technology trends realize

Problem:

• Too little too late -> Nokia

Follow media

Rely on the media and base

forecast on public perception

Problem:

• Hype vs. real substance, hard to

tell the difference.

Hire external experts

Hire experts who can tell what the

trends are going to be.

Problem:

• External will also tell the

competitors -> no real edge

• They likely are not as clairvoyant

as they claim

• Operationalizing external idea is

exceedingly hard.

21

Possible ideas - Operations

Don’t plan rigidly

Make your operations adaptable

and agile.

Examples:

• Agile movement: starting from IT

and spreading elsewhere

Design for change

If you cannot predict the future,

ensure that you are not trapped in

a suboptimal situation

Examples:

• Adaptable buildings

• Smaller units

Try out things

Have a group of people trying to

keep up with the cutting edge

even if they mostly waste money

Examples:

• Google’s 20% time: no planning

at all

Flexibility

If posed with the choice of two

ways to do things, choose the

more flexible way

Example:

• Flexible work arrangement

• (Semi) external work

22

Possible ideas - Strategy

Hedge your bets

If there is a competing technology,

see if you can get a share in it.

Examples:

• Gas station company entering

car charging early on.

Have some buffer

Don’t over extend financial

resources. When treat or

opportunity comes, you can react.

Examples:

• Tech companies keep billion in

cash just to shield for disruption

Plant many seeds

Try out many things, and if they

don’t work, move on

Examples:

• Start-up philosophy

Planning for uncertainty

Inbuild uncertainty in all your

longer term planning.

Example:

• Demand stress testing

23

Key idea

Uncertainty + Rigidity = Loss

Uncertainty + Flexibility = Value

24

Risk managers role in all this

Planning for uncertainty

• Raise the issue of uncertainty in longer-term plans, and require confidence intervals in all estimates.

Agility and flexibility

• Raise the question “ Is this plan adaptable if situations change?”

Have some buffer

• Raise the issue, when an organization is overextending it’s resources.

Diversify your bets

• Voice support for projects that are uncertain in themselves but offer protection from technology

disruption.

Planting seeds & trying things out

• Identify initiatives that have limited downside (even if high risk of failure) and high upside, and promote

them.

25

Thank you for your attention!

Exploring the unknown requires

tolerating uncertainty- Brian Greene, Physicist & Author