The Risk Dilemma Cycle
This newsletter issue is part of the Return on Risk LinkedIn Newsletter Series, designed to help you to better understand the exquisite tension between risk and growth.
Technology development and adoption go through a predictable cycle. There are multiple steps involved. Once you understand the steps, you can begin to have a framework by which you can examine new and emerging technologies to determine how disruptive it might be.
In his 2016 Letter to Shareowners, Jeff Bezos asked the question “How do you keep the vitality of Day 1, even inside a large organization?”
Here is his response.
“Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.”
While there are lots to unpack in this statement, for this issue, I want to focus on “the eager adoption of external trends.” If this is vital for continued success, how do you become aware of and embrace external trends?
Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.
Technologies of all kinds continue to be developed at a rapid pace. The Risk Dilemma Cycle is a way for every business to think about eagerly adopting external trends.
In his book Bold, Peter Diamandis talks about exponential technology and describes a six-step process he calls the Six Ds. The steps that exponential technologies go through are Digitization, Deception, Disruption, Dematerialization, Demonetization, and Democratization. I call this process the Risk Dilemma Cycle.
Virtually all information is being digitized. Exponential technology is creating the process for taking all information and making it digits—1s and 0s. Technology that becomes digitized becomes an information technology.
What does that mean?
Biology and genetics are a great example. Biology has become an information technology. Biology information has become digitized. The genetic genome project was started in 1990 to map the human genome. It took 15 years and cost $3 billion.
We can now sequence your human genome, and you get information in a digital stream. Several companies currently offer a service to map your DNA and identify any genetic abnormalities for less than $1,000.
When a new technology, process, or platform digitizes information, it enters an exponential growth stage. Because the early parts of exponential growth are hard to detect, the impact of this technology can be very deceptive. It may look like this technology will go nowhere or not have broad appeal.
It is easy not to appreciate the early exponential stage the technology has entered.
An example to help you understand this is to take a penny and double it every day. For the first 20 days or so, the amount of money is inconsequential. Yet, at a certain point, the line starts going up (the hockey stick curve), which is when the exponential growth becomes apparent. By the end of 31 days, you will have over $10 million. It’s only in the last few days where the doubling has such a significant impact.
So, the early stages of exponential growth are very deceptive.
Kodak didn’t notice the exponential growth in the quality of the image based on the number of megapixels in the camera. Other technology that impacted the digital camera included the increase in storage size, the reduction in the cost of memory, and the development of digital printers. By the time Kodak noticed, the digital camera was becoming a new standard, and it was too late for them to do anything about it.
At some point along the development process, the exponential growth becomes disruptive. All of a sudden, people are noticing the new technology. It seems that the technology came out of nowhere when, if you were paying attention to the deceptive stage, you would have had a better idea of the potential impact.
There are numerous examples of technology and platforms becoming disruptive—the easy ones to talk about are Uber and Airbnb. While they were early entrants, many others created platforms that allowed people to connect that would change entire industries.
If you are wearing a fitness tracker, you experience dematerialization. There are lots of things we used to own that we don’t possess as things anymore. They have become apps, or they are now included in one device, such as a smartphone.
I used to carry a Garmin GPS with me when I traveled. Now I use the Waze app on my smartphone. I don’t take physical books with me or CDs to play in my car. They are all contained in my smartphone.
All these material things have been dematerialized as they become digitized. So, if you’re in the device business, you have to be wondering which of the devices that you sell could be dematerialized. If you’re an entrepreneur, you may be asking yourself, “How do I dematerialize that thing?”
Airbnb is dematerializing hotels. In the recent past, if you wanted to be in the hotel business, you would have needed to invest hundreds of millions of dollars. Who in the hotel business ever thought that two guys sharing an apartment in San Francisco would be competition!
So, when you start thinking about what industries could be dematerialized, don’t limit yourself to just physical things but entire industries.
The next stage in the cycle is demonetization.
Craigslist demonetized classified ads and completely changed the economics of the traditional hometown newspaper. They virtually single-handedly took the money out of the publication and put it into the consumers’ pockets.
- Skype demonetized long-distance calling.
- iTunes demonetized the record store.
- Google Search demonetized research libraries.
- eBay demonetized the local garage sale and connected buyers and sellers worldwide.
- Amazon demonetized bookstores.
Many business models and industries are becoming demonetized. You may be one of the executives who are up at night wondering how demonetization will affect your existing business model.
So, can you demonetize your business where the new business model becomes freeware, and you take a small amount of that business, giving back 99% to the consumer and take 1%? When these things become dematerialized and demonetized, they become freeware on the internet.
Technology that is democratized can go anywhere and everywhere. This is the global nature of economies today. They become democratized; they go everywhere. A smartphone opens up opportunities even if you live in the middle of Africa. The more people who can use exponential technology, the more global creativity and invention we will see.
The next 2, 5, 10 years are going to change the face of every industry because we’re in rapid exponential growth for a whole series of technologies. Understanding these Six Ds or the Risk Dilemma Cycle will help your organization be able to eagerly adopt external trends and prepare for the changes that are coming.
What tools does your company use to identify external trends they should adopt?