Decide on when to invest in new technologies using tipping point analysis
Consumers and industries are adopting innovations at a much faster pace than years ago. The demand for new technology can raise rapidly, such as the viral of the Tiktok app. In this consulting report, the authors stated that anticipating important innovations ahead of the competition can significantly increase growth and shareholder value. It relates to the tipping points in the market that we discussed in class.
The article suggested using four forecasting tools to predict whether a new technology will take off, when the tipping point will arrive and what the speed of market adoption will be. The four tools are experiences curves, elements of value analysis, adoption curves, and analysis of barriers and accelerators.
Tipping points analysis provides clearer visibility into likely future scenarios as well as the variables that could speed or slow the change for companies’ leadership teams. This gives them more time to consider investment options and trade-offs and a head start on implementing and adjusting business strategies. Leadership executives would want to facilitate two things related to what we discussed in class. One is to decide on a likely future scenario and invest when only a small fraction of the population (below z’) is currently adopting. Therefore, when the demand gets past the tipping point, it will benefit from the upward pressure, resulting in a rapid increase in consumers towards the larger equilibrium point with higher profit. The second is to manage the risk which relates to our analysis on the dynamic view of the market. If the technology grows near the second equilibrium point with strong stability property (z’’), then a slight change in demand or change in taste of consumers (i.e., temporary drop in oil price or a new trend) won’t affect the shared expectation much because stable equilibria attract the population from both sides.
One example is that some utilities and gas companies realized that fracking technology would disrupt the industry. They invested in it three years before the shale gas boom, i.e., long before z’ fraction of the population (all utilities and gas companies) uses the technology and when the price is below the equilibrium p*. Anticipating a pivotal shift in the market, these companies took advantage of the shale revolution with high growth in the fraction of population using the technology, and the price rose rapidly.
Source:
- https://www.bain.com/insights/tipping-points-when-to-bet-on-new-technologies/
- https://promarket.org/2021/04/06/measure-test-tipping-point-digital-markets/