Monday, February 20, 2006

Disruptive Innovations and Technologies

There is a fascinating discussion taking place on a particular list, which prompts the following thoughts:

Every new technology is disruptive, though some new technologies are more disruptive than others

The degree to which any particular technology is disruptive depends not only on its inherent disruptiveness (technologically and socially) but also on the degree to which it is allowed to develop its own momentum in the marketplace

Today, the technologies that are being released into society are more and more disruptive – e.g. in nano, bio, info, and robotics.

The world is divided between those who are blithely ignorant about the potential impact of these technologies, and those who are aware of it.

Those who are aware are divided between unfettered market-believers who think that all new technologies are eventually beneficial even if temporarily disruptive, and market-skeptics who think that technology-induced disruptions are not always beneficial, or might need to have their disruptiveness moderated for a while in order to have a better balance of disadvantage and benefit.

Market-skeptics are further divided between those who are principally concerned for the welfare of society as a whole, and those who are simply trying to protect vested interests – though it may be difficult to distinguish between these two groups.

For a variety of reasons, market-believers tend to focus on the upside and underplay the downside; conversely, also for a variety of reasons, market-skeptics tend to focus on the down-side and underplay the upside.

Generally, the principal and undisputed beneficiaries from the introduction of any technology tend to be the owners of that technology, though some benefit (nowadays less and less) goes to employees, suppliers and customers.

Society benefits in terms of increased "wealth-creation" but suffers in terms of the disruptive effect of the new technology. Till recently, the social benefit was large: technology tended to enlarge the middle class, principally because of new employment opportunities. But, nowadays, technology (combined with financial and other economic and political factors) is doing the opposite: technological advances are reducing the size of the middle class in Europe, America and other developed countries.

The result (well documented by any number of economists in any number of developed countries) is that the decreasing middle class is tending to splinter into a smaller fraction becoming richer and a larger fraction becoming poorer. This trend towards the decline of the middle class is offset by two developments:
(a) an increase in the size of the middle-class in "currently successful" countries such as China and India; and,
(b) greater mobility across classes, upwards as barriers to entry are lowered and new opportunities are presented by technological disruption in society, and downwards, because investment is not without its risks and hardly anyone understands the financial world as it is now (even the Fed has admitted that it does not understand all that is going on in the US, let alone the global, economy).

However, due to continued technological advances, the size of the middle classes in "currently successful" countries such as China and India is also going to decline (even without taking demographic factors into account).

Increasing social instability is therefore evident both in the developing and in the developed worlds.

It is easy to see why technologists and entrepreneurs are market-believers, and call for faster introduction of innovative (and disruptive) technology.

It is also clear why those who are not technologists, and those who are entrepreneurial and innovative in other areas than technology, wish to question whether further disruption of society is necessarily a good thing right now, or whether the introduction of socially-disruptive technologies might not usefully be slowed: if there is such a thing as a metabolic rate in society, is it possible that the metabolic rate was possibly too slow for the period preceding say the nineteenth century, but is becoming too fast in the twenty-first century?

When I raise points such as the above, market-believers tend to say "Nothing can stop the onward march of technology!".

However, they forget that money is what enables technological innovation to take place. Starve certain kinds of science/technology of money and that sort of science/tech tends to slow down. Improve the input of money into a particular area of science/technology, and the development of that kind of science/technology tends to speed up.

The question therefore is WHAT KIND OF TECHNOLOGICAL INNOVATIONS DOES GLOBAL SOCIETY MOST NEED AT PRESENT? Certainly we most need technologies that reduce our consumption of fossil fuels such as oil and gas, technologies that enable the environment to be healthier, technologies that improve family life, technologies that enhance the quality of life of the poorest and most disadvantaged. Regrettably, in spite of the self-serving publicity given to financing of technologies for these purposes, the proportion of money spent on these is actually declining. Compare, for example the amount of money spent on research into drugs for the diseases of the rich versus the amount of money spent on diseases for the poor.

ENDS Sphere: Related Content


Kendall Callahan said...

Dear Professor Guptara,

It is an honor to be able to share my ideas with you in response to the question you posed in your most recent post, "Disruptive Innovations and Technologies".

You ask, "What kind of technological innovations does global society need most at present?" I have two patents pending in the USA that I firmly believe will 'enhance the quality of life of the poorest and most disadvantaged' while increasing the profits of the corporations that serve them. Market-believers and market-skeptics, as well as corporate owners and individual consumers, will be satisfied and gratified with the economic, social and community wealth enabled by these innovative technologies which, once financed, will be replicated internationally.

Access to Food in America's Inner Cities: A Model Solution

GroceryVillage is an internet-enabled community building system that uses proprietary software to empower the residents of our nation’s inner cities while promoting long-term sustainable change. The GroceryVillage solution provides inner-city residents with direct access to higher quality, lower cost food and with a mechanism to build a credit record that will enable access to lower-cost capital for immediate and future needs.

Based on two patent-pending software and methodology platforms, the GroceryVillage solution provides this radically underserved market with 1) an internet-based food order, fulfillment and community-based delivery system that grants inner-city consumers local access to their dietary needs and 2) a micro-financed based payment solution that enables every participant to establish a credit record with each purchase. At the same time, the system advances the profit-driven motives of food vendors while guarding the interest of the participating financial institution(s).

For the food vendors, the system promotes profit in two ways: first, it enables grocers to gain profitable access to this market by eradicating the traditional barriers of economically inefficient development and operating costs; second, it includes an aging inventory component that allows a vendor to direct sales of specific products at strategically defined locations. For the financial institutions, the system offers a risk-management system in the initial building of individual credit records. In return, these financial institutions will benefit from a significant increase in 1) the pool of educated and qualified consumers applying for and utilizing their credit instruments and/or banking services and 2) a corresponding escalation in the number of internet-based merchant transactions enabled by this newly banked and credited consumer market. With this system, each participant will realize that it is entirely possible to respect themselves as someone who can create both health and wealth, for themselves as well as for their community.

A Microfinance Model to Develop Predictive Power, Scale and Efficiency in Credit Decision Making for Microlenders

The National Microfinance Facilitated Transaction Index (NiFTI)

The predictive power, scale and efficiency of existing decision making models for extending credit to low-income consumers poses a significant challenge to today’s microlending industry. The two primary tools typically used to make underwriting decisions, credit scoring models and credit evaluation grids, do not meet the specific and long-term needs of this emerging market – for either the lenders or the loan recipients. Julie Gerschick of the Aspen Institute’s Microenterprise Fund for Innovation, Effectiveness, Learning and Dissemination, concluded in 2002 that “further innovations in lending methodologies will be needed to tap the demand for microloans that exist in this country.” It is critical that any new methodology offer realistic tools that will promote the development of credit scoring models that are appropriate and beneficial to low-income populations and to the businesses and financial institutions that serve them. The National Microfinance Facilitated Transaction Index (NiFTI) answers this important mandate.

The National Microfinance Facilitated Transaction Index (NiFTI) fills the gap between objective Credit Scoring Models which objectively determine a statistically valid risk of lending to the moderate and high-income sectors and the more recently developed Credit Evaluation Grids which subjectively determine risk based on a loan officer’s or underwriter’s ‘gut-based’ assessment of individual criteria. The NiFTI system uses the consumer’s familiarity with a basic and oft-repeated transaction, food purchasing, as a tool to teach the consumer the importance and rewards of timely repayment of microloans. As a consumer’s positive repayment record for food-purchase-based microloans mounts, so does his/her access to the magic ingredient needed to escape poverty and create wealth - additional capital.

For microlenders, the NiFTI system will create a nationally accessible database of reportable transactions that will enable the industry to pool loan data - an essential first step critical to the development of a credit scoring system. In addition, information recorded by NiFTI will enable financial institutions to minimize the valuable time spent on the underwriting process and predict consumer behavior before a significant investment is made in underwriting. The result will be a new and valuable credit scoring model with predictive power, scale and efficiency specific to the low-income market. A final note: It has been demonstrated over time that credit-scoring models developed for consumer lending (e.g. auto loans, credit cards, etc.) are also applicable to residential lending. As such, financial institutions that support consumer credit capacity in the low-income sector today will lay a solid and rewarding foundation for 1) gaining the hard-won trust and loyalty of this consumer segment and 2) serving a more educated and statistically transparent and thus less financially risky consumer sector in the future.

Where I am now: I have developed the technical and operational infrastructure for the NiFTI and Walter Hanchuck of Chadbourne & Park LLC in NYC has filed a patent application on my behalf for this system. An important counterpart to this system which enables internet food purchasing for the low-income sector (summarized above)can be reviewed by clicking the following link:

I would greatly appreciate feedback and ideas on the implementation of these projects.

Prabhu Guptara said...

Dear Kendall

As far as I can see these are excellent ideas.

What I am not clear about is the extent to which you have already operationalised these ideas.

Do let me have your e-mail and we can carry on this discussion off-line

Best wishes

Prabhu Guptara