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I've been thinking a bit about economic growth, things getting cheaper and disruption and I've arrived at a little rule of thumb or a short question set for getting a feel for whether an innovation or change in technology is going to lead to significantly lower costs for that thing and then become potentially disruptive.
(I'm ignoring for the time being technology that introduces product innovation - new benefits to the user and just focusing on lowering costs).
Most technology is not miracle tech. Mostly it doesn't on its own and overnight change the economic landscape. Mostly it nudges a measure in a helpful direction and sets off a beneficial chain reaction.
When looking at a new thing or a thing that is doing a new job the questions I'm training myself to ask about it are...
First question - is the costly bit of the new technology actually new? If the answer is yes then there is a chance we are going to get learning curve effects. If we have been making the important bits for a long-time then we've probably already made so many that the big impact from learning curve effects has already happened even if we are now re-purposing that technology to do new things.
Second question - are we now going to be making several orders of magnitude more of the thing? If the answer is yes then we might get scale economies and reduce the costs that way.
Third question - are we making the thing significantly bigger or smaller or faster for the same price? If yes, then we may have an opportunity to do things with the new product that we couldn't economically or physically achieve before.
Fourth question - do lots of humans spend time doing the thing "by hand" and does the new thing replace them? If the answers are yes, then there might be a big cost saving from swapping machines for people to be had.
Fifth question - is the current way of doing the thing a large part of the costs of the overall good or service or product or outcome? If the answer is yes then even small cost percentage cost reductions have big monetary value.
Final question - will a change in cost mean significant changes in demand? If the answer is yes then even a modest change in cost might mean a big change in demand which can have knock on effect elsewhere in the economy.
These factors obvious interact. The can obviously lead one to another. More than one can be happening at the same time.
But my current rule of thumb when looking at potentially disruptive technology is that if it isn't a very strong yes to at least a couple of these questions it is unlikely to come to much.
(I'm ignoring for the time being technology that introduces product innovation - new benefits to the user and just focusing on lowering costs).
Most technology is not miracle tech. Mostly it doesn't on its own and overnight change the economic landscape. Mostly it nudges a measure in a helpful direction and sets off a beneficial chain reaction.
When looking at a new thing or a thing that is doing a new job the questions I'm training myself to ask about it are...
First question - is the costly bit of the new technology actually new? If the answer is yes then there is a chance we are going to get learning curve effects. If we have been making the important bits for a long-time then we've probably already made so many that the big impact from learning curve effects has already happened even if we are now re-purposing that technology to do new things.
Second question - are we now going to be making several orders of magnitude more of the thing? If the answer is yes then we might get scale economies and reduce the costs that way.
Third question - are we making the thing significantly bigger or smaller or faster for the same price? If yes, then we may have an opportunity to do things with the new product that we couldn't economically or physically achieve before.
Fourth question - do lots of humans spend time doing the thing "by hand" and does the new thing replace them? If the answers are yes, then there might be a big cost saving from swapping machines for people to be had.
Fifth question - is the current way of doing the thing a large part of the costs of the overall good or service or product or outcome? If the answer is yes then even small cost percentage cost reductions have big monetary value.
Final question - will a change in cost mean significant changes in demand? If the answer is yes then even a modest change in cost might mean a big change in demand which can have knock on effect elsewhere in the economy.
These factors obvious interact. The can obviously lead one to another. More than one can be happening at the same time.
But my current rule of thumb when looking at potentially disruptive technology is that if it isn't a very strong yes to at least a couple of these questions it is unlikely to come to much.
