The Manager’s Guide to IT Innovation Waves

One issue to consider when a new IT innovation is beginning to generate a wave of attention: What conferences are devoted to the innovation? Is attendance growing or declining, and at what rate?

Image courtesy of Flickr user K.Costin Photography.

Over the last half century, managers have faced one wave of information technology innovation after another, each promising to change the way companies do business. Many of those innovations have: The sheer ubiquity of computing and communications devices and people’s devotion to their electronic devices bear witness to the transformation. Still, at any one point in time, an executive is likely to feel more or less inundated by the current wave, unsure of what all the commotion is about, unable to avoid the topic in everyday business conversation and suspicious that the latest gizmo is not the Next Big Thing but the Next Big Sell.

Some years ago, Neil Ramiller, in his doctoral research at UCLA, polled a number of managers about how they made sense of the new in IT. Most of them struggled. Initially, hopeful managers sooner or later grew disenchanted with the problems involved in the latest technology, whether it was electronic commerce or computer aided software engineering. One manager lamented, “I keep waiting for a silver bullet, a magic formula, an answer to all my prayers, and it never happens!” Yet, for that manager and most others, the promise of the newest IT never seemed to dim.1

Many economists and analysts have noted these adoption waves. In IT, the best-known observer is the technology assessment company Gartner, which formulated what it calls the “hype cycle” to describe how new IT innovations break upon the business scene in a wave-like, attention-grabbing fashion. In this model, each noteworthy new technology is portrayed as taking off and gathering mounting interest, only to reach a “peak of inflated expectations,” falling then into a “trough of disillusionment,” from which it slowly recovers to follow an upward “slope of enlightenment.” Since it was first introduced in 1995, the hype cycle has become Gartner’s most popular analytic tool for assessing the progress and acceptance of new IT.2

How should managers understand this apparent IT wave phenomenon and come to terms with it? For more than a decade now, in a program of research at UCLA’s Anderson School, we have sought to ask whether there is a better way. This article summarizes what we’ve found in our own research and learned from others — and offers some practical suggestions for managers who want to avoid catching any more disappointing waves.3

How Innovations Spread

Something about innovation has tended to suggest an organic process, such as waves or the spread of disease. Innovation theorists have long likened the spread of innovation among potential adopters to the spread of a particular disease by contagion among humans or other species. More than four decades ago, the researchers William Goffman and Vaun Newill suggested, “People are susceptible to certain ideas and resistant to others. Once an in­dividual is infected with an idea, he may in turn, after some period of time, transmit it to others. Such a process can result in an intellectual ‘epidemic.’” The dynamics of such epidemics have been much studied. The cumulative incidence of a disease, spread most typically by a virus, follows a familiar S-shaped curve. As exposure to the virus increases, so too does the incidence rate, accelerating the process until natural limits, such as the number of susceptible subjects remaining, eventually force the rate into decline, as the virus “runs its course.”4

Diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system. In the simplest interpretation, early adopters put the innovation into play, and others follow their lead at an increasing rate as more are exposed to the technology by word of mouth, until certain limits eventually force the adoption rate into decline as the innovation runs its course. This model isn’t wrong: Extensive research confirms that the diffusion of many innovations follows an S-shaped curve similar to that which describes the spread of a communicable disease. But recent research literature suggests that innovation diffusion is a much more sophisticated process than is reflected in the simple contagion model; diffusion is substantially influenced, if not exactly orchestrated, through a variety of human agents. In our own research, which leans heavily on that of many others, we have also concluded that innovation adoption, although it looks like an organic or physical process from the outside, is perhaps better understood as a complex social system that generates a natural force — a sort of wave machine.5

Introducing the IT Innovation Wave Machine

Think of the IT innovation wave machine as a kind of institutional apparatus that serves to produce waves of innovations as just described. Many largely “invisible hands” are busily at work inside the IT innovation wave machine, and their work has a lot to do with the eventual success or failure of the innovation. From the outside, the wave machine produces waves that carry the innovation through five stages: 1) breaking the surface, 2) sending out ripples, 3) causing a squawk, 4) building the swell and 5) riding the crest.

1. Breaking the Surface To begin, imagine something like a placid sea of business activity broken by a disturbance as something new hits the water. In business IT, it is frequently new business application software, which exploits developments in both IT software and hardware, and the particular business opportunities and imperatives of the day. When technologists say they are on the lookout for the next killer app, it is such business apps that they are often talking about.

But how do we know if a new application is truly innovative? The degree of innovation is demonstrated when the software is used in practice, typically as part of a business process where its contribution is illuminated.6 Even then it may be hard to discern whether a single revamped business process, driven by novel application software, has wider and compelling business implications. Of the few that are indeed innovative, most are innovative in minor ways and go largely unnoticed as a consequence.

2. Sending Out Ripples So how does an entrepreneur convince the market that a program is genuinely new? In 1998, Farzad Dibachi, founder of Niku Corp., faced just this problem.7 His company offered new project management software, originally composed for his personal use, for what he called “professional services automation” (PSA). Seeking exposure for the product, Dibachi approached several IT research and analysis companies that might write about his product. Such companies, among them Gartner, Forrester Research and Meta Group, monitor new IT, vendor products and services and the marketplace, providing assessments that they then sell to their own subscribers, principally those who buy IT products and services.8 At Aberdeen Group, research analyst R. David Hofferberth responded to Dibachi’s pitch. He ultimately produced a white paper not just about Dibachi’s product but on PSA as a new class of enterprise software with its own market, which included a number of competing products from other companies.

In introducing the PSA concept to the wider community, Hofferberth articulated the beginnings of what is termed an “organizing vision” for PSA. An organizing vision is defined as a focal community idea for the application of IT in organizations.9 Broadly, it explains what the innovation is and why it should be undertaken. The need for an organizing vision arises because the applications of new IT are not at all self-evident, and the market for new application software is not always clear. Rather, the notion of a market is typically advanced by individuals such as Hofferberth, in the case of PSA, who identify it as emergent in the broader marketplace. Whether there is in fact such a market is typically arguable in the ripple stage. Its identification is more an interpretation of a possible future market alignment than a simple observation. Analysts such as Hofferberth take a risk venturing such an interpretation, but if they are either persuasive and form industry opinion about a category or simply forecast correctly the direction in which it is heading, they can earn valuable reputations as gurus in a rising new industry.

Occasionally, this process works spectacularly well. In early 1990, three analysts from Gartner Group reportedly met over pizza and beer and from their discussion identified “enterprise resource planning” software as a new emergent class of application software. The first white paper sketching the vision for ERP, written by one of the three analysts, appeared shortly thereafter. Several years then passed, however, before SAP AG’s new R/3 product emerged and came to exemplify ERP, catching wide attention and igniting a hot new market. Whereas SAP’s prior R/2 product ran on mainframes, R/3 exploited new client/server and relational database technologies. The rest, as the cliché goes, is now history. ERP adoption quickly swept across the business landscape in the late 1990s. As for Gartner, “We drove the market (for ERP),” recalled Erik Keller, looking back on his days as one of its principal ERP experts10 — with a little help, perhaps, from the Y2K millennium bug, fear of which made many CIOs anxious to replace legacy systems.

3. Causing a Squawk Of course, a white paper is not enough to spur adoption: It must have readers. Gaining the attention of a skeptical IT community accustomed to being besieged by extravagant claims of breakthrough products and concepts, even as it anxiously awaits and yearns for the Next Big Thing, proceeds on multiple fronts. One way to gather the community’s attention is through the many conferences, expositions and symposia that bring participants together for a few days to update themselves on new developments and network under a common roof. Some of these meetings are organized by the IT research and analysis companies themselves and typically address a range of topics, within which new concepts are easily introduced. Gartner’s meetings are among the best known in the industry, but others are also organized by companies that specialize in trying to bring new technologies to wider attention.

It can often be challenging to promote a new IT innovation. Although Herbert Simon first identified attention as a notoriously scarce management resource more than 40 years ago, the role of limited attention in explaining adoption rates continues to be underestimated.11 Overcommitted and skeptical, managers typically look for signs that others have adopted an innovation before they decide to sign on themselves. This can make it very difficult for innovators to reach the mass they need to overcome managers’ skepticism.

4. Building the Swell Of course, attention is only a prerequisite. For an IT innovation wave to form and gain size, individuals and businesses must commit to it. More specifically, some businesses must lease or buy the new business application software and commit money and time to implement it. (See “Is This a Wave to Watch?”) Getting a number of enterprises to adopt the software is important for two reasons. First, mass adoption tends to drive positively reinforcing bandwagon effects, meaning that an adopter benefits in part as a result of others doing the same thing, either as a result of network externalities that adopters gain by being linked with a common system, or because other developers are attracted to create additional software or services for this same market.12 With wide adoption, an application can sometimes achieve the status of a de facto standard, creating in effect a new platform for value-added products and services.

Second, a growing swell of commitment serves to attract further attention in the community. The higher rate signals both the likelihood of securable benefits for adopters and favorable marketplace prospects for those offering the associated software and related goods and services. Finally, the building of attention can feed on itself, as through contagion (“Have you heard about X?”) it brings the noninitiated into the process. The resulting swell in attention, for as long as it can be maintained, provides a stimulus to both marketplace demand and supply, with the result that the rate of adoption increases further, a consequence of the positive feedback loop.13

This swell of interest does not occur at any particular rate, but may happen either slowly or rapidly. When the innovation becomes a management fashion, the process is likely to be more rapid. In the words of Columbia Business School professor Eric Abrahamson, management fashions are “relatively transitory collective beliefs, disseminated by the discourse of management-knowledge entrepreneurs, that a management technique is at the forefront of rational management practice.”14 Eventually, however, an IT innovation will lose its fashionableness regardless of its usefulness. In fact, it may even continue to spread. Nevertheless, its period of fashionableness may be important for helping to build momentum and driving its ultimate impact on practice. Unlike some management fashions, which may disappear from practice altogether, IT innovations, once undertaken, frequently have irreversible qualities, even where they do not — and they often do not — meet the expectations raised for them.

5. Riding the Crest Once IT innovations achieve a certain adoptive momentum, participants can ride and exploit the network advantages, positioning themselves to reap rewards. Purveyors of related products and services can push to extend their markets, much as ERP vendors sought to leverage their success with large customers and penetrate the midsize and even small business markets. Adopters can move to achieve desired business solutions, often with the aid of consultancies, in particular those specializing in system integration, such as Accenture and Deloitte, who in the 1990s rode the ERP wave to achieve large revenues and profits for themselves.

But just at this point, momentum will often falter. For in implementing new IT, notoriously, things do not always work out as planned. Indeed, an important characteristic of IT innovations is that implementation is frequently costly, time- consuming and highly problematic. One consequence is that adoptions, which are essentially commitments to implement, may outstrip actual implementations, resulting in a worrisome “implementation gap” that calls for explanation and can serve to dampen enthusiasm for the innovation. For example, shortly after the ERP wave peaked, Thomas Davenport called attention to the now noticeable implementation problems, remarking, “The growing number of horror stories about failed or out-of-control projects should certainly give managers pause.”15

Eventually, the ERP implementation consultancies rapidly scaled up their practices, (albeit staffing many of their engagements with an abundance of relatively raw new recruits, to the inevitable consternation of their clients), but not every innovation is so lucky. Difficult implementation also tends to delay system success. Indeed, in the case of ERP, businesses were often made worse off by the initial implementation. Assimilating the new systems into the organization proved to be more of a challenge than was anticipated, and achieving the promised benefits remained elusive for many for some time. Gradually, enthusiasm for ERP wore off, even as it became an institutionalized practice.16

The crest of an innovation wave cannot be sustained indefinitely, but it can be extended for the benefit of those who ride it. Community participants who have various stakes in the technology’s continued success can sometimes contribute to the momentum. For example, proponents of customer relationship management developed and published a special advertising section on the technology in BusinessWeek over several years, exploiting CRM’s momentum while serving importantly to extend it. They did this in part by publishing articles that emphasized the evolution and progress of their technology and identified promising new developments to keep the CRM organizing vision fresh and responsive.17 CRM’s continued momentum and promise was in effect built into the articles’ ongoing story line.

The IT Innovation Wave Complex

If it goes well, a powerful swell from the innovation wave machine will generate a corresponding movement by managers, transforming the somewhat artificial mechanisms of marketing, technology analysis and industry journalism and conferences into genuine enthusiasm. With good fortune,
attention will build rapidly in concert with subsequent adoptions and reach its peak about the same time adoptions themselves crest. Once sufficient momentum is achieved, subsequent adoptions may continue even after the community’s attention to the organizing vision has dwindled, transforming from a wave to a gentler but still powerful swell. And so the shorter wave of attention serves to pull the longer wave of adoption along.

The IT Innovation Wave Complex

View Exhibit

As discussed above, adoptions of IT innovations do not equate to implementations, which are likely to peak some time after attention and adoptions have been on the wane. However, until they do peak, managers’ attention to the organizing vision is likely to remain active, even as the vision is transformed by its contact with reality. Finally, the cumulative value achieved from the IT innovation forms a final, even longer wave, a product of substantial learning by doing subsequent to implementation, and extending some time after adoptions have run their course. Ironically, the rate at which value is achieved by the innovation is likely to peak long after the community’s attention to the original, organizing vision has dissipated. The basic insight here is the distinction drawn between the attention wave that forms around an IT innovation, and the actual adoption, implementation and value gained from its use. At any one point in time, it is important for managers who seek to understand the innovation’s progress to grasp it on all four dimensions, so as to avoid misinterpreting it by focusing on just one dimension. To illustrate, consider the three points of time that mark the inflection points in the S-shaped curves. (See “The IT Innovation Wave Complex.”) At time A, attention and adoptions are both at their peak rates of accumulation, while the implementation rate is still growing and the innovation’s value added is barely discernible. The implementation rate peaks later at time B, and its rate of added value peaks still later, at time C. Note that managers have much to learn from the innovation’s progress after time A, even though the community’s attention to the organizing vision will be on the wane. In particular, they have much to learn about the value they should be able to achieve through their implementations.

This IT innovation wave machine is substantially an institutional apparatus, erected to further progressive change in business practice. That IT innovation is a good thing on the whole is largely taken for granted. Many individuals and enterprises find themselves attracted to this broad proposition, even as they compete and squabble around individual innovations and their particulars. They find themselves attracted in substantial part because they can profit and make their livings from the process itself. Most obviously, they can gain most by catching an individual wave complex early on, helping it achieve scale, and with good fortune eventually riding its momentum. But they can also invest themselves in catching a series of such wave complexes, and it is in this sense that they become part of an apparatus that is institutional in character. These institutional participants range from the IT research and analysis companies such as Gartner, which monitor the industry for new developments, to the vendors that brand and rebrand offerings under successive innovation banners, the consultants and managers who move among businesses and lubricate the IT adoption and implementation process, the conference organizers who bring everyone together to talk and further their prospects, the publishers and writers who ferret out and convey the cautionary tales and success stories, and the gurus and academics who extract the wisdom of it all for the broader audience. Through their ongoing collective action, formed largely from the coincidence of their interests, these participants serve to activate the IT innovation wave machine.

This IT innovation wave machine has a certain limited capacity in terms of the attention of its institutional participants. It is therefore largely devoted at any one time to only a few of the many innovations that compete for its support, and these are the ones that promise the most returns for their efforts to the individual players. As a consequence, the launch of any new IT innovation is always problematic, as relatively few devotees seek to turn already-occupied institutional attention to it, competing with other hopefuls who also clamor to be the next new favorite. At the same time, with a seemingly never-ending stream of such new prospects, the wave machine may choose to release its grip on those innovations that seem to have lost whatever adoptive momentum they managed to achieve, whether the waves they generated were large or small. In this way, the machine frees capacity to accommodate the most promising among the newest.

Innovating Mindfully — Rather Than Mindlessly

What lessons follow for the executive who inevitably confronts these waves, one after the other, as his or her industry is pummeled by the promise of the new in IT and told that its future hangs in the balance? The primary lesson lies in recognizing the differences among the components of a particular wave complex — discerning, for example, whether actual adoptions of a new IT measure up to all the talk about it, or whether adoptions seem to be plentiful enough, but successful implementations are suspiciously few, or whether anyone is really gaining value from their implementations. An executive can face each new IT innovation either mindlessly, by jumping on an innovation’s bandwagon without giving much thought to the unique circumstances of his or her company, or mindfully, taking those unique circumstances into careful account in deciding whether, when and how to join others in embracing a given IT innovation. (See “How to Make Sense of IT Innovation Waves” for a brief guide to initial questions managers should ask, along with mindful follow-up questions.)

While it may seem obvious that executives should proceed mindfully rather than mindlessly, that is easier said than done.18 The IT innovation wave machine presents a powerful institutional force that can be difficult for an executive to resist. Most executives would like to be known as innovators. Within the company, many IT executives can build their professional reputations by being IT leaders, pushing the company to embrace technological change rather than cling to its old ways. And when it becomes apparent that a particular IT innovation seems destined to sweep the field, few executives want to be in the position of being left behind, risking the competitive survival of their company.

As a result, a considerable amount of mindlessness in innovating with IT accompanies the workings of the wave machine. The mindful executive can achieve advantage for his or her business, not only by attending to the unique circumstances of his or her company, but by seeing the mindlessness of others for what it is. When one’s peers adopt a new IT, do their reasons for doing so make sense? Do they reflect well-considered circumstances of their own, beyond the boilerplate benefits promised by vendors and consultants seeking a piece of the action? Asking such questions can be an important exercise. Where innovating with IT is concerned, fashion bubbles form with some regularity, and distinguishing mere hype from reality remains an especially challenging task. But those executives who manage their IT innovation mindfully will be best positioned to meet the challenge successfully.