Behind the hype cycle

The hype cycle arises from the interplay of two factors: human nature and the nature of innovation.

Three aspects of the human nature drive our heightened expectations; our attraction to the new and novel, our social natures, and our tendencies to use heuristics in decision-making under uncertainty. The nature of innovation drives how quickly something new develops genuine value and matures. These two factors move at very different tempos that are always out of sync, distorting expectations and reality, creating an innovation hype cycle. Being aware of an innovations hype cycle and position on the cycle can prevent companies in joining the bandwagon and adopting the innovation too early. The reality is, as individuals start to believe in the nature of an innovation, they begin to collect statements and evidence for and against it. Eventually, as the innovation is better understood, almost all reports of early experiences will inevitably disappoint us. Innovation requires time, experimentation, and experience to realize real potential and deliver value. Fenn & Raskino (2008) dubbed this period the “time-to-value gap” and represent the time between exposure to an innovation, and the ability to confidently predict its value as a mainstream innovation. This gap is inevitably longer than most people anticipate thus triggering negative hype when the realization of discrepancy between innovation expectations and achievable value. In order to predict its value there are four value gaps that needs to be addressed and closed in order to deliver on its promised value:

1. Performance - The innovation must work with consistent levels of accuracy, reliability, or other relevant performance metrics.

2. Integration – The innovation must be usable within costs and time in a real, working environment, supported by a reliable supplier.

3. Penetration – Individuals must accept, acknowledge and assimilate the innovation.

4. Payback – Financial aspects may not have shown its benefit yet or as quickly as expected.

41 Obviously companies have different risk profiles and we know that the greater the risk, the greater the reward (or loss). According to Fenn & Raskino (2008), a company must place careful considerations about when to adopt an innovation in accordance to at least three variables: how potential valuable the innovation is to you, how mature the innovation is (its hype cycle position), and how good the company is at managing and tolerating risks. Like Individuals – ranging from early adopters to laggards – companies also have an enterprise personality profile (risk profile a company is willing to commit) of adopting innovations, referred to as type A, B or C organizations. Type A organizations are pioneers who aggressively adopt and endorse high-risk strategies to gain high potential rewards, competitive advantage, and first-mover advantage. These organizations are the innovators, inventors, or very early adopter who jumps the wagon before the bandwagon effect kicks in. Type B organizations employ a high to moderate risk profile in adopting innovations usually in the trough of disillusionment or slope of enlightenment. They are characterized in the range from fast-followers to the early majority adopters.

Type C organizations are the late majority adopters and industry laggards who are very cautious adopters of anything new. They are unwilling and unprepared to handle high levels of risks, and start adopting once an innovation reaches the plateau of productivity (Fenn & Raskino, 2008). Both type A &

B organizations play a crucial role in addressing the issues and challenges in the time-to-value gap, whereas type C organizations only adopts after the gaps have been closed.

No matter what enterprise personality profile a company has to be selectively aggressive in adopting innovations. Positive and negative hype, peaks and troughs of every innovation pressure organizations to respond and make decisions in order not to fall into a hype cycle trap. The hype cycle methodology contains four traps; adopting too early, giving up too soon, adopting too late, and hanging on too long.

Type A and some type B organizations are primarily exposed to adopting too early (in the positive hype position) and giving up too soon (negative hype position before the slope of enlightenment). The laggards, type C, typically fall into the traps of adopting too late and hanging on too long. Since the do not endorse any higher level of risk-taking they cling to their current situation into the swamp of diminishing returns³ and cliff of obsolescence⁴. These extensions to the hype cycle represent the declining stage in technology/product life cycle where the technology/product is phased out and replace by something superior. When adopting too late it can be difficult to get a market share, since the incumbents dominate the market and have superior experience in the innovation.

3 In the swamp the innovation is still useful, still implemented, but a replacement leading edge innovation is readily available. The level of innovation maturity is characterized as legacy (Fenn & Raskino, 2008)

4 The cliff is the absolute last stage of the innovation life cycle. Products are not produced in this stage and skills are in very short supply, characterizing the innovation as obsolete (Fenn & Raskino, 2008)

42 Avoiding the traps is a difficult task and requires the firm to compare the innovations potential value to their risk profile and the maturity of the innovation. Determining the position and maturity of an innovation is very difficult, but some key indicators can be used to plotting an innovation on its cycle of hype. These indicators are presented in Figure 6 below and adopted from Fenn & Raskino (2008, page 67). The figure speaks for itself, so we will not elaborate it, but it:

“… gives an overview of some of the key indicators that an adopter can glean from the intersecting market dynamics around an innovation, including the activities of suppliers, media, investors,

and other adopters”

(Fenn & Raskino, 2008, page 66)

Figure 6 – Indicators of the hype cycle stages, Fenn & Raskino 2008.

The innovation research methodology, the hype cycle, offers a clear message: be selectively aggressive and do not invest in an innovation just because it is being hyped, nor ignore a technology just because it is not living up to early over-expectations. Organizations need to be continually alert for the hype cycle traps and vigilant for the innovation opportunities, while being selectively aggressive in the innovation adoption process, but how?

43 11.6 STREET Process

Based on a decade of studying the hype cycle and how companies succeed and fail at innovation adoption, Fenn & Raskino (2008) have developed a set of activities and tools and encapsulated them into a process called the STREET process. STREET is an acronym for the different stages in the process: scope, track, rank, evaluate, evangelize and transfer, and it is developed from the basis of best practices from various companies, industries, and situations. The process takes part in the adoption stage of an innovation and addresses the most important issues regarding decision-making. It is not suited for later stages of innovation adaption, product development or management processes like experimentation, development, implementation and change management. The business literature is full of other theories, techniques, frameworks and tools that address these issues and challenges. The sole purpose of the STREET process is to address key challenges in selecting the right innovation at the right time before laying the groundwork for a broad use of the innovation within the organization.

Before adopting innovations, it is important to set a scope –organizational context and domain – where the adopter (decision-maker) decides what is valuable to the organization and how much risk they are willing to commit to. Organizations corporate strategies, missions, objectives, needs, and values form the domain and context around the organization, and helps determine the enterprise personality profile in regards to the aggression towards innovation adoption and willingness to take risks. On the basis of organizational scope and risk profile, the company can seek out a broad range of innovations and start tracking their progression along the hype cycle and thus its maturity and advances. Having gathered a list of different innovations that fits the company’s scope, a ranking process between the different innovations can commence by considering the maturity of the innovations and their potential benefits in relation to the enterprise personality profile. The ranking process’s output is a list of the most relevant and top ranked innovation candidates. This list then goes through a thorough evaluation process and a decision of four different actions are made for each innovation to either (1) move forward with the adoption process, (2) re-evaluate the innovation, (3) return the innovation to the tracking phase until it matures further, or (4) drop / discard the innovation. If the decision is to move forward, the process of evangelize and transfer starts. These stages resemble the ideas from change management to inspire, educate, and involve people, overcoming inertia and resistance, and establishing knowledge sharing practices (Figure 7, page 44). Below is a visual representation of the STREET.

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Figure 7 – Decisions in the evaluation stage of the STREET process, Fenn & Raskino 2008.

As depicted in the figure, the STREET process is not a sequential “one-shot” process for selecting and adopting innovations. STREET involves continuous activities with multidirectional feeds among the different stages. This is due to the nature of innovation, which is rather unpredictable and undergoes multiple cycles of evolution during its life cycle. The process of adopting new innovations has been studied for over 30 years, and one of the most popular adoption models is described by Rogers in his book, Diffusion of Innovations (Sherry & Gibson, 2002). The STREET process is very different from the Roger’s (1995) classical and widely used diffusion of innovations (DOI henceforth) theory that seeks to explain how, why, and at what rate technology and innovations diffuses and gets adopted. Like the STREET process DOI contains a multi stage process for innovation adoption. DOI consists of a five-stage process for innovation adoption: knowledge, persuasion, decision, implementation, and confirmation. In the first stage you become aware of an innovation, followed by the second stage where you collect information and details about the innovation. The third stage is the decision stage, where it is decided whether or not to adopt the innovation. If you go along with the innovation, you implement the innovation and start evaluating and confirm that it was the right choice (Roger, 1995). The adoption processes in the DOI theory is very sequential and do not reflect nor incorporate the nature of innovation. Innovations and technologies are not static, and should thus not be treated as such.

Establishing an organizational scope, tracking an innovation after having established a linkage to the company’s scope, and ranking and prioritizing between different innovations is completely neglected in DOI, and thus not very helpful and useful in the decision-making processes of innovation adoption.

In the following, each stage will be thorough described with the tools and techniques to effectively use the STREET process required to master innovation adoption.