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4 Phases of Risk & Reward for Emerging Tech

To be effective - and effectively leverage technology - change leaders need to understand (and leverage) the 4 phase process that describes how "New & Unfamiliar" tech becomes "Accepted & Familiar" tech over time.

This is a foundational aspect of the emerging tech literacy that change leaders need in order to be effective.

New technologies including their risks and opportunities (and new things in general) tend to emerge in a 4 phase pattern.

As this pattern unfolds the new technology becomes more understood and accepted over time. This pattern reflects the diverse ways humans respond to new technologies - we don't all jump in at once. Here are the 4 phases:

  1. Experimentation > 2. Stabilization > 3. Adoption > 4. Absorption

How to leverage this pattern for better success

Keep this pattern in mind when crafting enterprise roadmaps that include the exploration or adoption of emerging technologies, or when thinking about the level of risks facing a new set of capabilities - say web3 - and the timing of risks and opportunities in that emergence.

2 Key points:

  1. The types of risks and the levels of risk are NOT static across these 4 phrases: they change (for investors and other participants) as this pattern unfolds from one phase to the next.
  2. Likewise the rewards also change as the phases progress.

Key: Understand how the risks and rewards change as you move from one phase to the next

The following sections break out each phase and describe the specific risk and reward combinations in each. Understanding this will help you think about

  • what kind of participant or investor you want to be, and
  • how and when you want to get involved.

It can also be used to help a group of organizational stakeholders or venture partners decide how/when they want to approach a specific set of opportunities or risks related to emerging tech.

Phase I: Experimentation

The new thing is not well understood, even by its most diehard practitioners.

  • Risk is high and its magnitude and implications are very unclear.
  • Reward is low, over-stated, or unclear.

Players with the ability to accept risk have a slight chance of gaining significant rewards. This is the domain of pioneers who are intrinsically motivated to blaze new trails regardless of risk. As an example, this Phase for cryptocurrency (and the emerging financial ecosystem it is spawning), in my estimation, was something like 2009-2022.

Phase 2: Stabilization

The new thing is becoming more understood by those who focus on it, and they understand it well enough to sometimes eek out good results for themselves or for a narrow group of stakeholders, but its broader impacts to other stakeholders or the broader community is still not fully understood.

  • Risk is significant, and its implications (what could go wrong, how bad it would be) are still not fully understood.
  • Rewards are becoming clearer, and may be significantly better than what is available in the status quo.

Players with the ability to accept higher risk have a reasonable chance at gaining significant rewards. This is the domain of the risk seeking investor and early adopters. For cryptocurrency this Phase may have been 2017-2023, and yes, maybe phases overlap.

Phase 3: Adoption

In this phase the new thing is becoming more commonly understood and accessible, easier to use.

  • Risks are tapering to be more in line with risks present in the existing status quo. By this time, stable laws and regulations have emerged, which give more conservative participants confidence that they understand the rules of the road, and how they can succeed.
  • Rewards are commonly recognized as significantly better than what is available from the status quo, and there is enough of a track record to give consumers and regulators confidence on this point. Companies and consultants begin to formulate strategies for harnessing the new tech for competitive advantage. Adoption accelerates as companies or individuals fear they will be marginalized or left out of the "big new thing."

This is the domain of the mainstream adopters. They may not have the resources and risk appetite of the earlier adopters and investors, but they will participate if they perceive that the risks inherent in the new financial ecosystem are becoming similar in magnitude to the risks presents in the existing financial ecosystem.

As an example, as of early 2024 crypto appeared to be in the early stages of the adoption phase, given the 2024 ETF approvals, and developments like Fidelity's offerings and investor education material.

Phase 4: Absorption

The new thing is no longer new. It has been fully absorbed by the market, and now has become the new status quo. Ironically its adherents will likely be resistant to whatever new things are now emerging.

  • Rewards are no longer significantly better than what is available in the status quo.
  • Risks are not significantly different/worse than what is available in the status quo.

This can become the domain of laggards, the inertia class, those who are comfortable, basking in the receding glow of past successes.

Click here to go to the next learning segment: Implementation paths and the evolution of governance 

Governance (the way nations and industries implement and enforce policies) is evolving. This evolution gives change leaders new options.