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What defines the y-axis in government-funded sectors?

Tom Arnett, 4/26/2016

One of the core tenets of disruptive innovation theory is that technologies improve over time. This is reflected in the core diagram of the disruptive innovation model. In the diagram, the x-axis represents time, the y-axis represents performance, and vectors representing technological change progress from the lower left to the upper right of the diagram.

But what, exactly, defines performance and determines how technologies will change as time progresses? There are a host of dimensions along which a technology could improve—faster, smaller, more reliable, more customizable, safer, cheaper, just to name a few. So which of these dimensions get prioritized by the producers of innovative technologies?

In traditional markets, companies are motivated to develop technology improvements that increase their profitability. Typically, these improvements correspond with improving how well the technology fulfills customer demand because people are willing pay for solution that help them do important jobs in their lives.

But in government-funded and government-operated sectors, such as K–12 public education, the circumstances seem to be a bit different. In these sectors it is government policy, not customers’ jobs, that determine what gets funded and that therefore define aggregate demand for performance improvements. Furthermore, on the supply side, to the extent that government agencies such as school districts are responsible for meeting demand, it is government policies, not profitability, that determine the innovation priorities of these agencies.

As we apply the theory of disruptive innovation to look for solutions to challenges in government-funded sectors, it seems we need an additional set of theories. We not only need theories that can explain how innovations evolve over time; but we also need theories that can explain the policies that shape demand for innovation and that set the priorities of the organizations responsible for meeting that demand.