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The Ethics of Disruption

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The ethics of disruptionEvery business leader dreams of a disruptive innovation that changes the way we live or work. For some, the motivation is purely creative. They want to solve a problem, make a difference, or do things in a way that no one has done before. For others, the driving force is the truckload of money, fame, power, and the perks that tend to follow.

Disruptive innovation, by definition, disrupts. This is not always pleasant or positive. The disruptive technologies introduced by companies like Apple and Google have had many positive impacts on our lives, and most people would now find it difficult to imagine a world without them, but they have had some negative ones as well. More recently, disruptors such as Airbnb and Uber are meeting heavy resistance as the full implications of their innovations and agendas are coming to light.

Uber, for example, has virtually eliminated traditional taxi services in some areas, giving cabbies who still wish to drive, little recourse but to become Uber drivers at a fraction of what they used to earn.  Then, as Uber has grown, they’ve leveraged this dominance to reduce pay, reneging on a promise to create employment and bolster economies. On the passenger side, Uber’s “surge pricing” algorithm makes fares fluctuate according to supply and demand. Higher fares bring more drivers online, but often at fares so high it leaves the average customer stranded. This “Uber Effect” means that there are now fewer taxis in certain areas to offer an affordable, standardized alternative to the much higher Uber fares set off by high demand. Bottom line: Uber’s promise to provide more abundant economical transportation to passengers and an opportunity for drivers to earn a better living seems to be missing the mark.

Airbnb has faced similar challenges. They’ve come under criticism for skirting taxes required by the hotel industry, for security issues that arise when short-term tourist rentals are allowed without the knowledge of building managers and/or regular residents, and for dodging responsibility for host permit and licensing issues. Worse still, there is now evidence that Airbnb is dramatically reducing affordable rental housing stock for local residents as landlords favor more profitable, risky, often illegal, short-term Airbnb rentals for tourists over long-term renters.

So how does one determine if a disruptor will have more positive or more negative impacts? Simple: it depends on whether the company is driven more by noble purpose or the pursuit of profit for profit’s sake. While all companies have both motives to some degree, the one that is dominant becomes evident when you look at how they deal with the issues and the challenges they face.

Both Uber and Airbnb have built their businesses to circumvent many licensing and regulatory issues because their algorithms or apps would negate the need for such trifles. In fact, both companies when under threat, refer to themselves as just technology or just Internet companies — as if these magic words shield them from real world oversight. To be sure, the revenue projections and earning potential of hosts and drivers look much better without having to contend with such trivialities as regulation — but it is short-sighted (not to mention careless, arrogant and nihilistic) for either company to not have extrapolated what their “success” would look like to society. More importantly, it is socially irresponsible of them to expect that the rules and regulations, which have governed the industries that they intentionally disrupt, should not also apply to them due to a technicality. Apps and algorithms have become this generation’s offshore company: a means to defer taxes and shirk responsibility.

To a certain extent, both of these companies have demonstrated a significant talent for playing dumb and acting innocent. The problem is always with individual agents or customers, not with the apps and policies themselves. But, as a 2015 article in Harvard Business Review demonstrates, there are obvious fixes to the problems they’ve introduced. For example, Uber’s surge pricing model can be fixed by capping the surge multiplier at a reasonable number — in essence creating a standard fare like taxis do. Reading these solutions, it’s hard to believe that they were not implemented sooner. More likely, driven by profit, Uber simply chooses to ignore fixes to rake in quick cash.

Similarly, Airbnb is having an increasingly difficult time selling their purpose-driven business shtick. Can a company that has spent millions to fight paying taxes, a company that then put up petulant bus shelter ads when they lost, and a company who is heavily lobbying against measures to protect rental housing stocks for local residents really claim to be committed to strengthening communities and encouraging diversity, connection and belonging? This is purpose-washing, plain and simple.

While Airbnb and Uber claim they wish to change the world for the better, there is a seedy underbelly to their innovation. The negative impact they have, the type of criticism they have faced, and the way with which they have handled those issues all point to enterprises driven purely by profit. In contrast, companies that are truly driven by purpose are more likely to invest significant resources to think about not only what their benefits will be, but what the negative repercussions of their success could be, and then take conscious steps to design for both.

Elon Musk, for example, is definitely on a mission to radically disrupt the auto industry with Tesla. While he definitely knows how to make a dollar, his methods point to being truly driven by his stated purpose to accelerate the worlds transition to sustainable energy and away from “oil addiction.” On the consumer front, he understands that to transition the world from internal combustion, he needs to demonstrate that electric vehicles are far superior to their gas guzzling counterparts. So far he’s making his point loud and clear — Consumer Reports rated the Tesla Model S the best car ever, and his new Model 3, built for the masses, will cost a mere $35K USD. Expensive, sure, but not outrageous. Factor in the claim that the Tesla requires little to no service and costs practically nothing to refuel. The oil companies can collectively push oil prices down as far as they like — the writing is on the wall.

But that’s not all. Musk has opened up all of Tesla’s patents to the competition for free. No licensing (or even permission) is required. Why? Because he wants competition. Competition serves his higher purpose. What better proof could there be that he is truly trying to spur innovation and build the industry’s ability to wean society off of its dependence on fossil fuels? Sure, he’ll also take home a handsome paycheque, but not at the expense of serving his higher purpose.

Any disruption, no matter how positive, is bound to bring potential negatives. The fact that Tesla’s cars are mostly maintenance free, could mean lots of displaced car mechanics when electric vehicles became the norm. Likewise, whether or not there is enough lithium to create all the batteries required for Musk’s grand vision is also a question. But these are problems are bugs or details that can be hammered out later; they’re not essential features of the Tesla project.

So what responsibility do those introducing disruptive innovations have to consider the possible negatives of their innovation and change their idea accordingly? Could Ford have foreseen the pollution that would eventually result from the widespread adoption of his Model T? Perhaps. Could Apple have foreseen that iTunes was going to contribute to a trend of decreasing musician earnings? Likely, but this is more difficult to say.

Of course, the true impact of disruptive innovation is also heavily motivated by responses from society and government. To take a looming example: the nearly-inevitable future of robots taking over more and more menial jobs would be much less menacing if we have a government system that provides basic income and services to non-workers. Some, like grand-daddy tech disruptor Bill Gates, even recommend instituting an “income tax” on robots to offset the societal costs of mass unemployment.

No one can see into the far future and know for certain how the innovations they introduce will impact industries, economies, and lives. The one thing that is clear, however, is that companies who are genuinely driven to improve the world, not only their bottom line, are far more likely to invest the effort and resources to anticipate the impact their innovation will have on everyone it touches. A good purpose requires that would-be disruptors think far into the future and consider their impact on the world (and the longevity of their company). Longevity is key. A founder interested in making a quick buck and selling off their business is not likely to think about long-term consequences. Consider Japan, where long-lived (shinise) companies have held 100 year visions and 20 and 50 year plans. If the new breed of software startups can take a page from that playbook, they are far more likely to ensure that the innovations they introduce leave a lasting positive legacy, not just a windfall of cash, followed by widespread chaos.

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