Different technological changes impact business in different ways, but the most powerful is interactive technologies. (This article is not about the company of that name.)

A typical business is subject to diminishing marginal returns. Let’s estimate the value provided to a company’s customer per unit of good or service sold. It begins with some positive value provided to customers, and that value typically improve holds over time. The company makes some marginal adjustments to the products that improve the customer experience. But the low-hanging fruit is eventually picked. Further improvements are harder and harder to make.

On the sales side, the first buyers are typically excited by the product. The next group of buyers are a little less excited, but still pretty positive. Eventually the product is purchased by people who find it nice but not great.

And as the customers become less and less enthusiastic, the company has a more difficult time improving the product.

In automobiles, the first automatic transmissions were extremely cool. Then air conditioning was truly cool. And then we got cup holders. And now the gee-whiz technology displays on the dashboard what we would see if we looked in the rearview mirror.

Addition of a new technology can jump the process on to a higher trajectory. Consider a production example. A typical manufacturing factory is in declining marginal productivity mode. That is, output per worker grows, but each year’s growth is less than the previous year’s growth. The addition of technology that grows exponentially shifts output per worker onto a new trajectory. Then diminishing returns set in once again.

Dr. Bill Conerly

Impact of new technology.

As an example, many factories have added robots for a variety of functions, including packaging, welding, painting, and assembly. The introduction of robots typically boosted output, sped up production, and improved quality. However, once those gains are in place, the company again faces diminishing opportunities for further improvement.