Mature sector, accelerating social impact

Digital networked technology is already a mature sector. Penetration of platforms and devices is high everywhere outside of sub-Saharan Africa. Most of the technologies which are transforming our everyday lives are already familiar. For the moment at least, the price/performance ratio of the devices continues to double every two years or so, but the significant acceleration we are seeing is in the social impact of the digital technologies as they make connections with each other, become a social and economic platform, and become increasingly embedded into everyday life. In this, information and communication technologies have followed the same pattern as other ‘technology systems’ going back to the Industrial Revolution. The technology and economic historian Carlota Perez has identified five such systems or platforms (opens pdf) since 1771: cotton, iron and canals; rail and steam power; steel and electricity; cars, oil, and mass production; and our current phase, computers and telecommunications.

Each follows a similar pattern, over a period of around 50-60 years: an ‘installation‘ phase, when infrastructure is put in place, largely funded by investment capital; a crash, as the returns on infrastructure fail to materialise as quickly as expected; and a deployment phase, when production and service businesses put the newly developed infrastructure to use. In terms of the ICT platform, we have passed the crash (the dot.com bust of 2001-02) and have moved into the deployment phase.

Platforms become the dominant idea of their time

There are several points worth noting here:

• A platform, or a technology system, is more than a particular technology; instead, it is greater than the sum of specific technologies which make it up. A platform becomes the dominant idea of its time, an organising principle for society which permeates language and thought.
• When a new platform emerges, the seeds have been in place for some time. The auto platform started with the establishment of Henry Ford’s assembly line plant at Highland Park in 1908, but by then it was already quarter of a century since Daimler’s first vehicles. Computers had been evolving for around 30 years before the invention of the microprocessor, which Perez identifies as the start of the ICT (information and communications technologies) platform. And even after a new platform begins to emerge, the previous platform continues to develop for a period, before starting to adapt to the new platform (think of the way in which cars are increasingly computers on wheels).
• Third, at the point of the crash, the elements are in place, but the social impact is modest. (At the time of the dotcom crash, household internet connections had reached the low teens in the US and the UK). Even afterwards there is a gap between the penetration of the technology and its social impact. Before the crash, as the saying goes, a new technology is used to do old things in new ways (classic installation behaviour); it is only afterwards that we see people start to use it to do new things in new ways (classic deployment behaviour). The social and economic effects don’t become clear until later. Parking meters and edge of town retail and business parks are, for example, relatively late manifestations of the auto technology system.
• Related to this, one of the features of the deployment phase is that the technology gets buried in the application – a trend predicted by Donald Norman in his 1998 book The Invisible Computer. To use an analogy that was made at the time of the launch of the iPad, this was technology’s ‘Chevrolet moment’, the point at which an owner no longer needed to know what was happening ‘under the hood’ to use the machine effectively.
• The companies which do well in the installation phase do less well in a deployment phase. The skills required are different; the first involves a technical, engineering focus, the second a customer and service focus. So far in the technology space, only Apple has credibly jumped the gap, but this is because it was so unsuccessful as an installation company that it was facing bankruptcy just before the dotcom crash. Looking back at the car industry, the transition from one to the other was often painful and internally disruptive.

One of the interesting things about Perez’ model is how tidily it maps on to diagrams which show how consumer needs and expectations evolve as a technology develops. The designer Donald Norman outlined this model in his book The Invisible Computer. The early technology market (which we align with Perez’ installation period) is characterized by high growth, high margins, and low volume, while in the consumer-driven market place of the deployment period, “profits come from devices, consumables, services, and content”.

New business models emerge late on

Looking at these two diagrams together, one of the striking features of Carlota Perez’ technology surges model is that new forms of business organisation and new business models tend to emerge clearly only in the second half of the surge, and later rather than earlier, although some pioneers are seen before this. Codification of these emerging ideas as management practices isn’t seen until the final decades of the surge. Looking back, for example, Alfred Sloan pioneered some of the main features of the 20th century assembly line business at General Motors in the 1930s, after the crash, but the theory that supported his practices wasn’t developed until the 1960s by writers and academics such as Alfred Chandler and Peter Drucker. In other words, we are only now beginning to see the development of the innovative business models which will characterise the digital technology age.

One of the important aspects of any new technology platform is that the shape of businesses adapt to the shape of the technology, and not the other way around. The steam engine emphasised the concentration of production, and the assembly line the importance of throughput. The successful businesses of those times absorbed these structural lessons, and adapted themselves to fit.

A radical challenge to the idea of the organisation

The core ideas at the heart of the next phase of digital technology are about:

• Pervasiveness
• Unbundling
• Inter-connection
• Reconfigurability

These four characteristics will define the shape of business over the next decade and beyond. Different businesses, and different sectors, will respond differently to these factors, depending, for example, on their value networks, the present mix of data and tangible output, and their wider external constraints. Strategy is always distinctive; every organisation has to find its own route through to a strategic future which is right for it, which matches its capabilities against a landscape shaped by changing social values, by evolving technologies, and by infrastructure, systems, and regulation.

Nonetheless, in all sectors, these characteristics represent a radical challenge to the idea of the organisation, which is at heart defined by boundaries (if it has no boundaries, it ceases to be an organisation). The big question for any organisation, commercial, public, or non-profit, is how it maintains its edges in a world where technology renders so much fluid; relations with customers, suppliers, stakeholders, and employees all start to melt into bytes. Indeed, the distinctions between the organisation and its customers and its suppliers start to blur. These are big strategic shifts which represent a deep challenge to prevailing business structures.

The image at the top of this post is from the DHD Multimedia Gallery and is used with thanks.