“There is no reason anyone would want a computer in their home”
Ken Olson Digital Equipment Corp. 1977
Founded in 1946 the Economist Intelligence Unit (EIU) is an independent business within the Economist Group. Through research and analysis EIU offers forecasting and advisory services to its clients. It provides country, industry and management analysis worldwide. It is particularly well known for its monthly country reports, five-year country economic forecasts, country risk service reports and industry reports. The company also specialises in tailored research for companies that require analysis for particular markets or business sectors.
Last year I was appointed to The Economist Intelligence Unit Opinion Leaders’ panel. I don’t think this is any big deal and I didn’t immediately rush to update my CV. Nevertheless it has given me the opportunity to participate in some useful surveys and online debates as well as receive some of their reports. One of these I found particularly interesting. Agent of change: Future of technology disruption in business[i], a white paper sponsored by Ricoh, reviews the impact that technology developments will have over the next decade on various aspects of business, including organisational structures, jobs and the workplace, customer interactions, and business models themselves.
The key findings included:
· Technology disruption will accelerate in the coming years, leaving few industries unaffected.
· ‘Big data’ will become a business of its own.
· Mid-size companies will be less common in 2020.
The report draws on two main research inputs for its findings:
· A global survey of 567 executives, conducted in September and October 2011, on their expectations of the impact that technology will have on business between now and 2020. All respondents were at senior management level, with nearly one-half (46%) from the board or C-suite. Respondents hailed from a wide range of industries, with financial services, government and the public sector (including healthcare), education, professional services, information technology (IT) and technology, and manufacturing especially prominent. Of the firms polled, 43% had annual revenue of US $500m or more.
· A series of in-depth interviews with leading technology and business thinkers, as well as senior executives in different sectors.
There are three ‘megatrends’ that are likely to shape the thinking of senior executives about the future. First the shift in economic power from West to East; second, the slowdown in developed economies since the financial crisis in 2008; and third, the increasing disruption of technological change. This last is likely to have the greatest effect. This would seem to go in the face of those who argue that the pace of innovation and disruption is slowing. New organisational and business models will emerge. Not all are sanguine about this. Four tenths of the respondents thought that their own organisations might disappear in the timeframe.
The past two decades are littered with examples of businesses that have guessed wrong about a technology—and the uses to which it can be put—and have paid the price with reduced market performance or, in many cases, disappearance from the scene altogether.
For those who can master it Big Data will become a business on its own. Firms will amass vast pools of data that properly handled can lead to massive new business opportunities. Even the moribund EU Commission believes that by releasing government data $40bn of new revenue can be added to the European economy.
As micro entrepreneurs proliferate less fleet of foot mid-size companies will struggle to survive. The importance of middle managers will diminish. All that data will allow corporations to empower the front line which will require less supervision. (I remain perturbed by this trend as I believe it’s one of the causes of corporate disasters as corporate knowledge and experience is squeezed out). Job growth may be de-coupled from economic growth. The huge growth in automation will displace millions of jobs and while new jobs will be created in new types of service they may not compensate. The sheer pace of disruption in robotisation is staggering. There were just 1 million industrial robots in the world in 2007. By this year Foxconn alone expects to deploy 1 million.
As transactions are automated and collaboration becomes more vertical the purpose of physical stores and offices comes under question. Thanks to ‘personalisation technologies’ customer ‘co-creation’ will become a powerful source of innovation. Indeed by 2020 customers are expected to overtake in-house R&D as a source of new ideas. The organisation of 2020 will be more transparent than ever. There will be no place to hide poor service or defective products. But technology development does not drive all these changes on its own. Organisations need to develop the changes in business process and indeed culture to harness and embrace these developments, as indeed it ever was.
While some academics and indeed investors have argued that the pace of change is slowing down that is not the consensus of those at the sharp end in this survey. Some think that the big inventions of the late 20th century, the microprocessor and the internet, have not actually borne the fruits of increased productivity that must have been expected. Only 28% of the sample believe that and they are heavily weighted to those in education and government while the numbers in technology businesses or financial services are much lower. One refers to computers which can reliably recognise speech and give intelligible answers, or can beat humans in quiz tests, or the successful autonomous vehicle trial by Google when only in 2004 scientists were saying this could never happen.
Some trends are clear in that they are happening now and we only have to extrapolate them. Computing power is becoming abundant and as we store data in the ‘clouds’ we can take on jobs that were impossible before because of the weight of data storage. IBM calls this ‘Watson in your pocket’ after its super computer. Second, the amassing of massive quantities of data will allow data analytics and smart systems, two of the three most powerful new technologies cited in the survey. Third, increasingly immersive video communication, social media and other tools will change the way people work. Finally, the pace of change will be driven by the consumer sector, a reversal of polarity. The habits people develop with ubiquitous mobiles and acquired in gaming will reverse into business.
Other technologies, as yet not well developed may also have a disruptive effect, indeed they are more likely to do so because they are not well understood. Examples quoted by respondents included
· Cheap smartphones for all
· Business oriented social networks
· Data mining for behavioural insight
· Cloud computing providing nearly limitless processing power and storage capacity
· Immersive or holographic (3D) video conferencing
· Augmented reality interfaces, which converge the virtual and the physical worlds
· Adoption of visual, tactile and voice interfaces in primary computing devices
· Artificial intelligence- computers that learn by themselves
But it is the new business model that is disruptive often taking existing technologies but applying them in a new way. The Sony Walkman used familiar mechanical technology to create a whole new category. Its descendant, the Apple iPod did the same again taking existing audio technology but with a new way of buying downloads, the iTunes and then the Apps store took that even further. Similarly eBay and Facebook invented not technology but new business models.
It is clear that seen through this lens whole business models will change. Nearly 60% of the executives polled in this survey think their own markets will change drastically by 2020. And perhaps the other 40% have got their heads in the sand.
While Moore’s Law[ii], the idea that processing power doubles every two 18 months, cannot apply for ever it is still going strong after several decades and there are plenty more wheezes in the labs to keep it going for a while yet. The EIU’s sister paper returned to the theme in a stimulating article in last week’s edition[iii] . While rehearsing all the arguments why people feel the pace of innovation has slowed down it reminds the reader how long it took before the inventions of steam engines or the harnessing of electric power had widespread effect. Similarly the power of computing may still have some time to go before it really makes a substantial difference.
To support this argument it quotes the fable “in which a gullible king is tricked into paying an obligation in grains of rice, one on the first square of a chess-board, two on the second, four on the third, the payment doubling with every square. Along the first row, the obligation is miniscule. With half the chessboard covered, the king is out only about 100 tonnes of rice. But a square before reaching the end of the seventh row he has laid out 500m tonnes in total – the whole world’s annual production. He will have to put more or less the same amount again on the next square. And there will still be a row to go”[iv].
Perhaps we have only just got into the second half of the chess-board.
Copyright David C Pearson 2013 All rights reserved
[ii] Moore’s Law is the observation that over the history of computing hardware the number of transistors on integrated circuits doubles approximately every two years. The period often quoted as ’18 months’ is due to Intel executive David House, who predicted that period for a doubling in chip performance (being a combination of more transistors and their being faster). The law is named after Intel co-founder Gordon E. Moore, who described the trend in his 1965 paper. The paper noted that the number of components in integrated circuits had doubled every year from the invention of the integrated circuit in 1958 until 1965 and had predicted that the trend would continue “for at least ten years”. His prediction has proved uncannily accurate, in part because the law is now used in the semiconductor industry to guide long term planning and to set targets for research and development. In this sense it has become a self-fulfilling prophesy.
[iii] Has the ideas machine broken down? The Economist January 12th 2013
[iv]To the nearest million the number of grains of rice on the 64th square is 9,223,680,000,000,000,000.