Digital Economy Dispatch #019

17th January 2021

The Promise of a Golden Age for Digital Innovation

It is hard to look back over the last year with much pleasure. The vast majority of the world will consider 2020 with a fair measure of pain and regret. Yet, is it possible that one day we’ll see 2020 as the start of a new golden age for digital innovation? Many are beginning to think so.

As Covid-19 vaccines are rolled out across the world, it is hard not to wonder at the speed at which technology breakthroughs have taken place, new practices have been embraced, and our lives have been adjusted to cope with the challenges we have faced. In light of the worst crisis many of us have experienced, a continual wave of digitally-driven innovation has been released. Beyond ecommerce and online meetings, business and societal needs of all kinds have adopted digital approaches to sustain, support, and supplant previous ways of working.

The digital revolution has been underway for some time, building on the shoulders of the information technologies that dominated the second half of the twentieth century. As far back as the 1950’s, the emergence of the first commercial computing devices brought increased automation and intelligence to many common calculations. To take advantage of their growing speed and reliability, desk-based manual tasks were redefined to be carried out as thousands of computational tasks that could be repeatedly executed by these new devices. Over more than 50 years this capability has grown enormously.

Capitalizing on highly capable computer processors and the massive growth of new data sources, computing’s focus has moved from manipulating data toward better ways of understanding and learning from the data to predict future behaviour. Andrew McAfee and Eric Brynjolfsson referred to this new focus as the “Second Machine Age”. They argue that the changes underway in a digital world are as profound as those brought forth by the Industrial Revolution in the late 18th century. The first machine age of the early 21st Century was characterized by the deployment of digital technologies to optimize existing tasks through increased automation and open access to knowledge.

In contrast, the second machine age we now occupy has advanced to the stage that machines are capable of learning, connecting, and reconfiguring their ways of working in light of past experiences. They adapt to changing circumstances. Machines are able to use the large amounts of data they examine to extract patterns which are then used to adapt their behaviours to look for new patterns, enabling them to predict future events.

However, as McAfee and Brynjolfsson emphasize, technological advances are only part of the equation. The Second Machine Age is driven by two additional trends beyond the growing core capabilities and capacity of machines: the appearance of large and influential young companies disrupting incumbents across numerous business domains, and the ability for organizations to tap into the energy and resources of large communities providing knowledge, expertise, and drive.

Organizations seeking to be successful in the Second Machine Age are beginning to recognize that adopting digital technologies is only part of their strategy. Also critical to their future sustainability is a deeper analysis of the value they offer in a quickly-evolving market, a broad examination of how they position their business activities in light of new entrants, and a careful review of management practices across the organization to adjust the pace of decision-making, establish appropriate levels of governance, and motivate a workforce driven by new expectations and concerns. Such activities we now consider to be the essence of a “digital transformation”. As much as it is a modernization of technology, it is also a change of attitude and approach spawning new business practice and structures. Yet the question arises as to whether and how this wave of change can make a substantial difference to Large Established Organizations (LEOs) slowed down by their scale, heritage, and complex decision-making structures.

Many recent surveys across different communities point toward the same conclusion: While business leaders recognize the importance and inevitability of digital transformation in their organization and throughout their industry, few believe they have sufficient grasp of the core elements that shape such a transformation. This dichotomy is repeatedly highlighted across areas such as marketing, customer service delivery, government IT, and management strategy.

Enter the pandemic-led crisis of 2020. One of the very few positive themes emerging from this debacle is the recognition that a digital acceleration is underway. Long-held reservations about the risks and challenges of adopting digital ways of working have been overtaken by the need to adapt to a different business and societal landscape. An emerging context which relies upon the power of digital technologies to help us to connect, communicate, manage, and adapt.

Indeed, the implication of 2020 on large scale digital transformation can be taken much further. In Scott Galloway’s excellent analysis of the business implications of the pandemic, “Post Corona: From crisis to opportunity”, two particular characteristics redefine the business landscape from his perspective. The first is the “great dispersion” that has accelerated trends such as home deliveries, working from the home, and ultimately to question the role of cities and what it means to be a “nation”. The second is the “great disruption” forcing a rapid change in the adoption digital business models and ways of working. Future business success will be defined by how organizations address these two shifts.

From a broader viewpoint, we may also see 2020 as a significant part of a new phase in our economic story. Carlota Perez holds that “the sequence technological revolution–financial bubble–collapse–golden age–political unrest recurs about every half century and is based on causal mechanisms that are in the nature of capitalism.” Given her view that the Information age began in the 1970’s and has dominated economics ever since, it seems appropriate that 2020 may well be the trigger that effectively starts the “Digital Age” for all organizations.

The question, then, is where we see ourselves in this sequence of “technological revolution–financial bubble–collapse–golden age–political unrest” and whether the digital revolution currently being experienced will face the same fate as the previous 5 revolutions she identifies. Time will tell. For now, lets enjoy the digital innovation boost we all need.

Digital Economy Tidbits

The case for more state spending on R&D. Link.

An interesting read on the current status and direction for state spending on R&D. The article is a bit all over the place, but raises a number of important points about the challenges of maintaining the pace of scientific breakthroughs, the balance between academic research and corporate research, the influence of China’s massive investment in research, and why the mission-oriented role of the state may drive a new innovation renaissance.

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The UK Government AI roadmap. Link.

The AI Council is an independent expert committee. It provides advice to the UK Government, as well as high-level leadership of the Artificial Intelligence (AI) ecosystem.

This independent report draws on the expertise of its members and those in its wider ecosystem to summarise four pillars on which to build the UK’s future in AI. It invites action across government to keep the UK at the forefront of safe and responsible AI.

Digital acceleration in the time of corona virus. Link.

Some interesting insights into how IT has leveraged their investments in resilience. And a very helpful view of priorities post-covid.