Digital transformation heralds Golden Age

As you are no doubt painfully aware, we’re living in the Age of Information and Telecommunications. You’re probably also aware that before that, we were in the age of Oil, Automobiles and Mass Production. But did you know that these two are just the latest installments of a series of cyclical, long wave techno-economic paradigms, beginning with the Industrial Revolution?

We often see new technologies disrupt and replace older ones. When Phillips introduced the CD in 1982 it disrupted the vinyl record, just as the MP3 would go on and disrupt the CD in the mid-90’s. Digital technologies have disrupted a whole bunch of technologies and with them: Industries.

Combining the MP3 with the internet and Napster, Sean Parker disrupted the whole music industry around 2000. And earlier this year, Kodak was made redundant because of the digital camera. Incidentally, growth of digital camera shipments has flattened – mainly due to bundling with smartphones.

The integration of cameras with smartphones has proven disruptive for the camera industry

The integration of cameras with smartphones has proven disruptive for the film and camera industry.

Technology regimes
The cyclical nature of technology is interesting from a macro perspective in so far as these dominant technologies bring opportunities for new companies as well as difficulties for existing ones. With new technologies come the conditions for the establishment of new economic conditions, but also challenging conditions for existing firms. The arrival of steam engine technology, for example, replaced sailboats and animal powered transportation, and had huge impact on manufacturing.

Technological revolutions arrive with remarkable regularity. This is one key point made by Caracas-born expert on technology and socio-economic development, Carlota Perez. In her seminal book “Technological Revolutions and Financial Capital: the Dynamics of Bubbles and Golden Ages” (2002), Perez demonstrates how a series of overlapping technology paradigms have defined the techno-economical capabilities of an era since the Industrial Revolution.

Overlapping technology regimes since the industrial revolution

Overlapping technology regimes since the industrial revolution.

After disillusion comes enlightenment
Technology regimes consist of two phases: Installation and Deployment. The installation phase is the beginning: 20-30 years with high hopes for the future and excessive investment finally leads to a bubble and a crash – primarily because the supply potential of the new technology is far greater than the demand. Put simply, the market can’t live up to expectations. This is the logic of the bubble and the reason the Installation phase ends with a crash, a financial crisis, and regulation to bring technology and society on the same page. In that respect, the burst of the dot-com bubble around 2000, the financial crisis, and regulation efforts dealing with piracy, privacy, cookie laws etc. are evidence to this scheme.

The logic of the technology paradigm is, that after the turning point – when the bubble has burst and it is clear that it’s still too early for markets to adopt the new technologies – there will come a phase in which the technology gradually will diffuse into most industries, synergies will be harvested, and a Golden Age can begin.

Inflated expectations are replaced by synergies and a Golden Age when technology disseminates, but it takes a crisis to get there!

Technology diffusion replaces market disappointment with synergies and a Golden Age, but it takes a crisis to get there!

Deployment and transformation
Each technology regime represents a cluster of core technologies with potential for penetration across products and processes. Behind Schumpeter’s notion of Creative Destruction is a clear bias towards product innovation, but for a dominant technology to be a true technology paradigm, it most hold a pervasive potential that can influence not only products, but production and distribution across a wide range of products, processes and services. Innovative process and services are key components of the transition period from the depressive to the revitalized phase of any techno-economic paradigm.

Making a Golden Age of the Deployment Period requires not only extension of markets and economies of scale, but in particular a diffusion of combinations of innovations within the paradigm. This is the central driver for renewed economic growth, the one factor that impacts considerable economic growth the most. A quick glance at Gartner’s yearly published Hype Cycle, provides an indication of how these combinations of innovations mature and find their ways to market in our current technology regime of the microprocessor.

Gartners Hype Cycle as of 2012.

Gartners Hype Cycle as of 2012. At the peak of inflated expectations we find 3D printing – this is considered a disruptive technology, albeit not at a paradigmatic level.

Obviously, this rubs of on the organisations exploiting the new technologies. As Perez says: “Each technological revolution generates a wave of organizational innovation, which, in synergy with the new generic technologies of widespread applicability, offers a quantum jump in productivity for all industries, however old and established.”

Golden Age
Looking back at the disruptive nature of the MP3 it is clear that it would not have disrupted the market without a disruptive distribution system: The internet. In the 80’s computer games were also digital, but limited (physical) distribution kept existing industry structures from crumbling. This points to the immense growth potential inherent in the combinations of innovations, Perez mentions: The combination of MP3 with the internet has led to iTunes and Spotify (and a massive decline in CD sales), MP4 and the internet has given us services like Netflix, Hulu and HBO (and have forced Blockbuster to reinvent their business model – will they be successful?).

With global broadband penetration now closing the gap, the scene is set for a period in which synergies will be found and exploited. 2,7 Billion people – almost 40% of the world’s population – are online, according to ICT Facts & Figures 2013. And we are going mobile, making the dominant technology truly pervasive.

Mobile-broadband subscriptions is up from 268M in 2007 to now more than 2B, reflecting an average annual growth rate of 40%.

Mobile-broadband subscriptions is up from 268M in 2007 to more than 2B in 2013, reflecting an average annual growth rate of 40%. Source: ICT Facts and Figures 2013.

Consumer side is driving the digital transformation we currently see happen across all industries. The market is finally catching up and we see other drivers than the proverbial efficiency gains and cost reductions. Digital is moving out of the IT department and is spreading across the organisations, particularly to Marketing. However, Marketing will not be able to pull this through on its own. Organisations must take the digital transformation to their hearts and inject it as a shot of adrenalin into its core. This takes considerable organisational change. Are your’s ready?

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