Gist: The historical pattern of change has been one of disruptive changes followed by stabilization periods – punctuated equilibrium. The Equilibrium paradigm is the most used by executives, strategists, etc. Even in a punctuated equilibrium paradigm, there is a reversion to equilibrium after disruption, thus making it the basic assumption for future scenarios.
The technologies (digital storage, transmission, computing power, etc.) powering today’s disruptive change however show no sign of delivering less than exponential performance gains, thus making a reversion to equilibrium not in sight. So what if we have shifted into a world where the pace of disruptive innovation waves means there is no longer an equilibrium possible?
Using this constant disruption paradigm would make the vast majority of the tools, frameworks and other lenses used today obsolete.
Origins: John Hagel et al pin down the emergence of this new paradigm on two main factors:
- The core technologies behind this latest wave of innovation (among them computing, storage, and bandwidth) have not and may never reach a plateau where their rate of improvement slows down. Ray Kurzweill observes that information technology displays “exponential growth in the rate of exponential growth” (The singularity is near, quoted by John Hagel et al).
- A “long-term global trend towards liberalization of economic activity, systematically removing regulatory barriers to entry and barriers to movement.” (same source)
Business models can disintegrate much more quickly than before. Static rents and static positioning are less effective. The origins of advantage are shifting.
Obviously, the industrial era organizational form has not been optimized for such an environment. The bureaucratic, centralized structures will quickly lose their leadership role and new, flexible structures will gain in visibility.
Actionable ?: Obviously, this is a central shift and MP, and the ramifications are both profound and intricate. They will be exposed in further posts.
We all understand that the component technologies of our new infrastructure – computing, storage and networking – continue to advance at exponential pace. In fact, this is the one central difference between this new generation of infrastructure and all the previous generations of infrastructure – for example, railroads, electricity and telephones – that shaped our economies in the past. All of these earlier generations were characterized by a major technology breakthrough, followed by the adoption of key standards and a diminishing rate of performance improvement. Our new infrastructure defies this pattern and proceeds with exponential rates of performance improvements. John Hagel keynote at Supernova 2007
I cannot resist in quoting in extenso John/John/Lang:
Skeptics might explain today’s fast-moving events as merely the latest episode in the “punctuated equilibrium” model that economists use to describe the broad sweep of business and economic history. This model argues that technological discontinuities periodically arise to interrupt longer periods of relative stability. Once businesses learn to harness the disruptive elements of today’s digital technologies–or so the conventional thinking goes–everything will settle back into equilibrium.
But what if the historical pattern–disruption followed by stabilization–has itself been disrupted? Let us explain why we think that’s the case–and see if you agree.
Economies stabilize following technological discontinuities for two reasons. One has to do with the slowing rate of evolution in the cluster of core technologies underlying the disruption. The Bessemer steel process, the Siemens electrical generator, the automobile–all had more or less one big breakthrough and then very modest performance improvements thereafter.
The second relates to the social and business practices that emerged as individuals and institutions figure out how to make productive use of the newly disruptive technology. The historian Carlota Perez refers to these as new “techno-economic” paradigms. In her book Technological Revolutions and Financial Capital, Perez offers a compelling view of the role infrastructures play in shaping business activity. Major technology innovations like the steam engine, electricity, and the telephone brought forth powerful new infrastructures. These infrastructures at first represented a disruptive force transforming industry and commerce before becoming a stabilizing force as businesses learned how to harness their capabilities. For example, once centralized electric utilities learned how to capture the economies of scale in electricity production and distribution, businesses could focus on how to reconfigure their own operations to take advantage of this new infrastructure, secure in the knowledge that the basic infrastructure was now stable. Thus, historically, has the world moved from punctuation back to equilibrium.
We now face something entirely different. Today’s core technologies–computing, storage, and bandwidth–are not stabilizing. They continue to evolve at an exponential rate. And because the underlying technologies don’t stabilize, the social and business practices that coalesce into our new digital infrastructure aren’t stabilizing either. Businesses and, more broadly, social, educational, and economic institutions, are left racing to catch up with the steadily improving performance of the foundational technologies. For example, almost forty years after the invention of the microprocessor, we are only now beginning to reconfigure the digital technology infrastructure for delivery of yet another dramatic leap in computing power under the rubric of utility or cloud computing. This leap will soon be followed by another, then another.
The economic disruptions which in the past were concentrated around the infrequent deployment of new infrastructures now erupt on a continuing basis, driven by the rapidly evolving capabilities of our digital infrastructure. This instability has been further magnified by a long-term global trend towards liberalization of economic activity, systematically removing regulatory barriers to entry and barriers to movement.
The combination of these forces – a rapidly evolving digital infrastructure and public policy shifts favoring freer movement –defines a world of constant change. If this premise is right–that the pattern of disruption followed by stabilization has itself been disrupted–then it may be we’re facing the mother of all disruptions, a big shift into a world without equilibrium, one that will continue to shift rapidly even once the current recession has passed. A world in which companies lose their leadership positions at an increasing rate. A world in which extreme events, such as the ongoing financial turmoil across global markets, become increasingly likely. A world of shifting product economics, and increasing volatility in brand equity, share values, and commodity prices.
Here’s the paradox: at the same time, we cling to traditional equilibrium concepts and institutions that emerged and prevailed in more stable times. Nathan Mhyrvold highlighted in his talk yesterday the contrast between the exponential advance of technology performance and the linear thinking of most executives. Clayton Christensen got the attention of the business world with his perspective on disruptive innovation – but even that is a punctuated equilibrium view – it holds on to the assumption that equilibrium will eventually return. John Hagel keynote at Supernova 2007
A more specific question might be: what are the institutional architectures required to operate in a world where there is no equilibrium? Early conventional wisdom suggest that these architectures should focus on agility and flexibility, but that misses the real opportunity – balancing agility with the persistence and stability required to build and deepen long-term trust based relationships. Being able to discern what needs to change and what needs to remain stable may be the greatest challenge of all. In looking for early indications of what these architectures might look like, the richest sources of institutional innovation will be China and India, not the U.S. or Western Europe John Hagel keynote at Supernova 2007
The works of John Hagel and John Seely Brown are seminal on this theme. In addition to the specific references below, their new blog at HBS, The Big Shift, tackles all related themes with their usual brilliance.
- John Hagel III, John Seely Brown and Lang Davison: The New Reality: Constant Disruption, January 2009
- John Hagel III, John Seely Brown: The only sustainable edge, HBSP, 2005
- John Hagel III: Unanswered questions at Supernova 2007, June 2007
Photo Credit: Eole
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