Digital Anxiety

The impact of technology on people, business and society is a constant source of anxiety.  Technology in general and the web in particular spawn predictions of doom and gloom.  From technology creating digital zombies, to constant social revolution, cyber terrorism and the like, technology has apparently created more harm than good.  Charles Kenny’s recent opening remarks in Bloomberg “What the web didn’tdeliver” is the latest round of digital anxiety.

Where are the flying economy or even my flying car?

Kenny’s assertion is that the web and technology in general have failed to deliver the economic boom predicted at the turn of the last century.  During the heyday of the first Internet, the world looked like an un-interrupted path to growth and prosperity with a keyboard in every pot and an internet connection for every person.  These were the days of the digital divide as an economic and social issue.  Kenny is right to point out that simply getting online did not necessarily mean getting into the fast lane.

The world according to Kenny is not entirely accurate.  Sure we stand a decade after the dot-com bust in a world of uncertain economic times, unemployment and challenge.  Over the last 10 years we have weathered several economic crisis in Asia, Russia, Asia again and the worst economic conditions since the great depression.   The problem with Kenny’s logic is that he associated current economic conditions with a failure of technology.  That would be a logical connection if technology were the source of economic failures, but far from it.  The crisis of the last decade have more to do with repeated boom-bust cycles fueled by capital flows and greed more than technology.

Technology applied to capital markets have contributed to the financial crisis as their information and automation made complex derivatives and other instruments possible.  Market volatility increases as technology enables 24/7/365 and program trading.  Technology has made these things possible, but its still people that take the possibilities to market.

The past decade’s financially driven crises are particularly pernicious as like it or not finance touches everything.  A financial crisis is unlike the demand driven crisis of the past where simple stimulus is the recipe for success.  Its one thing when consumers do not have enough money because they lost their job.  It’s another thing when there is no money in the system regardless of who has a job.

Blaming technology for not enabling us to grow past recessions makes sense in the context of demand driven situations.  It is weak logic at best when it comes to resolving and rooting out the causes of financially driven crisis.  Our current predicament is due to Wall Street and K Street more than it is to decisions made in Silicon Valley.

Technology distributes productivity gains differently than in the past

There is more to what is going on in the economy than just a failure of technology to deliver constant and escalating levels of growth.  Technology is changing the nature of productivity and the economic returns generated by productivity.  Eric Brynjolfsson and Andrew McAffee make the point that technology is shifting productivity returns away from people and towards capital, particularly in the case of digital technologies.   That observation provides part of the current situation where companies make record profits while economic and employment levels lag.

The issue here is not that the information revolution has not generated economic prosperity.  It has, but not for enough people and not in ways that were able to overcome or prevent the financial turbulence that put us in this mess in the first place.

Technology is a net contributor to the human experience, beyond the hackneyed arguments that we all waste time surfing the web at work.   It has given us new ways to understand the world, connect with each other, mobilize our common interested and innovate our shared and personal experiences.  Those values are ones that do not readily appear in GDP figures. 

More people have more technology than ever before and they are using that technology to improve their lives in ways that go well surfing the web.   Those are the facts that should be the focus of what the web and its related digital technologies delivered not inaccurately ascribing a technology effect for a financially created cause.

Kenny is right in his assertion that “if we’ve learned anything over the past 10 years, it’s that there are no simple Web-based solutions to an economy in the productivity doldrums.”  True, but that is like a chef blaming their utensils for a poor meal.  Feeding digital anxiety serves no one, other than to fill column inches in a magazine.

What does being a “Digital Business” mean?

Every business is a digital business. 

But what does ‘digital business’ mean? 

The answer to that question reflects your organization’s view of the relationship of business to technology.   A technology lens concentrates on seeing the technology they have as defining what makes them digital.  Alternatively, other executives concentrate on the business side of the definition asking how they grow profitably as a digital business.

The two views complicate efforts to launch a digital business creating a chicken and egg situation.  Growing digital revenue is difficult without digital resources.  Likewise digital resources are hard to justify against prospective revenues.  Which comes first and where you focus first sets the context for digital strategy and digital capabilities.

Feeling Digital: Measuring digital technology

Equating who you are by what you have is a common form of self-identification for individuals as well as companies.   Companies can feel digital when they see technology all around them.  We have a web store.  We have a Facebook Page. We are on Pinterest, Tumbler, etc.  We have mobile apps. We have automated processes.  We have robots in the warehouse. We are spending money on this; therefore we must therefore be digital, right?

This view is accurate to a point, but often it creates blind spots in the way you see the world.  If you consider Amazon an online bookstore because they sell books, then you are missing the point of their business model – using technology to disrupt access to products and services. 

Showing off digital technology makes you no more of a business than showing off a new sports car makes you a good driver.  Viewed with this lens, you digitize existing processes, relationships, channels etc.  Unfortunately this type of digital substitution drives commoditization of value, erosion of pricing power and limited revenues that eventually call digital technology investments into question.  A recent WallStreet Journal article on Wal-Mart illustrates this challenge. 

According to a former online- executive quoted in the article “every year, executives would start a "five-year planning exercise, but the plans were never executed and management would say the sales weren't there to justify the investment capital."

The quote illustrates the tension in building a digital business, particularly when you see it from the perspective of buying digital technology.   It is understandable that business leaders would adopt this view and build a business that uses digital technology, not a digital business.   There is a difference and the difference matters.

Possession is 1/10^th of the way to being a digital business. 

Being digital requires more than applying digital technology to current business models, products and services.  Having the technology represents an important but incremental part of the digital picture; the other 9/10^th of digital potential rests in creating a digital business.

A digital business is one that generates growth and operational results from new combinations of digital and traditional resources.

It’s a simple definition, but different in the sense that digital resources are integral to the company’s strategy and value proposition not just important part of its operations.   Determining how digital technology changes the value equation creates opportunities and drives outcomes that represent the bulk of the heavy lifting in creating a digital business.  Those issues form the center of an effective digital strategy.

Being Digital: Measuring growth, profit and value

Being digital involves more than transforming atoms into bits.  It requires creating new value propositions, products and services that drive sustainable growth as well as new relationships and processes that create results.  That combination incorporates digital technologies as an integral part of the business rather than an internal substitute for a business.   Without that combination, digital strategy becomes tragedy as organizations can lose up to 40% of their pricing power in the marketplace as transparency and commoditization take control.

A digital business is first and foremost a business.  That makes growth, profit and value central elements of a digital business model.  Being digital means being successful now with the technology but with incorporating technology into value creation and delivery.  That can be a daunting task, after all it is much easier to turn a book into an eBook, build a mobile app or create a new ‘big data’ report.  These actions may make you feel more digital but it’s a false sense of security.

Building a digital business requires the same leadership, foresight, effort and challenge of building any business.  Only the context and terms of competition are changing, growing faster, more socially fickle and fleeting as the economy moves into the first digital decade.  Success in that decade starts with having a clear idea of what digital business means. 

Building a real business, with real customers, growing real revenues, results out of new combinations of the physical and digital world.   A business based on value not on swapping atoms for bits.

Henry Ford in Reverse

A radical management decision at the turn of the last century created the modern economy we have enjoyed for the last 80 years.  Henry Ford's decision in 1914 to pay line workers the outrageous sum of $5 per day planted the seeds of today's Consumer based economy. 

Prior to Ford's action, people were labor, cost, class or race object or a responsibility of others.  They were not customers or even consumers. Consumers on the other hand were objects, targets or ‘suckers’ that were a source of sales.  “Buyer beware” was the ethos of customer service and customer relationship management for most.   

Ford, others and trade unions drove higher worker wages that created demand and the modern consumer economy.  Tim Worstall pointed out that there was more to the wage increase than the legend in his Forbes article.  That is less of the point than the observation that overall labor wages rose because new technologies raised labor productivity creating a re-enforcing spiral.  That changed with the advent of information technology a change accelerating in the digital age.  Here is what I mean:

As Erik Brynjolfsson and Andrew McAfee point out in their book “Race Against the Machine”, information based technologies shift productivity returns in the economy.  Labor productivity growth is flat while capital productivity is growing.  Growth goes to the most productive resources creating a situation where returns increasingly flow to capital and not wages.  That creates the apparent paradox we see today – earnings growth without wage or employment growth.

Henry Ford in reverse.

In reverse in the sense that once returns flow to capital rather than labor, the consumer economy slows down driven by declining wage generated wealth.  Keeping up requires consuming more disposable income and personal wealth whose returns flow to companies and capital, not recycled back to consumers in the form of wages.  Growth can still happen from new consumer markets in China, India, etc., and tapping into generational wealth.  But these growth sources can only sustain consumerism for some time. At the same time, the persistent search to find new returns on capital generate investment spikes, bubbles and instability. Going in reverse describes a consumer economy unwinding through waves to capital-intensive information and technology productivity. 

It was not supposed to work this way. We expected a leisure society created by technology and epitomized by the brave new world of the 1950’s and early 1960’s.  Think of George Jetson, who went to work, pushed a button, then when home.  Alternatively, the movie Wall-E shows humanity as ultimate consumers, epitomized by Captain B.McCrea  and his passengers too out of shape to walk.

Technology is a boon to the world, raising standards of living, expectations and creating a diverse and vibrant world.  I am not suggesting reverting to the past, simplifying or decluttering – all forms of going in reverse.

We need to re-imagine the role of information and technology in the economy.  Automation and integration form the fundamentals of technology, described by the mantra of better, faster, cheaper.  Technology’s emphasis on faster and cheaper drives efficiency as the standard for success.  It is too simplistic to say that we need to focus on better and replace cost efficiency with customer effectiveness. But its not a bad place to start in a world where:

·      Supply > demand when trade, logistics and information give global reach to local markets.

·      Information levels the playing field between customers/consumers and companies

·      Technology eliminates operational barriers to entry for new entrants and storming adjacent markets

We can see current digital technologies such as analytics, mobility, smart phones, social, sensing, 3-D printing, etc. and a range of future technologies changing the productivity-return equation.

I do not have an answer. 

I only have a question – how do we continue to advance and avoid going in reverse? 

In other words – how does technology support sustainable and positive growth for all? 

Henry Ford’s simple, but radical idea, was unwelcome at the time. Many thought it would bankrupt the company, destroy business, and change the world.  It did.  But rather than leading to ruin it ushered in an unprecedented age of economic growth, rising standards of living and played a part in creating the world we have today with all of its strengths and challenges.

Technology and information have changed in the 100 years since 1914, so should our thinking about the economy and how we grow into the future.  Certainly the answer is not in reverting to the past.

What do you think?