Pace of change is accelerating: what if there is no equilibrium?

THE GIST

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:

1. 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).
2. A “long-term global trend towards lib­er­al­iza­tion of eco­nomic activ­ity, sys­tem­at­i­cally remov­ing reg­u­la­tory bar­ri­ers to entry and bar­ri­ers to move­ment.” (same source)

At Stake

Strat­egy

Busi­ness mod­els can dis­in­te­grate much more quickly than before. Sta­tic rents and sta­tic posi­tion­ing are less effec­tive. The ori­gins of advan­tage are shifting.

Cor­po­rate

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.

MORE DETAILS

Ori­gins

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.

At Stake

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

Action­able ?

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

Ref­er­ences

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

More MP ? Resources page. Sug­ges­tions, cor­rec­tions ? Com­ment and I’ll update.

Photo Credit: Eole