Over the past few decades, Silicon Valley has been such a powerful engine for entrepreneurship in technology that, all too often, it is considered to be some kind of panacea. Corporate executives seek to inject “Silicon Valley DNA” into their cultures and policymakers point to venture-funded entrepreneurship as a solution for all manner of problems.
This is a dangerous mindset. The Silicon Valley model, for all of its charms, was developed for a specific industry, at a specific time, which was developing a specific set of technologies. While it can offer valuable lessons for other industries and other problems, it is not universally applicable.
The myth of Silicon Valley is that its model can applied to every problem, when in actuality it is a one that was built to commercialize mature technologies for specific markets. We’re now entering a new era of innovation and that model doesn’t quite fit as well as it once did. We need to develop a new innovation ecosystem to stay competitive in the 21st century.
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We tend to think of innovation as being about ideas. A lone genius working in a secret lab somewhere screams “Eureka!” and the world is instantly changed. But that’s not how the real world works. In truth, innovation is about solving problems and it starts with identifying useful problems to solve.
It is with that in mind that IBM comes out with its annual list of five technologies that it expects to impact the world in five years. Clearly, each year’s list is somewhat speculative, but it also gives us a look at the problems that the company considers to be important and that its scientists are actively working on solving.
This year’s list focuses on two aspects of digital technology that are particularly important today. The first is how we can use digital technology to provide a greater impact on the physical world in which we all live and work. The second, which is becoming increasingly crucial, is to make those technologies more secure to protect both privacy and commerce.
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When Peter Drucker first met IBM’s visionary CEO, Thomas J. Watson, he was somewhat taken aback. “He began talking about something called data processing,” Drucker recalled, “and it made absolutely no sense to me. I took it back and told my editor, and he said that Watson was a nut, and threw the interview away.”
That was back in the early 1930s, when “computers” were usually teams of women who performed rote calculations. The idea that data could be a valuable commodity just wasn’t on anyone’s radar yet and, in fact, wouldn’t be for decades. That would take not only advancement in technology, but also a transformation in business practices.
There were two major eras of innovation in the 20th century. The first hit its stride in the 1920s and the second had its biggest impact in the 1990s. We’re now on the brink of a new era of innovation and its impact will likely be profound. Though much like Drucker back in the 1930s, we are still unable to fully grasp what is yet to come.
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Quantum computing is the hot new thing. With Moore’s Law ending, there is a mad rush to find a new avenue for advancement. To optimists, quantum computing will fit the bill nicely and we’ll make the transition smoothly. To pessimists, the technology will kill encryption and bring down global commerce with it.
Neither of these things are even remotely true. Quantum computing is not the only way to improve computing performance. There are a variety of other approaches, including ASIC, FPGA and neuromorphic chips that will play a part. The apocalyptic visions of killing encryption aren’t worth taking seriously.
The truth is, in many ways, more exciting. Innovation is never a single event, but a process of discovery, engineering and transformation. Quantum computing is already deep into the engineering phase and the transformational impact will begin to take shape in the next 5-10 years. On a recent trip to IBM Research, I got a much better sense of what that will look like.
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It’s no secret that General Electric has fallen on hard times. Its CEO, Jeffrey Immelt, was forced to step down last June. In December, it announced that it was laying off 12,000 employees in its massive power business. Its stock has lost half of its value and there’s talk that it may get kicked off the Dow after 110 years.
In an earlier age, such a dismal performance would likely been attributed to corporate rot — an aging industrial firm gets fat and lazy and loses its competitive edge. Yet there’s no sign of that at GE. On the contrary, it seems to be a strong operational company that is highly competitive in the markets in which it competes.
The problem with GE, it appears, is that it has become a square-peg business in a round-hole world. It’s not that it’s gotten lazy, but that it invested heavily in getting better and better at things people care less and less about. That’s a problem we rarely talk about. We like to believe that success breeds more success, but the truth is that success often breeds failure.
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IBM, to a large degree, invented the information technology industry. For the first half of the 20th century, it dominated the market for tabulating machines. Then digital computing posed new challenges and, by the 1950s it had begun to cede ground to UNIVAC, which led to Thomas Watson Jr’s $5 billion gamble to build the System 360.
That effort was transformative, but by the 1980s the company had fallen behind again and it was only the crash development of the PC that saved it from irrelevance. Yet this time, it did not return to dominance, but was consistently outmaneuvered by smaller and nimbler competitors, like Microsoft and Intel.
Lessons from one era often cannot be applied to the next. In the 50s and 60s, IBM’s singular focus proved decisive. A generation later, agility and speed to market became key attributes. Today, we’re entering a new era of innovation in which the basis of competition will shift from disruptive to fundamental technologies. Here’s what you need to do to win:
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It’s become conventional wisdom that the last 30 years have been a hotbed of innovation, but evidence suggests otherwise. As Robert Gordon explains in The Rise and Fall of American Growth, productivity growth peaked between 1920 and 1970 and has declined ever since. Economist Tyler Cowen calls this the Great Stagnation.
Part of the reason for the dissonance is that information and communication technologies, which have been advancing quickly, make up a relatively small share of the economy — about 6% of GDP in advanced countries. Manufacturing, which makes up 17% of the global economy, gets relatively short shrift.
While all of the news isn’t bad, Deloitte recently ranked the US second to China in its Manufacturing Competitiveness Index, the fact is that we’ve lost 5 million manufacturing jobs since 2000. Clearly, that’s a disturbing trend and one we need to reverse. More to the point, there are four things we need to do to ensure that we can compete in the 21st century.
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One of the most common questions I get asked by senior managers is “How can we find more innovative people?” I know the type they have in mind. Someone energetic and dynamic, full of ideas and able to present them powerfully. It seems like everybody these days is looking for an early version of Steve Jobs.
Yet in researching my book, Mapping Innovation, I found that most great innovators were nothing like the mercurial stereotype. In fact, almost all of them were kind, generous and interested in what I was doing. Many were soft spoken and modest. You would notice very few of them in a crowded room.
So the simplest answer is that you need to start by empowering the people already in your organization. But to do that, you need to take responsibility for creating an environment in which your people can thrive. That’s no simple task and most managers have difficulty with it. Nevertheless, by following a few simple principles you can make a huge difference.
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Ten years ago hardly anyone had a smartphone. Social media was in its infancy. Artificial intelligence was still science fiction. Yet today all of those things are mature technologies that have become an integral part of everyday life. Anywhere you go you see people using all of them as a matter of habit.
It’s become conventional wisdom to look at these developments and say that technology is accelerating. It certainly seems that way. Nevertheless, look a little closer and it becomes clear that’s not really true. Buy a computer or smartphone today and it has nearly identical technical specifications to one that came out five years ago.
The truth is that every major technology has a similar life cycle called an S-curve. It emerges weak, buggy and flawed. Adoption is slow. In time, it hits its stride and enters a period of rapid growth until it hits maturity and an inevitable slowdown. That’s what’s happening now with digital technology and we can expect many areas to slow down in the years to come.
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In the early 1990s, established businesses were blindsided by the disruptive force of the Internet. Even those who invested heavily in IT infrastructure soon found that they had difficulty competing with nimble new upstarts who could deploy web based applications at blinding speed.
It was with this in mind that IBM launched its e-business initiative in 1996. Although considered by many at the time to be an aging dinosaur itself — the firm was close to bankruptcy three years earlier — it was able to leverage its expertise in legacy systems to transform business processes and prepare its customers for the Internet age.
Today a similar tidal wave of disruption is sweeping through the corporate world — artificial intelligence — and, once again, IBM sees a big opportunity. Much like in the early days of the Internet, there is huge value to be unlocked, but legacy systems are not set up to leverage it. It’s not enough to simply apply algorithms, you need to prepare your business for a new age.
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