Irving Wladawsky-Berger

The New Era of Smart, Connected Products

For the past few years, some have justifiably questioned whether innovation has been going through a period of stagnation, especially when compared to major 19th and 20th century innovations like electricity, cars and airplanes.  Have we pretty much stopped solving big problems?  “We wanted flying cars - instead we got 140 characters,” is how PayPal cofounder Peter Thiel succinctly expressed this sentiment in a 2011 New Yorker article. 

Others argue that while the nature of innovation is definitely changing as we evolve and adapt to an information-based digital economy, it’s impact is no less transformative.  Last week, for example, I discussed a recent article in Wired by Kevin Kelly on the future of AI.  Kelly fully expects that AI will transform the global economy and civilization in general, much as electricity did more than a century ago.  “Everything that we formerly electrified we will now cognitize,” he said.  “There is almost nothing we can think of that cannot be made new, different, or interesting by infusing it with some extra IQ…  This is a big deal, and now it’s here.”  I totally agree.

An equally optimistic view was expressed in another excellent article, - How Smart Connected Products are Transforming Competition, - published in the November issue of the Harvard Business Review by Michael Porter and James Heppelmann. 

We generally think of products as physical entities, - e.g., clothes, light bulbs, appliances, cars, - some quite simple and some much more complex, built using sophisticated mechanical and/or electrical components.  The article introduces a whole new class of smart connected products - “complex systems that combine hardware, sensors, data storage, microprocessors, software, and connectivity in myriad ways.”

The Future of AI: a Ubiquitous, Invisible, Smart Utility

Our increasingly smart machines are now being applied to activities that not long ago were viewed as the exclusive domain of humans.  Cognitive computing, robotics, self-driving cars and AI in general are some of the hottest topics in academia and business these days.

What should we expect from this new generation of AI machines and applications?  Are they basically the next generation of sophisticated tools enhancing our human capabilities, as was previously the case with electricity, cars, airplanes, computers and the Internet?  Or are they radically different from our previous tools because they embody something as fundamentally human as intelligence? 

Kevin Kelly, - as am I, - is firmly in the AI-as-a-tool camp, as evident by a recent article in Wired, - The Three Breakthroughs That Have Finally Unleashed AI on the World.  Kelly co-founded Wired in 1993, where he served as executive editor until 1999 and continues his association as Editor-At-Large.  He has many other interests as well as being a prolific writer of books and articles.

According to Kelly, the AI future that’s coming into view is nothing like the “potentially homicidal” HAL 9000 from 2001: A Space Odyssey or “a Singularitan rapture of superintelligence.”  The AI he foresees is more like a kind of “cheap, reliable, industrial-grade digital smartness running behind everything, and almost invisible except when it blinks off.  This common utility will serve you as much IQ as you want but no more than you need.  Like all utilities, AI will be supremely boring, even as it transforms the Internet, the global economy, and civilization.”

The Rise and Potential Fall of the Talent Economy

Roger Martin is a professor at the Rotman School of Management at the University of Toronto, where he was Dean from 1998 to 2013.  He’s been a strong advocate of the need to transform business education, in particular that students need to learn how to think holistically and creatively, to better prepare them to deal with the complex problems they will encounter throughout their careers.  Professor Martin is also a prolific writer, having published a number of books and articles over the years. 

About a year ago he co-authored a very interesting short article, Capital vs Talent: the Battle that’s Reshaping Business, with his Toronto colleague Mihnea Moldoveanu.  Their basic thesis is that in our emerging digital economy, talent has become the key competitive asset for companies. 

Until early in the 20th century, most companies were organized around their physical assets, such as land, minerals or oil.  Later in the century, the key competitive assets shifted from natural resources to plants and equipment, sales and distribution, and finance.  These capital assets enabled companies like IBM, GM and Eastman Kodak to achieve the necessary scale to compete across the country and around the world. 

Then late in the 20th century the terms of competition changed again, with physical and capital assets no longer being the keys to success.  “By 2000, many of the world’s top 15 firms by market capitalization began with little or no physical or financial assets - including Microsoft, Cisco, Intel, and Wal-Mart,” notes the article.  “The vast majority depended on superior human assets for their advantage - great research scientists, inspired code writers, distribution geniuses, product innovators  - and knowledge assets - patents, brands, know-how, experience.  In short, in increasing numbers, leading companies were depending on talent.”

Entrepreneurship and Job Creation

A few weeks ago I wrote about a surprising paradox I’d just learned about at a conference: Entrepreneurship has never been easier, but entrepreneurship is on the decline.  Innovation and entrepreneurship are hot subjects the world over.  With the advent of inexpensive digital technologies and cloud-based services, it should be easier than ever to become an entrepreneur and start your own company.  But in fact, entrepreneurship has been declining for years.

After analyzing business data from the US Census Bureau, economists Ian Hathaway and Robert Litan observed in a recent paper that new firm formation has been declining across the board since the late 1970s.  In addition, failure rates have steadily increased for all companies under 16 years old, and they’ve been particularly high for early-stage firms.  Consequently, there are fewer young- and medium-aged firms each year, thus leading to the overall decline in entrepreneurship.  

In another paper, University of Maryland economist John Haltiwanger and collaborators used the same Census Bureau data to calculate the annual startup rates over the past several decades, - i.e., the number of new firms in each year divided by the total number of firms.  The startup rate was 12.0% in the late 1980s, went down to 10.6% just before the 2007 Great Recession, and then fell sharply below 8%.  Such sharp declines add up over time.  In the late 1980s, 47% of all firms were 5 years or younger.  The percentage of young firms declined to 39% in the mid 2000s, and has since continued its downward trend. 

Both papers noted that no one is quite sure what has caused this decline or what to do about it.  Then a few days after posting my blog, I got an e-mail from John Dearie, Senior VP at the Financial Services Forum.  For the past 3 years, he and a colleague have been trying to understand the causes behind this alarming decline in entrepreneurship.