Irving Wladawsky-Berger

The Fourth Industrial Revolution

The Fourth Industrial Revolution: what it means, how to respond was the central theme of the 2016 World Economic Forum (WEF) that took place earlier this year in Davos, Switzerland.  The theme was nicely explained by Klaus Schwab, WEF founder and executive chairman, in the lead article of a recently published Foreign Affairs Anthology on the subject.

Dr. Schwab positions the Fourth Industrial Revolution within the historical context of three previous industrial revolutions.  The First, - in the last third of the 18th century, - introduced new tools and manufacturing processes based on steam and water power, ushering the transition from hand-made goods to mechanized, machine-based production.  The Second, - a century later, - revolved around steel, railroads, cars, chemicals, petroleum, electricity, the telephone and radio, leading to the age of mass production.  The Third, - starting in the 1960s, - saw the advent of digital technologies, computers, the IT industry, and the automation of process in just about all industries.

“Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century,” he noted.  “It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.”

Shaping the Future of the Internet

The Winter 2016 issue of Dædalus, the Journal of the American Academy of Arts and Sciences, is devoted to the Internet.  Its 7 articles explore some of the major issues shaping the Internet’s future.  The issue was curated by Harvard professor Yochai Benkler and MIT research scientist David Clark, whose joint introduction and individual papers frame the overall discussion.

“The Internet was born in 1983,” write Benkler and Clark in the Introduction.  That year saw the adoption of TCP/IP, - the communications protocol that defines the Internet to this day.  Its technical directions and overall culture have been largely determined by the academic and research communities, who were also its early users.  With strong government support, they developed a system that “only a researcher could love: general, abstract, optimized for nothing, and open to exploration of more or less anything imaginable using connected computers.”

The Internet has since evolved “from a network that primarily delivered email among academics and government employees, to a network over which the World Wide Web arose, to the video and mobile platform it has become - and the control network for embedded computing that it is fast becoming.”  From its niche research beginnings, it’s become the universal platform for collaborative innovation, enabling startups, large institutions, and everyone in between to quickly develop and bring to market many new digital products and services.

What design choices have led to the Internet as we know it?  Could it still evolve into a fundamentally different platform than the one we use today?  What decisions could significantly shape its future?  These are among the very important questions explored in the Dædalus issue.  In their Introduction, Benkler and Clark summarized some of the key themes that emerged from the various papers, - a few of which I’d now like to discuss.

The Rise of the Platform Economy

What do we mean by platform?  I particularly like this definition by MIT Professor Michael Cusumano: “A platform or complement strategy differs from a product strategy in that it requires an external ecosystem to generate complementary product or service innovations and build positive feedback between the complements and the platform.  The effect is much greater potential for innovation and growth than a single product-oriented firm can generate alone.”

The importance of platforms is closely linked to the concept of network effects - the more products or services it offers, the more users it will attract.  Scale increases the platform’s value, helping it attract more complementary offerings which in turn brings in more users, which then makes the platform even more valuable… and on and on and on.

Platforms have long played a key role in the IT industry.  IBM’s System 360 family of mainframes, announced in 1964, featured a common hardware architecture and operating system, enabling customers to upgrade their systems with no need to rewrite their applications.  The ecosystem of add-on hardware, software and services that developed around System 360 helped it become the premier platform for commercial computing over the next 25 years.

In the 1980s, the explosive growth of personal computers was largely driven by the emergence of the Wintel platform based on Microsoft’s operating systems and Intel’s microprocessors, which attracted a large ecosystem of hardware and software developers. 

The 1990s saw the commercial success of the Internet and World Wide Web, driving platforms to a whole new level.  Internet-based platforms connected large numbers of PC users to a wide variety of web sites and online applications.  The power of platforms has grown even more dramatically over the past decade, with billions of users now connecting via smart mobile devices to all kinds of cloud-based applications and services.

What’s the current state and growth potential of platform companies?  How many large platforms are currently operating around the world?  What’s their impact on established enterprises?  These are among the questions addressed in in a recent report, The Rise of the Platform Enterprise: A Global Survey led by Peter Evans and Annabelle Gawer and sponsored by the Center for Global Enterprise.  The report is based on a comprehensive survey of the 176 platform companies around the world with an individual valuation exceeding $1 billion.  Their aggregate market value was over $4.3 trillion.

Leadership in a Changing World

What are the critical competencies needed to lead in our fast-changing business environment?  This question was the focus of a study jointly conducted by the professional services firm Heidrick & Struggles and the University of Oxford Said Business School.  The study was based on over 150 conversations with CEOs from a wide range of sectors around the world.  Its findings were recently published in The CEO Report: Embracing the Paradoxes of Leadership and the Power of Doubt.

“Declining tenure rates and levels of public trust suggest that CEO leadership has not kept pace with increased expectations,…” notes the report in its opening paragraphs.  “Indeed, the role of the CEO is becoming more complex as competing and increasingly vocal stakeholders permeate organizations.”  Leading in today’s world requires new thinking: “past experience is no longer a reliable guide for future action…  success as a CEO today hinges on continual growth in the role, even more than on the preparation beforehand.”

The key challenge confronting CEOs, - and senior executives in general, - is the relentless pace of change.  But, while speed is the major dimension of change, it’s not the only one.  Beyond speed, executives must also focus on scope and significance.  They must carefully consider a few fundamental questions about each: