Irving Wladawsky-Berger

America’s Obsession with Economic Efficiency

The belief that efficiency is fundamental to competitive advantage has turned management into a science, whose objective is the elimination of waste, - whether of time, materials, or capital, - wrote Roger Martin in “The High Price of Efficiency,” a January 2019 article in the Harvard Business Review.  Martin is professor and former dean of the Rotman School of Management at the University of Toronto, as well as a prolific writer.

“Why would we not want managers to strive for an ever-more-efficient use of resources?,” asked Martin.  Of course we do.  But, an excessive focus on efficiency can produce startlingly negative effects.  To counterbalance such potential negative effects, companies should pay just as much attention to a less appreciated source of competitive advantage: resilience,  - “the ability to recover from difficulties - to spring back into shape after a shock,” he presciently added a year before the advent of Covid-19.

In his recently published book, When More Is Not Better: Overcoming America's Obsession with Economic Efficiency, Martin expanded on his HBR article, arguing that an excessive focus on efficiency is not only detrimental to business but constitutes a serious threat to America’s democratic capitalism.  “Throughout the first nearly two and a half centuries of America’s existence as a sovereign state, most citizens experienced an advance in their economic status in the overwhelming majority of those years.  Based on that trend, Americans have, unsurprisingly, used their votes throughout the years to support and perpetuate capitalism as America’s economic system.  But that consistent economic advance has stalled, and has been for a longer period than ever before in American history.”

The book is based on a six-year project on the future of America’s democratic capitalism by the Martin Prosperity Institute.  The project conducted in-depth interviews with a wide variety of Americans to understand what they thought about the directions of the country.  It excluded people in the top 10% of the income distributions, focusing instead on the vast majority of the populations, which includes people with household incomes ranging from $25,000 to $110,000 with a median of $75,000.

After Years of Promise and Hype, Is AI Once More Failing to Deliver?

The June 13 issue of The Economist included an in-depth look at the limits of AI, with seven articles on the subject.  “There is no question that AI - or, to be precise, machine learning, one of its sub-fields - has made much progress,” notes The Economist in the issue’s overview article.  “Computers have become dramatically better at many things they previously struggled with…  Yet lately doubts have been creeping in about whether today’s AI technology is really as world-changing as it seems.  It is running up against limits of one kind or another, and has failed to deliver on some of its proponents’ more grandiose promises.”

Transformative technologies, - remember the dot-com bubble, - are prone to hype cycles, when all the excitement and publicity accompanying their early achievements often lead to inflated expectations, followed by disillusionment if the technology fails to deliver.  But AI is in a class by itself, as the notion of machines achieving or surpassing human levels of intelligence has led to feelings of both wonder and fear over the past several decades.

The article reminds us that AI has gone through two such major hype cycles since the field began in the mid-1950s.  Early achievements, - like beating humans at checkers and proving logic theorems, - led researchers to conclude that machines would achieve human-level intelligence within a couple of decades.  This early optimism collapsed leading to the first so-called AI winter from 1974-1980.  The field was revived in the 1980s with the advent of commercial expert systems and Japan’s Fifth Generation project, but it didn’t last long, leading to the second AI winter from 1987-1993.

May the Network Force Be With You

May the Force Be With You has become part of popular culture since the words were first uttered in the 1977 Star Wars film.  As we know, The Force is a source of power for those who, like the Jedi, feel its flow.  “The network force is similar,” wrote Silicon Valley network expert and entrepreneur James Currier in Your Life is Driven by Network Effects.  “You don’t always see it, but it is exerting itself on you.  It wants something from you. Your network force proactively guides you down a path.”

“When you start to see that dialogue between you and your network, the push-pull, you see it everywhere.  The chaos of the world diminishes a bit and becomes more understandable and predictable. And you understand more why things are the way they are and why they stay that way.  Hopefully, it will also give you insights as to where you can push to change things that should be changed, not just about you, but about your company, your city, and your world.”

Over the past few decades, network forces have been influencing many aspects of business, the economy, and our social interactions.  The Internet’s universal reach and connectivity have led to increasingly powerful network effects, such as, for example, platform economies.

The Real Business of Blockchain

“Companies in industries as diverse as finance, sports, health care, retail, oil and gas, and pharma are engaging in a wave of blockchain experiments,” write Gartner analysts David Furlonger and Christophe Uzureau in their recently published book The Real Business of Blockchain.  “Many see it as the solution for bringing trust and transparency to digital environments.” Blockchain has indeed been capturing the imagination of business.  According to a Gartner Research Forecast, the business value-add of blockchain is expected to exceed $3 trillion by 2030, over half that amount by 2025.  But, in plain English, what does this all mean?

“It means you can theoretically do business with an unknown partner located anywhere on the planet and trade any asset at any transaction size and not need a lawyer, a bank, an insurance company, or any other intermediary making sure both of you follow through on what you’ve promised to do,” write the book’s authors.  “Such a solution vastly expands the range of assets that a business could trade.  The arrangement also greatly increases who or what a business could directly trade with, without needing a third party (which would take a piece of the value).”

The Social Network Is the Computer

“Human beings have always been a social species,” writes MIT professor Sinan Aral in the opening paragraph of The Hype Machine, his recently published book.  “We’ve been communicating, cooperating, and coordinating with one another since we were hunting and gathering.”  Our increasingly complex social interactions have been the critical factor in the exponential increase of human cranial capacity over the past few million years.  “But today something is different.  Over the last decade, we’ve doused our kindling fire of human interaction with high-­octane gasoline.  We’ve constructed an expansive, multifaceted machine that spans the globe and conducts the flow of information, opinions, and behaviors through society.”

Professor Aral has been studying social media since its beginning in the early 2000s, when it was driven by the idealistic vision of connecting the world and providing free access to information.  The Hype Machine is what he now calls our global social media ecosystem.  This ecosystem has been designed to stimulate and manipulate the human psyche, “to draw us in and persuade us to change how we shop, vote, and exercise, and even who we love.”  His book nicely explains how the social media industrial complex works, how it affects us, and what we can do to help achieve its original vision while avoiding its later perils.  Let me discuss a few of its key points.

Reflections on the Later Stages of Our Careers

I recently read “Your Professional Decline Is Coming (Much) Sooner Than You Think,” an essay in The Atlantic by social scientist and author Arthur C. Brooks.  Brooks essay is a personal reflection on professional careers.  In particular, the essay explains why in July of 2019 at the age of 55, he concluded that it was time to resign his decades-long position as president of the prestigious American Enterprise Institute (AEI) to join the faculty of the Harvard Kennedy School.  I found Brooks’ essay particularly intriguing as a lens through which to reflect on the later stages of my own career; - when I turned 60 in 2005, I started the transition toward my 2007 retirement from my long IBM career by becoming affiliated with MIT and starting to write my weekly blogs.

The essay references the work of Dean Simonton, professor emeritus of psychology at UC Davis, who’s conducted extensive research on the trajectories of creative careers and is one of the world’s leading experts on the subject.

Over the years, Simonton developed a mathematical model that explains the long term variations in the career trajectories of different individuals, as well as the differences in career trajectories across disciplines and domains.  A few parameters account for most individual differences: the age at which the career starts, the career’s initial creative potential, the rates at which new ideas are generated, and the rate at which the ideas become finished results as publications or products.  This simple model can then predict the trajectory of each individual’s career, including the ages of their first, their best and their final contribution.  Simonton confirmed the validity of his model by analyzing the creative output of the careers of over 2,000 scientists and inventors, as well as the output of musicians, painters, authors and other artists.

“[S]uccess and productivity increase for the first 20 years after the inception of a career, on average,” wrote Brooks summarizing Simonton’s results.  “So if you start a career in earnest at 30, expect to do your best work around 50 and go into decline soon after that.  The specific timing of peak and decline vary somewhat depending on the field.”  Other research has found that the likelihood of a major discovery by scientists and investors increases steadily through their 20s and 30s, and then declines through their 40s, 50s and 60s.  While there are outliers, “the likelihood of producing a major innovation at age 70 is approximately what it was at age 20 - almost nonexistent.”

How Will the Pandemic Reshape Labor Markets?

“The COVID crisis appears poised to reshape labor markets along at least four axes: telepresence, urban de-densification, employment concentration in large firms, and general automation forcing,” wrote MIT’s David Autor and Elisabeth Reynolds in a July essay on The Nature of Work After the COVID Crisis.   “Although these changes will have long-run efficiency benefits, they will exacerbate economic pain in the short and medium terms for the least economically secure workers in our economy, particularly those in the rapidly growing but never-highly-paid personal services sector.”

Autor and Reynolds are cochairs of the ongoing MIT Work of the Future task force, whose interim report was published in the (pre-Covid) Fall of 2019.  The report’s overriding conclusion was that the likelihood that AI and automation will wipe out major workforce sectors in the near future was exaggerated.  However, there were very important reasons for concern, in particular, the rising polarization of employment and wage distribution over the past few decades which has disproportionately benefited high-skilled professionals. Our most critical challenge, said the report, isn’t necessarily a lack of jobs, but the low quality of jobs and viable careers available to many workers, particularly those without college degrees.

“Despite our concerns about the distributional consequences of advancing technologies, until the COVID crisis began, we were sanguine about the prospects for ongoing employment growth, even in the face of lackluster wage growth,” said the authors in their July essay.  “In the fall of 2019 we wrote, ‘We anticipate that in the next two decades industrialized countries will have more job openings than workers to fill them, and that robotics and automation will play an increasingly crucial role in closing these gaps’. The COVID crisis has upended our confidence in that prediction - not merely because COVID has generated mass unemployment in the short term, which it has, but also because the postcrisis trajectory now worries us.”

The AI Factory: A New Kind of Digital Operating Model

“Whether you’re leading a digital start-up or working to revamp a traditional enterprise, it’s essential to understand the revolutionary impact AI has on operations, strategy, and competition,” wrote Harvard professors Marco Iansiti and Karim Lakhani in “Competing in the Age of AI”, a recently published article in the Harvard Business Review (HBR).  Earlier this year, they also published a book of the same title, which expands on the ideas in the article and illustrates them with a number of concrete use cases.

The age of AI is being ushered by the emergence of a new kind of digital firm.  Rather than just relying on traditional business processes operated by its workers, these firms are leveraging software and data-driven algorithms to eliminate traditional constraints and transform the rules of competition.  Managers and engineers are responsible for the design of the new AI-based operational systems, but the system then runs the operations pretty much on its own.

“At the core of the new firm is a decision factory - what we call the AI factory,” note the authors.  “[T]he AI factory treats decision-making as a science.  Analytics systematically convert internal and external data into predictions, insights, and choices, which in turn guide and automate operational workflows…  As digital networks and algorithms are woven into the fabric of firms, industries begin to function differently and the lines between them blur.”

The Industrial Revolution transformed the economy by developing a scalable, repeatable approach to manufacturing.  The AI factory is now driving another fundamental transformation by industrializing the data gathering, decision making, and overall digital operations of 21st century firms.

Why 70 Percent of Digital Transformations Fail

“Companies either transform or die in industrial revolutions,” writes former P&G executive Tony Saldanha in his recently published book Why Digital Transformations Fail.  “Digital transformation is our current generation’s attempt to transform in the face of the Fourth Industrial Revolution.  However, the sad truth is that 70 percent of all digital transformations still fail today… a shocking number, given the extremely high stakes,” he adds.

What accounts for such a high failure rate?  An inadequate strategy; competitive pressures; technology; talent; culture? While all these factors are important, “The surprising answer to why digital transformations fail is a lack of discipline in defining and executing the right steps for digital transformations to take off and stay ahead,” notes Saldanha, adding that “It is possible to apply the proven checklist methodology from the airline and medical fields to improve the 70 percent failure rate.”

In a 2015 article, Klaus Schwab, - founder and executive chairman of the World Economic Forum, - positioned the Fourth Industrial Revolution within the historical context of three previous industrial revolutions.  The First, - starting in the late 18th century, - was driven by new innovations like the steam engine and marked the evolution from an agrarian to an industrial economy.  The Second, - a century later, - was driven by steel, electricity, the internal combustion engine and mass production techniques.  The Third, - starting in the 1960s, - saw the advent of digital computers, IT, the Internet, and the automation of process in just about all industries.  The Fourth, - driven by increasingly pervasive and inexpensive digital technologies, - is now blurring the lines between the digital, physical, and biological worlds, leading to widespread economic and social disruption.

Saldanha defines digital transformation as “The migration of enterprises and societies from the Third to the Fourth Industrial Revolution era.  For companies, this means having digital technology become the backbone of new products and services, new ways of operation, and new business models.”

“Companies either transform or die in industrial revolutions,” writes former P&G executive Tony Saldanha in his recently published book Why Digital Transformations Fail.  “Digital transformation is our current generation’s attempt to transform in the face of the Fourth Industrial Revolution.  However, the sad truth is that 70 percent of all digital transformations still fail today… a shocking number, given the extremely high stakes,” he adds.

What accounts for such a high failure rate?  An inadequate strategy; competitive pressures; technology; talent; culture? While all these factors are important, “The surprising answer to why digital transformations fail is a lack of discipline in defining and executing the right steps for digital transformations to take off and stay ahead,” notes Saldanha, adding that “It is possible to apply the proven checklist methodology from the airline and medical fields to improve the 70 percent failure rate.”

In a 2015 article, Klaus Schwab, - founder and executive chairman of the World Economic Forum, - positioned the Fourth Industrial Revolution within the historical context of three previous industrial revolutions.  The First, - starting in the late 18th century, - was driven by new innovations like the steam engine and marked the evolution from an agrarian to an industrial economy.  The Second, - a century later, - was driven by steel, electricity, the internal combustion engine and mass production techniques.  The Third, - starting in the 1960s, - saw the advent of digital computers, IT, the Internet, and the automation of process in just about all industries.  The Fourth, - driven by increasingly pervasive and inexpensive digital technologies, - is now blurring the lines between the digital, physical, and biological worlds, leading to widespread economic and social disruption.

Saldanha defines digital transformation as “The migration of enterprises and societies from the Third to the Fourth Industrial Revolution era.  For companies, this means having digital technology become the backbone of new products and services, new ways of operation, and new business models.”

Reconnecting Society and Reopening the Economy

A few months ago, MIT Connection Science held it’s annual Sponsors’ Meeting online.  The virtual meeting included a number of very interesting presentations.  Given its continuing importance, I want to focus my discussion on “Reconnecting Society After a Pandemic,” a talk given by visiting professor Esteban Moro. 

Moro started his presentation by showing a slide from this article.  The slide illustrates that if we had done nothing, or just relied on soft mitigation and herd immunity to contain the spread of the Covid-19 virus, the number of cases and deaths would have gone up very rapidly, - overwhelming healthcare systems around the world.  Instead, many national and state governments adopted two distinct sets of actions, the hammer and the dance.

The hammer is the somewhat draconian social distancing policies aimed at containing the spread of the virus, especially in regions like the New York metro area where the number of cases were escalating at a very rapid pace.  The dance starts once the spread of the virus has been brought under reasonable control, - albeit at the price of large economic costs and societal disruption.  The dance is the longer term effort to keep the virus contained until there’s an effective vaccine while reopening the economy and bringing life as close to normal as possible.

Are We Becoming a Decadent, Stagnating Society?

Earlier this year I read a very interesting essay, “The Age of Decadence”, by NY Times columnist Ross Douthat.  The essay is adapted from his recently published book The Decadent Society - How We Became the Victims of Our Own Success.  This long essay covers a lot of ground, from technology and innovation to politics and religion.  The essay was published in early February, before Covid-19 spread across the US.  I’ll discuss the original essay, but I do wonder how it would have been modified to reflect the impact of the pandemic.

“The real story of the West in the 21st century is one of stalemate and stagnation,” wrote Douthat.  “Everyone knows that we live in a time of constant acceleration, of vertiginous change, of transformation or looming disaster everywhere you look.  Partisans are girding for civil war, robots are coming for our jobs, and the news feels like a multicar pileup every time you fire up Twitter.  Our pessimists see crises everywhere; our optimists insist that we’re just anxious because the world is changing faster than our primitive ape-brains can process.” 

“But what if the feeling of acceleration is an illusion, conjured by our expectations of perpetual progress and exaggerated by the distorting filter of the internet?,” he asked.  What if we really inhabit an era in which repetition is more the norm than invention; in which new developments in science and technology consistently undercover; in which we’re comfortably aging, “no longer optimistic about the future… [while] growing old unhappily together.”  What if  “Our civilization has entered into decadence.”

The Transformational Impact of Blockchain-based Supply Chains: Nine Real-World Use Cases

In May 2016, Don Tapscott published Blockchain Revolution, his 16th book, this one co-written with son Alex.  Don, whom I’ve known for over 25 years, has an uncanny knack for identifying The Next Big Thing and explaining it to everybody else through his books, articles, and speeches.  Don and Alex have each developed a follow-on blockchain book.  Earlier this year, Alex published Financial Services Revolution, while a few weeks ago Don published Supply Chain Revolution, which I will now discuss.

Supply Chain Revolution consists of nine chapters, edited with a foreword by Don.  He opens his foreword by noting, “When we first started working on this book, the coronavirus (COVID-19) hadn’t yet made headlines…  As I’ve become fond of saying, ‘If you’ve got it, a supply chain brought it to you.’  I suppose that, during these times, I could add, ‘If you can’t get it, a supply chain let you down.’”

Each chapter details how blockchain is revolutionizing a different supply chain, from general use cases like global trade to more specific ones like food traceability and manufacturing.  Each was written by some of the world’s top experts on these blockchain applications.

For a few years now, I have argued that supply chain applications will likely emerge as the earliest blockchain killer apps.  Given that blockchain first came to light in 2008 as the architecture underpinning bitcoin and other cryptocurrencies, many thought that its killer-apps would be in the financial services industry.  That might well be the case in the future, but given its underlying complexity, transforming the global financial ecosystem will take considerable time and investment.  Supply chain infrastructures and processes are significantly less complex than those in financial services, healthcare, and other industries, which is why several supply chain use cases have already been brought to market over the past few years.

The Long-Term Impact of Early-Career Setbacks

Fail fast, fail often is one of Silicon Valley’s best known mantras.  Is there something to this belief that if you’re not failing fast and often you may be stuck in a stagnating endeavor?  After all, social scientists have their own Matthew Effect, - i.e., the rich get richer and the famous get more famous, - as evidenced in our age of rising economic inequality and superstar dynamics.

In early March, - just before Covid-19 brought normal life to a screeching halt, - I attended a very interesting seminar by Northwestern professor Dashun Wang.  Over the past several years, professor Wang, along with various collaborators, has been investigating the impact of early-career setbacks on the future careers of scientists.

“Setbacks are an integral part of a scientific career, yet little is known about their long-term effects,” notes a recent article he co-authored in Nature Communications.  “Despite the ubiquitous nature of failures, it remains unclear if a setback in an early career may augment or hamper an individual’s future career impact.”  The Matthew Effect would suggest that early-career success is an important determinant of a successful scientific career.  On the other hand, early setbacks could well be a marker for future achievement, teaching young scientists, entrepreneurs, artists, etc, valuable lessons that they wouldn’t have otherwise learned, i.e., what doesn’t kill you makes you stronger.  Which is the most likely scenario?

Could AI Reshape the Global Balance of Power?

The National Security Commission on Artificial Intelligence (NSCAI) was established by the US Congress in Fiscal Year 2019 to “advance the development of artificial intelligence, machine learning, and associated technologies by the United States to comprehensively address the national security and defense needs of the United States.”  A few months ago, the 15 member Commission, - led by former Google CEO Eric Schmidt  and former deputy secretary of defense Robert Work, - released its interim report. The final report is due to be released in March, 2021.  It remains to be seen how the Covid-19 pandemic will impact the final report’s recommendations and release date.

“The convergence of the artificial intelligence revolution and the reemergence of great power competition… threaten the United States’ role as the world’s engine of innovation and American military superiority,” said the interim report in its opening statements.  “How the United States adopts AI will have profound ramifications for our immediate security, economic well-being, and position in the world…  We are concerned that America’s role as the world’s leading innovator is threatened… We know strategic competitors are investing in research and application.  It is only reasonable to conclude that AI-enabled capabilities could be used to threaten our critical infrastructure, amplify disinformation campaigns, and wage war.”

Like the Internet, - let’s remember that ARPANET was started in the late 1960s by the US Department of Defense, - AI is usable for military and civilian purposes.  But, - also like the Internet, - AI is a general purpose technology that can be used for a wide variety of applications, many of them beneficial, but others potentially threatening.

Scenario Planning - Formulating Strategy in the Face of High Uncertainty

“How can we formulate strategy in the face of uncertainty?,” asks Learning from the Future, a recent Harvard Business Review article by Peter Scoblic, in its opening sentence.  Answering this question has never felt more urgent as leaders prepare for the future.  “Even before the Covid-19 crisis, rapid technological change, growing economic interdependence, and mounting political instability had conspired to make the future increasingly murky.”  Uncertainty was already all-encompassing.

“And then the pandemic hit.”

When the present resembles the past, we can calculate the probability of future outcomes by analyzing past historical data.  That’s how insurance companies accurately predict the life expectancy of different people based on age, gender, general health, behavioral traits like smoking and drinking, etc.  But the situation is very different when the present doesn’t resemble the past.  “Uncertainty stems from our inability to compare the present to anything we’ve previously experienced.  When situations lack analogies to the past, we have trouble envisioning how they will play out in the future.”

Military strategists first developed scenario planning in the 1950s to help them envision the impact of a nuclear war between the US and the Soviet Union, - something that was clearly way beyond anyone’s experience.  The object of scenario planning is to assemble all known facts, trends, and other information and use them to create a number of alternative stories rich in detail, typically three or four, about plausible future outcomes along with the development paths and key events that led to such outcomes.  Altogether, the scenarios should span the scope of possible futures, although the actual future will likely include events from each scenario.

Remote Work is Surprisingly Productive, But For Many… Something Is Missing

What If Working From Home Goes on … Forever?, asks science and technology journalist Clive Thompson in the title of his June 9 NY Times Magazine article.  “The coronavirus crisis is forcing white-collar America to reconsider nearly every aspect of office life.  Some practices now seem to be wastes of time, happily discarded; others seem to be unexpectedly crucial, and impossible to replicate online.  For workers wondering right now if they’re ever going back to the office, the most honest answer is this: Even if they do, the office might never be the same.”

A recent survey found that of the 56% of respondents employed pre-Covid-19, half were working from home, - 35% having recently switched to working from home, while another 15% were already doing so pre-Covid; 37% continued to commute to work, and 10% had been recently laid-off or furloughed.  The survey was  based on two separate national samples of US data, - one which gathered 25,000 responses in early April, and the second another 25,000 responses in early May.

Thompson’s article cites the experience of Accenture, which has around 500,000 employees in more than 200 cities in 120 countries.  Before the pandemic, no more than 10% worked remotely on any given day.  But, by the middle of March, nearly all were asked to work from home.  Employees adapted quickly, said Accenture’s CTO.  The volume of video calls went up by a factor of six while those of audio calls tripled.  Despite having to switch from face-to-face to audio and video interactions, overall productivity actually went up as measured by several metrics.

It’s difficult to judge whether the surge in remote work will last.  “Home life in a lockdown is much harder than usual,” notes Thompson.  “Many workers who live alone are experiencing enforced isolation as an emotional grind… Nearly every parent I spoke to had their fingers crossed that schools and day care would reopen in the fall - at which point remote work might become an option they could choose, as opposed to one they were forced to endure.  Assuming that such a day does arrive, it’s possible that quite a few may elect to continue working outside the office.”

How Will Covid-19 Transform Urban Life?

In Why America’s Richest Cities Keep Getting Richer, a 2017 article in The Atlantic, urban studies professor and author Richard Florida wrote: “The most important and innovative industries and the most talented, most ambitious, and wealthiest people are converging as never before in a relative handful of leading superstar cities that are knowledge and tech hubs.  This small group of elite places forge ever forward, while most others struggle, stagnate, or fall behind…  They are not just the places where the most ambitious and most talented people want to be - they are where such people feel they need to be.”

Knowledge-intensive industries have long been centered in cities and surrounding metropolitan areas, where they’ve had the most access to a college educated, high skill workforce.  But, - from Milan to New York, - high density, globally connected urban areas have been ground zero for the spread of Covid-19.  Are cities now at risk of losing the superstar status they’ve enjoyed over the past several decades?

This is not the first time we’ve asked this question in the recent past.  In the mid-late 1990s, some predicted that the Internet would lead to the decline of cities, because it would enable people to work and shop from home, be in touch with their friends over e-mail, and get access to news and entertainment online.   But, instead of declining, megacities have continued to generate the greatest levels of innovation and good jobs, and thus attract a disproportionate share of the world’s talent.

Post-Pandemic, Is the World Likely to Become Significantly Less Flat?

“The golden age of globalisation, in 1990-2010, was something to behold,” wrote The Economist in a January, 2019 article.  “Commerce soared as the cost of shifting goods in ships and planes fell, phone calls got cheaper, tariffs were cut and the financial system liberalised.”

Thomas Friedman’s The World is Flat became an international best-seller in 2005 by nicely explaining what this new golden age of globalization was all about, including the key forces that contributed to flattening the world, - from the explosive growth of the Internet, open source software and related technologies; to the rise of outsourcing, offshoring and global supply chains.

In 2011 I attended a conference where Friedman was one of the speakers.  He said that we’ve transitioned from a connected to an increasingly hyperconnected global economy since he wrote The World is Flat in 2004.  Many of the companies and technologies that were part of every day conversations in 2011, - Facebook, Twitter, LinkedIn, smartphones, cloud computing, big data, broadband wireless Internet, - weren’t mentioned in his book because they had not yet been born or were still in their infancy.

The very nature of the global firm was transformed during these same decades.  In The Globally Integrated Enterprise, a 2006 Foreign Affairs article, then IBM CEO Sam Palmisano argued that the modern industrial corporation was now in its third stage of evolution in the way it conducted business around the world.

The Post-Pandemic Enterprise: What Will It Be Like?

In the near term, nations have been mostly focused on surviving the massive disruptions caused by Covid-19.  But, what about the longer term?  What will the post-pandemic new normal be like for societies and economies?  More specifically, how will the pandemic impact the world of business?  How can enterprises leverage the crisis to accelerate their journey toward what most everyone agrees will be an even faster changing future?  As Rahm Emanuel famously said in a 2008 WSJ interview: “You never want a serious crisis to go to waste.”

“The future is not what we thought it would be only a few short months ago,” said a recent McKinsey article, From thinking about the next normal to making it work.  “As businesses step into the post-coronavirus future, they need to find a balance between what worked before and what needs to happen to succeed in the next normal.”  The article offers 21 concrete recommendations for succeeding in the next normal, organized into seven major areas.  Let me summarize a few of these recommendations.

Building a More Resilient, Data-Driven Economy

“With each major crisis, be it war, pandemic, or major new technology, there has been a need to reinvent the relationships between individuals, businesses, and government,” wrote MIT professor Alex “Sandy Pentland in the first chapter of Building the New Economy.  Pentland cites two major historical examples.  In the early 20th century, the rise of mass manufacturing led to the creation of regulations governing working conditions and pay, health rules for mass-produced foods, and laws to prevent monopolies that stifled competition.  Then in mid-century, the decades following WWII saw greater access to higher education, racial and gender progress, and increased support for scientific research and medical advances.

“Today we face two simultaneous disruptions: one is the COVID-19 pandemic and resulting economic shock, and the second is the rise of pervasive digital data, crypto systems, and artificial intelligence (AI).”  The two disruptions are highly interrelated.  Digital technologies have been deployed to fight the global pandemic as well as helping us stay connected as we practice social distancing.

But, these same technologies are also increasing the already high levels of disinformation and fraud, threatening privacy rights with well-meaning public health technology measures, and likely to impact employment as institutions accelerate their embrace of digitization, AI and automation.  “These problems highlight the need to reinvent the ways data and AI are used in all of societies’ civic and government systems, both to guarantee that future pandemics can be handled better and to reinvigorate the economy but also to spread the economic benefits throughout society.”

High resilience in the face of an uncertain, changing environment is the essence of evolution and natural selection.  Building a new post-pandemic economy requires the creation of more agile, resilient systems and institutions to help us better adapt to an unpredictable future and withstand turbulent events like Covid-19.  In a resilient economy, power and decision-making should be distributed among a diverse set of stakeholders rather than concentrated in a few hands.

Why “The Techlash” Is a Threat to Growth and Progress

A few months ago, the Information Technology and Innovation Foundation (ITIF) published A Policymaker’s Guide to the “Techlash” - What It Is and Why It’s a Threat to Growth and Progress.  “Does information technology (IT) solve problems and make our lives easier, allowing us to do more with less?,” asks the ITIF report.  “Or does it introduce additional complexity to our lives, isolate us from each other, threaten privacy, destroy jobs, and generate an array of other harms?”

It wasn’t all that long ago that digital technologies and Big Tech were largely seen as catalysts for positive change: the Internet had become a global platform for collaborative innovation; social media was a liberating force, helping democratic uprisings like the Arab Spring; and the smartphone was transforming the lives of people all over the world.

But, the 2010s saw the emergence of what’s come to be called the techlash.  The Oxford English Dictionary (OED) defines techlash as “a strong and widespread negative reaction to the growing power and influence of large technology companies, particularly those based in Silicon Valley.”  The term seems to have originated in a November, 2013 article in The Economist, which said that tech elites are turning out to be some of the most ruthless capitalists around, and “will join bankers and oilmen in public demonology.”  By 2018, techlash was one of eight shortlisted entries for OED Word of the Year.

Even When Plans Are Useless, Planning Is Indispensable

“As scientists race to develop a cure for the coronavirus, businesses are trying to assess the impact of the outbreak on their own enterprises,” wrote MIT professor Yossi Sheffi in a February 18 article in the Wall Street Journal.  “Just as scientists are confronting an unknown enemy, corporate executives are largely working blind because the coronavirus could cause supply-chain disruptions that are unlike anything we have seen in the past 70 years.”

Sheffi is Director of the MIT Center for Transportation and Logistics.  He’s written extensively on the critical need for resilience in global enterprises and their supply chains, - including The Power of Resilience and The Resilient Enterprise, - so they can better react to major unexpected events.  Covid-19 is the kind of massively disruptive event he had in mind when he wrote those books.

While learning from historical precedents is always a good idea, recent supply chain disruptions - the 2003 outbreak of SARS in Asia, the 2011 Fukushima nuclear disaster, or the 2011 Thailand floods, - were very different from our current pandemic.  Those events were much more localized, lasted a relatively short time, and they mostly impacted supply, not demand.  The impact of Covid-19 is much bigger, affecting consumer demand as well as supply chains all over the world, and likely to last quite a bit longer.  “Today’s supply chains are global and more complex than they were in 2003,” with factories all over the world affected by lockdowns and quarantines.  Apple, for example, works with suppliers in 43 countries.

What History Tells Us About the Accelerating AI Revolution

A few weeks before our lives were turned upside down by Covid-19, I read Technology at Work v4.0, the fourth report in the Technology at Work Series developed by Citigroup in collaboration with Oxford University.  The report includes an excellent chapter on What History Tells Us About the Coming AI Revolution by Oxford professor Carl Benedikt Frey based on his 2019 book The Technology Trap.

Recent AI advances have “sparked much excitement…  yet despite this, most ordinary people don’t feel particularly optimistic about the future,” wrote Frey.  For example, a 2017 Pew Research survey found that three quarters of Americans expressed serious concerns about AI and automation, and just over a third believe that their children will be better off financially than they were.

But, in fact, serious concerns about the impact of technology are part of a historical pattern.  “Many of the trends we see today, such as the disappearance of middle-income jobs, stagnant wages and growing inequality were also features of the Industrial Revolution, which began in Britain around 1750.  This was a period of unprecedented technological change but also one of turbulent social and political change.”

An Increasingly Digital “New Normal”

About a dozen years ago, I attended a conference where I was interviewed on stage by then WSJ technology columnist Walter Mossberg.  He started out by asking me about IBM’s near-death experience in the early 1990s, and the subsequent technical and cultural transformation that made it possible for IBM to reinvent itself and survive, while many other IT companies didn’t make it.  In particular, we discussed whether a successful company transformation must be preceded by the kind of major crisis IBM went through.  When it comes to humans, the ancient Greeks certainly thought so, as reflected in their tragedies.

Transformative change is very difficult for established companies.  Over the years, they’ve amassed valuable assets and extensive organizations.  Already consumed with managing their existing operations, they may look at transformative change as more of a threat or distraction than an opportunity, - unless they’re in dire straits and have no other choice, as was the case with IBM.

A serious crisis is an opportunity for companies to focus on the actions needed to survive in a fast changing environment.  As Rahm Emanuel famously said in a 2008 interview with the WSJ: “You never want a serious crisis to go to waste.”  In that spirit, how should companies take advantage of the Covid-19 crisis, - arguably the biggest shock the world has experienced since WWII, - to accelerate their journey toward what most everyone agrees will be an increasingly digital future?

The Urgent Need to Strengthen the Nation’s Resilience

Following World War II and the onset of the Cold War with the Soviet Union, the US undertook a series of measures to strengthen the resilience of the country.  These included a significant expansion of government support for scientific research in universities and R&D labs, leading to product innovations from the private sector and better weapons from the defense industry, which contributed to making the US the most prosperous and secure nation in the world.

Another important measure was the expansion of educational opportunities, like the GI Bill which offered the nation’s 16 million WWII veterans payments of tuition and living expenses to attend high school, college or vocational/technical schools.  By 1956, over 2.2 million had used the GI Bill to attend college or university, and 5.8 million had used it for some kind of job training program.

In the 1950s the government enacted the National Interstate and Defense Highways Act, which led to the construction of over 48,000 miles of the Interstate Highway System at a total price estimated at over $500 billion, - the largest public work in America .  The Act had a dual purpose: facilitating the economic growth of the country as well as supporting the country’s defense during a conventional or nuclear war should it be necessary.

And, last but far from least, in the late 1960s the government launched ARPANET, the digital infrastructure that eventually became the Internet.  ARPANET was supported by the Department of Defense to significantly enhance the resilience of the country following a nuclear attack by enabling computers to communicate with each other using a flexible packet-switching digital network.

But, this post-war focus on resilience has significantly waned over the past few decades.  Let me explain.

Blockchain and Public Health Solutions

The Blockchain Research Institute (BRI) is a global think tank dedicated to the strategic implications of blockchain technologies to business, government and society.  On March 26, I participated in a virtual roundtable convened by the BRI to discuss the potential use of blockchain technologies for public health solutions.  The roundtable’s findings and recommendations were released in early April in Blockchain Solutions in Pandemics: A Call for Innovation and Transformation in Public Health.

The report identified five key areas where blockchain could be deployed to fight Covid-19 as well as future pandemics: identity, health records and shared data; just-in-time supply chains; sustaining the economy; a rapid response registry for medical professionals; and incentives models to reward responsible behavior.  In each of these areas, the report presented uses cases where blockchain is already being deployed, and recommended a number of blockchain related public health measures that will help better prepare for future pandemics.  Given the broad scope of the report, I will focus my attention on one area in particular: identity, health records and shared data.

Getting Through Highly Uncertain Times - Some Lessons Learned

What does it take to get through highly uncertain times, like the ones we’re in the middle of as we confront the Covid-19 pandemic?  Like most of us, I’ve lived through times of high uncertainty in both my personal and professional lives.  On the personal front, my main observation is that most of us are much more resilient than we realize.  I leave it to psychologists and other experts to offer advice on what it takes to get through such times.

But, when it comes to getting through tough times in our professional life, I’d like to share some lessons learned based on my experiences when IBM, - the company I joined in 1970 after completing my university studies, - almost went out of business in the early 1990s.  Let me describe a few of those lessons.

Dealing with a Highly Unpredictable Future

The high degree of uncertainty surrounding the Covid-19 pandemic is one of its most frustrating qualities.  How long will the pandemic last?  When will normal life return?  When will a vaccine be available?  Not only don’t we have definitive answers, we don’t even know how to best frame these critical questions.  The answers we get from the most trusted of experts feel too vague, - their explanations full of caveats and probabilities, - as they should.  How can we start making sense of such an unpredictable future?

It wasn’t all that long ago that we didn’t have much use for probabilities in our daily life, - outside of weather reports, election predictions and baseball.  But that’s all been changing in our complex economy and society.   Probabilities have been playing an increasing role in our work and personal lives given our newfound ability to quantify just about anything.  In all kinds of everyday situations, - from medical diagnoses to financial decisions, - we’ve had to learn to live and make decisions in the messy, uncertain world of probabilities.

Probabilities are inherently hard to grasp, - especially for an individual event like the weather or an election.  “People understand that if they roll a die 100 times, they will get some 1’s,” wrote David Leonhardt in a 2017 NY Times column.  “But when they see a probability for one event, they tend to think: Is this going to happen or not?  They then effectively round to 0 or to 100 percent…  And when the unlikely happens, people scream: The probabilities were wrong!”

Measuring the Effectiveness of Social Distancing Policies

One of the most interesting projects in the MIT Connection Science group I’m affiliated with is The Atlas of Inequality.  The project, - led by visiting professor Esteban Moro and professor Alex ‘Sandy’ Pentland - uses aggregated anonymous geolocation data from digital devices to estimate where different groups of people in US cities spend their time.  Over time, the project will be expanded to cities around the world.  The data show the significant income inequality among people in those cities, not just by neighborhoods as you’d expect, but also in the restaurants, stores and other places beyond their neighborhoods which they visit every day.

A couple of weeks ago, the Atlas research group started to apply their geolocation data and methods to analyze the effectiveness of the social distancing policies adopted in the New York metropolitan area in response to the Covid-19 pandemic.  These policies include school closures, bans on non-essential gatherings, limiting restaurants to take-out orders, and strict stay-in-place measures.   There’s no way to empirically measure the impact of these social distancing measures in real time on the spread of Covid-19.  You can only measure their impact retrospectively, or simulate what might happen in the future based on past data.

However, you can empirically address a key set of important question: how have these social distancing policies changed mobility and social behavior?; how does social distancing behavior vary across the New York metropolitan area?; how does the behavior vary across the variety of demographic groups in the NY metro area?; and overall, how well are people following these social distance measures?

The 2019 Artificial Intelligence Index

AI has emerged as the defining technology of our era, as transformative over time as the steam engine, electricity, and the Internet.  While still in its early stages, AI is already reshaping the economy, society, our personal lives and the very nature of work, with much more to come as the technology and applications mature, including the scientific research necessary to anticipate and fight future pandemics.  But, what’s the current state of AI and where is it heading?

To help address these important questions, the annual Artificial Intelligence Index was created under the auspices of the Stanford Institute for Human-Centered Artificial Intelligence, - guided by a Steering Committee of experts from academia and industry, and in collaboration with a number of sponsoring partners and data contributors.  The AI Index aims to “provide unbiased, rigorous, and comprehensive data for policymakers, researchers, journalists, executives, and the general public to develop a deeper understanding of the complex field of AI.”

Now in its third year, the 2019 AI Index Report was released this past December.  So was the associated 2019 AI Index Data, which includes three times as many data sets as the 2018 edition.  The report  comprises nine chapters.  Let me summarize a few of its highlights.

The Coming Era of Decision Machines

“Artificial intelligence (AI) is the pursuit of machines that are able to act purposefully to make decisions towards the pursuit of goals,” wrote Harvard professor David Parkes in A Responsibility to Judge Carefully in the Era of Prediction Decision Machines, an essay recently published as part of Harvard’s Digital Initiative.  “Machines need to be able to predict to decide, but decision making requires much more.  Decision making requires bringing together and reconciling multiple points of view.  Decision making requires leadership in advocating and explaining a path forward.  Decision making requires dialogue.”

In April, 2017 I attended a seminar by University of Toronto professor Avi Goldfarb on the economic value of AI.  Goldfarb explained that the best way to assess the impact of a new radical technology is to look at how the technology reduces the cost of a widely used function.  For example, computers are essentially powerful calculators whose cost of digital operations have dramatically decreased over the past several decades.  Over the years, we’ve learned to define all kinds of tasks in terms of digital operations, e.g., financial transactions, word processing, photography.  Similarly, the Internet has drastically reduced the cost of communications and of access to all kinds of information, - including text, pictures, music and videos.

Viewed through this lens, the AI revolution can be viewed as reducing the cost of predictions.  Prediction means anticipating what is likely to happen in the future.  Over the past decade, increasingly powerful and inexpensive computers, advanced machine learning algorithms, and the explosive growth of big data have enabled us to extract insights from all that data and turn them into valuable predictions.

Given the widespread role of predictions in business, government and everyday life, AI is already having a major impact on many human activities.  As was previously the case with arithmetic, communications and access to information, - we will be able to use predictions in all kinds of new applications.  Over time, we’ll discover that lots of tasks can be reframed as prediction problems.

The Current State of Open Innovation

In January, UC Berkeley professor Henry Chesbrough published Open Innovation Results: Going Beyond the Hype and Getting Down to Business, his fourth book on innovation in the last two decades.  Chesbrough is adjunct professor and faculty director of the Garwood Center for Corporate Innovation at UC Berkeley’s Haas School of Business.  He’s credited with coining the term open innovation in his 2003 book of the same title.

Open innovation is the antithesis of the vertically integrated, closed innovation approach followed by industrial R&D labs through much of the 20th century.  As the rate and pace of technological advances accelerated, - most prominently in the IT industry, - the closed innovation model started to fall apart.  The elapsed times to take an invention from lab to market were no longer competitive, especially against a new generation of startups that significantly decreased the time-to-market for new products and services.  Companies realized that they could no longer rely on their own R&D as the only source of innovative ideas.

Moreover, as innovation was now being applied to broader and more complex problems, external collaborations with clients, business partners, universities, open source communities and others became increasingly important.  Given the fast moving, highly competitive environment, firms recognized that there were a lot more capabilities for innovation in the marketplace than they could possibly create on their own, no matter how big and powerful the company.  The dramatic success of the Internet, World Wide Web, Linux and similar initiatives in the 1990s ushered this new era of open, collaborative innovation.

The Long-Term Future of Work and Education: Three Potential Scenarios

“Experts differ widely in their predictions about how technological innovation will change the labor market, but they all see a need for changes in education,” write British professors Ewart Keep and Phillip Brown in  a recently published article, Rethinking the Race Between Education and Technology.  While experts don’t generally agree on much, they’re pretty much of one mind when it comes to the growing importance of skills and education in our 21st century digital economy.

Every past technological transformation ultimately led to more jobs, higher living standards and economic growth.  But, as a number of recent studies concluded, to ensure that this will indeed be the case, our emerging knowledge economy should be accompanied by the expansion of educational opportunities for everyone.

While noting that this is the most likely scenario for the next 10 - 15 years, Keep and Brown also consider two potential longer-term scenarios.  Perhaps AI will lead to even more pervasive and fundamental transformations in the nature of work, making it difficult for even those with a college or higher education to find a good job.  Beyond that, some have suggested that in the more distant future we might see an even more radical, science-fiction-like transformation: the end of work as we’ve long known it.

The authors argue that considering such a spectrum of possibilities will help us better prepare for what’s essentially an unpredictable future.  In that spirit, their paper discusses three different labor market scenarios: labor scarcity, job scarcity, and the end of work.

The Evolution of the Social Contract in the 21st Century

“Life has changed substantially for individuals in advanced economies in the first two decades of the 21st century,” notes The social contract in the 21st century, a new report by the McKinsey Global Institute (MGI).  “In many ways, changes for individuals have been for the better, including new opportunities and overall economic growth…  Yet, the relatively positive perspective on the state of the economy, based on GDP and job growth indicators, needs to be complemented with a fuller assessment of the economic outcomes for individuals as workers, consumers, and savers.”

The report takes an in-depth look at the changing economic outcomes for individuals between 2000 and 2018 in 22 advanced countries, - 16 European ones, Japan and South Korea, Australia and New Zealand, and Canada and the US.  In aggregate, these countries constitute 57% of global GDP. 

The report closely examines the evolution of the social contract, that is, “the arrangements and expectations, often implicit, that govern the exchanges between individuals and institutions.”  Its overriding finding is that the social contract has changed considerably in the 21st century, with individuals having to assume greater responsibility for their economic outcomes.  Opportunities for work and employment rates have risen significantly, but outcomes vary considerably across socioeconomic groups and geographies.  While many have benefited from this evolution, those in the bottom 60% of the income distribution are facing significant economic challenges, leading to an uncertain future and a general loss of trust in institutions.

The report analyzes the evolution of the social contract by looking at the changing outcomes for individuals as workers, as consumers, and as savers.  Let me summarize the findings in each of these three categories.

Can Democracy and Free Markets Survive in the Coming Age of AI?

Can technology plan economies and destroy democracy? is the provocative title of an essay in the end-of-2019 issue of The Economist.  “The success of market- and semi-market-based economies… has made the notion of a planned economy seem like a thing of the past.”  But, given all the data that can now be gathered by billions of smartphones and 10s of billions of sensors, - with many more to come, - could our increasingly intelligent and powerful AI systems “replace the autonomous choices on which the market is based?… And if technology can outperform the invisible hand in the economy, might it be able to do the same at the ballot box when it comes to politics?” 

As we’ve already seen, AI applications “can provide not just data on what people want and will tolerate, but also the means to manipulate those desires.  When such means are available to actors within or outside a state the struggle to gain, or for that matter retain, a democracy which reflects a genuine popular will might become even harder than it is.”  Could this all mean that free-market economics and liberal democracy will become obsolete over the coming century?

These questions were often raised and repeatedly tested throughout the 20th century, as various governments attempted to redesign their economies and societies in accord with what were believed to be scientific laws.  But, most such schemes, especially those carried out by authoritarian states, ended up as complete failures.  And some went tragically awry, - like Stalin’s collectivization of agriculture in the Soviet Union and Mao’s Great Leap Forward in China, - both of which brought death and disruption to millions.

The State of AI Adoption - High Performers Show the Way

For the past few years, the McKinsey Global Institute has been conducting a yearly survey to assess the state of AI adoption.  Its 2017 survey of over 3,000 AI-aware executive found that outside the technology sector, AI adoption was at an early, often experimental stage.  Only 20% of respondents used any AI-related technology in a core part to their business.  A common theme throughout the report was that the same players who were leaders in the earlier waves of digitization and analytics were the early leaders in the AI wave.

The McKinsey 2018 survey garnered responses from over 2,000 participants from a wide range of company sizes across 10 industry sectors.  Overall, the 2018 survey found that while the business world had begun to adopt AI, few companies had in place the foundational building blocks that would help them to generate value from AI at scale.  30% were conducting AI pilots.  Nearly half, 47%, had embedded at least one AI capability in their standard business processes, but only 21% reported using AI across multiple business functions.  AI investments were still quite small, with almost 60% of respondents saying that less that one-tenth of their digital budgets went toward AI.

The most recent Global AI Survey was published in November of 2019.  McKinsey garnered responses from over 2,300 participants, nearly 80% of whose companies were using AI in some capacity.  Overall,  the survey showed that “Most companies report measurable benefits from AI where it has been deployed; however, much work remains to scale impact, manage risks, and retrain the workforce.”  AI is becoming more mainstream, with 58% of respondents using AI in at least one function, - a nearly 25% increase over the previous year; and 30% reported using AI across multiple business units, - a nearly 50% increase.

One of the survey’s major findings is that a small share of high performers, around 3% of companies using AI, are already achieving outsize business results.   High performing companies are much further along in scaling the use of AI in their organizations, with an average of 11 different use cases compared an average of 3 among the other companies.

The Pace of Creative Destruction is Accelerating

“A gale force warning to leaders: at the current churn rate, about half of S&P 500 companies will be replaced over the next ten years,” is one of the key insights from the 2018 Corporate Longevity Forecast.  The forecast is conducted every two years by Innosight, the innovation consulting firm co-founded by renowned Harvard professor Clayton Christiansen (who sadly died from cancer on January 23).  “The 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and is forecast to shrink to just 12 years by 2027.”

Shrinking company lifespans in the S&P 500 is a useful indicator of marketplace turbulence, driven to a large extent by technology disruptions and business model changes.  Every year, companies drop off the list for a variety of reasons.  They may have run into hard times and their market cap size fell below a certain threshold, - currently around $6 billion; they may have been overtaken by faster growing firms; or they could have ceased to exist as an independent company due to a merger, acquisition or private equity deal.

According to the Innosight Forecast report, a few key megatrends are responsible for the market turbulence behind the changing makeup of the S&P 500.

Why Some AI Efforts Succeed While Many Fail

Winning with AI, - a 2019 report based on a survey jointly conducted by the MIT Sloan Management Review and the Boston Consulting Group, - found that 90% of respondents agree that AI represents a business opportunity for their company.  The global survey attracted over 2,500 respondents from 29 industries and 97 countries, and conducted interviews with 17 executives leaders of AI initiatives in large organizations.

The report classified the total survey population into four subgroups based on their understanding of AI tools and concepts and their levels of adoption of AI applications: Pioneers (20%) are leading-edge organizations that both understand and have widely adopted AI; Investigators (30%) understand AI but have not deployed applications beyond the pilot stage; Experimenters (18%) are learning by doing, conducting pilots without a deep understanding of AI; and Passives (32%) have not adopted AI and have little understanding of the technology.

“Many AI initiatives fail,” was the report’s overriding finding.  “Seven out of 10 companies surveyed report minimal or no impact from AI so far.  Among the 90% of companies that have made at least some investment in AI, fewer than 2 out of 5 report obtaining any business gains from AI in the past three years. This number improves to 3 out of 5 when we include companies that have made significant investments in AI.  Even so, this means 40% of organizations making significant investments do not report business gains from AI.”

Innovation and National Security in the 21st Century

“Countries that can harness the current wave of innovation, mitigate its potential disruptions, and capitalize on its transformative power will gain economic and military advantages over potential rivals,” was the top finding of the Innovation and National Security Task Force which was commissioned by the Council of Foreign Relations (CFR) to assess the current state of US technological innovation.  The Task Force noted that leadership in innovation, research and technology since World War II has made the US the most secure and economically prosperous nation on earth.

“Today, this leadership position is at risk,” the Task Force warned.  Federal support and funding for R&D has stagnated over the past two decades.  “Washington has failed to maintain adequate levels of public support and funding for basic science.  Federal investment in R&D as a percentage of GDP peaked at 1.86 percent in 1964 but has declined from a little over 1 percent in 1990 to 0.66 percent in 2016.”

The US has successfully responded to technological competition in the past.  Sputnik was a tipping point in the space race with the Soviet Union during the cold war, leading to, among other things, a significant increase in the number of graduate student fellowships in STEM disciplines, of which I was personally a beneficiary.  Another prominent example is the strong economic competition from Japan in the 1980s, which the US fended off a decade later with our leadership in the Internet and other major digital innovations.

The Internet of Things is Changing the World

“How the world will change as computers spread into everyday objects,” is the title of the lead article in a comprehensive review of the Internet of Things (IoT) in a recent issue of The Economist.  Like many technological advances, IoT has been long in coming.  Ubiquitous or Pervasive Computing dates back to the 1990s, when neither the necessary low-cost devices and wireless networks were anywhere near ready.  “But the transformation is about to go into overdrive, notes The Economist.  “One forecast is that by 2035 the world will have a trillion connected computers, built into everything from food packaging to bridges and clothes.”

IoT promises to bring many benefits, including a whole new generation of innovative products.  We’ve long thought of products as physical entities built with a combination of mechanical and electrical components, - e.g., appliances, cars, agricultural machines, industrial equipment, - some quite simple and some highly complex.  IoT has been ushering a whole new class of smart connected products.  In addition to mechanical and electrical components, these new products use digital components like microprocessors, sensors, data storage, software, and connectivity in a wide variety of ways.

As the world’s digital and physical infrastructures converge, digital technologies are being designed right into all kinds of consumer and industrial products.  Internet-connected smart doorbells, for example, include motion sensors and video cameras that notify a home owner when someone arrives at the door.  Using a smartphone app, the home owner can watch and talk to the visitor, while a video of their interaction is saved for an added level of security.

“The magic of computers is that they provide in a machine an ability - to calculate, to process information, to decide - that used to be the sole preserve of biological brains,” writes The Economist.  “The IoT foresees a world in which this magic becomes ubiquitous.  Countless tiny chips will be woven into buildings, cities, clothes and human bodies, all linked by the internet… Over the past century electricity has allowed consumers and businesses at least in the rich world, access to a fundamental, universally useful good - energy - when and where they needed it.  The IoT aims to do for information what electricity did for energy.”

The Puzzling Economic Impact of Transformative Technologies

“General purpose technologies (GPTs) are engines for growth,…” wrote Erik Brynjolfsson, Daniel Rock, and Chad Syverson in The Productivity J-Curve, a working paper recently published by the National Bureau of Economic Research (NBER).  “These are the defining technologies of their times and can radically change the economic environment.  They have great potential from the outset, but realizing that potential requires larger intangible and often unmeasured investments and a fundamental rethinking of the organization of production itself.”

As we’ve learned over the past two centuries, there’s generally been a significant time lag between the broad acceptance of a major new transformative technology and its ensuing impact on companies, governments and other institutions.  Even after reaching a tipping point of market acceptance, it takes considerable time, - often decades, - for these new technologies and business models to be widely embraced across economies and societies, - and for their full benefits to be realized.

In her 2002 influential book, Technological Revolutions and Financial Capital, economic historian Carlota Perez wrote that since the advent of the Industrial Revolution, we’ve had a major technological revolution every 60 years or so.  First was the age of machines and factories in the latter part of the 18th century.  This was followed by the age of steam, coal and iron in the early to mid 19th century; electricity and steel around the 1870s-1880s; and automobiles, oil and mass production in the early decades of the 20th century.  Then came the computer and communications revolution in the latter part of the 20th century, ushering the transition from the industrial economy of the past two centuries to our present digital economy.

According to Perez, the economic transformations accompanying these technologies are composed of two distinct periods, each lasting roughly 20 to 30 years.  First comes the installation period when the new technologies emerge into the marketplace, entrepreneurs launch many new startups, and venture capitalists encourage experimentation with new business models. This is then followed by the deployment period, when the now well accepted technologies and business models become the norm, leading to long-term economic and productivity growth.

The State of Financial Health Around the World

The Gallup Global Financial Health Study was published in May of 2018.  The study is based on a survey of over 15,000 people in 10 different countries.  Conducted by Gallup in partnership with the MetLife Foundation and the Rockefeller Philanthropy Advisors, the study aimed to develop two key financial measures: how secure do people feel around the world, and how much control and influence they believe they have over their financial situations.

“The degree to which people perceive they are in control of and can influence their financial situation is an important and complementary dimension under the umbrella of financial health,” said the study.  While researchers have developed valuable measures of financial inclusion and financial literacy, data on financial security and control have never existed before.  Such financial measures should help organizations and countries around the world make evidence-based decisions on how to improve the ability of people to lead more financially healthy and secure lives.

The countries in the survey spanned the gamut from highly advanced to developing economies.  The ten countries, and their approximate GDP per capita in $1000s, are: the US ($58), UK ($43), Japan ($42), South Korea ($37), Greece ($37), Chile ($27), Colombia ($24), Vietnam ($14), Bangladesh ($6.3), and Kenya ($3.6).

The study defines financial control as “the extent to which people perceive they are in control of and can influence their financial situation - an important and complementary dimension within the umbrella of financial health.”  Financial control is composed of four key variables: locus of control -  having power over events in one’s life; resilience - ability to come up with solutions to small financial shocks; self-efficacy - extent of influence over future outcomes; and autonomy - having decision-making power.

Can AI Help Develop and Execute a Competitive Business Strategy?

Strategy For and With AI, a recent article in the MIT Sloan Management Review by David Kiron and Michael Schrage, argues that while formulating a comprehensive strategy for the use of AI technologies is absolutely necessary, it’s not sufficient.  “Creating strategy with AI matters as much - or even more - in terms of exploring and exploiting strategic opportunity.”  The article is based on a survey of over 3,000 executives, managers and analysts from companies in over 100 countries and 20 industries, as well as on interviews with executives and academics.

AI is expected to be the biggest commercial opportunity for companies and industries over the next couple of decades.  Two 2018 reports, one by PwC and one by McKinsey, estimated that AI has the potential to incrementally add around $13-$15 trillion to global economic output by 2030.  The growth will come from productivity gains, - e,g, the continuing automation of routine tasks, and AI-based tools to augment human capabilities, - and from increasingly sophisticated, AI-enhanced products, services, and system-wide applications.

Machine learning advances, like deep learning, have played a central role in AI’s recent achievements, giving computers the ability to be trained by ingesting and analyzing large amounts of data instead of being explicitly programmed.  Machine learning methods for solving problems, - subtle adjustments to the numerical weights that interconnect huge number of artificial neurons, - are radically different and complement the way humans solve problems.  But, while being a very powerful tool, machine learning, and AI in general, lack all-important human qualities like common sense and empathy, so their decisions and suggestions should be carefully reviewed by humans.  People and technology must closely collaborate, with each playing the particular role they are best at.

Every day we can read about the latest AI advances from research labs, startups and large companies.  AI technologies are approaching or surpassing human levels of performance in vision, speech recognition, language translation, playing championship-level Go, and the early detection and diagnosis of various forms of cancer.  But, can AI help address broad, open-ended and ambiguous problems like developing and executing a competitive business strategy?

How to Survive and Thrive in a World of Disruption

Looking back upon my long career, it’s frankly sobering how many once powerful IT companies are no longer around or are shadows of their former selves, e,g, Digital, Wang, Sun Microsystems, BlackBerry.  The forces of disruption might have been more powerful in the fast-changing IT industry, but no industry has been immune.  In less than two decades, the global recorded music industry has lost over half its revenues, while the drop in newspaper advertising revenue in the US has been even steeper.  Retail has undergone major changes with the rise of e-commerce, as has telecommunications with the transition to mobile phones.

Why have so many companies been done in by disruptive technological and market changes?  Is it that in spite of all their efforts in strategy formulation, their management was unable to anticipate them and were caught by surprise?  Or it is that, as if actors in a kind of Greek tragedy, they see the changes coming and understand what needs to be done, but are somehow unable to make the needed strategic and cultural transformations?

“Evolutionary fitness of organizations is determined by their ability to effectively respond to environmental changes,” write Leo Tilman and Charles Jacoby in their recently published book Agility: How to Navigate the Unknown and Seize Opportunity in a World of Disruption.  “Extinctions generally follow a familiar pattern.  Environmental signals - both positive and negative - are undetected or ignored.  Leaders fail to recognize the new reality and accept it for what it is.  No viable strategic vision for the new environment is developed.  Instead, a myriad of tactical activities is deployed, without amounting to a coherent strategy.  Existential risks remain hidden until it’s too late.”

The Increasing Demand for Hybrid, “T-Shaped” Workers

A recent article in The Atlantic used the USS Gabrielle Giffords to illustrate the important changes taking place in the US Navy, - and in the world of work in general.  After discussing various features of its advanced design, the article noted that the ship’s most futuristic aspect is its crew.  “It was designed to operate with a mere 40 souls on board - one-fifth the number aboard comparably sized legacy ships and a far cry from the 350 aboard a World War II destroyer.  The small size of the crew means that each sailor must be like the ship itself: a jack of many trades and not, as 240 years of tradition have prescribed, a master of just one,” noted the article.  Due to increasingly sophisticated technologies and the high cost of personnel, the USS Gabrielle Giffords is among a new class of Navy ships that’s turned away from specialists in favor of so-called hybrid sailors who are able to handle multiple tasks and rapidly acquire new skills.

The replacement of highly specialized workers with problem-solving generalists who are able to handle and quickly learn new tasks has been taking place across a wide variety of  occupations and industries.  Increased productivity and lower costs, i.e., doing more with less, are some of the reasons for this change.  But, the increased complexity of products, applications and systems, and the unanticipated problems that often follow are other important reasons.

The concept of hybrid or T-shaped workers was first introduced around 25 years ago as a metaphor to describe the kind of individuals that the Navy and many other organizations are looking for.  The vertical stroke in the letter T represents a depth of skills and expertise in one or more specific fields; the horizontal bar implies broad multidisciplinary and social skills, as well as the ability to collaborate with experts across disciplines to jointly solve complex problems.

Impact of AI on Government - Opportunities and Challenges

A few weeks ago I wrote about Leveraging AI to Transform Government based on a 2018 report by the Partnership for Public Service and the IBM Center for the Business of Government.  The report illustrates how government is using AI by describing four use cases being pursued by different agencies.  In 2019, the Partnership and IBM collaborated on two additional reports, Assessing the Impact of AI on the Work of Government, and Building Trust, Managing Risks.

This first report is focused on the impact of AI on the federal workforce, based on an analysis of the jobs and tasks most susceptible to automation, as well as on roundtables and interviews with over 40 AI experts.  The overriding conclusion is that, over time, AI will have a deep impact on how government works.  More than 80 different federal occupations, employing over 130,000 workers, are likely be significantly transformed, including 30,000 in the Treasury Department, 16,000 in Defense, and 5,000 in Transportation, as well as a variety of occupations in independent agencies like the Securities and Exchange Commission and the Government Publishing Office.

In particular, AI will have a major impact in three key areas: the transformation of the federal workday, the potential for personalized customer service and the increased importance of technical and data skills.  Let me summarize the findings and recommendations in each of these areas.

The World is Facing a Period of Digital Disorder

“Geopolitical competition and government regulations are poised to remake the digital economy,” notes the global consulting firm A.T Kearney in Competing in an Age of Digital Disorder, - a recent research report.  “The global technological landscape is currently being reconstructed, subjecting the once-free and unfettered transfer of data across borders to new and greater digital walls.  Terms such as the ‘splinternet’ and a ‘digital cold war’ are becoming ubiquitous, forcing companies everywhere to shift strategies on everything from procurement to customer engagement.”  Or, in a nutshell, the world is in a period of digital disorder.

According to the report, the first stage of the world’s digital transformation started in the early 1990s, with the advent of the commercial Internet and the World Wide Web.  Over the next 25 year, advances in digital technologies, big data and a wide variety of applications have led to sweeping economic and societal transitions.  Over 50% of the world’s population, almost 4 billion people, had Internet access by 2018, a nearly fourfold increase since 2001.

This initial period of explosive growth, light government regulation, and what the report calls digital order, was followed around 2016 by a period of digital disorder.  Governments are now intensifying their regulatory activities in an attempt to maximize the upsides of the digital economy while mitigating its downsides.  At the same time, governments are pursuing national policies and escalating global competition to take the lead in emerging digital technologies, particularly in AI and 5G wireless networks.  “As a result, a global battle for technological supremacy in the 21st-century digital economy is heating up, raising the risk of competing technological standards and creating the potential for an ‘islandized’ digital environment.  Altogether, these actions are creating a digital disorder that is becoming more difficult for companies to navigate.”

In particular, firms are now facing a growing backlash against the increasing digitalization of the economy and society.  In the past, the technology industry was largely seen as a positive societal force, enabling billions around the world to rise out of poverty and lead more productive lives.  Today, by contrast, Big Tech is being challenged on a host of issues, including the dissemination of false and damaging information, the rising inequality between the digital haves and have-nots, and the growing number of cyberattacks, theft of personal data and identity fraud.  “In the United States alone, identity fraud increased 8 percent in 2017, victimizing 16.7 million people and resulting in theft from consumers of $16.8 billion.”

How to Transform a “Big, Old” Company into an Agile Digital Business

“As consumers, we take digital technologies for granted…  We don’t wonder why these things are possible; we simply expect them,” said Designed for Digital a recently published book by Jeanne Ross, Cynthia Beath, and Martin Mocker in its Preface.  But, “the adoption of digital technologies in business doesn’t come as naturally,” - especially if you’re working in a big, old company.  “Inserting digital technologies to enhance operations and create new value propositions has proven extremely challenging.”

Previous research has uncovered this puzzling digital adoption discrepancy between individuals and organizations.  While in our personal lives we’ve enthusiastically embraced digital technology advances, many corporations and institutions still struggle to do so.  At a conference several years ago I learned about a so-called Sunday-night/Monday-morning syndrome, the name given to the frustration of  employees of large companies who, at home on Sunday night, have access to the latest devices and applications, but at work on Monday morning, have to use the more primitive devices and applications that their IT departments support.

A quarter century into the digital age, - as a recent McKinsey study found, - the digital maturity of traditional incumbent firms is still relatively low, - under 25% of their overall potential.  Big, established companies, in particular, have been slow to embrace digital organizational practices, - only 26% of worldwide sales are made through digital channels, 30% of internal operations have been digitally automated, and 25% of supply chains interactions have been digitized.

“If digital technologies are consistently making our consumer lives easier, why aren’t they making it easier to succeed in business?,” asks Designed for Digital.  “Why are business leaders anxious about digital disruption rather than marveling about how quickly they can provide new, exciting, and ever-improving digital solutions to their customers?”  Based on five years of research at nearly 200 large companies, - including executive interviews, surveys of business leaders, and in-depth case studies, - the authors overriding conclusion is that “Big, old companies are simply not designed for digital.”

Leveraging AI to Transform Government

“AI has the potential to help address many of our country’s pervasive problems and advance our safety, health and well-being,” said The Future Has Begun, a report on the impact of AI on government by the Partnership for Public Service and the IBM Center for the Business of Government.  “That promise has great potential to transform government.”

 “The most challenging problems AI may help us solve - from fighting terrorists to serving vulnerable populations - will involve government.  More immediately, though not less consequentially, AI will change the way public servants do their jobs.  Because of the impact AI could have on how governments ensure our safety and further our well-being, government leaders are likely to play a significant role in dictating future directions for AI.”

To illustrate how government is using AI, the report is focused on four concrete use cases being pursued by different agencies.  In-depth interviews were conducted with 14 people from 10 organizations, including the various government agencies involved, as well as their collaborators in non profits and universities.  Let me briefly summarize each of these four case studies.

The MIT Work of the Future Report

“The world now stands on the cusp of a technological revolution in artificial intelligence and robotics that may prove as transformative for economic growth and human potential as were electrification, mass production, and electronic telecommunications in their eras,” said the MIT Task Force on the Work of the Future in its recently released interim report.  The final report will be issued after conducting additional research over the next year.

The Task Force was convened in the spring of 2018 by MIT President Rafael Reif to address what may well be the most critical question of the digital economy: as emerging technologies raise aggregate economic output and the wealth of nations, will they also enable people to attain higher living standards, better working conditions, greater economic security, and improved health and longevity?

The report’s overriding conclusion is that the likelihood that AI and automation will wipe out major workforce sectors in the near future is exaggerated.  However, we’ve already seen important reasons for concern, especially the rising polarization of employment and wage distribution over the past few decades, which has disproportionately benefited high-skilled professionals while reducing opportunities for mid- and low-skilled workers.

“[A] critical challenge is not necessarily a lack of jobs, but the low quality of many jobs and the resulting lack of viable careers for many people, particularly workers without college degrees.  With this in mind, the work of the future can be shaped beneficially by new policies, renewed support for labor, and reformed institutions, not just new technologies. Broadly, the task force concludes, capitalism in the U.S. must address the interests of workers as well as shareholders.”