Recently, a fierce debate has taken place among prominent economists, with important implications for businesses everywhere. Should they prepare for a future characterized by little innovation or for a future dominated by accelerated innovation?
In one camp are economists such as Robert Gordon and Tyler Cowen that tell us that we have reached “a technological plateau.” We are experiencing today the waning of the economic impact of the technological revolutions of the 19th and early 20th centuries. The IT revolution, they argue, is different from earlier technological revolutions in its more limited impact on productivity growth and standards of living.
In the other camp are economists such as Ben Bernanke, Chairman of the Federal Reserve Board, who recently told the graduating class at Bard College:”…innovation, almost by definition, involves ideas that no one has yet had, which means that forecasts of future technological change can be, and often are, wildly wrong. A safe prediction, I think, is that human innovation and creativity will continue; it is part of our very nature. Another prediction, just as safe, is that people will nevertheless continue to forecast the end of innovation.”
Researchers at the McKinsey Global Institute (MGI) recently ignored the end-of-innovation camp by issuing a 152-page report titled “Disruptive technologies: Advances that will transform life, business, and the global economy” where they identify and discuss the “12 technologies that could drive truly massive economic transformations and disruptions in the coming years.” But they also ignored Bernanke’s warning of the perils of technological forecasts, confident in their ability to predict even the specific economic impact: “…applications of the 12 technologies discussed in the report could have a potential economic impact between $14 trillion and $33 trillion a year in 2025.”
Sorting through 100 new and emerging technologies by assessing their current progress and how broad, massive, and disruptive is their potential economic impact, MGI came up with the disruptive dozen: Mobile Internet, automation of knowledge work, Internet of Things, cloud technology, advanced robotics, autonomous and near-autonomous vehicles, next-generation genomics, energy storage, 3D printing, advanced materials, advanced oil and gas exploration, and renewable energy.
What is most interesting, I think, about this list of disruptive technologies is how most of them are derived from a single disruption or revolution, that of information technology. What the end-of-innovation economists don’t get is how radically different information technology is from the revolutionary technologies that preceded it. The technologies that dramatically changed how we live and how businesses operate—steam engines, railroads, electricity—have a narrow, specific function while information technology is open and boundless.
Electricity is a good case in point. A remarkable innovation, it has served as the key driver for most of the advances in the standard of living and productivity for more than a century. But the innovation was limited to two challenges—how to harness electricity and how to deliver it to every corner of our physical environment. And its aim has remained the same throughout the years: providing energy. Information technology, in contrast, deals with “information,” a term that encompasses almost all aspects of our existence. Invented initially to serve a very specific and narrow goal—speeding up calculations—information technology has become the key tool by which we automate and augment everything we do. And the delivery of information technology, unlike that of electricity, has changed again and again in it sixty plus years of existence.
Bernanke sums up the “you-ain’t-seen-nothing-yet” view: “Some would say that we are still in the early days of the IT revolution; after all, computing speeds and memory have increased many times over in the 30-plus years since the first personal computers came on the market, and fields like biotechnology are also advancing rapidly. Moreover, even as the basic technologies improve, the commercial applications of these technologies have arguably thus far only scratched the surface.”
McKinsey’s key advice to business executives is to learn, to study, to embrace technology no matter what industry they are in. They should invest in developing and enhancing their own knowledge of new technologies and their rapid development: “Technology is no longer down the hall or simply a budget line. It is the enabler of virtually any strategy, whether by providing the big data analytics that reveal ways to reach new customer groups or the Internet of Things connections that enable a whole new profit center in after-sale support.”
IT is no longer a “department” like accounting or facilities. The businesses that continue to view it this way will not be able to take advantage of the opportunities presented by the digitization of everything. IT no longer drives the business. IT is the business. Every CEO should study Mckinsey’s disruptive dozen—and any other emerging technology that may or may not be relevant to their business—and develop an action plan for embracing, extending, or ignoring that technology.
[Originally published on Forbes.com]