The Digital Economy
What is meant by the “new economy” and what differentiates it from previous economies?
Cary Y. Yang
The session consisted of four panelists, John Seely Brown (Chief Scientist, Xerox Corporation, and Chief Innovation Officer, 12 Entrepreneuring, Inc.), Richard DeMillo (Vice President and Chief Technology Officer, Hewlett-Packard), John Hagel III (Chief Strategy Officer, 12 Entrepreneuring, Inc.), John Morgridge (Chairman, Cisco Systems), and the moderator, Haynes Johnson. Brown delivered his presentation via a video taped earlier, which was introduced by Hagel. This dialog focused on how technology in the past, present, and future precipitates revolutionary changes in our economy. During the dialog, three recurring themes emerged. The first was that timely deployment of technology is key to economic value creation. The second was the value of risk-taking and associated failure to the technology revolution and the economy. And the final theme was the importance of education in the digital economy.
Summary of Participants’ Remarks
Richard DeMillo kicked off the dialog with a video presentation, “Cool Town,” produced by Hewlett-Packard, in which futuristic scenarios of how technology could be used to improve the human condition were demonstrated. The examples included voice-activated mobile communication, distance learning, and emergency health-care systems. To reiterate the key lessons from this video, DeMillo indicated that two factors are critical to the future deployment of technology–– trust and mobility. Trust, as he pointed out, goes beyond security as we know it today. In order to achieve the necessary dependability for each of the systems shown in the video, new technology is needed to ensure privacy, security and reliability. The mobility of systems, according to DeMillo, will lead to new markets in developing economies, which in turn will define new forms of interaction between technology and the people of diverse economic regions. He predicted that the greatest rate of economic growth in the digital economy will occur in these “developing nations.”
To further the discussion on such interaction within the “new economy,” John Morgridge suggested that three features of a technology system are essential, its deployability, acceptability, and scalability. Its acceptability by users, he felt, sometimes lags the technology by decades, and it continues to be a challenge to scale globally interconnected systems practically. He emphasized that the revolution in technology is real, as reflected in the productivity of the organizations that embraced it. He used Cisco Systems as an example of an organization in which the digital economy has changed the way employees work, learn, and play. Morgridge then described an experiment in education/training taking place in Cisco, its Networking Academies. They deliver an on-line elective curriculum to high school juniors and seniors in over 112 countries. The program was launched in 1997 and currently enrolls 185,000 students. As Morgridge pointed out later in the dialog, these students are drawn from highly diverse segments of the economy ranging from those in high school to individuals transitioning from welfare to work or those on Indian reservations. Using this experiment as an example, he stated that education is and will continue to be a workable demonstration of the use of technology, and an important component in stimulating growth of the digital economy. In John Seely Brown’s video presentation, he stressed the need to combine the professionalism of the “old economy” with the agility of the “new economy” into a “hybrid economy.” In this emerging hybrid the tightly coupled architecture of the old vertically integrated enterprises blend with the dynamic loosely coupled organization of the new economy. Within the resulting “eco-web” system, as he called it, what takes place inside and outside the enterprise becomes blurred. Brown commented on the role of learning in the classroom and outside the classroom through interaction among students and faculty. Distance learning cannot, in his view, substitute for the process of engagement that exists in contextualized and more personal learning environments like Santa Clara University.
On the relationship between science and technology, Brown asserted that in the past ten years, the tools of technology revolution have transformed our ability to do science, which in turn plants the seeds for new technology. As an example, he used the science of the human genome project which benefited from, and stimulated, major improvements in super-computing. This loop connecting science and technology, as he saw it, is getting tighter and the spiral is moving up even faster. He further projected that the next ten years will be a “true renaissance” in science, and he hoped that the government would facilitate this surge by supporting new research efforts.
John Hagel expanded upon the opportunities suggested by Brown’s hybrid economy by focusing on value creation. He described three dimensions of value creation. First, the lag in the adoption and deployment of technology can be addressed and minimized via organizational restructuring, such as adopting a more dynamic and loosely coupled architecture. He cited the example of the lag of changes in manufacturing relative to the potential for increased asset efficiency associated with MRP/ERP manufacturing information systems. Within new hybrid structures, interaction and transaction costs across all aspects of a business operation can be systematically and fundamentally reduced. Finally, to optimize information flow, the organization can be positioned to gain privileged access to new information as it emerges. Information and knowledge assets can become a source of competitive advantage. At the same time, more adaptive, flexible organizations will have developed the necessary skills to generate, synthesize, and act upon the information flow. Hagel summed up his remarks on the hybrid conomy by painting the scenario of “asset arbitrage,” in which new economic value is created by taking the undervalued assets of a traditional company and repositioning them using the capability of new technology.
The ensuing dialog among the panelists and moderator covered topics ranging from the role of government in science, to the relevancy of government, to driving forces behind contemporary business cycles. Morgridge suggested that government should continue funding research at universities, while DeMillo pointed out how government-funded projects such as the human genome project have been accelerated by the availability of fast computers. Morgridge also stated that anything that can make an impact upon us, such as government, is by definition not irrelevant, and that continuous dialog among all sectors of the economy is needed. Responding to the question posed by Johnson about where we are in the current business cycle, Morgridge suggested that underlying psychological forces are intertwined with the current downturn and that, barring any major dislocations, such as a protracted energy shortage, we will work through this cycle in a timely way. Another question posed by Johnson was whether the new economy was oversold, to which DeMillo responded, certainly not in Silicon Valley and perhaps even the opposite in some parts of the world. Both Morgridge and Hagel pointed out the different velocity of technology diffusion between the current and previous revolutions. Hagel believed that there exists an expectation that future revolutions will occur in as short or shorter a time span as the current one––an expectation that he believes lacks foundation. Another element of overselling, Hagel added, was the lack of recognition of risk. He believes that learning from recent failures will fuel the next round of innovations.
In response to a question from the audience on whether we are headed for “privileged informationflow” or “open information access,” both DeMillo and Hagel believed that the two are not mutually exclusive. DeMillo added that today’s technology enables information to be “reined in.” Hagel argued that business is more willing to reach out and plug into the information flow to gain further access to new information.
Offering an answer to another question from the audience on whether consumers, workers, or owners of equity capital benefit the most from information technology, Morgridge pointed out that about fifty percent of the population are investors. This author then raised a question about risk-taking and its role in driving the old and new economies. DeMillo responded that risk-taking always drives the economy, while Morgridge asserted that risk-taking is now a global phenomenon and that a good education combined with a willingness to take risks will yield productive results. Hagel reiterated that despite high failure rates, risk-taking is one of the fuels that drives innovations in the new economy.
Conclusion and Future Directions
Throughout this dialog on the dynamics of our economy, the author found three recurring themes. The first was that the timely deployment of technology leads to value creation. Asset re-allocation in the macro-economy and more agile organizational eco-systems can lead to both timely utilization of existing technology as well as new technology creation and deployment. The second theme concerned risk-taking and its perception by society. Although risk-taking is essential in business development and hence wealth creation, the lessons from the failures associated with risk-taking are equally valuable. These lessons, in many cases, have led to eventual success. On the other hand, at the peak of most business cycles, many segments of society tend to ignore or at least downplay the presence of risk.
The final theme was the role of education. It was apparent in the entire dialog that education is a lifelong process and is an essential fuel in driving the economy. However, it was less apparent from the exchanges that government and industry have a clear view of how they can most effectively contribute to this lifelong process. For example, most partnerships with academic institutions do not go beyond the existing mold of government/industry-funded research and education programs or industry-based education/training organizations such as the Cisco Network Academies. The revolution in technology is impacting the way we learn and the way we teach. Hence, a similar revolution in the entire education system must accompany the resulting changes in our economy. Such a revolution requires active and dedicated joint participation from government, industry, and academia.Without such partnerships among all three sectors, the chasm between preparedness of our graduates at all levels and workplace expectations will continue to grow.
The digital economy, the new economy, or the hybrid economy––however one refers to it––will continue to undergo both revolutionary and evolutionary changes. The extent to which these changes will benefit segments of society will hinge on some of the issues that surfaced in this dialog.
I conclude this summary with the following futuristic scenario. A new graduate, having gone through a rigorous educational program established jointly with higher education, government and industry, joins a company formed by entrepreneurs. These entrepreneurs have not only created the technology used to manufacture advanced products, but they, in turn, utilize leading edge technology to leverage assets in all aspects of the company operation. The company provides a continuing education/training program to ensure the currency of its workers’ knowledge and skills, and is also a partner in the government/industry/university consortium that the new graduate attended. A few years later, this individual leaves the company, and using the knowledge gained from education and the first job, starts a new company with a few friends in similar situations. One of the first tasks the new company undertakes upon going public is to join the same consortium as an industry partner. Changes such as those indicated by this scenario will continue to drive the digital economy. The future is almost here.