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9:41 AM Saturday January 17, 2009
Blog: THE BIG SHIFT.

The New Reality: Constant Disruption
9:41 AM Saturday January 17, 2009

Of all the business books we have on our shelves--and between us there must be more than twenty thousand volumes--likely one-quarter of them discuss how the world is speeding up.

Peter Drucker probably started the trend in 1968 with The Age of Discontinuity. The most persuasive might be Ray Kurzweil's The Singularity is Near, which observes that information technology displays "exponential growth in the rate of exponential growth," which in turn fuels faster-changing events, practices, and processes--while, over time, accelerating economic expansion.

The world is moving so fast that even the short term seems long. Writing his Financial Times column The Long View on a recent Friday morning, John Authors observed that, "as far as many traders across the world are concerned, a 'long view'... is anything that goes much past Sunday evening."

Skeptics might explain today's fast-moving events as merely the latest episode in the"punctuated equilibrium" model that economists use to describe the broad sweep of business and economic history. This model argues that technological discontinuities periodically arise to interrupt longer periods of relative stability. Once businesses learn to harness the disruptive elements of today's digital technologies--or so the conventional thinking goes--everything will settle back into equilibrium.

But what if the historical pattern--disruption followed by stabilization--has itself been disrupted? Let us explain why we think that's the case--and see if you agree.

Economies stabilize following technological discontinuities for two reasons. One has to do with the slowing rate of evolution in the cluster of core technologies underlying the disruption. The Bessemer steel process, the Siemens electrical generator, the automobile--all had more or less one big breakthrough and then very modest performance improvements thereafter.

The second relates to the social and business practices that emerged as individuals and institutions figure out how to make productive use of the newly disruptive technology. The historian Carlota Perez refers to these as new "techno-economic" paradigms. In her book Technological Revolutions and Financial Capital, Perez offers a compelling view of the role infrastructures play in shaping business activity. Major technology innovations like the steam engine, electricity, and the telephone brought forth powerful new infrastructures. These infrastructures at first represented a disruptive force transforming industry and commerce before becoming a stabilizing force as businesses learned how to harness their capabilities. For example, once centralized electric utilities learned how to capture the economies of scale in electricity production and distribution, businesses could focus on how to reconfigure their own operations to take advantage of this new infrastructure, secure in the knowledge that the basic infrastructure was now stable. Thus, historically, has the world moved from punctuation back to equilibrium.

We now face something entirely different. Today's core technologies--computing, storage, and bandwidth--are not stabilizing. They continue to evolve at an exponential rate. And because the underlying technologies don't stabilize, the social and business practices that coalesce into our new digital infrastructure aren't stabilizing either. Businesses and, more broadly, social, educational, and economic institutions, are left racing to catch up with the steadily improving performance of the foundational technologies. For example, almost forty years after the invention of the microprocessor, we are only now beginning to reconfigure the digital technology infrastructure for delivery of yet another dramatic leap in computing power under the rubric of utility or cloud computing. This leap will soon be followed by another, then another.

The economic disruptions which in the past were concentrated around the infrequent deployment of new infrastructures now erupt on a continuing basis, driven by the rapidly evolving capabilities of our digital infrastructure. This instability has been further magnified by a long-term global trend towards liberalization of economic activity, systematically removing regulatory barriers to entry and barriers to movement.

The combination of these forces - a rapidly evolving digital infrastructure and public policy shifts favoring freer movement -defines a world of constant change. If this premise is right--that the pattern of disruption followed by stabilization has itself been disrupted-- then it may be we're facing the mother of all disruptions, a big shift into a world without equilibrium, one that will continue to shift rapidly even once the current recession has passed. A world in which companies lose their leadership positions at an increasing rate. A world in which extreme events, such as the ongoing financial turmoil across global markets, become increasingly likely. A world of shifting product economics, and increasing volatility in brand equity, share values, and commodity prices.

Is equilibrium a thing of the past? We'd like to hear whether you think so as, in the coming weeks and months, we lay out the case for The Big Shift--and its implications for managing our professional lives and the institutions of which we're a part.

People who read this also read:

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By Marshall Goldsmith
25 Stretch Goals for Management
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Managing Resources in an Uncertain World
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How to Think Strategically
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Blog:The Big Shift

John Hagel III, John Seely Brown (JSB), and Lang Davison help senior executives make sense of and profit from emerging opportunities on the edge of business and technology. Their areas of focus include strategic cost reduction, collaborative marketing, the big shift, shaping strategies, unbundling and rebundling the corporation, and global process networks. Hagel, JSB, and Davison are prolific authors and speakers. Hagel was formerly an entrepreneur and a partner at McKinsey; JSB was chief scientist at Xerox and director of the Xerox Palo Alto Research Center (PARC); Davison is the former editor-in-chief of The McKinsey Quarterly. Books by the authors include Net Gain, Net Worth, Out of the Box, and The Only Sustainable Edge.

Hagel and JSB currently serve as co-chairmen and Davison is the executive director of the Deloitte LLP Center for Edge Innovation. The Silicon Valley-based Center conducts original research and develops substantive points of view for new corporate growth.

Read other posts by John Hagel III, John Seely Brown, and Lang Davison

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