Erik Brynjolfsson: The digital forces reshaping business and society

When we look through the sweep of history what you see is that there was really one really important inflection point, which was the first Industrial Revolution. When humans first harnessed the steam engine to remove many of the limitations on our own muscles and those of animals, that set off an inflection point of growth, of economic prosperity and ever since then we’ve been getting richer and better off. We’re at the cusp of a second machine age where the new technologies are removing limitations not so much of our muscles but now it’s our minds, cognitive capacity. So these new technologies, from computers and software to big data, are allowing us to make decisions that we never could have made before, handle all sorts of data questions and we see this as just as profound an inflection point as the first machine age. Although I’m a careful observer of technology even I’ve been caught off-guard by how quickly these trends are coming together and how quickly they’re changing the way work can be done. That’s because of three forces: the exponential, the digital and the combinatorial underpinnings of the second machine age. By exponential we mean the fact that computers get better faster than anything else ever. Because of Moore’s law the basic power of processors doubles about every 18 to 24 months. But it’s not just computer power. Similar things are happening in data storage, in software, in communications and each of these doublings is building on a larger and larger base, having more and more profound implications. Humans are bad at understanding the implications of exponential trends and we often underestimate how big these effects will be in the long run. Ten years ago I was teaching a class here at MIT about what computers could do well and what humans could do well, and I gave as one of the examples driving a car. I didn’t see any structured rules that a computer could follow, so I said that was something that humans would continue to be uniquely good at. Well, I was proven wrong. Just two years ago I was riding down Route 101 in California in a self-driving car. Technology advanced much more rapidly than I expected and we’re seeing similar things in terms of language recognition, in terms of unstructured problem solving. In domain after domain, the technology is solving problems that previously only humans could do. A second important trend is the digital power of the technology, When things become digitized they can be replicated at almost zero cost and each copy is a perfect replica. Not only that, they can be transmitted anywhere almost instantaneously. Now free, perfect and instant are three characteristics that we haven’t had for most goods and services in human history. Digital technologies have been around for a few decades, but what’s happening now is almost every industry
is having a digital core and that’s changing the fundamental economics of those industries. It’s also doing something that may be even more important, which is it’s making it easier to gather data
about what’s going on in these operations. That puts us on a higher trajectory, improving more rapidly because we can learn what’s happening, and leading-edge companies are constantly learning from their customers and their suppliers and their supply chain. But there’s a third thing that’s quite important in this era as well and we call that the combinatorial aspect of the second machine age, the recombinant ability to take different ideas and combine them in new ways to create new things. We are just in the early stages of the second machine age,
the digital revolution. The technologies are here and we’re only beginning
to glimmer and understand what the implications are for how we organize work, how we organize markets and the new kinds of inventions that entrepreneurs have for business models.

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