Disruption

Accelerating Change

Technological change has been the primary driving force for economic and social change in the last two centuries. As technology became more complex, so, too, did the economy and society. Change in all three has accelerated in lockstep. In The Nature of Technology: What It Is and How It Evolves (2009), Brian Arthur described how deeply these systems are intertwined.

“The economy forms an ecology for its technologies, it forms out of them, and this means it does not exist separately. And as with an ecology, it forms opportunity niches for novel technologies and fills these as novel technologies arise.

This way of thinking carries consequences. It means that the economy emerges — wells up — from its technologies. It means that the economy does more than readjust as its technologies change. It continually forms and re-forms…”

Deep coupling of technology and the economic system, Arthur says, creates tipping points where the economy goes critical, suffers the shock of an avalanche of change, and moves to a new attractor.

“The arrival of the automobile in the early 1900s caused the replacement of horse transportation. The death of horse transportation eliminated the needs for blacksmithing and carriage making. The collapse of blacksmithing in turn eliminated the need for anvil making. Collapses caused further collapses in a backward succession.”

The rate of change in the last half-century has been unprecedented. There were only 15 computers in the United States in 1954, and seventeen thousand in 1964. By 1986 the number exceeded 30 million. By 2000 there were more than 168 million. In 2000, the U.S. accounted for around 30 per cent of the computers in the world. Over 96 per cent of them were PCs.

A profound revolution also took place in communications. There were 16 million Internet users globally in 1995, 36 million in 1996, 70 million in 1997, 147 million in 1998 and 240 million in 1999. By 1999 Internet traffic was doubling every 100 days.

Computers, cellphones and the Internet were adopted rapidly by American households — much more rapidly than electrical appliances in the century before. Each new technology produced a massive wave of change in society and the economy.

 

Source: Michael Felton, The New York Times.

Between 1995 and 1998, the information technology sector contributed a third of all U.S. economic growth. [Will Hutton and Anthony Giddens, On the Edge: Living with Global Capitalism (2000)]

Tipping Points

A highly integrated global economy developed by the end of the 20th century, enabled by information technology. This now works in real-time on a planetary scale. Production is distributed, with components manufactured by decentralized corporations and suppliers located across the world. Technology allows low-wage, routine tasks to be separated from highly skilled tasks. Sophisticated information processing helps to manage the flow of goods.

Population growth is putting pressure on scarce resources, intensifying environmental impacts, and magnifying challenges related to the supply of food and water. The United Nations projected in World Population Prospects: The 2012 Revision (2013) that world population will increase from 7.2 billion in mid-2013 to 8.1 billion by 2025, 9.6 billion by 2050, and 10.9 billion by 2100.

We cannot expect order and stability as human activity forces change on a global scale. Growing connectivity (the number of links within and between complex systems) and tight coupling (rapid propagation of a disturbance) are making natural and human systems more prone to failure. Systems flip quickly, Thomas Homer-Dixon wrote in “Complexity Science,” a paper published in the Oxford Leadership Journal (2011), citing examples in technology, the economy, and the environment.

“Not only are complex systems opaque and uncertain, they also exhibit threshold behaviour. By threshold behaviour I mean a sharp, sudden move or ‘flip’ to a new state. This new state may or may not be a new equilibrium – that is, it may or may not be stable.”

We are overconfident, Homer-Dixon says, of our ability to manage the growing complexity of our economic and social systems, and interactions with natural systems, under growing pressure from population growth and globalization.

The assumption that we can manage and control complexity, Richard Bronk writes in Progress and the Invisible Hand: The Philosophy and Economics of Human Advance (1998), is now being tested.

“The ever-greater speed of change not only threatens to overcome the regenerative and adaptive power of the natural world; it also threatens to exceed mankind’s own ability to adapt to a changing environment by swamping the capacity of human institutions to manage the implications of change — both environmental and social.”

Nassim Nicholas Taleb writes in his recent book Antifragile: Things That Gain from Disorder (2012) that the world we have constructed is ripe for unpredictable, high-impact, Black Swan events.

“Man-made complex systems tend to develop cascades and runaway chains of reactions that decrease, even eliminate, predictability and cause outsize events. So the modern world may be increasing in technological knowledge, but, paradoxically, it is making things a lot more unpredictable. Now for reasons that have to do with the increase of the artificial, the move away from ancestral and natural models, and the loss in robustness owing to complications in the design of everything, the role of Black Swans is increasing. Further, we are victims to a new disease, called in this book neomania, that makes us build Black Swan-vulnerable systems — ‘progress.’”

Robustness, Taleb says, is no longer sufficient. Faced with uncertainty and instability, our systems now need to be ‘antifragile.’ An antifragile system, he says, “regenerates itself continuously by using, rather than suffering from, random events, unpredictable shocks, stressors, and volatility.”

The Edge of Chaos

Turbulent environments are fertile ground for innovation. Actors in a rapidly-changing ecological, economic or social system need to reinvent themselves constantly in order to survive.

We currently see this dynamic at play in the economy. In the face of accelerating change, companies have had to deal with devastating competition. In 1960, S&P 500 companies had a lifespan of about 60 years. Corporate life expectancy has radically declined in subsequent decades, Jacob Morgan says. [“Why Big Company Doesn’t Mean Job Security” in Forbes, November 14, 2013] By 2013, firms were barely expected to survive 15 years, and the trend continues. Accelerating change and competition ensure that no business model stays viable for very long.

Source: INNOSIGHT / Richard N. Foster / Standard & Poor’s.

High corporate mortality means there is no guarantee of job stability. Workers will have many employers in their lifetime. In 2012 the Bureau of Labor Statistics reported people remain in a job on average for 4.4 years. Ninety-one percent of Millennials expect to stay in a job less than three years. [“Job Hopping Is the ‘New Normal’ for Millennials: Three Ways to Prevent a Human Resource Nightmare” in Forbes, August 14, 2012]. Full-time jobs are being replaced by part-time and temporary work.

Executives have been challenged in leading their organizations through this minefield. Booz & Company reported in 2011 that 70% of companies change CEOs in a five-year period — a turnover rate of about 14% a year. The median life expectancy of departing executives was about 7.9 years. Patrick Dailey described the challenges facing leaders dealing with unprecedented disruptions [“Why Executives Fail” in Chief Executive Officer, May 5, 2011].

“Trapdoors become lethal when the executive has no game plan in his or her repertoire of lessons of experience and is unable to generalise from the familiar to this novel or unexpected situation. There is failure to read a situation accurately or rapidly enough; action is unsuccessful, unsupported, late or off target.”

Organizations change strategies endlessly as they struggle to find something that works. Facing constant demands to do things differently, workers have become ever more cynical about the turmoil.

Gallup has studied employee engagement in the workplace since 1997, classifying workers as engaged, disengaged or actively disengaged. Engaged workers are emotionally invested and committed to their work. Disengaged workers have checked out. Actively disengaged workers are hostile, and undermine the work of others. The results have been unsettling. Gallup’s State of the Global Workplace Report 2013 found 13% of employees were engaged, 63% were disengaged, and 24% were actively disengaged. The cost in lost productivity in the U.S. alone is estimated to be $450 billion to $550 billion a year — a massive waste of human potential when we need it most.

Featured image: 1964 Alaska Earthquake. U.S. National Oceanic and Atmospheric Administration / Wikimedia Commons.