Explosions of industrial creativity rarely follow the invention or discovery of a technology but instead its commoditisation i.e. it wasn't the discovery of electricity but Edison's introduction of utility services for electricity that produced the creative boom that led to recorded music, modern movies, consumer electronics and even Silicon Valley. However, utility provision of electricity did more than just create a new world, it disrupted existing industries (both directly and through reduced barriers of entry), it also allowed for new practices and methods of working to emerge and even resulted in new economic forms - such as Henry Ford's Fordism.
This isn't a one off pattern. The cycle of invention / commoditisation repeats throughout our industrial history, following a surprisingly consistent pathway. Understanding this pattern is critical to anticipating the changes emerging in our industry today - whether that's the web, cloud computing or the future changes that 3D printing will bring.
This isn't a one off pattern. The cycle of invention / commoditisation repeats throughout our industrial history, following a surprisingly consistent pathway. Understanding this pattern is critical to anticipating the changes emerging in our industry today - whether that's the web, cloud computing or the future changes that 3D printing will bring.
The actual cycle itself is rather simple but as with all things it creates complex interactions. I've tried to summarise some of the effect in figure 1 (below) and I'll go through it in the general notes.
General Notes
1. All business activities evolve through a common pathway. This pathway is defined by how ubiquitous and certain (i.e. well understood & defined) an activity is. The relationship between these two I have previously discussed on many occasions. What's important to remember is that activities evolve through domains including genesis, custom built examples, products (including rental services) and commodity (including utility services). What drives the process of evolution is user and vendor competition - i.e. the need for something and the desire to supply that need and outcompete others.
2. It's not just activities (what we do) that evolves but also practice (how we do something). Practices evolve through equivalent domains - novel, emerging, good and best (known as the cynefin framework). It's important to remember that practices can, and often do, co-evolve with activities. For example, best practice for resilience and scaling with computing infrastructure products (the activity) was N+1 and scale-up. As the activity evolved to more of a commodity this enabled emerging practices such as design for failure. These emerging practices will evolve over time to become best practice for a utility infrastructure world.
3. Practices and activities can themselves be grouped into three stages - chaotic, transitional and linear. Chaotic activities (i.e. genesis to custom built) are scarce by nature, poorly understood, uncertain, rapidly changing, deviation is desirable, serendipity matter and they are a source of future worth. Over time the same activity becomes abundant, well defined, predictable, measurable, deviation is undesirable and nothing more than a cost of doing business.
4. The process of evolution creates a cycle i.e. as activities become more of a commodity they enable new (higher order) activities to develop - i.e. utility provision of electricity lead to consumer electronics. This is standard componentisation and it often has a dramatic effect causing a rapid growth in genesis of new activities.
5. The cycle itself has different states - war (disruption), growth (build) and peace (margin). Each state is suitable for different strategies and approaches. For example in the peace state, competition between competitors is relative with sustaining change tending to exceed disruptive. In the war state, competition is a fight for survival and disruptive change exceeds sustaining. How much this impacts you depends upon the activity in question and whether you're directly effected (i.e. it's something you produce) or it's a barrier to entry into your business.
6. The cycle is controlled by inertia barriers for both customer and vendor. On the customer side these are normally referred to as "risks" such as disruption (loss of skillset, political capital etc), transition (trust in new suppliers, transparency, change in governance etc) and agency (loss of strategic control, lock-in, lack of pricing competition etc). On the vendor side these inertia barriers are built upon from past success and include such things as culture, incentives, structure and external forces (such as financial markets). This is why the inertia barriers are often broken by a company that is not encumbered by the previous model (e.g. Amazon vs Hosting companies).
7. The cycle itself can be local to a specific industry (i.e. range of activities) or can have major macro-economic effects. Whether it does depends upon if the activity can be a component of future activities, the number of activities built up behind the inertia barriers and if the activity can enable others to cross the inertia barriers. The macro economic waves that we see are known as Kondratiev waves and we often refer to them as 'ages' - industrial age, mechanical age etc.
8. During the war state, new forms of organisation appear. These organisations have different strategies, practices and activities than previous organisations. Over time the practices of this next generation diffuse i.e. utility provision of electricity enabled the development of Fordism which spread to become a major influencing factor on most companies.
9. During each of the cycles, we see rapid increases in un-modelled data. It's not unstructured, simply we don't know how to model it as it's in the chaotic (i.e. uncertain, constantly changing) state. Over time we attempt to model this data generally leading to arguments over schemas and classification and technology etc. We've seen this in both Georgian (first industrial age) and Victorian ages (mechanical and railways age) and every subsequent age.
10. As additional points (i.e. this post is too long already) :-
* knowledge also diffuses through the same stages (chaotic to linear)
* there are multiple accelerators and de-accelerators to the process of evolution.
* there are forcing strategies which companies can deploy i.e. use of open source, network effects etc.
* there are many counter strategies which companies can deploy i.e. use of patents, branding, legal system and ownership of lower orders of the value chain.
* there are forcing strategies which companies can deploy i.e. use of open source, network effects etc.
* there are many counter strategies which companies can deploy i.e. use of patents, branding, legal system and ownership of lower orders of the value chain.
* the characteristics of the stages are why no "one size fits all" methodology works i.e. in project management agile is most suited to the chaotic where deviation is desirable and structured methods (e.g. six sigma) are most suited to the linear where deviation is not desirable.
* there are multiple ways of exploiting the cycle to your advantage
* organisations consists of a mass of activities and therefore can be in different states of the cycle at the same time and even have multiple fronts at the same time (i.e. multiple parts in a state of war).
* this entire cycle occurs throughout an organisations value chain and hence from simple premises creates a complex world of management.
* linear activities tend to low margin but are stable whereas chaotic activities tend to high margin but are unstable. Creating a profitable and sustainable company requires a constant balance of both.
* linear activities tend to low margin but are stable whereas chaotic activities tend to high margin but are unstable. Creating a profitable and sustainable company requires a constant balance of both.
* many of the memes of modern management e.g. "business alignment" are consequences of how we structure ourselves and ignore the impact of evolution.
* the cycle is accelerating
* the cycle is accelerating
We can see the effects of this model clearly today. For example, cloud computing which is simply the shift of various IT activities from a product to a utility service domain (a more evolved form) which has been initiated by companies not encumbered by the previous model (Amazon etc) and hence have broken the inertia barriers has instigated a state of war. The normal round of customer "risks" (trust, transparency, governance changes etc) have been raised along with resistance from past vendors (e.g. dismissing of cloud). As a result of the state of war, new forms of organisation have emerged which have fundamentally different structures, strategies, practices and activities from the past. At the same time new architectural practices (resilience, scaling) relating to this activity (e.g. infrastructure) have co-evolved and are now diffusing.
We have also seen the explosion of new activities built upon these commoditised component services along with increases of un-modelled data which the technology enables us to exploit (hence big data). We should increasingly see the disruption of past vendors who are stuck behind the inertia barriers due to their past success and hence have cultural, institutional and structural barriers to change. Equally the war will spread to other industries through the reduction of barriers to entry i.e. retail banking, insurance etc.
I could go on with formation of competitive markets, role of standards etc but it's almost a text book classic of the cycle. The only thing that is surprising is how many people are surprised by the changes.
Of course, cloud computing is based upon an underlying component which itself underwent this cycle. That component, which commoditised the means of mass communication, is the internet and it caused disruption (both direct and through reduced barriers to entry) of many industries from media to retail to travel. It also caused explosions of growth, un-modelled data, new practices and new forms of organisation - the web 2.0. Naturally, their practices (e.g social media, social networks ...) diffused amongst those companies that survived and adapted to the new economic state.
That was also a text book classic of the cycle.
Of course, the internet is a component of the next cycle which refers to the commoditisation of the means of manufacturing - e.g. 3D printing, printed electronics etc. It will have exactly the same effects but then I covered this in talk between 2005-2007 (based upon earlier research) and it's just the same old thing.
The above is brief notes and this work was developed from my original models and research pre-2005 which I've used extensively in competition. It's only recently however that I've been able to extend the model to organisational evolution and obtain the volume of data necessary to be confident with the entire model. Its validation required a cycle of change. It'll still require another cycle before its predictive capabilities are fully tested though.
None of the above is new to anyone that has been following me over the last five years, in fact it's probably very dull having heard much of it so many times before. I still find the nuances interesting, i.e. why companies in a peace mode that find themselves in a war state often attempt to reduce cost to restore profitability and hence quicken their demise or why you have no choice over evolution (Red Queen) of the impacts of Jevons' paradox or ... well there's lot.
However, I'm moving on into how to really exploit evolution of the value chain and play the game. So I thought I'd just put this up here as a brief reminder to the work I've done.
NitPicking Notes (for those who want to noodle on terms)
I did (for some unknown reason) refer to this as the invention/commoditisation cycle. My apologies first as in the strictest sense this is not correct.
Whilst in common language I could get away with this - hence I've left it as is - the cycle isn't really about invention but instead genesis of an activity (i.e. the creation of a new activity - whether telephone, radio etc) and hence it should refer to genesis / commoditisation.
Why the nitpicking? Isn't the invention of the telephone the same as the genesis of this activity? The reality is that invention and discovery are part of an earlier phase which leads to ideas which can then lead to multiple implementations and hence the genesis of multiple activities.
These activities may have polar opposite purposes. For example the Wright Brothers' invention of powered flight was supposed to lead to the end of wars through reconnaissance aircraft - this was their idea and their intended implementation. Obviously, some-one else had another idea of how to use their invention and the bomber was born. So, from invention, two ideas on how to use that invention appeared and two activities were created - aircraft for reconnaissance and bombing. Later on, other ideas of how to use that invention occurred and more activities were created.
The same effect can be seen with discovery and of course, despite discovery or invention, many original ideas on how to use it never actually appear in practice.
So strictly speaking {invention or discovery} leads to {ideas} leads to {genesis} and the cycle above starts with Genesis. Hence, I should have said genesis / commoditisation - you'll just have to excuse me.
This often leads to questions of why did I use the term commoditisation and not commodification? Strictly speaking there are two processes in operation here. The first is a process of :-
{invention or discovery} leads to {ideas} leads to {genesis}
which results in the transformation of something with social value into something which has economic value. This is the process of commodification.
However, the process by which a new activity {genesis} becomes a ubiquitous and well defined commodity is not the same as commodification. Hence the term commoditisation is used to describe this. Often people use commodification to describe both processes even though they're entirely different.
This often leads to a question of why didn't I use the term innovation instead of genesis? The use of the term innovation is strictly correct if we're talking the first implementation of an activity. Unfortunately the term innovation is widely misused (in my opinion) to cover feature differentiation for a product or even the introduction of a utility service for an existing activity. For this reason I avoid the term innovation where possible and when I do use it, I mean the first instance of something not a change to an existing activity.
NitPicking Notes (for those who want to noodle on terms)
I did (for some unknown reason) refer to this as the invention/commoditisation cycle. My apologies first as in the strictest sense this is not correct.
Whilst in common language I could get away with this - hence I've left it as is - the cycle isn't really about invention but instead genesis of an activity (i.e. the creation of a new activity - whether telephone, radio etc) and hence it should refer to genesis / commoditisation.
Why the nitpicking? Isn't the invention of the telephone the same as the genesis of this activity? The reality is that invention and discovery are part of an earlier phase which leads to ideas which can then lead to multiple implementations and hence the genesis of multiple activities.
These activities may have polar opposite purposes. For example the Wright Brothers' invention of powered flight was supposed to lead to the end of wars through reconnaissance aircraft - this was their idea and their intended implementation. Obviously, some-one else had another idea of how to use their invention and the bomber was born. So, from invention, two ideas on how to use that invention appeared and two activities were created - aircraft for reconnaissance and bombing. Later on, other ideas of how to use that invention occurred and more activities were created.
The same effect can be seen with discovery and of course, despite discovery or invention, many original ideas on how to use it never actually appear in practice.
So strictly speaking {invention or discovery} leads to {ideas} leads to {genesis} and the cycle above starts with Genesis. Hence, I should have said genesis / commoditisation - you'll just have to excuse me.
This often leads to questions of why did I use the term commoditisation and not commodification? Strictly speaking there are two processes in operation here. The first is a process of :-
{invention or discovery} leads to {ideas} leads to {genesis}
which results in the transformation of something with social value into something which has economic value. This is the process of commodification.
However, the process by which a new activity {genesis} becomes a ubiquitous and well defined commodity is not the same as commodification. Hence the term commoditisation is used to describe this. Often people use commodification to describe both processes even though they're entirely different.
This often leads to a question of why didn't I use the term innovation instead of genesis? The use of the term innovation is strictly correct if we're talking the first implementation of an activity. Unfortunately the term innovation is widely misused (in my opinion) to cover feature differentiation for a product or even the introduction of a utility service for an existing activity. For this reason I avoid the term innovation where possible and when I do use it, I mean the first instance of something not a change to an existing activity.
