The War of The Worlds — 3. The Third Wave

The third wave of the industrial revolution started around the same time when modern physics challenged Newtonian rule. A new world view originated from a greater insight into the physical world — compared to the one that had existed before. And with this new concepts of economies and corporate structures were to come. Isn’t it a strange coincidence that Heisenberg, Gödel, Turing and many others “of the first hour” were contemporaries? You will have guessed by now that we consider software the next wave of technology that affected industry — aided by digital communications. Software is the something like the “long distance force field” of the new world — the gravity of the new world that distorts the old: War of the Worlds.

Jeremy Rifkin in his The Third Industrial Revolution [Rifkin 2011] places the beginning of the third phase of the industrial revolution later than we do. He argues that the beginning was when Internet met decentralized and regenerative energy. The excellent analysis and argumentation are in line with his The Empathic Civilisation [Rifkin 2009], but we feel that software already was — and still is — a life-or-death encounter for many traditional companies. Software is a horizontal technology, crossing all industry domains, connecting and potentially annihilating them as new a previously unknown applications emerge. There is a link to the new perspective seeing in the first Renaissance, which, again, was horizontal and applied to anything. We have already looked at the vast changes this produced. And software has already had a very similar effect.

Software is the first technology that has no physical properties — yet it can control nearly any physical process. In particular it has no “surface”, which would “naturally” structure how components are assembled into products. Unless constructed and deployed rigorously, software generally exhibits behavior that compares to mechanical systems like that of quantum physics to Newton’s world. The behavior of the whole may not be explainable by the behavior of the parts. Yet software is deceptively simple. It is its set of internal interconnection patterns together with the external ones that allows to create complex dependencies that may remain hidden from the designers eye. Then suddenly the program receives data which probably shouldn’t exist, and therefore hasn’t been planned for. We all know this only too well. And “Bang goes the Theory,” as a popular BBC science series says.

On the other hand, software is the glue that allows products and services previously thought unrelated, to be combined and deliver additional value. Complete new industries have emerged from older established systems with lower innovation rates. Actually, the interconnecting power of software is pandemic. Product by product in the worlds markets gets “infected” by software — and later these also get connected by software, spreading the “infection.” And also the products of the “traditional” industries change. In a short number of years they change from products with “a pinch of software inside” to “software providing the software functionality.”

Internet of Things [Cisco]

The third wave of the industrial revolution — software in combination with networking technology — has given rise to the internet. The potential of the internet has influenced the views of markets, competition, and — ultimately — corporate structure. This is the point where the “new”, the “second” world started taking shape. Local and global become blurred, competition and cooperation are very close, markets are ecosystems that need interaction and investment to grow. This infographic by Cisco to the right shows quite clearly that the Internet of Things is already becoming a reality:

“during 2008 the number of things connected to the internet exceeded the number of people on Earth.”

When this internet-based businesses started appearing the potential for serious economic success of this “new world” was estimated to be fairly slim by traditional industry – the “first” or “old world.” The “traditional” industry has thrived for more than 150 years, and even survived two world wars. Or was it accelerated by them? The principles of Adam Smith (see previous blog) and others have stood the test of time, and these new developments will go away when technology goes mainstream. The expectation was that the new industries would settle in the appropriate sectors of the old industry sectors. Given time, the new revolution will blend in. “The chances against anything manlike on Mars are a million to one,”astronomer Ogilvy says at the beginning of H.G. Wells’ “The War of the Worlds.”

Can the “traditional” industries adapt? We already know that some — even “household names” — did not even survive the software wave. An internet-based communication has silenced many a telecommunications company. Let us look from a different perspective at the development of industry, that of the people working in the industry.

The relationship between people, product and business in a company has evolved over time along the “3 W” , a simplified model based on the core question by which the workforce was — and sometimes still is — directed.

The first question that was of concern in the earlier part of the industrial revolution is the question “What?” or “How Many?” have you produced. This was the key question for the age of mass production, volume priority, with a narrow quality definition. Raw material access, logistics and storage, production process and the power and level of automation determined the standing of a company in its industry sector — raw production technology and power is the key.

The next question that was first asked by and the answers put in practice by those who had to catch up on their industrial output after the second world war. This question is “How?” with the meaning “How well?” Quality and reduction of waste — muda — are key elements. Continuous reflection, mistakes as opportunities, from push to pull, end-to-end quality, value creation focus, are elements of a new “philosophy”, lean production. The concepts of Toyota’s Ohno Taichi (see Toyota Production System) are transferable to other industries and service providers. The key is not technology, but mental attitude and culture. Not many companies from the traditional industry segments were capable of successfully joining the “How well?” movement. Why? Because it is people based, it requires to value people and respect their judgement. As long as accounting practices treat the very staff that produces the products and services as cost and the chairs they would sit on as assets there is something not in balance.

The third stage of the 3W has only recently gained prominence. It is what can be called characteristic for the “new world,” which is asking “Why?” are we doing this — the question of purpose. This does not mean financial quarterly returns, it is value added to the community in which one operates. The purpose is the main reason why the organization has formed. It may even be or become a community or a purposeful system. We come back to look at these terms in more detail in a later post. Are there any organizations for which the “Why?” question is an essential part of their organizational culture? We shall leave this question for reflection and discussion for now. We shall also revisit this in a later contribution.

A purpose-built organization does not necessarily mean a community, but it includes these. We are looking at a stage of organizational development that we can link back to the humanist ideals of the Renaissance. The whole person is accepted and respected. This is also the basis for an increase of the overall innovative potential. The organization is built around a purpose and trust. This reduces the need for control leading to flatter structures and more of a network organization. Something that befits the new class of systems being built. Here we meet Conway’s Law again.

Gary Hamel [Hamel 2007] is an outspoken critic of the lack of any real management innovation. Does the new industry have better cards? In the next blog we shall compare cultural drivers for behavior and give some outlook.