The knowledge economy

In a 1936 “thought experiment,” Alan Turing described a hypothetical machine that could perform any calculation. Fifteen years later the first mass-produced computer was delivered to the U.S. Census Bureau. In 1969 the first link on the internet – then called ARPANET – was established, between UCLA and Stanford. In the 1970’s, the introduction of the microprocessor made possible the personal computer. Computing power has approximately doubled every two years since 1960, a trend which continues today and is not expected to change until 2015 or later. Internet traffic is growing at a similar rate, with no signs of diminishing any time soon.

In combination, personal computers and the internet that links them together have transformed society as profoundly as industrialization did.

We’re now in the process of digitizing everything; wrapping our physical world with a digital layer of information which parallels and reflects our own. We want to know everything we can think of about everything we can think of. Our world is awhirl with digital information.

In a digital world, the product or service has no physical substance. There are no distribution costs. A single prototype can generate an infinite number of copies at no cost. And since the products and services are so different, the environment around them becomes unstable; as the digital layer interacts with the physical layer, everything in the ecosystem is up for grabs. Suddenly new products become possible and established ones become obsolete overnight.

The rules of creation and distribution are changing, and it’s driving a massive shift: As the software used to create new products becomes cheaper and easier to use, and as internet distribution models emerge, the barriers that keep individuals and small teams from competing with mega-corporations are melting away.

Industries are falling like dominoes. The first to feel the blow were publishers, with the desktop-publishing revolution of the 80’s, blogging in the 90’s, and now the Kindle and Sony Reader. Second came music, when software like GarageBand gave artists a desktop recording studio and distribution channels like iTunes gave them access to global markets. Next will be film and software, followed soon by physical products. Products, you say? Yes, soon we will see the equivalent of the “Garage band” in product design. It’s already begun. 3-D modeling software is getting cheaper and easier to use all the time. Today, you can take a 3-D computer file and deliver it directly to an overseas factory for production.

As technology gets cheaper and easier to use, and as more things become digitized or have digital reflections on the internet, the power that has traditionally been the exclusive province of large corporations now devolves to the individual or small group. Increasingly, technology is becoming “indistinguishable from magic.”

The trend is toward the small team, or the company of one, where creativity and adaptiveness trump money and resources, which are increasingly becoming commodities, losing the power they once had as barriers to competition.

Hard to believe? The digital revolution is rife with examples. Most of today’s dominant information-driven companies started with little or no startup capital.

The first Apple computers were hand-built in a garage. Microsoft was started by a college dropout. Oracle was started by another college dropout, with $2,000 of his own money. Google and Yahoo were started by college students. EBay was started by a 28-year-old computer programmer on a holiday weekend. Amazon.com was started in a garage. Numerous other successful information-driven companies were started by young people on a nickel. The next wave is already underway with companies like Facebook, started by a college sophomore, now making $500 million a year and growing.

Individuals, working alone, now can design and command workflows that requires massive financial resources only a few years ago. Given enough motivation, an individual with modest resources can now make a feature-length film, publish a hardcover book, start a TV or radio station, outsource manufacturing of sophisticated products, and sell products to a global marketplace.

The bottom line is that success in a knowledge economy requires different thinking, different aptitudes, and a different approach to work. The focus of a knowledge-driven company must be on creativity and systems thinking rather than planning and efficiency.

In a world where manufacturing and distribution are commodities, the only thing that can differentiate a product or service is creativity and customer relationships. This is soft stuff – it’s not quantifiable or easily measured, and it’s not the stuff that business schools are good at teaching. But we need to get start getting good at it.