Digital Darwinism

by Tom Goodwin

  Will something like Magic Leap, a headset base that augments reality experience, launch and make TVs seem anachronistic? Will self-driving cars happen sooner than expected and spread faster than predicted and change the fundamentals of urban development? Will 3D printing undermine the entire retail landscape? Will drones make infrastructure on the ground seem short-sighted? The cost of solar panels has already plummeted far faster than even the most optimistic projections, so this seems like a bad time to have committed to build a nuclear power station. Global climate could be worse or different than anyone expects and quite honestly, we’ve no idea what this will mean for the future.

  Today the world does seem like it’s on some sort of threshold. We’ve had smartphones for around 10 years and we can’t imagine life without them, but we’ve also no idea what their impact will be. We don’t know how they change childhood and brain development or what they mean for education. They could unlock incredible human capital and wealth around the world. Or, on the contrary, they could espouse our fears and create more barriers. We seem to have a declining middle class in much of the world, richer rich people – it’s a soup that’s both explosive and unpredictable. When human lifespans reach over 100 years, what new problems will emerge? What about the housing market and intergenerational wealth transfer? Will Millennials finally have some cash to spend with the advertisers that have been trying to reach them for years?

  We need to remember, however, that life is destined to become more complex and chaotic: the laws of physics and entropy suggest that there is no alternative. As technology breeds ever more choices, the range of options gets wider, and the number of ways in which new things can coalesce and combine becomes greater. A skill for all companies in the future will be to exist in such uncertainty, to be prepared for reasonable eventualities but not to be paralysed by indecision and fear. In life it’s best to focus only on what actually matters and what we can control. One way to do this is to think less about the ever-changing world and more about what Bill Bernbach would call the unchanging man.

  It’s time to focus on people

  Innovation is not disruptive; consumer adoption is.

  JEFF BEZOS (BISHOP, 2017)

  Management consultants traditionally have done a great job of helping businesses through periods of change. They have been excellent at understanding new technology and management theory and, while facing the CEO and other senior staff, have helped companies produce things more efficiently, cheaper and perhaps at a higher quality. These consultancies have done an excellent job of understanding the business and creating incremental change.

  These are different times. Change requires companies to step change rather than incrementally improve. The world’s best candle-makers continually made better candles, but they never invented the lightbulb. Today companies need to leap to new business models and rethink fundamentals and what they stand for, not slowly tweak what has worked before. Management consultants still practise thinking developed in the 1960s and 70s for the Industrial Age. They’ve changed little in that time; even the Boston Matrix is 47 years old.

  Part of the issue is that management consultancies serve the needs of the business, not of the consumer. It’s their job to provide reassurance, to have all the answers and for them to be indefatigable. Yet being certain often means you are not applying the right amount of imagination, not exploring far enough. The world needs consultancies to work around the needs of the consumer, consultancies that foster new thinking, that look ahead not to the past, that look around the world not to the textbooks.

  More than in any other era I see now a greater need for empathy and imagination and not traditional consulting. Businesses constructed for the wrong era on the wrong foundations will not thrive because of a tweaked customer relationship management (CRM) system or a new data strategy, despite that being the easiest project to sell in.

  The benefits of the Internet of Things – or 5G, or real-time tracking, or cloud computing, or any one of the big topics large consultancies love to present leadership on – will only work for companies bold enough to re-imagine what they do and for those that are working around modern customer needs, who create services that people want, and who create customer experiences that are best-in-class.

  More than anything else I would love this book to be a wake-up call to those in innovation agencies or digital consultancies and especially in advertising agencies to regain the seat in the boardroom, to stand bold and believe in yourself. This is your time to make a difference.

  Key topics to inspire

  This book comprises three themes: one focusing on the past and what we can learn, another on what can be done and is happening today, and the third and final theme looking ahead into the future. Each of these themes holds three chapters that represent different contexts or elements to consider. There are five key notions that are vital to the book’s message. It is these five topics, covered in the following section, that should be the clear takeaways from this work.

  Digital Darwinism

  The overarching principle of this book is Digital Darwinism, the umbrella concept that wraps up all the strands of thought and the background for every idea and principle discussed. The idea of Digital Darwinism is that, like any species, companies are designed to improve slowly over time, to optimize, to breed selectively, to become better via rather slow but consistent and well-proven evolution.

  This has worked for large and small businesses alike, but things are different now. The pace of technological and societal change has now become so fast that the background for business changes faster than any company can. Natural adaptation and typical agility are no longer enough. Companies now need to look further ahead, to try to be not just agile, but predictive, to be comfortable being uncomfortable, and to be constantly finding ways to change the core essence of what they are. They need to embrace risk. Business today needs a new style of leadership, a new way of thinking about remuneration, a new way to change culture. It requires new approaches to technology, to using data, to understanding people. While not all businesses are facing threats to their existence, many of them are or soon will be, and the waves of change are spreading outwards faster than ever before. In this position you can either manage the decline as best you can, or boldly rethink and re-imagine yourself for the future. If you want to do the latter, then here are some principles to consider.

  Mid-digital age

  Up to now, we’ve been in the early stages of digital transformation. We don’t think of it that way: we’ve had smartphones for 10 years, we’re used to ride-share apps, mobile banking, social media. It feels like we’ve lived with this stuff for a while. Generally speaking, however, we’ve added digital garnish to what we’ve known before. Most TV shows are 30 minutes long because they had ad breaks, yet streaming no longer requires this. Stores talk about ‘checking out’ and ‘baskets’, we have ‘desktops’ and ‘trash’ on our laptops. We’ve generally taken the thinking, the units and processes from the past and, with the smallest amount of effort, digitized them. We’re in a period where a lot of it doesn’t work, for anyone. We often drop calls, we can’t get on Wi-Fi as the landing page is slow, many industries have lost billions in profit and the world has not yet come to terms with globalization or the casualization of the workforce. We are in the stage of peak complexity.

  We’re in a hybrid period between two ages. We live in an analogue world augmented by the new possibilities of digital, but not rethought or rebuilt for this era. It’s this existence in two systems – where we can both watch TV and stream the same show, pay with Apple Pay but have to swipe our pen to sign to authorize payment, learn online but see the value of a degree diminish – that shows how messy life is. It seems likely that one day things will make sense, that the world will work, that we won’t have e-passports or mobile boarding passes or e-tickets, we will just pay or access with our faces. We won’t use cash because it won’t exist, we won’t use set-top boxes for TV because with 5G our phones wil
l become our gateway to all content. One day, things will work and we need to start thinking about how we’d construct things for that world now.

  Digital at the core

  In 2006 the world’s largest companies were primarily energy companies, banks and large industrial conglomerates like General Electric. In fact, on Bloomberg’s list of the top 10 largest companies in the world in 2006, most were over 50 years old, employed large workforces, and only one was labelled a ‘tech’ company. By 2016 things were radically different: only two companies remained on the list and five of the largest were categorized as technology companies (The Economist, 2016).

  From Amazon to Apple, Alphabet (Google’s parent company) to Microsoft, Facebook to China Mobile, most of these companies are relatively young but have also grown massively in the last few years. While we like to think of these as ‘tech’ companies I think it’s a strange term. Facebook and Google make more than 95 per cent of their revenue and profit from selling advertising, so they are media owners. Apple makes consumer electronics. What these companies have in common is that they were built from the ground up with digital thinking at the core. By ‘digital thinking’ I mean both an understanding of technology but also evolved consumer behaviour. Companies that have been constructed for the business environment of today, with technology at their core, have been the most successful and this becomes a valuable way to think about how to become the company you need to be.

  Paradigm leap

  Every design project needs a brief, but it also needs assumptions; to question everything would take too long. So, like every creative endeavour, design processes follow both convergent and divergent phases. We go wide and then we hone down to an optimum solution. During this process we use these assumptions to shape what we do. This explains why, when we look around us, most things are similar. Most four-door saloon cars look broadly similar, most bank lobbies feel the same, as do the products they offer. Airbus jets are not radically different to Boeing or Bombardier airplanes, much as American Airlines’ business class is much the same as Delta’s. Websites tend to have the same layout, retailers create stores on the same rules … you get the idea.

  There are times when companies, often companies that are new to a sector, break all the rules. Tesla makes cars that change all the automotive rules: the Model S has fewer than 20 moving components in total, whereas a typical combustion engine car has nearly 1,500 moving parts and takes one-sixth the time to assemble (Sawhney, 2017; O’Connor, 2013). They sell cars direct not via dealers. The problems they need to solve are entirely different to those found in the previous paradigm; they need software engineers not transmission experts, they need to build charging grids not repair infrastructure. The most successful companies today are not those steeped in experience, but those with no experience, who asked stupid questions. Facebook said, why do we need to make content? Apple asked, shouldn’t a phone be a delight to use? Amazon said, but why do we need to sell only our own inventory? Trump asked, what if a politician didn’t act like a politician? The most successful companies today are the ones with the courage to challenge rules, who build themselves on different assumptions, who challenge the status quo, but do so based on the next paradigm, not the last. It is companies who hope to survive by making small incremental changes that now lose out to the ones that bet big on radical innovation and change.

  Leapfrogging

  The concepts of building with digital at the core and unleashing the power of the paradigm leap go alongside the next idea in this book, the concept of the leapfrog.

  Technology tends to operate within paradigms. We lived in the age of water power, then steam, then electricity and now we’re in the digital age. We used shells as money, then coins, then paper notes and now we use digital currency. The UK saw the age of cargo by horse, then by canal, then by railway and now by road. Computing shifts from local personal computers, to local mainframes, to cloud-based systems and databases, yet we’re perhaps on the edge of new decentralized systems using blockchain technology.

  As we travel the world we see the power of building a country or company on the very latest technology and the most recent business environment and consumer landscape. The most advanced trains in the world are in China, as is the fastest-growing renewable energy programmes; digital currencies took root in Kenya before they did in the USA; the first passenger drones are likely to be in Dubai; Estonia by some measure has the most advanced government infrastructure and governance thanks to building an entire system in the last few years based on blockchain technology.

  Today’s successful companies have often become so by investing significant resources in a particular system that, when it becomes outdated, proves very costly to repair or change. If the USA were discovered today it probably would not have spent $500 billion on the US interstate highway system (Planes, 2013). According to a US Department of Transportation report, just maintaining current highways and bridges until 2030 will cost a cool $65.3 billion – per year – and that’s being conservative; instead it might have spent the same amount on self-driving cars that can use narrower roads (Abruzzese, 1988; Marshall, 2017). If China had waited a few more years, it could have built a rail network with Hyperloop technology and spent perhaps 10 times less than the $500 billion it’s currently spending to connect the nation with high-speed trains (Medlock, 2017; Davies, 2013). It also seems that increasingly the answer to problems in the future won’t be expensive hardware, but better software. Perhaps in 2026, after the UK spends $23 billion on a new runway at Heathrow, we will discover that better software could have increased the capacity on two runways for a far lower cost, or that we no longer need to travel so much because we can explore places in virtual reality.

  There comes a point where old infrastructure and systems get in the way, and the unit economics of sustaining the system don’t allow for profitability. It’s extremely hard even for companies built from scratch to make money from retailing online; it’s even harder for those who have to modify old mechanisms, supplant ancient systems, and adapt to compete with these new entrants. Yet it’s precisely when legacy companies, built for the past, face the lowest profit margins, plummeting sales and scarce investment that the greatest investment in the new is required. The frog boils to death in slowly heated water because at the very moment it needs to leap, it is most lethargic. We all need to act before it becomes vital.

  Companies that are large, well-capitalized, most stable and least vulnerable need to be thinking about ways to create growth in the future and defend against young, insurgent start-ups trying to grow fast enough to irritate them. This strategy will probably not involve making huge structural shifts in a vast organization, but will require proactively working to create the entity that becomes the future of that company itself.

  It’s time for action

  I’m not a big fan of watching cycling on the TV, but something about the Tour de France gets me excited. I love the notion of the peloton and the breakaway riders; it feels like a sensible analogy to business. For most of the time as they sweep across the sunny French landscape there is an organized group at the front, the peloton. In this lead group, riders take it in turns to be at the front; it means they pedal harder to break through the wind, while those behind can save energy due to lower air resistance. When exhausted, the leader will peel off to one side, drop to the back of the peloton and another rider will take up the lead. This feels like how businesses should operate. They should have units constantly pushing ahead, breaking into new ground, testing and learning, trying things that have not been done before, challenging conventions, and allowing the entire company to move forward. We need to embrace these pioneering riders.

  So now is the time to accept unfairness, accept it’s do or die, and make a plan. Can you wait it out or do you need to change? If you need to change, what is the best way? From this chapter you can see how essential it is to be poised, to be ready for change, not just to be agile, but to be predictive, and to look ahead. And to bes
t understand the future, look at the past.

  By doing that, we can avoid the mistakes of how we’ve applied technology incorrectly in the past and find a different way to embrace new technological developments.

  References

  Abruzzese, L (1988) available from: https://www.joc.com/trucking-logistics/highway-study-shows-need-increase-funding_19881006.html

  Bishop, T (2017) Amazon and Blue Origin founder Jeff Bezos: ‘The only thing that’s disruptive is customer adoption’, GeekWire, 7 April, available from: https://www.geekwire.com/2017/amazon-blue-origin-founder-jeff-bezos-thing-thats-disruptive-customer-adoption/ [last accessed 7 December 2017]

  Davies, A (2013) available from http://www.businessinsider.com/elon-musk-hyperloop-is-10x-cheaper-than-hsr-2013-5

  Goodwin, T (2015) The battle is for the customer interface, TechCrunch, 3 March, available from: https://techcrunch.com/2015/03/03/in-the-age-of-disintermediation-the-battle-is-all-for-the-customer-interface/ [last accessed 7 December 2017]

  KPMG (2016) Now or never: 2016 Global CEO Outlook [online] available from: https://images.forbes.com/forbesinsights/StudyPDFs/KPMG-Global_CEO_Outlook-REPORT.pdf [last accessed 7 December 2017]

  Levy, S (2011) Jeff Bezos owns the web in more ways than you think, Wired, 13 November, available from: https://www.wired.com/2011/11/ff_bezos/ [last accessed 7 December 2017]

  Marshall, A (2017) available from: https://www.wired.com/2017/01/not-screw-spending-1-trillion-us-infrastructure/

  McKinsey (2013) The eight essentials of innovation performance [online] December, available from: https://www.mckinsey.com/~/media/McKinsey/dotcom/client_service/Strategy/PDFs/The_Eight_Essentials_of_Innovation_Performance.ashx [last accessed 7 December 2017]