Business leaders know that huge technology shifts are underway impacting their industries, their jobs, and their lives. Automation is ubiquitous; up-start firms are dislodging industry giants, and grass-root ideas, via social media, offer novel forms of innovation. But how are these seemingly disparate technologies inter-related? And most importantly, how can mainstream executives make these far-reaching concepts work for them?
MIT IDE Director Erik Brynjolfsson and Co-director, Andrew McAfee, offer answers in their latest book, Harnessing Our Digital Future, Machines, Platform, Crowd (June, W.W. Norton). Using in-depth research and robust examples the authors explain that to master and scale this next digital-driven transformation, executives need to understand key concepts about technology and economics. Old ways and tools won’t work. Armed with these basics, they can “rethink the integration of minds and machines, of products and platforms, and of the core and the crowd,” as they write in the book.
McAfee and Brynjolfsson spoke with IDE Editor and Content Manager, Paula Klein, recently to preview some key takeaways from the book. Here are edited highlights from the interview.
Q: Who is the target reader of the book? Is it aimed at C-level executives, or IT executives, in particular?
AM: We’re aiming broadly at executives and business leaders, especially those who are far removed from high-tech industries…People in the rest of the economy who are aware that really important things are happening in the world of technology, and aware of the significance for their business and their industry, they but want more clarity and guidance on exactly what’s going on and what the implications are for mainstream, mainline businesses.
EB: As we say in the subtitle, this is a Triple Revolution that’s affecting every part of the economy, and it definitely doesn’t make sense for executives to delegate this to their CIOs or CTOs exclusively. It’s important to understand the technology, but even more important to understand the ways that the technology is transforming business. C-level executives, in every part of the business, need to be aware of the changes so they can open a dialogue with their colleagues and take advantage of these opportunities.
Q: What about entrepreneurs? You also discuss how these technologies, separately and together, can spur new businesses and innovation.
EB: We think that Machine, Platform, and Crowd offers ideas for entrepreneurs interested in building businesses or plugging into established, incumbent companies. There’s this really interesting ecosystem of small, young businesses cropping up to bridge the platform economy and the mainline economy– the core and the crowd– to help companies make the most of their data and to bring together minds and machines. We see a lot of entrepreneurial activity and we want to encourage that and give people food for thought.
The traditional dichotomy between managers in big companies and entrepreneurs working in startups is becoming less and less relevant. Both groups need to work with each other, think like each other, and coordinate with each other much more. That’s one of the big themes in leveraging the crowd. These revolutions require everyone to think more like an entrepreneur, and entrepreneurs need to think more about how they can leverage big platforms in larger ecosystems.
Q: How ready are most business leaders to implement these technologies and what are the variables? Is it size? Industry? Digital sophistication? How do you view the current landscape?
AM: Successful adoption depends on both the awareness and the mindset of the people leading the organization.
“The book is really not intended to be a litany of technologies; it’s an attempt to show that when a change this profound comes along, the biggest danger, the biggest pitfall is that leaders are going to continue to think in the old ways, to preserve the status quo, and not face the changes.”
EB: Many people have really deep knowledge of the components that we talk about in this book, but few have pulled together the big picture to understand how the components fit together. The result is a lot of people see the turbulence and chaos in the economy as being unpredictable and the benefits as unattainable.
We’ve tried to distill the underlying principles. There are a set of economics that are very important to machine, platform, and crowd. By explaining some of those economic principles, we offer some order to the chaos and we help make sense of the rapid changes happening in the economy right now.
AM: What we’re absolutely not trying to do is write the most in-depth executive’s guide to deep learning for example, or how to put that specific technology to work for different business cases. We’re trying to offer a more comprehensive view of the tech-driven changes that are coming to the business world. We go deep in economics. That’s the right lens to view a lot of these changes and the most productive way to think through what’s going on and how a business needs to change to profit from these changes– as opposed to being overwhelmed by them.
EB: We see the economics and the business models as the big bottleneck to success right now. Technologists are rushing ahead with breathtaking accomplishments. Managers, executives, entrepreneurs, however, aren’t taking advantage of these technologies to meet the business challenges and to do a better job for their customers, suppliers, and employees.
Q: Talk a little more about why you chose to group together, Machine, Platform and Crowd. What interrelationships do you see?
AM: They spring from a lot of the same dynamics: Moore’s Law; the cloud, and from the fact that so many people are carrying around a device that’s a supercomputer by the standards of a generation ago. We want to provide a framework to think about what’s going on that is simultaneously comprehensive and concise. The rise of Uber and Airbnb and the on-demand economy illustrate the proliferation of technology-based platforms.
And we also kept coming across these weird examples of the wisdom of the digitally intermediated crowd. That three-part structure naturally suggested itself as we tried to think through what we were seeing, hearing, and learning about the world.
EB: Machine, platform and crowd, actually link back to some underlying fundamental technologies that we first discussed in the Second Machine Age; the way the world was increasingly digital, exponential, and combinatorial. Those earlier trends were more technology-oriented and driven by what was happening in the economy. If there was a missing piece of the Second Machine Age, it was what does this mean for business? How is this going to change the way we make decisions? How does distributed expertise change how we interact with our customers, our suppliers and our partners?
In Machine Platform Crowd, we took the discussion to the next level and said that the implications of digital, exponential, and combinatorial are new ways of allocating decision making between mind and machine, new ways of organizing products and platforms, new ways of connecting the core and the crowd.
AM: It’s also true that different, really important branches of economics apply in each of the three sections. In the section on mind and machines, behavioral economics become very, very important to understand. In the section on products and platforms, the economics of information goods become really important to understand. In the section on the core and the crowd, the theory of the firm and transaction-cost economics become critically important for understanding, for example, how significant blockchain and autonomous organizations are going to be.
Q: What are some of the biggest hurdles to implementing these technologies? How does the book help readers really “get” these tough concepts?
AM: The technologies are daunting. This is deep stuff. The economics can also be daunting. One of the things we are trying to do with Machine, Platform, Crowd is make both of those deep subjects accessible without trivializing them or oversimplifying them–and that’s harder to do than you would initially think.
EB: We also hope to temper some of the hype that you hear out there about what’s feasible and what’s not.
“There are some remarkable new technologies, like blockchain, that are opening up impressive new possibilities and creating billions of dollars of wealth. There are also people who, frankly, over-claim what can be done. Understanding the economics helps set some boundaries on what’s realistic. If managers can understand not only what’s possible, but what’s not possible, or at least not likely, they’ll have a better chance to make effective use of these new tools.”
Q: Interestingly, there are both online and offline business examples in the platform section–something a lot of people will find very relevant. Can you describe one of these cases?
EB: The book is full of examples including how platforms aren’t just digital. Everybody’s heard about Apple and Facebook and their wonderful digital ecosystems, but the reality is that two-sided networks and platforms can work wonders for products and services in just about every industry.
For instance, we write about ClassPass, a company that provides a service for connecting people and yoga studios. But even here, the economics of platforms turn out to be extremely useful.
AM: ClassPass sounds straightforward: It’s a virtual gym membership where the company acquires spare space in exercise studios, aggregates it, and presents it to people who want to work out. The reason we include it and we spend some time on it is that it’s a business that combines the economics of digital “bits” with the economics of physical “atoms” in a fairly deep and surprising way. We want to highlight fresh, unique examples like this to help the reader realize that these dynamics might come to my industry, so I had better get on top of them.
EB: The dynamics likely are coming to just about every industry. People hear a lot about the digital titans, but the book actually is much more about the rest of the economy and the way that these technologies and these economic models affect every business and organization. That’s why we made such an effort to highlight companies like ClassPass and GE and others that aren’t usually thought of as Silicon Valley unicorns.
“In some ways the biggest opportunities are going to be the non-digital companies because a lot of competitors aren’t as savvy about that.”
People in the tech industry are dying to learn more about the machines, platforms and crowds. In the rest of the economy, there’s actually a lot of low-hanging fruit where people can take advantage of the kinds of insights that we provide in the book and get a leg up on their competitors pretty quickly.
Q: What are some of the most important takeaways of the book?
AM: We believe firmly in combinatorial innovation which is the process of taking the existing building blocks and combining them to create something new. We don’t know all the ways that’s going to happen but we think of this book as one more building block that might give an entrepreneur or innovator some new tools to play with and some new ways to think about opportunities.
EB: What the business leader has that we don’t have is domain knowledge of their customers, technologies, products, and employees. If they combine that with the insights about the business models and technology that we provide, they’re going to create something unique and valuable.
We want to share what we’ve been able to learn from our students, our partners, and our sponsors at IDE. While it’s not a textbook in the traditional sense, it has benefited from the environment that we have at the IDE, and the smart, and sometimes skeptical, people that we interact with.
AM: It’s not a detailed how-to book, or follow-these-seven-steps to social media success. We don’t think anybody knows the exact playbook and even if that playbook existed, everyone would copy it and it would be become worthless. Instead, at the end of each chapter we tee-up questions for a leadership team to talk about that will, hopefully, get them pointed in a healthy direction.