Digital Darwinism

by Tom Goodwin

  Electrical motors got cheaper and more efficient. Quite simply, years of refinement allowed motors to have lower running costs, with both parts and maintenance becoming cheaper, a greater labour pool to maintain the equipment was available, and the power per unit cost was much greater. Above all else, motors that were electrically driven became much smaller.

  The demands of factories became more complex, as they moved away from linen-weaving to aircraft or complex consumer goods manufacture. This new demand was generated amongst a generation who now had electricity at home and who wanted electrical domestic goods.

  When factories were built from scratch they were conceived and constructed in totally different ways than they would have been, had they been built on legacy water- or steam-powered operations. For the first time ever, rather than merely assuming that large drive shafts would be central to factory architectures and processes, designers worked around the machinery and the workflow that best suited the manufacturing process.

  Factories were re-imagined. Everything known, assumed and fixed was challenged. Electricity meant that power effectively became pervasive: it became an easy thing, vital, transformative, it allowed new ways of considering energy, it afforded very new economics. New factories and designs could be constructed in the context of easy, fast, cheap, abundant energy, the electrical cables infinitely easier to manage than drive shafts.

  Layouts of factories could follow the most sensible layouts for the manufacture of goods in the most efficient way. Huge productivity gains, visible from this one change, also reduced the messiness of the flow of goods in one go. Workers suddenly became both trained and empowered; they’d work harder and see the great effects of their responsibility. Factories could remove (or never build) the millwork. There could be windows, the fire risk was immediately reduced and ventilation improved. The notion of power or energy became not a physical element that drives the layout, but the background entity that makes anything possible. It was the enabler, not the constraint. Large gearboxes and pulleys were replaced with switches and rheostats.

  Freed from the constraints that came from power distribution, activities on the factory floor could be reorganized to bring about much better production arrangements. Factories no longer needed to be elongated with complex flows; they could be any shape the company needed. Buildings could be constructed far more efficiently and multiple storeys were now possible. With equipment placed around the best possible flow of items through the factory, far higher productivity lowered the cost per unit of output.

  The benefits of the new system were far-reaching and incredibly varied in nature. Factories suddenly became quieter. Long drive shafts had expanded and contracted with heat which led to endless vibrations that nearly deafened workers. Removing this system meant that factories became far quieter overnight.

  Factories could now have far more open space; the buildings, now without the need to hold up heavy millwork, had more ventilation and natural light, with no dripping oil from overhead machinery.

  There were no belts or pulleys overhead threatening to remove an arm with one false move. All these features meant better quality work drove higher quality and happier staff, who were now given more control over their output. They were trained to operate specific machines with more control and power to make decisions locally, they could start and stop things themselves, and not be reliant on being part of a bigger system.

  More advanced machines were introduced, fabricating more intricate parts, thanks to the control and steadiness of motor power. The quality of goods rocketed.

  But by far the biggest shift happened on a macro level. For hundreds of years the location of plants had been dictated by energy needs. At first the need was to locate near fast-running reliable water to power waterwheels, then it was the need to be near coal or near a transportation route that offered easy and cheap access to huge amounts of coal. Energy was never something that could be transported.

  This requirement was completely removed by electricity, and for the first time in history factories were free. They could be near sources of employment in large cities, or they could be located near ports where inbound ingredients and products made from them could be transported far more freely.

  The parallels here for modern working life are so clear. Even knowledge workers and those in contemporary industries have experienced little change in their working life since the advent of electricity. Companies’ hierarchical structures, departmental silos, company office design, workflow processes have all changed little in the last 60 years. We’ve never truly embraced remote working, we’ve never rethought organizational design, even open-plan offices seem more about saving money than rethinking how best to get what is needed done. But we’ve far more to learn.

  What can we learn from all this?

  What we can learn from the very slow, very reluctant transformation around electricity is the following.

  People think they’ve got it when they haven’t

  For nearly 40 years not only did very little really change, but for all that time, for all the annual meetings, the sales presentations, the consultants, the management theorists, the data, it appears every single person believed that they’d really understood the power of the change.

  The period of incremental improvements wasn’t lined with people complaining that progress wasn’t fast enough. There was no movement demanding ‘let’s do more’. For several decades, everyone sat back pleased with what we’d done, which was simply to switch an old power mechanism for a new one. It was only in retrospect that we realized what mistakes we’d made.

  This often seems the case with digitization. Grocery stores seem to think that by adding self-checkouts they’ve done enough; they don’t think how technology could rewire their business fundamentally. Big-box retailers think that click-and-collect might be enough to stop the onslaught of Amazon. I sense banks see M-Pesa in Kenya as a curious case study and Venmo something that kids do, and that a nice new mobile banking app and a new-look website is really grasping the power of the new.

  Companies need to realize that, so far, most of them have done nothing. They need to find these changes exciting, be enthralled to rethink their businesses around a whole toolkit of new possibilities, compare themselves not with how far they’ve come, but how much they could leapfrog into the future and over their competitors of today and tomorrow.

  Economics gets in the way by not being imaginative enough

  The chief financial officers (CFOs) and management consultants of the day were entirely wrong in how they thought about electricity. By thinking of electricity as a source of energy only, as merely a new way to power machines, the economists failed to understand the secondary benefits which were to really revolutionize lifestyle and open the door for new products and services.

  Most businesses, like the factories of the past, are run with heavy influence (at the very least) from the company’s financial leader. Investment decisions in particular are based on complex accounting procedures where sunk costs, expected gains and time to pay back investments quite rightly lead the way. It’s clear that in this time period, like today, accounting was done over a relatively short term. Nobody was looking at the payback over 60 years, but over the next 10 or so. Nobody was calculating the cost of not doing this and of competition unleashing this new power. Economics found old models with old assumptions and old limitations to evaluate the cost and benefit of the new, with no imagination for the benefits which were second order.

  When factories were constructed around electricity and not as an add-on, some of the benefits were clear and predictable: the lower fire insurance, the cheaper energy costs, the savings on maintenance. But although predictable, many of these benefits couldn’t easily be accounted for mathematically. What is the financial gain of quieter running conditions or having workers with fewer days off? What is the value of happier staff and more precisely made products?

  And many benefits were totally impossible to foresee, particular
ly the second-order changes. Few people could have predicted that electricity would allow the displacement of factories closer to ports, or that brighter lighting would improve product inspection and raise quality.

  Most accounting models are quite sensibly rational, but that doesn’t mean everything that can be measured matters. Similarly, it doesn’t mean that what can’t fit into a spreadsheet doesn’t have a financial implication, no matter how seemingly disconnected.

  So, as your company looks to undertake change, be aware that transformational change is very hard to predict. The music industry was devoted to music being streamed but now treats most music as content marketing for the real money made in live concerts. The TV industry learned the wrong lesson from this and now drags its feet streaming programmes because it fails to see that when TV content is streamed, the potential arises to use personal data to make TV ads far more valuable. But this requires imagination beyond most financial thinkers. Few financial plans account for the cost of not doing anything. It may be that Ford would rather not make an electrically-driven car. It reduces their ability to make money in spare parts and maintenance, but they don’t have that choice if Tesla and others create this market.

  Muscle memory is strong: we apply the new to the old

  When we face something new we find it hard to really rethink. We can’t start with a blank sheet of paper; in order to feel more in control, we excitedly and rapidly attach it to what we understand.

  We anchor it in processes, systems, infrastructure, assumptions of the past and use it like an oil to lubricate what we have. We don’t notice we are doing it. Nobody sees how strange it is when digital watches in adverts show the time as 10:10 because that time looked good on an analogue watch. Few people notice how strange it is that their parents share one e-mail address because a postal address was one single address for everyone.

  Companies use computer systems where you typically look up people by their postal address because that’s what systems in the past used, when today people are far more likely to move home than change their mobile phone number or their e-mail address – but no system has yet been designed by taking this into account.

  Companies today need to be wary of the assumptions they make and the baggage they carry from the past. Retailers always needed to hold inventory of what they sold; now they can be a storefront for anyone’s product. In fact, if you have an audience, anyone today can become a retailer in seconds. They just become the shop window for someone else to fulfil. Turo shows you can be a car rental company and not own cars. Airbnb shows that, with little work, you can go from providing accommodation to providing experiences. As you think about the future, be careful that assumed needs do not limit you. Does a bank need branches today? Do you need to own things? Do you need staff or can you outsource? Should you really be structured like your competitors or around what people want?

  Change needs to be deep

  As I will cover in the next few chapters, profound changes in technology require equally profound shifts in how we think. Such fundamental changes require us to rethink even the most core elements of what we do. To simply augment or embellish is to misunderstand what transformation is possible. If businesses had been more positive about the power of the new, if, instead of trying to simply digest the possibilities, they’d spent time expanding upon them, life would have changed more quickly.

  By bolting on the new to the edge, we do what’s easiest and requires least change. It’s quickest and takes the least effort. Who wants to make a new process chart when you can just keep everything where it is? But as I’ll explore later, the change needs to come from the core, not the edge.

  No foresight on things that have never happened before

  It wasn’t that company owners could see the potential of electricity and made decisions based on this foresight. Rather, they couldn’t imagine something that had never existed before. No rational, reasonable, engineering-led, output-focused, mathematically-driven person could ever have foreseen what electricity meant. Teams needed diverse talent, dreamers, thinkers, creative types to really see the impact that the second- and third-order changes and implications would mean.

  Technology is background not foreground

  It is people, not technology, who transform business. While it’s easy to think that all the changes enabled by electricity were brought about by the technology, they were actually driven by people. It was the people who worked in factories who could now see products better in sunlight, who worked harder because they had more control, who spent less time moving products in inefficient ways, or commuting to work. It was people whose health improved, who worked in safer and less noisy conditions. In every single technological shift, technology is always essential, but more often than not, it’s really about people: workers, customers, salespeople or marketing folk. Empathy to what is needed is as, if not more, essential than the understanding of complex technology. More than anything else we see people want solutions not technology. We have to focus much more on better ways to do things, or making things in new ways, not on the technology itself.

  A mid-stage often exists

  The group line drive provides a good framework to see what happens when a way of thinking is bold enough to challenge what has been done before, but not determined, imaginative or deep enough to really make a difference. While it’s easy to look back at the section about group drive and see merit in the change it brought, it’s also possible to see it as a delaying factor in allowing proper change to happen. This was an incremental improvement to an old way of doing things. It was change that was buyable and makeable. It was comfortable and had the illusion of making all the difference that was possible. It’s these seemingly big, but in retrospect tiny, changes that often get in the way of true innovation, as we will discuss later. We see from the group drive and from the early stages of domestic electricity, the battles between AC and DC systems and the closed proprietary nature of early home power systems, that often life gets more complex before it gets simpler.

  Timing is vital

  Being a factory owner in an age when things change fast was hard. Power generation costs came down fast, as did the cost of the motors themselves, the number of experts who could electrify factories increased and the costs of retrofitting also came down. In 20:20 retrospective vision, it’s pretty easy to map out what companies should have done and when, but at the time knowing what to shift to and when must have been extremely difficult. As we venture around the planet and see companies laying fibre-optic cables to supply ultra-fast internet, we wonder if maybe they should have waited for 5G networks and not dug up streets. When we see aircraft with large seat-back screens, it’s interesting to consider, since we’ve now got phones and tablets, whether they should have just spent the money on excellent Wi-Fi instead. Should we be constructing high-speed trains or waiting for the Hyperloop? Should we embark on using early artificial intelligence (AI) in our business now or wait until it improves and work around a better core system?

  It’s companies that are newly built for the age that unleash the real power

  A combination of all of the above factors meant that it wasn’t the existing factories that used the new technology first. Yet I think the biggest factor was something else: the sunk costs and mental entrenchment of old factory owners.

  If you are running a successful textile mill and your company has been growing for 40 years, with a factory that appears to work just fine, you would be unlikely to suddenly wake up one day and sink vast amounts of money into changing. Even though things can break down, you’ve had decades of experience with your system and equipment. You’d be more comfortable making smaller changes in an existing system than throwing out everything and starting again. It would take a disastrous loss of income to even contemplate this. This loss of income would only happen if and when another factory, in direct competition with your product, moved forward with changes, overtaking you and producing better products. It would take decades for this to happen
and when you finally realized it was happening, it would be too late.

  As a result of this reluctance to change, it wasn’t the old textile plants or established and profitable businesses that led the change with unit power; it was the newer, smaller companies that were hungrier for success. Companies building things that had never been made before – planes, fridges, cigarettes – led the way.

  As you consider the status quo and your business today, it’s easy to see the reason why you’ve not changed. Like the apocryphal frog who boils to death, you are perhaps now warm and more relaxed than ever. Perhaps it’s too late to muster the energy to jump and harder than ever to make that happen – which scarily is what you need to do most.

  Business owners tell themselves lies all the time to feel comfortable. People will always want to touch things before they buy, people won’t pay for news, people always need X, competitor Y is different because they are online, we know our customers better, we have better relationships with our suppliers … the list goes on.

  Yet maybe you are just comforting yourself, maybe you are merely understanding the world in a way that suits you, a way that requires the least risk and change. It could be that you need to make huge alterations and that the time to act is now. As Amara’s Law states, people often overestimate the amount of change over the short term and underestimate it over the long term, but I also think they underestimate the depth to which the most meaningful technology needs to be applied (Amara, 2006). First, we shape our tools, then they shape us – this is thinking from John Culkin, (although it has been widely attributed to Marshall McLuhan) on which we don’t ponder enough (Culkin, 1967).