Innovation And Technology Management
The purpose of this report is to provide a critical review of the contemporary scholars’ opinions on the current situation in the field of digital technologies. It is evident that similar to the innovations of the industrial revolution and the wave of the information revolution, the digital revolution has drastically changed the world.
Nevertheless, modern digital technological acceleration differs from the industrial changes during the first two revolutions. Digital innovations have created faster, cheaper and more efficient solutions for society than ever. However, they have also posed some difficulties. For example, now many employees are facing difficulties in keeping pace with the technological progress. As a result, they lose their jobs or technologies simply displace them.
Another important issue is the emergence of the so-called “tech barons” from Silicon Valley. These billionaires possess large technology firms, whose activities in some cases lead to the emergence of monopolies in the area of digital technologies.
In order to address the purpose of the report, such strategy as a multi-method research was developed. The base of it is the analytical analysis of the modern researches in the sphere of digital technologies. The quantitative research methods used in the research include designing, implementing and collecting data on economic variables related to the study. A method of data reduction was chosen to code the data. In order to compare and check data from different sources, the method of synthesis was used. The primary source of statistical data collection and analysis was the World Bank databases.
A major limitation of the study is the lack of the available statistical information. Furthermore, this study generalizes a complete picture of the expert judgments with regard to the development of digital technologies, though the conclusions of the report may not always coincide with reality in some cases.
The Third Great Wave
Ryan Avent has suggested that the recent explosion of technological innovation in business activities will cause painful socio-economic transformation of the modern society both in developing and emerging economies. Apparently, the he calls the effect of today’s business digitalization as the third wave of the digital revolution. The premise of his article ‘The Third Great Wave’ is that the previous two waves (the First Wave of the Industrial Revolution and the Second Wave of the Information Revolution) were less threatening than the Third Wave of digitalization.
Scientists argue that digital revolution in the XXI century has dramatically restructured the world. The newest technologies include the Internet, machine intelligence, mobile technologies, and advanced robotics. Furthermore, the rapid growth of computer capacity has created smarter, cheaper and faster electronic devices than ever before. Nowadays, they are able to faster and better do almost all things that the humans do and continue to progress and quickly “learn” a set of human actions. For example, these machines are able to translate text into hundreds of languages or drive the car. Moreover, digital technologies can help to quickly and efficiently compare large amounts of data, for example, reams of biometric or financial data, and diagnose and detect an illness or fraud more accurately than any doctor or accountant (‘Coming to an office’ 2014).
Therefore, digitization can potentially surpass the abilities of millions of people. Many scientists assert that there has never been a worse time to be an ordinary worker with ordinary abilities than now. Oxford University study suggests that almost 47% of jobs could be automated in the next two decades (‘Coming to an office’ 2014). Among the most vulnerable to machines professions are those that require the fulfilment of routine and repetitive tasks, for example bank tellers, ticket agents, typists, and production-line jobs. Furthermore, digitalization rapidly removes working places from services sector, which provides most jobs in the U.S. economy such as call centres, marketing and sales (‘Coming to an office’ 2014). On the other hand, skilled professionals, who have creativity and managerial expertise, are less vulnerable to automation and tend to be higher-ups.
The following three reasons for the displacement of the traditional form of the business organization due to digitalization are identified (‘Wealth without workers’ 2014). First of all, workers will lose their jobs owing to the rise in machine intelligence. Since digital technologies force competition between specialists of all sorts such as auditors, radiologists, drivers, and cashiers, among others, and machines, employees need to become much more productive and flexible than before. Secondly, wealth created by the digital technology generates less employment. For example, such giants of the modern technological economy as Google and Facebook hired around 50,000 and 8,000 employees respectively (‘Robber barons’ 2015). In comparison with the industrial giants of the XX century, it is only a small part. Thirdly, robotics achievements are also used by the emerging economies. For example, the biggest China’s manufacture Foxconn is going to substitute almost 1.5 million of workers by robots.
There is no doubt that rapid technological advancement over the past few decades is increasing the economy’s productive capacity and common wealth. Despite the fact that innovation displaces some jobs, it creates new and better ones so that society becomes more productive and richer. Moreover, people become wealthier and demand more goods and services. However, progress in technologies does not benefit everyone in society as advances in technology cause unemployment. Brynjolfsson and McAfee (2012) argue that U.S. lingering unemployment problem can be explained by the fact that businesses have begun to use computers and other devices that efficiently manufacture cheap goods and services previously produced by employees. For example, nowadays in the U.S. labour market, a surplus of the workforce is observed (see fig. 1).
Therefore, the present state of the economic development is characterized by the deep employment recession that is worse than in any other post-war periods (Ro 2013). As it can be seen from the chart, after 2007, there was relatively slow recovery of the labour market, which was much lower than during the previous years of high unemployment (fig. 1). According to it, employees need more time to find a new job. Thus, this effect is a so-called “technological unemployment,” when economy is unable to create new working places faster than jobs were lost due to automation of working processes.
Brynjolfsson and McAfee (2012) suppose that the explanation of the unemployment problem lies in inability or unwillingness of current institutions to help employees develop their skills in line with the rapid changes in technology. In comparison with the technological revolutions in XIX and XX centuries, the current third digital revolution is faster and more pervasive. Unlike the previous impressive innovations such as steam engine, electric motor, and internal combustion engine, nowadays, digital technologies provide a high level of continuous improvement in most areas of human activity. The reason is that modern computers are raising their capacity, and they are thousands of times more powerful than they were in the first years of their invention (Brynjolfsson & McAfee 2012). Considering the trend of their development, it should be assumed that this pace will continue for decades.
Despite the fact that there is high unemployment, the jobs lost in one sector are usually replaced by jobs in another sector, especially new and growing ones (Drum Hill Capital n.d.). The economists from the Drum Hill Capital (n.d.) offer the following example to illustrate such job replacement. There is an unemployed bank teller, who lost his job because now his bank is using ATM for automation of the teller’s work. At the same time, with more effective expenses due to automation and smaller number of employees, this bank will have more capital to lend to businesses. Furthermore, these businesses can expand and begin to hire more workers. Hereby, among the hired workers, it could be the bank teller who lost his job due to ATM automation. Consequently, this is a simplified scenario of jobs’ replacement by digital technologies. On the other hand, digital revolution has created a number of opportunities for explosion of startups. Due to platforms that host services (Amazon’s cloud computing), provide distribution (Apple’s and Android’s app stores) and offer marketing (Facebook), new growing enterprises can more effectively create, distribute and sell their own goods and services. Thus, they are making new working places for millions of people (‘Coming to an office’ 2014).
However, business digitalization will be beneficial for all if humans understand the labour market dynamics and reduce inefficiencies in it. The major idea of the improvement of the current situation is that people need to compete with computers but not against them. To ensure the effective collaboration between the humanity and machines, it is important to take into account competitive advantages of each party (Brynjolfsson & McAfee 2012). For example, computers are stronger in relation to error-free consistency, repetitive arithmetic and routine processing, complex communication, and pattern matching. On the other hand, humans are stronger in using their intuition and creativity and can work outside a predefined framework. Therefore, there are two solutions for the improvement of the partnership between the employees and computers. The first solution is the rise in the rate and quality of organizational innovation, while the second solution is the increase in human capital (Brynjolfsson & McAfee 2012).
The rise in the organizational innovations means that organizational structures, processes, and business models should be grounded on leveraging digital innovations and human skills. Indeed, modern technologies create opportunities for business and individuals to use their knowledge for the benefit of the whole economy. Nowadays, there exist enormous possibilities for combining machines, applications, tasks, and distribution channels. On the other hand, the increase in the human capital will provide smooth transition from old industries to new ones for workers. It is well-known that educational sector is an adopter of modern technologies. That is why the creation of flexible conditions to educate and train new workers will increase the capacity of the labour force (Drum Hill Capital n.d.).
Thereby, improvements in educational productivity will reduce the level of unemployment. Moreover, digital technologies can be used to ensure this. For example, modern study centres are using now videoconferencing, online tutorials, software, and networks to provide education opportunities for people in different parts of the world. Thereby, investing in human capital, especially in youth, will make effects of technological progress more beneficial.
The Rise of the “Technology Barons”
Today’s technology giants such as Google, Apple and Microsoft have a lot in common with technology barons, who lived in the XX century. In the article ‘Robber Barons and Silicon Sultans’ (2015), it is suggested that two groups of billionaires have formed as a result of technology improvement. The first group comprises so-called “the robber barons” such as Henry Ford (automobiles), John Rockefeller (oil), Leland Stanford and E.H. Harriman (railway stations), and Andrew Carnegie (iron) to name but a few. Talking about the second group, it is compounded of today’s technology billionaires such as Bill Gates (Microsoft), Larry Page and Sergey Brin (Google), Mark Zuckerberg (Facebook), Steve Jobs, Steve Wozniak, and Ronald Wayne (Apple), among others. The author calls them the “silicon sultans” (‘Robber barons’ 2015).
The success of both groups is dependent on the logic of economy of scale. It allowed them to keep reducing prices and improving quality. For example, the price for Ford’s automobile Model T has been decreased from $850 in its first year of production to $290 in 1924, while the quality of car has risen (‘Robber barons’ 2015). Similarly, Apple’s iPhone is more powerful than ATMS in 1960, while its price is making it possible for an ordinary citizen to purchase it (‘Robber barons’ 2015).
Nevertheless, robber barons have got their common name due to the accusations of market monopolization. For example, at the beginning of the XX century, American trusts and holding companies held nearly 40% of country’s manufacturing assets (‘Robber barons’ 2015). In comparison with the industrial barons, modern “silicon sultans” using the network effects are focusing on the market power on the one hand. For example, nowadays, Google and Apple are dividing among themselves almost 90% of smartphones operating systems, and Facebook connects over 50% of North Americans and 35% of Europeans (‘Robber barons’ 2015).
Naughton (2012) in his article suggests that modern technology companies have become an integral part of the political system. For example, on the Facebook space, political and other potentially controversial views are expressed, while Amazon is a leading publisher (Naughton 2012). Furthermore, Google controls 92% of the Europe search market and 64% of the U.S. search market (Macdonald & Fioretti 2015), and it has the power to make any website invisible for Internet users (Naughton 2012). Moreover, such companies are almost irresponsible for their actions while possessing such power of information usage (Naughton 2012).
Therefore, such situation attracts the attention of the authorities of different countries. The political response to the technology companies’ activity lies in investigations of tax evasion, market monopolization and anti-competitive behaviour. In this case, governments and their associations pursue companies with the aim of restricting some of their activities in the areas of distribution and use of certain information and apps. For example, during the last two decades, the American government and the European Union have accused Microsoft Corp. of predatory pricing and undermining competition (‘Robber barons’ 2015) as regulators in both jurisdictions were sure that antimonopoly approaches will ensure the competitiveness, innovation, and benefits for consumers of the technology goods. The investigations of the company by the U.S. government began at the beginning of 1990’s when Microsoft was a leading corporation in the computer operating systems market (Jennings 2006).
The key government’s observations on the company's work lay in the fact that it has illegally “tied” its own products (Internet Explorer and later Windows Media Player) to the computer operating system. As a result of negotiations between Microsoft and the U.S. government in the 2001, the parties signed an agreement. According to it, the company undertook not to prohibit computer manufacturers from adding software programs from the competing companies and installing boot sequences that draw away users away from Microsoft products (Jennings 2006). Microsoft Corp. has also come under the antitrust inspection of the European Union. Microsoft was penalized four times and was required to change key elements of its operating software and business practices. Eventually, after the last fine totalling more than $3 billion, European Union left it alone and turned its attention to Google (Macdonald & Fioretti 2015).
In fact, during the last years, European Union is trying to reduce Google’s dominance in the market of search engines (‘Robber barons’ 2015).The problem situation with Google is grounded on that fact that the company gets many complaints from a number of firms from the United States and Europe such as Microsoft Corp., eJustice (a French legal search engine), Foundem (a British price comparison site), VfT (a German association of business listings), and VDZ and BDZV (German magazine and newspaper publishers) among others. In these complaints, companies argue that Google cheats consumers and competitors by offering through the search engine its own comparison shopping services over third party sites (Macdonald & Fioretti 2015). On the basis of these complaints, the European Union regulators have started the antitrust charges against Google. Apparently, this shopping case of Google is able to create a precedent for concerns over Google's search products for other services such as hotels and flights to name but a few (Macdonald & Fioretti 2015). After the first investigation, Google had revised its advertisement policies and made some concessions to the requirements of the European Union. Nevertheless, Google did not change its search bias policy and continue to promote its first party sites over opposing third party ones (Macdonald & Fioretti 2015).
Another object of close attention of antitrust regulators is Google Android mobile operating system, which covers almost 70% of smartphones in Europe market and 48% in the U.S. (Macdonald & Fioretti 2015).Google uses Android to maintain revenues from online advertising, using the people’s habit to switch from Web browser searches to smart phone apps (Macdonald & Fioretti 2015). The antitrust investigation grounded on the fact that Google has closely connected Android with other Google’s services and applications. According to them, Google’s Android strategy is similar to Microsoft Internet Explorer and Windows Media Player Strategies, when company was releasing them with Windows at the end of the 1990s (Macdonald & Fioretti 2015). On the base of the European Commission antitrust rules, it can penalize Google up to 10 % of its annual sales, which in 2014 were nearly €6 billion (Macdonald & Fioretti 2015). Thus, along with inequality and monopoly, the main accusation against the silicon sultans concerns privacy since digital industry is making much of its money by gathering private information (‘Robber barons’ 2015).
A critical review of the modern scientists’ opinions on the current position of digital technologies in the society allows one to make the next conclusions.
First of all, the phenomenon which is called “The third digital revolution” really exists. It is manifested in the fact that new digital technologies appear in many areas of modern life, starting from study and work and ending with the entertainment. Modern scholars express concern with regard to the fact that in a short time, the diffusion of technologies will displace workers. To support this claim, they cite the official statistics according to which the increase in new technologies leads to the rise in the unemployment rates. On the other hand, other scientists argue that the problem is in an excessively rapid development of technology, which does not allow some workers to adapt quickly to the new conditions. As a result, they lost their job. Nevertheless, scientists prove that these workers can acquire jobs in other new and growing sectors. In order to ensure this, it is necessary to raise the rate and quality of organizational innovation and increase human capital by investing in it.
Secondly, the third digital revolution has created so-called “technology barons” that are billionaires, who own technology companies such as Microsoft Corp., Apple, Google, and Facebook, among others. In comparison to their predecessor, namely “robber barons,” modern “technology barons” are accused of monopolizing the market and non-competitive actions against their competitors. Therefore, governments and businesses are trying to influence the technology giants’ activities in order to put them in a more competitive environment. Among the most high-profile cases, there are negotiations between the U.S. government and the Microsoft Corp. ended with the company’s concessions in relation to the issues of the dissemination of some of its programs as well as the European Union’s prosecution of Google.