Techonomy: Digitized Decision Making and the Hidden Second Economy

 Stephen Hoover  Forbes   11/09/2011 @ 4:26PM 

There’s something big happening right now. I’m not referring to any of the popular technology memesper se—big data, social, cloud, mobile, augmented reality, context, post-PC devices, consumerization, 3-D printing, etc. I’m referring to something behind, and beyond, all of these technologies: the digitization of decision making. This increasing trend is creating a “second economy” underneath and alongside the physical economy we know so well, and on a revolutionary scale.

Economist W. Brian Arthur, a longtime visiting researcher at PARC and external professor at the Santa Fe Institute, quantified this phenomenon recently in a PARC Forum video and McKinsey Quarterly article:

The second economy…is vast, silent, connected, unseen, and autonomous (meaning that human beings may design it but are not directly involved in running it). It is remotely executing and global, always on, and endlessly configurable. It is concurrent…everything happens in parallel. It is self-configuring, meaning it constantly reconfigures itself on the fly, and increasingly, it is also self-organizing, self-architecting, and self-healing.

Arthur argues that this second economy, which author Nick Carr in turn dubs the age of “deep automation,” may represent the biggest shift since the Industrial Revolution, and lead to increases in productivity output as well as decreases in physical jobs. According to Arthur’s back-of-the-envelope calculations, the second economy could surpass the physical economy in less than three decades. The nature of work will change, jobs will change, organizational structures will change, institutions will change, and economies will change. Many of these revolutions will be hotly discussed at Techonomy 2011 and elsewhere.

Since joining PARC, a Xerox company approaching its 10-year anniversary as a business for open innovation with multiple clients, I have been focused on the following question: just what will happen to invention and innovation in this second economy?More specifically, what will be the role of R&D and innovation organizations in a new global innovation landscape?

On the one hand, aspects of the second economy can empower innovation, given the mass democratization of tools. Some would argue, for example, that “citizen science” is transforming the field of bioscience. Chris Anderson touched on a similar theme in his commentsabout the industrialization of the Maker movement, noting, “What we have discovered…are these extraordinary new ways to work—new ways to communicate, new ways to congregate, new ways to find talent, new ways to build on ideas. These post-institutional organizational models transcend geography, transcend your credentials…and everything else.”

On the other hand, innovation is more than tools and approaches. Based on our experiences and observations, the kind of innovation that transforms businesses requires the intersection of three things: 1. Expertise in technology and its trends (this goes beyond trend-spotting!); 2. A deep understanding of human behavior and context; and 3. Not just new business models, but new models for business—that is, how business is done and the new mindsets under which we’ll need to manage risk.

Just one of these is no longer enough, especially as we move beyond the services economy into what I call the “post-services age.” Our innovation models need to address what’s required today to sustain and grow our businesses, while anticipating the uncertainty ahead.

Stephen Hoover is CEO of PARC, a Xerox company that works with Fortune Global 500 and medium-sized companies, startups, and government agencies and partners to invent, co-develop, and deliver new business opportunities. Hoover oversees PARC’s work in diverse areas, from networking and novel electronics, to ethnography services, cleantech, and intelligent mobile computing.

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