A New Approach for Business Strategy, on the Second Half of the Chessboard.

In the past few years, we have seen a growing disaffected class of people across nations. The rise of virulent strains of nationalism is often linked to their voting patterns. In 2016, you see echoes of this around the World: from the US and the rise of Donald Trump, to BREXIT and various other European nationalist movements.

Some nationalists have gone so far as to say that this modern "clash" is between nationalism and globalization.

They are wrong: in their diagnosis, if not in their prognosis. 

Don't worry, this is not another essay looking to add to the many bytes of material written on this topic.

It instead explores the nature of a much more unstoppable and insidious force of creative destruction at the heart of much of this angst, and attempts to build a mental model for how to interpret it and build solutions.

That force, of course, is the world of digital technology, which is dramatically reshaping our lives, and has indeed been doing so for decades. This is not to say that digital technologies are bad -- quite the opposite: they are the foundations of modernity as we know it. 

What we must instead do is reshape our mental models for how economic value can be created today and in the future, so that we can look to not just survive the future, but thrive in it.

It all starts with a concept you are likely familiar with: or have at least heard of. Moore's Law. Which is not really a law but rather an observation, that the number of transistors we can print onto a microchip doubles every ±18 months.

Why does this matter to your business strategy? It's because this also means that the computational capacity available at our fingertips doubles every 18 months.

How do you plan your business strategy knowing that your capabilities, theoretically at least, can double every 18 months?

What do you do in the short term? How do you plan for the long term?

It is difficult for the mind to fathom the scope of this challenge. Consider the parable of The Second Half of the Chessboard and the Law of Accelerating Returns, illustrated by Ray Kurzweil over a decade ago:

Toward this end, I am fond of telling the tale of the inventor of chess and his patron, the emperor of China. In response to the emperor’s offer of a reward for his new beloved game, the inventor asked for a single grain of rice on the first square, two on the second square, four on the third, and so on. The Emperor quickly granted this seemingly benign and humble request. One version of the story has the emperor going bankrupt as the 63 doublings ultimately totaled 18 million trillion grains of rice. At ten grains of rice per square inch, this requires rice fields covering twice the surface area of the Earth, oceans included. Another version of the story has the inventor losing his head.

It should be pointed out that as the emperor and the inventor went through the first half of the chess board, things were fairly uneventful. The inventor was given spoonfuls of rice, then bowls of rice, then barrels. By the end of the first half of the chess board, the inventor had accumulated one large field’s worth (4 billion grains), and the emperor did start to take notice. It was as they progressed through the second half of the chessboard that the situation quickly deteriorated.

That is how sudden, dramatic and absolute the impact of exponential growth can be: and the impact of Moore's Law on your business and your employees; or your organization/country and its people.

This incremental and exponential computational capacity available to firms today has allowed for machines to move from basic pattern recognition (analytics) to some automated learning (machine learning,) and now into areas like deep learning, which are pre-cursors to proper artificial intelligence. 

This is why we have seen new models of automation make large groups of people redundant, as machines did with the industrial revolution.

When an algorithm can do what you do better and faster, the algorithm will win.

"The trouble with artificial intelligence is that it lacks artifice, and therefore intelligence." - Jean Baudrillard.

One somewhat natural response to this phenomenon is to believe that human beings, as creators, can maintain the advantage over their digital counterparts through creativity.

The pattern linking to BREXIT - disengaging from a large system to gain some autonomy - is not entirely incidental - and is perhaps equally misguided.

Anything that can be digitized loses its inherent value, as anything that can be digitized can be replicated and shared at scale. (It is no longer unique and differentiated.)

This value is replaced by its networked value -- or the ability to access that digital material. The big winners here are invariably not the creators themselves, but the aggregators -- the servers. Facebook, Google, Amazon, Youtube, Netflix, Spotify, iTunes, and so on.

(Incidentally, a mirror phenomena for nations is the form of securitization via the social state that we see with the EU, achieving scale to allow for collective bargaining and a currency union for managing risk to economic value -- through firewalls and quantitative easing -- which is in itself a "safe" but potentially fragile equilibrium -- but that is a topic for another day.)

The challenge that lies ahead for the World, then, is:

- For Corporations: how do you spot opportunities for growth in this fast changing environment? How do you train and re-train your employees to operate within this environment?

- For Nations: how do you manage these transitions at a policy level, especially when it comes to providing now-redundant labor forces a second chance to contribute to the economy (thus avoiding both unemployment and the widening wage gaps that are at the root of many of the issues of nationalism we see today)?

We can start by creating a new mental model for what kinds of businesses / behaviors digitization and exponential growth naturally privilege, and what kinds of roles humans may play within them. 

The presentation above shows one interpretation on the re-organization of the evermore digitizing economy on the basis of the key human-machine interactions -- and the kinds of tasks they might privilege. 

This is just the start of this exploration, but I'd love to know your thoughts on what you believe comes next. As I shape my notes I see this as a four-part essay, so watch this space.

Meanwhile, leave a comment below or send me a message to take the conversation further.