The Digital Tsunami

These days, when migrants arrive at a refugee camp, one of the first things they ask for is access to WiFi and electricity to recharge their cell phones. Their smartphone is as basic a resource for survival as food and water. This is a vivid reminder of the fact that we are fully immersed in a digital world.

We are about to reach the point where 50% of the world’s inhabitants are connected to the Internet, most of them securing access via their cellular phones (e,g. “mobile internet”), which should, in fact, really be called “HC” – hand computers. This means that growth rates in the industry will begin to seriously decrease.

This explains why the industry is desperately racing towards a new phase of an even more radically digital world after 2020, with all the relevant buzzwords. At that time, 5G is expected to be launched with the capability of transmitting truly massive amounts of data, roughly 100 times that of current 4G. In addition, we’ll witness the exponential growth of connected objects, the so called IoT – the Internet of Things. We are thus about to enter a truly new phase—stepping up the impact of information technology in every aspect of human activity.

Some forecasts claim  that by the year 2025, more than 100 billion objects will be connected worldwide. Corresponding business volumes expected in 2021 vary between $100B and $130B, depending upon the study. Media and corporate communication offices drum the same beat to celebrate the so-called “technology”, a crass corruption of language: instead of properly talking about “information technology”, the industry’s spin doctors practice synecdoche, which consists of taking the part for the whole. Staying away from the nostalgy of: “things were better before”, let us look at a few lights and shadows of this “brave new digital world”.

Digital healthcare

Digital tools offer great opportunities for providing quality healthcare at reasonable cost. Beyond the usual benefits of computer-aided surgical robots, telemedicine and tools for improved diagnostic, digital communications will be more utilized in hospitals to improve effectiveness and efficiency.

For example, there is a great scope for keeping aging populations at home, which is the overwhelmingly preferred option compared to retirement homes. This includes non-invasive sensors and user-friendly robots, while making sure that older persons live among diverse populations, for example helping pupils after school and reading them stories, or handling “hotlines”. Massive investments should be made to adapt housing to the health and human needs of senior citizens. Part of the large financial resources of private healthcare companies should be mobilized to this end. We should also “copy with pride” the astute advances in India, where, for example, a cataract operation is carried out at a cost 500 times lower than in the US. This difference is mainly due to a careful systems organisation, rather than by the differences in salaries.

Still in the healthcare area, on the subject of productivity, ICTs (Information and computer technologies) do not always have a positive impact. For  example, highly trained professionals often spend too much time on ICT- driven menial tasks, such as scanning medical documents. More dramatic medical devices, implanted in patients or not, could even be controlled by a third party to kill the patients using Bluetooth. So far, manufacturers of medical devices have provided very low protection to such murderous hacking. They did not think of it, or decided that the cost was not justified by the risk. Indeed, thinking the unthinkable is not easy.

The connected car

Moving from healthcare to transportation, there is currently enormous hype–and investment–around “connected cars,” otherwise known as driverless cars. This is of course because it concerns an object with which consumers have had a longstanding love affair: automobiles.

Digital cars aim at several achievements. First, reduce the number of victims; each year more than one million persons die on the road. Certain counties, such as France, have managed to substantially reduce the number of traffic victims by a sustained, coherent set of measures, but the digital car offers a further step towards improvement in this area. Considering the recent, trivial failures, however, driverless cars will not be on our roads before 2025, or so. Second, increase the traffic that existing roads can handle; one talks of increase of 20 to 30%. Third, the car becomes a space for work and leisure.  Finally, driverless cars greatly enhance the autonomy for handicapped persons.

One outstanding issue remains: the insurance. In case of a car crash, the responsibility is no longer with the driver anymore, but with who? Or with what? The sensors, the hardware, the software, the road infrastructure? Fierce fights between experts are on the horizon. Obviously, the big economic impact will be that cars will then be leased and shared, dramatically dropping the number of cars sold every year: bad news for car-makers, but good news for the environment.

Individuals and the digital sphere

At the individual level, mobile Internet offers tremendous possibilities, to be further enhanced by the advent of 5G. Indeed, it is often annoying to be drawn into conversations of your neighbours on the train; it sometimes feels that the world is a phone-booth.  It is, however, a blessing for families, connecting various members dispersed geographically. It offers huge scope for online education and training. It provides a multiplicity and fast growing number of applications.

China, the ultimate Internet country, is leading the way in this area: today, more than 400 million Chinese use their smartphones to do most of their payments. Financial institutions certainly prefer digital money as its transactions are cheaper. Let us hope, however, that physical money will not disappear, as it constitutes a real, tangible connection between people, as exemplified by the fact that a type of financial product is called “bond”.

Marshall McLuhan used to say: “the medium is the message”. He kept insisting on the reciprocal influence of humans and tools. Like Aesop’s tongue, “social media” offers the best and the worst. It is a tremendously user-friendly way for people to communicate. On the other hand, their simple, immediate messages encourage approximatively exact news, bluntness, thus raising tensions between people, all the way to “mobbing”. Social media encourages name-calling, not debate. In this respect, Facebook is a true cancer for our society.

Along the same line, “instant voting” is a negation of “democracy”. Before expressing their wishes, voters need a minimum educational level, as well as sufficient debate and discussion. Almost always, “referendums” are a parody of democracy, as the voters usually reply, not to the question, but to the person who asks the question. Only in Switzerland does referendum work fairly well, because of its particular political system, a long practice, as well as good education and civic levels of the “sovereign” – the name for the people.

Another dark side of the digital world is the addiction to the screen. In the past, we had some of that with television, which destroyed most evening conversations in small towns. People are now watching television less, but more on their small screens. The faint glow sends a milky light in people’s homes. In some cases, adolescents drop out of all social contact by playing endless online games. For children, such addiction is a true affliction, denounced by many. Apparently, most of Apple’s employees strictly limit the time spent by their kids in front of small screens. Beyond this is the issue of the content of what children see; we all know the power of images. Families have an eminent responsibility to control what their children see and hear.

Industry must inform and engage with the population at large about what 5G and IoT will mean; their negative aspects must not be covered up.

At the firm level, the digital revolution presents significant benefits, for more efficiently managing stocks, manufacturing and distribution.

Companies adapting to the digital era

Existing firms must metamorphose themselves to adapt to this new reality. Chemical companies, for example, must learn to capitalize on these advances. In order to achieve this, their activity in R&D has to be “digitalized”, which is not a trivial feat. Automotive companies are the most advanced in machine-to-machine communication; among them, the Japanese are leading the way. Modular manufacturing plants using robots and drones are around the corner.

It is paradoxical to think that the smartphones of the world are produced in sophisticated plants in Asia (by the Taiwanese company Foxconn in particular) so that it is likely that the “west” no longer has the competencies to repatriate such production. On the other hand, new companies emerge and grow, in order to leverage digital tools to offer new services, such as Europe-born Skype or Airbnb. Their “business models” are not rocket science, many currently lose money, but their success depend heavily on access to large investments for fast growth and quality in execution. This is an area – speed and scale – where Chinese digital companies are unrivalled.

Challenges in our societies

At the society level, future job losses result from the combined impact of digital communication, robotics, artificial intelligence (AI) and big data. Some forecasts indicate that by 2035 half of the US labour force will be replaced by what is broadly defined as automatization. For example, cashiers in US supermarkets count for some 4 million people, who will be jobless when their work is fully automated. In many European countries, shoppers openly boycott automatic machines, declaring that they prefer to wait longer in line, to help human cashiers remain employed. Following the simple concept of Schumpeter’s “creative destruction”, jobs lost will be partly replaced by new jobs, such as guards watching the automatic cashiers, and mainly by people manufacturing and selling them. But will there be enough new jobs created?

Another example is in the financial sector, the so called “fintech”. This involves helping individuals invest their savings, as well as providing various services, from microcredit to credit rating. China is leading the way in this area, with firms such as Ant capital, which is part of Alibaba, Yooli, Anxindeli, Rquest, Qudian. The eight largest fintech Chinese firms represent a valuation of $97B, as  compared with $31B for the 14 largest US companies in this area. The expectation is that many well payed jobs will be eliminated in the financial sector. In the area of job-loss by automatization, it is crucial to ensure that the gains resulting from automatization are fairly distributed and will not further increase the already large gap between rich and poor. The digital tsunami also requires massive training and education.

For the digital revolution, nations offer an interesting unit of analysis. Cyber-war is rapidly emerging as a top challenge. Israel understood this long ago. Many countries have begun to substantially invest to defend themselves, but also to retaliate in kind, as the UK and the USA have recently announced. If the US electoral process, either by hacking or via social media, has been tampered with by a non-US country, this constitutes an issue much larger than Watergate, which mobilized the country for months in the 1970′s. In the future, voting machines could well be tampered with at distance; thus, electronic voting machines may not be such a good idea: voting with paper bulletins appears to be more sensible.

An equally frightening aspect is the bureaucratic arrogance fuelled by the ICTs.  An example is the NSA – National Security Agency. As one of the twelve US intelligence agencies, the NSA’s budget is classified, but it is estimated to be close to $12B per year. This well funded bureaucratic empire spies on the whole world without control. For what result? Edward Snowden denounced its operations, for no personal benefit whatsoever, indeed to considerable detriment of his personal comfort. He did so to alert us, citizens busy running around to feed our families and with not much time and energy left to defend our basic values, or fight bureaucracies.

The need to prepare by healthy debate

Voltaire’s fable of “Candide” features Professor Pangloss, who famously proclaims that “all is well in the best of all worlds”. “Geeks” and computer scientists occasionally sound like Prof. Pangloss. Our societies deserve better than that. With regard to the coming digital tsunami, we have to hold robust debates with lucidity. The media have a full role in this; will they be up to the task ? Our governments must anticipate, or at least accompany, the process with light-footed, but effective regulations, not self-serving bureaucracy. Consumers demand honesty and openness. Industry must inform and engage with the population at large about what 5G and IoT will mean; their negative aspects must not be covered up. These include serious issues: security (the more connectivity, the more hacking is possible), privacy and the proper use of data, opaque systems (in fact, in the case of “deep learning” in AI, the systems are opaque even to the authors of the software…), and the very dense array of antennae required by 5G.

If these negative aspects are not responsibly addressed by the industry and the regulating bodies, impatient and demanding customers will rebel. Similarly, the world currently experiences a wave against “globalisation” and  free-trade, because, forgetting the downsides, these were naïvely presented as panaceas. Then, very serious problems of acceptance of the “information technologies” will oppose strong headwinds to changes triggered by the digital tsunami.

One safeguard could be to increasingly rely on the most momentous innovation in the digital world, open source, which, by the way, is not coming from glamourous Silicon Valley, but from good old Europe (Linux, Android).  Open source, inexpensive, chips will also come into play to support IoT, marking the end of Moore’s law (and of Intel ?). Instead of making major advances in this area, as well as on the survival issue of climate change, California’s mavericks pursue Hollywoodian projects and run for big money, including massive amounts of public funds. Welcome to the brave new digital world!

By Georges Haour

About the author

Dr Georges Haour is Professor of Management at IMD, Switzerland. He also acts as an adviser to companies on effectively managing innovation. Born and raised in Lyon, France, he holds a PhD in Chemistry from the University of Toronto, Canada. Prior to IMD, for nine years, he managed a 35 staff business unit at Battelle, in Geneva, carrying out innovation projects funded by firms. He has 8 patents and more than 100 publications. His latest book is on innovation in China, titled Created in China; how China is becoming a global innovator (London, 2016). Release of the mandarin version: early 2017, by CITIC Press, in Beijing. His previous books are: Resolving the Innovation Paradox (2004) and From Science to Business (2011), both with Palgrave, London.

Image credit: Mark Smiciklas on Flickr

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