How Value Shifted from Tangible to Intangible in 30 Years

One of the most visible effects of the Fourth Revolution is the shift of value from tangible to intangible. It can be measured, and it is tremendous. Organization’s value today is 80% intangible, while before 1970 it was the reverse.

shift tangible to intangibleIn the Industrial Age the value of organizations was machines, and other tangible assets. It is actually what is measured by traditional accounting in balance sheets. Nowadays, most of the value is intangible assets – people, knowledge, brands, ways of working. The shift has been measured and this revolution is quite impressive. It is a real indicator of the Fourth Revolution in action.

The fact that traditional accounting has not adapted to this shift (people are still a cost and not an asset..) is a major issue that will necessarily lead to problems of valuation very soon. Accounting maintains an illusion that can’t reflect the actual value of an organization. The market does somehow, but does not account for intangible benefits either (such as, allowing connections between people in the world).

The shift from tangible to intangible is a tremendous change and its aftershocks will still be felt for the decades to come in many areas.

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How Individualism Returns after a Short Industrial Age Parenthesis

Paul Graham in his (controversial but thought provoking) post ‘Refragmentation‘ gives an interesting overall view of how the Industrial Age may have just been a short parenthesis in the history of humankind when it comes to lesser individualism and more even spread of wealth.

How Rockefeller was wrong. Individualism only collapsed for the Industrial Age.
How Rockefeller was wrong. Individualism only collapsed for the Industrial Age.

He states: “The late 19th and early 20th centuries had been a time of consolidation, led especially by J. P. Morgan. Thousands of companies run by their founders were merged into a couple hundred giant ones run by professional managers. Economies of scale ruled the day. It seemed to people at the time that this was the final state of things. John D. Rockefeller said in 1880: “The day of combination is here to stay. Individualism has gone, never to return“. He turned out to be mistaken, but he seemed right for the next hundred years.”

With the Fourth Revolution, large companies are not any more the most effective way of creating value. Individualism is enhanced by our capability to broadcast to the world, and the contribution of everyone is enhanced.

In many ways the Industrial Age was an exception to the way the world had been moving along, and it may have been a short exception in many ways regarding individual life, employment and our social contract.

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How the Fourth Revolution Definitely Made Reductionism Obsolete

Antireductionism “advocates that not all properties of a system can be explained in terms of its constituent parts and their interactions” [Wikipedia]. It stands opposed to reductionism, the approach typical of the Industrial Age, which considered that the behavior of entire systems can be explained completely by a description of their individual constituent parts and their interactions.

In the 18th century people thought animals could be described as a mechanical apparatus
In the 18th century people thought animals could be described as a mechanical apparatus

Already the philosophers of Enlightment struggled a bit with reductionism that was contradicting our free will. Still, the mechanistic view of reality dominated science and our understanding of the world until far into the 20th century.

Today in many areas such as chaos, systems biology, evolutionary economics, and network theory, we know that complex, unpredictable behavior arises from large collections of simple components.

By the mid-twentieth century, many scientists realized that such phenomena cannot be pigeonholed into any single discipline but require an interdisciplinary understanding based on scientific foundations that have not yet been invented. Several attempts at building those foundations include (among others) the fields of cybernetics, synergetics, systems science, and, more recently, the science of complex systems.” writes Melanie Mitchell in ‘Complexity: A Guided Tour‘.

The study of complex systems is an emerging and still very incomplete science. It is the hallmark of the Collaborative Age.

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Historical Perspective on the Development of Weak Ties

Following on our previous post on “How the Fourth Revolutions Enhances the Power of Weak Ties” I find interesting to observe the history of weak ties throughout the different periods we have identified in the Fourth Revolution book: the Hunter-Gatherer Age, the Agricultural Age and the Industrial Age.

Hostile_African_tribe
In the Hunter-Gatherer Age, Weak Ties were inexistent

As clearly exposed by Jared Diamond in his latest book “The World Until Yesterday: What Can We Learn From Traditional Societies“, in the Hunter-Gatherer Age, weak ties did not exist. You were part of the tribe or not. If you were not part of the tribe we had to fight you as a basis (before any attempt at discussion). This is still observed with tribes that had never any contact withe the outside.

In the Agricultural Age, with the advent of Writing, Empires and Cities, weak ties developed, mainly within the wider urban community. Still the extended family (the ‘blood’) and unions between families remained extremely important and essential, before considering any additional relationships.

In the Industrial Age, with the advent of printing and long distance communication of ideas, weak links became much more important. There are a number of instances where weak ties played important roles in particular in the community of scholars, who were exchanging correspondence and ideas all over Europe. It also extended to the skilled workforce and artisans. However, because of the technical limitations, long distance weak links were still difficult to maintain and communication infrequent.

Finally the Fourth Revolution and the Collaborative Age will allow us to fully leverage our weak ties to a much wider and dispersed community of people.

Ideas are breeding through chance encounters with other ideas. They breed through our weak links. With these weak links becoming easier, more global and prevalent, how can the Collaborative Age not be an Innovation Age?

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Why the Disappearance of ‘Middle Class’ is Linked to the Fourth Revolution

There are more and more converging papers, posts and books about the disappearance of the ‘middle class’. The ‘middle class’ actually is quite a specific concept linked to the Industrial Age – it did not exist before: employees of corporations with a significant buying power and certainty in future revenue and position, that could hence spend in a number of consumption goods and invest in property, own their own house…

The income of the median population is significantly shrinkingIt seems quite visible from the available statistics that in effect, the wealth of the ‘middle class’ is diminishing; that less and less people can be described as being part of this group (as shown by the graph above); and that the very characteristics that described it – job security, relatively good buying power etc – seem to be disappearing.

As many authors today, I believe it is a structural change brought about by the Fourth Revolution – and not just the result of increased inequality that would be due by globalization (low salaries elsewhere…). It is due by a shift in value creation. The relatively repetitive and often bureaucratic work of the middle class is increasingly being taken up by automatic systems and soon by robots. Value concentrates in the creative work that gives life to these systems and tools.

This will pose a number of problems to our societies:

  • the consumption economy is in great part based on the buying power of the middle class
  • value creation will concentrate on a smaller percentage of the people, which will require a revamp of the redistribution policies to maintain social harmony.

This shift is probably the most critical societal shift created by the Fourth Revolution. Are you ready for it?

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Why career management is like riding an absurd merry-go-round

A little useful etymology I stumbled upon – and which explains why career management is about riding a merry-go-round!

marry-go-round with adult
Do you feel you are going in circles on a never ending race? Maybe are you ‘managing your career’ Industrial Age style?
  • ‘Career’ comes from the Middle-Age French carriere (race-course), itself a deformation from Latin. It thus means ‘racing’, a competition in scarcity where the few top positions are reserved to those who will be fastest or the strongest.
  • ‘Manage’ comes from the Middle-Age French ‘mesnager’ or Italian ‘maneggiare’ which was used to mean ‘drive a horse’ or ‘hold the reins of a horse’.

I don’t know why and I associated the two ideas and suddenly I was looking at Industrial Age career management as people riding wooden horses on a merry-go-round, always racing and never getting anywhere. Just going around on an absurd race.

Strange thought?

Where is your current racing on the ‘career ladder’ really taking you?

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First hand evidence that our traditional schools are obsolete (Video)

For those of you interested by education or training, the following video is a MUST-WATCH. It explains from where our current education comes from, why “schools as we know them are obsolete, why we don’t need them anymore”. It shows how children can learn collectively from a computer in a brick wall in India, and how a school can be built in the cloud with grand mothers and passionate adults to collaboratively educate millions of children.

It also shows how we can collectively learn much better than by ourselves! “In 9 months a group of Indian children left alone with a computer will reach the level of an office secretary in the West“. Amazing? Scary? How fast do you guess will tamil-speaking children in a remote village in South India learn the techniques of DNA replication in English by themselves? Watch out!

The next time you want to teach a group something completely new, dig a hole in the wall, put a computer with the topic and let them play with it until they get it!

For further insights on the issue of education, TED is curating a page dealing with the educational revolution (Re-imagining School), grouping all the talks about the topic.

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Why Conventional Organizations Are Not Adaptable

The basics of the ability of decision-making in uncertain environment is “confidence in the people and the flexibility of systems“. That’s the feedback from decades of military wisdom.

Did you realize that it is exactly the opposite of what large organizations do! They typically:

  • remove responsibility and initiative from the individual in the bureaucratic and hierarchical organization
  • build very inflexible systems (anybody has experience with an ERP system?) for the sake of ‘discipline’

Hands waterIt is amazing how much of my consulting work in the field of large complex projects can often be summarized in giving more confidence and empowering the people; and releasing them from the tyranny of complicated and inflexible systems.

I am almost keen to see a bit more of shake-up throughout the world to destroy those organizations of the Industrial Age that won’t be able to adapt because of these two basics principles which they have forgotten. Systems in particular are often used in such a complicated manner that organizations lose all agility to face unpredictable circumstances.

Maybe those organizations thought they could shape the world as a predictable world.

Luckily giving back power and leadership to people is what worked and what will continue to bring us to the next Age. Why did people forget such basic principles during the Industrial Age illusion of scientific management?

Quote from General Vincent Desportes in his book “Decider dans l’Incertitude” (in French)

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Why the Fourth Revolution is the Era of the Exponential, and How this Changes Everything

The Fourth Revolution is the era of the exponential – whereas the Industrial Age was the era of linearity. And that changes everything in the way we live our life:

Moore's Law 1971-2011
Moore’s Law 1971-2011 (from Wikipedia)
  • the complexity of the products we use every day increases exponentially. For example the Moore’s law states that microprocessors density on chips doubles every 2 years; and that’s the case for many other products we use every day without realizing it;
  • Successful companies and services grow exponentially, soon dwarfing existing players (the revenue of Apple was multiplied by 11 in 10 years… not to mention the even more exponential growth of the Facebooks of the world)
In the Industrial Age, things were more linear. It was easier to extrapolate the future from the past. Of course a factor is that things go faster today so that it is easier to watch exponential change in action. Yet the Moore’s law rate did not change in the past 40 years or so. Microprocessors’s density still double in the same number of years. So speed of change is not the discriminant. The fact that things grow visibly exponentially and have higher ceilings than before makes the Fourth Revolution different.

 

story of rice on chessboard
Are you sure you want to get to the end of the chessboard?

The problem is that we are not geared to feel intuitively the power of the exponential. It is very difficult to seize how fast it can grow. Do you remember the tale of the wise man that told the King who wanted to thank him: “only put a grain of rice on the first square of a chess board, then on the next square put two, then on the next square put four, then double for each square until the end of the chess board…” The King never realized that at the end of the 64 squares the quantity of rice needed would vastly exceed his available supply – and the world’s supply and even more!

This explains why so many people today have difficulty understanding what happens in the world. In their linear Industrial Age mindset, they can’t grab how the exponential is changing our lives faster and deeper than ever before.

Are you ready for a world full of exponential change?

Thanks to Mitch Joel and his post on “The Era of Exponential Marketing” – a specific area where most people also don’t realize we are in for exponential growth of product sales- for the inspiration.

The great picture of the rice on the checkboard is by Paul Starkey on Flickr

 

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Publishing A Book is Not Any More a One-Way Broadcast

If you are a e-book reader you might have noticed that you can type in your notes and share your text highlights with other readers, the world… and the publisher.

Publishing a book is not any more a one-way broadcast. And the role of the distributors has increased dramatically. Since a decade, readers can easily speak their mind on all books on most e-bookshops (the distributors) – which in effect is a sort of crowdsourcing of opinions. I now look at who recommends the book and what the opinions of readers are before buying.

ebook interactive reading
Ebooks add a layer of interaction and can spread your notes and highlights

Now an other layer of feedback has been added with e-books. Distributors like Amazon or Barnes & Noble can also get feedback from the inside of the book when you read them. On most e-book reading devices you can take notes and highlight quotes – and share them with the wider community – and the publisher.

This paper in the Wall Steet Journal, “Your E-book is Reading You” explains that the distributors have only started analyzing that huge pile of data.

And because of this huge trove of data, and the insights that will be derived from what the readers like or don’t like, the power of the Publisher will vanish while the power of the Distributor will soar – and we can predict that soon Publishers will be taken over by Distributors, like Amazon is already doing.

Publishing books started the Industrial Revolution, the era of Broadcasting. Today, publishing books enters the Collaborative Age in full, allowing almost real-time interaction with the readers. And as with other industries, publishing will be put upside down by the Fourth Revolution.

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Old Industrial Age Cliches Die Hard. Kill them Faster to Transform the Economy!

As I was travelling in France a few weeks ago I was repeatedly struck by how Old Industrial Age cliches die hard – and in particular in ‘developed’ countries.

Lets' Reindustrialize France (2012 Union poster)
Lets’ Reindustrialize France (2012 French trade union poster)

Trade unions claim that the country should be re-industrialized (poster on the right I saw on a building). That would be fine if they did not mean rebuilt large manufacturing complexes.

Authorities and traffic forecasters still believe that people take their leave all together when the factories close (which is of course, less and less true – no wonder traffic predictions are less and less accurate!).

In the midst of the crisis, the government plays with the idea of creating large manufacturing giants, the key to wealth and prosperity. Is it really?

I have two main objections to this:

  • First, in the Fourth Revolution, as argued repeatedly in this blog, a nation wealth and prosperity will not come from its manufacturing proficiency, but from its creativity, networking and knowledge enhancement capabilities. There will always be cheaper places to manufacture. There won’t be so many places to create value.
  • Second, frankly after I spent as a student a one-month experience in a car manufacturing plant, I don’t see working in a manufacturing environment as the dream of my life where I would encounter the development opportunities I dream of! So I don’t necessarily wish this to be the future of the entire next generation.

Diving into the Fourth Revolution is not easy. It is not easy at a personal level because instead of waiting for someone to give instructions we need to find out how to create value for others. It requires to change one’s mindset.

Durations of bankruptcy by country
Durations of bankruptcy by country (the Economist)

But it is not by dreaming of rebuilding smoking stacks of large manufacturing plants that the economy of developed countries will be saved. It is by releasing the creativity potential of the people!

One of the best papers I read on that lately was from the Economist, “les Miserables“, or how Europe consistently discourages entrepreneurs (published July 2012).

Do you really release the potential of your people when they get a life sentence when they fail (see the graphic on the average duration of bankruptcy)? Do you think they will take the risk to fail – a risk inherent to any creation?

Stop dreaming about going back in time to the Industrial Age. Step forward into the Fourth Revolution or you’re doomed.

Allow people to fail. Allow people to be flexible with their life. Create the infrastructures and institutions that will free people while giving them a guaranteed minimum safety net at a reasonable price.

The opportunity is now. Crisis are time where things can change, where things will shift. The current crisis might be the one opportunity for developed country to do the transition. Don’t miss it.

 

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The Hospital – another Institution that will not survive the Fourth Revolution without a deep transformation

The modern hospital is a Health Factory, and Institution of the Industrial Age. We seek there maximum effect of scale for producing a product called “health”. It is centralized, and even more so that the increasing complexity of modern healthcare, coupled with easier transportation, leads to a concentration of facilities and the disappearance of smaller, more local healthcare centers.

Hospital, the health factory
The hospital, the health factory, will be replaced by new institutions

Hospitals are there to solve situations where the sickness or the trauma is already declared. Without asking its opinion to the patient, because doctors have the knowledge of what needs to be done, it brings people into a system designed to be as efficient as possible in healing them. Tools designed by science – efficient medicines- are used.

How will healthcare transform through the Fourth Revolution? Like in other institutions of the Industrial Age, many of its foundations will be shaken and buckle:

  • through internet, patients know a lot about their conditions and doctors cannot handle patients like they did before – today they need to open a conversation with the patient, listen and convince
  • the ability to record data on iPads and all sorts of modern communicating devices makes home monitoring much easier than before
  • the same apps on ubiquitous devices can play an increasing role in prevention and monitoring, thus preventing cases to become so severe that hospitalization is unavoidable.
  • soft medicines, traditional medicines and other aspects of everyday life like one’s diet are recognized as increasingly important and powerful in preserving health; and they do not happen in hospitals

Where the Industrial Age concentrated health production in a factory called an hospital, the Fourth Revolution will again decentralize the production of health in the palm of everyone’s hand.

The medical world is one of the most conservative. Will they realize that this wave of change is coming to them before the hospital institution succumbs to the crushing forces of the Fourth Revolution?

 

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