Digital Transformation – The Bearish Case

We can see that a broad discussion on boom or gloom scenarios for the world economy is taking place across the political and economic spectrum based on this New York Times article. How technological innovation increases productivity is at the center of this debate. It aligns nicely with the raging debate and marketing hype around digital transformation.

The marketing hype unleashed by the technology-consulting-analyst industrial complex would lead us to believe that we are at the onset of unprecedented age of growth based on intelligent machines, robotics, cloud computing, big data, new materials, 3D printing, synthetic biology, hyper connectivity, etc. A timely illumination on this topic comes from Dr. Robert J. Gordon in the form of very impressive, “The Rise and Fall of American Growth.” Dr. Gordon’s contention is that advances in technology of the last 3 decades have not been as transformational to the human kind as the ones that happened between 1870 and 1970. He argues the following (from the book)

Economic growth since 1970 has been simultaneously dazzling and disappointing. This paradox is resolved when we recognize that advances since 1970 have tended to be channeled into a narrow sphere of human activity having to do with entertainment, communications, and the collection and processing of information. For the rest of what humans care about—food, clothing, shelter, transportation, health, and working conditions both inside and outside the home—progress slowed down after 1970, both qualitatively and quantitatively.

One way to forecast (bullish or bearish) impact of Digital Transformation over the next few decades (20-30 years) is to see how various elements of Digital Transformation influence different industries.

We can arrive at a bullish case for Digital Transformation if the element(s) of Digital Transformation have a beneficial impact on the productivity and product/service quality in different industries. The bears will triumph if the impact is minimal and/or major headwinds persist for broad adoption of elements of Digital Transformation.

The following elements are generally seen as the foundation for Digital Transformation.

  • Mobile and Cloud Computing
  • Internet of Things (Sensors, Intelligent Machines, etc.)
  • Robotics
  • Artificial Intelligence
  • Genomics and Synthetic Biology
  • New Energy Sources

We will first test the (bullish and bearish) thesis by creating a prognosis of the beneficial impact of the above on various industries from the NAICS industry classification in the table below.

 

As we can see from the table above digital transformation has a beneficial impact mostly on information rich industries. Large parts of the real economy, like construction, agriculture, retail, trade and government may not see much in terms of positive impact on productivity and product/service quality. In addition, major headwinds listed below can act as obstacles to widespread adoption of elements of digital transformation or lead to failure in realization of significant productivity gains, positive outcomes and/or improvement in product/service quality.

  • Adoption of mobile computing is closing on saturation levels globally and no more productivity gains are to be realized due to lack of original iPhone (in 2007) level innovation
  • Adoption of Internet of Things in various industries does not take off due to lack of interoperability, limited user adoption, regulatory hurdles, security issues and limited marginal utility for end customers
  • Artificial Intelligence hits major roadblocks again due to low trust and reliability
  • Robotics fails to achieve dexterity and intelligence of a 5 year old
  • Bio-ethics, regulatory hurdles and consumer aversion for genetic modification stalls progress in Genomics and Synthetic Biology
  • Cost reductions in solar and wind power flatten out and oil prices remain low. Progress in battery technology does not materialize.

Kris Gorrepati

My 2 cents on Supply Chain Management, Manufacturing, Design, New Product Development, Software Engineering, and related topics.

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