Big Data

A History Lesson on Economic-driven Business Transformation

Bill Schmarzo By Bill Schmarzo July 31, 2014

The current Big Data craze is nothing new, especially if you view it from the proper perspective.  While the popular debate is around the “disruptive” technology innovations – Hadoop, NoSQL, R, Mahout, YARN, etc. – the real discussion should be about the economic impact of big data.  That is:

How effective is your organization at leveraging new sources of data and advanced analytics to uncover new customer, product and operational insights that can used to differentiate your customer engagement, optimize key business process and uncover new monetization opportunities?

Contrary to popular opinion, new technology doesn’t disrupt business. It is what organizations do with the technology that disrupts existing business models and enables new ones.

Here are just a few of the lessons that history can teach us about how innovation can change the economic landscape to create new business opportunities.

the original printing press The Printing Press enabled the compilation and dissemination of knowledge, by transforming manuscript development from a manual scribing process to mass production. The printing press enabled the extension of literacy among laypeople and supported the rapid growth of businesses that demanded a less-costly method of written records.

– The immediate effect of the printing press was to multiply the output and cut the costs of hand-written books. It made information available to a much larger segment of the population. Libraries could now store greater quantities of information at much lower cost. Printing also facilitated the dissemination and preservation of knowledge; printing could and did spread new ideas quickly and with greater impact.

– Printing stimulated the literacy of laypeople and deeply impacted their private lives. Although most of the earliest books focuses on religion. But soon,all classes of people sought books covering a wide array of topics. Printing provided attainable scholarship and prevented corruption of texts through error-prone hand copying. By giving all scholars the same text to work from, it made progress in critical scholarship and science faster and more reliable[1].

– Interchangeable Parts transitioned manufacturing from custom crafting process into the mass manufacturing of products that enabled the industrial revolution.

standardization of interchangeable gun parts

Figure 1: Standardization of Gun Parts

– During the Industrial Revolution of the 19th century, machines took over most of the manufacturing work from laborers, and factories replaced craftsmen’s workshops. The event that laid the groundwork for this monumental change was the introduction of interchangeable parts, or pre-manufactured parts that were for all practical purposes identical, into the firearms industry. Interchangeable parts, popularized in America when Eli Whitney used them to assemble muskets in the first years of the 19th century, allowed relatively unskilled workers to produce large numbers of weapons quickly and at lower cost, and made repair and replacement of parts dramatically easier[2].

steam engines on a crowded city street The Steam Engine enabled urbanization, industrialization and the conquering of vast new territories.  The steam engine, when applied to railroads and steamboats, rapidly increased mass transportation. This created new jobs and enabled people to leave low-paying agricultural jobs to move into cities for higher-paying manufacturing and clerical jobs resulting in a higher standard of living.

– Cities like London, for example, shot up in terms of population. In 1801, before the advent of George Stephenson’s Rocket, London had 1,117,000 people. After the invention, however, the population of London had more than doubled to 2,685,000 people in 1851. London, along with several other cities of over 100,000 people transformed the nucleus of society from small tight-knit communities where textile production and agriculture were prevalent into big cities with a variety of jobs and people. Again, this is evident in London, where it was largely agricultural based until the steam locomotive. The steam locomotive provided quicker transportation and more jobs, which in turn brought people into cities and drastically changed the job outlook. By 1861, only 2.4% of London’s population was employed in agriculture, while 49.4% were in the manufacturing or transportation business. The steam locomotive was a major turning point in history as it transformed society from largely rural and agricultural into urban and industrial[3]. 

internal combustion engine The Internal Combustion Engine personalized transport, enabled suburbanization and dramatically increased personal mobility and growth opportunities.  The internal combustion engine, especially when coupled with the interstate highway system here in the United States – drove the growth of commerce, geographical specialization, resource optimization and personal and family upward mobility.

– In the twentieth century, few inventions had as enduring an influence on the economy and environment, as well as on the daily lives of millions of people, as the internal combustion engines developed by Nikolaus Otto (1832-1891) in the 1860s and Rudolf Diesel (1858-1913) in the 1890s. While Otto’s engines required spark plugs for fuel combustion, Diesel’s engine achieved this with high compression. These inventions could power automobiles, locomotives, ships, and airplanes, and paved the way for mass mobility and the steadily rising exchange of people and goods worldwide. At the same time, this has caused massive changes to the landscape and the environment through the building of countless roads, global air pollution, and the increasing resource and energy consumption of high-energy societies[4].

The Interstate Highway System drove the growth of interstate commerce, geographical specialization, and personal and family mobility.

map of US interstate highway system

Figure 2: United States Interstate Highway System

– The United States Interstate Highway System increased the ease of transporting raw materials and manufactured goods between rural and suburb areas, reducing the costs and saving time for consumers and producers.  All Americans reaped the benefits from less expensive and speedier goods and services. Food made it to market without spoiling, and gave the consumer a greater life on the produce.  

– The mass connections of highways attracted new industries to new areas and encouraged their expansion.  This allowed for the expansion of large cities to form away from the coastal ports.  The rural areas around these new cities could be farther away. This in return increased the employment rate, now that travel was possible for daily commutes.  People who worked in the city were now able to live in rural areas[5]. 

old-fashioned telephone The Telephone democratized communications and collapsed the time-space continuum (he-he-he) by eliminating distance as an issue in communications.  It allowed individuals to contact each other (supporting the geographical disbursement of families), and it enabled businesses to manage and coordinate physically disbursed work teams and manufacturing efforts without regard to distance or space.

– Within 50 years of its invention, the telephone had become an indispensable tool in the United States.  For example, people said the telephone would: help further democracy; be a tool for grassroots organizers; lead to additional advances in networked communications; allow social decentralization, resulting in a movement out of cities and more flexible work arrangements; change marketing and politics; alter the ways in which wars are fought; cause the postal service to lose business; open up new job opportunities; allow more public feedback; make the world smaller, increasing contact between peoples of all nations and thus fostering world peace; increase crime and aid criminals; be an aid for physicians, police, fire, and emergency workers; be a valuable tool for journalists; bring people closer together, decreasing loneliness and building new communities; inspire a decline in the art of writing; have an impact on language patterns and introduce new words; and someday lead to an advanced form of the transmission of intelligence[6].

early computer operating system Computers automated common tasks and enabled scale in previous processes that were human limited (like placing phone calls).  It has also enabled the outsourcing of many labor-intensive tasks to less-expensive locations, both reducing the costs of manufacturing but negatively impacting the livelihoods of many workers and communities.

– The advent of computers has markedly improved our economy and standards of daily living as business, commerce and global trade has flourished at unprecedented rate over the past decades. Furthermore, it has significantly increased the utilization of resources, which in turn resulted to a big deluge of output in many business establishments.

– The computers served as a tool for global communication, where the export and import of manufactured goods between and among countries’ businesses are being arranged as communication through electronic mails or emails travel as fast as the speed of light. With the entry of imported products into the local market, consumers nowadays need not go abroad only to sample some of the world’s finest food, clothing and apparel and grooming products.

– As trade among nations allowed the phasing-out of some barriers, imported goods freely enter the market of a given country with a markedly reduced tax imposed on such goods thereby lowering the selling price of the goods. Because of the stiff competition, international manufacturers and suppliers are given no other alternatives except to mark down the price of their commodities to compete[7].

internet codeThe Internet dramatically reduced the cost of commerce – finding and buying products and services while liberating the sharing of knowledge (both good and bad).

– The Internet changed the way we worked, socialized, created and shared information, and organized the flow of people, ideas, and things around the globe. Yet the magnitude of this transformation is still underappreciated. The Internet accounted for 21 percent of the GDP growth in mature economies over the past 5 years (2006 – 2011). In that time, we went from a few thousand students accessing Facebook to more than 800 million users around the world, including many leading firms, who regularly update their pages and share content. While large enterprises and national economies have reaped major benefits from this technological revolution, individual consumers and small, upstart entrepreneurs have been some of the greatest beneficiaries from the Internet’s empowering influence. If Internet were a sector, it would have a greater weight in GDP than agriculture or utilities.

– And yet we are still in the early stages of the transformations the Internet will unleash and the opportunities it will foster. Many more technological innovations and enabling capabilities such as payments platforms are likely to emerge, while the ability to connect many more people and things and engage them more deeply will continue to expand exponentially[8].

To Summarize:

Technology Innovation Economic Impact
Printing Press Expanded literacy (eased knowledge capture and enabled knowledge dissemination to the masses)
Interchangeable Parts Fueled the industrial revolution
Steam Engine (Railroads & Steamboats) Sparked urbanization (drove transition from agriculture to manufacturing-centric society)
Internal Combustion Engine Triggered suburbanization (enabled personal mobility, both geographically and socially)
Interstate Highway System Foundation for interstate commerce (enabled regional specialization and wealth development)
Telephone Democratized communications (by eliminating distance/delay as an issue in communications)
Computers Automated common processes (thereby freeing humans for more creative, personal engagement)
Internet Gutted cost of commerce and knowledge sharing (enabled remote workforce and international competition)

 

The Potential Economic Impact of Big Data

Which bring us to Big Data.  All of the above innovations share the same lesson:  it wasn’t the technology that was business disruptive – it was what organizations did with the technology that disrupted existing business models and enabled new ones.  In the end, it’s about identifying and understanding how big data can transform your business model (see Figure 3).

big data business model maturity index

Figure 3: Big Data Business Model Maturity Index

There are many additional “technology innovation” examples – beyond just information technology – that one can draw upon to better understand the potential economic impact of technology innovations. It’s not the technology that causes the business disruption; it’s how organizations use the technology to attack current business models and formulate new ones that causes the disruptions and opens up new economic value creation opportunities.

Which brings us back to the key question one needs to ask of big data:

How effective is your organization at leveraging new sources of data and advanced analytics to uncover new customer, product and operational insights that can used to drive new economic value by differentiating your customer engagement, optimizing key business process and uncovering new monetization opportunities?

 


[5] http://highway.umwblogs.org/impact/

[6] http://www.elon.edu/e-web/predictions/150/1870.xhtml

[7] http://ezinearticles.com/?The-Impact-Of-Computers-On-The-Economy&id=5733885

[8] http://www.mckinsey.com/insights/high_tech_telecoms_internet/the_great_transformer

Bill Schmarzo

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