A conversation with Don Tapscott, Professor of Management, Joseph L. Rotman School of Management, University of Toronto
Published in Frankfurter Allgemeine Zeitung, a main daily newspaper, Jan. 20th, 2014
WW
Your thesis is that we are now in the middle of a paradigm shift that is similar to the shift 500 years ago with the invention of the printing press. Please explain this shift.
DT
If you go back 500 years we had a political system called feudalism and knowledge was concentrated in churches and states. There was no concept of progress. You were born, you lived and you died. And then Johannes Gutenberg introduced the printing press and over time parts of the society began to acquire knowledge. When these new institutions emerged feudalism started to appear to be inadequate. It didn’t make sense anymore, for example, for the church to be responsible for medicine.
So we had this new tool for disseminating information. Martin Luther called the printing press «god’s highest act of grace» It fueled the growth of universities, new organizations, science, the industrial revolution, the nation state and capitalism. This was all good. It ad-vanced our productive forces and our standard of living. But it came with certain costs.
Now once again another paradigm is emerging and the technological genie is once again getting once out of the bottle. This time it’s the internet and the IT revolution. But this time it’s very different. The internet is different to the printing press, because the printing press came in and gave access to recorded knowledge. The internet offers us access not only to knowledge but to the intelligence contained in the brains of people around the world. As I see it, we are not in an “information age.” We are in the age of “networked intelligence.” It is characterized by collaboration and participation, and it offers huge promises and op-portunities.
WW
This shift will bring a variety of organizational models. Which new models do you see?
DT
In general we will shift from vertically integrated models, from command and control, from hierarchies to more open network models. This affects every institution in society. The corporation is opening up. The talent a corporation needs can be found outside of its boundaries. The corporation is becoming more transparent. It is sharing a growing amount of information. And it’s opening up in a sense that it’s starting to share not only its information but assets, such as placing intellectual propriety into the commons. Computer companies now place the operating system in commons - Linux. There are pharmaceuti-cal companies that are putting clinical trial data into commons. The corporation just is one of a dozen institutions that I talk about in my book «Macroeconomics» that I wrote with Anthony Williams. These changes are affecting government, democracy, the financial system, the media, schools, universities, cities, electrical power creators and transport systems. All these sectors are embracing networks.
WW
More than 50 years ago the management thinker Peter Drucker predicted an emerging force, the knowledge worker. How can we strengthen nowadays the productivity of knowledge workers?
DT
Well Drucker was very wise. He was the first to identify that the economy is moving from brawn to brain. Drucker said the new means of production Drucker start at the brains of humans. So it’s a very profound change. We can enhance productivity by applying knowledge with the tools of our time to productive work. But productive work doesn’t mean that you work harder and you produce more ideas per hour or something like that. It means that you collaborate more effectively. The metabolism of work systems go up when you engage with the rest of the world. For example, in the case of Procter and Gamble, if you are a chemist within the boundaries of P&G, the most productive thing that you can do might not be to try to invent some molecules by yourself. You can be more productive by reaching out to other scientists in the ideagora of open markets, and find the uniquely qualified minds that exist outside the boundaries of your company.
WW
Will each part of society change? An old economic model is the financial industry. Can they go back to business as usual after the crisis?
DT
Well they are trying to. But the core modus operandi of the Wall Street almost broke the global economic system. The status quo is unacceptable and has to change. So we need to build these principles of the financial industry: Collaboration, openness, interdepend-ence. They need to understand that business can’t succeed in a world that is failing. We are all in this together. We also need integrity in sense of being honest and considerate of the interest of others.
To me the whole subprime mortgage crisis was fundamentally an integrity problem. The banks loaned all these people subprime mortgages and they knew that lots of them would never be able to make the payments. Fully 4 percent didn’t make even the first payment. These terrible mortgages were then bundled into Collateralized Debt Obligations, and the rating agencies blessed them with triple A status. Then the insurance companies insured them. Financial products were sold to investors that had no idea what they were buying and then the whole thing collapsed. But through the creation of Credit Default Swap, prof-its were still being made. What’s wrong within this picture? Everything.
We need to fix this. I don’t think it will come from within the financial services industry. These are not bad people. You know, my son works on Wall Street, he’s a good person. But the culture of the legacy processes and the whole modus operandi is so hard to change that this will have to come from the outside. I am a Canadian. We’ve avoided this whole thing and the reason was better regulation. The structure of the financial market has to be different.
WW
Do see already existing new models in the finance sector?
DT
Yes there are some great ideas that are floating around. For example, the venture capital system is broken and so now we see the surge of crowd-funding, through companies such as Kickstarter. Crowdsourcing is directing billions of dollars to innovative human brains and small businesses.
In terms of the major banks, they still have two trillion dollars of toxic assets on their bal-ance sheets. They can’t dispose of them because no one knows their value. The only way to value these assets is to place information about them in commons and they bring together the world’s leading modelers -- which number about 6.000 to 7.000. Using col-laborative approaches like Delphi these modelers could come up with a common view of the value of these assets. You have the sellers and the buyers who, in advance, would agree to buy and sell them based on what the modelers determine the value to be. We could them get these assets off the balance sheet and the freeze of the banks will thaw.
WW
Let’s talk about another sector of economy. I agree with you on your new management model in an age of computer networks and implicit practices. Is for example the German economic model in contradiction to it with its orientation to tangibles and industry, with its medium-sized family businesses? Will Germany’s niche champions and in a way old fash-ioned industries survive in a global network economy? In other words are there any con-tradictions to your approach?
DT
Well there is nothing contradictory to productive and innovating manufacturing companies because they are knowledge companies. Take the design of a car or the manufacturing of a car. It is done on networks now. And German engineering has always been good. En-gineering at a professional degree is knowledge work. And recently it is done in networks. I think these companies will be challenged going forward to think about new models. Look at companies like Local Motors in the US. It has 5.000 designers but they are all on the in-ternet. They have 30 manufacturing facilities and hiring local people to building cars for lo-cal needs. Now could this scale? We’ll see. But we know the case of Tesla, a company that embraces my principles which is now more valuable than Ford. And Consumer Re-ports says the Tesla car is not just the best electric car that it has evaluated, but the best car ever created. So even Germany’s traditional manufacturing companies will have to accelerate their ways of innovation and networking to be successful.
WW
Two years ago at the Hanover fair a new concept has being discussed with the term in-dustry 4.0 where machines are connected with the internet and production will be much more flexible. Will the next machines optimize themselves what does it mean for our in-dustries?
DT
It means many things. Machines are becoming smart, self-optimizing and self-regulating. We have the M2M internet, which is the machine-to-machine internet. This will be billions and trillions of objects in a world that becomes connected and smarter. My hotel room key is part of a network. The same with my clothing. There will be sensors everywhere in the world, which is sometimes called the industrial internet. Robotics is now exploding and the technology of manufacturing, of distribution, and of warehousing all becomes intelli-gent. Automobiles are become self-driving and now we have 3-D-printing. That turns con-sumers into producers or creates prosumers as I called them. There will be a huge trans-formation in manufacturing.
WW
My last question. We have at the moment an interesting discussion among German doc-tors. Recently a chief physician had a meeting with applicants in his clinic. We must say that a German chief physician is a primarius and has mostly an audience that respects his high-handedness. In Germany they are let’s say the last men on a white horse. So recent-ly one candidate gave a feed back to his potential boss and said »well your presentation was good and you might be on my short list as an employer.» The director was very up-set and started in the main German medical journal a nation-wide debate about the atti-tudes of the next generation of doctors. What would be your advice for a chief physician?
DT
I would listen to the young people. I say this not just because of their knowledge or be-cause of their brains. They work differently. They’ve grown up interacting and collaborat-ing. They have amazing eye motor coordination because of their experience with video game consoles and other devices. So the new generation will naturally be better at certain medical procedures such as micro surgery.
I think this new generation will find a new culture of work and a new model of health care which will be collaborative. It starts by rejecting the attitude that «I am a physician, I have the knowledge for you as my patient. I can cure you . I am the only one who can help you. Please don’t talk to anybody else on the Internet because you will get a lot of bad in-formation».
Health care will shift - everyone in Germany will have a health website and even babies get a website which will be half a medical record and half a social network. If you have for example Lou-Gehrings-desease you will collaborate with others. More than 20 per cent of all patients with Lou-Gehrings-desease in the US collaborate with others on platform with other patients. You can reduce the costs of health care and you can deliver better health care by collaborating. To quote Bob Dylan, «get outta the way, if you can’t lend your hand for the times they are a-changin.» Better than fighting a new generation you need to understand them. Listen to them.