Visit Singularity Hub for the latest from the frontiers of manufacturing and technology as we bring you coverage of Singularity University’s Exponential Manufacturing Summit.
Who will rule the future economy—entrepreneurs or mega corporations? Will the economy fracture into smaller and smaller bits or centralize in a winner-take-all scenario? The answer, according to John Hagel, is it depends where you look.
Hagel is co-chairman of Deloitte’s Center for the Edge. Speaking at Singularity University’s Exponential Manufacturing Summit in Boston, Hagel outlined a powerful, decades-long economic trend his group calls the “big shift.”
Hagel believes understanding the big shift is key to navigating an increasingly uncertain economy driven by digital technology, liberalization, and globalization. The question is less about whether the big shift is on and more about where it’s taking us. And according to Hagel, two competing visions vie for our economic future.
“There’s one side of the debate which argues that the impact of all this digital technology is to fragment everything,” Hagel says. “We’re all going to become free agents—independent contractors will loosely affiliate when we need to around specific projects. But basically, companies are dinosaurs. We’re going to fragment down to the individual. The gig economy to the max. That’s one side.”
Another view, Hagel says, suggests we’re moving toward a winner-take-all economy in which network effects enable a few organizations—the Googles or Facebooks of the world—to capture most of the wealth while everyone else is marginalized.
“You couldn’t have two more extreme positions,” Hagel said. “Which one is right?”
The Big Shift
The centralization of corporate power has a long history in pop culture. The early 1980s sci-fi classics Neuromancer and Bladerunner imagined corporate power run amok—a future in which sprawling, faceless corporations run the world.
It’s not hard to see why this vision hits a nerve.
The modern history of business is jam packed with legendary corporate giants. A little over a century ago it was US Steel, Standard Oil, General Electric, and JP Morgan. Today, it’s the likes of Apple, Google, Microsoft, Exxon Mobil, and (still) GE.
But according to Hagel, as the world entered the digital era, something changed.
In the industrial past, big companies had the advantage. They owned the factors of production. This included capital equipment, like expensive industrial machinery and infrastructure. The more they produced, the more their costs were spread out. They gathered the right people and machines under one roof to make products.
To a point, it was simply much easier and more efficient to coordinate activity within one institution than across many institutions. Going big made sense.
In the digital economy, this rationale isn’t always as rock solid. Why? Computers and the internet enable the organization of thousands, even millions of small producers.
Further, the factors of production, once out of reach for entrepreneurs and small organizations, are becoming much more accessible. In the tech sector, anyone with the skills can write and sell a new app. Provided they have a computer and a connection, an app developer can make and sell a product in their pajamas at home.
“In digital media—everything from music to video to software—we’re increasingly seeing dramatic fragmentation of product businesses because more and more people can participate at much smaller scale,” Hagel says.
But it doesn’t end there. Increasingly, you can also make quality physical products anywhere too. Digitization is pushing into areas like manufacturing.
For big production runs you still need traditional factories, but for product development? Not so much. These days, something like $20,000 gets you a desktop CNC machine, 3D printer, and router nearly as precise as anything in a big factory. Or you can go to a maker space and rent time on these machines. Even supercomputers (in the cloud) and other high-tech facilities are within reach.
“I don’t need to have a chip fab facility. I can rent capacity in somebody else’s fab facility if I’ve got an interesting chip design,” says Hagel. “The means of production are becoming more accessible and affordable to more and more people with creative new product ideas.”
Combine increasingly accessible production with digital platforms to organize small creators, and you get a new mode of economic organization.
This is the future, as Hagel sees it. On the one hand, the development and production of many (not all) goods and services will fragment. The gig economy to max. On the other hand, the businesses tying these fragments together will centralize further.
Producers will get smaller, while the companies uniting them get bigger.
A Gig Economy for Everything
You don’t need to go far for early examples of this concept. In recent years, there has been no end of hype (and sometimes controversy) about the sharing economy.
Tech companies are commanding valuations of tens of billions of dollars when they themselves don’t own much physical capital at all. Instead, they make software platforms to gather and organize entrepreneurs. Uber is for car owners; Airbnb for homeowners. No one buys a hotel chain or fleet of taxies to participate. They just need an apartment to rent, a car to drive, and a way to connect to customers.
These are the most well-worn examples, but they aren’t the only ones.
As a Wall Street Journal article put it last year, “There’s an Uber for everything now.” Personal valets, doctors that do house calls, laundry services. Some of these will survive, many won’t. But the core strategy isn’t going anywhere.
This is just one one type of platform. Another type, more specific to manufacturing, unites lots of players to accomplish a common goal none could complete alone.
In this area, China and India are leading the way, according to Hagel. He gives the example of apparel company Li & Fung, whose clients include Ann Taylor and Calvin Klein. Li & Fung orchestrates some 15,000 partners to take product orders from raw materials to production to global distribution—but they don’t do any of these things.
They’re the organizer; the platform allowing the players to collaborate.
Hagel calls these big organizers “scaleable pull” platforms. Instead of forecasting demand and pushing resources into production and distribution, scaleable pull platforms more flexibly respond to demand to pull all the bits and pieces together.
“When we talk about scalable pull platforms,” Hagel says, “we’re talking about platforms that involve tens of thousands, hundreds of thousands, and in an increasing number of cases, millions of participants that can be drawn out, pulled out when needed…where needed, as needed.”
It Isn’t Either or—It’s Both and…
It’s tempting to go all in on one forecast or another when we see compelling forces pushing us in that direction. Hagel says it isn’t so much that big companies are going to go away; it’s just what they do best will change in a big way. And we aren’t all going to be solo entrepreneurs in a uniform gig economy (though many more will be). It’s both.
We’ll see fragmentation and concentration, depending where we look. And critically, the two will happen in parallel—and reinforce and amplify each other.
“You wouldn’t have [this] degree of fragmentation if there weren’t these concentrated and consolidated businesses and services to support those fragmented businesses,” Hagel says.
The big shift will introduce new opportunities and challenges for both companies and creators. Companies need to take a serious look at the ground beneath their feet—if it’s fragmenting, they’ll need to quickly plot a new course or risk being upended. Individuals, meanwhile, will have unprecedented amounts of freedom and flexibility. And at the same time, the stability and security once provided by large organizations will be gone.
Even so, despite the challenges, Hagel is optimistic.
“Our belief is the big shift—for those who make the transition—opens up the possibility, for the first time, of a business world that is driven by increasing returns,” Hagel says. “Where the more who participate and the more experience that’s gathered, the more value gets created for everyone. That’s a very different and very exciting business world, and I’m looking forward to being part of it.”
Image credit: Shutterstock