NEW RULES—Part I: How Distribution is Changing Who Gets What and How They Get It*

A quiet revolution is bringing about a new economic era which fundamentally will change business as we know it—at the same time creating rich, new opportunities if we’re smart. Credit a succession of technologies including the Internet, big data, robotics, the cloud, machine learning, and artificial intelligence with bringing us to this point. According to an October 2017 McKinsey Quarterly article:

“This new period we are entering is not so much about production anymore—how much is produced; it is about distribution—how people get a share in what is produced. Everything from trade policies to government projects to commercial regulations will in the future be evaluated by distribution. Politics will change, free-market beliefs will change, social structures will change.”

For a number of years, digital technologies have been busy creating this virtual, autonomous second economy—one housed externally in machines and algorithms. “Business and engineering and financial processes can now draw on huge ‘libraries’ of intelligent functions and these greatly boost their activities—and bit by bit render human activities obsolete,” notes McKinsey.

How did we get here? Apparently, about every 20 years, “The digital revolution morphs and brings us something qualitatively different. Each morphing issues from a set of particular new technologies, and each cause characteristic changes in the economy.”

Stage One—1970s and 1980s

This was the era of integrated circuits with tiny processors and microchips that miniaturized and speeded calculation. As McKinsey puts it, “The economy for the first time had serious computational assistance. Modern fast personal computation had arrived.” CAD programs helped engineers, managers tracked inventories in real time, and “geologists could discern strata and calculate the chance of oil.”

Stage Two—1990s and 2000s

During these two decades—as a result of connecting computers—modern globalization arrived. “Computers got linked together into local and global networks via telephonic or fiber-optic or satellite transmission. The Internet became a commercial entity, web services emerged, and the cloud provided shared computing resources. Everything suddenly was in conversation with everything else,” states McKinsey.

This is the time when the virtual economy of interconnected machines, software, and processes emerge—and the previous importance of geographical locality fades. “Offshoring took off, production concentrated where it was cheapest—Mexico, Ireland, China—and previously thriving home local economies began to wither.” Which brings us to 2017.

Stage Three—2010 to 2017+

We’ve never been here before, and, yes, there is understandably fear of the unknown. Roughly beginning in the 2010s, cheap and ubiquitous sensors became widely available.

As McKinsey reports, “We have radar and lidar sensors, gyroscopic sensors, magnetic sensors, blood-chemistry sensors, pressure, temperature, flow, and moisture sensors, by the dozens and hundreds all meshed together into wireless networks to inform us of the presence of objects or chemicals, or of a system’s current status or position, or changes in its external conditions. These sensors brought us data—oceans of data—and all that data invited us to make sense of it.”

What was surprising was that intelligent algorithms were being put together by using masses of data to form associations. “Computers…could suddenly do what we thought only humans could do—association.”

The Shift from Internal to External Intelligence

Today, “intelligence” is taking on whole new meaning. Intelligence is not just information but something more powerful—the use of information. McKinsey asks, “How is this externalization of human thinking and judgment changing business? And what new opportunities is it bringing?”

Some of the McKinsey conclusions are sobering: “Businesses can reach into and use a ‘library’ or toolbox of already-created virtual structures as Lego pieces to build new organizational models…The result, whether in retail banking, transport, healthcare, or the military, is that industries aren’t just becoming automated with machines replacing humans. They are using the new intelligent building blocks to re-architect the way they do things. In doing so, they will cease to exist in their current form.”

“We Have Entered the Distributive Era”

Bottom line: “The problem in this new phase we’ve entered is not quite jobs, it is access to what’s produced… we have entered a different phase for the economy, a new era where production matters less and what matters more is access to that production: distribution, in other words—who gets what and how they get it.”

*NEW RULES—Part II: Realities of the Age of Distribution will appear in the December 2017 FOCUS Newsletter.