How technology disruption will lead to a profound economic change
Welcome to 2018 and all that it holds.
This is my theme for the year – Technomics – the Venn diagram between Economics and Technology. Today I want to explore how technology will have a profound effect on economic structure in the very short term future by way of explaining two specific use cases where technology disruption will lead to a profound economic / political change.
Firstly a principle I hold dear – profit comes from friction – where friction makes something difficult an organisation that makes something easy extracts profit from doing so by creating efficiency.
So let’s take a look at bananas. The UK throws away 1.5million bananas every day because we can’t accurately measure demand at the right place, at the right time, in the right quantity, or at the right price. As a result there is a whole panoply of intermediaries in the value chain that try and make things smoother and increase efficiency in return for revenue. We have producers, wholesalers, shippers retailers and of course the consumer but barely each player communicates with each other except at a base level – you want how many? where, when? etc.
So along comes the Internet of Things
Using an edible sensor embedded in a banana we get real time consumption data transmitted to a smart fridge that connects via an API to a supermarket which in turns connects to the supply chain and finally the producer. All of a sudden we have a complete, end to end, view of banana consumption which allows us to put the right numbers of bananas in the right place at the right time. Excellent – we’ve created huge efficiency in the system and avoids massive wastage.
But wait, if friction all but disappears so does the profit and the new super efficiency creates an opportunity for those companies most efficient in the supply chain to drive down price in order to increase market share – this starts to tread into an area of economics called the “economics of abundance” where there is hardly enough profit to create even the opportunity to ship bananas from the producer. What profit remains in the chain goes to the new intermediaries – in this case the technology company providing the technology Internet of Things platform.
Economically where does that lead us?
Firstly, there is little profit in the banana business and what there is, is transferred to the technology companies who have “efficient methods for moving profit around into tax havens” (not my words). From a political perspective jobs go and so, as a direct result, do tax receipts from the employers in the chain and their employees. That’s Technomics for you.
Let’s step into the new economics of preemption
I’m going to use a healthcare example to illustrate this even more disruptive form of technomics. Ten years ago a startup called 23andme launched that, for $1500 would produce a personal DNA profile for you which allows you to see the likely issues affecting your health in the coming years.
I personally spent the money and ran the profile. One of my key vulnerabilities, caused by a DNA issue, is that I have a higher than normal chance of generating “macular degeneration” (eye disease causing profound sight blockages).
The global eye care market is worth over $50billion annually that deals with the friction created by eye disease – and the value chain includes eyewear retailers, doctors, eye surgeons, pharma companies, pharma logistics and supply chain and post treatment eye nursing. One of the first efficiencies to be gained through DNA profiling would be preemptive diagnosis – predicting the problem before it happens – this adds significant efficiency to the start of the value chain but is only marginally disruptive.
Imagine though, if you could treat the problem preemptively before it creates a problem for the prospective patient. You now can and it’s so advanced it’s in clinical trial. It’s called CRISPR and it’s a DNA editing platform that allows you to edit out a DNA issue before it becomes a problem. So the full effect of preemption becomes clear – the requirement for eye specialists, doctors, surgeons, nurses and drug companies becomes seriously minimised and therefore so do the profits. The theme here, of course, is that tech companies – the DNA profilers and the CRISPR engineers who have successfully intermediated in the market become the winners. From a political perspective jobs go and so, as a direct result, do tax receipts from the employers in the chain and their employees. That’s Technomics for you.
Structural problems then appears in large scale in economics – the polarisation of profits into the technology companies produces huge efficiencies for consumers and the consequent loss of tax receipts. Economically and politically we’re not even close to equipped to deal with this strategic and structural disruption.
For your own business the question becomes one of “am I the generator of structural efficiency and the prospective winner of the value chain shift or am I the victim? You’ll know what you want to be, but are you quick enough and agile enough to seize the opportunity?