Lecture 1 block 1 part 1- (The relationship between the Internet technologies& business)

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Block 1 Part 1:

The Relationship Between Internet Technologies and

Business

Abdisalam Issa-Salwe

Arab Open University

Lecture 1

Ian Martin, E-business Technologies: Foundations and Practice, Open University, 2008

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Abdisalam Issa�Salwe, Arab Open University, KSA

Topic list

� Technological determinism

� Schumpeter's innovative theory

� Schumpeter's waves accelerate

� Structure of a wave

� Short-term benefit and long-term benefits

� Commercialisation of the Internet

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Aims

� Explain the concept of technological determinism and be able to describe the

� difference between its hard and soft extremes.

� Situate the current 'digital revolution' within a Schumpeterian model of five waves of technological revolution.

� Classify organisational adoption of e-business technologies into one of five idealised types based on the technology adoption lifecycle model.

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Wave of innovation

� The digitalization of information, the bandwidth revolution associated with the use of fiber optics to transmit that information and the emergence of the Internet are major innovations that have transformed the telecommunications industry as well as business practices and the lives of citizens in general.

� The introduction of competition in the telecommunications sector in America and Europe has magnified the impact of innovations on the industry and made it more complex.

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Wave of innovation (cont…)

� The Internet revolution gave rise to a broad movement of unlimited optimism.

� Financial agents encouraged unsustainable economic forecasts, thus contributing to the development of a speculative bubble that led to overinvestment in the telecom sector, among other repercussions.

� These excesses have raised a number of issues. Could this outcome have been avoided, at least in part, through better management of macroeconomic policy?

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� The innovation wave had very positive

effects on the organization of society, the

productivity of businesses and employee

compensation as the Internet quickly

became a means of communications and a

locus for trading goods and services in the

economy.

� Telecom users benefited from substantial

reductions in prices and from a proliferation

of new services.

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Technological determinism

� Technological determinism is the popular

view that technology is somehow

autonomous and exists in a space

separate from society.

� This theory has that technology's power is

seen as being able to determine the way

we live.

�For example, 'technology has determined the way we work', or 'technology has determined the way we communicate'.

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Technological determinism (cont…)

� The communications theory of

Technological Determinism was moulded

by Marshall McLuhan.

� The basic idea behind the theory is that

changes in the way humans communicate

is what shapes our existence. McLuhan

feels that our culture is moulded by how

we are able to communicate.

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� To understand this, there are a few main points you must comprehend. �First, inventions in communication technology

cause cultural change.

�Secondly, changes in modes of communication shape human life.

�Thirdly, as McLuhan himself puts it, "We shape our tools, and they in turn shape us". Technological Determinism is distinctly a humanistic theory. As you read on, this will become quite evident

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� According to this theory, there are several giant evolutions in the way humans have learned to communicate over time.

� Each of these innovations works as an extension of one of the human senses.

� McLuhan has divided human history into 4 critical periods of time. In each case, the moving on from one era to another is brought on by a new mode of communication which causes some sort of significant change in society.

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� First there was the 'tribal age', followed by

the 'literate age', the 'print age', and finally

the 'electronic age', which is where society

is now.

� The invention that changed life for the

'tribal age' was that of a phonetic alphabet.

� For these primitive people, hearing was

the most important sense.

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� This new 'literate age' was brought to an end by the development of the printing press.

� Gutenberg's printing press moved society into the 'print age', making visual dependence more widespread.

� When people see ideas in print as apposed to word of mouth, the words take on a whole new meaning. The ability to print ideas meant the ability to shape the views and opinions of people worldwide.

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� McLuhan believed that the invention of the telegraph was the next giant step, moving people into the current 'electronic age'.

� The ability to instantly communicate via technology has caused humans to be pre-occupied with sound and touch, not unlike our ancestors of the 'tribal age'.

� A "global village" of sorts has been formed according to McLuhan, with the individuality removed from our culture.

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� Hard technological determinism:

� The power to bring about change is

attributed to the technology itself.

�According to those who take this stance,

technology is autonomous, driving

society and business forward: the

inevitability of this onward march offers

little alternative but for us to follow it or

be left behind.

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� Soft technological determinism:

� Technology is not considered to have its own autonomous power; instead, that power is invested in technology by human actions.

� Although technology may provide the structures in which we live and do business, we do have choices, and the choices we make affect the nature and shape of our technologies and our response to them.

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� In the 1930s, Schumpeter saw the power

of a repeating pattern that Kondratieff had

identified earlier.

� This pattern was the result of a

relationship between technological

innovation and business activity.

� The relationship was in the form of 'long

business cycles' or 'Kondratieff waves' that

appeared to repeat every fifty years.

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� Around the 1930s Schumpeter started studying how the capitalist system was affected by market innovations.

� He described a process where “the opening up of new markets, foreign or domestic, and the organizational development which illustrate the same process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”.

� He called this process “creative destruction”.

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� Schumpeter argued that long waves of

innovations both create and destroy wealth.

� The net long-term impact is positive

because innovation remains the foundation

of broad social changes and of the

productivity gains that improve living

standards in the economy.

� These gains are achieved in the aftermath

of major upheavals, both economic and

social, that can go on for decades.

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Wave of innovation (cont…)� New firms, as well as already-existing ones,

benefit from the wave of innovations and adopt the new technologies, while others disappear because they are unable to adjust to new market conditions and become obsolete.

� Market adjustments also contribute to the disappearance of certain occupations, and some workers may find themselves unemployed as a result.

� A major innovation such as the advent of electricity, it often takes decades for firms to adjust to the opportunities offered by the new technology

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� What Does Creative Destruction Mean?:� A term coined by Joseph Schumpeter in his work

entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."

� Creative destruction occurs when something new kills something older. A great example of this is personal computers. For example, Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century.

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� Around the 1930s Schumpeter started studying how the capitalist system was affected by market innovations.

� He described a process where “the opening up of new markets, foreign or domestic, and the organizational development which illustrate the same process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”.

� He called this process “creative destruction”.

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Schumpeter's waves accelerate

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Schumpeter's waves accelerate (cont…)

1. The first wave: the model represents what is now called the Industrial Revolution, which had its origins in Britain beginning around 1785.

2. The second wave: the age of steam, railways and steel.

3. The third wave: sometimes referred to as the Second Industrial Revolution. Leading innovators and entrepreneurs with the rise of electricity, chemical engineering and the internal combustion engine.

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4. The fourth wave: technological

innovation, consisting of petrochemicals,

electronics and aviation.

5. The fifth wave: a series of waves of

technological revolution that represent the

relationship between technological

innovation and economic growth

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� The relationship between technology and

the economy is not one-way. Although

technological innovations may have

sparked each revolution in our model, they

do not drive that revolution.

� The revolution is as much a consequence

of the investment and business activity

that provides the fuel to stoke the

technological fire.

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� Schumpeterian model can be used to put

the digital revolution into a wider context of

technological change.

� The importance of the economy and the

business environment in propelling

technological development should help us

see things from a softer perspective.

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Structure of a wave1. Irruption:

The start of the wave, when a revolutionary new

technology comes to market as a 'big bang'. During

the irruption stage, innovative products and services

from new businesses appear and slowly start to have

an impact on the economy.

2. Frenzy:

This is the rising part of the wave that is

characterised by exploration and trial and error, as

entrepreneurs and investors exploit opportunities

from the irruption stage. Investors become over-

confident and finance ventures.

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Structure of a wave (cont…)

3. Turning point:

The frenzy is followed by a turning point. A realisation dawns that excessive investments will never fulfil high expectations. Investors lose confidence and funds are withdrawn. The bubble bursts and for a period the stock market collapses..

4. Synergy:

The turning point doesn't end the technological revolution; rather, it signifies that the time of widely speculative investment in search of quick and easy profits has passed. A few large companies now dominate the business landscape.

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Structure of a wave (cont…)

5. Maturity.

At this stage there are fewer and fewer innovations around the technology being considered. Growth opportunities for businesses in that technological field are limited, and they instead concentrate on reducing overheads and increasing operational efficiency. This decline in innovation around what is now an existing technology is then supplanted by fresh economic growth arising from a new set of technological innovations, and the cycle is repeated.

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Short-term and long-term benefits (cont…)

� At the beginning of each technical

revolution, economic growth is very rapid

and some businesses see a competitive

advantage in exploiting, shaping and

setting standards for new technologies in

order to pursue business goals.

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� The impact that ICTs are currently having upon society is not unprecedented, despite what some might like us to believe.

� Disruptive technologies fundamentally reshape social and business lives and offer the opportunity to supplant technologies that have come before.

� Reasoned understanding of the capabilities of a technology is achieved only over a long period of time, when the technology has reached the synergy and maturity stages. In the model above, this is only when the peak of each wave has passed.

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� A technology has perceived pros and cons

that change over time and that are not

inherent to the technology itself, but are

more often than not informed by the

prevailing social climate.

� Even disruptive innovations can eventually

settle down and co-exist amongst other,

better established technologies.

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Commercialisation of the Internet

� Prior to the current age of

commercialisation there was a period

referred to as institutionalisation, in which

large, publicly funded organisations such

as the US Department of Defense, and

academic communities, provided

resources that formalised the structures

around numerous technological

innovations.

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The commercialisation of the Internet

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Commercialisation of the Internet (cont…)

� Department of Defense and the National Science Foundation provided large amounts of funding to institutionalise the Internet, it was shaped with these large non-commercial organisations' interests in mind.

� A few years after the advent of the Web in 1991 businesses started to become an important collective user, and hence co-constructor, of the Internet and the Web in what is sometimes referred to as the commercialisation of the Internet.

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� The relationship between business and

the Internet and Web is that there has

been, and continues to be, a co-

construction going on.

� Producers and users of technologies both

have an important part to play in how

technologies are constructed and shaped.

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� No one clear as organisational owner or

producer behind the Internet any more

� Its development can be seen as a massive

co-construction effort that is at times

uncoordinated, but frequently marshalled

by standards, governmental policies and

business market forces.

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� Innovators: They are venturesome and positively thrive on risk. They tend to socialise outside the circle of their normal peer networks and look outwards towards innovators in other groups. They do not allow setbacks to deter their enthusiasm for the new.

� Early adopters: They are respected within the local peer network and act as role models for that local network of groups or individuals. They are agents of change who see the practical application of technological innovation before the majority and make relatively quick decisions regarding its usefulness.

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� The early majority: They adopt just before the average and deliberate for some time before adopting. They are followers rather than leaders.

� The late majority: They are more sceptical and cautious than the early majority. They require most of the uncertainty and risk regarding an innovation to be removed before they will adopt.

� Laggards: They are the last to adopt. They are suspicious of innovations and change in general. They typically have limited resources and so must be certain that an innovation will not fail before they adopt

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� Geoffrey Moore adapted Rogers' model

further in order to show a gap, what he

refers to as a chasm, between the early

adopters and the early majority (Moore,

1999).

� This chasm usefully highlights the

difference in characteristics between the

innovators and early adopters and the

remaining majority.

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� Those to the left of the chasm can imagine the future benefits of a technology, and their attitude and technical skills let them live potentially off-putting inconveniences.

� The mainstream market to the right of the chasm is more pragmatic: it waits for improved reliability, a complete set of features, a user-friendly interface and a demonstrable benefit to financial outlay before it will adopt. They need a whole product that 'just works'.

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� Crossing of the chasm can often take a

very long time, or it might not happen at

all. There are many innovations that might

be regarded as failures because they

never saw adoption by the majority.

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Reference

� Ian Martin, E-business technologies:

Foundations and Practice, Course Team,

Open University, T320, 2008

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Topic questions

� How do you relate Schumpeter theory with

the expansion of communication?

� What do you think about the Internet

opening new opportunities for companies?

� What Schumpeter means by ‘creative

destruction’?

Lecture 1 block 1 part 1- (The relationship between the Internet technologies& business)

Education

Transcript of Lecture 1 block 1 part 1- (The relationship between the Internet technologies& business)