The second digital revolution

In the second stage of that digital revolution, the centralized data systems that previously took up whole rooms or back offices are giving way to distributed systems. Thanks to cloud hosting and open source coding tools, the applications that run these data systems can now be written by anyone, anywhere.

In 1951, J. Lyons & Co., a British food services company, ushered in the age of the business computer. The Lyons Electronic Office, or LEO, took up an enormous room and was relatively primitive—there’s more computing power and storage capacity today inside a tiny, in-ear hearing aid—but it could calculate the output of Lyons’ bakeries and the value of products leaving the bakeries far faster than any human. LEO went on to custom build business computers for the Ford Motor Co., Kodak, and several other industry titans. It was the first wave of digital disruption, replacing teams of humans for simple and, eventually, complex calculations. 

Today, 65 years later, weve reached the second stage of that digital revolution, where the centralized data systems that previously took up whole rooms or back offices are being swapped for distributed systems. The center of the system is now the thing itself: the car or phone or wristwatch, or the thermostat or sprinkler or lighting system. Thanks to cloud hosting and open source coding tools, the applications that run these data systems can now be written by anyone, anywhere. So the data and the software aren't the only decentralized aspects; the programmers are, too. 
 
This second wave of digitization has fundamentally changed the way we do business, and it will continue changing our business practices for a long time to come. It has, in fact, likely ushered in an era of constant change. That said, digitization isn’t happening at the same pace across industries. As with any revolutionary shift, there are both early adopters and laggards. 

Transportation on demand

Transportation, one of the first industries to experience this new wave of digital disruption, has been evolving faster than a speeding Tesla. This is in large part due to companies like Tesla, which has made automakers rethink what a car is and how it behaves, not simply what its power source might be.
 
Ride-sharing startups Uber and Lyft didnt simply upend the taxi industry by reducing the friction of hailing a cab and introducing a new supply source (almost everyone who owns or leases a car). Their truly disruptive innovation was to build smartphone-based apps that could transform urban delivery systems more broadly.
   
This is already happening. Uber and Lyft started out using cars to deliver people. Uber is now delivering food and other goods via helicopters, bike messengers, and, soon, drones. Meanwhile, both companies are working with auto manufacturers, artificial intelligence experts and robotics specialists to develop automated delivery systems that remove drivers from the equation. 

Distributed healthcare

The healthcare industry dipped its toes into the digital transformation pond decades ago, with the advent of electronic medical records. More recently, the ever-decreasing cost of gene-sequencing technology has sparked a biotech revolution. 
 
In the consumer space, devices from companies like Fitbit, Jawbone, Garmin, Samsung Gear, and Apple provide always-on health monitoring for people looking to get in shape. But they are doing more than simply tracking steps and calories. Similar technology will eventually connect patients and caregivers, running a broad range of tests and detecting ailments such as cancer, heart disease, and diabetes. 
 
In Japan, initial trials have found that patients with Alzheimer’s disease respond well to humanoid robots that are programmed to be kind, gentle, and friendly. The robots can help with the isolation and loneliness that many elderly people feel. Robots can also fill coverage gaps in countries like Japan that have a limited number of trained nurses serving large elderly populations.
 
There are other ways in which digital technology can extend the reach of healthcare professionals. Physicians and nurses already evaluate patients remotely using mobile apps and websites. Also, surgeons use robotic surgery systems to perform procedures and video chat to assist colleagues in distant operating rooms.

Here comes fintech 

In 2016, there were more than 2,000 financial technology startups, attracting more venture capital funding than any other sector. It’s unlikely that any fintech startup will displace a large bank. But startups could well carve out profitable niches within mainstream banking. Even more likely, banks will acquire startups in order to absorb their technology and business models. 
 
One fintech sector, peer-to-peer lending, will be an $11 billion business this year. Retail banking generated global revenues of $1.6 trillion in 2015, so that $11 billion is a drop in a very large bucket. Still, peer-to-peer lending is growing at about 200 percent annually, and the market potential remains huge. About 40 percent of the world’s population is unbanked, yet close to 70 percent of adults own smartphones and can use peer-to-peer systems to obtain or extend credit.
 
Already, more than 55 million Africans use basic (that is, not smart) mobile phones to transfer money from one person to another, take out insurance policies, and collect payments from government agencies. Africa’s mobile money market was estimated at $61 billion in 2012—bigger than Europe and North America combined.
 
As we know from the British baking company that deployed the first business computer, revolutions can arise in unexpected places. The same lesson is emerging in transportation, healthcare, fintech, and many other industries. We ignore it at our peril.

Digital revolution part 2: Lessons for leaders

  • Digital revolutions can start anywhere, even in a bakery.
  • We're entering the second stage of the digital revolution in which centralized computing models are giving way to distributed, open source systems.
  • This revolution is now transforming large, complex industries such as transportation, healthcare, and banking.