A TCI Book Review

The Digital Economy: Promise and Peril in the Age of Networked Intelligence

Don Tapscott
McGraw-Hill, New York, 1996

"Today we are witnessing the early, turbulent days of a revolution as significant as any other in human history. A new medium of human communications is emerging, one that may prove to surpass all previous revolutions - the printing press, the telephone, the television, the computer - in its impact on our economic and social life. Interactive media and the so-called information highway, and its exemplar the Internet, are enabling a new economy based on the networking of human intelligence. In this digital economy, individuals and enterprises create wealth by applying knowledge, networked human intelligence, and effort to manufacturing, agriculture and services. In the digital frontier of this economy, the players, dynamics, rules and requirements for survival and success are all changing."

Tapscott maintains that a new industrial sector is emerging, one that he calls the interactive 'multimedia industry', and which is currently responsible for 10% of the US GDP, according to his figures. This industry is developing as a result of the convergence of three more traditional sectors: communications (telephony, cable, satellite, wireless), computing (computers, software, services), and content (publishing, entertainment, information providers). This convergence is creating a whole new industry that will characterize and be the driving force for the economy after the turn of the century. Tapscott touts figures such as '30% of households in North America currently having access to a home computer' and 'an estimated 1 billion users of the Internet worldwide by the end of the decade' to demonstrate that the world is going multimedia, fast.

Early in the book, Tapscott identifies twelve characteristics of this 'new economy':

knowledge - the new economy is based on knowledge (that is, access to and application of information to provide multiple options or possibilities to the consumer)
digitization - all information is represented in binary (0,1) form and is thus amenable to computer manipulation
virtualization - physical and tangible things become virtual, represented by scenarios created by the high-speed manipulation of digital information
molecularization - traditional corporate hierarchies are becoming fragmented and fluid, with small flexible short-term teams replacing rigid hierarchical structures
integration/internetworking - "the new economy is a networked economy, integrating molecules into clusters that network with others for the creation of wealth" (p.54)
disintermediation - middleman functions between producer and consumers are being eliminated - "middle businesses, functions and people need to move up the food chain to create new value"(p.56)
convergence - "in the new economy, the dominant economic sector is being created by three converging industries (communications, computing and content-producing industries) that provide the infrastructure for wealth creation by all sectors" (p.58)
innovation - the new economy is based on innovation, using information technology to develop new products and services
prosumption - the division between producers and consumers is being blurred, as information technology allows consumers to become closely involved in the production process, designing their own products and services tailored specifically to their needs and desires
immediacy - the time lapse between ordering of a product and its creation and delivery is shrinking dramatically, again as a result of digital information technology
globalization- inevitably, with the revolutionary innovations in communications technology, the new economy is a global economy
discordance - the gap between the technologically literate 'haves' and the 'have nots' who do not have access to technology, is growing and may cause significant problems to society in future

These developments are making possible new forms of business organization, which represent a kind of evolutionary structure for enterprises to follow if they want to maximize the benefits afforded by the new technology (or if they merely want to survive). The steps involved in this transformation are:

the effective individual - where an individual can enhance his or her own effectiveness through using interactive multimedia technologies on their own computer;
the high purpose team - where a team of individuals within an organization can work effectively together using these tools;
the integrated enterprise - where an entire staff of a company is linked together and actively using interactive multimedia technologies;
the extended enterprise - where a company has linked with its customers and/or suppliers to deliver product or services tailored to client needs in an extremely timely and efficient way; and
the internetworked business - where a company links with other companies suppliers and organizations on an extremely flexible and fluid basis often via a 'virtual' connection only), to create specific value-added products for a customer - the internetworked team may exist for that one product or service only, then return to other teams, as the need and market dictate - again the rise of interactive multimedia is the enabling mechanism for this kind of development.

Each of these is a stage in the process of evolving from simply a number of disconnected individuals with computers to an internetworked organization as described above.

Tapscott identifies ten 'technology shifts' that he sees as enabling this transition from an 'effective individual' to an 'internetworked enterprise'. These are:

from analog to digital - "Digitization not only improves quality (compare a music CD to vinyl) and enables interactivity, it provides the foundation for a whole new world of computer- and networked-based applications as well as enabling fundamentally new approaches to finding and managing information." (p.97)
from traditional semiconductor to microprocessor technology - the microprocessor - a computer on a chip - is at the center of the new economy - the combined advantages of size (portability), incredible performance (approaching 2 billion instructions per second, or BIPS) and low cost have been and will continue to revolutionize technology
from host to client/server computing - as opposed to old 'master/slave' configurations, where slave computers were simply windows on to a master computer, the new architecture of client/server computing enables software to work on client machines as well as a network server - "The computer becomes the network and the network becomes the computer." (p.100)
from 'garden path' bandwidth to information highway - the analogy Tapscott makes here is that if a plain old telephone service (POTS) is a garden path (in terms of how much information it is able to carry) then the emerging technologies of OC3 and OC48 are equivalent to superhighways 1 mile and 16 miles wide respectively, an incredible advance in information-carrying capacity
from dumb access device to information appliance - this shift reflects the fact that one-way, 'dumb' access devices (like television) are becoming interactive, and thus more useful as 'information appliances'
from separate data, text, voice and image to multimedia - rather than have separate software programs and files for each information format, the emerging technology will enable multimedia communications and interactions to take place as a matter of routine
from proprietary to open systems - increasingly, systems and software will be compatible with one another, rather than having only one version of a program that is proprietary to one kind of machine
from dumb to intelligent networks - in the future, data retrieval will be done by specialized software programs called 'information agents' of 'knowbots' - rather than search for information by using single purpose search procedures ('dumb' networks) the new software will enable customized searches to be done, where the program (i.e. the 'knowbot') knows what kind of information is being sought and how it needs to be analyzed, and can compile it accordingly
from craft to object computing - "The new approach is called object-oriented computing: rather than creating large, complex, tightly-intertwined software programs, programmers create chunks of software called objects. Such chunks are developed in standard ways and have standard behaviors and interfaces. Such Lego-like pieces enable the rapid assembly of software rather than its laborious crafting." (p.114)
from GUIs to MUIs, MOLEs, MUDs, MOOs and VR - the standard graphic user interface (GUI) which enabled a point-and-click-on-icons type of user interface, is being replaced by much more compelling and flexible technologies - called multimedia user interfaces (MUIs), multi-user domains (MUDs), object-oriented MUDs (MOOs), and just plain virtual reality (VR) they will use a three-dimensional mouse ('mole') and enable a whole new dimension of multimedia user interface - people will be able to interact with other people, with programs, or with data, to create new digital experiences

In subsequent sections of the book, Tapscott explores the implications of these technological advances on key sectors of the economy and society, including:

health care
retailing
manufacturing
government
travel and tourism
learning and education
publishing, entertainment and the new media industry

Needless to say, the changes he sees are widespread, and relate primarily to the challenges posed by disintermediation on the one hand (for example, the squeezing out of intermediaries such as travel agents and retailers as consumers interact directly with producers) and the opportunities presented by convergence on the other hand (for example, the rise of the interactive multimedia and entertainment industries).

In the latter sections of the book, Tapscott discusses how leadership in organizations can facilitate a businesses' evolution towards an internetworked organization. He identifies six 'themes' for leadership:

achieving internetworked leadership is your personal opportunity and responsibility - in other words, regardless of your position in an organization, no one has all the answers because of the rapid pace of change, and thus no one is in a 'logical' or 'natural' position to lead the charge - accordingly, everyone can contribute, thus representing an opportunity for even you to become involved
leadership in the new economy is leadership for learning - here Tapscott is alluding to a 'learning organization' (in Peter Senge's sense) where all employees are empowered to learn by the corporate culture that exists, and can participate in leading the transformation
internetworked leadership is collective leadership - "The intellectual power generated through networking minds for collective vision will far surpass the intellectual prowess of the smartest boss." (p.252)
internetworked leadership can be digital - here the idea is that the leader is not necessarily one individual, it can be the networked intelligence of all the individuals who are part of the network
internetworked leadership is incomplete without the CEO - despite the foregoing, the participation and buy-in of the CEO is a critical ingredient - for substantive as well as public relations reasons - for the success of the transformation
personal use of the technology creates leaders - the point here is simple: you can't lead or even participate in the transition to an internetworked business if you are unfamiliar with the basic technology - thus Tapscott waxes passionate about the need for personal involvement:

As a starting point in your quest for leadership, if you haven't done so already, get on the Net! Just do it! Ask your information systems (IS) manager, IT supplier, or your teenager to get you a web browser like Netscape or to get you onto a service like Microsoft Network, Prodigy, America Online, Compuserve or GEnie. Just do it! If you haven't done it the single most important thing you can learn from this book is that you should! (p.255)

Finally, Tapscott addresses two of the downside issues of the new economy: the concern regarding privacy and security in an age of widespread access to information, and the potential for a growing gulf between those who have access to these new technologies and are 'computer literate' and those who don't and are not. Beyond identifying these issues, and vaguely stating that they will become priorities in the future, he doesn't offer any real solutions.

All in all though, The Digital Economy is a very informative book, full of insights on how developing information technologies will change the way we live and do business.

IF YOU HAVE ANY COMMENTS ON THIS REVIEW (I.E. DISAGREEMENTS, ADDITIONAL PERSPECTIVES, ETC.) OR SUGGESTIONS FOR FUTURE BUSINESS BOOK REVIEWS, WE'D LIKE TO HEAR FROM YOU! CONTACT US AT jlinton@consulttci.com