The Second Machine Age and Business Model Innovation

Book ImageThe Second Machine Age is the title of a recent book by Erik Brynjolfsson and Andrew McAfee (1). The topic ties in well with my recent article on the importance of business model innovation (2). I also believe the book does an excellent job constructing a useful mental model to help put in context what we are currently witnessing in the economy today.

The primary theme of this book is that we are in the first stages of the second machine age marked by digital technologies that will finally begin working together to create new opportunities for innovation. The digital technologies include not just computer hardware, but software, AI, networks such as the internet, sensor technology and new ways of organizing and managing. The first machine age was the industrial revolution beginning with inventions such as the steam engine. One of the author’s observations was that it took many years after many of the inventions were first introduced at the beginning of the industrial revolution for the benefits to become apparent. They believe we are just now beginning to see the impact of the various digital technologies come together that have led to many economic and societal changes and will lead to even more dramatic economic changes in the future.

Much of the book is about linking the various digital technologies with new ways of organizing and creating value, including creation of the various new business models that did not exist just a few short years ago. This ties in nicely to the article on business model innovation previously referenced. It emphasizes the need for all businesses to think about their current business model and opportunities to change the model to take advantage of new opportunities and achieve a higher level of competitive advantage. No business will be immune to the impact of the “second machine age” and every business will need to adapt or face obsolescence.

Other sections of the book propose that much of what we are seeing recently, such as lack of employment growth, can be linked to the economic dislocations caused by many of these technologies working together in new ways to make previous labor skills obsolete. These longer-term effects are compared to what happened as a result of the first machine age and industrial revolution. The authors also argue that current measures of GDP, for example, under-value much of what we now take for granted as “free”, such as the explosion of digital information and entertainment that is just a click away for anyone with an internet connection. The book concludes with recommendations for individuals, policy recommendations and longer term recommendations. These final three chapters review not only the opportunities but the threats related to the second machine age, but the book ends on an optimistic note that the impacts will be more positive than negative.

For those interested in business model innovation, this book is an excellent addition to your toolbox of “mental models”.

Notes:

  1. Erik Brynjolfsson and Andrew McAfee, The Second Machine Age. (New York, NY: W. W. Norton & Company, 2014)
  2. See this article: The Importance of Business Model Innovation

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