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The second machine age: the challenges for CXOs

April 2014

Every industry needs to be rethought from the ground up if it is to come through the digital revolution, says MIT’s Erik Brynjolfsson. And CXOs need to rise to that challenge.

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Digital technologies have already sent shock waves of disruption through all kinds of industries. But, according to professor Erik Brynjolfsson, that is only be a taste of things to come.

The head of the MIT’s Center for Digital Business argues that we are only at the beginning of what he and other thought-leaders are calling a ‘second machine age’ — a new industrial revolution in which devices powered by artificial intelligence and endless amounts of big data are cognitive and capable of taking over skilled tasks that were historically the preserve of humans — from driving a car and designing products to performing surgery and cleaning buildings and streets (see The digital forces reshaping business and society).

That is going to have huge implications for economies and societies, says Brynjolfsson, but it is also going to raise some serious challenges for many CXOs — and for IT leaders in particular. “The second machine age is a huge opportunity, but also a huge challenge for CXOs at all levels, especially CIOs,” he says. “The smarter among them should be helping their fellow executives understand the profound implications of the technology shift that is under way.”

And critical to that is an understanding that the transformation goes well beyond what’s happening inside the ‘IT shop,’ where between 2% and 6% of the company budget might be spent today. The challenge is “really transforming the whole of the organization, and if CIOs are smart that means supply chain, the way the organization interacts with its customers, the whole ecosystem.”
Reinventing the business

Of course, that requires the buy-in of their colleagues in marketing, finance, the supply chain, operations and other departments, says Brynjolfsson, who with MIT colleague Andrew McAfee is the author of the newly published The Second Machine Age. “Each of these areas has to be reinvented. Every industry needs to be rethought from the ground up.”

In many ways that plays to the strengths of IT heads. “CIOs can be the leaders of that because they understand the technology, customer needs and the business processes that need to be transformed — at least the good ones do. That kind of business process innovation is a lot harder, it’s a lot less visible than the technology innovation, but it’s where the smart CIOs are putting more and more of their energy.”

But it is a two-way process – and will require a mind-set shift by some CXOs. “People in the C-suite need to recognize that the job of computerization involves much, much more than simply IT. Most of it is in the rethinking of opportunities, finding new ways to reach customers and working with your suppliers, co-ordinating your workers, rethinking your business processes, imagining new products and new services. The creativity is almost limitless in terms of what potentially could be done and we see winning companies as the ones that embrace these new technologies to do new things.”

“These are very exciting times for CIOs — or, to use the Chinese curse, they’re living in ‘interesting times.’”

In his earlier research in the ’90s, Brynjolfsson convincingly demonstrated a strong correlation between more IT investment and better business performance. But more recently, that formula has become more complex.

“It’s not simply a matter of spending more money, it’s a matter of embracing a technology-oriented mindset and there are situations where you use [things like] cloud computing that you don’t need to spend more money to get better performance. Having a CEO, a leader who understands that every company today is a technology company and that they have to be in close discussion with their CIOs, as well their marketing folks, operations folks [about] how to use technology to transform core functions?”

But this is unknown territory for most CIOs, he observes. “These are very exciting times — or, to use the Chinese curse, they’re [living in] ‘interesting times.’”

The Second Machine Age: Work, progress, and prosperity in a time of brilliant technologies by Erik Brynjolfsson and Andrew McAfee is out now.

First published
April 2014
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About: Erik Brynjolfsson
MIT Sloan School of Management professor and director of MIT’s Center for Digital Business, Erik Brynjolfsson focuses on the economic impact of IT. He is co-author of The Second Machine Age.

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