How AI will make corporations more humane and super-linearly innovative (Part I)

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Artificial Intelligence has been darkly painted by many as the technology that will destroy jobs and render humans unemployable and obsolete. But in an expansionary era of stagnant wages, economies at full capacity, cheap capital and flat productivity, a vital point is often missed: unless we humans come up with new ideas to drastically improve our productivity economic growth and increased prosperity for future generations will become a thing of the past, a fading memory that will haunt the history books of the late 21st century.

And yet, innovation seems to be all around us. Indeed, as Clayton Christensen has argued in his book the “Innovator’s Dilemma”, innovation seems to be the main cause of the “mass corporate extinction phenomenon” that is also profoundly evident. According to research by Innosight, in the next 10 years 75% of the S&P500 will be gone. The lifespan of companies is also shrinking: in the 1960s the average company would survive for 60 years, while n 2025 it is projected that the average lifespan will be just over 10 years.

The Mass Corporate Extinction Event

We are thus faced with a paradox: one the one hand, fast innovation is obliterating slow-changing companies, and on the other hand this fast innovation is apparently inadequate to deliver the productivity boost we need to grow our economies. Something is obviously amiss. I would like to argue that the problem we have is that we are not scaling innovation effectively. But let me explain this argument more clearly.

The startup movement has demonstrated how fast innovation can happen. Combine entrepreneurialism with creativity and powerful software tools, add smart capital, allow for failure and experimentation, and the results can be amazing. But, if you think about it, what startups actually do is accelerate the process of traditional R&D departments, with two major differences. Firstly, the cycle from research to commercialization has drastically shortened due to agile product development practices. Secondly, and most significantly perhaps, innovation has accelerated because it has become collaborative. Sharing and trust are paying handsome dividends in the world of open-source systems and collaborative communities. But why? What is it about sharing and collaborating with strangers that delivers such super-linear value?

Embracing chaos

In 2010 two physicists from the Santa Fe Institute made a very interesting discovery. By studying the size of cities and correlating size to productivity, they showed that every time a city doubles in size innovation and productivity per resident increases by 15%! Correlation is not causation, of course, however the scientists also observed that this phenomenon only applies to cities that have good transport systems. This is an important observation that explains why megacities in the developing world, growing fast but lacking good transport infrastructures, do not exhibit the same productivity dividends. It is because people in these mega-cities are excluded from gaining access to the knowledge and expertise of others, and are instead trapped within the confines of their familial surroundings. Mega-cities without good transport systems are effectively an assemblage of small villages, virtually cut-off from each other.

So here’s what probably happens: people in efficiently growing cities have a higher probability of chance encounters with ideas and people outside their immediate circle. It is the unpredictable, the unplanned, the serendipitous, the chaotic that make us innovative and productive. If only we could replicate this phenomenon in business! But how can we capture chaos in our business organizations, where the very purpose of business organization is to manage and reduce, or eliminate, chaos? How can we rethink human collaboration when our current models impose barriers and create silos?