BITS, BYTES AND BOLD STRATEGIES

MISSISSAUGA BOARD OF TRADE. MARCH 8, 1993

Last week my attention was caught by two fascinating little items in the newspaper.

One was a news “factoid” saying that Toronto now has more mobile telephones per person than any other city in the world!

On behalf of Rogers Cantel: “Thank you very much, Toronto!”

The other item was a cartoon! Two people were sitting in a modern, well-equipped office. One says: “Okay. desks, chairs, computers, phones, fax machines. Now, what can we do with all this stuff to make money?”

It seems to me that many of today’s business people are caught up in this confusion. On the one hand, we Canadians are among the world leaders in making, and using, information technology such as computers and telecommunications. On the other, there is an ambivalence about how to use it for maximum effectiveness. I think the topic of your meeting today is most appropriate: “Bits, Bytes and Bold Strategies — how to cope with changing technologies and use them to help your business.

I’m going to cut this subject up into three courses, to make it digestible:

• First, I’m going to talk about the new technologies themselves, and where they’re going.

• Next, we’ll look at the changes they are causing in our business world.

• Finally, we’ll talk about how to benefit from the new technologies.

Let’s start with the new technologies, and where they’re going.

It’s one of the world’s best-kept secrets, but Canadians are leaders in pushing information technology forward.

And today technological change is happening faster than it has at any other time in history. It has two main drivers:

• the vast increase in the power of computers; and

• the equally vast increase in communications, making information accessible.

Power and access:

The power of computers is increasing exponentially.

If you buy a new car this year, you’ll find more computer power under its hood than Neil Armstrong had in his Lunar Lander! Computer power is surging because we can cram more and more circuitry into smaller and smaller spaces. The volume of a computer “switch” has dropped from the size of a fist in 1940 to that of a finger in 1950, a pencil eraser in 1960, a salt grain in 1970 and a small bacterium in 1980. Where is this going? The visionaries of nanotechnology foresee atom-sized switches that could put the equivalent of human-like brainpower onto a thumbnail-sized chip within three decades.

No one knows if that is possible, but it is true that the number of components on a computer chip is doubling each year. There is no sign that this curve is leveling off. We will likely have billion-bit chips by the year 2000. You show a quantum physics problem to a supercomputer like Dan Hillis latest parallel processor and it practically yawns! It handles the trillions of operations in a heart-beat; it would have taken a century for a mainframe to do that, only ten years ago. Canadians are in the forefront of this research. The world’s largest integrated circuit, for example, is built by DALSA Incorporated, in Waterloo!

From a user’s viewpoint, this drop in the cost of computing power is great news. By way of comparison, if the cost of automobiles had dropped as fast as the cost of calculation, it would be cheaper for us to abandon a Rolls Royce at the parking meter than to feed the meter!

You will be able to do things that seem magical today. By the year 2010 you may have a pocket computer with enough power to carry within it an 8,000-volume neighbourhood library. You may be working on “dynapaper” – an electronic notepad that eliminates the need for paper. It records and networks everything you write or dictate.

A personal “memex” device could provide the storage capacity to build an individual’s “life file” of all the books, articles, letters, songs, pictures, movies and other images that have significance for your career or life.

If this seems fantastic, remember the changes that have already occurred. Computers are penetrating society at an accelerating rate. Twenty years ago, there were only 50,000 computers installed world-wide. Now, 50,000 computers are sold every day. In fact, fully ninety per cent of all today’s computer users had not touched one in 1980! And the number of things that are not being affected by computers is shrinking every day. I defy you to tell me how many computers you own. You may not think you have any – but they are so small and cheap that they are being embedded everywhere! They are in your VCR, your watch, your kitchen blender.

In Canada alone, the number of micro-computers units being shipped to meet this demand has sky-rocketed: from just over one million units ten years ago to 7.5 million units in 1991!

These secondary and unexpected uses of computers are outweighing their original purpose. If I asked you, for example, to name North America’s largest domestic computer presence, which company would you name? IBM? Digital Equipment? None of the above! America’s largest computer presence is Nintendo!

That’s how much computer power and penetration has grown; what about communications – the accessibility of information?

By a strange coincidence, there has been a parallel technical revolution in the communications network. It is based on the same kind of digital breakthroughs that drove down the price of computers.

The cost of “communicating” has plummeted. To go back to the automobile analogy, if the cost of fuel had dropped at the same rate as the cost of communications, you would be able to buy gas today for two cents a litre! And the fuel would have improved so much in quality that you would be traveling faster than the speed of sound!

A world of information is as close as your portable telephone. Again, Canadians are taking a lead. The Canadian cellular industry has experienced one of the fastest adoption rates in the world – faster even than in the United States. From a “zero” start just seven years ago, Cantel alone now has almost half-a-million customers. Overall, Canada’s mobile customer base is expected to grow to three million users by the year 2000.

Looking ahead, mobile “telepoint” phones will soon be available that will carry digital sound and computer information in a package no bigger than Captain Kirk’s communicator on Star Trek. By the year 2000 wristwatch phones could be common, fed by powerful satellites. These direct broadcasting satellites will make the world of digital video information available to anyone with a napkin-sized receiver sitting on their window sill. And fibre optic technology has become so good that something we call “world on a thread” is theoretically possible. In theory, half of the total population of the earth can talk to the other half over a single fibre optic line!

What changes are these technologies are causing in our business world?

This combination of computer power and information accessibility are creating a totally new business environment.

Here are some of the more dramatic changes:

• a shift to knowledge-based competition – the raw material of a new age, knowledge is becoming the most sought-after competitive ingredient. World trade is growing two- to five-times faster in knowledge intensive goods and services (such as engineering or robotic devices) than in resource intensive goods and services (such as logging or pulp and paper). This trend will only accelerate. Today, scientific knowledge is doubling every five years. Let’s make that visual. We know in principle that we can make an optical memory device out of polymer that could store all human knowledge in a one centimetre cube. The contents of all the major libraries in the world, in the space of a sugar cube. By the time your children retire in year 2050, everything humankind has learned up to 1993 will amount to only one per cent of the knowledge available to them.

In the working careers of our children, humankind’s knowledge will grow in volume from a sugar-cube to an encyclopedia.

• smaller hierarchies – industry guru George Gilder identifies a process he calls “the Law of the Microcosm”, which is responsible for pushing more and more power onto the desks of individual workers. The microcosm is the computer chip, and every year, as we have seen, the effective processing power on a computer chip doubles. This “cheapening” of knowledge power is shrinking the “grain size” of decision-making and knowledge processing. According to The Economist magazine, for the past thirty years there has been a decline in the average employee size of North American firms. This reflects the erosion in the relative effectiveness of large hierarchies.

• a surge in networking – the flow of information is now a flood. In the past 20 years, the volume of phone traffic in North America has increased 30 times.

• a huge growth in infotech – the fastest-growing area of all is information technology. Infotech is now a trillion dollar industry, and it will double again within ten years. Last year, in fact, it overtook automotive to become the world’s largest industry.

• a shift in employee capabilities – companies now depend on employees with knowledge skills: professionals, technical people and senior management. In a survey of some of the largest American companies, it was found that the higher they rated in human resource development, the better their long-term performance. This isn’t just something that is “nice to do”. This is an imperative if we are to grow.

Books like Richard Crawford’s “In The Era of Human Capital” say that in the next ten to fifteen years, virtually all employment growth will occur in “knowledge economy” areas. The knowledge economy comprises those organizations with high ratios of skilled and educated workers (professionals, technical workers, and senior managers).

• the “no country is an island” syndrome – Infotech’s networks are dissolving borders and creating a global knowledge-based marketplace, where international corporations operate through knowledge networks. Companies are able to leap borders because of the power information technology gives them to coordinate production in distant locations. This “enabling effect” of infotech makes a statistic such as “product origins” extremely hard to define. Texas Instruments, for example, is the most competitive producer of memory chips in Japan.

More than half of its annual Japanese production goes back to the U.S. The trade figures, however, do not show the Texas Instruments shipments from Japan as boosting the overall trade balance of the American economy. Instead, they show up as a U.S. “import”! The President’s Secretary of Labour, Robert Reich, calls this trend the “web of enterprise”. Reich confirms that imports are no longer finished products like cars. Most imports today are parts of a finished product. Information technology is allowing corporations to shop the globe; in doing so, they are re-engineering the entire world of trade!

These are the effects that the new information technologies are having on our businesses.

How can you benefit from these trends and these new technologies?

The Information Technology Association of Canada (ITAC) has undertaken a series of reports and original studies that could help you make actionable decisions. ITAC recently asked Canadian economist Nuala Beck to give us an overview of the growth areas in the new “information” economy.

She confirmed that the world, and North America in particular, is in a rapid transition to this information economy. Our current measures of economic growth – housing starts, auto sales and so on – no longer reflect the true picture of our economic strength. Information technology, for example, contributes more to Canada’s GDP than pulp and paper and transportation combined. More Canadians work in infotech than in banking, mining, forestry or auto assembly. Infotech accounts for more than one-third of Canada’s industrial R&D. In the U.S., more Americans make computers than make cars.

In fact, Nuala said, we are dealing with two economies. The older, mass-manufacturing economy ended about a decade ago. The new “information economy” has an entirely different set of leading industries. The infotech economy has four “engines of growth”, all based on cheap computers, semi-conductor, and communication – providing ways to gather, store and analyze information. And in this new economy you can hardly tell where a “good” ends and where the “service” begins.

One growth engine is the health and medical sector – and not just the “care” side. It includes all the goods: the pharmaceuticals, the diagnostics, the instrumentation, and the supplies that are driving this sector.

Another engine is instrumentation. Most Canadians don’t even realize that we have an instrumentation industry in this country, let alone the fact that it already employs more Canadians than the entire brewing, distilling wine and soft drink industries combined.

The other two engines are computers and telecommunications, and all the goods and services that feed into it.

Three-quarters of Business Week’s 100 fastest-growing companies for 1991 fall within these industry groups!

Canadian business people should therefore try to position their companies to take advantage of these engines. There are three options for growth:

• become one of the four “engines of growth”;

• become a supplier to one of the “engines”; or

• use the power of the engines to revitalize an industry. This is important for all companies, including those that are not high-tech. Many traditional sectors are being galvanized by new techniques. The technology-driven concept of just-in-time manufacturing, for example, has driven up sales of pallets and skids.

ITAC is making help available for everyone wanting to explore the routes to change. ITAC has produced a new study called “Things Change, Economies Evolve” that highlights the experiences of 15 organizations that invested in infotech.

“Things Change. Economies Evolve” helps people see how infotech impacts on the success of an organization’s goals. All the organizations involved in the study used infotech to control costs and improve the quality of products and services.

Beyond that, however, infotech gave them new power — power to create new products, enhance management and create new conceptual or operational models for their industries. Several important lessons emerged:

• infotech by itself is not the salvation of an organization. Its impact depends on its role as part of an overall re-thinking of current practices. When the Ottawa newspaper Le Droit automated its printing processes, for example, it also changed its work environment. It used its new flexibility to bring out two more editions of its paper, with more locally-relevant news in each edition.

• electronic communications is an important consideration. Information processing needs to be reshaped and accompanied by new ideas about the movement of information between people. The five Quebec hospitals involved in SIDOCI have created a fully- integrated health care system. It makes patient information available instantly – in an integrated and paperless way – to doctors, nurses and staff in the format that suits them best.

• even organizations not traditionally considered product-focused were able to turn new infotech applications into marketable products and services. The Royal Bank uses Electronic Data Interchange (external and internal data transfers) to offer revenue-generating, information-based products – including the sale of its expertise in EDI!

• better infotech-based external communications with suppliers and customers dramatically changed the nature of business relationships. Union Gas enhanced its customer service by equipping its service vehicles with computer terminals, which streamlined clerical tasks and increased system responsiveness.

• integrating infotech often leads to higher workplace skill requirements and richer working environments. General Motors provided its field reps with portable computers, allowing the reps to improve the quality of their interaction with dealers. The system improves market data, speeds the processing of orders, and allows the field rep to work interactively with the dealers.

These findings complement and enrich an ITAC study done in 1988, called The Enabling Effect. The “Enabling Effect” described the levels of benefits that happen when companies invest in information technology.

Finally, ITAC offers help on a different scale. ITAC has a Vision of a different Canada — a Vision designed to help all our business and social sectors. We put it forward in our response to the national Prosperity Agenda.

Our report to the Prosperity Steering Committee was called “A Knowledge-Based Canada: The New National Dream”.

We believe that the key to our national future is to create a climate of innovation – a culture and environment where change is valued and change is sought. We say that change in the new information-driven economy is only going to flow from the creation of a knowledge-based Canada.

We want a country founded on the creation and movement of information and human knowledge. For all our sectors, we want “megaprojects for the mind”. Our Prosperity Report says:

“The investments once made in capital projects must now be turned towards human capital, in the form of lifelong learning. We must make every industry a knowledge-based industry.”

That is the message I would like to leave you with today. Knowledge, and its growth and cultivation, will become the main event in business competition, as in social progress.

As business leaders, we have a responsibility to pass along this message to our business partners.

We have a good-news story to tell with it: that some of the best information companies in the world are located in Canada. We have world-beating technology, and we have software that is one of our most under-appreciated national treasures. It is our responsibility to get our institutions in line with these new times, so we can adequately develop and deploy these new ways of doing business. I’m not sure our governments of banks, for example, fully understand how to evaluate and finance these new knowledge-based companies.

And I am sure that most of our society does not understand what is happening in the information age. This is our second great responsibility: social leadership. We must give our people an understanding of what the information economy means. They are being paralysed by economic uncertainty and fear of job loss. I think that right now our population is being confused because they are watching the fringes of the problem of change. They don’t know the trends behind the job losses, the manufacturing shifts, the call for new qualifications, the decreasing profits and loss of trade. There is, in fact, a very simple message we can give them in this seemingly complex age.

The valuable commodities in the information age are knowledge and brain-skills. All of the competitiveness surveys now available confirm this: we must move away from being passive processors of raw materials to areas where knowledge adds value to work.

Capital for new investment will flow to those countries where the people are perceived to be capable of enhancing a product with their mental expertise.

This has important implications for business. Today, for example, our business capabilities are more closely woven into our social fabric than they have ever been!

Educational decline, for example, means business decline. We cannot lose sight of this interrelationship in the information age. Our age empowers individuals, and requires their mental commitment and enthusiasm. As business leaders we must improve our educational system because it would be entrepreneurial suicide not to!

In the information economy the linkage between consumer and business, private individual and corporate citizen, grows tighter all the time.

Our workers can’t just passively assemble widgets any more and then go home and forget about the job. We are entering an era which requires us to engage the minds of our staff; to tap and engage their enthusiasm.

Ultimately, we have to help each other, and our society, prepare for the information age. We as business visionaries have the task of being guides and change-masters. We alone are in the best position to appreciate the central change-making role of information technology. We have to keep step with the future to keep our faith with our past. It is my hope that, together, we can create the kind of “change awareness” and “information awareness” that Canada needs for this future success.