Computing

Smart systems and global chaos


Johannesburg, 17 Sep 2012

The world is moving towards a data economy, but the evolution will not be smooth. The global financial crisis is just one example of a data-driven industry fighting for survival. Across the world, companies, and even nations, are wrestling with the future.

Glen Hiemstra, well-known futurist and founder of futurist.com, spoke at SAS Institute's executive forum in Johannesburg, and set out a vision of the next generation of technology, finance and more.

'Really smart' is coming

“The pace of technology change has continued to accelerate, even throughout the economic downturn.

“'Really smart' is on the way,” Hiemstra says, pointing to IBM's Watson and Apple's Siri as early forerunners of tomorrow's smart systems. “We're really just dipping our toes into it right now, but really smart computers are going to make what we're doing right now look like child's play. Look at the computing device on your desk, and realise that you're looking at a Model T automobile.”

A proliferation of embedded systems and mobile computing is rushing us towards an easily predicted future - the “Internet of things” where everything is connected. Hiemstra extrapolates further, into the flood of data which will accompany that. “I think we're about 10 years from a future in which most of the things which we carry, the things we wear, the things we drive around in, the buildings we walk into, the homes we live in, are full of embedded intelligence. All of which is communicating, creating reams of data which then can be mined and turned into real information and business opportunities. Companies which don't put intelligence into all their products will be at a severe disadvantage.”

That data is already a present-day phenomenon. It's frequently called “big data”, usually inferring that it's too big to easily manage and analyse with conventional tools. A whole generation of new technologies, and new businesses, is growing around the ability to store, manage and analyse that data.

'Big data is the new oil'

If today's economy runs on oil, Hiemstra believes the next generation will run on data. “If you're an oil company, you know two things for sure today. First, you know you're making lots of money. And you know that someday it's going to come to an end. Some day the oil will run out. If you're a miner of big data, you know two things for sure today. First, you're just beginning to figure out how to make money. The second thing you know is that tomorrow there's going to be more, and the next day there's going to be even more. 100 years from now there's going to be an unlimited supply. That's exactly the opposite business proposition to oil.”

Big data, effectively measured, means more accurate prediction, Hiemstra points out. “Data is capable of being analysed in ways that let us see where things are going, in ways we couldn't before. For example, MasterCard can predict, based on your buying patterns, when you're likely to get divorced.”

Armed with mountains of data, and the ability to sift it in near-real-time, allows companies to model their businesses with uncanny accuracy.

“There will be things in the next five or 10 years that completely surprise us no matter how much data we analyse, but there are a lot of things which are coming at us which seem completely obvious if you stop and look at it or dig into the data.” That is changing the nature of business, he adds. “The nature of the economy is shifting to be a knowledge-value economy. The ability of a product or service or company or person or community or nation to compete depends on the quality of its knowledge, its ability to acquire new knowledge, and to apply that knowledge more quickly than anyone else.

In some areas, that fascination with data and computing can be dangerous. Hiemstra says the global financial crisis was “obvious”, and notes that computers were partly to blame. Balance and regulation, he says, must temper our headlong rush into the big data future.

“In the last 10 to 20 years, the financial system began to separate itself from the real economy and it became a global casino. All kinds of very clever instruments were invented in order to make that casino more lucrative, and had less and less to do with the real economy. In fact, it was almost completely divorced from real businesses making real products. You need a real investment community that's focused on trying to pick good companies and invest in them.”

One symptom of unhealthy fascination with data is high frequency trading (HFT), he says. HFT is entirely driven by computation and data, in which automated systems make trades in fractions of a second to take advantage of tiny fluctuations in stock prices to eke out gains. Fully 70% of US stock trades are HFT - computers literally run the markets. That, Hiemstra says, is symptomatic of the trend turning financial systems into casinos rather than centres of investment. “The whole technological speed up of trading and the automation of trading further divorces it from the real economy. We should kick a lot of the computers out. One of the suggestions in Europe is to put in micro-fees for every trade - that'll pretty much bring an end to HFT, or at least put a big dent in it.”

When systems start to diverge from the business they were intended to support - like the financial systems becoming distanced from supporting growth of industry - something will eventually snap, Hiemstra believes. “What will happen is, you build up excesses that get out of control. Everybody can see it's getting out of control so they'll build even more clever instruments, which some people think is what's happening now with the banking system in Europe - they haven't recognised what is really going on, spinning ever faster and faster to keep the game going instead of admitting the game doesn't work anymore and changing it.

The same signs apply elsewhere, Hiemstra says - he's watching the patent world with great interest too. “I've been really picking up on that recently with all these lawsuits and firms that exist just to buy up patents. It's like someone's just throwing rocks into the gears.”

Global trends matter locally

The same signs of turmoil can help businesses identify crises in their industries, and sidestep disaster, Hiemstra says. But recognising the need for change is rarely enough. Companies fail to change, even when they know they must.

It shouldn't be that way. Companies are the engine rooms of the economy, and best positioned to drive change, he notes. “Change is very hard to do at a national level just because the complexities are too great and so many competing stakeholders and counter-forces trying to keep things from happening. And, when you get down to the really small company level or the individual...they are too frightened. They just let life happen. But at the level of a company of a few hundreds or thousands of people, you can have the biggest impact. They can collectively say 'this is where we are, this is what's happening in the world, this is where we want to be and therefore we need to do these three things differently.' Companies like that are nimble enough to drive change.”

But most don't. Most companies fail to change effectively, he says, even when they understand the need. “Companies don't change unless it's urgent. There was a study in the Harvard Business Review that showed 75% of the time strategic planning made no difference in a company. The number one factor was that the change wasn't seen to be urgent. The number two factor was whether they had a vision, whether they could clearly see something different from what they were. And the number three factor was whether they could create some momentum by taking small steps that would get them going.”

“The average CEO is all in favour of change, until they reach the point where they realise things are going to change,” he concludes wryly.

Future focus

Focusing on the future, Hiemstra says, is a more effective way to drive change today.

“Everyone has some image of the future,” he comments. “That can be something you're trying to get ready for, a trend that's happening, an image of something you're afraid might happen, or an image of the preferred future - where you'd like your life, your business, or your nation to be. Whatever that image is exerts an influence over your choices today. So if you want to drive change in what you're doing today, change that vision of the future. Then change today towards that vision.”

Businesses which are too caught up in responding to what competitors are doing, or already established market trends, he says, “are just trying to build a better past”.

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