Arab Open
University

Lecture 1

Block 1 Part 1:

The Relationship Between
Internet Technologies and
Business
Abdisalam Is...
Arab Open
University

Aims
Explain the concept of technological
determinism and be able to describe the
difference between...
Arab Open
University

Wave of innovation (cont…)
The Internet revolution gave rise to a broad
movement of unlimited optimi...
Arab Open
University

Technological determinism
Technological determinism is the popular
view that technology is somehow
a...
Arab Open
University

Technological determinism (cont…)
To understand this, there are a few main
points you must comprehen...
Arab Open
University

Technological determinism (cont…)
First there was the 'tribal age', followed by
the 'literate age', ...
Arab Open
University

Technological determinism (cont…)
McLuhan believed that the invention of the
telegraph was the next ...
Arab Open
University

Technological determinism (cont…)
Soft technological determinism:
Technology is not considered to ha...
Arab Open
University

Wave of innovation (cont…)
Around the 1930s Schumpeter started studying
how the capitalist system wa...
Arab Open
University

Wave of innovation (cont…)
New firms, as well as already-existing ones,
benefit from the wave of inn...
Arab Open
University

Wave of innovation (cont…)
Around the 1930s Schumpeter started studying
how the capitalist system wa...
Arab Open
University

Schumpeter's waves accelerate (cont…)
1. The first wave: the model represents
what is now called the...
Arab Open
University

Schumpeter's waves accelerate (cont…)
The relationship between technology and
the economy is not one...
Arab Open
University

Structure of a wave
1.

Irruption:
The start of the wave, when a revolutionary new
technology comes ...
Arab Open
University

Structure of a wave (cont…)
5. Maturity.
At this stage there are fewer and fewer
innovations around ...
Arab Open
University

Short-term and long-term benefits (cont…)
The impact that ICTs are currently having upon
society is ...
Arab Open
University

Commercialisation of the Internet
Prior to the current age of
commercialisation there was a period
r...
Arab Open
University

35
Abdisalam Issa Salwe, Arab Open University, KSA

Arab Open
University

Commercialisation of the I...
Arab Open
University

Commercialisation of the Internet (cont…)
The relationship between business and
the Internet and Web...
Arab Open
University

Commercialisation of the Internet (cont…)
Innovators: They are venturesome and
positively thrive on ...
Arab Open
University

Commercialisation of the Internet (cont…)
Geoffrey Moore adapted Rogers' model
further in order to s...
Arab Open
University

Commercialisation of the Internet (cont…)
Crossing of the chasm can often take a
very long time, or ...
Arab Open
University

Topic questions
How do you relate Schumpeter theory with
the expansion of communication?
What do you...
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Lecture 1 block 1 part 1- (The relationship between the Internet technologies& business)

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Technological determinism
 Schumpeter's innovative theory
 Schumpeter's waves accelerate
 Structure of a wave
 Short-term benefit and long-term benefits
 Commercialisation of the Internet

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Transcript of "Lecture 1 block 1 part 1- (The relationship between the Internet technologies& business)"

  1. 1. Arab Open University Lecture 1 Block 1 Part 1: The Relationship Between Internet Technologies and Business Abdisalam Issa-Salwe Ian Martin, E-business Technologies: Foundations and Practice, Open University, 2008 1 Arab Open University Topic list Technological determinism Schumpeter's innovative theory Schumpeter's waves accelerate Structure of a wave Short-term benefit and long-term benefits Commercialisation of the Internet 2 Abdisalam Issa Salwe, Arab Open University, KSA 1
  2. 2. Arab Open University Aims Explain the concept of technological determinism and be able to describe the difference between its hard and soft extremes. Situate the current 'digital revolution' within a Schumpeterian model of five waves of technological revolution. Classify organisational adoption of ebusiness technologies into one of five idealised types based on the technology adoption lifecycle model. 3 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Wave of innovation The digitalization of information, the bandwidth revolution associated with the use of fiber optics to transmit that information and the emergence of the Internet are major innovations that have transformed the telecommunications industry as well as business practices and the lives of citizens in general. The introduction of competition in the telecommunications sector in America and Europe has magnified the impact of innovations on the industry and made it more complex. 4 Abdisalam Issa Salwe, Arab Open University, KSA 2
  3. 3. Arab Open University Wave of innovation (cont…) The Internet revolution gave rise to a broad movement of unlimited optimism. Financial agents encouraged unsustainable economic forecasts, thus contributing to the development of a speculative bubble that led to overinvestment in the telecom sector, among other repercussions. These excesses have raised a number of issues. Could this outcome have been avoided, at least in part, through better management of macroeconomic policy? 5 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Wave of innovation (cont…) The innovation wave had very positive effects on the organization of society, the productivity of businesses and employee compensation as the Internet quickly became a means of communications and a locus for trading goods and services in the economy. Telecom users benefited from substantial reductions in prices and from a proliferation of new services. 6 Abdisalam Issa Salwe, Arab Open University, KSA 3
  4. 4. Arab Open University Technological determinism Technological determinism is the popular view that technology is somehow autonomous and exists in a space separate from society. This theory has that technology's power is seen as being able to determine the way we live. For example, 'technology has determined the way we work', or 'technology has determined the way we communicate'. 7 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Technological determinism (cont…) The communications theory of Technological Determinism was moulded by Marshall McLuhan. The basic idea behind the theory is that changes in the way humans communicate is what shapes our existence. McLuhan feels that our culture is moulded by how we are able to communicate. 8 Abdisalam Issa Salwe, Arab Open University, KSA 4
  5. 5. Arab Open University Technological determinism (cont…) To understand this, there are a few main points you must comprehend. First, inventions in communication technology cause cultural change. Secondly, changes in modes of communication shape human life. Thirdly, as McLuhan himself puts it, "We shape our tools, and they in turn shape us". Technological Determinism is distinctly a humanistic theory. As you read on, this will become quite evident 9 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Technological determinism (cont…) According to this theory, there are several giant evolutions in the way humans have learned to communicate over time. Each of these innovations works as an extension of one of the human senses. McLuhan has divided human history into 4 critical periods of time. In each case, the moving on from one era to another is brought on by a new mode of communication which causes some sort of significant change in society. 10 Abdisalam Issa Salwe, Arab Open University, KSA 5
  6. 6. Arab Open University Technological determinism (cont…) First there was the 'tribal age', followed by the 'literate age', the 'print age', and finally the 'electronic age', which is where society is now. The invention that changed life for the 'tribal age' was that of a phonetic alphabet. For these primitive people, hearing was the most important sense. 11 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Technological determinism (cont…) This new 'literate age' was brought to an end by the development of the printing press. Gutenberg's printing press moved society into the 'print age', making visual dependence more widespread. When people see ideas in print as apposed to word of mouth, the words take on a whole new meaning. The ability to print ideas meant the ability to shape the views and opinions of people worldwide. 12 Abdisalam Issa Salwe, Arab Open University, KSA 6
  7. 7. Arab Open University Technological determinism (cont…) McLuhan believed that the invention of the telegraph was the next giant step, moving people into the current 'electronic age'. The ability to instantly communicate via technology has caused humans to be preoccupied with sound and touch, not unlike our ancestors of the 'tribal age'. A "global village" of sorts has been formed according to McLuhan, with the individuality removed from our culture. 13 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Technological determinism (cont…) Hard technological determinism: The power to bring about change is attributed to the technology itself. According to those who take this stance, technology is autonomous, driving society and business forward: the inevitability of this onward march offers little alternative but for us to follow it or be left behind. 14 Abdisalam Issa Salwe, Arab Open University, KSA 7
  8. 8. Arab Open University Technological determinism (cont…) Soft technological determinism: Technology is not considered to have its own autonomous power; instead, that power is invested in technology by human actions. Although technology may provide the structures in which we live and do business, we do have choices, and the choices we make affect the nature and shape of our technologies and our response to them. 15 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Technological determinism (cont…) In the 1930s, Schumpeter saw the power of a repeating pattern that Kondratieff had identified earlier. This pattern was the result of a relationship between technological innovation and business activity. The relationship was in the form of 'long business cycles' or 'Kondratieff waves' that appeared to repeat every fifty years. 16 Abdisalam Issa Salwe, Arab Open University, KSA 8
  9. 9. Arab Open University Wave of innovation (cont…) Around the 1930s Schumpeter started studying how the capitalist system was affected by market innovations. He described a process where “the opening up of new markets, foreign or domestic, and the organizational development which illustrate the same process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. He called this process “creative destruction”. 17 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Wave of innovation (cont…) Schumpeter argued that long waves of innovations both create and destroy wealth. The net long-term impact is positive because innovation remains the foundation of broad social changes and of the productivity gains that improve living standards in the economy. These gains are achieved in the aftermath of major upheavals, both economic and social, that can go on for decades. 18 Abdisalam Issa Salwe, Arab Open University, KSA 9
  10. 10. Arab Open University Wave of innovation (cont…) New firms, as well as already-existing ones, benefit from the wave of innovations and adopt the new technologies, while others disappear because they are unable to adjust to new market conditions and become obsolete. Market adjustments also contribute to the disappearance of certain occupations, and some workers may find themselves unemployed as a result. A major innovation such as the advent of electricity, it often takes decades for firms to adjust to the opportunities offered by the new technology 19 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Wave of innovation (cont…) What Does Creative Destruction Mean?: A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Creative destruction occurs when something new kills something older. A great example of this is personal computers. For example, Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century. 20 Abdisalam Issa Salwe, Arab Open University, KSA 10
  11. 11. Arab Open University Wave of innovation (cont…) Around the 1930s Schumpeter started studying how the capitalist system was affected by market innovations. He described a process where “the opening up of new markets, foreign or domestic, and the organizational development which illustrate the same process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. He called this process “creative destruction”. 21 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Schumpeter's waves accelerate 22 Abdisalam Issa Salwe, Arab Open University, KSA 11
  12. 12. Arab Open University Schumpeter's waves accelerate (cont…) 1. The first wave: the model represents what is now called the Industrial Revolution, which had its origins in Britain beginning around 1785. 2. The second wave: the age of steam, railways and steel. 3. The third wave: sometimes referred to as the Second Industrial Revolution. Leading innovators and entrepreneurs with the rise of electricity, chemical engineering and the internal combustion engine. 23 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Schumpeter's waves accelerate (cont…) 4. The fourth wave: technological innovation, consisting of petrochemicals, electronics and aviation. 5. The fifth wave: a series of waves of technological revolution that represent the relationship between technological innovation and economic growth 24 Abdisalam Issa Salwe, Arab Open University, KSA 12
  13. 13. Arab Open University Schumpeter's waves accelerate (cont…) The relationship between technology and the economy is not one-way. Although technological innovations may have sparked each revolution in our model, they do not drive that revolution. The revolution is as much a consequence of the investment and business activity that provides the fuel to stoke the technological fire. 25 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Schumpeter's waves accelerate (cont…) Schumpeterian model can be used to put the digital revolution into a wider context of technological change. The importance of the economy and the business environment in propelling technological development should help us see things from a softer perspective. 26 Abdisalam Issa Salwe, Arab Open University, KSA 13
  14. 14. Arab Open University Structure of a wave 1. Irruption: The start of the wave, when a revolutionary new technology comes to market as a 'big bang'. During the irruption stage, innovative products and services from new businesses appear and slowly start to have an impact on the economy. 2. Frenzy: This is the rising part of the wave that is characterised by exploration and trial and error, as entrepreneurs and investors exploit opportunities from the irruption stage. Investors become overconfident and finance ventures. 27 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Structure of a wave (cont…) 3. Turning point: The frenzy is followed by a turning point. A realisation dawns that excessive investments will never fulfil high expectations. Investors lose confidence and funds are withdrawn. The bubble bursts and for a period the stock market collapses.. 4. Synergy: The turning point doesn't end the technological revolution; rather, it signifies that the time of widely speculative investment in search of quick and easy profits has passed. A few large companies now dominate the business landscape. 28 Abdisalam Issa Salwe, Arab Open University, KSA 14
  15. 15. Arab Open University Structure of a wave (cont…) 5. Maturity. At this stage there are fewer and fewer innovations around the technology being considered. Growth opportunities for businesses in that technological field are limited, and they instead concentrate on reducing overheads and increasing operational efficiency. This decline in innovation around what is now an existing technology is then supplanted by fresh economic growth arising from a new set of technological innovations, and the cycle is repeated. 29 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Short-term and long-term benefits (cont…) At the beginning of each technical revolution, economic growth is very rapid and some businesses see a competitive advantage in exploiting, shaping and setting standards for new technologies in order to pursue business goals. 30 Abdisalam Issa Salwe, Arab Open University, KSA 15
  16. 16. Arab Open University Short-term and long-term benefits (cont…) The impact that ICTs are currently having upon society is not unprecedented, despite what some might like us to believe. Disruptive technologies fundamentally reshape social and business lives and offer the opportunity to supplant technologies that have come before. Reasoned understanding of the capabilities of a technology is achieved only over a long period of time, when the technology has reached the synergy and maturity stages. In the model above, this is only when the peak of each wave has passed. 31 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Short-term and long-term benefits (cont…) A technology has perceived pros and cons that change over time and that are not inherent to the technology itself, but are more often than not informed by the prevailing social climate. Even disruptive innovations can eventually settle down and co-exist amongst other, better established technologies. 32 Abdisalam Issa Salwe, Arab Open University, KSA 16
  17. 17. Arab Open University Commercialisation of the Internet Prior to the current age of commercialisation there was a period referred to as institutionalisation, in which large, publicly funded organisations such as the US Department of Defense, and academic communities, provided resources that formalised the structures around numerous technological innovations. 33 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University The commercialisation of the Internet 34 Abdisalam Issa Salwe, Arab Open University, KSA 17
  18. 18. Arab Open University 35 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Commercialisation of the Internet (cont…) Department of Defense and the National Science Foundation provided large amounts of funding to institutionalise the Internet, it was shaped with these large non-commercial organisations' interests in mind. A few years after the advent of the Web in 1991 businesses started to become an important collective user, and hence co-constructor, of the Internet and the Web in what is sometimes referred to as the commercialisation of the Internet. 36 Abdisalam Issa Salwe, Arab Open University, KSA 18
  19. 19. Arab Open University Commercialisation of the Internet (cont…) The relationship between business and the Internet and Web is that there has been, and continues to be, a coconstruction going on. Producers and users of technologies both have an important part to play in how technologies are constructed and shaped. 37 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Commercialisation of the Internet (cont…) No one clear as organisational owner or producer behind the Internet any more Its development can be seen as a massive co-construction effort that is at times uncoordinated, but frequently marshalled by standards, governmental policies and business market forces. 38 Abdisalam Issa Salwe, Arab Open University, KSA 19
  20. 20. Arab Open University Commercialisation of the Internet (cont…) Innovators: They are venturesome and positively thrive on risk. They tend to socialise outside the circle of their normal peer networks and look outwards towards innovators in other groups. They do not allow setbacks to deter their enthusiasm for the new. Early adopters: They are respected within the local peer network and act as role models for that local network of groups or individuals. They are agents of change who see the practical application of technological innovation before the majority and make relatively quick decisions regarding its usefulness. 39 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Commercialisation of the Internet (cont…) The early majority: They adopt just before the average and deliberate for some time before adopting. They are followers rather than leaders. The late majority: They are more sceptical and cautious than the early majority. They require most of the uncertainty and risk regarding an innovation to be removed before they will adopt. Laggards: They are the last to adopt. They are suspicious of innovations and change in general. They typically have limited resources and so must be certain that an innovation will not fail before they adopt 40 Abdisalam Issa Salwe, Arab Open University, KSA 20
  21. 21. Arab Open University Commercialisation of the Internet (cont…) Geoffrey Moore adapted Rogers' model further in order to show a gap, what he refers to as a chasm, between the early adopters and the early majority (Moore, 1999). This chasm usefully highlights the difference in characteristics between the innovators and early adopters and the remaining majority. 41 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Commercialisation of the Internet (cont…) Those to the left of the chasm can imagine the future benefits of a technology, and their attitude and technical skills let them live potentially off-putting inconveniences. The mainstream market to the right of the chasm is more pragmatic: it waits for improved reliability, a complete set of features, a user-friendly interface and a demonstrable benefit to financial outlay before it will adopt. They need a whole product that 'just works'. 42 Abdisalam Issa Salwe, Arab Open University, KSA 21
  22. 22. Arab Open University Commercialisation of the Internet (cont…) Crossing of the chasm can often take a very long time, or it might not happen at all. There are many innovations that might be regarded as failures because they never saw adoption by the majority. 43 Abdisalam Issa Salwe, Arab Open University, KSA Arab Open University Reference Ian Martin, E-business technologies: Foundations and Practice, Course Team, Open University, T320, 2008 44 Abdisalam Issa Salwe, Arab Open University, KSA 22
  23. 23. Arab Open University Topic questions How do you relate Schumpeter theory with the expansion of communication? What do you think about the Internet opening new opportunities for companies? What Schumpeter means by ‘creative destruction’? 45 Abdisalam Issa Salwe, Arab Open University, KSA 23

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