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

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

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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

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Abdisalam Issa Salwe, Arab Open University, KSA

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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.
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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.
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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?
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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.
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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'.
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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.
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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
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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.

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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.
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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.
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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.

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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.
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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.

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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.
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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”.
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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.
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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
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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 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.
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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 creating a new one”.
He called this process “creative destruction”.
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Schumpeter's waves accelerate

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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.
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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

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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.
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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.

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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.
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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.

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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.
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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.

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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.
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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.

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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.

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The commercialisation of the Internet

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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.
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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.

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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.

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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.
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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
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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.
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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'.
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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.

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Reference
Ian Martin, E-business technologies:
Foundations and Practice, Course Team,
Open University, T320, 2008

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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’?

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

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