Formal Google CEO Eric Schmidt has stirred quite a bit of controversy with his comments on Google’s work life balance, the Ukraine War, and startups strategy on pursuing growth. Putting those aside, what resonated with me was a concept brought up by the host Erik Brynjolfsson, that is general purpose technology. He said general purpose technologies are powerful because they ignite other complimentary innovations, but it usually takes process innovation or organizational innovation to fully unleash that power.
He used electricity as an example. When electricity was first introduced into factories, they didn’t become significantly more productive than the factories that were powered by steam engines.
The way steam engines worked was that there was this big steam engine sitting in the middle of the room, and power from that machine got distributed through crankshafts and pulleys to all the equipment. When they introduced electricity into factories, they would pull out the steam engine and got the biggest electric motor they could find and put it where the steam engine used to be and fired it up. But It didn’t change the production a whole lot.
It wasn’t until 30 years later that they started seeing a fundamentally different kind of factory where the giant central steam engine was replaced by many much smaller electric motors. When they started doing that, they started to have a new layout of factories. The layout was typically on a single story where the machinery was not based on how much power they needed but based on something else, like the flow of materials. And people started having these assembly line systems, which led to huge improvement in productivity. Henry Ford was one of the best examples in this revolution.
The lesson is that electricity is a fundamentally valuable technology. But it isn’t until you have that process innovation, or organizational innovation of rethinking of how to do production that you got the big payoff.
Electricity is just one example. General purpose technologies also include steam engine, railroad, mobile and information technology, etc. And in these other technologies, people had similar generational lags before they realized that this technology allowed them to do something completely different than they sued to do.
AI is bit like that in some way, there is going to be a lot of organizational innovations, new business models, new ways of organizing an economy that we haven’t thought before. Tools like ChatGPT are already making existing organizations a lot more productive. But right now we are just doing retrofitting.
It is not just technical skills that is important, it is also about rethinking other stuff. And there is a lot of opportunity for us to rethink our areas now that we’ve been given this amazing set of technologies. We have to be creative enough to think about where the gap is. And it will be even bigger once people figure out these complimentary innovations.