What does steam, electricity and factories have to do with digital transformation? Tim Harford gives a fascinating account here (as part of his excellent 50 Things That Made the Modern Economy series) of the productivity lag that can be associated with the introduction of revolutionary technologies (see also this research from economist Paul David) using the story of why of electricity didn’t immediately change manufacturing.
Despite Edison building the first electricity generating stations in 1881 and the first electric motors driving manufacturing machinery not long after that, twenty years later the vast majority of mechanical drive power in US factories still came from steam. This power came from a single, huge steam engine that typically turned a massive drive shaft which in turn powered a succession of subsidiary shafts, belts, hammers and presses. As Tim says, steam-powered factories ‘must have been awe-inspiring’.
This meant that the layout and organisation of the factory was entirely driven by access to the shaft and the centralised steam driven power source.
When electrification first came to factories, engineers simply replaced the big steam engines with big electric motors. But managers were disappointed with the level of productivity gain. In fact it took 20-30 years before significant benefits were seen.
Why was this? Because, as Tim says, ‘to take advantage of electricity, factory owners had to think in a very different way’. Electricity enabled power to be delivered efficiently to wherever it was needed, meaning that instead of one huge, centralised source powering everything, manufacturers could establish and maintain many smaller electric motors that could deliver localised power for localised needs. This changed everything:
‘Steam-powered factories had to be arranged on the logic of the driveshaft. Electricity meant you could organise factories on the logic of a production line.’
The full potential of electrification could only be realised when entire working practices and processes were changed. The configuration of factories no longer needed to be organised around that centralised power source but could be far more decentralised and spread out. Machines could be reoriented around the flow of materials rather than the flow of power, and only switched on when they were needed:
‘In the old factories, the steam engine set the pace. In the new factories, workers could do so.’
So new ideas about manufacturing processes (like the automated production line) emerged and became more widespread. But it wasn’t just the architecture and production process that changed. This greater autonomy for workers changed the way that they were paid, recruited and trained, and the focus shifted towards quality of skills. There was resistance to change of-course but as mains electricity became cheaper and more widespread change became inevitable. The previously unrealised productivity gains were achieved and exceeded but whilst the technology had now been around for fifty years, it was only when manufacturers implemented more fundamental changes in thinking, ways of organising and working that the real potential became clear.
And that’s the parallel with modern day digital transformation. In our book, Building the Agile Business, we define digital transformation as:
‘The transformation and reinvention of the resources, priorities and processes of a company in order to be fit for purpose in a digital-empowered world’
This definition is inspired by Clay Christensen who framed an organisation’s capabilities (what it can and can’t do) through those three broad areas: Resources (tangible ones like buildings and headcount, intangible ones like brands and IP); Priorities (the consensus on what’s right to do, the values, and the strategy; Processes (the formal or informal way in which the work gets done). As Christensen says, these aspects are mutually exclusive in that a part of a business cannot fit into more than one of the categories, but are also collectively exhaustive (put together the three categories account for everything inside of the business).
Digital technologies have been with us for years, but it is only through a fundamental reorientation of these elemental capabilities that the true potential can be realised.
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Also published on Medium.