saturday’s wall street journal Paul A. David, who was an unusual type of economist. He was inclined to look at the past and not the future as most economists do. Much of his work focused on studying the history of the growth and decay of technology and industries in the hope of finding clues about the development of economies.
According to the obituary, David looked at both electrification and computerization and came to the conclusion that it could take decades for some businesses to reorganize their organizations to make better use of them. He was best known for a paper entitled ‘The Dynamo and the Computer’, in which he examined the slow spread of electrification in the late 19th and early 20th centuries, and which puzzled many economists in the 1990s. The question was put And it was paradoxical that an apparently rapid adoption of computers was not (at least as assessed then) increasing the productivity of American workers as otherwise expected.
David also chimed in with thoughts on the ‘qwerty’ keyboard we use, and why not replace it with a configuration that would allow much faster typing. The typewriter market settled on the QWERTY format in the 19th century to reduce human error by slowing down typists, and once this standard was adopted, the switchover costs on equipment and retraining typists were too high to implement any shift. was overestimated. David showed that random events and herd mentality can cause people and organizations to settle for sub-optimal technology.
he was right. I can think of many examples from operating systems like Microsoft’s Windows, as well as many database and enterprise resource planning solutions that are now out of date (and still alive) before the introduction of newer, faster and better technology. Switching costs are sometimes too much for organizations and individuals to bear, and they view these burdens as outweighing any productivity or speed benefits that the new technology may bring.
Microsoft’s dominance of personal computer operating systems was a result of the luck that IBM adopted (then little) of Microsoft’s Disk Operating System as its standard. And the same pattern holds true for databases like Oracle or ERP systems like SAP. That’s not to say that these companies didn’t continue to innovate. they did. And when they couldn’t, they outbid rivals, bundled rival services for free, or bought out their competition. These strategies have been on the receiving end of anti-trust regulatory action, and deservedly so. A recent example was Google’s slap on the wrist by India’s competition regulator, which fined the company for anti-competitive practices on its Android platform, as reported. Peppermint In October 2022 (bit.ly/3RyLlls,
While David’s work focused on how switching costs (and as we have seen, anti-competitive practices) can keep sub-optimal technologies alive, there is also the interesting question of how technology companies die. I myself worked for one such case, Xerox Corp., where I started my post-MBA career in 1990. Once a giant in the imaging field, it is now a shadow of its former self. Two other imaging companies, Kodak and Bausch & Lomb, also had a presence and headquarters in Rochester, New York (the world’s optics and chemical engineering capital coinciding with world-class universities), but have all but disappeared.
Speaking of history repeating itself, I read about an interesting blog written by Evan Armstrong that compared the near-complete dissolution of General Electric to how the global technology giant is behaving today.bit.ly/3JJxU9N,
Armstrong talks about GE, Amazon and what he calls “the wheel of death.” He uses the GE case to identify four distinct stages of the corporate lifecycle: how it expands, transforms and dies. He personifies the “Beneyan Circle of Power”. The first stage, which leads to excessive growth. It ends when executives begin using financial engineering and balance sheet leverage to conduct a series of mergers and divestments, and ruthlessly cut the workforce. GE’s celebrity CEO Jack Welch, who ran the firm from 1981 to 2001, became famous for his “rank and yank” system of ranking employees and for firing the bottom 10% each year and sending jobs overseas. He also sold 118 businesses. while Jeff Immelt, his successor, sold 318. It then wound up with a set of redundant assets and whittled down to three smaller companies.
I was witness to Phase III at Xerox. In fact, I served on a team that divested Xerox’s earlier acquisitions in the financial services sector, which included investment banks, insurers and mutual fund houses, which accounted for about 30% of the firm’s revenue at the time. We sold those businesses at a considerable price. One of the deals I worked on – the leveraged management buyout of the Xerox-owned investment bank Furman-Sellz – was an example. Xerox loaned the partners of Furman-Selz most of the money needed to buy the firm back from Xerox, so they did not need money from the market, which would have charged very high interest rates; It was a solid example of financial engineering, bringing in balance sheet strength to assist. As it happens, Xerox has shrunk since those heady years.
Armstrong says history repeats itself and today’s technology giants may begin their lifecycle from a phase of power to a flywheel of death. Maybe all these layoffs are early signs.
Siddharth Pai is the co-founder of Sienna Capital, a venture fund manager.
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