THE DIGITAL MODE OF PRODUCTION

1. THE DIGITAL MODE OF PRODUCTION Knowledge Forum Sao Paulo September 2006 Max Ugaz Director of Corvus USMP

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3. AGENDA (The Digital Mode of Production) • Digitalization • Wealth generation in the industrial economy • Wealth generation in digital economy • Knowledge in the digital mode of production • Managing the Digital Agenda of the business

4. AGENDA (The Digital Mode of Production) • Digitalization • Wealth generation in the industrial economy • Wealth generation in digital economy • Knowledge in the digital mode of production • Managing the Digital Agenda of the business

5. 1. DIGITALIZATION “The Internet ignores the three basic concepts of physics: time, mass and space.” Arno Penzias, Nobel Prize in Physics, 1978 The key to understand the challenge raised by Penzias resides in the process known as DIGITALIZATION

6. 1. DIGITALIZATION The action to convert any kind of information into electric impulses that later on would be stored, copied, processed and even distributed within seconds through the communication networks 11101000111101011101010

7. 1. DIGITALIZATION Due to global agreements,the combination of ones and zeros makes possible to represent anykind of information, which may be data, texts, sounds or images. 11101000111101011101010

8. 1. DIGITALIZATION Digitalization has been taking proper shape on the last 40 years based on the so-called processor of digital signs.

9. 1. DIGITALIZATION That power has increasedexponentially.

10. 1. DIGITALIZATION Today we can convert into ones and zeros from a text document to a whole movie.

11. 1. DIGITALIZATION Today, due to the global public digital network called Internet, digitalization enables liberating the information from its physical containers (mass), we can access to that information from any place of the world (space) and at anytime (time).

12. 1. DIGITALIZATION “The Internet ignores the three basic concepts of physics: time, mass and space.” Arno Penzias, Nobel Prize in Physics, 1978 Arno Penzias The power of digitalization resides in changing the way the world works, including some of the economic laws, on which our companies base their suppositions and take their decisions.

13. AGENDA (The Digital Mode of Production) • Digitalization • Wealth generation in the industrial economy • Wealth generation in digital economy • Knowledge in the digital mode of production • Managing the Digital Agenda of the business

14. 2. WEALTH GENERATION IN THE INDUSTRIAL ECONOMY During the 20th century, the capital, under the form of money or productive goods (machines and factories) has been the principal source of wealth generation.

15. 2. WEALTH GENERATION IN THE INDUSTRIAL ECONOMY Some form of physical capital used to be required to make an idea viable, to make it reach the marketplace.

16. 2. WEALTH GENERATION IN THE INDUSTRIAL ECONOMY Labor was another production factor, but it was hired hourly and was easily replaceable due to more labor supply and due to the division of labor into repetitive tasks easy to accomplish.

17. 2. WEALTH GENERATION IN THE INDUSTRIAL ECONOMY Due of this relation between capital and labor, the capital’s owner was the one who had the right to get the surplus value generated by the transaction of the goods produced in the marketplace.

18. AGENDA (The Digital Mode of Production) • Digitalization • Wealth generation in the industrial economy • Wealth generation in digital economy • Knowledge in the digital mode of production • Managing the Digital Agenda of the business

19. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY Nothing would have changed if the so-called digital revolution would not have occurred. This has not been a technological revolution, as many people think, rather it has been an economic revolution. 11101000111101011101010 $$$$$$$$$$$$$$$$$$$$$$$

20. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY During four decades, the cost of digitalization and telecommunications (digital transmission to any place of the world) decreased so dramatically that it has become available to almost any company of the planet, no matter its size, geographical location and how much capital it possess.

21. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY During the early 60s, an IBM 360 computer used to cost around USD 2 million. Only the large corporations were able to use them. IBM 360 2’000,000 (1964)

22. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY 40 years later , we can get a much morepowerful computer for less than USD 500. Pentium IV $500 (2006)

23. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY On the same way, the telecommunications that had a cost of tens of thousands of dollars per month are costing today sometimes less than 30 dollars per month.

24. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY The digital revolution has been the most important economic phenomena of the late 20th century. Unfortunately, it does not mean that all the companies understand its benefit.

25. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY In the physical world, we will see that there, every copy of the original one has a certain cost in material, production and labor. (Marginal cost) $ $ $ $

26. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY In the digital world each copy is identical to the original one, it has all its attributes, but its marginal cost is ZERO.

27. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY As the access cost to the informationfalls drastically, the marketplaces react as when any good becomes cheaper, in other words, its consumption increases.

28. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY The consequence of that is a huge impact in the marginal production and distribution costs of intangible products.

29. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY Intangible products are those which principal attributes are design,technology and image. That is why their main “material” is the information in all its forms: data, text, sound and image.

30. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY Drop in marginal production and distribution cost of intangibles generates in turn important changes in all sectors. The key to understand these changes is in the consumer itself.

31. 3. WEALTH GENERATION IN THE DIGITAL ECONOMY Human beings are the only ones that consume intangibles on Earth. No other living being does it.

32. AGENDA (The Digital Mode of Production) • Digitalization • Wealth generation in the industrial economy • Wealth generation in digital economy • Knowledge in the digital mode of production • Managing the Digital Agenda of the business

33. 4. KNOWLEDGE IN THE DIGITAL MODE OF PRODUCTION In the digital economy, the wealth is depending basically on the intangibles incorporated to the products; it does not depend anymore on the physical components.

34. 4. KNOWLEDGE IN THE DIGITAL MODE OF PRODUCTION The production of intangibles does not depend on capital,neither on (physical) production goods.

35. 4. KNOWLEDGE IN THE DIGITAL MODE OF PRODUCTION It depends on talent, intellectual capacity, imagination, and these are products of human brains, which do not belong to the factory owner, but to each knowledge worker.

36. 4. KNOWLEDGE IN THE DIGITAL MODE OF PRODUCTION These knowledge workers started changing the rules of the surplus value distribution in the digital economy. As Marx would say, this is the origin of the destruction of the old industrial mode of production

37. 4. KNOWLEDGE IN THE DIGITAL MODE OF PRODUCTION Acting as co-owners of the digital capital of the company, they are modifying the social agreement. Mr. Shigeru Miyamoto

38. 4. KNOWLEDGE IN THE DIGITAL MODE OF PRODUCTION We are witnessing the emergence of anew way of generatingwealth, based on ones and zerosaccumulated and used by the companies forgenerating value for theirclients: The digital mode of production

39. AGENDA (The Digital Mode of Production) • Digitalization • Wealth generation in the industrial economy • Wealth generation in digital economy • Knowledge in the digital mode of production • Managing the Digital Agenda of the business

40. 4. MANAGING THE DIGITAL AGENDA OF THE BUSINESS The innovative companies are using intensively their digital capital to satisfy the more exigent consumers of the world demand.

41. 4. MANAGING THE DIGITAL AGENDA OF THE BUSINESS Digitalization allows expanding people skills, converting them intomore effective individuals, andconverting work groups into high performance teams.

42. 4. MANAGING THE DIGITAL AGENDA OF THE BUSINESS Besides, digitalization enables generating a really integrated company by keeping the leaders and the members directly informed by all the company members.

43. 4. MANAGING THE DIGITAL AGENDA OF THE BUSINESS Finally,digitalization enables companies to extend towards their partners, suppliers, distribution channels and clients, integrating people, applications and objects from the various companies that form their so-called “business-model”.

44. 4. MANAGING THE DIGITAL AGENDA OF THE BUSINESS Integrating Digitalization and Value “Taxonomy of the Digital Value” • Define the business Value Proposition. • Indentify all the activities that will generate it. • Identify all the sources of digitalization around those activities that could add value: data, information, knowledge and work. • Integrate all digital iniciatives identified in your Digital Agenda • Prioritze it and then ACT!

45. EXTENDED ENTERPRISE Transacciones de Clientes y Proveedores Marketing y Comunicaciones Desarrollo del Ecosistema Sistemas orientados al Mercado INTEGRATED ENTERPRISE Aplicaciones y Sistemas de Datos Empresariales Comunicaciones a todo lo largo y ancho de la Empresa Administración del Conocimiento de la Empresa Innovación de los Prosesos de la Empresa HIGH PERFORMANCE GROUPS Aplicaciones y Sistemas de Datos para los Grupos de Trabajo Comunicaciones para los Grupos de Trabajo Colaboración de los Grupos de Trabajo Innovación de los Procesos del Trabajo en Grupos EFFECTIVE INDIVIDUALS Creación, Acceso y Uso de Datos Edición y Acceso a la Información Entrenamiento, Educación y Especialización Integración al Flujo de Trabajo DATA INFORMATION KNOWLEDGE WORK 4. MANAGING THE DIGITAL AGENDA OF THE BUSINESS

46. EXTENDED ENTERPRISE INTEGRATED ENTERPRISE HIGH PERFORMANCE GROUPS Q1 Q1 Q3 Q4 EFFECTIVE INDIVIDUALS DATA INFORMATION KNOWLEDGE WORK 4. MANAGING THE DIGITAL AGENDA OF THE BUSINESS

47. Overview (The Digital Mode of Production) • Digitalization • Wealth generation in the industrial economy • Wealth generation in digital economy • Knowledge in the digital mode of production • Managing the Digital Agenda of the business

48. THE DIGITAL MODE OF PRODUCTION http://www.usmp.edu.pe/corvus “PUBLIC LIBRARY” Max Ugaz Director of Corvus USMP maxugaz@gmail.com