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The Compounding Advantages of Smart MIT Technology Review has come out with their always-interesting list of the 50 Smartest Companies. Yet again this year, Dressler failed to make the list. In an accompanying article, they point out some economic trends that have serious implications for all companies. First, they see a powerful consolidation of market activity across a range of industries. There have always been winners and losers in every industry. But lately it seems that the winners are winning bigger and the losers are losing more. Winners, across industries, have been aggressive in the intelligent application of digital technology to their business challenges. While they are careful to point out that their “smartest” companies by industry are not necessarily the biggest or the most profitable, smartness does seem to represent an outsized advantage. Their research indicates that sales for the digital leaders across all sectors are going up in comparison to similar companies within their sector. In this “winner takes all” economy, they conclude, you have to be the smartest company in your sector or you need not bother competing at all. Why does this matter? While “smartness” in terms of digital savvy is wonderful for the companies that have it, it doesn’t seem to be particularly good for either workers or the economy as a whole. Because smart companies tend to achieve greater efficiency through digital tools, they make more money than other companies but tend to have fewer workers per dollar earned. This creates downward pressure on worker’s share of income. Also, the explosive growth of digitally savvy companies doesn’t seem to have helped sluggish national growth in the western industrialized economies. This is because so few companies are actually using technology very well. The further behind the laggards fall on the technology curve, the deeper their technical debt. The MIT Technology Review article seems to imply that technical debt is crippling many legacy companies and stifling growth. In a nutshell: Get smart or get out of business. Read More AI in Practice As a frequent critic of artificial intelligence boosterism and AI doomsday scenarios, I was quite engaged by the McKinsey Global Institute’s 80 page report on “How artificial intelligence can deliver real value for companies.” It’s not short. But it should be required reading for anyone in technology or senior management. I should say (as I usually do) that I believe the name “artificial intelligence” is a misnomer. The authors of the McKinsey report are clear that machine learning is at the core of what we call AI. This is a better name by any reasonable measure. However, in order to maintain consistency, I will refer to this technology as AI in this post. In addition to machine learning, the authors cover other technologies that depend upon it like robotics and autonomous vehicles, computer vision, language, and virtual agents. First, they point out that there is very little adoption of AI at scale outside of the tech sector. Still, forward-thinking companies have begun to experiment with AI, creating a small but growing technology gap between early adopters and laggards. There are no shortcuts with AI. Companies that are using it successfully have a strong digital foundation and lots of unique, well-structured data. Those companies that are already experimenting with AI are gaining a large competitive advantage since they are generating rare and valuable internal AI expertise that can later be applied across functional areas. The appendix of the McKinsey report features case studies by sector to show the substantive, bottom line advantages that companies are deriving from AI today. Depending on the company or sector, they are applying AI across the value chain from smarter R&D and forecasting, to optimized production and maintenance, to targeted sales and marketing, to enhanced user experience. Why does this matter? Referring back to my previous post, all managers like the idea of making their company “smarter” and creating competitive advantage. But when a new technology presents itself, most adopt a “wait and see” attitude towards applying it to their own business. What will be the consequences for companies that decide to hold off on AI investment? Well, there is a great shortage of AI talent in the marketplace. As other companies invest in this area, there will be an inevitable consolidation of talent at those companies that chose to be early adopters. Unsurprisingly, early adopters of past technology are also the early adopters of AI – meaning that their competitive advantage will continue to grow and laggards technical debt will grow ever deeper. Not only do these early adopters have a higher profit margin when compared to other companies in their sector, but their expectations for the return on their AI investments is much higher. They know the financial advantage that accrues to technical superiority and they expect that advantage to continue and grow. In a nutshell: Start your AI experiment this year. Next year is too late. Read More Narrative and Virtual Reality Back in January, one of my favorite technology podcasts a16z interviewed Robert Stromberg about “Building Worlds with VR, Art, and Narrative.” Stromberg is singularly qualified to speak on these topics. In addition to being the production designer on Avatar and Alice in Wonderland and the director of Maleficent, he is the founder of The Virtual Reality Company – a production company that produces VR experiences like The Martian. Stromberg is a natural creator of worlds. He speaks with passion and enthusiasm about Pandora, the three dimensional virtual set he created for Avatar that allowed the movie to be created entirely through motion capture. However, I found the interview ultimately disappointing. Stromberg simply ignores questions that are critical to the widespread adoption of VR as a storytelling medium. He fails to provide any answer to a question about how to avoid having the technology overwhelm the story, as happened in the Star Wars prequels. He insists that narratives can be told in VR without the use of cuts and closeups, but his examples are all immersive VR experiences that require no narrative arc. Exploring Mars at your own pace may be engaging, but he appears to believe that his VR experience gets to borrow the narrative of the book and movie of the same name without providing one of its own. The interview reminded me of a review of Maleficent which praised the elaborate set design but described the characters as undeveloped and the storyline as weak. Stromberg, like his chosen medium is good at world building, but not nearly as good at narrative. Why does this matter? Someone is going to figure out how to make narrative work in virtual reality. I suspect it won’t be Stromberg because narrative isn’t really his priority. The challenge of taking a viewer through a narrative is attention. There’s a reason video games have cutscenes. When you have a key piece of information to communicate you cannot risk that the viewer/player is looking the wrong way or walking in the wrong direction. One answer I have heard on a number of occasions is that VR narratives will feature multiple version of “the truth” depending on where you look and which way you go – like reality! I find that unpersuasive. Reality has a narrative arc because it is based around a single subject – you. If you decide to lose the arc and wander into traffic your story ends rather quickly. Open VR narratives will require high consequences for wandering attention. Follow the story or die is a way of focusing the viewer. In its struggle to communicate narrative, VR is not unlike previous technologies. All of the tricks that focus the attention of the viewer in a motion picture have taken nearly a century to perfect. With VR, I suspect that attention will eventually be focused through physical barriers (as in a maze), sound, activity, feedback mechanisms (like force-feedback on a joystick) and subtle hints like unmotivated movement. By unmotivated movement, I’m suggesting that if you subtly turn the viewer’s perception in a direction, their head will follow unconsciously yet they will be unaware that the perception predated the movement. Like a car steering into a skid. In a nutshell: Narrative in VR is not settled. It will take a great deal of time and experimentation to get this right. 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