CIAO DATE: 11/02

Production in a Digital Era: Commodity or Strategic Weapon?

Abstract

The rise of the digital economy reignites debates over the transformation of production in industrial economies. For several decades, analysts attempted to describe the central features of the next economic epoch with labels like the knowledge, information, or service economy. The conventional argument claimed that just as an agricultural economy gave way to a manufacturing economy, an industrial economy was giving way to a service economy. Hence, their arguments went, industrial production was of diminishing importance.

This essay examines the place of manufacturing in an emerging digital economy. In short, we argue that in order to understand the place of digital innovations in the production process, we require a new nomenclature, one stripped of the grime of the 19th century manufacturing. We will use the word “production,” almost a synonym for manufacturing, meaning the creation and making of a good. The real issues in a digital era with powerful ‘tools for thought’ and diffused “intelligence processing” then are quite basic. First, what creates value? The tools for thought permit not only new products, but also a segmentation of the market into different needs and an adaptation of products to the varied segments. Second, what permits control? Certainly, the formal character of digital information knowledge permitting control of the production and evolution of the product or service would be increasingly held as formal intellectual property rather than individual or organizationally specific know-how. However, informal and implicit know-how does not lose its significance in this digital age. Much of the digital world is also protected by the implicit knowledge embedded in the complex system that most software programs present. In an electro-mechanical era, much of the knowledge of product functionality and its development is embedded as organizational “know-how,” or as groups of people who know how to do tasks that individuals could not do on their own. While entire production systems include both the formal knowledge of a product design, component specification, or tooling characteristics, the subtle know-how of how they are combined is found in teams of people and larger organizations. That is equally true with complex systems projects and code systems. In one sense they are protected by the privacy of the “formula”, or in computers, the privacy of source code. But if the formula or the source code were stolen, how much of the process is rooted in a particular organization’s know-how, and consequently not replicable? But before we turn to the implications of this digital event, let us develop the issues in turn, consider the nature of the digital era, and examine the questions of value.

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