Host Intro (Gene Kim)

Holy cow. I am so delighted about this session because this is a fulfillment of a dream that I've had for over four years.

Many of you know how Dr. Mik Kersten and my thinking have been influenced by Dr. Carlota Perez, who wrote the incredible book Technological Revolutions and Financial Capital. Her book provides an incredible language and historical context for how to think about the upcoming age of software and data, and her concepts have very much seeped into the language of this community.

As I mentioned, for years, I thought it would be amazing if she could share her wisdom with the DevOps Enterprise community. And thanks to my friend, Dr. Mik Kersten, we were able to make this happen. It turns out Mik has been having frequent calls with her, and after a year of trying, we were able to make this work.

You're going to see an amazing discussion that Mik and I were able to have with her. You'll learn about why, even in this time, when we are likely in the worst economic, social, and health crisis in generations, she remains convinced that the best times are almost certainly still to come. She has such a hopeful vision of what the age of software and data will herald in, setting the stage for an even longer and more prosperous economic expansion than after World War II, which has been the largest expansion the world has seen yet.

In this discussion, we talk about why the frenzied innovation of the last 20 years in technology is not going to last forever, why Professor Perez is still so optimistic, with some qualified pessimism, what macroeconomic trends are likely in the decades to come, and her observations of the incredible effects of the global pandemic.

But before that, I'd like to turn it over to my friend Mik to educate all of us on the works of Professor Perez. Mik.

Dr. Mik Kersten

Thank you, Gene.

As I was writing Project to Product, I realized that both you and I were just struck by how the world of technology and this entire ecosystem was resulting in this world of have and have not. So we've seen in the State of DevOps survey that the best are just getting better and better and are pulling further away from the herd. We see this in what stock indices look like. We see this in companies like Amazon, basically triggering and causing the disruption that resulted in the retail apocalypse that was exacerbated further by COVID-19. And we've also seen companies trying so hard to keep up, companies like the ones on the right here, key parts of the enterprise DevOps ecosystem, who have been getting better and better.

But the bottom line is that at the current rate of disruption that we're seeing, over half of the S&P 500 are predicted to be replaced in the next 10 years. So as I was writing Project to Product, I was wondering, has this ever happened before? And it was then that Gene introduced me to the work of Dr. Carlota Perez to help me understand the historical context of the work that we're all doing and why understanding her work and her models is so important to understanding our place in history and how we can better plan for the future.

Now, I'll give you a really quick summary of Dr. Perez's work. So we basically moved from the Industrial Revolution around every 50 years since then. Over those 250 years, we've seen a new technological revolution take hold, culminating now in the age of software and digital and coming out of the age of oil and mass production. And what's so interesting about Dr. Perez's models is the three distinct phases of each revolution that she defines. We go through the installation period, where some new means of production becomes cheap, and some small set of companies and innovators and entrepreneurs get very good at it.

So think back over 100 years, back to when Henry Ford figured out that you could put electricity into the center of a plant, move off steam, basically deprecate steam, and make that be the legacy, and then scale production to what we now know as modern car production. At that point, there's this period of the financial capitals trying to get these 10X returns on that new innovation, on that new means of production. At that point, in Detroit alone, there were over 300 car startups in that one city. So you get this massive frenzy, and then some companies get very good at scaling that new means of production.

So that's what we know of as the car logos we know today, the Fords, the GMs, the BMWs, and so on. And then you get to this turning point where those companies get so good that they actually disrupt even further. Those startups start disappearing. They start getting consolidated and acquired.

And what's so fascinating right now is that we've been able to apply Dr. Perez's models to what we know today of the age of software and data. So we're moving from the spirit of creative destruction to a point where some companies have mastered software at scale. The FAANGs here, so the tech giants, Facebook, Amazon, Netflix, Google, Baidu, Alibaba, and Tencent in China, these nine companies, all of these together, they all have learned how to manage at a business level and how to innovate around billion-line code bases. And they've gotten so good at this that collectively, they actually have an economy the size of Japan's. So they're equivalent to the world's third-largest economy and just growing.

Now, once we hit these turning points, there's massive disruption, but what happens is that we get to this golden age that Dr. Perez calls this period of wealth generation, where other companies adopt these practices, adopt the practices that have really been curated and created by the enterprise DevOps community. So the quicker that we bring these practices, both into the technology and the business and operations portions of how we run our organizations, the faster we will get into a better golden age that Dr. Perez predicts and the fundamental reason for her optimism.

So the question is, how do we get there? And in her work, she's actually identified each of the different managerial portions of each of these revolutions. So we went from factory systems to subcontracting to Taylorism and Fordism, and yet the fact is that Taylorism won't quite get us there. We know that project management is not the right model in terms of creating these innovative organizations that can really thrive in the age of software and data.

So the question is, what? What really brings us there? And I think we've heard Gene say this multiple times on the Enterprise DevOps stage, is that we need to get to this point where we have dynamic learning organizations, where we take these technology practices that have been mastered and evolved by this very community and apply them not just to technology, not just to IT, but to the organization as a whole, to the way that we evolve and run our entire businesses and the way that we engage with the market, exactly how those tech giants have done.

So with that, I am so thrilled, like Gene, that we've got Dr. Perez telling us what's behind her models, telling us why she's so optimistic about the future, and really helping us understand that there are two paths to go down here, and how we can really think and have the mental models to help bring ourselves and our organizations down this path of the golden age of wealth generation.

Prof. Carlota Perez

I think I need to talk about both, yes. The reasons for my optimism are historical.

All my work on technological revolutions has shown me that there is a pattern, that technological revolutions begin in a particular way, which is changing everything, because we never have a revolution if the previous technologies have not reached maturity. It's when you can no longer make more innovations along the same route, when you can no longer be profitable, when your markets are saturated, when no matter what you do...

Think for instance of in the mass production revolution, the automobile revolution, and all that, there was a whole series of electrical appliances, which began with such important products as the refrigerator, the vacuum cleaner, the washing machine, really major things. That ended in the 1960s with the electric can opener and the electric carving knife. Pretty ridiculous, little, tiny, nothing things.

So when you get to that point and markets are saturated and all the rest, then we were able to start looking, and it found the microprocessor. Once you have the microprocessor, that marries with computers, that marries with control instruments, and suddenly you have telecommunications. We didn't yet have internet, and yet we already had a revolution, which was able to create so many products. That's the wonderful moment when you see that technology start flourishing.

However, socially, it's a terrible time. So what you have is de-skilling of a lot of people, destruction of many industries, destruction of regions, destruction of so many things in order to do what Schumpeter called creative destruction, which is the time when the new revolution comes across the economy and starts transforming and testing because it's a huge experiment. It's actually, that's what those booms are, the bubbles. The financial bubbles, like in the 1990s, are really about experimenting, and the one that collapsed in 2008 was about globalization, which was also a huge experiment.

So the thing is that once you get to the point where the technology's already there, the logic of the technology, the paradigm of the technology's already there, you have both a terrible social situation, people that have been left out, a fertile soil for populism with a lot of resentment and there might be migration, so people are angry about that, and there is a social sort of ferment. People are very unhappy. And then populist leaders come. In the 1930s, which is the previous similar time to today, we had Hitler and we had communism. We had these promises of heaven on Earth because people were feeling left out, like we are having now, populist leaders everywhere.

So then, of course, this is grounds for pessimism. However, what history shows is that these revolutions that are so destructive at the beginning are also constructing new possibilities, and those new possibilities can actually solve the problems that bring populism, the unemployment, the de-skilling, the loss of jobs, all these changes that happen and create problems for society.

That's the moment when something like the welfare state comes in. It's precisely after the Second World War that we saw all the problems that were lived in the 1930s were solved in the 1950s and '60s, and we are now precisely at the point where we can look forward and have a golden age similar to the one we had after the Second World War. But this time it could be global, sustainable, and of course about information technology, because that's the set of technologies that can now help us make a huge leap.

So I'm optimistic because historically we are at the very moment when we could have a golden age ahead, and I'm pessimistic because politically, we are not ready to make the leap. We don't see our leaders. They don't seem ready to make the leap, but it's possible. That's why I'm optimistic.

Host Interjection (Gene Kim)

So to help us understand what the next golden age might look like, I asked her to describe the last one that we experienced right after World War II.

Prof. Carlota Perez

Golden age is the capacity to direct the potential of that technological revolution to transform society in such a way that it's a win-win game for business and people.

So what happened in the fourth revolution, which is the golden age we were talking about, is that after the war, when business had understood how important it was to have mass demand, they had, of course, mass demand even of airplanes, munitions, uniforms, boots, this, that, the other, and they discovered the power of mass production. But for that, they needed mass consumption.

And what happens with each revolution is that we have a different lifestyle, and the lifestyle becomes the source of employment, so that even though the revolutionary technologies employ a lot of people, but not enough, much less than the whole society can offer in terms of jobs. So what happens is that you have very high productivity in the high-tech sectors, and you have low productivity in a whole range of services that are geared to the demand of the particular way of life that this technological revolution provides.

So last time we had a way of life that was all about mass consumption, possession of a lot of goods. It was basically suburbanization. We have suburbia: cheap houses on cheap land with cheap cars at the door, with lots of cheap electrical appliances inside. And when I say cheap, I mean they were affordable by the workers, both in the manufacturing companies and in the services. Because a whole range of services, especially retail, banking, restaurants, coffee shops. And lifestyles also meant that you have to produce plastics of all sorts for packaging, for freezing things. Also even clothing was made of plastic. Everything was really, because petrochemicals and cheap oil were a very central part of that revolution.

Now we have a different revolution. We have to actually overcome the problems that that particular revolution created for us, beginning with the climate problem. Climate change is a very direct result of a particular revolution that was about using cheap oil for everything, electricity for everything, and to use plastics and throw them out. It was the waste society with planned obsolescence. You'd buy another refrigerator as soon as you finished paying your installment payments, and it's amazing that today a refrigerator would last at most five years. When I was young, and I'm talking about the 1950s and '40s, a refrigerator lasted 35 years. So you mean with all this technology, we cannot make a refrigerator last 50 years or 60 years? We have the threat of climate change, we have pollution all over the place, and we now have to face it.

And we are extremely lucky because these technologies are about intangibles. These are technologies that are capable of turning products into services. If we think of mass production as a whole process of turning services into products. With the washing machine, you no longer did your service or you didn't take it to somebody to wash it for you. You have machines becoming a form of product instead of a service. And now we do the opposite. We've done it already with music, with film, with books, and even when you think of Uber. Uber is turning, with the software, you turn the product into a service, and you could actually come to a point where you don't want to have a car. You have to buy the things. You use them.

So the whole range of changes that can happen now will change our lifestyles, and it'll be a lifestyle that's sustainable, and that's green, and that's smart, and that's healthy, because that's the other important thing.

Selling a service instead of a product, that's already an example of how these things can happen. Rolls-Royce no longer sells the engine completely to the airline, but they have people at the airport, and they do the service of the engines, and they guarantee that the engine is functioning perfectly. They are responsible. The same thing is done by Michelin with tires. They will give the trucking companies, the big transport companies, the logistics companies, the service of the tires. So they will make sure that the tires are in perfect condition and rent the tires with the service. And the same thing, General Electric with medical equipment. They also rent and service and train the people who are going to use the equipment.

If things were on rental, then we would have an enormous amount of people benefiting from all those appliances, but the planet is not providing more materials to do that. We would need seven planets if we wanted to give the whole world, all inhabitants of the world, the American way of life in the old way.

So we need to solve it, and this is one of the solutions that I tell you: we can provide a good life, an aspirational good life for everybody, using less materials, less energy, and destroying the planet--protecting the planet, actually making the whole thing sustainable.

Host Interjection (Gene Kim)

So Mik and I next asked her about how the global pandemic affects the turning point.

Prof. Carlota Perez

COVID-19, the pandemic, because in fact, I would agree that this is very likely to work in the same way as the Second World War. This pandemic is destroying so many things that it's going to end up being a call for making a leap.

On the one hand, we have things like having learned to do what we're doing now. We understand that we can have meetings without travel. We understand that we can talk without mobilizing ourselves, that we can teach without mobilizing. So that's already an enormous thing. And not have to commute, for instance, at least maybe go to the office only twice a week, and then the rest of the time you work from home or from some places which could be set on the outsides of the cities so that people can go there and work in peace, but not necessarily go all the way to the office.

The main thing we have learned in this pandemic is the horror of all the terrible things that this creative destruction has done. We have discovered how many people are either in the gig economy, working precisely for Uber without any safety net. We have seen people working on what's called zero-hours contracts, and yet they're neither employed nor unemployed. So do they get unemployment insurance? No. They can't prove that they're unemployed because they actually have a contract, but it's not enough to live on. And you have something like what we have now. All those people are like walking on a cliff edge, just about to fall.

So we are talking about a very strong lens that was put on society, on inequality. All these people that have now become essential, all the services, delivery, all those people who are working in the supermarkets and all that, risking all the health people, they're very badly paid. Very badly paid. Why? Even though they are essential, but we didn't know it. We've only now found out.

So there are so many things. This is a big lens, seeing everything that's the reality behind the appearances. And that could work the same way as the World War. We've got to reconstruct, but not to reconstruct what we had. We need to construct anew. We need to change society for the better, to change the conditions, to construct a safety net.

Maybe we need universal basic income. I am convinced that that is the solution for this technology. To be able to have it in an ATM, everybody receives it. The people who earn more will return it in taxes. The people who need it have it. You have your dignity. You don't have to be tested for anything. You're just a citizen. You have a right to eat. You have a right to a minimum. You have a right not to fall off the cliff edge. Everybody. And that can be done, and it can be done without bureaucracy, just artificial intelligence and ATMs, and that's it.

And we need things like that. Every time we need to change the safety net to make it adequate to the conditions of each revolution. It's very important to understand that you cannot have dynamic demand without decent wages. And right now, if we think of that, if we're going to move from products to services, that means most jobs will be service jobs. And if most jobs are service jobs and they're badly paid, that does not create demand for anything.

So we need universal ICT, information technology, for everybody. Cheap. Somehow, we've got to make sure that it's cheap and it's universal. Anybody who doesn't have internet is not even in the world. They are excluded. So we need everybody to have it and everybody to have access to it, so everybody should be able to buy internet, and that's good for the internet world.

In fact, during mass production, the head of General Motors at one point was being discussed for a government job, and they said, "No, he's from General Motors." And he said, "Well, what's good for General Motors is good for the US, and what's good for the US is good for General Motors." And that was absolutely true at the time. I would say that today, what's good for the world is good for the information and communications technology people, and what's good for the information communications technology people--in Europe, we say ICT--is good for the world.

That these are the technologies that are taking the place of the automobile industry and the oil industry in terms of being the engines of growth. They are the ones that make a difference. But they've got to be coupled with a way of life that's full of creativity, education, health, communication, the use of ICT as the basis for this new life. Because ICT is about immaterial things. It's about intangibles. And that is precisely what we need in order to be able to face the climate problem.

We've got to reduce our use of materials and energy, but to increase the good life for everybody. So it's a big job. It's a huge task. It's a huge challenge. Make everybody's life better and reduce the amount of materials and energy that we use from the planet.

Host Interjection (Gene Kim)

So as Carlota talks about how we're leaving the age of mass consumption, I asked Mik about his observations on whether we've hit peak car or peak phone.

Dr. Mik Kersten

We just heard Carlota talk about this age of mass production, which needed to be coupled with mass consumption, and it was just quite interesting to me as seeing these technological shifts happen. I saw this chart of what's actually been happening with iPhone production and consumption. Since 2015, the world has basically peaked at 1.5 billion new smartphones sold per year, and that's it. So this picture that Carlota's painting, we're producing more of those. We're already saturating how many basically dark rectangular objects people need on the entire planet while consuming too many of its resources, getting that next billion and a half.

Forward-looking companies have already recognized this shift, right? Apple's recognized this shift to software and services products as fueling the new consumption model. So I think what's happened is we're just in this age right now where some companies who've shifted entirely into this age of software and digital, and we've got these nine tech giants who've done it based in the US and in China. They're already providing those new services. They're already providing for the new consumption model, this new software and services-based consumption model. Their organizational structures, the way they understand their customers, their market, the way they have created feedback loops and understanding what consumers want, have matured tremendously.

And in the meantime, we still have such a large portion of the world economy, of the world's companies, working in this model of mass production, working really with the managerial models of the last age. So I think we just have to admit that the models have shifted. The organizational structures and dynamics need to adapt. The way we manage companies, the way we provide citizens and our end users and customer services has to shift in this new model, and this new model is no longer about mass production. But the challenge that I think that we have is that a lot of organizations are still stuck in that previous age.

Carlota mentioned that once these shifts happen, this tide lifts boats, and my concern is that we've lifted nine boats, these nine tech giant boats very effectively, and if this pandemic does not cause this great leap that Carlota's talking about, too much of the world economy will fall too far behind, which will then, of course, leave too many people behind as well.

So for me, the big thing is where these ages work and why I think Carlota's models are so important, which is they actually define what companies have to do. It's not that there's going to be these massive technological changes that will change how we build software, how we operate software, how we scale software. That's already been done. There'll just be these incremental small changes. Organizations really need to adapt those technologies to the way they innovate, they provide value to their customers, and governments, to the way the governments provide value to citizens. Those technical practices are already established, and they have to be brought to the way that we grow and lead and change organizations, because this is the moment.

If the leap doesn't happen now, this creative destruction that's been happening, that Carlota talked about, is just going to accelerate, and we won't have that kind of healthy broad economy. We'll have these nine boats lifted and not the rest of these organizations that we need so badly to continue to innovate and to move into the age of software and digital.

Host Interjection (Gene Kim)

I asked Carlota to share this incredible story that I had heard her once tell.

Prof. Carlota Perez

I've been saying that if somebody in the 1930s seeing people in a soup kitchen really hungry, thin, badly dressed, being cold, looking for a bowl of soup desperately, if somebody were to say, "Those people there in just a decade are going to own a house, are going to have a permanent job, a car at the door, their children will go to university," you know what? If somebody had said that, everybody would've thought they were crazy. You're dreaming. That's impossible. That's not going to happen.

But it happened, and it happened not by chance. It happened not because somebody was dreaming. It happened because that's the way the system works. It happened because when you have a technological potential that's very powerful, you have the threat of unrest, and people are unhappy, and politicians lose their power because they don't get elected if people are angry. Populists get elected, not the ones that are supposed to be the professional politicians.

So they understand that there is a possibility for changing, and it's a possibility that is a win-win game, that is good for business and good for people, and that's what the whole thing is about, and that's why it was possible to dream at that time in the 1930s, and that is why it's possible to dream now in the middle of this pandemic with a recession ahead.

Undoubtedly, it's going to be very, very hard, but we have the possibility of changing the world for the better, of taking advantage of this opportunity to make a leap and to make it socially fair. We need to not just save business, we must save people. Because society is about people, and peace and prosperity and wellbeing will not happen if we don't make life good for people.

It's the aspiration of a good life that moves people to work with enthusiasm, to study with enthusiasm, to worry about their children, and to push them forward so that a country can be prosperous and creative. All those things only happen if society provides a good environment. It provides safety, security. We need a safety net, a proper safety net, one that's adapted to our current conditions. That's why I talk about universal basic income, which is a way of giving a cushion to everybody. It would be wonderful. And society must guarantee that, especially rich societies like those of the advanced world.

Host Interjection (Gene Kim)

To wrap up, I asked Mik to share what technology leaders should be getting out of the teachings of Professor Perez.

Dr. Mik Kersten

And I think one thing that we're really hearing from Carlota is it's not by trying to replicate the past, because we're in a very different context right now. And it's not by using old ways of thinking about production and consumption, because there are a set of companies who are very innovative who have adapted to this new context.

So I think the thing that's so fascinating to me is that in terms of the technology practices and all the ways that we approach that, all of those are already defined. I think the DevOps Enterprise community has created a large proportion of those technology practices, has continued to create those, and really curate the body of work. So to me, that's on track. That part almost feels like it's done. We're doing very well there.

And I think the constraint now is in terms of organizations and leadership, because so many of our organizations, so many people in this community still fight against those old ways of thinking or that resistance to change, to keeping things the way that they were. Those old leadership styles and old managerial paradigms that are really more Taylorist than they are about embracing the new context and creativity that's involved in software innovation. Old measurement models that are more about costs and projects that worked for past ages, but not so much for this one.

So we just have to much more quickly move to adopting those, move to support this kind of creative work and these digital products and services, and help bring about these, Gene, what you've called dynamic learning organizations, which are what will carry us through to the deployment period and this golden age of much more broad wealth generation.

So I think people have been hearing about digital disruption for the better part of a decade, and we've been seeing this frenzy that you get in the installation period, as we've learned from Carlota and her 2002 book, this frenzy of startups happening, and then, of course, these new incumbents, the tech giants being established. So a lot of people had some fatigue from that, and a lot of people have been trying to push their organizations to change to become more innovative. But again, we've had this large resistance.

And I think what's happened with the pandemic is that that need to change is no longer optional, and no longer feels abstract that we can take years to do things differently, that our digital transformation can take another two or three years, and there's a shift in... This is just driving a shift in consumption models, right? It's no longer going to be about people buying the next car or buying the next phone. Everything's going to shift much more quickly to digital services and have likely a large decline or an ongoing recession that we're seeing, where some companies that have adapted to this new context, they will thrive, and others who, again, are too slow to change, will realize how much more quick the decline is.

As we've heard said, never let a good crisis go to waste. It's been amazing to see people and leaders in this community taking this as the opportunity to really help catalyze change in their organizations. Because these practices for combining business, technology, and leadership, they exist. You've heard about them all through the conference program and in the talks that are coming up. So just apply them quickly because time is running out.

In our community here, we have not only people from the commercial sector, but from the federal sector as well. And now the pace that COVID is pushing on new citizen services, on bringing those services more quickly to our citizens is absolutely key. So I do hope that we also take her inspiration not only to innovate and apply these practices and these new ways of thinking in companies, but also in governments. And I've been absolutely seeing renewed interest in how important that is from governments across the world.

So I think applying these practices to both our economy and then the states that set the context of the economy is a key message of Carlota's, and I hope we do take this inspiration and help governments change just as quickly as we're pushing companies to change as well.

Prof. Carlota Perez

One of the problems we have now is that government has not adopted the new practices that companies have learned to do. And so government needs to modernize, and for that, you need the young, the technical people, to be willing to help, to work, to want to work for government, to transform it.

Because as long as government is bureaucratic, it's very difficult for them to make the leap that they need to make in order to help society make the leap. When I was talking about taxes, to make those changes, you need very competent people. But as we rethink government and we redesign government so that it does the job of transforming society, and that needs the young people to want to do the job, to want to work for government, and to go there and be creative.

And of course, we need the older people to get out of the way so that the young can do it or to open it for them, because there is a new glass ceiling, one glass ceiling for women and another glass ceiling for the young, and we've got to break them. We've got to be able to all contribute to the transformation.

Host Outro (Gene Kim)

Carlota, Mik, thank you so much for sharing your learnings and your wisdom. I find it not only inspiring but also hopeful in a very tough 2020. So Carlota, thank you so much for your time. Mik, thank you for your time as well.

Prof. Carlota Perez

Thank you.

Dr. Mik Kersten

Thank you, Gene.