The Evolution of Technology

The Evolution of Technology: An Interview with W. Brian Arthur
Art Kleiner
Strategy+Business, Winter 2009

Who determines the path of new technologies:  the engineers in the R&D lab, the decision makers of a company, or the consumers who put that technology to use?

For many people, W. Brian Arthur’s theories about complexity and innovation have provided the most effective answer.  In the 1980s, as an economist based at Stanford University and the Santa Fe Institute (to which he would move full time in 1996), Arthur began to develop agent-based models of stock market behavior.

These showed the extent to which irrational factors such as investors’ subjective expectations could bias the behavior of the whole system.

In the mid-1980s, as the impact of personal computers on business began to be felt, Arthur put forth the idea that increasing returns — the expanding value of a technology as more people use it — could lead economies in unexpected directions.

For example, Microsoft’s Windows operating system was increasingly valuable because of the large array of hardware and software components that worked with it.  The greater the number who used it, the more companies would fit their products with it and thus the greater the number who would use it.

Such a system would be vulnerable only to another product with an even stronger network effect — such as Google’s search engine.  Arthur’s concepts provided an apt strategic explanation of the ways in which innovative products, surrounded by networks of avid users, came to dominate niches in the technology industry.

Arthur’s latest work, The Nature of Technology:  What It Is and How It Evolves, delves more deeply into the meaning of innovation over time.  He observes that new technologies are put together from existing technologies.  Thus, the collective body of technological endeavor evolves by creating new elements from within itself.  It forms a system that is constantly changing in ways that nobody can quite predict.  This evolutionary process leads to large-scale changes in science, the economy, and human culture.

Recently, Arthur shared his thoughts about how people and companies can harness innovation with Strategy+Business editor-in-chief Art Kleiner for an article titled, “The Evolution of Technology,” which appears in the Winter 2009 edition of Strategy+Business.

According to Arthur, an economy is an organizing system for technology.  If you consider what an econo...