Posted on 04 April 2022
Can't Fight the Law of Accelerating Returns
Featuring Kim Perdikou from Alter Domus' Supervisory Board
Kim Perdikou, member of Alter Domus’ Supervisory Board, doesn’t necessarily describe herself as a futurist, but you have to be pretty forward-thinking to enter computer science at a time when most digital data is being stored on punch cards.
Perdikou was just a teenager when she entered a technology college in her native Scotland. Rather than taking a more theoretical course at the University of Glasgow, she hoped to learn how computers could be used to advance business.
It’s safe to say the plan paid off.
Since earning her BCS and MS — the latter from Pace University in New York City — she’s become a highly-regarded technology-focused business leader. Her CV includes stints at Women.com Networks, Inc., Reader’s Digest, Knight Ridder, and Dun & Bradstreet. She also spent 14 years at California-based
multinational Juniper Networks, which develops and sells routers, switches, software, and other networking products, in C-suite positions, including as Chief Information Officer.
Along the way, she was recognized as one of Computerworld Magazine’s Premier 100 IT Leaders.
Clearly, you don’t build a resume like that without having an eye on what’s next. Today, one thing Perdikou is looking out for is how the law of accelerating returns is being applied in financial markets.
If you’re not familiar with the concept, the law of accelerating returns suggests that the rate of technological change increases exponentially, becoming faster over time. Ray Kurzweil, who came up with the thesis, explained it in a 2015 magazine article like this: “30 steps linearly gets you to 30. One, two,
three, four, step 30 you’re at 30. With exponential growth, it’s one, two, four, eight. Step 30, you’re at a billion.”
As someone who’s witnessed computing move from punch cards to microchips capable of storing billions of bits of data, Perdikou knows first-hand what the “law” is all about. She also realises this kind of thinking – which she describes as a calculus calculation, meaning it’s pretty heady stuff – isn’t easy for everyone.
“Humans are really good at looking at linear growth and saying, ‘Okay, so there are two or three dimensions changing,” she said. “The challenge now is that we’re seeing multiple dimensions changing and the rate of change is so fast we need additional technology just to help manage it.”
A Hammer Looking for a Nail
While the dizzying pace of innovation is driving growth across every vertical, not every company knows how to leverage technology’s potential. Some businesses seem content automating their processes in a bid to increase efficiency then stopping there. That’s not enough, Perdikou said, especially when markets value and reward companies on how they’re using technology to accelerate their rate of return.
But a broad-brush, “throw technology at the wall and see what sticks” approach isn’t the answer.
In fact, the opposite is true.
“Once there’s a new technology, everybody thinks it’s a hammer looking for a nail, but that can lead to tools being applied indiscriminately or incorrectly,” Perdikou said. “At Juniper, when we looked at the leaders in every vertical, we saw that the reason they led is because they had embraced relevant technology.
“These companies had a very strong, articulated, crisp strategy, and they focused on the tools they needed to deliver that strategy,” she said. Something else Perdikou discovered at Juniper is that leaders adopt technology earlier than their peer group.
“As part of our target marketing efforts, we were trying to identify which vertical would apply our technology faster,” Perdikou said. “The astonishing thing we found was that the vertical didn’t matter. The leaders in finance, the leaders in telecom, the leaders in gaming and casinos, they all applied technology
faster than anyone else.”
Progress Building on Progress
So, what does the law of accelerating returns mean to financial markets?
To understand its impact, Perdikou suggests looking at systemic changes in banking and currency and points to China and Venezuela as examples.
Unlike the Western world, where banking relationships are common, before 2007 or so, most people living in China didn’t have a bank account. About that time, though, cell phone use proliferated in China and online payment systems emerged. Almost overnight, people went from not having a bank account to having a bank in their pockets. Today, China has the highest rate of online payments against the GDP of any country.
In Venezuela, cryptocurrency is being used to moderate hyperinflation because it’s more stable than the local currency. That would never have happened without blockchain, the digital ledger that helped give legitimacy to bitcoin.
“The fact is bankers are increasingly recognising that technology has value and they’re using it to deliver their differentiation,” Perdikou said.
In the investment world, technology is being used to speed decisions, and in that regard, some investors are literally taking matters into their own hands. Case in point: the Chicago group of High Frequency Traders that were so concerned their network was slowing down their deals, they bought land between Chicago and New York where they had fibre cable installed, cutting milliseconds off turnaround time. (They’re not alone, by the way. Early on, Bloomberg installed custom-made cable so it could move data faster than its competitors.)
And while milliseconds may not seem like much, over hundreds and thousands of deals, the time does add up. In a sense that is what the law of accelerating returns is essentially about — creating more powerful advantages from the ones that came before. In this case, every millisecond saved through enhanced technology means more money to build on.
“The companies that don’t embrace technology are going to be sluggish at best and disappear at worst. Look at what Apple did with the iPhone. Everybody said, ‘we don’t need another phone,’ but now we’ve got great phones and a company like Nokia, which was slower to change, didn’t leverage the right technology on time. Now they’re counted in the ‘others’ bucket of global smartphone market share, whereas Apple is #2 globally and #1 in the US.”