Technology historians and consumers alike tend to focus on the end result of the microchip revolution: a world transformed by accessible computational power. But the design process by which that result has come about is equally revolutionary. As Mr. Gilder notes, electronics designers now treat transistors as a free commodity, not as a scarce resource. They throw them at problems, however small, with abandon. "Today you use millions of them to enhance your TV picture slightly or to play a game of solitaire or to fax Doonesbury to Grandma," Mr. Gilder observed. "If you do not use transistors in your cars, your offices, your telephone systems, your design centers, your factories, your farm gear, or your missiles, you go out of business. If you don't waste transistors, your cost structure will cripple you. Your product will be either too expensive, too slow, too late, or too low in quality."
What "free" transistors are to electronic design, "free" digital models are to product, process, and service design. Ingeniously "wasting" prototypes becomes essential to risk management. Throwing simulations at design problems becomes vital for detecting errors and discovering opportunities. Doing so gives birth to new ideas about new business models. The more models the merrier. Failure to wring new productivity from this embarrassment of virtual riches isn't just an embarrassment; it represents a postindustrial tragedy of epic proportions.
The rise of iterative capital is about the rise of choice. In fact, it is about the rise of choice by orders of magnitude. The more choices an organization has, the more its values matter. For the ordinary millionaire, venture-capital investing doesn't make a lot of financial sense. But for a billionaire, not investing in venture capital doesn't make sense. Nobel Prize-winning economics research — the Capital Asset Pricing Model, for example — dictates that the truly wealthy should seek diversification in a wide variety of asset classes, including venture capital. In other words, the typical billionaire's investment portfolio should be different from your average millionaire's. The middle class has fewer investment choices than does the upper crust. Similarly, companies newly rich with iterative capital must profoundly revise their innovation portfolios. Companies that can invest tens of thousands of iterations should have different innovation profiles and portfolios than should firms that can invest only a paltry five or 10 iterations. More capital always means more choices. More choices means individuals and institutions must reexamine what they really want.
Ultimately, of course, almost all innovative organizations will become iterative capital investors. The question is, what kinds of investors will they be? Will they be speculators or value investors? What will their diversification philosophies be? Managing the iterative capital portfolio will define the hyperinnovation profile of the firm.
Tensions and Trade-offs
Consider this simple "thought experiment" to illustrate the tensions and trade-offs that digital modeling presents. A new rapid prototyping and seamless simulation infrastructure enables a manufacturing company to double the number of development cycles its product team can run. Under the old system, new product teams could perform 10 cycles during their 10-month development window. That is, the development team could do 10 iterations — or versions — of its product before the ship date. The new technologies now let the development team run up 20 full iterations at virtually no extra cost.
Think of those extra cycles as currency: Each additional cycle can "purchase" either a product improvement, a cost reduction, or a speed-up. Each cycle is as valuable as any other cycle. Unspent cycles are monies saved. The hyperinnovation management challenge emerges. Just how should the team "spend" or "invest" those 10 extra cycles? What expenditure of this iterative capital will give the best returns? Should these innovation teams: