Without collaboration, innovation stalls


How we can bring Edison’s world-changing collaboration process into the digital age.

When we call Thomas Edison to mind, our first thought is of a brilliant inventor and innovator whose creations transformed modern life. We often think of him toiling away in a laboratory all by himself, long into the wee hours of the morning.

And yet, we rarely consider the role that collaboration played in Edison’s world-changing success. Tangled in the lore of the lone American inventor, our mind’s eye conjures Edison’s spray of white hair, his signature bow tie, and we quickly ascribe his 1,093 US patents to innate genius.

Tempting as it is to sustain this image of Edison, it is inaccurate. In an age when we speak of Thomas Edison and Steve Jobs in the same breath, it’s important to refresh our understanding of the pivotal role collaboration played in Edison’s innovation prowess. He viewed collaboration as the beating heart of his laboratories, a sustaining resource which fuelled the knowledge assets of his sprawling innovation empire.

EDISON 2

Thomas A Edison

Rising from humble beginnings, Edison was largely self-educated, pursuing his relentless passion for learning well into his 70s, when he taught himself botany. Deeply skilled in chemistry, telegraphy, acoustics, materials science, and electro-mechanics, Edison’s thirst for discovery began in his early teens and never ceased. Like a magnetic force all its own, Edison’s brainy leanings drew others to his quests, attracting bright colleagues with a huge diversity of skills.

From his earliest years renting space in workshops and small laboratories, Edison collaborated with others. Realizing the value of sharing his inspirations with people who held different skills than he did, Edison felt a unique bond with those who labored with him. In establishing his famed Menlo Park Laboratory at the age of 29, Edison journeyed from the failure of his first patented invention at age 22 to becoming a world-renowned inventor in just 7 years, establishing collaboration practices which came to be a signature of his campus-style operations.

Midnight Lunch – Published by Wiley – is a book from his descendant Sarah Miller Caldicott. It challenges each reader to examine the ambitions they’ve set for themselves, re-imagining what one person is capable of producing when they work in true collaboration.

The linkage between innovation and collaboration underscores why Edison’s collaborative approach becomes such a relevant subject for us now. Given the increased scrutiny placed on the role of innovation as a driver of growth for every economy – whether emerging or developed – we must ask whether collaboration is also engaged. Like a symbiotic organism which can only thrive when its host is present, innovation can only gain sustainable traction when true collaboration also exists.

I had the privilege of a pre-publication read of Midnight Lunch (Edisonian employee ritual) and can’t recommend it highly enough for any that see innovation and collaboration as the way to future business success and a higher purpose.

© Wiley Publishing and Author Sarah Miller Caldicott 

Twitter: @WileyBiz and @SarahCaldicote

COLLABORATION 2

Curated by Trevor Lee

@trevorblee

http://www.ep-i.net

http://www.ceo-worldwide.com

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Before Taking an Expat Assignment, Make Sure Your Family Is on Board


Getting an expat assignment can be exciting, but it can also be hard on your family. Before accepting a temporary reassignment to another country, think it through with your partner or family. Be sure to frame the decision as a real choice:

Should we go or stay?

And consider the degree of change: If you live in Amsterdam, relocating to Brussels is very different from moving to Guangzhou, China.

Then go through the pros and cons of each alternative, laying out the full implications for your children or extended family, your career — and your partner’s — and your support networks.

Try to anticipate and discuss how the change would affect family dynamics — e.g., shifting from a dual-career marriage to one where a spouse stays at home, or replacing a grandmother babysitter with a professional nanny.

These discussions will not only shape your decision about the assignment but also help set expectations and prevent resentment later on.

Adapted from “Making Your Expat Assignment Easier on Your Family,” by Katia Vlachos

EXPAT 1

Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

Create an Ad Hoc Leadership Circle to Generate New Ideas


leadership-circle

When leaders need innovative ideas to grow their company, they often turn to their direct reports for guidance. But this group, by design, represents the current operating units and functions, which often have a status quo to defend.

So when you need creative thinking, try forming a leadership circle, a diverse, ad hoc team of 15–18 people from throughout the company who can work together for about six months.

The circle should focus on the future, not the past, and healthy debate should be encouraged. Within the circle, each member should hold equal status and should not feel that he or she is being asked to represent the point of view of accounting, sales, shipping, or whatever their home department is.

Most important, whatever ideas come out of a leadership circle should be handled in the same way they were generated: They should be rigorously and systematically discussed, debated, and explored.

Adapted from “To Seize the Future, Create a Leadership Circle,” by Joseph Pistrui

leadership-circle

Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

The Case for Moving Beyond Traditional Budgeting


A guest post:

The budgeting process can be laborious and it may also fail to give you the results you need. In this paper Anders Olesen explains how you can move beyond budgeting – and provides case studies.

The budget is generally regarded as an indispensable management tool. The process typically provides a detailed plan for the first year in the company’s strategic plan. The budget produces targets for the coming year, a financial forecast, and an allocation of resources. The thorough process ensures coordination throughout the entire company. The budget provides management with a “stick in the ground” and a sense of control.

In this paper, I would like to demonstrate that it is possible to achieve all of the above with fewer resources and with higher quality than is possible in a traditional budget process. One of the tricks is to separate the all-inclusive budget process into several separate sub-processes.

When combining such new processes with appropriate leadership principles to form a coherent man­agement model, it is possible to unlock the organization’s full performance potential. This is what we call Beyond Budgeting.

Conflicting purposes

When asking companies about the reasons for budgeting, they almost invariably mention the follow­ing purposes of the budget:

Target setting

  1. The budget sets targets in line with the corporate strategy.

  2. Targets are broken down by division, BU, region, team, etc.; thus enabling everyone to see how they contribute to the corporate strategy.

  3. Targets are used for the annual bonus plan.

Forecasting

  1. The budget provides a financial plan for the coming year.

  2. Such financial plan – including P&L, balance sheet and cash flow – is often required by shareholders and lenders.

Resource allocation

  1. The budget provides managers with the allowed maximum spending; in monetary terms and often also in terms of headcount.

The budget is thus supposed to do many important things for us. Most will agree that the above mentioned purposes must be addressed in order to manage a company and stay in control.

A key problem with the budget process, however, lies exactly in these purposes: they are all impor­tant, but they are different and even conflicting in nature.

There is for example an inherent conflict between target setting and forecasting:

  1. A target is what you want to happen.

  2. A forecast is what you think will happen.

A target should be ambitious; it should provide direction and inspiration for the organization to reach the desired outcome.

On the other hand, a forecast should show the expected outcome. It should provide decision makers with information about where the company is heading, whether they like what they see or not. To enhance the quality of decisions, such information must be unbiased and sufficient (without drowning in details).

When combining conflicting purposes in ONE process, it is impossible to solve all of the purposes equally good. Accordingly, the traditional budget process is by default flawed.

This insight leads to the natural conclusion that the budget process should be separated into different sub-processes that are directed at each of the important purposes, as illustrated below:

There are more problems with budgeting than the inherent conflict between target setting and forecasting; some of these are reviewed in the following.

Fortunately, experience shows that when companies separate their budget process into sub-process­es this also makes it easier to address the other budget problems.

Problems with traditional budgeting

Most leaders know that the budget process has its problems; I have yet to meet anyone who claims the opposite.

Multiple studies show, for example, that the validity of the budget is relatively short. Typically, some 20- 30 % of the companies interviewed will answer that the budget is obsolete even before the budget year begins. And very often, some 60-70 % will answer that this happens during the first half of the year.

The level of waste as expressed by these figures is horrifying; where else is such waste accepted year after year?

Some of the typical problems with budgets are that:

  • the link to strategy is often weak;

  • they are very time-consuming

  • decisions are made too early and at too senior a level;

  • assumptions are quickly outdated;

  • they can prevent value-adding activities;

  • they create an ‘accordion’ forecasting horizon; and

  • they are often a bad yardstick for evaluating performance.

Often weak link to strategy

The budget is supposed to be the detailed plan for year one in the strategy period. However, expe­rience shows that very little of the budget work has anything to do with strategy. Very quickly, the budget process is reduced to a fight for less ambitious targets and more resources. This has much to do with the relatively short (one year) budget horizon and is often due to the link to bonuses.

Decisions made too early and at too senior a level

Many decisions are made during the budget process: prioritization of resources, for example. Due to the nature of the traditional budget process, we very often find that people high up in the hierarchy and far away from the situation settle disputes over resources. This can affect the quality of decisions negatively.

This means that companies – simply because of an internal process – force themselves to take deci­sions much earlier than necessary. And since the best decisions are made with the latest information at hand (i.e. as late as possible) this too means that the quality of decisions will suffer.

Prevents value adding activities

When considering an expense or investment, this question is too often asked in budget environments: “Is it included in the budget?” If so: go ahead. If not: no go – wait for next year’s budget.

During the year, new and unexpected threats and opportunities will appear; things that were not – and could not – be foreseen when preparing the budget.

Despite all good intentions in the budget process, sticking to the budget will inevitably lead to a less than optimal use of resources simply because it is impossible to foresee what will happen.

Accordion” forecasting horizon

Logically, one should think that a company’s forecasting (or planning) horizon was determined by the nature of the company’s industry and that it, accordingly, would be relatively stable over time.

However, in a normal budget environment, the forecasting horizon lasts to the end of the budget year. This means that the forecasting horizon – and hence, the focus of the organization – will vary signif­icantly during the year: from roughly 3 to 15 months. This is purely driven by the financial year-end focus and has nothing to do with the underlying business needs.

A bad yardstick for evaluating performance

In a budget environment, you are a success if you reach your budget, and this often comes with a bo­nus. On the face of it, this sounds fine, but it has several negative side effects:

  1. rational managers will fight for relatively unambitious targets; thus increasing their chances for personal success;

  2. since conditions (and budget assumptions) always change during the year (currencies, oil prices, interest rates, etc.), it can be impossible to determine what success will look like beforehand;

  3. even if the cost budget is met, this is no guarantee for the most optimal use of resources. Some parts of the organization could probably have managed with less, and others may have under-spent and missed opportunities;

  4. even if the revenue budget is met, this is no proof of success; maybe the competitors did even bet­ter and the market share came down.

Why most companies still budget

Very few disagree that the budget has the above-mentioned problems, yet most companies continue to prepare annual budgets. Why is this? Well, we can only find two explanations; either:

  1. Managers do not know what to do instead – what is the alternative?, or

  2. Managers consider the problems too small to justify a change

In the former case, the good news is that an alternative exists – as explained in this paper.

Concerning the latter, we disagree that the problems are too small to justify change. The budget is meant to support and enhance performance but is actually doing the opposite, and when the budget is more of a barrier than a support for good performance then the problem is indeed very serious and worth changing.

Will performance suffer without the traditional budget?

No – quite the contrary. It is our experience that the separation of the budget process into sub-pro­cesses has a positive impact on an organization’s performance. Simply by changing the process, you will achieve better and more meaningful targets, more relevant and timely financial forecasts and an improved use of resources… with less effort.

The largest Norwegian business school recently conducted a research project within the Norwegian banking industry. The purpose was to identify relationships (if any) between financial performance and management tools applied by Norwegian banks. For most of the analysed tools, the researchers could not prove a significant link between tool and performance. However, concerning the budget, the study had a remarkable result: the financial performance (measured over a long period) of the banks without traditional budgets was significantly better than that of the other banks.

The Beyond Budgeting principles

One of the great advantages of separating the budget process into sub-processes for target-setting, forecasting, and resource allocation is that this opens up for significant process improvements; improvements that are impossible to achieve with one common budget process.

When you address the target-setting process, for example, and start thinking about how to design the optimal process, new and interesting ideas – that were unthinkable in the one-process-environ­ment – will appear: What is actually the purpose of the target? How is this best achieved? What kind of targets should we have? How about non-financial and relative targets? Must there be a date linked to every target? Who sets the targets? How often?

Another significant advantage is that the new processes invite to and can facilitate the implementa­tion of leadership practices that can further enhance performance improvement. Accordingly, and based on the practical findings of our network, we have developed the Beyond Budgeting Principles – see box – that address both the processes and the leadership aspect.

The focus of this paper is on the process side. However, organizations must address the leadership aspects as well. For employee motivation as well as management credibility, it is crucial that management processes and leadership principles are aligned.

12 LEADERSHIP PRINCIPLES

          Governance and Transparency

1. Values – Bind people to a common cause; not a central plan

2. Governance – Govern through shared values and sound judgement; not detailed rules and regulations

3. Transparency – Make information open and transparent; don’t restrict and control it

          Accountable Teams

4. Teams – Organise around a network of accountable teams; not centralised functions

5. Trust – Trust teams to regulate and improve their performance; don’t micro-manage them

6. Accountability – Base accountability on holistic criteria and peer reviews; not on hierarchical relationships

          Goals and Rewards

7. Goals – Set ambitious medium-term goals; not short-term negotiated targets

8. Rewards – Base rewards on relative per formance; not fixed targets

          Planning and Controls

9. Planning – Make planning a continuous and inclusive process; not a top-down annual event

10. Coordination – Coordinate interactions dynamically; not through annual budgets

11. Resources – Make resources available just-in-time; not just-in-case

12. Controls – Base controls on fast, frequent feedback; not on budget variances

Some practical examples

To illustrate how the separation of budget processes can work in practice, you will find some examples in the following. The examples are from successful – but very different – companies that have combined their management processes with strong leadership principles to form coherent management models.

As you will see, the specific solutions and processes adopted vary between the companies. There are, however, also several similarities:

  1. The companies place great emphasis on values and purpose (ref. principle 1 and 2) and transparency (principle 3).

  2. Some of the companies are organized as decentralised teams (principle 4 and 5); and others have implemented the new processes as part of an effort to increase the responsibility and accountabil­ity BU’s.

  3. Several of the mentioned companies have introduced profit sharing schemes instead of individual targets and bonuses (principle 7 and 8).

CASE STUDY – Alfa Laval

Alfa Laval is listed on the Stockholm Stock Exchange and is a leading global supplier of products and solutions for heat transfer, separation, and fluid handling. 2014 revenues stood at approx. GBP 2.6 billion. The company has about 18,000 employees and activities in 100 countries.

In 1998, Alfa Laval abandoned traditional budgets and introduced a new system of financial management whereby each of the budget purposes are handled in separate sub-processes.

The reasons for the change was very similar to that of other companies: conflicting purposes inherent in the traditional budget process, budget outdated early in the year due to inevitable changes in budget assumptions, too much time and energy spent on irrelevant details, weak link between planning horizon and the business cycle, etc.

In addition, the old budget process delayed the decision and implementation of important business initiatives as many of these were not foreseen when preparing the budget (principle 9-11).

Over the latest ten years (i.e. including the recent financial crises), Alfa Laval’s EBITDA-margin has been in the 15-22 % range; which is extremely good for its industry. One of the key elements behind this strong performance is a drive for continuous improvement (principle 2 and 6).

CASE STUDY – Statoil

Statoil is an international energy company with approximately 23,000 employees worldwide and operations in 36 countries. Headquartered in Norway, Statoil is listed on the New York and Oslo stock exchanges.

Ten years ago, Statoil decided to go beyond budgeting and they have since then developed its coherent management model also referred to as “Ambition to Action”.

Each division/BU/team has its own “Ambition to Action”; Statoil’s version of a balanced scorecard. All of these are transparent to everyone in the company, and teams can anytime during the year change their own targets, KPI’s, priorities, etc. (principle 3-6 and 9-10).

Like Handelsbanken, Statoil measures its success relative to its peers. Accordingly, they have two corporate financial targets: above average on Total Shareholder Return, and first quartile Return on Capital (principle 6-7).

Statoil has developed a dynamic forecasting model, which asks units to update their forecasts when something significant has changed (principle 9-10).

The company practices a dynamic resource allocation process (principle 11), whereby new projects can be proposed at any time, and are approved or rejected dynamically based on project quality and on financial capacity available from the dynamic forecasting.

Another key principle in Statoil’s model is a holistic performance evaluation (principle 6 and 8), which includes “pressure-testing” of measured KPI performance before any conclusions are drawn, as they see KPI’s as “Indicators” only. This involves applying hindsight insights, and using information not picked up through measurement. Values and how results are achieved are also emphasized, and counts 50 % in the final evaluation.

CASE STUDY – Handelsbanken

Handelsbanken is a full-service bank with nationwide branch networks in Sweden, the UK, Denmark, Finland, Norway, and the Netherlands. Listed on the Stockholm stock exchange, Handelsbanken has more than 11,000 employees in 25 countries.

Handelsbanken has one financial target: to achieve a shareholder return that is above the average of its peers. This target has remained unchanged for 42 years; i.e. the bank spends no time on target setting. The bank has reached this target every year since it was established.

In the same 42-year period, the bank has not prepared annual budgets and it does not even prepare financial forecasts. Yet it remains in full control and it is the most cost-effective listed full-service bank in Europe. Based on five different financial measures, including financial strength, the ability to manage risk and cost efficiency, Bloomberg recently ranked Handelsbanken as the strongest bank in Europe. During the recent financial crisis, the bank did not need help from governments or shareholders; contrary to almost all other banks in Europe.

Handelsbanken is a prime example of a company that has also addressed the leadership principles. A key component of the bank’s successful and coherent management model is a highly decentralised organizational structure and a high level of transparency; the latter also enables fast and frequent feedback (principle 12).

CASE STUDY – Mainfreight

Mainfreight is a global supply chain business headquartered in Auckland, New Zealand and it is listed on the New Zealand stock exchange. The company currently has more than 240 branches around the world. In 2014, it generated NZD 1.9 billion in revenues and it employs almost 6,000 team members.

Mainfreight’s success is underpinned by its unique performance management system. This supports a strong can-do attitude (principle 1 and 2) and excludes traditional budgets. As Mainfreight expands, it removes budgets from the companies it acquires and introduces its own performance management system.

One of its key principles is to avoid centralized control processes, budgets, and bureaucracy (principle 3-6). These are regarded as ineffective and time-consuming and take managers’ attention away from the business. To illustrate this, here is a quote from Mainfreight’s latest Annual Report: “As we grow our global business we continue to resist bureaucracy and corporate bull$#@t! It is a credit to our team of 5,771 people that we still think and act like a startup.”

CASE STUDY – The Maersk Group

The Maersk Group is a worldwide conglomerate and operates in some 130 countries with a workforce of more than 89,000 employees. The annual revenue is approx. USD 48 billion (2014).

With the objective of creating a stronger link between strategy and action, Maersk has implemented a new management model based on the following design criteria: visibility, agility, control, and simplicity. A key element of the new management process is the separation of processes for target setting, forecasting, and resource allocation (principle 7, 9, 10 and 11). This has resulted in significantly improved sub-processes for each of these very important planning elements.

They also now have a more holistic view on value creation (principle 6) which is now evaluated against internal as well as external benchmarks.

Rolling forecasts combined with a new performance review process have improved Maersk’s ability to react to rapidly changing market conditions.

CASE STUDY – Coloplast

Coloplast develops products and services that make life easier for people with very personal and private medical conditions. Their business includes ostomy care, urology and continence care, and wound and skin care. Coloplast operates globally, employing more than 9,000 people.

In 2009, following a year with four downward adjustments to the stock market, management realized that changes were needed. Coloplast wanted a new process to support its very ambitious performance improvements. This meant a farewell to the traditional budget and the introduction of new sub-processes: target setting, rolling forecasts, and a flexible resource allocation.

The new processes have helped Coloplast reach more ambitious targets, and provided the company with more agility. The absence of cost budgets has actually helped increase cost consciousness (principle 11). Financially Coloplast is now outperforming its peers. The EBIT margin, which stood at 12 % in 2008, was five years later at 32 %; far ahead of its peers.

CASE STUDY – Timpson

Timpson is a retail service business with more than 1,300 outlets in UK and Ireland. Timpson offers shoe repairs, key cutting, engraving, watch repairs, dry cleaning and mobile phone repairs – its biggest service is photo processing.

Timpson applies a unique management model where the people who front the customers are the ones that run the business – everyone else (without exception) is there to help them do their job. This is what Timpson calls Upside Down Management.

There is no headquarter; a small team supporting their colleagues in the shops provides central services.

Timpson “does not waste time trying to predict the future”, as John Timpson (the company’s chairman) writes on his blog; i.e. the company is not managed through budgets; they actually don’t even prepare targets or forecasts – and they manage very well.

Timpson often features on the Best Workplace lists in the UK and across Europe, which has very much to do with its leadership (principle 1-6).

Getting started / next step: For more information or help to get started, please feel free to contact the Beyond Budgeting Institute.  bbrt.org

I hope that this paper has demonstrated the benefits of separating the traditional budget process into sub-processes. Hereby, the quality of the company’s planning efforts can be significantly improved with the same or even with fewer resources.

To achieve the full performance potential of the organization, it must also address its leadership processes. The true strength lies in the combination of the two, thus forming a coherent management model.

For established organizations to get started on a Beyond Budgeting journey, we generally recommend to start with a separation of the budget process, and to address the leadership principles subsequently.

Definition: In this article, the word “budget” refers to the corporate budget that is prepared through an annual corporate-wide process, not the personal budget or a project budget or any other variety of that which generally refers to planned income and expenses.

Anders Olesen is Director at Beyond Budgeting Institute

http://www.bbrt.org         e-mail: aolesen@bbrt.org

Curated by: Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

 

Executive Search 2.0


 Executive Search 2.0 is transparent by design and speedy of execution with 100% customer centricity.
Free whitepaper download:  http://bit.ly/2hRdT4N

I recall the very first conversation I had with Patrick Mataix when I asked him how he entered the world of executive search. I quickly realized I had encountered ‘a meeting of minds’ moment based on an ethical dimension seldom encountered in my traditional world. Here was someone with whom I passionately wished to work.

 

FRUSTRATION!

It was soon established that CEO Worldwide was born out of Patrick’s frustration with the headhunters and consultants he encountered as co-founder and COO of Vistaprint (NASDAQ: CMPR).

EXASPERATION!

Exasperation at their inadequate answers and relaxed approach to deadlines – as much as their lacklustre candidates.

He went on to say that it seemed the recruiters were almost mocking all the time and energy he was investing in developing the business internationally: raising funds, opening subsidiaries, acquiring and restructuring businesses.

He was permanently looking urgently for managers in France, UK, Germany, the US…

All of his problems boiled down to quickly finding the right person, in the right culture, with the right profile, at a reasonable cost; to either help him do things faster and more efficiently, or run a portion of other fast growing business.

While meeting C-level executives, he could clearly see that he was not the only one wasting time and money in endless, costly and infuriating processes, that were highly inadequate for the pace of their international development.

IT WAS TIME FOR A CHANGE

He founded CEO Worldwide in 2001, because as an entrepreneur, he recognized that cross-border executive recruiters could not keep putting themselves before clients and commanding ridiculous fees for the privilege. It was not sustainable then and certainly isn’t now as ‘digital’ enables productivity gains – particularly in terms of financial savings and time-line – to directly flow to the client effectively handing back control. The client is front and center of the CEO Worldwide service culture.

Since then CEO Worldwide have placed 1000s of candidates who have truly revitalized businesses in multiple sectors across the world.

PURPOSE

Our purpose continues to be to offer the C-suite a way of hiring ‘… the best certified executive talent on the planet. at speed, without any up-front financial commitment and for a flat fee unrelated to the agreed remuneration and specific for each region. We do this by constantly adding pre-selected top performers meeting or exceeding our clients’ requirements. For those that are INVITED to the CEO Worldwide community we seek – free of charge – to accord them unrivaled opportunity to showcase their skills both by written word and via a dedicated YouTube platform.

Free whitepaper download:  http://bit.ly/2hRdT4N

search-3

 

Trevor Lee

http://www.ceo-worldwide.com

tblee@ceo-worldwide.com

@trevorblee

The Good News They’re Not Telling You


good-news

by Thomas E. Woods, Jr.

As we look at things that impress us technologically we also have a certain trepidation, because we’re told that robots are going to take our jobs. “Yes, the internet is wonderful,” we may say, “but robots, I don’t want those.”

I don’t mean to make light of this because robots are going to take a lot of jobs. They’re going to take a lot of blue collar jobs, and they’re going to take a lot of white collar jobs you don’t think they can take. Already there are robots that can dispense pills at pharmacies. That’s being done in California. They have not made one mistake. You can’t say that about human pharmacists, who are now free to be up front talking to you while the robot fills the prescription.

Much of this is discussed by author Kevin Kelly in his new book The Inevitable, with the subtitle Understanding the 12 Technological Forces that Will Shape Our Future. It’s incredible what robots can do and what they will be able to do.

Automation Really Is Taking Our Jobs

To me, just the fact that one of Google’s newest computers can caption a photo perfectly — it can figure out what’s happening in the photo and give a perfect caption — is amazing. Just when you think “a machine can’t do my job,” maybe it can.

What kind of world is this we’re moving into? I understand the fear about that. But, at the same time, let’s think, first of all, about what happened in the past.

In the past, most people worked on farms, and automation took away 99 percent of those jobs. Literally 99 percent. They’re gone. People wound up with brand new jobs they could never have anticipated. And in pursuing those jobs we might even argue that we became more human. Because we diversified. Because we found a niche for ourselves that was unique to us. Automation is going to make it possible for human beings to do work that is more fulfilling.

How is that? Well, first let’s think about the kinds of jobs that automation and robots do that we couldn’t do even if we tried. Making computer chips, there’s no one in this room who could do that. We don’t have the precision and the control to do that. We can’t inspect every square millimeter of a CAT scan to look for cancer cells. These are all points Kevin Kelly is trying to make to us. We can’t inflate molten glass into the shape of a bottle.

So, there are many tasks that are done by robots, through automation that are tasks we physically could not do at all, and would not get done otherwise.

Automation Creates Luxuries We Didn’t Know Were Possible

But also automation creates jobs we didn’t even know we wanted done. Kelly gives this example:

Before we invented automobiles, air-conditioning, flat-screen video displays, and animated cartoons, no one living in ancient Rome wished they could watch pictures move while riding to Athens in climate-controlled comfort. … When robots and automation do our most basic work, making it relatively easy for us to be fed, clothed, and sheltered, then we are free to ask, “What are humans for?”

Kelly continues:

Industrialization did more than just extend the average human lifespan. It led a greater percentage of the population to decide that humans were meant to be ballerinas, full-time musicians, mathematicians, athletes, fashion designers, yoga masters, fan-fiction authors, and folks with one-of-a kind titles on their business cards.

The same is true of automation today. We will look back and be ashamed that human beings ever had to do some of the jobs they do today.

Turning Instead to Art, Science, and More

Now here’s something controversial. Kelly observes that there’s a sense in which we want jobs in which productivity is not the most important thing. When we think about productivity and efficiency, robots have that all over us. When it comes to “who can do this thing faster,” they can do it faster. So let them do jobs like that. It’s just a matter of — so to speak — robotically doing the same thing over and over again as fast as possible. We can’t compete there. Why bother?

Where can we compete? Well, we can compete in all the areas that are gloriously inefficient. Science is gloriously inefficient because of all the failures that are involved along the way. The same is true with innovation. The same is true of any kind of art. It is grotesquely inefficient from the point of view of the running of a pin factory. Being creative is inefficient because you go down a lot of dead ends. Healthcare and nursing: these things revolve around relationships and human experiences. They are not about efficiency.

So, let efficiency go to the robots. We’ll take the things that aren’t so focused on efficiency and productivity, where we excel, and we’ll focus on relationships, creativity, human contact, things that make us human. We focus on those things.

Automation Really Does Make Us Richer

Now, with extraordinary efficiency comes fantastic abundance. And with fantastic abundance comes greater purchasing power, because of the pushing down of prices through competition. So even if we earn less in nominal terms, our paychecks will stretch much further. That’s how people became wealthy during and after the Industrial Revolution. It was that we could suddenly produce so many more goods that competitive pressures put downward pressure on prices. That will continue to be the case. So, even if I have a job that pays me relatively little — in terms of how many of the incredibly abundant goods I’ll be able to acquire — it will be a salary the likes of which I can hardly imagine.

Now, I can anticipate an objection. This is an objection I’ll hear from leftists and also from some traditionalist conservatives. They’ll sniff that consumption and greater material abundance don’t improve us spiritually; they are actually impoverishing for us.

Well, for one thing, there’s actually much more materialism under socialism. When you’re barely scraping enough together to survive, you are obsessed with material things. But, second, let’s consider what we have been allowed to do by these forces. First, by industrialization alone. I’ve shared this before, but on my show I had Deirdre McCloskey once and she pointed out that in Burgundy, as recently as the 1840s, the men who worked the vineyards — after the crop was in, in the fall — they would go to bed and they would sleep huddled together, and they basically hibernated like that for months because they couldn’t afford the heat otherwise, or the food they would need to eat if they were expending energy by walking around. Now that is unhuman. And they don’t have to live that way anymore because they have these “terrible material things that are impoverishing them spiritually.”

The world average in terms of daily income has gone from $3 a day a couple hundred years ago to $33 a day. And, in the advanced countries, to $100 a day.
Yes, true, people can fritter that away on frivolous things, but there will always be frivolous people.

Meanwhile, we have the leisure to do things like participate in an American Kennel Club show, or go to an antiques show, or a square-dancing convention, or be a bird watcher, or host a book club in your home. These are things that would have been unthinkable to anyone just a few hundred years ago.

The material liberation has liberated our spirits and has allowed us to live more fulfilling lives than before. So, I don’t want to hear the “money can’t give you happiness” thing. If this doesn’t make you happy — that people are free to do these things and pursue things they love — then there ain’t no satisfying you.

Tom Woods, a senior fellow of the Mises Institute, is the author of a dozen books, most recently   Real Dissent: A Libertarian Sets Fire to the Index Card of Allowable Opinion.

good-news

Trevor Lee

http://www.ceo-worldwide.com

tblee@ceo-worldwide.com

@trevorblee

Executive Search & Interim Management since 2001
Connecting you with the best certified executive talent on the planet

The Firm of the Future


In this paper, Dr Jules Goddard, Fellow of London Business School, puts forward the argument that, with three relatively small contextual changes, businesses themselves could amplify and exploit the VUCA world in which they compete and thereby disproportionately enhance their opportunities for wealth creation. The firm of the future will be the one with the courage to do so.

The three great challenges facing business today are to create a commercial culture in which capital is more patient, work is more variegated and entrepreneurship is more mainstream

Anyone listening in on the conversations of executives over the last 10 to 20 years cannot help but have noticed that managerialism – the art of getting things done by and through other people – is the main source of frustration, disengagement and underperformance within most organisations. As a 19th century social technology for controlling and coordinating large numbers of relatively unskilled people, managerialism is delivering ever-declining value. We are trying to create wealth in a knowledge economy by relying upon structures and processes designed for the industrial age.

The language of planning and control, of targets and KPIs, of metrics and benchmarks, of efficiency and excellence, of specialisation and standardisation, of jobs and careers betrays a way of thinking that is wholly unsuited to the challenges confronting firms today.

The agenda has moved on. More management is not the answer. Tweaking the managerial model by opting for out-sourcing, de-leveraging, re-engineering, dis-intermediating, off-shoring, and other such administrative processes beloved of consultants, is a classic case of “doorknob polishing” when the stately home has long since fallen into disrepair.

The problems facing business have much less to do with internal systems and processes and much more to do with external or contextual variables, such as the institutions and structures within which companies are expected to perform. The five-day work week, the employment contract, the job description, the office hours mentality, the working time directive, the lifetime career, the long hours culture, the limited liability company, the quarterly reporting cycle, the acquis communitaire, and the regulatory mindset are just a few of the situational factors that contribute to a culture of indecisive management, compliant employees and passive shareholders.

For some time we have been witnessing diminishing returns to management. We need to pioneer alternative organisational models that have the potential to motivate and inspire those coming into the workforce, as well as re-energising those already within it. To borrow a telling phrase from Charles Handy’s most recent book, we need to invent a “second curve” – a new way of working – if we are to attract millennial talent into the world of business and put it to work on behalf of a better world

Three deep-seated structures – or pathologies – are particularly responsible for holding back economic growth in today’s world:

  1. The 5-Day Workweek: we spend too many hours in the constrictive environment of the office and too little “out and about”. Our working week is typically too monotonous, too uniform and too “full-on” to lend itself to creativity. What has been called “hurry sickness” is crowding out time better spent on inquiry, reflection, natural conversation and “downtime” generally.

  1. The 5-Week Shareholding: perhaps this should read the “5-Second Shareholding”. It has become a cliché – but none the less true for that –that capital markets are insufficiently patient to serve one of their main purposes, which is to match lenders with borrowers and, in doing so, help direct savings into their most productive uses (even though, shockingly, only about 3% of the assets of British banks are today devoted to this purpose). Short-termism is a rational response to the irrational state of affairs in which the business model that drives the decisions of asset managers conflicts with the interests of the investees, namely, companies and those whose money is invested in them.

  1. The 5-Decade Career: the problem, as Charles Handy said many years ago, is not just unemployment, but also employment. As a legal structure and behavioural context in which individuals may be planning to build their working life in the 21st century, it is too closed, too restrictive and insufficiently developmental to meet their variegated needs.

Increasingly the role of senior management will be to redesign the organizational context in which work is done, rather than to supervise the content of the work itself. Ideally, there will develop a competitive market in employment practices and ownership rights – where, for example, different firms will experiment differently with the length and composition of the workweek, the incentives attaching to different classes of shares, and the opportunities for employees to become entrepreneurs in mid-career.

The 4-Day Workweek

Remember, you only have 2,000 weekends, and then you die”

Ryan Carson, CEO of Treehouse, a company that treats Fridays as part of the weekend

John Maynard Keynes predicted that, by 2030, there would be a 15-hour workweek. Yet the statistics suggest that, if anything, people are working longer hours now than they did in the 1930s. This is a paradox. Presumably, Keynes’ logic was that, as the wealth of the world increased, so the marginal utility of income would fall relative to the marginal utility of leisure, placing pressure on governments to encourage more flexible employment contracts and offering opportunities for firms to compete on the basis of hours worked. Yet the reverse would seem to have occurred. The wealthier we get, the harder we work, the longer we stay in the office, and the later we retire, if ever.

The working week needs a radical re-think. Just as the notion of a career – that is, working (often for the same employer) for 45 hours a week for 45 weeks a year for 45 years – was radically challenged by Charles Handy in the 1980s when he wrote about “portfolio working”, so it is time to re-appraise and overhaul the unduly rigid notion of the 5-Day workweek.

The gig economy, the pop-up shop, the farmer’s market, the boot sale, the innovation hub, the zero-hours contract and so on are all symptoms of the fact that work needs to break out of its straitjacket and try on different apparel.

Ironically, zero-hours contracts have come in for a terrible pasting by the media and yet 80% of those on such contracts are delighted with them, such is the freedom and flexibility that they afford. Instead, the real problem is the formulaic nature of the everyday employment contract. We talk a lot about corporate agility and the merits of anti-fragility, yet we persevere with one of the most embedded and inflexible institutions in modern society.

In their genealogical explanation of civilization, Acemoglu and Robinson draw a distinction between inclusive institutions, such as those that “enforce property rights, create a level playing field, and encourage investments in new technologies and skills” and which “distribute political power widely in a pluralistic manner” with extractive institutions, such as those that “concentrate power in the hands of the few” or “are structured to extract resources from the many by the few”. Today’s workplace, with its rigid structures, burdensome rules, and mood of distrust is in danger of becoming the 21st century equivalent of the kind of extractive institutions that Acemoglu and Robinson believe to have been antithetical to human progress.

So why not move to a 4-day workweek? Why not “Thank God it’s Thursday”?

Dan Hamermesh, an economist at the University of Texas at Austin, makes a fair point when he says that, “It’s very easy for folks sitting back in their chairs to say, ‘Yes, you need to be on a part-time schedule, or a four-day, 32-hour schedule’, without thinking about the extent to which such folks want the income and are willing to put up with the hard hours”. In other words, there’s always going to be a tradeoff between hours worked and income earned. If everyone worked fewer hours, then surely the economy would shrink, and salaries and wages would suffer.

Yet this same argument must have been used 100 years ago when a New England mill, to the delight of the labour movement but perhaps to the consternation of the entrepreneurial class, became the first American factory to treat Saturdays as off-limits to employers.

There are two linked assumptions made by those defending the “long-hours culture”: first, that there is a positive correlation between the length of the workweek and the productivity of the workforce; and second, that, given this fact, very few people would prefer to take a pay cut in exchange for a longer weekend.

However, there is some evidence that this may not be the case, for four principal reasons:

First, fewer hours to perform a task means less time to waste:

As Ryan Carson, Founder of Treehouse, an online education company, observes, “You get all Friday off, instead of pretending like you’re working when you’re not”. The more hours that are made available for a job to be done, the more the job-holder will find ways to distract himself if only to break the monotony. This is an echo of Parkinson’s Law: work expands to fill the time available. Twice the hours doesn’t mean twice the effort or twice the output. Particularly in the case of knowledge workers or creative tasks, forcing longer hours is invariably counter-productive. To invert Parkinson’s Law, perhaps work contracts to fit the time allotted, or, put another way, time quickens to achieve the task to be done.

The workaholic is a menace in the office. It is said that Field Marshall von Moltke sought out intelligent and lazy officers to be his Commanders because they placed particular emphasis on finding the easiest way of achieving a task; whereas he was notoriously averse to stupid and energetic officers because they made so many things happen but almost all of them wrong-headed. Many of us will immediately recognize this type of manager: he is the one who is endlessly setting targets, measuring effort, cutting costs, re-engineering processes, judging others – and working long hours.

Second, longer weekends refresh and stimulate the creative mind:

Creative problem-solving, innovation and critical thinking are more likely to thrive under conditions of trust and patience than supervision and urgency. Quality work happens best when uninterrupted. Guy Claxton has demonstrated that the creative mind works at a slower pace than the mind engaged on routine tasks. Jason Fried, the founder of Basecamp, a software company whose employees take Fridays off in the summer, discovered that “Better work gets done in four days than in five”.

Third, more free time makes for a happier work environment:

Those countries that work shorter hours tend to be happier and more convivial than others, with no apparent loss of prosperity. An OECD report in 2013 found that, amongst full-time salaried workers, the Netherlands enjoys the shortest workweek in the developed world, at an average of 29 hours per week, followed by Denmark (33), Norway (33), Switzerland (35) and Sweden (36). Is it any coincidence that these same 5 countries, according to the World Happiness Report of 2013, were also the 5 happiest? The same report provided evidence that happiness is positively correlated with productivity, health and longevity.

When Kelly Holmes was rounding the final bend in the Athens Olympics’ 800m final, for which she won the gold medal, Michael Johnson, the American sprinter who was commentating on the race for the BBC, remarked that, whereas every other athlete was racing, Kelly was running. What a wonderful insight. And what light it throws on today’s workplace, which incentivizes racing rather than running. Julie Burchill, the writer and journalist, recently remarked that, “Most of us would do our jobs better if we did them less”.

Fourth, a four-day workweek has formidable power to attract and retain talent:

Adding an extra day of freedom to each week is a magnet for talent. Any mention of a shorter workweek, even when this entails a cut in take-home pay, usually excites even the most industrious and sober of managers, professionals and working people. The millennial generation, in particular, is likely to price its freedom at a higher rate than earlier generations.

Patient Capital

There is something unreal about the way in which finance has evolved, dematerialized and detached itself from ordinary business and everyday life”

John Kay

The extraordinary growth of the finance sector since deregulation – what John Kay has called the “financialisation” of the modern economy – has contributed remarkably little to the creation of new wealth; rather, it has discovered ingenious ways of expropriating the wealth created elsewhere in the economy and rewarded itself handsomely for doing so.

Once upon a time, or so our memory tells us, the investment landscape was peopled by a rather small number of prominent fund managers looking after a rather selective share portfolio on behalf of a rather larger number of influential private investors. The investment chain was much shorter. The fetish for index-tracking or index-hugging had not yet been adopted and the fashion for hedge funds making ultra high-frequency trades had not yet been invented.

Most observers of the world of business and finance – and indeed many who earn their living in this world – have long had concerns about short-term decision-making – and the perverse incentives that seem to reward this behaviour. Particularly since the crash of 2008, there have been innumerable recommendations for how to reverse the seemingly remorseless move away from long-term considerations in equity markets.

The response by US authorities to the 2008 crash was to invent ever more voluminous and intricate regulations, such as Dodd-Frank. John Kay believes that this is precisely the wrong response. “There has not been too little regulation, but far too much … we should put an end to the seemingly endless proliferation of complex rule books.”

Nor can we count on virtue. In the last few years, we have learned that any change in behaviour that relies upon good faith, noble declarations, “social responsibility”, value statements, well-meaning compacts and commitments, what Private Eye used to call “Solomon Binding”, is likely to fall foul of the epithet that “the road to hell is paved with good intentions.” Something much tougher is needed.

In Britain, the emphasis has been squarely on the reversal of financialisation. The Kay Report made four significant recommendations: release companies from the obligation to report their quarterly financial performance; replace this custom with a “stewardship code” and make asset managers who are responsible for other people’s money personally (not corporately) subject to civil and criminal penalties; ban all short-term cash bonuses to executives; and encourage greater communication between shareholders and companies. On all these fronts, progress is being made.

However, there is one area where the pace of change needs to quicken.

It starts with the distinction between “investors” and “traders” – between those who buy shares on the basis of their understanding of the fundamental value of the company and those who buy on the basis of their expectations of short-term fluctuations in the share price. This distinction is not always clean-cut if only because some trading is necessary if liquidity is to be made available to investors. But the argument remains: the sheer volume of trading that we witness in today’s capital markets is far in excess of this requirement.

A dramatic change in the incentive environment is needed if short-termism is to be reversed. How about firms offering different classes of shares with different degrees of power, such that voting rights are related not to how many shares you own but to how long you have held them? When buying the “more powerful” class of shares, for example, shareholders would register the length of the time they intend to hold them: the longer the time, the greater the number of votes. If the shares were later sold “prematurely”, then there would be a financial penalty. One of the beneficial outcomes of such an arrangement would be that decisions about acquisitions and mergers – which are currently a major source of short-term bias – would be mainly in the hands of the more committed shareholders.

The limited liability company was originally a noble idea designed to give protection to shareholders who, as residual claimants, were more vulnerable to the failure of the firm than other stakeholders, such as creditors, employees and customers, whose claims were contractually prioritized. The balance has now swung decisively the other way. Such is the pressure on Boards of Directors to maximise shareholder value that other stakeholders, particularly future shareholders, are losing out. Colin Mayer has argued convincingly that, as a result, companies are seriously failing society by engaging in unjust forms of inter-generational wealth transfer.

The Post-Employment Enterprise

Smart young things joining the workforce soon discover that, although they have been selected for their intelligence, they are not expected to use it”

André Spicer

In 30 years time, we will look back on employment habits and customs as the last vestige of a kind of feudalism in the workplace. This is not to suggest that today’s employees can be compared to serfs but simply to bemoan the cynical and dispiriting assumptions about human nature that underpin so many workplace practices.

No one who expects to live to 100 – as do most of those coming into the workforce – is going to put their faith in a 70-year career, let alone a single employer. Those who are imaginative, energetic, optimistic, or adventurous will want to create for themselves some form of independence and self-responsibility by the age of 45. (Indeed, firms such as Uber and Airbnb, are capitalizing on this very trend.) But understandably most young recruits into business will still expect – and need – an “apprenticeship” in business acumen before they go it alone and found their own start-up. The firm’s role will be to act as a kind of incubator in which employees in their 20s and 30s acquire the skills and confidence to design successful new ventures

It will be a rare employee who wishes to remain within the firm after, say, the age of 50. A society of free citizens will gradually come to be interpreted as a network of entrepreneurs, co-owning with friends and colleagues their own businesses and taking responsibility for creating jobs for those younger than themselves rather than occupying them. Firms will increasingly treat their employees less as loyal citizens over the course of their career and more as potential entrepreneurs whose businesses they help nurture and in which they invest capital.

All employees will, effectively, have two jobs: the “day job” delivering value to the core business and the “development job” preparing to launch their own new venture. These activities will be intimately linked. The day job will offer the experience from which the employee learns about business: how customers are won, how leadership works, how humans are motivated, and how wealth is created. The development job will translate these emerging skills into nascent businesses.

Let us illustrate the argument with some numbers. A firm of 10,000 employees will typically contain 2,000 in their 40s, an age that is ripe for the adventure of entrepreneurial innovation. Let’s say that half of them – or 1,000 – are up for this. And let’s also assume they have come together in teams averaging 5 members around a strong idea for a start-up. So the firm has the opportunity to invest in 200 new businesses every decade. Let’s say half of them survive and grow. In other words, every year the firm is investing in 10 spun-off organisations, each led by 5 of its former employees.

My prediction would be that within 10 years the aggregate market value of these new ventures would be greater than that of the parent company that spun them off. This is the reward for moving the company from being a place to build a career to becoming a place to invent a business. We could name this new form of company “a venturesome enterprise”.

The evidence for the viability of this model is growing all the time. It is well documented, for example, that the new ventures founded by Hewlett-Packard “alumni” since 1990 are now more valuable than Hewlett-Packard itself. The tragedy for HP, of course, is that it didn’t foresee this turn of events and therefore didn’t invest in these businesses.

Why do so many people need to be employed? Why do so few want to do the employing? We educate the young principally to find employment. Very few schools and very few teachers see the purpose of education as creating jobs rather than simply filling them. We look to others to provide work for us. We should not be surprised if there are people eager to fulfill this role, but we should be wary of becoming the followers of those who aspire to lead.

This is the real inequality in society: the disparity between those exercising power and those submitting to it. Disparities of wealth are innocuous by comparison with disparities of power and influence. Yet most of us aid and abet these disparities by choosing employment over self-employment. The economic health and vitality of a society can be measured by the proportion of people who resist the lure of employment and choose instead to manage their own working lives. To be employed at a young age is fine so long as its purpose is to grow out of the need for it. Rather in the way that parents bring up their children to grow out of childhood and to become adults, so employment should develop young adults to move beyond dependency into self-reliance.

Concluding Remarks

Stop the world, I want to get off”

The conditions that Daniel Berlyne, the cognitive psychologist, discovered to be the ones most conductive to creativity are what called the “collative variables”, such as uncertainty, novelty, surprise, complexity, incongruity and absurdity.

The oft-repeated platitude that “business hates uncertainty” is not only a serious misconception of the role of business but also a slur on business and on the creativity of business people. Good businesses thrive on unpredictability. Indeed, markets reward those firms that detect opportunities in ambiguity and complexity that other, less creative firms don’t. If the future were predictable, entrepreneurs would not exist.

Consider the following analogy: just as it makes no sense to say that you are “in heavy traffic” when the reality is that you are yourself the traffic about which you are complaining, so it is equally nonsensical to describe business as having to accommodate – or respond to – “a VUCA world”, as though volatility, uncertainty, complexity and ambiguity were an unwelcome visitation rather than the natural and perennial ambience of business activity itself.

Volatility is what business is about. Indeed, most of the VUCA we experience in the world is the direct and intended product of business, particularly the globalization of the world for which business bears the primary responsibility. Trade has always had the effect of unsettling societies and disturbing the habits to which they have become accustomed. Business is intrinsically restless. Arguably, it has been the greatest disturbance factor in history. Hayek believed that the first moneylender was unknowingly the inventor of the modern world.

Gifted businessmen like nothing more than the uncertainty out of which innovative strategies are crafted. Most competitive advantages, most entrepreneurial breakthroughs and most sources of wealth creation arise from different interpretations by different people of the same data. The market itself is a filtering device for removing businesses that are fearful of the VUCA world or do not have the wit and energy to discover in the chaos the opportunities for disruptive innovation.

FUTURE 3

In appreciation and posted by:

Trevor Lee

http://www.ceo-worldwide.com

http://www.ep-i.net

@trevorblee

Executive Search & Interim Management since 2001
Connecting you with the best certified executive talent on the planet

 

References

Daron Acemoglu and James Robinson, Why Nations Fail: The Origins of Power, Prosperity and Poverty (London: Profile Books, 2013).

Mats Alvesson and André Spicer, The Stupidity Paradox: The Power and Pitfalls of Functional Stupidity at Work (London: Profile Books, 2016).

D. E. Berlyne, Conflict, Arousal and Curiosity (New York: McGraw-Hill, 1960).

Guy Claxton, Wise Up: The Challenge of Lifelong Learning (London and New York: Bloomsbury, 1999).

Jules Goddard and Tony Eccles, Uncommon Sense, Common Nonsense: Why Some Organisations Consistently Outperform Others (London, Profile Books, 2013).

Daniel S. Hamermesh and Elena Stancanelli, “Long Workweeks and Strange Hours,ILR Review, Cornell University, vol. 68(5).

Charles Handy, The Second Curve: Thoughts on Reinventing Society (London: Random House UK, 2016).

John Kay, “The Kay Review of UK Equity Markets and Long-Term Decision Making”, Department for Business, Innovation and Skills (2014).

John Kay, Other People’s Money: Masters of the Universe or Servants of the People? (London: Profile Books, 2015).

Colin Mayer, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It (Oxford: Oxford University Press, 2013).