Top tips for the digital world! from Andrew Grill*


1. Learn a new language.  

“To get digital, you have to be digital. Instead of learning Spanish, learn the “language of digital”. If the terms Internet of Things, Blockchain, Cognitive or Cloud leave you scratching your head, research these technologies and understand how they can impact and enhance your company and industry.

2. Walk a digital mile in your competitor’s shoes. 

Alan Mulally (former Ford CEO) was once asked what car he drove. His response: “I make a point to drive a different vehicle every day, including the competition, so I understand the customer’s view”.

You need to do the same! Interact with a competitor via digital channels, then you will see what your competitors are doing and how you compare from a digital standpoint.

3. Look at the composition of your board. Do you have Digital Diversity?

To benefit from digital disruption, you need a board that can see things through a digital lens. So, rotate people on your board with those that have a deep grasp of the digital scene. If the board isn’t ready to be disrupted, put together a digital advisory board to play the role of Digital Non-Exec Director until you are truly ready to shake things up.

4. Increase your intake of news items and topics related to digital transformation from outside your industry. 

How do I learn about the latest happenings in the digital world? Not from my own industry, but from others! Use Twitter and LinkedIn to scan other industry discussions on digital disruption. The paid version of Pocket, also suggests relevant articles, which has been a great way to keep up with the deluge of digital thought leadership and debate produced daily.

*Andrew is Global Managing Partner at IBM, Practical Futurist, TEDx & Keynote Speaker, Board Advisor

DIGITAL AGE

 

via Trevor Lee

http://www.ep-i.net

@trevorblee

http://www.ceo-worldwide.com

 

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FAILURE! Pause for Thought.


The success rate of business mergers comes in a distant second to that of marriages. Bain & Company (2004) put the U.S. failure rate at 70%, defined in terms of failure to increase shareholder value. Hay Group and the Sorbonne (2009) found that more than 90% of mergers in Europe fail to achieve their financial goals.

FAILURE 3

 

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

Set Clear Ground Rules for Your Virtual Team


All workplaces need ground rules, but they’re particularly important for remote work.

When a team is spread out among branch offices, coffee shops, and hotel lobbies, people may have wildly different ideas about what’s expected of them.

Make clear what kind of latitude and independence team members can expect, what resources will be available to them, and how much team members will be expected to travel.

If people work in different time zones, it’s critical to set ground rules around working hours, too. Managers should think about these questions:

  • What times of day are team members expected to be available?

  • How will you schedule meetings to accommodate each person?

  • What should people do if they find their responsibilities require them to work overtime or outside their scheduled hours?.

Giving the team this kind of guidance up front will help them work more effectively.

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

 

No more Command and Control. Please!


growth-1

In order to power growth you should aim for an adaptive and empowered organization, that:

  • Responds rapidly to threats and opportunities.

  • Adaptive organizations operate with speed and simplicity by giving managers the scope to act immediately and decisively within clear values and strategic boundaries. Making strategy an open, continuous and adaptive process is the key. It enables the firm to react to emerging threats and opportunities as they arise rather than being constrained by a fixed and outdated plan.

  • Attracts and keeps the best people.

  • It is no coincidence that Adaptive Organizations such as Google, Handelsbanken and W.L. Gore regularly appear in the lists of “best companies to work for”. The reasons are obvious. From the employee perspective, talented people want to learn and develop; they value time to think, reflect and try new ideas; they want decision-making responsibility and they want a friendly, collegiate culture. From the employer perspective, they want people who have the right attitude, have ideas and can add value, want to participate in decision-making, are good team players and have the talent to become leaders at any level.

  • Enables and encourages continuous innovation.

  • Innovation is about thinking and acting differently whether it is about strategies, business models, processes, or management practices. In adaptive organizations, people work within an open and self-questioning environment. Clear governance principles set the right climate and builds the mutual trust needed to share knowledge and best practices. This is also encouraged by the move away from individual rewards based on budgets and toward team rewards based on business unit or group performance.

  • Drives operational excellence.

  • Adaptive organizations have lower costs. Not only do they connect the work that people do with customer needs, but they also align products, processes, projects, and structures with their strategy. Operating managers also challenge resources used rather than seeing them as ‘entitlements’. Just asking the question, “Does it add value to the customer?” is often sufficient to ensure that unnecessary work is eliminated.

  • Leads to loyal and profitable customers.

  • Adaptive organizations know how customers want to conduct business with them. Key issues are whether customers just want the lowest-cost transaction, added-value services, or customized solutions. Under this “outside-in” approach, firms know how to satisfy customers’ needs profitably. This means not only knowing their needs, but also their net profitability.

  • Support good governance and ethical behaviour.

  • Adaptive organizations are held together by strong values and inviolate principles. However, it is not a soft option. It exposes nonperformers. It challenges people all the time. You cannot just agree on a number. You have to show people that you can actually achieve real performance improvements, and must always be prepared to be judged against others with similar problems and opportunities.

  • Leads to sustained value creation.

  • Leaders in Adaptive organizations focus their attention (either explicitly or implicitly) on creating wealth over the longer term. In particular, they focus on setting high performance expectations and stretching people’s ambitions. Those companies that operate this way tend to beat the competition not just this quarter or this year but year after year.

Clearly adapting in these ways the organisation that will emerge will replace the 20th century industrial age command and control management model that is no longer ‘fit for purpose’.

A viable alternative* that will provide a sustainable basis for high performance.

*BBRT.ORG will assist you on this journey as it has done alongside so many leading organisations (see website)

Trevor Lee

tblee@ceo-worldwide.com

http://www.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.

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Trevor Lee

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