On Wednesday night I gave the opening address at Leadership Victoria on this topic. The audience was a group of 60 leaders across a range of organisations in Victoria. The question focused around some articles from Steve Denning, Jeremy Rifkin, and Paul Mason (see links at the end of this post). My purpose was to frame the rest of the discussion for the night, and highlight some possibilities about key leadership skills for the future.
As the background articles are now 2-3 years old it is an ideal time look at what has happened in the interim. The thrust of Paul Mason’s writing was that new tools were in the early stages of ushering in a new economic system. These changes included collaborative production, reducing information scarcity, and automation of work . Steven Denning was more circumspect about what was happening. While in broad agreement with some of the principles Paul was espousing, he had differing views on their effects and implications. Denning believed that it was a new era of capitalism rather than post capitalism. Jeremy Rifkin examined the implications of areas of the economy where the marginal cost of production is almost zero. In doing so he was more in agreement with Denning than Mason, while arguing that the collaborative commons was having a significant effect.
To clearly show my biases before I argued my proposition I put up the following quote from Amory Lovins:
“The markets make a good servant, but a bad master, and a worse religion”
because while it would appear I am arguing for hyper-competition, the outcomes need to be focused on how the system benefits the general population in our societies.
I began my presentation, as is my wont, by arguing against the proposition of the title of the session. My view is that we are not entering a post capitalist world, but rather a real capitalist world. The technologies discussed in the articles are changing the way the world works. In doing so they are moving us towards real capitalism rather than the monopoly seeking, and rent seeking behaviours of the past. For the purposes of this discussion I defined real capitalism as:
“hyper-competition within the boundaries of a socio-regulatory system that steers the benefits to the general population rather than the few”
The reality is that true competition is hard, and so companies try to position themselves in protected positions . I have just been reading Kerry O’brien’s book on Paul Keating. In the chapter which deals with privatisation, Keating describes the Qantas and TAA privatisation process. Peter Abeles who was part owner and CEO of Ansett Transport Industries but also a good friend of Prime Minister Bob Hawke was deeply involved. According to Keating the privatisation discussions were frequently attended by Peter Abeles who was interested in keeping a cosy duopoly. Keating states that this was because although Abeles thought they could compete with a restructured and privatised government airline, it was better if they did not have to.
This was the main purpose of strategic frameworks such as Porter’s Five Forces: position yourself where you had a strong position relative to suppliers, existing competitors, customers, and new entrants. True competition, where there is a relentless focus on the customer, continual innovation, and where new entrants can appear from anywhere is a highly uncomfortable environment. Therefore, companies and people have to have true competition forced upon them. This is fair enough, you would be stupid to force additional competition upon yourself (in the short term). This is partly the role of government and society in terms of the rules and norms that govern how things should work. The new tools and capabilities that the articles described are contributing additional forces.
Part of the arguments of the authors of the background articles was that increasing connectivity, improved collaboration tools, and wider access to information was increasing the capacity of the smaller players to compete with the bigger players. My proposition is that is true, but that but power is again accruing to the larger players. The combination is creating a world of hyper-competition. Let’s look at what some of the evidence says:
In 2011 I presented to a number of tourism conferences about Airbnb. At that stage it had been running for 3 years. I was continually surprised at the lack of knowledge about it in the tourism industry. The promise of Airbnb is that individuals can gain value from their existing assets, increasing the power of the individual. Putting aside some of the more outrageous events in rented out properties Airbnb has mostly delivered on that promise.
Yet, in these sorts of large platform business models power naturally moves back to the centre. Once there are enough buyers and sellers on the platform, it is hard for others to compete with the model because of network effects. The sellers are in hyper-competition with all the other sellers, hence it is a good example of a hypercompetitive world. It is a large market with transparent pricing.
In the more egregious cases of platform models we are seeing big problems. Uber stands out as a major example. Uber has serious internal problems which I think stem from excessive power issues. There are also lots of stories of low paid drivers, and conflicts about their status as employees or contractors. There is definitely a power imbalance with power accruing to the centre of the network.
Now lets look at the music industry which really should be a poster child for the sorts of changes the authors were describing. We have seen increased capacity to create and distribute music from musicians to their audiences. We have also seen marginal costs approaching zero with the creation of digital media. So what has happened? The following pictures from Digital Music News via Vox show some of the changes:
Digital technologies have transformed the way music is sold and consumed. Now streaming services have changed that again, as shown by the following graphic from Business Insider
all of this has resulted in the following revenue changes (via Benedict Evans)
Buried in all this is the fact that Spotify is dominating the market for streaming services, with Apple a strong but distant second. Spotify’s revenue, according to Billboard is now over US$3 billion but it also lost US$581 million on those revenues. So again we are seeing power accruing to the big players and many complaints from artists.
Hunter S Thompson once said:
“The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.”
I am not sure much has changed.
We are also seeing other examples of power accruing to the big organisations:
- From 2001 to 2011 Walmart grew from 1.15million employees to 2.2 million employees.
- Amazon is showing huge growth, and is now sending shudders through the retail food industry with its acquisition Whole Foods.
- Google has published work showing that their huge data sets can significantly improve machine learning outcomes (AI AND ‘ENORMOUS DATA’ COULD MAKE TECH GIANTS HARDER TO TOPPLE).
- Benedict Evans has written on Winner take all effects in autonomous cars. While this is some time in the future I agree with a lot of his analysis and it means 2-3 large players in each market.
So my basic proposition is that:
- The tools and changes described by the authors are not taking us into a Post Capitalist world. They are taking us into a true capitalist world. hyper-competitive world.
- While small organisations and individuals now tools that make them more productive, and more able to connect to everyone else, power is still accruing to the large players.
- The combination of those changes mean a changed way of doing things but only inside a world of hyper-competition.
So within my view of the world what are some key skills that people need to be leaders? I have chose four skills, that is by no means comprehensive:
In a world where there are many more interconnected and moving parts, then we need better strategic understanding. What I mean by situational awareness is a detailed understanding of the various components of your sector or industry . It also encompasses a clear eyed view of where those components may be changing. Two of the models that we use for thinking about these things are Carlota Perez’s work on Technological Revolutions and Financial Capital, and Simon Wardley’s work on mapping.
Perez’s view is that there are clearly identifiable 50-60 year cycles of technological, financial and social change. Thinking about where we are in the current cycle can help us understand more about what strategic decisions we should be taking. These cycles run from technological revolution to a financial bubble, to collapse, to a golden age and then to political collapse. The five that she identifies are The Age of the Industrial Revolution, The Age of Steam and Railways, The Age of Steel and Electricity, The Age of Oil and Mass Production, and The Information Age.
Simon Wardley takes a more granular view while stil looking at cycles and movement. Simon posits that all technologies and practices move from their original genesis, then to custom built, then to product, and finally to utility or commodity. While this is a gross oversimplification of his work, understanding where each part of your value chain is is located within a map of this framework, and where it may be headed allows you to better understand where significant change may occur. He is writing a book on the subject and all the chapters are on Medium. I highly recommend you go read them.
I mean scepticism in its best possible meaning: questioning assumptions and evidence. This skill is vital when thinking about models. This is because all models are incomplete and inadequate representations of the real world . They are more useful when viewed with a sceptical eye. I can best express this in the statement:
Strong Views Weakly Held
For example if we look at Carlota Perez’s work it is clear that the cycles she has described are social constructs. Each occurred under a different set of political, technological and social systems. It is also clear that 4 or 5 cycles, even if taken as true, are not a clear body of evidence of some sort of immutable laws in human society over time. So use models, think deeply about them but always with a sceptical eye.
The capacity to deal with uncertainty
The reality of the modern world is high levels of uncertainty. In my work I experience clients seeking to find certainty in the midst of uncertainty. An example is people trying to create scenarios in spreadsheets with probabilities attached to them. These sorts of reductionist approaches reduce the capacity of organisations and individuals to take effective action. They create an inherent disconnect between the organisations’ strategy and the real world they operate in.
While the scepticism I have described above is to some extent focused on making sure that we don’t take models as gospel, the capacity to deal with uncertainty is somewhat different.
The critical leadership skill here is the balance between acknowledging and working with uncertainty, while instilling confidence, purpose, and direction in the people around you. Different people have different needs in this regard. Some people want to dive into the uncertainty. Others just want to get on with the job. In a previous session with a Leadership Victoria year group there was vigorous debate on this issue. The room split down the middle. Half the room believed that it was their job to deal with the uncertainty. The other half believed that exploring the uncertainty with their staff was a critical responsibility.
The capacity to coach and stimulate networks
Networks and collaboration are a reality now in many organisations. The day of the strong visionary leader is ending, and the ability to lead and stimulate networks is critical. This applies both inside organisations and in collaborations between organisations.
I finished my presentation by analysing my relative strengths in those skills. I am pretty good at the situational awareness, and scepticism skills. I am less able in the dealing with uncertainty area, although better at work than in my private life. I am poor to average in network leadership skills. My main reason for that assessment is that the world has changed enormously in the last fifteen years. In that time I have been focusedon foresight and situational awareness when working with clients. It is a long time since I led an organisation on a day to day basis and network leadership skills in particular need deep and continual practice. The same applies to situational awareness and scepticism but I have been practicing those.
Background reading links for the participants:
The end of capitalism has begun
The End of the Capitalist Era, and What Comes Next
Is Capitalism Ending?