economic

Leadership in a Post-Capitalist (???) World

/ futuristpaul (Paul Higgins) / Leave a comment

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.

 

The Proposition

 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:

music sales 1998 from Vox

 

music sales 2013 from Vox

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

streaming music from business insider and statista

all of this has resulted in the following revenue changes (via Benedict Evans)

global music recorded revenues from IFPI 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.

 

 

 

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:

Situational awareness

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.

 

 

Scepticism

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.

 

Paul Higgins

 

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?

 

Councils and Foresight – Critical Differences

/ futuristpaul (Paul Higgins) / 1 Comment

Since I published my Councils and Foresight post last week I have had some comments and questions via social media about the key differences between Councils and Commercial Organisations in particular and what they mean in terms of different approaches to foresight. Along with those questions three comments that were made last week during our foresight session at the VLGA Mayoral Leadership Conference have stuck in my head:

  1. I demonstrated our quick and dirty scenario approach prefaced with the statement that it was useful when you had a spare ten minutes. One Mayor talked to me afterwards and said she would love a spare ten minutes for anything. That is a major concern, No time for strategic thinking.
  2. Two mayors talked to me about reading 300 page briefing reports for council meetings, which ties in with the problem in point 1.
  3. One Mayor talked about the glacial pace of change in councils, which I am sure is true in most people’s experience.

These comments tie in with the different approaches that need to be taken with foresight issues in councils and they relate to the structural issues of how councils operate:

  • Firstly compared to commercial entities councils do not have the luxury of appointing a skills based board (council) based on getting a diverse range of expertise and perspectives. Having said that many commercial boards do not do that well either but at least they have the capacity to do so.
  • Secondly many councillors commonly come to council without a deep understanding of the detailed operations of council or in the management of large organisations while in many cases commercial boards are selected on that basis.
  • Thirdly councils are far more tied into, and exposed to the needs and views of their community while large commercial entities in particular are generally distant from their smaller shareholders. There are pluses and minuses to either situation but there is nothing like being confronted down the street, in the pub, or at the local footy club to bring home the reality of what you are trying to do.
  • Fourthly commercial entities are able to make faster decisions and have a much clearer measurement of success in terms of profit and loss, balance sheets, and share prices, albeit allowing for the weaknesses of some of those approaches.

So in terms of foresight and thinking of the future I think that councillors need to:

1/ Work much harder at bringing a diverse range of perspectives into the foresight and strategy processes of council, and ensure they are not the same old faces. This compensates for the lack of capacity to have a planned diverse council.

2/ Let go of the need to get across of all the detail and concentrate far more on critical thinking and questioning skills. Having been involved in representational agripolitics and party politics I realise that this is a lot easier said than done. Voters expect you to be across all the detail but if you spend all your time reading 300 page briefing papers you will have no time for thinking strategically. Councillors need to allow council officers to do the detailed work but have the capacity to clinically question what is put before them or develop alternative strategy, not try and do the operating job.

3/ Concentrate on areas where there is going to be faster than glacial movement. In areas of the economy that have been disrupted recently the key  has been a strong and direct link between the producer of products and services and the customer. Think books, music, airline travel, etc. In council affairs this relationship is sometimes more diffuse. The key area of direct contact and pressure is either funding by government or rates. In this efficiency and effectiveness of council service provision are critical. My view is that critical areas to be looking at here are:

  • The development of artificial intelligence systems and robotics. MTR in Hong Kong is already using an AI Boss to supervise and schedule its repairs and maintenance system.. X.ai is supplying an AI as a personal assistant which I have had personal experience with, and it already works well. There are going to be huge opportunities for reducing costs and improving the effectiveness of council service sin the next 5-10 years.
  • Crowd funding as a mechanism to test the real desire of people to get various things done in their community, perhaps by providing matching funding for projects. This has to be carefully managed as it raises the value of the voice of people who have money versus those that do not.
  • The rise of social enterprise were world class business operations also have a social purpose. The Bendigo Community Bank is an example of this where 50% of the profits are returned directly to the community in which the bank operates but there is likely to be big developments in this area.

4/ Concentrate on longer term issues and start the discussions well ahead of time. If pace of change is going to be slow then we need to engage the community in longer term discussions on what change looks like. Examples include:

  • Driverless cars are likely to be adopted in a significant way in the future. The time frame of that wholesale adoption is likely to be 10-20 years away (see post : Implementation of Driverless Cars – A case for public subsidy of private transport systems) but will have significant impacts on requirements for parking, public transport systems, road planning, work/living relationships (changing value of certain suburbs versus others). Council needs to be thinking about these issues well ahead of the adoption curve.
  • The future of local democracy. What does that look like in a networked world, tied in with crowd funding systems, electronic voting systems, virtual reality , etc.
  • The possible havoc that improvements in artificial intelligence and robotics might wreak on employment and what it means to the local economy and job market.

The pace of change is likely to accelerate. Councillors need to step back and see where their limited time can be used to create most value in that future.

Paul Higgins

The Looming Crisis for Crowdfunding – Why it is a Good Thing

/ futuristpaul (Paul Higgins) / 2 Comments

Crowdfunding, where you put up an idea for a project and ask people from all over the world to back it with a pledge from their credit card is all the rage at the moment but it will experience a disaster in the near future. That disaster will not kill the value of the system but it will cause a re-organisation and re-evaluation of value.

As an example of the system I have backed a crowd funded project here in Melbourne for the Scanbox (http://www.kickstarter.com/projects/limemouse/scanbox-turn-your-smartphone-into-a-portable-scann) which is a portable box that folds down flat when you travel and stands up with small magnets when you set it up. You can place your phone on the top and it acts as a stable platform for taking photographs of receipts and documents up to A4 size. While you can already do that with your phone in your hands the photos can tend to be a bit blurred which causes problems with optical recognition systems and search. The project was designed by Lime Mouse (http://www.limemouse.com/) an app developer in Melbourne. They asked for $12,500 but raised $189,499. I have been giving Scanboxes away in my conference presentations and workshops for the last 6 weeks or so as a “prize from the future” and they have been so popular that I had to increase my level of backing to give more away.

In practice what happens is that people back a particular project and receive a reward related to the level of funding they have committed. This reward may be in product in the case of a music album or a new product, or it may be in recognition for community or environmental projects. This means that beyond raising money it is a great system for testing markets and support for ideas. If lots and lots of people love your idea and commit to taking product from you then you have tested the market in the best possible way – actual buying commitment rather than focus groups and market research questions.

Until recently you could not raise share capital on these systems here in Australia you can in Europe and the recent JOBS act in the USA is allowing that to occur in limited and controlled ways and that change is likely to spread. The system is going mainstream with the Australia Council for the Arts running a crowdfunding road show in July and August to show people how to use the system. (http://www.australiacouncil.gov.au/events/2012/crowdfunding-seminars)

There has been huge growth in the last 6 months alone. I presented on crowdfunding as an option for the Daimler Financial Services Asia Pacific leadership team for financing car sharing systems in February. At that time the largest crowdfunding site in the world Kickstarter had not had a single project that had raised $1 million. By the middle of June there were 7 projects that had raised over $1 million, including musician Amanda Palmer who raised $1,192,793 for a new album, book and music tour, and Pebble which raised $10,266,845 for an e-paper watch that connects to your smartphone. The Economist reported in June that research firm Massolution was forecasting US$2.8 billion will be raised this year compared to US$530 million in 2009 (see chart).

 

 

Via: http://www.economist.com/node/21556973

In addition to market testing and fundraising the crowdfunding system is also changing the way that business models work. It is allowing musicians like Amanda Palmer to go their own way, outside of the standard music industry structures. Other musicians are using it to plan tours by committing to go to places that promoters would otherwise not even look at. In the future I can see venture capital firms that have high levels of trust and high profiles allowing their initial backing of projects and companies to then be used to influence people to back that company. That would increase the power of the entrepreneurs along with the influence of the best venture capitalists.

But there is a dark cloud among all this silver lining. There will almost certainly be a major financial or project scandal on one of the major crowdfunding sites in the near future. Those of you who have read my other articles will know that I don’t really believe in forecasting, so you may be asking yourself why I am making this prediction. The reason is the only sure fire way I know how to predict things is by looking at long standing human behaviour. If you had asked me 20 years ago what would dominate large sections of the internet I would have responded with gossip, gambling, pornography, and crime because humans have been carrying out those activities for thousands of years and would continue to do so on a new platform. People have been having wild and crazy ideas and scamming people for thousands of years, therefore it is highly likely to happen in a crowdfunding situation. What will happen is that an idea that is being promoted will not come into reality and therefore people will not receive the product they were promised, or someone will run off with a bucket load of money. That will generate huge publicity.

That disaster will re-shape how crowdfunding works with trust being a key determinant of success. The perceived increase in levels of risk will mean that funding will flow more towards those people with a strong track record, or with some sort of other validation from a trusted individual or organisation who would not risk their reputation or brand in a problematic venture. Over time this will strengthen crowd funding, and personally I would like to put my trust and money in the hands of an open and transparent system like crowdfunding than in the hands of bankers and traders given their track record in the last few years.