HYPING AS A PROFESSION
It’s exhausting, it makes me sarcastic to read yet another article, published by one of the self-proclaimed canon makers on disruptive technology and the adherent transformation. In fact, it is exhausting to read ‘flashy opinions’, accepted in newspaper and on sites simply because of their sensational content (Revolution!!! The corporate world as known will end soon!!), not because of their intrinsic quality (scientific approach, figures, research, interesting anecdotes, positioned in a nuanced context):
“We ain’t see nothing yet”, “Politicians are morons, they don’t understand anything”, “Dinosaur corporations will disappear if they don’t try to understand the startup paradigm”, “Change is going faster and faster”, “The young blokes will eat you”, “Industrial revolution 5.0, disruptive 6.0, digitization 7.0”.
“Simply stop reading those publications”. Thanks for the advice: but by doing that, I ‘ll probably also miss interesting, balanced viewpoints. Allegedly, I’ll have to bear the charge of 20.000 words of rubbish to discover 1.000 words of value. Mining for the diamonds …
RESEARCH
Well now then, almost 2 years old, the article I would like to put in the picture, but more relevant than ever before: the “Big Meh” by Paul Krugman in May 2015 in the New York Times (Krugman, Nobel prize winner 2008). Let me summarize it for you (but I advise to read the article) by quoting a phrase: “A growing number of economists, looking at the data on productivity and incomes, are wondering if the technological revolution has been greatly overhyped”. A confirmation of what Eric Brynjolfsson (MIT Sloan School of Management) published, already in 1993‘The Productivity Paradox of Information Technology”. As a good researcher, he did put quite some nuances in the debate, expressed by 4 hypotheses:
- Measurement error: Outputs and inputs of information-using industries are no being properly measures by conventional approaches.
- Lags: Time lags in the pay-offs to IT make analysis of current costs versus current benefits misleading
- Redistribution: Information technology is especially likely to be used in redistributive activities among firms, making it privately beneficial without adding to total output
- Mismanagement: The lack of explicit measures of the value of information make it particularly vulnerable to misallocation and overconsumption by managers.
Nowadays, more than 20 years after publication of the 4 hypotheses, Krugman emphasizes in his writing that the productivity paradox still is alive and kicking. That kills hypothesis 2.
The number 3 is a confirmation of the idea that the technology does not impact macroeconomics in a significant way. That leaves us with the number 1 and the number 4.
Hypothesis number 1 is in a way confirmed by another article “The Solow productivity paradox in historical perspective”, by Nicolas Crafts (London School of Economics), dated November 2001. Crafts compares the contribution to growth of steam in Britain (1780-1860), electricity in the US (1899-1929) and information and communication in the US (1974-2000) with a new methodology. The results suggest that the contribution of ICT was already relatively large before 1995. It’s a question of the proper measurement, the right definitions of parameters. This goes against the viewpoint of Krugman, but anticipated by Brynjolfsson with hypothesis 1. It makes the discussion interesting again.
WHAT COMPANIES SHOULD DO
That leaves us with the remaining hypothesis 4, the way I translate it: mismanagement because of insufficient insight in the return of investments in information technology. And that’s exactly my point, drowning in a (predominantly digital) pile of publications on all kind of hypes that will change our corporate lives, the key question is how to survive the competition, to stay relevant. By avoiding underinvestment in technology at the one hand, but also by avoiding investments in hypes on the other extreme! How can management and Board attack this challenge? A concise reflection, relying on the 3 levels of what I call the organization stack of 3 layers (governance, management, execution):
- The governance is the playing field of Board and Executive Committee. In close collaboration, they set the strategic guidelines. On the strategic level, one should not focus on technology, but keep a very close, sensitive eye on the marketing mix (the 4 P’s). Airbnb is competing hotels, by lower costs (price) and the shift towards C2C in more general: economies of scale thanks to technology, huge source of information thanks to the technology (and via the facebook API a source for Big Data approach), global reach thanks to the technology. Summarizing, the executive committee of a hotel group (B2C) does see impact on their P of price (less costs), the P of Promotion (customer service through feedback loops, insight in the customer profile through big data), the P of Place (distribution) through the global reach via the web and the P of Product by customized offerings to the end client (what kind of premise, atmosphere, environment do you like the most). AirBNB as an internet based company has a complete different cost structure, dramatically reducing the variable costs associated with an operation, compared to hotels. A similar analysis can be made of Uber or any other so-called disruptor. Core message here is that the Board and management have to watch their marketing mix and underlying operations. Technology is just an enabler.
- On a management level, the executive committee has to focus on the execution of the strategy. I refer to another article of mine, called “It’s the execution stupid”. The number of AIRbnbs or Ubers is very limited. Don’t stare in the emptiness of a desert , looking for a mirage that even does not exist. Innovation is not about big leaps killing competition. Innovation, is most often about progress, step by step, realized by hard work, sufficient to stay ahead of the bigger part of competition. But innovation is also about putting the ideas of the management in practice, the execution of the strategy. Still, quite too often, daily sorrows are hindering the elaboration and deployment of great ideas, innovations to improve processes, technology or the products or services delivered. At that moment, besides the innovation, the pace of effective change a company can absorb is the competitive advantage.
- On the execution level, figures are key. Measuring, even what hardly can be measured (for the time being). This seems directly related to the fourth hypothesis of Brynjolfsson, ‘mismanagement’. Every company is investing in technology, Enough? Too much? Who can tell? A simple question will put this in perspective. Regarding all discretionary investments in projects or programs (changing processes and/or technology, merging, integrating, carving out, joining, setting up, rationalizing etcetera), which company has a clue of the real return? And this is not about the ex ante business case. This is about the assurance that the return strived for through a risky investment and hopefully documented according to financial orthodoxy, is realized (how much projects fail or don’t deliver). Which company can state managing closely the benefits sought after by investments? Are you sure the return is sufficient to justify the risky investment? Does the shareholder not better consider alternative investments, with a lower risk profile and a higher return? Maybe outside the company?!
This is third level the executive committee should pay attention to instead of jumping up and down because of a flashy presentation on an immature technology: benefit realization as part of the operational responsibilities.
CONCLUSION
Balance, that’s our advice. Balance between the eye on technology and the focus on organization, on management, on structure, formalism and financial orthodoxy. Balance between the future (uncertain) and the current situation (certain), balance between excitement (which is emotional) and rational financial management.
Enjoy the guru shows, then reflect, then step back into reality. Discuss the future, but never forget the bill that has to be paid tomorrow.
And all that in 2 directions: a balance between the daily fire fighting and the need for long term initiatives, preparing the future, balance between serving the client tomorrow and operating in the market next year!