Trade unions and the jobs free future

Image: Eight-hour day banner, Melbourne, 1856 (Wikimedia Commons / Creative Commons).
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Background to the jobs free future and trade unions

Recently I wrote about the jobs free future, where the traditional model of a job for life is dead and industries that were familiar employers during the twentieth century are significantly reducing their need for labour. The jobs free future represents a major structural change to the global economy.

Venture capitalist, Steve Schlafman noted in a recent post that we are seeing the Uberification of the US Service Economy, and the same is likely to occur in Australia. Australian industry is being hollowed out now, with new job losses announced regularly. In recent times we’ve seen the car industry in Australia close down, Qantas reduce local jobs further, BP close their Brisbane refinery, and CSIRO announce job cuts.

And, while Ross Gittins assures that all of these job losses do not mean that we’re all doomed, it does demonstrate the future trajectory of traditional work in this country. The future of low skilled and manual work is not promising, and the new jobs will likely be in services, skilled, and digital work. Callam Pickering reported, in relation to Reserve Bank Governor Glenn Stevens’ speech on Economic Conditions and Prospects, that:

“Our economy will lose some manufacturing jobs but we will gain jobs in mining and services, in health and professional services, and in industries that we do not currently understand or haven’t been invented yet.”

Source: Callam Pickering, Why she’ll be right in the long run

What is not made clear here is that the jobs of the future are not likely to be stable full time jobs. They are more likely to be portmanteau jobs, where lots of little jobs are undertaken. And life in the world of a task based worker is not an easy one, as recounted by Brad Stone in My Life as a Task Rabbit.

Nor can every worker from old industries be retrained and redeployed into the emerging industries, as Michael Bloomberg commented:

“You’re not going to teach a coal miner to code. Mark Zuckerberg says you teach them [people] to code and everything will be great. I don’t know how to break it to you . . . but no.”

Trade unions as businesses

In this context it is interesting to consider unions as a business. And, like most other businesses, unions face challenges from the jobs free future.

Trade unions have served their members (a.k.a. customers) well to date by providing collective bargaining in relation to workplace terms and conditions . During the past century or so Australian unions have lobbied to achieve key employment and workplace reforms, from which most Australians benefit today, including:

Basic WageAnnual LeaveAward wages
Penalty RatesMaternity leaveSuperannuation
Equal Pay for WomenHealth and Safety and Workers’ CompensationSick leave
Long service leaveRedundancy payMeal Breaks, rest breaks
Unfair Dismissal Protection[Source: Australian Unions]

The benefits of these reforms to workers are undeniable. However, they are predicated upon a world in which work is regular, predictable, and at least semi-permanent. The future of work is not like that; it is more likely to be disjointed, irregular, and impermanent for many workers. Further this model was predicated upon large employers of mass labour within an industry with which to bargain, and it was also reliant upon the notion that threats of labour withdrawal could force change. This is increasingly untrue, and employers have many options with which to respond to threats to withdraw labour.

The question is how unions will shift their business model to support customers who are not part of the regular routine world of work. What kind of collective model can support workers who move away from permanent or semi-permanent work within a single industry to task based and piece work across industry boundaries? And, what will this kind of shift mean for union funding models?

Further, how will unions manage in a world where the government is actively seeking to reduce union access to workplaces, remove the right to boycott, reduce or remove penalty rates and other conditions?

Core business

Historically, the funds held by unions are derived from a broad based union membership among the working population. However, the Australian unions have already experienced a substantial drop in membership over the past few decades, as noted by the Australian Bureau of Statistics (ABS) late in 2013:

“The proportion of employees who were trade union members in their main job has been steady at 18 per cent for the last three years, according to the Australian Bureau of Statistics (ABS). There were 1.8 million people in August 2012 who were trade union members in their main job.”

It is worth bearing in mind that the number of employed persons in Australia as at February 2014 was approximately 11 million. The following ABS chart from 2011 shows the problematic position of unions even before one considers the digital revolution and the jobs free future. Source(s): Employee Earnings, Benefits and Trade Union Membership, Australia

Further, the Brotherhood of St Laurence reports that youth unemployment is reaching a crisis point, with Tony Nicholson noting:

“What it means for all these young people is that they’re at risk of never being able to get a foothold in the world of work,” he said. “And in our modern economy that means that they’re really being sentenced to a lifetime of poverty.”

With a declining membership, and consequent reduction in funding, the unions were already facing an uncertain future. Now we can add to their woes the disappearance of traditional industries and jobs. This also means that unions face increased funding constraints for future business growth strategies. The real question for unions is can they survive as the jobs they seek to protect disappear in increasing numbers?

Governance and management

In addition to the decline in membership, trade unions face other challenges. For example, the recent and ongoing scandals of the Health Services Union (HSU) with Craig Thomson and Michael Williamson; and the Construction, Forestry, Mining and Energy Union (CFMEU) bribes scandal that is now widening to other building unions.

The Abbott government recently announced a  Royal Commission into trade union governance and corruption and this is likely to further destabilise public faith in the union movement and it close associate the ALP. The stories emerging to date have indicated substantial organisational, management, governance, and cultural issues within the union movement.

Some trade unionists are starting to ponder the future of their business, such as Dustin Halse in 2012: Is there a place for trade unions?

The Australian Council of Trade Unions (ACTU) has released a number of papers exploring the future of unions in Australia, for example,  Urgency & Opportunity: union membership trends and observations 2012.

The chief response seems to be an ACTU campaign called Secure Jobs, Better Future, which fails to address the structural causes of job ‘insecurity’.

“Secure Jobs. Better Future is a national campaign to improve the rights and working lives of the 40% of the Australian workforce employed in insecure work.”

Source: Secure jobs, Better Future campaign – ACTU

However, there appear to be few concrete proposals for halting the decline in union membership. Nor does their appear to be any notion of how to approach the looming structural shift due to the jobs free future.

The future

Considering unions as businesses, the issues they face include a declining customer base, declining revenue, lack of customer focus, and problematic external conditions. The lack of customer focus is especially problematic. It is always fatal for a business to lose sight of the customer. Rarely can a business recover easily from a loss of customer focus – just look at Qantas and its current junk bond status. Further, the governance and management issues that have already come to light in some unions are likely to be reinforced by additional information from the Royal Commission.

Some unions are already seeking to address the skills gap in their management teams by accessing the National Workforce Development Fund to provide management training to their staff, for example Certificate IV in Frontline Management.  However, unions were only required to educate their personnel on union governance practices commencing in 2013:

“Changes to the Fair Work (Registered Organisations) Amendment Act 2012 on Financial Governance required all union officers with financial decision-making responsibilities (including elected officials, finance staff and members of management committee) to do FWC Approved training within six months of June 29th, 2013. In some circumstances, Unions now have until mid-2014 to comply. “

This means that the unions are now working to professionalise their management and governance practice in a hostile environment. They are doing so while fighting a rearguard action with the Abbott government about working conditions (for example attempts to roll back penalty rates and conditions), and while a Royal Commission is investigating the union movement.

If ever there was a time that workers needed organisations to represent their interests, that time is now. As Halse notes:

“In a political economy governed increasingly by the market-oriented doctrine of neo-liberalism, trade unions should not so easily be dismissed.”

However, it is hard to see how unions will survive the combined onslaught of poor management and governance, declining membership, and the decline of key industries that they have relied upon for the past century.

If the unions are not up to the challenge, then how will we protect rights and working conditions from deteriorating? How will we ensure that people participating in new forms of work are not exploited?

These are very real challenges that the union movement must ponder. They must step away from their internecine struggles within the unions and the ALP factions to focus on their real business and their real customers. Otherwise the union movement will continue to dwindle into irrelevance, and workers will lose their hard won collective bargaining capability.

Perhaps Alex White is right to think that the real future of unions is crowdfunded and crowdsourced:

“…decentralised, leaderless, temporary movements, empowered by online organising platforms like MoveOn, Change.org, Avaaz, Twitter and Facebook.”

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What is the future of work? Zero hours, surveillance, robots and the jobs free future

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The future of work has been on my mind a lot over the past few years. It seems  that the future of jobs is bleak in a number of ways. For example, zero hours, surveillance, and robots are on the horizon for many workers. This is all part of what I’ve come to call the ‘jobs free future’.

This post about the future of work was originally inspired by Marissa Mayer’s pronouncement in early 2013 banning work from home at Yahoo!. The ever-present drives for efficiency and lower costs mean that businesses are changing the way we work, and they are also changing the way that we are contracted to work.

Digital Panopticon

Increasingly we live in a digital panopticon and technologies like CCTV, drones and the internet of things are emerging and merging to provide mechanisms for better and more omnipresent surveillance of  people in all aspects of their daily life. When we add this growth in surveillance to other factors, such as a shift  to lower economic growth rates and changes in the traditional twentieth century employment contract, for example the introduction of zero hours contracts, then things are really becoming quite different for workers.

Higher Skilled Jobs Disappearing

Headlines like “Cisco to cut 4,000 jobs” have become a regular sight and it is clear that it is no longer only low skilled or manufacturing jobs that are disappearing. The jobs that are going are increasingly higher skilled and middle class roles. Thus while “Robot Serves up 360 Hamburgers per Hour” is an example of the disappearance of low skilled jobs, we can also see automation impacting other industries. The young woman who used to hand back my dry cleaning is gone now, replaced by a large red machine that dispenses my laundry with nary a snide remark, and it gives a 20% discount too.

the future of workLaw is one good example of an industry that is beginning to be disrupted. The first phase is shipping expensive western jobs to lower cost geographic regions, thus legal process work is being outsourced to places like India or the Philippines. This is removing the entry level jobs that law school graduates once used to get a step up on the rungs of their new career. The next phase is automation of other legal processes within law offices, for instance adoption of legal decision support systems. Thus firms will require fewer more senior personnel and hardly any of the para-legal personnel they once required. All of this will be framed as ‘efficiency’ gains for the business. But what it really translates into is a substantial reduction workers required in the legal industry. A consistent pattern across all industries is the implementation of solutions that take human workers out of the business process and replace them with machines.

This automation trend started with the early days of computers and has gathered pace as artificial intelligence technology became a commodity and internet connectivity became ubiquitous. Typically, if a business cannot remove the human workers by means of technology, then they will shift the jobs to the lowest cost region. Thus, at best, we are seeing a downward pressure on wages and salaries, and at worst complete removal of jobs from the global economy.

Casualization of the Workforce

Many new businesses or startups rely upon outsourcing to reduce costs. This means that where once a new business would create a number of jobs at various levels they now use platforms like Air Tasker or Task Rabbit. With the adoption of these tactics by businesses there is increased casualization of the workforce. This casualization of the workforce removes the notion of job security that enables workers to plan effectively for their future by getting a mortgage or affording health insurance. Casualization of the workforce shifts the buying power of workers from the current pattern, where they are good risks for lending by banks due to their regular pay cheques, to poor risks. These shifts in spending power of the workforce will have impact on industries like retail and telecommunications.

In the US the Wall Street Journal (WSJ) reported that “A Jobless Recovery Is a Phony [sic] Recovery. More people have left the workforce than got a new job during the recovery—by a factor of nearly three”. Further WSJ noted that “Long-Term Jobless Left Out of the Recovery. Despite Improving Economy, Prospects Are Bleak for Millions of Unemployed”.

Real Jobs for Real People?

In Australia, according to the Australian Bureau of Statistics (ABS), there are approximately 140,000 job vacancies as at November 2013. And in December 2013 the ABS reported that unemployment increased to 716,000 while the unemployment rate remained steady at 5.8%. Given these numbers it is unlikely that getting the unemployed into education or training is going to help very much unless the job supply is increased substantially. Perhaps they can all become entrepreneurs and start micro-businesses?

If this is where Australia sits regarding unemployment when coming out of a mining boom, with a Triple A credit rating and having successfully negotiated the global financial crisis,  then is does not presage well for the future. The mining boom is winding down and jobs will disappear in that industry anyway due to automation (as reported by the University of Queensland).

Australia is on the cusp of a dilemma. We face an ageing population that is about to put substantial pressure on the welfare budget, reduced traditional employment opportunities for both low and higher skilled workers, and the end of a jobs-rich mining boom. Heavy industrial manufacturing is all but dead in Australia, and the car industry  is dying too. This is clearly demonstrated by the recent exit of Holden leaving Toyota as the last remaining Australian car manufacturer (and even Toyota is likely to exit the market over the next few years). Then there will likely follow the demise of car component manufacturing in Australia too, unless the component manufacturers can find other markets.

Traditionally construction and retail picked up the slack in the Australian economy during lulls in mining booms. However,  the continuing weak performance of Australian retail makes it an unlikely contender for jobs saviour.  And while we are seeing construction increase as the mining boom eases, neither industry is likely to have the capacity to fill the increasingly large gap between the number of available workers and suitable jobs. This issue is reflected by the markets in lower currency rates based on weak jobs data. And a lowering of the currency, while helpful for export driven sectors, reduces consumer purchasing power to support the retail and housing markets.

The Future of Work?

There are no obvious replacement industries to fill the gap left in the traditional jobs market in any of the western countries. We are facing enormous structural change,  and there is an emerging crisis. What is to be done about a post-jobs future? I wonder who in the Government and Opposition is thinking about these issues? It seems kind of important.

Disclosure: For a considerable part of my career I worked on large scale operational efficiency and innovation projects that removed workers from business processes and implemented process automation; where that was not possible work was typically outsourced to lower cost regions.

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Future of Banking

it's the future
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The future of banking is interesting to consider in the light of the digital revolution. Retail banking as we have known it stands at a crossroads, with new competitors and new technology driving change at an enormous pace. It is worth looking into the history and present of banking to ponder some possible futures for banking.

My first job was at Westpac in their Wales House building at 66 Pitt Street in Sydney. In those more genteel times we had a tea lady who brought around morning and afternoon tea along with iced vovo biscuits. The banks were open between 10 am and 3 pm Monday to Friday and customers deferentially doffed their hats to the powerful branch managers. There was little competition and folks tended to stay with one bank from cradle to grave. In those days banking had a both a physical presence and a deep connection to a local place that is lost now.

But now, as Brett King, the banking guru says

“… banking is no longer somewhere you go, but something you do…”

Now technology is driving consumer behaviour and expectations for all businesses, and banking is no different to any other industry.

Some of the key technology trends that are having a big impact on banking include:

  • Mobile
  • Ubiquitous wifi
  • Realtime
  • Personalisation
  • Peer-to-peer
  • App ecosystems

The other technology trend that is influencing consumer attitudes and behaviours is the broad ability to obtain digital access to media. Platforms like iTunes, Bit Torrent and on demand television are creating a culture that is unwilling to wait. We don’t wait long for music or books now with Amazon Kindle and iTunes.

We are seeing new behaviours from consumers. Applications like Facebook have trained ordinary people to collaborate and share online in realtime.

This shift in expectations means that consumers are ripe for disruption by new entrants that can adapt to these new expectations.

Due to these shifts in user expectations banks are being forced to move from “when we can” to “realtime” service and transactions.

Banks in Australia have dragged their feet on realtime interbank payments and settlements for years (killing off the Mambo project a few years ago).

Enormous growth in online retail commerce, mobile peer-to-peer payments and near-field chips that convert mobile phones into credit cards and digital wallets means that realtime processing is coming even if the industry doesn’t want it.

This means that we will see increased pressure on financial services organisations to deliver realtime services – this ups the ante on 24×7 operations for smaller players.

These trends towards realtime and mobile banking are made made possible by the vast penetration of smart phones and mobile devices in Australia, with penetration rates of almost  90% in 2013.

Reinforcing the technology trends is generations of people who have only been part of this highly inter-connected and realtime world. They do not recall a time before the device in your hand could access most human desires.

“We call them Generation C — connected, communicating, content-centric, computerized, community-oriented, always clicking. ”

New Entrants and Disruptors

The financial services world has not been subject to many new entrants and disruptors. This is mainly due to regulation and barriers to entry such as capital adequacy requirements. However, this is changing and technology enabled competitors are now entering the market. Some disruptors are not even financial services organisations. But their business models offer challenges to traditional ones.

  • Non bank organisations
  • Typically playing in NCP or peer-to-peer space
  • Front end intermediaries
  • Using technology to deliver customer service
  • Differentiating on service

Non-traditional competitors are emerging and they are bypassing traditional banking systems

The emergence of new entrants over the past 5-10 years has seen non-financial services organisations moving into offering financial services. We have seen retailers like Tesco, Walmart, Coles and Woolworths leveraging their existing distribution networks and strong retail brands to diversity into financial services. Some are white-labeling products, using companies like GE as their backends, and others are building their own.
non-bank-emerging-competitors

The other thing to note is that several new entrants are major technology organisations, like Apple, Google, and Facebook. They are focused on expanding monetisation opportunities into financial products.

A common way for these new entrants is to start with credit cards or other non-cash payment facilities and then extend into other products.

Distribution is key and new entrants either leverage existing relationship for distribution or use social platforms to grow distribution networks. Organisations with established relationships have an advantage over newcomers, yet we are seeing few of them leverage their advantage.

Key factors enabling disruptors

Agile methods
Nimble – no legacy systems to slow them down
Connecting users but using existing back-ends
Experimental – fail fast, then pivot

Opportunities

Adopt agile approaches – lean startup
Partner with organisations that have nimble technology
Ignore legacy technology – go around it
Develop digital partnerships
Don’t try to do it all
Focus on building foundations then expand

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How the internet of things changes everything

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The next generation of the internet is called the ‘internet of things’. Some people like to call it M2M or ‘machine to machine’ or ‘internet everywhere’. In any case it is here and it is about to shake things up.

The internet of things is where devices become connected and have embedded sensors that enable them to act and react in connected ways. It means that devices can talk to each other, can instruct and respond to each other in response to contextual stimuli. And by devices I mean any physical object that can have sensors and communications technology attached or embedded.

Objects are becoming embedded with sensors and gaining the ability to communicate. The resulting information networks promise to create new business models and disrupt existing business models.

The internet of things builds on the foundations of Web 2.0:

  1. Participation
  2. Standards
  3. Decentralization
  4. Openness
  5. Modularity
  6. User Control
  7. Identity

Source: Launching the Web 2.0 Framework, Ross Dawson, May 30, 2007

The technical plumbing that is needed to make the internet of things real is already in place: TCP/IP, wifi, Zigbee, Bluetooth, etc. Key factors are almost ubiquitous wireless internet connectivity and devices with connection capability. These are already in place across the world.

The other technology trend that is supporting the emergence of the internet of things is ‘big data’ and our enhanced ability to derive actionable insights from the collection and analysis of enormous amounts of data.

The convergence of big data and ubiquitously connected smart devices means that we can harness predictive capacity and enable things or objects to act in ways that are contextually relevant. It also means that we can finally start using this technology to market to an audience of one. That is, we can use technology to craft individually meaningful and relevant marketing messages and deliver them within a particular context to drive purchase behaviour for a particular individual. The entire marketing conversation can be automated and have human agency largely removed from it, while retaining human-like communication modes and styles of communication. It seems that Minority Report might not have gone far enough in conceptualising the future of marketing.

How big is the market opportunity from the internet of things?

There are many different estimates of the size of the internet of things market. One thing remains constant, business leaders who understand the concept are making big calls and are changing their business focus as a result. For example John Chambers from Cisco:

“The Internet of Things, I think will be the biggest leverage point for IT in the next 10 years, $14 trillion in profits from that one concept alone”
Cisco Chief Executive Officer John Chambers, AllThingsD D11 Conference May 2013
Source: Internet of Things Poses Big Questions, Ben Rooney, July 3, 2013

Where and how do the business opportunities arise?

The internet of things creates value that is not in the devices, rather it is in the new services that are related to the devices. Connected devices are transformed from a single purchase product into a service that generates recurring income.

A big part of the business opportunity is making it possible to bypass traditional aggregators of demand and access customers via peer-to-peer channels. Apps are key to this peer-to-peer landscape and they look to be an important multiplier in the growth of the internet of things marketplace.

“Between 2008 and 2017, Google Play and Apple’s App Store will be responsible for a mind- blowing number of mobile app downloads: 350 billion.”
Source: Decade of the 350 Billion App Downloads

New business models are emerging, and it is seems that open and collaborative models particularly lend themselves to this more interconnected landscape.

Some predictions:

  • Open models will rule the new landscape – organisations that try to control the entire vertically integrated supply chain will struggle unless they bring in partners to add diversity. A good example of this is Apple with their app store, which enables them to have a vertically integrated supply chain along with diversity via apps.
  • Collaboration and loose confederations – the barriers to entry that previously protected large players will begin to dissipate and provide opportunities for new entrants. Uber versus the taxi industry is a good example of this phenomenon.
  • Agile, change ready organisations will be best placed to adapt in this new highly connected world. Any organisation that needs two years to get a new product to market will be overtaken by those who can move faster. A good example of this is Nokia. Their new Lumia Windows phone is a great product that is two years too late to market. And the delay in getting to market means that they will need to find a niche to dominate rather than become a mass provider – perhaps they can dominate as a camera with connectivity rather than as a smartphone? Here Nokia’s decision to align themselves with the notoriously non-agile Microsoft Windows could be part of the problem.
  • Restructured supply chain – the internet of things offers enormous opportunities to restructure supply chains. Smart businesses will take advantage of this. In the 1990s ‘just in time’ inventory models revolutionised the cost base of doing business. The internet of things will provide similar opportunities.

What industries will be impacted?

All industries will be impacted but let’s examine the potential changes for a few that are interconnected:

  • Retail – already we are seeing shoppers use online and offline retail channels to find the best product for the best price. We can expect to see this intensify and put increased pressure on offline retail. Apparel shopping is one area that can expect disruption. Already shoppers are using terrestrial stores as places to check the fit of apparel items of interest, a practice known as ‘showrooming’. Some stores are fighting back by imposing a ‘trying on charge’ that is deducted if a purchase is made in store. But what if the in store retail experience became richer? What if the products started to sell themselves? What if the products knew that you were already wearing a particular brand and reached out to you and suggested complementary products? For example, a pair shoes could recognise that you are wearing a particular brand of jacket and offer you a special deal as a result. The convergence of ubiquitous connectivity, big data, and internet of things makes this scenario possible.
  • Transportation – We already have driverless transport with trains and Google is already showing us a glimpse of this future with their driverless car. But these new forms of transport require the development of new business models. For example, all that time we used to spend actually driving our cars will give rise to a new cognitive surplus – wonder what we’ll do with it? Play games, create art? Another example of new things that driverless vehicles will give rise to is smart intersections, because those new driverless cars will require smarter intersections that we currently deploy. The internet of things will make autonomous transport possible.
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Change or die – business, competition, and the new world

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changing business competition landscapeWith the changing business world it is a good idea to think about habitual business practices to ensure that we are not doing things that made sense for the past and which do not make sense now.

Insanity: doing the same thing over and over again and expecting different results.
— attributed to Albert Einstein

We all want to improve business results, driving KPIs higher and higher. Is this really a sustainable approach? How can we increase productivity and innovation by re-using the same practices we’ve always used?

Changing social and technology landscape

The changing social and technology landscape means that some traditional ways of approaching business might no longer be fit for purpose. Many of business practices are inherited from a world where communication was not instantaneous and where information asymmetries abounded. Now there is vast computing power in the hands of ordinary people and they are rapidly overcoming the information asymmetries that gave businesses an advantage over customers.

Social and cultural expectations are also shifting what is seen as good corporate behaviour. For example the use of so-called ‘booth babes‘ at a conference to promote a product is now seen by many as a reason to avoid a brand.

Changing Competition Pressures

If we look at the competitive pressures on business today things have changed from the way they were at the end of the twentieth century. In the 20th century industrial age the competitive landscape could be modelled using Porter’s five forces as a framework:

  1. Threat of new competition – this threat still remains, yet it can come from unexpected and non-traditional sources. Environmental scanning to see what are the emerging trends becomes a critical response.
  2. Threat of substitute products or services – this threat is even more important, with technology trends moving so quickly it is easy for a good or service to become obsolete.Again, environmental scanning is a critical response to this threat.
  3. Bargaining power of customers (buyers) – this is major emerging threat to traditional business models, consumers are increasingly well-armed with information about products and competitors. It is important to realise this new reality. Consumers will punish businesses that they see as lying to them. Truth is a crazy idea that might just work. Also being clear about your place in the value chain, be clear on your competitive grounds. If you are not competing on price then be clear on your competitive advantage to the consumer. Apple is the poster child for this, they do not compete on price, rather they compete on design and experience.
  4. Bargaining power of suppliers – this threat depends upon one’s situation, if a market-making behemoth then this trend is working in your favour (for example Coles and Woolworths supermarkets in Australia. It might be even more of a threat if you are one of the suppliers in question. A sensible response is to be clear as to the grounds you compete upon.
  5. Intensity of competitive rivalry – this threat continues to remain strong, traditional rivals are still in markets competing hard and there are new entrants and new products or services competing for the same consumers.

Shift in scarcity – what about abundance?

Until now scarcity has driven markets, but we are moving into an age of abundance and the old rules no longer hold. Greg Satell summed it up well in his post on the new economy:The New, New Economy of Accelerating Returns:

“…in a world of abundance, what will we pay for?”

The response to this question is being played out in the retail sector right now and they provide an ideal example of the issues. Traditional stores are seeing their market share being eroded by online competitors. Business leaders, like Gerry Harvey, are calling upon the government to reintroduce protectionism to save the retail industry from competition. Yet shoppers continue to vote with their spending power and shop online.

Information Asymmetry

Previously individual shoppers had limited access to information about the comparative pricing and range available elsewhere. Now shoppers have the world at their fingertips and can easily find out the best deal available to them – be it based on range or price or other considerations. These trends are impacting upon traditional retailers worldwide, even retail icons, like JC Penney and Sears, are being questioned as to their chances of survival.

At the same time, Australian retailers have not invested in new technologies over the past decade and they are currently reducing their workforces. It has become almost impossible to find a sales assistant in many stores. The response of many retailers has been to compete on price, to reduce prices by means of sales to attract customers back into their stores. But all this is doing is training the shoppers to expect discounted prices, and customers hold of on purchases unless they receive a discount. Further, in the supermarket sector, this downward price pressure is destroying the businesses of suppliers such as farmers.

Against this backdrop of retail turmoil we see a retailer like Apple – with few products in the market and yet they are able to command premium prices for them. It is worthwhile researching organisations like Apple and Amazon to see how they are thriving in this age when so many businesses are in turmoil.

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The future of business is the future of technology

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Recently Rebecca Nash from ABC’s The Business asked me to consider the future of business over the next decade. Here’s some thoughts from that conversation.

The future of business has always been driven by developments in technology, and the digital revolution is of equivalent substance to the previous industrial revolution. This has important implications for the future of business.

Manufacturing will not die but it will change

Manufacturing used to be about employing large numbers of people in relatively low skilled jobs. However, this has been declining for many years with the introduction of robotics and automated production lines.  Automation of production lines is already highly advanced, but now we will see new approaches to how things are constructed. This trend in manufacturing employment will continue with the introduction of technologies such as 3D printing.

One  of the possibilities arising from 3D printing is enabling mass customization. A good example of this is shoe production via 3D printing, Australian startup Shoes of Prey is already using this technology. Another compelling application of 3D printing is in medical solutions like this: 3D printer gives disabled girl “magic arms” exoskeleton. Although it is important to note that the technology can be used for other purposes too for example, the ability to create a weapon.

Changed competitive landscape

The digital revolution is also leveling the playing field between competitors, and being large is less advantageous than previously. Smaller competitors can form loose coalitions that provide similar scale to a larger organization without the need for capital intensive setup.

We are likely to see a reduction in the market power of big players. Some traditional businesses will fail to scan the environment and detect shifts in the consumer environment. A good example of this is the differences in adoption of new technology and business models and its impact on the performance of competitors Kogan and Harvey Norman.

New internet

Another game changer is the internet of things – things knowing information about themselves and talking to each other, and enabling us to interact with them.  Thus metadata becomes increasingly important and enables the continued development of augmented reality applications such as those made possible by technologies such as Google Glass.

The internet of things will be enabled by wirelessly connected sensor technology. An interesting example of this is DNA tags as used by ethical Australian timber company Simmonds Lumber to help stamp out illegal logging. Yet this technology will have important ramifications for our personal privacy too – we will be asked to trade-off convenience for privacy.

Cost shifting to lower cost regions will continue – but those regions may change as economic shifts happen in the developed world.  That is, due to economic shifts, developed countries may evolve as lower labour cost regions.

Changing customer landscape

Power relations between business and consumers are shifting, and the shift is toward empowerment of consumers. This requires new attitudes and responses from business, and this requires customer insight which is provided by good data. Data will increasingly drive decision making and the making of meaning within businesses.

New approaches – loose coupling

Innovation will be powered by loosely coupled technical components that are joined up with loosely coupled business components. Even large businesses will need to find ways of being nimble and agile, to develop the ability to pivot rapidly in response to environmental changes.

Change cycles will increase in rapidity so businesses will need to constantly scan the external environment to assess and adapt.

Organizations will need to develop skills in entrepreneurship as an internal capability to drive innovation. If access to credit or capital becomes constrained then organic growth capability will be critical for business. Further, the ability to partner effectively with other organizations will also be critical to growth.

Effective use of resources becomes critical

Sustainability will continue to grow in importance, not just to save the environment. Sustainability will be important from both a cost control and environmental perspective.

Access to natural resources that we take for granted – such as water or petrochemicals – will become increasingly competitive.  And access to other resources needed to grow a business are also likely to be problematic.  A good example is access to credit.

New ways of doing traditional things like eduction and work

Schools and universities will not need to look like they do now. The need for large places enormous investments in physical infrastructure are no longer necessary to perform the task of eduction.  Online education and collaboration technologies mean that we do not necessarily need to ‘go’ to school in the way we do now.

This has implications for society and business. We currently use schools as a holding bay for children while their parents are working at the office 9-5.  If young people no longer need to attend school in a physical sense then how will their parents manage, and what impact will this have on the traditional workplace?

Also the need for workers to be physically present at an office to do their work will reduce. Better communications and presence technology means that adults will also be able to work from other locations than the traditional office. Some good examples of the evolution of co-working in Australia are Hub Melbourne, or Vibewire and Fishburners in Sydney.

This will drive changes in the ways that organisations design and define their physical footprint. It also means significant changes for currently viable business models such as building and renting commercial real estate.

Yet human beings still need interaction with others. Our young people need to interact with each other physically to evolve as human beings. Adults need to connect with each other in the work context.  We have a strong social drive and these needs still need to be met.

It is likely that localised co-working spaces will continue to evolve as solutions to this need for human contact and affiliation.  No longer will we head, lemming-like, to a corporate office in the city, instead we will head to the local co-working space where we can connect virtually with our colleagues.

Rise of collaborative models – leisure, work, competition

This does not mean that competition will disappear, however it will change.  Due to increasingly scarce resources collaboration will become more important for business. Further, the question of why a business needs to do everything for itself will become important. With cloud and ubiquitous connections to the network partnering with best-of-breed service providers will be easier.

In the personal sphere collaboration is likely to increase too.  And the change will be driven by similar considerations to business.  For example, why own a car when you don’t need one all the time, especially if you can get access to one whenever you need it?

Shared resources – cars, tools, etc – will make increasing sense to people and shift the consumer culture from one of product acquisition to service adoption. Some good examples of existing collaborative consumption models include Open Shed and 99 Dresses.

The future is a distant country*

Some of my prognostications will be wrong in their particulars. But the technology trends are clear. The next decade will see the rise of new businesses fuelled by technologies that don’t exist yet.  The job I do for a living did not exist when I left school. The industry I work in did not exist at the start of my career. I can see no reason why those trends will change in future. We need to be open to the new opportunities and accept that things move faster now.
* with apologies to L.P. Hartley

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Digital economy and the digital revolution

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Lately I’ve been thinking a lot about the digital revolution and the changes that it is driving in the economy. We are seeing a bifurcation between the old 19th and 20th century manufacturing based industries and the 21st century digital economy.

This is a shift from creation of tangible products to the creation of digital products.  These digital products are not intangible. We still touch them, but the interaction is mediated by digital devices. For example we are still reading books and listening to music, but instead of reading a physical book or listening to a physical record or CD we simply download the digital media to our devices.

 Newspapers are a good example

What drove the success of newspapers and magazines in 19th and 20th centuries? The need for information, the scarcity of that information, and the tyranny of distance that prevented ordinary people from acquiring information easily.

And it was advertising and information about shipping that was the killer app for the newspapers. Classified advertising and the shipping schedules met key information needs for consumers and merchants alike.

This situation made newspapers a valued intermediary between sellers and buyers. And it made them valuable to consumers of information about the world, people, politics, and current events

Even digital business are not immune to change

A stalwart digital business is World of Warcraft, and I was surprised to see it reported via BBC News that World of Warcraft loses another million subscribers. 

Yet along with Facebook, with its recent IPO debacle, and Zynga, with its disappointing earnings and consequent management changes, we are seeing digital business struggle. This shows that being a digital business is not the sole answer.  There are other elements of success that we must uncover.

Thus it is interesting to consider The 10 (Surprising) Companies That Make More Money Online Than Facebook where Alexis Madrigal notes (via Paid Content) that the following companies earn more revenue that Facebook:

  1. Google
  2. China Mobile
  3. Bloomberg
  4. Reed Elsevier
  5. Apple
  6. Yahoo
  7. WPP
  8. Thomson Reuters
  9. Tencent
  10. Microsoft

One thing of which I’m certain: businesses whose revenues rely solely on people clicking online ads are destined for the deadpool in the long run.

Information scarcity is gone – we need trustworthy filters

That day is gone. Information scarcity is a thing of the past. Instead our need is to identify the best and most reliable sources among the flood of information available to us.

There was a good discussion of this in Techdirt recently: Turns Out That The iPad Won’t Magically Bring Back Scarcity For Magazines .

The fallacy of adopting old business models and applying them to the digital economy

There has been a belief that we can simply pick up old business practices and apply them to digital channels and expect similar results to what we got last century.  But some recent evidence indicates that this might not be the case.

Some recent articles that point to emerging challenges to traditional advertising approaches are:

New models evolving

Some new approaches that are evolving are supported by concepts like content marketing and community engagement. In recent times the retailer Sears has adopted a new approach and recounts progress: Sears Explains Its Success In Content Marketing.

This article by Shane Snow discusses some of the issues facing us in the digital economy How To Thrive In The Free-Product Economy, the fairly radical call here is:

“The bottom line is someone will probably one day ship a version your product for free. Maybe it will lack this or that feature you hold so dear, but that won’t matter. The broader the appeal, the more likely someone’s going to undercut your paid product with a free one.

I say beat the competition to the punch. It’s going to happen anyway. And setting your product free may just earn you the most business you’ve ever had.”

Even in traditional businesses some are reporting success in the digital economy, for example as Mathew Ingram reported recently:

“Both the Financial Times and the New York Times have either already crossed or are close to crossing an important threshold: namely, the point at which revenue from reader subscriptions exceeds the revenue they get from advertising.”

But Ingram notes, this success is largely because advertisers are departing in droves. The decline of advertising driven revenue models will only get worse in this age of information richness.

Technology shifts are driving the change even faster

As Dave Copeland notes Social Discovery Is Pushing Search and Social Closer and:

“Social Search Is the Web’s New Disruptor”

And consumers are increasingly living in a realtime world and feel annoyed or disrespected when organizations do not deliver to their expectations. A good example of this was the so-called #nbcfail where the NBC network in the US did not broadcast Olympic events to its audience in realtime. Instead it chose to only present them in delayed telecast during prime time.  This led to negative reports on social networks and even to Twitter banning a journalist at NBC’s request, which led to reports like: The #nbcfail isn’t about email addresses, it’s about corporate cronyism.

The Olympics also provided an example of how walled gardens for sponsors simply result in bad user feedback in these hyperconnected days. For example, this user reported their experience of visiting the London Olympics and provided their feedback on one of the sponsors.

The kind of command and control approach used by the Olympic organising committed and their sponsors seems strangely out of step with the digital world.  And it is so easily subverted as demonstrated so amusingly by Nike in London.

I’m not sure what the disruptors will be, but as Tom Foremski said of changes to our traditional business models:

“This is the Gordian knot of our times. The saving grace is that if anyone, I, Rupert Murdoch, or you — figure it out, we all benefit, we can all adapt to that business model.

I’ve been warning about this issue since I left the Financial Times in mid-2004. At the time, I was confident that we’d find a solution within five years. We haven’t — and I’ve seen nothing yet that shows that we will. “

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On the Continued Economic Decline of the West

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Jon Moynihan, Executive Chairman of PA Consulting Group, made a presentation at the London School of Economics in July 2012 titled The Continued Economic Decline of the West. He dissects the problems we face, taking a deep dive into the stagnating Western world, and proffers some possible solutions.

It is worth noting that Moynihan comes to this from a non-Keynsian perspective. Indeed, I found his characterization of neo-Keynesians as the true inheritors of Fabian Socialism amusing. And he castigates the Western government’s general disregard for running surpluses and their affection for deficits.

This changing economic landscape that we in the West will inhabit must be contemplated by our leaders and citizens. It is sobering to consider the data that he presents.  Yet within the challenges there must be opportunities.

Moynihan outlines a sombre future. A future where young people cannot reasonably expect to get jobs or be well paid; one where xenophobia and discontent may well become the norm.

As Niall Ferguson has argued: “If the young knew what was good for them they’d join the Tea Party”. Thus we can expect to see shifts in political allegiances arising from the social disruptions we can expect from the economic disruption evolving in the West.

As Moynihan sees it some of the issues that loom large for Western nations include:

  • Inability of the West to protect existing IP due to counterfeiting or piracy by the Developing world
  • Inability of the West to innovate and create new IP on large scale due to inadequate capital available
  • China is rapidly increasing their number of patents registered – supported by their 10,000 science PhD graduates per annum
  • Number of adults in West who leave school unable to read – 1 in 5  Western school leavers are functionally illiterate
  • The West has a low propensity to invest new capital into new ventures and infrastructure
  • Western nations have a growing hostility towards high income earners and lack of encouragement for entrepreneurs and VCs
  • Western wages will fall – low paid workers to suffer most and this means that demand will decrease – it will lead to a global equalization of wages
  • Entitled groups – banks, CEOs, public sector, benefit claimants – mean that funds are not available for investment (NB: there is an interesting example of what happens when a government downsizes the public sector happening right now in Queensland)

What is to be done?

According to Moynihan the solution lies in what many would view as fairly radical steps:

  • Reorient government spending away from entitlements and towards new infrastructure (like an NBN)  and education
  • Reform the banks so that they do not make excess profits
  • Move taxation away  from corporate and personal income taxes and towards consumption and property taxes
  • Develop new technologies, support new forms of manufacturing, and support ecosystems that provide job multipliers – he cites the Rational Optimist for ideas
  • Accept immediate cuts in living standards by increasing retirement age and reducing entitlements

It’s worth taking the time to watch the entire presentation, even if you don’t agree with his ideas there are lots of interesting data.

If you don’t have time to watch the entire video then it’s worth viewing the slide deck from Moynihan’s talk on Business Insider. It is food for thought. I hope that our politicians are taking time to get their heads around these issues that we face.

However, I suspect that these issues that we face will not be addressed at a national, regional, or global level. The political cost of doing something will paralyze many governments from taking action until too late.

It is time to think about localized solutions and building resilient communities. It is time to reboot capitalism and find new and sustainable economic approaches.

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