Let’s face it. Your job is not what you hoped it would be. And you’re not alone. Only one in five people is fully engaged in his or her work and even fewer are truly passionate. And come to think of it, you’re one of the lucky ones: millions are now finding it hard to land jobs or gigs that cover their needs. So what’s gone wrong?
Last week, the Innovation for Jobs ECO Summit in the heart of Silicon Valley in Menlo Park, California (January 28-29, 2016), led by David Nordfors and Vint Cerf, explored an amazing array of issues and possible solutions.
- Many speakers explored ways to improve the “gig economy” or make the market for jobs more efficient.
- Mei Lin Fung and others discussed a people-centered Internet and the maker movement.
- Felix Velarde discussed whether robots are taking the jobs.
- Curt Carlson showed that most big firms can’t create jobs because they lack the discipline of innovation.
- Monique Morrow and others spelt out key gender issues.
- Jay Van Zyl explored emancipating special abilities.
- Esther Wojcicki and others suggested that the trouble started with education.
These are important issues and exciting ideas to deal with them.
Getting The Big Things Right
Yet we also need to look at things from an even bigger picture. This amazing array of ideas will only make progress if we, as a society, get a couple of really big things right.
And there are also some really big stupid things that we need to stop doing. Unless we stop doing these big stupid things, none of the good ideas being discussed at this conference will work.
“Until we change ‘the system’,” Esther Wojcicki said, “things won't change.” She’s right. We need to fix ‘the system.’
So what is ‘the system’ that we need to fix?” Actually most of us already know what it is. It looks like this.
It’s top down. Big bosses appoint little bosses, who tell people what to do. In a word, it’s bureaucracy. This ‘system’ has been around for a long time. And the funny thing is that sixty years ago, it worked pretty well, given the way the world was at that time.
But then the world changed. Globalization, deregulation, knowledge work and new technology, particularly the Internet, arrived and suddenly everything was different. The pace of change accelerated. Competition increased. Software began eating the world. And in an epochal adjustment, power in the marketplace shifted from the seller to the customer. The customer is now the boss. The customer is now in charge of the marketplace.
The Copernican Revolution In Management
This turn of events was like the Copernican Revolution in astronomy in the 1500s when Copernicus started telling people that the sun didn’t revolve around the earth. Common sense was wrong. It was the other way round. The earth revolved around the sun.
Similarly, in the ongoing Copernican Revolution in management, people who had thought that the firm was the solid center of the commercial universe suddenly realized that it is the opposite of what they thought. The customer is now the center of the commercial universe. The firm revolves around the customer, not the other way round. Now the corporation has to figure out how to delight this mercurial, difficult, hard-to-please user at the center of the commercial universe.
In this very different world, where the customer is the boss, top-down bureaucracy simply doesn’t work. Bureaucracy never delighted anyone. Those top-down pyramids of boxes simply aren’t agile enough to deal with the challenges of this new world.
So something different had to be done.
The Dumbest Idea In The World
Enter the first of the really stupid ideas that many big public corporations began adopting. Starting in the 1970s, many firms embraced what even Jack Welch has called “the dumbest idea in the world.”
These firms continued with top-down bureaucracy, but they tried to soup it up by adopting the notion that very purpose of a firm is to maximize shareholder value as reflected in the current stock price. Basically, this is institutionalized selfishness. It means extracting money from the corporation for the benefit of the shareholders, at the expense of everyone else. And executives were compensated in stock so that they would join in the bonanza and closely focus on the goal: raising the stock price.
This idea is now pervasive among public corporations, business analysts, investors, business schools and regulators. It’s the gospel of American business. It has led to corporations doing some very big, stupid things.
Short-Term Thinking
The focus on the stock price led to a focus on the short-term and on cost-cutting. That’s because cutting costs is the easiest way to boost the share price. So that’s what executives did. They spent the next four decades systematically cutting costs, like workers, workers’ salaries and investments, even when this hurt the firm’s capacity to compete or innovate. Cutting worker benefits and disposing of employees were things firms did whenever they needed to boost the share price.
So it’s no accident your salary is low. That’s because it's the very object of the firm to keep it low. Just one snag. It's also killing the firm. Overall, firms have become less and less competitive and are going out of business faster and faster. The life expectancy of a firm is down from 75 years to 10 years.
Massive Off-Shoring Of Jobs
The next stupid thing that it led to was the massive offshoring of jobs. This happened first in manufacturing, and then in everything else. It spread so fast that whole industries were shipped overseas. Now Amazon can’t make a Kindle in the US even if it wanted to, and even though most of the technology involved was invented here.
In retrospect, we can see the mistake. Studies show that at least 60% of these decisions didn’t make sense even at the time, because they were based on a narrow view of costs—just salary costs. The calculations didn’t include the full cost and risk of long supply chains in foreign countries. The firms simply didn’t do the math. Now that the salary costs have risen, and all sort of other problems have emerged, those offshoring decisions make even less sense. But the industries are gone and, once gone, it’s hard to get them back.
Gargantuan Share Buybacks
The fourth stupid thing that happened was that a vast amount of money was spent on share buybacks. This occurred because, when all else fails, one way to artificially boost the share price is for a firm to buy back its own shares and so manipulate the stock price. So an amazing amount of money—some $3.4 trillion over the last ten years—was spent by US corporations for this purpose.
Astonishingly, most of the buybacks were done at the top of the market, so these were very bad business decisions for the firms themselves. But even more seriously, this was a massive outflow of resources—roughly half the size of the US economy—that could otherwise have been invested in training workers, creating new jobs, innovation and growing the real economy.
These four stupid things—short-term decision-making, pervasive cost-cutting, offshoring of jobs and share buybacks—happened on such a vast scale that they became a veritable tsunami, And this tsunami is still rampaging in the opposite direction of all the great ideas that I mentioned at the start being discussed in the I4J conference. Unless we find a way to stop this tsunami of big, bad business ideas, it is going to sweep away all those specific suggestions to make things better. This is the root cause of the employment problem.
We Know How To Fix This
That’s the bad news. The good news is that some firms have already been doing something about all this. They have been pursuing a very different idea. It’s not a new idea. Peter Drucker articulated it back in 1954: there is only one valid purpose of a firm, to create a customer. The purpose of a firm is not to maximize shareholder value. Pursuing shareholder value in terms of the current share price destroys shareholder value.
The true purpose of a firm is to delight the customer. That was true back in 1954 when Peter Drucker first formulated the idea. It’s even more relevant today, when power in the marketplace has shifted from the seller to the customer. Unless firms are totally focused on delighting customers, they will not survive.
A lot of firms have been pursuing this very different idea. Many of them are here in Silicon Valley, but there are many others in other parts of the world. And many are in non-digital sectors, like Whole Foods, Zara and Unilever. They are among the most profitable corporations in the world and they are steadily putting the other firms out of business.
Yet many firms are in denial. If you go to places like Davos or conferences where senior managers hang out, you will be told: “This way of running a firm only works for software. It doesn’t scale. It can’t handle complexity. It isn’t reliable. It doesn’t last and it kills jobs. So it’s not a serious idea.”
The Learning Consortium For The Creative Economy
In 2015, I set out to discover whether any of these critiques were true. With Scrum Alliance, I launched a Learning Consortium for the Creative Economy, a group of eleven firms that went on mutual site visits to see whether this different way of running firms actually works. These were firms of different sizes, including some very large firms like Microsoft and Ericsson handling big complex operations. The firms are in different parts of the world, not just Silicon Valley.
Our goal was see what was happening on the ground. This is news from the front lines of business, not just academic theorizing. And we discovered that none of the things that we were hearing at management conferences were true. This way of running firms is not just for software; it’s spreading to everything. It does scale. It can handle complexity. And when done right, it is reliable. It does last: some implementations have been going for more than ten years. And it doesn’t kills jobs: it enables workers to produce more.
A Different Mindset
Perhaps the most surprising and important thing that we found in the Learning Consortium is that the key thing in running these firms is not a technology. It’s not a process. It’s not a methodology. It’s not an organizational structure. It’s a different mindset—a different way of looking at, understanding and acting in the world. If you have this customer-driven mindset, all sorts of positive things flow. If you don’t have the right mindset, it doesn’t matter what process or system or methodology you use, no benefits flow.
We saw that acquiring the mindset takes time. It’s not something that everyone can immediately grasp, because it’s so different. It’s a Copernican Shift in perspective. The universe looks completely different. The center of the commercial universe is suddenly in a different place and this takes getting used to.
Implementing it can also take time. It can’t be done overnight. Microsoft took several years to get comfortable with it in a 4,000 person unit. It’s a journey and different firms are in different places in the journey.
We also saw that the approach is job-friendly. When we visited these firms, we didn’t see large numbers of workers being displaced by new technology. We did see plenty of new technology, but what we saw were workers using new technology to produce a whole lot more. In these firms, the team is the asset, not the product. The nurturing of that asset—the team—is a central preoccupation of the management. This is not at all about technology eliminating jobs.
And it is actually happening. This is not something that has to be invented. “The future is already here,” as William Gibson, the science fiction writer said, “it’s just very unevenly distributed.” What we need is to have this particular future much more widely distributed.
To achieve that, we have to pay attention to this principle from Henry Thoreau: “There are a thousand hacking at the branches of evil to one who is striking at the root.” The things that I am talking about are at the very root of the jobs problem.
The challenge today is not only to work on the specific issues and solutions that I mentioned at the outset. We also need to put our muscle behind dealing with the root.
Stopping Illegal Stock Price Manipulation
Some of the really stupid ideas I mentioned could be stopped with the stroke of a pen. Illegal share buybacks would end immediately if the SEC were to repeal the 1982 regulation that has provided a “safe harbor” foro firms to pursue what even Harvard Business Review has called “stock price manipulation” and what The Economist has called “corporate cocaine.”
That could be done by the SEC tomorrow if it wanted to. Of course, there would be political battles in getting to that decision. But the decision is needed because what’s going on is wrong. It’s wrong legally. It’s wrong morally. And it’s wrong financially for the corporation. It’s financially stupid to be buying back shares at the top of the market. The assets of the corporation are being ripped off. And it’s wrong for jobs. So the SEC needs to make that decision.
Changing The Way Firms Are Managed
Other changes are more complex. They involve not only changing the way whole firms are run but also changes in our whole society. It’s not just the executives who need to run their firms differently.
- Boards of director have to stop dangling huge financial incentives in front of executives to do the wrong thing.
- Business schools have to stop teaching the wrong thing.
- Institutional shareholders and investors need to wise up.
- Regulators need to address systemic failure.
- Central bankers have to stop funding it.
- And we as citizens have to demand that our leaders act more responsibly.
Ultimately, this is a shift from taking value from organizations and instead, creating and giving value, by delighting the people for whom work is being done.
In effect, we all need to join in helping make this transition happen. In one sense, it’s already happening in that firms operating in the new mode are so much more productive than firms managed in the old way, they are putting the older firms out of business. So the transition is inexorable.
The only question is how long the transition will take. Will it be, as now, slow and ugly and bloody, with all sorts of unnecessary social and financial costs?
Or can it become quick and elegant and intelligent? That’s the choice that we as a society need to make. Ultimately it’s up to us.
And read also:
Think Your Job Is Bad? Try One Of These!
How CEOs Became Takers, Not Makers
Capitalism’s Future Is Already Here
Why The World’s Dumbest Idea Is Finally Dying
The Best Management Article of 2014
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Follow Steve Denning on Twitter at @stevedenning
