Work, business & professional services

Distributed capitalism

Capitalism is changing because it has to. We’re no longer in the mass production era, though mass production must still exist. Shoshana Zuboff, formerly at Harvard Business School, claims we are in a new era of “distributed capitalism”. This is more than just creating new products: it creates what she calls “mutations”, changes in the frameworks for creating them.

When most people want things that are priced at a premium – called “the premium puzzle”, it is fertile ground for an innovative competitor. Henry Ford’s Model T and Steve Jobs’ iPod solved the premium puzzle. Digital technology makes it possible to solve new premium puzzles. It can be used to offer individuals exactly what they want, and will transform old business models. Mass production was based on economies of scale, intensified assets, concentration and central control. But distributed capitalism is based on federation, finding hidden assets, distributed work, and meeting the needs of individuals (“I-space”).

Federation means creating loose coalitions of businesses to meet individual needs, for example, the way Apple morphed its iPod into the iPhone by working with application developers. Mining hidden assets means going beyond the assets (knowledge, music, books, information, shopping malls) within the organisation, to those of customers themselves, such as YouTube. Distributed work describes the way work can be divided into segments so different people can work on them, including customers, eg, personalised radio.

Meeting individual needs through mutations is the essence of distributed capitalism. Instead of the company stating what it can deliver, it asks the customer what he or she wants. When customers get the assets they need, they can reconfigure them to fit their own I-space. To be successful, each mutation must address needs that were invisible in the old framework (eg, music tracks I want) and target what Zuboff calls “trapped assets” that are valuable and can be digitised.

What happens when an offering can’t easily be digitised, such as face-to-face service? In this case, distributed capitalism uses a combination of digital tools and personal service in a powerful new way. In aged care, for example, it is possible to combine digital tools to use in the home, such as diagnosis and monitoring, with a social network and distributed work approach involving neighbours, volunteers, and paid workers. One system, albeit small, is already running in one US state and is considerably cheaper than traditional aged care.Mutations do not arise within industries but across them. This means no company can afford to be complacent about its industry. Look for the following danger signs: your products are desirable but only a few can afford them; customers do not trust you; your business model has high fixed costs; your structure is inflexible and high cost; there are underused assets, and your customers have unmet desires. In these cases, change will happen. Start to look for what needs you can meet now – and how.
Ref: McKinsey Quarterly (US), September 2010, Creating value in the age of distributed capitalism, by Shoshana Zuboff.
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Search words: distributed capitalism, mass production, federation, individuals, digital, face-to-face, YouTube, CellBazaar, Livemocha, mutation, personalisation, iPod.
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Why immigration is complementary

In the United States, there are increasing fears about the extra pressure of immigration on already dwindling employment. Such a fear is nothing new – the British also share these concerns. But a new study from the US claims that immigration encourages business activity and produces more jobs. This is because employers can find cheap labour at home and don’t need to go offshore.

The study, “Immigration, offshoring and American jobs” by two economics professors, claims that going offshore removes low-wage workers to another country, and other workers associated with them, eg, skilled managers or technicians. Meanwhile, complementary workers at home add value to the work of others, for example, taxi drivers who drive managers around. Immigrants are therefore competing with offshored workers, rather than workers in America. The study also found that when immigration rises as a share of employment, offshoring tends to fall.

Interesting to compare is the recent finding that Australians no longer see new immigrants as competitors in the job market. An Ipsos study found that people are becoming more economically aware, and they accept the need for skilled workers and new taxpayers to pay for their lifestyle and their retirement. Immigrants also take menial work that others don’t want to do. This is a marked change from attitudes to immigration in the last few decades.Immigration will continue to provoke heated debate. While academic studies may prove that immigration is positive for economies, they can’t compete with deep-seated beliefs about “us and them” or underlying fears about safety in a world so concerned about terrorism or globalisation.
Ref: The New York Observer (US), 14 November 2010, How immigrants create more jobs”, Tyler Cowen; The Australian, 18 December 2010, We appreciate our immigrants – if they earn it, Drew Warne-Smith.,
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Search words: immigration, globalisation, offshore production, competition, complementary workers, jobs, low wages.
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Time to devalue shareholders?

Shareholder value has been the mantra for too long. Since the mid 1970s, in fact, companies have made it their purpose to maximise shareholder value supposedly for society’s benefit. Roger Martin, University of Toronto, argues that it’s time to substitute a new mantra – customer-driven capitalism.The first wave, in 1932, was managerial capitalism, which argued that management should be separate from ownership. The second wave, in 1976, claimed that managers were looking after their own wellbeing to the detriment of shareholders and the economy. Jack Welch, of CEO was a strong supporter of this new wave.

But the question is: were shareholders any better off for this new focus? From 1933 to the end of 1976, shareholders of the S&P 500 earned compound annual returns of 7.6%. From 1977 to the end of 2008, they earned only 5.9%. Even if you tweak the numbers with different start and end dates, there is no sign that focusing on shareholder value was of any extra benefit to shareholders.
The second question is: if shareholders were all you cared about, would focusing on increasing shareholder value be the best way to benefit them? Peter Drucker said the primary purpose of a business is to acquire and keep customers. Martin argues that optimisation theory makes it impossible to maximise both customer satisfaction and shareholder value. It is also impossible to continually boost shareholder value because stock prices depend on their expectations about the future, and they can’t be raised indefinitely.

What’s the answer? Focus on pleasing customers and shareholder value will take care of itself. Johnson & Johnson is one company that typifies this approach. Their credo says first responsibility is to their customers and “our final responsibility is to our shareholders…” In September 2009 its market capitalisation was $US167 billion, the ninth highest in the world. P&G, which came eighth, also aims to “improve the lives of the world’s consumers” and shareholder value is a byproduct of that. AG Lafley, CEO at P&G actually removed the screens tracking the company’s share price, from its headquarters. Research in Motion, which makes the Blackberry, forced its CEO to buy more than 800 doughnuts for employers after breaking the rule not to talk about its share price!

CEOs that are left to run the business, rather than focusing on the share price, are able to do what they are supposed to do. Giving customers exactly what they want - customer-driven capitalism - is the new mantra. This is similar to Shoshana Zuboff’s idea of distributed capitalism and may finally signal an end to business as a primarily top-down affair.
Ref: Harvard Business Review (US), Jan-Feb 2010, The age of customer capitalism, by Roger Martin.
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Search words: Compensation, stock options, capitalism, shareholders, employees, customers, market capitalisation, optimisation theory, satisfaction, annual returns.
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We’d like you to be our boss

It seems the way we choose our leaders (or don’t choose them) has more to do with our evolutionary wiring than anything rational. It you are male, tall, square jawed, and “statesmanlike”, you are more likely to be chosen as a leader. Even naive children can pick the winning candidate just by their appearance. This suggests that, no matter what are their skills, experience, or policies, they push the “leader button” in the human psyche.

Unfortunately, our way of choosing may not serve us as well as it did. When our forebears lived in small groups, there was no need to choose leaders as they naturally arose from the group. In fact, people who made themselves too prominent would be dismissed. Most of us now live in cities and we feel increasingly disconnected from our leaders because we don’t actually meet them. Often, we have to vote for a leader we know nothing about in any meaningful sense.

It is uncommon for employees to choose their managers, yet this is the way our forebears would have done it. And if managers spent more time with their subordinates, getting to know them and understanding their roles, there would be a lot more trust and respect. If we can trust our evolutionary history, we should be interviewing our bosses.
Ref: New Scientist (UK), 4 September 2010, Someone to watch over us, Anjana Ahuja.
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Search words: evolutionary psychology, leadership, natural selection, tallness, statesman, jawline, groups, cities, politicians.
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We’re still at work

The UK government plans to lift the retirement age but there is evidence to suggest that people are working longer anyway. Over 20% of men and 15% of women aged 65-69 are “economically active”, that is, working at least 1 hour per week or actively looking for work. Some 35% of women, aged 60-64 remain in the workforce, an even higher participation rate. It seems we’re still at work.

Of course, life expectancy is increasing too. Men aged 65 can expect to live 10 years (women 10.5 years) without limiting disabilities and nearly 13 years (women 14.5 years) as healthy people. This also depends on their social group, as the gap between those at the top and those at the bottom, from 1972-76 to today, has widened from 2.4 years to 4.2 years of additional life. One of the reasons for this may be because smoking rates have started to rise again in the lowest socio-economic groups.

The question is what staying at work will mean for our health, both physical and mental. For some people, work gives them meaning and purpose. For others, it is just a means to an end. It seems likely that a new market will arise, made up of healthy older consumers, who want to work but also want to enjoy their leisure in ways that would never have existed for earlier generations.
Ref: Financial Times (UK), 25 June 2010, Over-65s choose to stay in work, Norma Cohen.
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Search words: Work, jobs, pensions, retirement age, health, lifespan, smoking.
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And finally, the rise of the one-day weekend

A survey has found that most workers in the UK require 19 hours to clear their heads from the previous week’s work. Most do not fully relax until 12.38pm on Saturday and start worrying about work again by 3.55pm on Sunday. Almost 50% of workers check work emails over the weekend and 60% admit to doing work at home over the weekend in order to catch up. Indeed, 40% said that they “would never get their work done” if they didn’t do work at home.