What the Future of Work Means For Your Business Model
*Wrote in March, 2018 (let's see how wrong I was)
*Wrote in March, 2018 (let's see how wrong I was)
"We must understand that a New Model of Labor & Automation is driving the transition of business models from value chains to value networks. And instead of just reading - we must be wrapping networked value around our business models."
"You can't pick it up, can you"
Beyond producing incredible commercials, GE has been the leader in industrial digital transformation for the past 5 years.
In 2014 they produced more than $1 billion dollars in revenue from productivity solutions (highlighting the success of their "industrial internet" software platform Predix). In 2015 they announced the creation of a new business unit - GE Digital - and in 2016 reports came out that GE Digital had more than 1,500 employees in their San Ramon, California office.
According to GE's chairman Jeff Immelt: "Every industrial company is a software and analytics company” - and by all accounts, Immelt was leading this trend.
That is until he was fired in October of 2017.
***
For those that understand the future of work, GE's digital transformation fell for the classic shortcoming Albert Einstein describes as:
"We cannot solve our problems with the same thinking we used when we created them"
They wanted to create the company of the future. They knew the way to do this was through digital transformation. Yet they followed the models we've been using since the first industrial revolution.
Unfortunately, this dilemma isn't unique to GE.
Due to what Ray Kurzweil calls the Law of Accelerating Returns - the exponential rate of change in a wide array of complementary evolutionary systems (i.e. technology) - every business is now facing the wrath of accelerated creative destruction. As strategy & innovation leader Innosight puts it:
"about half of S&P 500 companies will be replaced over the next ten years". They go on to say, "Imagine a world in which the average company lasted just 12 years on the S&P 500. That’s the reality we could be living in by 2027".
What does this mean?
For incumbents, it means the shattering of their foundation. But for those that can identify, create, and capture value in environments of extreme uncertainty - opportunities are endless.
In the following article we will discuss how the Future of Work is fueling this creative destruction and transforming business models. We'll do this by answering three questions:
What is the Future of Work?
Why does it matter to your business model?
How can you position your organization?
By the end you should have a firm foundation in this future and be ready to wrap this new paradigm around any business model.
Businesses today face accelerated creative destruction. Only by building a framework around the Future of Work can we navigate this rapidly-changing landscape.
Why Does the Future of Work Matter to Your Business Model
The old paradigm of business modeling was the systematic & sequential organization of primary and secondary activities, generally associated with Michael Porter's Value Chain. The objective was efficiency, and two common levers were vertical integration & top-down management.
Due to the technical implications of Kurzweil's Law of Accelerating Returns, this new paradigm is one of applying a networked ecosystem through the integration of information systems and technology, shifting the competitive drivers away from efficiency and towards product leadership through innovation.
Business models have transitioned away from systematic & sequential organization to a networked ecosystem of information systems & technology
Why is this important?
For GE, they fell for following the model of Porter rather than a networked ecosystem. According to Alex Moazed - founder of Applico - this was represented by their attempt to drive innovation within the organization. According to Moazed:
"Even more challenging, true digital transformation will almost always fail if executed from within the organization. Why? Because the change is so disruptive that the existing organization chokes it off. For GE Digital to have succeeded, it needed to be separate from GE."
GE didn't create value around a networked ecosystem, they created value around GE. And just like putting lipstick on a pig - the results were abysmal.
But how can your organization avoid following the old paradigm and instead apply a networked approach? By pulling the levers underpinning the Future of Work.
Execution of a networked ecosystem starts with applying the levers underpinning the Future of Work
What is the Future of Work
Next to Artificial Intelligence or Blockchain, the term “Future of Work” is a vague and overused buzz word.
According to McKinsey:
"The world of work is in a state of flux, which is causing considerable anxiety—and with good reason. Automation, digital platforms, and other innovations are changing the fundamental nature of work. Understanding these shifts can help policymakers, business leaders, and workers move forward."
According to Accenture:
"The very concept of work is being redefined as different generations enter and exit the workforce amidst a rapidly changing technological landscape. The new leadership imperative is clear: Create the future workforce. Now."
According to Deloitte:
"Driven by the acceleration of connectivity and cognitive technology, the nature of work is changing. As AI systems, robotics, and cognitive tools grow in sophistication, almost every job is being reinvented, creating what many call the “augmented workforce.” As this trend gathers speed, organizations must reconsider how they design jobs, organize work, and plan for future growth."
In essence, they're all saying the same thing: Technology is changing at a rapid pace and bringing the structure of work alongside.
Yet the most comprehensive and revealing research on the Future of Work comes from a report by MIT Technology Review that compiled every study they could find on the impact of technology on job destruction/creation:
While the research provides no one conclusive finding, what it shows is a vastly changing landscape companies will be responsible for navigating in the near future. For example, how do companies handle this degree of job destruction/ Or this degree of job creation? Are they responsible for reskilling? Or creating new jobs?
These questions are endless, but from a business model perspective companies need to identify the two actionable drivers driving this change.
These drivers are:
A New Model of Labor
Automation
The "Future of Work" is driven by a New Model of Labor & Automation
A New Model of Labor
Is it realistic to believe that by 2020, 43% of the US workforce will be in the form of freelance labor?
On the other end of the token - is it realistic to believe that labor will stay in it's current ownership W-2 format?
While both hold merit and skepticism, the underpinning objectivity points to a problem that first reared it's head in the 80's. While productivity shot to record highs, wages stayed constant due to a problem McAfee and Brynjolfsson call the "decoupling of wages and productivity". As we see in the chart below - while the grey line of productivity shot up, the blue line of median family income stayed constant.
Yet this decoupling was only a preview for what the '08 financial crisis had in store. While prior wages were stagnant, post '08 these wages were only created in the form of part-time labor.
Then in 2012 came the birth of talent-management platforms - a labor model made possible by the convergence of the internet & cloud computing. Through these platforms, part-time workers could be matched with part-time gigs in a way that shifted "freelance" work from a cost-cutting decision to a smarter alternative for both sides. And as we see in the chart below, since their inception they've driven a "Gig Economy" that's seen impressive year over year growth.
What these charts leave out is a separate force arguably providing the anchor for this transformation.
According to an Accenture report, as talent and skills gaps grow, as many as 40% of companies experience shortages that drastically impact their ability to adapt and innovate. The solution? Freelancers. According to the same report, 79% of executives agree that the future of work will be based on projects, not roles. What this means is an already openness & willingness to transition their workforce away. What will happen next is the connecting of this willingness with execution through the Talent-Management Platforms fueling the transition to a Gig Economy.
The Future of Work will see the Gig-Economy as an equal if not better model of labor over traditional full time employment
Automation
Is it possible the next billion dollar company could be at the hands of one person? It's a crazy thought - but according to Gigster CEO Roger Dickey not too far away. According to Dickey:
“Soon, one founder will be able to outsource every aspect of their company and obtain sustained success without a single full-time hire”
The reason is automation. According to a McKinsey report, current technologies could be used to automate 45% of individual activities. From bookkeeping, to invoicing, to higher-order cognitive processing, automation spurred by artificial intelligence has the potential to automate anything repeatable & predictable.
But how much of a value chain is repeatable and predictable? According to Sebastian Thrun in his talk What AI Is & What it Isn’t:
“If I look at my job as a CEO I’d say 90% of my work is repetitive. I don’t enjoy it. I spend about 4 hours a day on stupid email. I’m burning to have something that helps me get rid of this."
And that's a CEO. As we move down the chain these numbers are even more alarming. According to the same McKinsey study, only 5% of what we pay people to do requires creativity.
As you'll see below, this holds massive implications in terms of the new paradigm of business modeling.
The Future of Work will see the automation of anything that is repeatable & predictable
Building Around a New Model of Labor
We're now aware work will transform both in shape (the Gig Economy) and in size (automation), but how can you start acting on these insights?
To start, you need to transition your mindset on labor from that of ownership to access through Talent-Management Platforms. Why?
Here's a hint... According to a report from the Tencent Research Institute, there are only 300,000 AI engineers worldwide, while one independent AI lab the publication this number dwindles to 10,000 when needing individuals to spearhead new AI projects. While these specialists with just a few years of experience yield salaries from $300,000- 500,000, the majority of companies are locked out of this talent. Further, according to Christopher Null, acquiring talent doesn't mean they'll stay - citing research from BambooHR that roughly one-third of new hires quit their jobs after about six months. This means that good talent has an overwhelming amount of leverage that ownership - unless you can pay for the organic juice bars and dailly massages like Google - probably can't fulfill.
The first hint dealt with the quantitative supply/demand. But there's a deeper force fundamentally shifting in the nature of work. Harvard Economist Lawrence Katz calls this the future of self-sufficient artisans. Mark Bregman, CTO of NetApp describes this by saying, “In contrast to the past–from the late industrial era into the early computing era–today’s most sought-after talent operates like Renaissance artisans”. What artisan finds coming to the same desk year after year attractive?
The nature of labor will transition from access to ownership as both supply/demand and the mindsets of work favor the self-sufficient artisan
What does access over ownership look like? Surprisingly....a lot like Amazon.
If you remember from above, the force underpinning this "Renaissance" is the Gig Economy - a model that 43% of the US workforce will be operating in by 2020. In this environment, the matching & managing of talent transitions to talent management platforms just as retail transitioned from brick & mortar to Amazon. Visually it looks like the diagram below. And just as the most attractive product evolved from the store window to crowd-sourced ratings & reviews, so too will the modern-day DaVinci transition from having a great paper resume to a great profile on Amazon.
*Matthew R Mottola, Automation & the Future of Work Presentation
The technological force enabling this is disintermediation - the removal of intermediaries in a supply chain or transaction - or what once needed humans can be replaced by algorithms. It is a force ubiquitous throughout all industries, companies, and even roles and tasks, yet the effects of it have only just begun. The first ripple of disintermediation came through the disruption of entire industries - think Trip Advisor & Amazon.
For the Future of Work, disintermediation of labor leverages talent-management platforms. Wave 1 was the rise of staff augmentation platforms such as Upwork. These platforms work great in 1:1 exchanges of freelance talent. Where they lack is in projects with high complexity - for example, software. That's where Wave 2 kicks in, what we're currently in. These platforms match AND manage projects - offering the value of an outsourced department rather than single freelancers. They leverage the integration of project-management software's (Slack, Trello, Jira, Asana, etc) and replace organizational "best-practices" with data driven management. The next wave - Wave 3 - will transition platforms from matching & managing to augmenting it's users. As a report by Forbes on one company creating this future puts it:
"Certain tasks, like invoicing, can be time-consuming and can limit the amount of work one freelancer can handle. Soon, that could change, given the increase in platforms that use artificial intelligence tools designed to help remove the more mundane tasks and free up workers for more complex projects. Dickey explains that at Gigster, they use automation to augment their freelancers— “making them ‘superhuman.’"
The result is NOT that W-2 employees will go extinct. Rather W-2 employees will be nodes, connecting organizational objectives with talent-management platforms. Just as there will be a human-machine symbiosis, there will be a W-2 & Freelance solution symbiosis.
"To achieve their ambitious goals, leaders are refocusing on an often overlooked factor: the workforce. They are looking at technology as not just a disrupter, but also an enabler to transform their people, projects, and entire organizations into a highly adaptable and change-ready enterprise. In short, business leaders are realizing their new liquid workforce can become their new competitive advantage."
Similar to how retail transitioned from brick and mortar to Amazon, labor will transition from ownership to the symbiosis of W-2's and talent-management platforms
Building Around Automation
What does it mean if one person can outsource every aspect of a company except for one core competency?
According to our research, it means even more power to the entrepreneur. What exactly is an entrepreneur? Someone (or an organization) that can identify, create, and capture value in extreme uncertainty. They do this by accelerating through a feedback loop that from a high level starts with an insight and ends with the product/service in hand/completed. Due to their lack of overhead, entrepreneurs accelerate significantly faster through this process, thus better identifying & creating value around insights.
Entrepreneurship is the art of accelerating through an insight to execution feedback loop
If an entrepreneur can use technology to automate every aspect of a company, this means quicker cycle times, which means a higher rate of innovations challenging the large & slow incumbents.
What this means is a macro-transition for a companies competitive advantage away from operational efficiency and toward product leadership.
We can visualize this through the three horizon methodology for innovation.
There's also a great graph thanks to Baghai, Coley, and White that further explains:
Automation unlocks entrepreneurs the keys to accelerate horizon 3 technologies, arguably enabling a position of leverage large companies are locked out of.
Purposefully I left out one force that will transform this relationship more than any other current technologies. According to Andrew Ng, professor of AI at Stanford University, "AI is the new electricity". What he means is that AI - the science of programming cognitive abilities into machines - will become accessible to everyone through the cloud as a service - artificial intelligence as a service. Since this sort of technology is optimal for automating enhancement (horizon 1), incremental iterations will be like turning the light on. Flick - iteration. For business models, this replaces the processes to optimize anything repeatable & predictable. Thus beyond just automation, if we look at Porter's Value Chain in relation to the mass adoption of AI as a service it's glaringly evident how flawed a systematic & sequential strategy built off efficiency will be.
Value creation will be in the form of breakthrough innovation
So what can companies do?
They need to position themselves as innovation machines - enabling the speed & flexibility of entrepreneurship without the corporate chains.
Automation necessitates business models to foster breakthrough innovation
Summary
We can’t solve tomorrow’s problems with today's solutions… even if you have awesome commercials.
Instead, we must understand that on the surface A New Model of Labor & Automation is driving the transition of business models from value chains to value networks. And instead of just reading - we must be wrapping networked value around our business models.
But where do we start?
We start by asking the question: what is it that one thing we can do better than anyone else? Once we arrive at this core competency, we then ask how can we wrap networked value around it?
Operationally, we need to leverage the rise of automation through artificial intelligence based technology - a subset of digital transformation. But most importantly, and where we saw GE falter, is how we execute this through labor. Rather than ownership of a severe supply shortage (digital talent), we need to tap into an access over ownership model enabled through talent management platforms. Companies like Gigster, Toptal, Upwork - these companies are trailblazing a new model of work that enabled us networked capabilities companies five years could only dream of.
The option is yours - create tomorrow with solutions of today - or lead your digital future through the networked options of tomorrow?