Can we cut our way to greatness?
Updated: May 11, 2020
This is the first of two blogs exploring the role of divergent thinking as leaders grapple with fragmentation, acceleration, and complexity.
I often ask myself, where the hell are we heading? We are living through an era of abundance; of information, people and things – surely my mind isn’t the only one struggling?
The enlightening psychologist Daniel Kahneman points out “the human mind is a pattern-seeking device”. It is this innate need to understand our complex environment which leads us to search for simple answers, consume narrow media, and surround ourselves with like-minded people. If we’re not careful, we will all become trapped in a hall of mirrors.
We are confronted by an amplification of two inbuilt and opposing biases. On the one hand, Kahneman says “people have a tendency to overestimate their own ability and as such have undue optimism — by applying overly favourable odds to events over which we have little or no control” — leading to what he refers to as "bold forecasts."
Flipping this, Kahneman has discovered that people also suffer from "loss aversion" when faced by an uncomfortable problem. People ignore the big picture and err on the side of “unreasonable caution”, instead contemplating a possible loss. This can lead to inevitable mistakes being kicked down the road.
The ideas, models and working practices that spawned the industrial revolution centuries ago, continue to weave through modern life. Whilst we continue to uncover new applications for technology, these are typically directed towards waste mitigation, or focus on control and compliance.
Our obsession with efficiency is all around us; free trade deals, deregulation, privatisation, austerity, and an endless pursuit of frictionless digital experiences.
The truth is - neither governments nor businesses can simply cut their way to greatness. Process improvement and efficiency drives are important, but only when counter-balanced by value add initiatives. If we stop investing in people, we won’t create and the outcome will be an ugly race to the bottom.
We are seeing a rapid decline in the company lifespan and at the same time a rapid concentration of power. Having fallen out with our EU neighbours we look across the pond at a country where in 1978 the 100 most profitable firms earned 48% of the profits of all publicly traded companies combined, but by 2015 the figure was an eye-watering 84%. Judging by the continued rampant growth of the Big Five, I doubt this number will retreat.
This race is accelerating due to the dynamics of these platform businesses – which include the likes of Facebook, Google, Uber and Airbnb - where competitive advantages are derived from powerful network effects. Kahneman says “optimism in our culture is a valued trait, but pessimism and cynicism is seen as disloyalty”. This skews our perception of the marketplace, and it was our “irrational exuberance” - as the then-Fed chief Alan Greenspan put it - that spawned the recent and worst financial crash in history.
“Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.”
― Daniel Kahneman, Thinking, Fast and Slow
Why we must search for new waves to ride
Have we reached peak globalisation? – The Oxford dictionary defines globalisation as “the process by which businesses or other organizations develop international influence or start operating on an international scale”. Over time the global economy becomes increasingly integrated through free trade, dynamic capital flows and cheap labour. Globalisation has been the greatest reorganisation of the world since the industrial revolution but declining capital flows, trade wars, protectionist policies and a flattening of the global economy have meant the low hanging fruit has been picked.
How much more debt is sustainable? - Our economies are powered by debt, but is it being used wastefully and speculatively? This is important because financial markets lend on the basis that tomorrow will be better than today. Global debt is three times that of GDP, and ballooned from $140trn 2008 to $250trn in 2018. Low interest rates have become normalised and in the process 10% of UK businesses have become zombie companies, defined as being 10 years old or more and only able to cover interest payments.
Finite resources and a damaged environment - We have accumulated wealth and pursued growth at any cost by extracting natural resources at astonishing rates, and until recently disregarded environmental damage. The momentum for radical change is building, and this will shape how we build, organise, and incentivise people and organisations for a sustainable future.
Technology isn’t the problem, it’s the people in charge
We cling to the notion that technology will rescue us from the problems we’ve created, but we mustn't forget that it is humans that build and deploy technologies in the first place.
Unfortunately, data from the CIPD illustrating the UK’s spend on vocational training has been falling. Amongst EU countries, the UK ranked 22nd when it came to professional development investment. If we continue on this path we shouldn’t be surprised if we sleep walk into becoming a low skilled, low-value country.
The herd mentality effect means we rapidly expand and invest when the market is buoyant, and retreat to waste elimination when this tide turns. As game theory recommends, when everyone is doing the same thing, do the opposite and with this in mind there are strong arguments for inverting this relationship.
We are living through a period where there is too much stripping back, but not enough being spent on developing the most expensive asset any organisation has - its people. Automation can create the breathing space for leaders to save costs, and at the same time provide employees with additional time for training. As machine learning becomes ubiquitous, these pattern matching algorithms will handle today’s information explosion with ease.
The real power though is augmenting human and machine intelligence. Our relationship with tech has become messy - but we need to stop thinking about people as machines. Machines are better at being machines than we are, so we need to rediscover our role, our purpose, and what makes us unique. Machines can reduce waste and help us increase our lagging productivity, but true progress will come from humans capability to learn, invent and cooperate with one another.
Please step forward those leaders who recognise this path is unsustainable.