A pernicious oversimplification to deal with a technological upheaval akin to the Second Industrial Revolution, an extinction event for once dominant companies unwilling to digest the ugly truth that business based on science and technology had to be -you must be joking!- entrusted to people trained in those hard disciplines. This time, business leaders can use lessons of the past to avoid the mistake of their forebears, namely, playing high tech by the ear.
What on earth is “web-scraping?”
In a recent article about industry trends, I came across the following recommendation:
Similarly, dynamic systems with web-scraping and predictive impact analytics could automate pricing and promotions.
— McKinsey, “Automation in retail: An executive overview for getting ready”
I wondered how many top decision makers could make sense of this sentence, let alone visualize it in practice.
I would even dare say that not even IT professionals who haven’t updated for a while would be able to, nor to list the technical, knowledge and organizational requirements to unleash the power contained in these 14 words. Such has been the drastic evolution undergone by technology in the last 15 or 20 years.
Disconcertingly, when challenged by Amazon or by technologies sufficiently advanced to be indistinguishable from magic, corporate leaders would as a reflex summon whatever consulting or management talent money can buy -except for STEM. The more ominous the accelerating threat from science and engineering, the stronger the attachment to increasingly less relevant knowledge.
This cultural phenomenon is not new, nor its debilitating effects.
Resistance to the Second Industrial Revolution, redux
In spite of being the cradle of the Industrial Revolution, and its command of the power and resources of the largest empire in human history, by the end of the 19th century Great Britain felt insecure lagging behind other advanced nations, most notably Germany, a newcomer whose meteoric ascent was eventually perceived as an existential threat.
The reasons are well understood:
Britain… tried… to live through the Second Industrial Revolution with the tools of the First… Its… ruling class… tried to reorder the hierarchy of values so that production and technology would occupy once again the lowly position they had occupied centuries before the Industrial Revolution.
— Joel Mokyr, The Lever of Riches
“Lowly position” . Strong words.
In stark contrast with this attitude, Germany and other powers invested heavily in higher technical education, e.g. the Polytechnische Schulen, considered as the key enabling factor to harness the Second phase of the Industrial Revolution, characterized by advanced technologies, such as steel, electrification, machine tools, petroleum, chemical, engines and turbines, telecommunications, etc., well above the skills of the once successful amateurs and liberal professional entrepreneurs of the low-tech First.
In those countries, engineers moved up the socio-economic ladder, on their ascent replacing gentlemen at the helm of business and industrial affairs in general, thereby creating an atmosphere which incentivized a virtuous circle of talent generation and hiring.
Incidentally, Britain’s malaise with modernity continued into the 20th century, accompanying its relative decline, as evidenced by the still controversial manifesto “The Two Cultures” (1959), by C. P. Snow. No wonder London so thoroughly embraced financial capitalism, while its old rival and Japan remained industrial champions to this day.
“But I just need digital, not robots”
I wouldn’t be so sure.
Indeed, the Fourth Industrial Revolution -at least as defined by Klaus Schwab or, in less historicist but more impending terms, by Erik Brynjolfsson’s “The Second Machine Age“- looks science-fictional to most industries. Or is it?
Let’s look again at a random sample of what the above mentioned article, whose focus is merely on automation, recommends to a quite conservative industry:
Self-checkout terminals without human interaction, shelf-scanning robots, digital shelves that display prices, nutrition facts, coupons, and video advertisements —all dynamically updatable from a central source, real-time link of the shelves to shoppers’ smartphones, automated miniwarehouses for the robotic in-store fulfillment of digital orders, autonomous cleaning robots, tvirtual-reality headsets for training and store experimentation, advanced planning systems, real-time big data analytics…” (the italics are my additions).
— McKinsey, “Automation in retail: An executive overview for getting ready”
This doesn’t look purely “digital” to me.
In this list I also see logistics, IoT, Machine Learning and, by the way, robots. In addition, it is assumed a strong and tight multidisciplinary interaction among all these hard to acquire disciplines, implicit in a kind of organization that allows for experimental, short development cycles, currently known under such names as lean or agile, adapted to cope with the fast evolution and uncertainty also characteristic of the current wave of the Industrial Revolution.
Therefore, in the end you might be right. You don’t need digital. What you need is technology, and to bring advanced technology into your company you need highly trained engineers conversant with a dynamic way of making progress. Except if you are in the business of building oil refineries.
Who told you Digital Transformation is about IT?
Many industry leaders of good will have earnestly tried to surf the digital wave by putting the burden on the shoulders of the IT team. In practice, such initiatives usually take the form of an increased IT budget, with no strategic vision and certainly no transformation at all. Plus ça change, plus c’est la même chose.
It is the firm that needs to transform, not the IT department
There are at least two reasons why this approach consistently fails. The first is that Digital Transformation is not about code or the internet, but on the impact the new technologies are having on everything that is going on in the world, in particular on the mode of production of the capitalist firm. It is the firm that needs to transform, not the IT department.
The second reason is that, as mentioned in the previous section, IT is just one piece of the puzzle. Furthermore, IT as it is still usually understood, is a deprecated concept pertaining to the former industrial era. “ERP”, “CRM” won’t make you any more digital than connecting to the power grid. 40 years ago, deploying SAP R/2 was transformative, now it is rather a symptom that you might be so far behind that you believe you are first.
“A geek cannot run my company”
Although the scientist and engineer in me might fantasize about a dystopian techno-oligarchy like Vonnegut’s “Player Piano“, my economist other self would advise me otherwise.
The point of this article is that as technology becomes more pervasive, more advanced and faster evolving, the proportion of technical talent and its involvement in decision making must increase accordingly. Playing it by the ear won’t make it, as it didn’t back in the days of the Second Revolution.
For example, imagine yourself in an elevator pitch with the graduated engineer Rudolf Diesel.
He tells you that he’s come up with a far more efficient engine type. Your businessman instincts tune to the last 3 words. But then how to assess the claim? Diesel would explain that his design closely approaches the Carnot Cycle (What’s this?) “The Second Law of Thermodynamics…” (Entropy?!) The chances of mutual communication and trust are slight.
Inspired by his candour, however, you decide to put your faith on the verdict of a panel of consultants. Well, if you had relied on this method you would have missed a fortune, because Diesel’s design was widely criticized by contemporary experts. But how else could you have judged? It would have been better to consult your own experts with skin in your game but, alas, your firm, self-declared low-tech, has none in the senior management.
Diesel naturally partnered with Heinrich von Buz, owner of Maschinenfabrik Augsburg-Nürnberg (MAN), a fellow graduated engineer, who could be self-confident and patient enough to see the development process through -and both got rich.
But for the next level, he sent Heinrich to the Königliche Polytechnische Schule
Von Buz leadership was typical of the companies that made it successfully through the Second Revolution. MAN had been founded by his father Carl, a military engineer who as an officer had been involved in the construction of the railway Munich-Augsburg. He promoted the precursor of MAN from textiles to steam engines. But for the next level, he sent Heinrich to the Königliche Polytechnische Schule in Augsburg. Like the Toyoda family decades later.
Now for a more recent example. Everybody takes Amazon’s prowess in logistics as a given. But back in 1999 it was far from being the case.
At that time Jeff Bezos (incidentally an electrical engineer and computer scientist) decided to put Jeff Wilke in charge. Wilke was a graduated chemical engineer with vast experience in manufacturing at scale. He combined his solid engineering background with Amazon’s computer science and math wizardry to turn its fulfillment centers into cutting-edge industrial facilities. This is to be compared with the amateurish logistics at many if not most of its competitors, at whose reins one rarely finds engineers, not to mention the rest of the STEM talent required for Industry 4.0.
Eventually, Wilke became CEO of Worldwide Consumer. So perhaps a geek can run a big company after all!
Great industry leaders give wings to their visions -if they have them
Bezos could have, like Britain, tinkered with logistics, constrained it to crawl at his own, intelligent but non-expert speed. Proof of his business acumen is the fact that he both valued and empowered technical expertise, thus giving wings to his vision, or getting inspiration from his informed entourage, an entourage that he could also trust for execution.
Great industry leaders would not attempt to become experts in every domain -nobody can. Rather, they understand that a substantial investment in grades and tuition fees, as well as experience in technical positions should amount to something valuable that they are, often uniquely, capable to orchestrate to bring ideas and companies to a much higher level.
On the contrary, insecurity or underestimation of technology leads to lack of vision. Be honest with yourself: if only 5 years ago I had told you that very soon smartphones would unlock just by gazing at them, you would have looked down on me, and if I had pressed my case further wielding funny names like convolutional neural networks and GPUs I would have fared even worse.
Think not of all the missed opportunities, but of all those you are going to miss by not being backed by a team with solid technological skills.
Conclusion: insource STEMs, empower STEMs
Nobody in his right mind would outsource core business. Therefore, do not outsource STEM in times of accelerating technological pervasiveness, complexity and change. STEM is the scarce, strategic human factor, not the other way around.
I insist with “STEM” because all of these are the disciplines of the current Industrial Revolution: Science, Technology, Engineering, Math. Even for consumer retail.
Bring STEM talents with management skills, or upgrade them to be managers. Manage their knowledge and effort to amplify your own capabilities or to reach into domains outside your non-technological sphere.
Consider the possibility that younger candidates would seek venture capital for their Diesel design rather than work under an MBA who has trouble spelling “thermodynamics” and will be suspicious of most of their initiatives as a matter of insecurity.
All Rights Reserved for Marcelo Alé
Productivity Hub 