Technology is turning the rules of business on their head

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“We need to make hippos an endangered species.” It’s not quite the statement you would expect at a technology conference, but Andrew McAfee, research scientist at the centre for digital business at the MIT Sloan School of Management, is referring to a particular type of hippo, and it’s not the semi-aquatic mammal.

The hippo in question here is the “highly-paid person’s opinion”.

We’ve all met them: the person who shoots from the gut, who makes a judgment call and sticks with it regardless of the outcome. Sometimes they get it wrong; in fact studies show that 48 per cent of the time the hippo provides no added value.

In terms of making it an endangered species, McAfee wants to stamp out the hippo among companies. Luckily for some the hippo has a natural enemy, according to McAfee: the geek.

“I mean somebody who goes where the evidence takes them. If the evidence or the results from the analysis don’t line up with their intuition, or their gut, the geek walks away from their judgment, their intuition and simply goes and follows the evidence. This is the exact opposite of what a hippo will do.”

McAfee was speaking at Dell Technologies World in Las Vegas earlier this month, imparting wisdom on how technology was turning the rules of business on their head.

The world of business is changing fast. Where once decisions were made based on gut instinct, now information is king. The biggest influence? Technology. From making processes more efficient to cutting costs for business by eliminating staff from certain tasks altogether, the world of work is altering bit by bit.

Different studies draw different views on how that will eventually shape the labour force over time as more automation replaces humans in certain tasks, but the general feeling is that although some jobs will be eliminated, around two-thirds of jobs will be impacted in some way by the march of technology.

That has a knock-on effect across the board.

Out of date

“For the past generation or two we have built up a playbook for how we run a well-managed smart business – that playbook was appropriate for the previous era of technology,” says McAfee. “That playbook is pretty badly out of date, and in a lot of cases it’s actually counterproductive.”

It is a topic that McAfee has been studying in depth for some time. His research looks at how technology changes the way companies perform, compete and how computerisation affects society and the economy as a whole. Businesses need to be aware they’re reading from an outdated playbook, and if they’re not careful they’ll be left behind.

“Technological surges rewrite the business playbook,” says McAfee. “The right way to run a factory in the era of steam power became a really bad way to run a factory when electricity came along. We’re seeing the same thing with this wave of crazy sci-fi technology becoming reality again and again.”

While the hippo will take the data and still “go with their gut”, the geek will follow the evidence. And that approach seems to deliver better results if the studies are to be believed – not only do hippos add nothing half of the time, but 46 per cent of the time they are actually destroying value. In fact, geeks win out almost eight times more than the hippos.

“The weird good news is that we suddenly have a new category of tool to tease out the data,” McAfee says. “Machine learning is increasing the gap between the hippo approach and the geek approach.”

Boring work

One of those rules is that technology should be allowed to take over the boring work, the repetitive stuff, freeing people up to make decisions based on their personal judgment and experience – coming back to the hippo analogy once more. But as technology advances that once firmly-held belief is starting to look a little shakier.

The geek: he or she goes where the evidence takes them
The geek: he or she goes where the evidence takes them

He cited the case of AlphaGo’s victory over Lee Sodol, the top Go player in the world, two years ago. During the course of the game, AlphaGo made a move in the process that no human Go player would have ever made. McAfee said it was clear that AlphaGo saw numerous possibilities from that one move, and made a judgment call.

“In these domains that historically called for hippos and called for judgment and human experience, in these areas machines are demonstrating excellent judgment.”

He also cites the success of quant funds – quantitative funds, ones that use algorithms rather than people’s judgment to make investment decision – in removing the hippo from the equation.

One fund, Medallion, has been described as the “greatest money-making machine the capitalist business world has seen”. It has made more than $55 billion in profits for its investors in its 30-year history, not a bad return for any fund let alone one that is bucking the trend.

Experiment

The future could see crowdsourced quant funds become the norm rather than the exception, with some moves made to remove the hippo from the situation.“It’s too early to tell if this experiment will work out,” says McAfee.

A willingness to take a leap has worked out for companies such as Apple with the launch of the iPhone and a change of strategy that saw it eventually open up the platform to third-party software developers through the App Store.

That technology have led to a number of new industries growing up: urban transportation through Uber and Lyft, accommodation through AirBnB.

But it was Uber that provided one of McAfee’s most striking lessons. Rather than using its great corporate culture to distract from anaemic growth, Uber used its strong growth to distract from a toxic corporate culture.

And that yielded another entry to the new playbook: “The crazy things is, if you get the economics and technology right, you can get a lot else wrong for a long time before it will comes back to bite you.”



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