Interestesting analysis excerpted from a review by John Hagel of the book, ‘Race Against the Machine’.

John Hagel:

1. The Problem

‘Ronald Coase won the Nobel Prize in economics for an essay on The Nature of the Firm he wrote in 1937 that provided a simple and compelling answer to the question of why we have corporations. He argued that we need corporations because they reduce transaction costs – the costs of coordinating and executing economic activity. Put in slightly different terms – the rationale for corporations resided in the quest for scalable efficiency.

This was an amazingly accurate analysis of the rise of the modern corporation in the 20th century. Huge companies were built and enormous wealth generated by pursuing this quest. But here’s the catch. How was scalable efficiency attained? It was achieved by adopting large-scale push programs. Driven by forecasts of demand, push programs required highly standardized and rigorously specified work activities that were closely monitored to ensure predictability. The modern, thick process manual was the end-product. The job of the individual was to fit into this tightly regimented work environment and perform predictably and efficiently.

Now, think about this. If we reduce work to highly specified and standardized instructions that can be performed efficiently and predictably, what have we done? We have reconceived work so that it can be performed by computers and robots. In fact, computers and robots are far more preferable than humans because we humans are ultimately unpredictable and have a really hard time following instructions to the letter, day in and day out.

In this environment, it’s quite natural to view workers as fungible, cost items. When pressure mounts, the natural reaction is to cut costs by cutting workers, replacing them with machines where possible and, where not, simply making the remaining workers work harder.

Given this perspective, it’s no longer surprising that we see the hollowing out of the middle class. Where did the middle class come from? They are the workers who so faithfully carried out the tightly programmed tasks defined by our push driven institutions.

Sure, as the authors point out, some of the routine work we do cannot yet be performed by computers, but it’s just a matter of time before the delivery truck driver and the customer service rep can be fully automated. And what about all those wonderful things that the authors indicate will never likely be automated – imagination, creativity, genuine insight and emotional and moral intelligence? These attributes have no place in the push driven institutions we have built. They are ruthlessly rooted out wherever they rear their ugly heads.

Smaller, entrepreneurial organizations of course buck this trend, but what happens as soon as they start to scale? They embrace push programs and rapidly join the ranks of the regimented. Why shouldn’t they? That’s the tried and true way to succeed.

Why should we be surprised that computers and robots are taking over more and more of the work in push driven companies? And it’s not just companies. The doctrine of scalable efficiency pervades all of our institutions – schools, NGOs and government agencies. We have all embraced push programs as the way to achieve success.”

2. The Solution

‘”Until and unless we get to the root cause of the problem, we’ll never solve the problem. The authors frame the issue as a technological issue, but it’s really an institutional issue. Until we can develop an alternative institutional model, one that can scale as effectively as the scalable efficiency model, we will face mounting pressure from machines and remain locked in a race against the machine without the ability to finally race with the machine.

But here’s the good news. The scalable efficiency institutional model is fundamentally and irreversibly broken as I’ve argued at great length in The Power of Pull, with my co-authors, John Seely Brown and Lang Davison.

Why is it broken? Because digital technology has re-shaped our global business landscape in profound ways. It makes forecasts and predictions more and more challenging as we see more and more volatility and the increasing frequency of extreme, unanticipated events (“black swans”). We increasingly find ourselves in a Paretian world but predictability can only be found in a Gaussian world where averages are meaningful. The push programs that seemed so essential to scalable efficiency now produce the opposite: increasing inefficiency, as rigidly constructed programs face unanticipated changes in the market.

Equally importantly, we’re moving from a world of knowledge stocks, where competitive advantage resides in proprietary knowledge of lasting value, to a world of knowledge flows, where competitive advantage can only be attained by participating effectively in a larger and more diverse set of knowledge flows. In a world that’s changing more rapidly with growing uncertainty, knowledge stocks depreciate in value at an accelerating rate.

This suggests an alternative rationale for institutions. Rather than pursuing scalable efficiency, perhaps we need a new set of institutions that can drive scalable learning, helping participants to learn faster by working together. While simple to state and intuitively appealing, this requires profound changes to our institutional landscape.

Rather than relying on rigid push programs, we need to increasingly develop scalable pull platforms where people can draw out people and resources where they are needed and when they are needed, not just to perform pre-defined tasks, but to engage in creative problem-solving as unanticipated challenges arise. Interestingly, the authors of Race Against the Machine, cite a number of promising entrepreneurial initiatives that all turn out to be examples of scalable pull platforms, but they don’t step back to really develop what is different about these pull platforms or to explore their potential for accelerated learning and performance improvement.

These pull platforms have an interesting property. They not only accommodate, but demand, the attributes of participants that are least susceptible to automation – imagination, creativity, genuine insight and emotional and moral intelligence. In fact, these pull platforms catalyze, cultivate and reward these attributes – the same attributes that are so suspect in today’s push driven institutions. In pull-driven institutions, participants are no longer fungible cost items but instead become fully visible as assets with the potential for virtually unlimited development.

One more point. These pull platforms are much more challenging to scale without digital technology infrastructure. At long last, we will have an institutional framework that requires us to race with the machine, rather than simply racing against the machine.

This emergence of pull-based institutions isn’t simply confined to the domain of corporations. It will pervade all institutional domains. For example, our educational system is a classic push driven environment – not surprising, given that its primary mission was to prepare individuals to enter the workforce of push driven corporations. Adopting this institutional re-framing in education points out the limitations of the authors’ recommendations on education – simply investing more money and working longer hours in a push driven educational environment will have only marginal impact at best.”