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Should central planners with big data be given another chance?

Three thought-provoking FT articles, on seemingly unconnected subjects, share a common theme: whether a liberal economic order always gives us the best chance of a secure and prosperous society. Such debates increasingly frame our public discourse, one in which business plays an increasingly important role.

John Thornhill, the FT’s innovation editor, writes in The Big Data revolution will not set the planned economy free, that one plausible reason why authoritarian regimes with planned economies such as the former Soviet Union collapsed is because of their failure to process market data. ‘How could any central planner sitting in Gosplan’s offices in Moscow hope to understand all the moving parts of the Soviet economy across 11 time zones?’ he writes. But might the explosion of data now enable central planners to process market information more effectively, allowing a planned economy to ‘rise again in a radically new form?’ China, for example, ‘is developing one of the most vibrant data markets in the world.’ Two Chinese researchers suggest that ‘the freer flow of data could counter many of the ills that disfigured planned economies.’ Would it be so different from, say, the way an airport operates, directing market-driven traffic? But Thornhill counters that accumulating data is a very different proposition to being able to use it effectively (as numerous failed government IT projects attest); and he questions ‘how innovative such an economy could ever hope to be. It is hard for consumers to signal a data demand for a product that does not yet exist.’

Those who believe that, thanks to such potential efficiencies, old-school socialist planning should be given another chance, might read Philip Stephens’ reflections on UK Labour Party opposition leader Jeremy Corbyn. Efficiency is not the issue. His apparent neutrality on many of the world’s nastiest trouble spots suggests an organising ideology that ‘is not pacifism but anti-Americanism’. He adds: ‘For Mr Corbyn, hostility to a US-led liberal order counts above human rights.’

A better case against the principles of a liberal western order, however, is made in this illuminating FT interview of Rwanda’s highly authoritarian President since 2000, Paul Kagame, by FT editor Lionel Barber. ‘In poor countries, democracy is more about access to calories, schooling and healthcare than about periodic voting exercises,’ say Kagame supporters. As the country strives to heal itself following the 1994 genocide, the capital ‘Kigali is now among the safest and smartest cities in Africa. … Growth in gross domestic product has averaged 8 per cent a year, among the best on the continent’ Life expectancy has also soared. But even Kagame supporters fear that these achievements will disappear when he leaves office.

Interestingly, Mr Kagame sees himself as ‘CEO of Rwanda Inc.’ The government is ‘an extremely serious bunch of technocrats, obsessed with collecting data, setting performance targets and fine-tuning policies.’

What dissatisfied customers really want

Understanding the customer journey has always been a critical challenge for marketing professionals, especially as online commerce has altered the way consumers and producers interact. One important aspect of this is how companies respond to dissatisfied customers. Marketers often view such situations positively—and as an opportunity to put right problems and thereby engender more loyalty than before.

But Andrew Hill’s entertaining column, ‘How to deal with customer gripes’, questions whether the so-called ‘Service Recovery Paradox,’ which holds that a well-handled complaint will enhance the company’s reputation, still applies. The FT’s management editor argues that it probably does so long as ‘the service failure is not that severe, it has not happened before and the company had little control over what went wrong.’

He quotes Roland Rust, founder of the Center for Excellence in Service at the University of Maryland’s business school, who turned a poor experience on Unite Airlines into a case study. Among the lessons learned (‘apart from the self-evident one: never upset a customer service professor’), Professor Rust observes that companies focus too much on efficiency at the expense of customer experience; overrate the value of cash compensation; and suffer a ‘negativity spiral’ that encourages others to add their bad experiences to social media. (An article reader also mentions the importance of overcompensating customers to ensure a positive feeling.)

The more proactive companies have reacted by answering online customer gripes individually, thus helping ‘to damp down the initial complaint’ and ensuring their responses ‘stay on the record for future customers hunting for online guidance,’ Hill writes.

It’s an approach that certainly contrasts favourably with the response of an irate restaurant owner, reported in an earlier FT article which concluded that ‘slagging off a reviewer is both pointless and counter-productive,’ though in some cases it’s only fair to consider the company’s perspective too.

UK employers fear a hard-line definition of immigration

The Brexit question that, arguably, most exercises talent managers relates to immigration. In the great ‘tariffs versus talent’ trade off, it remains unclear where EU-UK negotiations are headed and the implications for foreign workers filling much-needed positions on both sides.

The FT reports that employers are urging clarity on the post-Brexit status of EU nationals after new data showed that immigration has fallen to its lowest level in three years, with net migration to the UK at 246,000 in the year to March, compared with 327,000 the previous year.

‘More than half the change was driven by a decline in net migration among EU nationals, and in particular, a 59 per cent rise in emigration among people from the eight eastern European countries — including Poland, Slovakia and Slovenia — that joined the union in 2004’ the FT writes.

Although the fall might satisfy certain members of the UK government, employers are anxious about potential labour shortages should the trend continue. Some organisations are already reporting declining applications by EU nationals to work, for example, in nursing, while the National Farmers’ Union reports a 17% drop in seasonal workers this year. With unemployment at just 4.4%, a four-decade low, and the highest employment rate on record, employers fear a major skills shortage.

However, the UK premier, Theresa May, has shown few signs of relenting to business pressures. As the FT points out: ‘For Mrs May, who spent six years at the Home Office, immigration has never been an issue of economics.’ She was one of few cabinet ministers to fully back attempts to reduce net immigration to the tens of thousands.

Much of this debate has centred on whether to include foreign students in the statistics, and in particular how many of them are overstaying their study visas. Flawed survey sampling had estimated the number of over-stayers at around 100,000—underscoring the hard line, anti-immigration, positions in government. But this figure has recently been debunked by new Home Office checks that now suggest a figure of just 4,600. Whether this prompts the government to take a softer line, at least on overseas students, remains unclear.

What do we want? Less work, lower pay!

If it’s true that no-one ever regrets spending too little time in the office, that message appears to be spreading, at least in the UK. In this article Chris Giles, the FT’s economics editor, notes official data showing that 3.3m workers would now prefer to work less for lower pay, compared with only 2.7m who would prefer to work longer for more—the largest such gap since the financial crisis in 2008.

The aggregate effect of this ‘overemployment’ may be less dramatic than it seems, as those seeking to reduce their hours only want to do so a little, while those wishing to work more, want to by a significant amount. Nonetheless, the figures reveal a significant proportion of the working population wanting to do less work—and that should sound a warning for human resources managers. Surprisingly, the tighter labour supply hasn’t increased workers’ bargaining power. This may be because of a residual fear of unemployment, as reflected in an uptick in the ‘index of unemployment fears’ in the wake of the Brexit referendum.

HR leaders might also consider what lies behind this trend and how it might apply to their own staff: It could be a sign of general disengagement, a rebalancing of work-life priorities, the need for more flexible employment, a question of tax disincentives, or simply the best way to preserve one’s job. Could it even be a sign of a more prosperous workforce—at least for those whose bills are readily met? More generally, companies might factor in the potential impact on future labour supply, particularly given the effect of Brexit on the supply of EU labour.

The true face of Artificial Intelligence

For companies pondering the transformative nature of technology, particularly Artificial Intelligence (AI), several FT articles provide valuable context. ‘Mapping the contours between humans and machines is becoming one of the most intriguing, and at times creepy, challenges of our times,’ writes John Thornhill, the FT Innovation editor. ‘You shouldn’t anthropomorphise computers because they don’t like it,’ he quips. His interaction with a robot called Sophia which (or ‘who’) possesses ‘mesmerising lifelike facial features’ shouldn’t be viewed as anything more than ‘technological tools or digital slaves designed to do our express bidding.’ The ‘cutesy human stuff’ is nothing more than ‘false advertising’. Today, robots function as security guards, nursing assistants, teachers and sex toys; but a decade hence, they will be smarter, and could even include some moral agency. ‘Algorithms in self-driving cars, for example, already indirectly involve life and death decisions, prompting some car companies to employ philosophers to devise ethical settings in their systems.

Understanding how artificial neural networks make judgments is important particularly for doctors and the military but also companies. According to Richard Waters, the FT’s US West Coast editor ‘even the experts cannot tell exactly why robots come up with the answers they do.’ He points to the Tesla car driver killed when the ‘autopilot’ software failed to identify a white truck on a sunny day. ‘It’s a big black box — it can’t engage in a conversation with you.’ Researchers are now looking to employ teachers to train AI systems as if they were normal students, starting with simple concepts. It’s an approach that might work well for the human/AI workforces of the future.

Tim Hartford, the FT’s economics leader writer, is less fearful of AI’s impact on jobs. He believes that it will enhance rather than replace human activity, improving pay and creating more interesting work for humans. Indeed, his concern is that the AI revolution isn’t happening fast enough, and writes mockingly: ‘Sorry: this robot takeover could not be completed at present.’

In another, fascinating article, ‘What we get wrong about technology’ Hartford argues that ‘the most influential new technologies are often humble and cheap.’ It wasn’t the Gutenberg press that changed the world as much as the invention of paper on which it printed, giving rise to everything from wall decorations to toilet paper. Similarly, the invention in 1874 of barbed wire enabled American settlers to protect their crops from roaming bison, while the simple shipping container, invented in the 1950’s, transformed global trade.

In our rush to understand AI, corporate leaders should not overlook the modest innovations whose impact might be just as dramatic.


How will the Internet of Things affect your company?

The FT’s big read The internet of things: industry’s digital revolution provides corporate decision makers and L&D professionals with valuable perspectives on some challenges and opportunities of digital transformation. The article notes how ‘the plunging costs of sensors, communications, data storage and analytics have made it possible to record and process huge volumes of information about physical systems, from trains to oil refineries to wind turbines.’

For example, the insertion of some 900 sensors on Amtrak trains in the US alerts the company to equipment failures, which has helped it reduce travel delays by one third in the past year. The range of measurements includes: ‘analysis of temperature, pressure, vibration, movement and flows of electrical current.’ This in turn helps ‘prevent failures, streamline maintenance, improve performance — and even change the way products are designed and made.’

According to the Boston Consulting Group, by 2020 companies will spend some €250bn annually on IoT, half of which will be in manufacturing, transport and utilities. Gartner research forecasts that by then business will use 7.6bn connected devices, double the current level. This affects recruitment and training too. One quarter of Bosch’s 20,000 software engineers, for instance, already now focus on IoT. Along with robotics and 3D printing, IoT will take manufacturing to the ‘next level of productivity.’

Needless to say, there are big challenges. With around 360 companies offering IoT platforms, it’s difficult to develop an industry standard. Also, large industrial companies worry about entrusting outsiders with important decisions, especially when it involves expensive and hazardous machinery. And there are obviously security concerns about third-party access to valuable company data. Start-ups, which are making much of the running, are often better than larger conglomerates at assuaging some of these fears by allowing customers to retain control of their own data. But this raises another important question: if managers ‘hand over control of their data, and defer to a service provider on decisions about how to run their operations, what value are they adding?’

Perhaps a bigger issue for learning and development is that many large companies are simply not in a position to benefit from the new technologies because they require radical organisational change which too many firms are simply not able to implement.

Brexit trade offs

One year on from the Brexit vote, is the business outlook any clearer now that negotiations have officially started? An inconclusive general election, the rise of a united, hard-left opposition, the emergence of a strong French president and the UK prime minister’s loss of credibility may have changed the negotiating environment. Should companies act now, plan for later, wait and see, or ignore developments?
The FT’s six Brexit scenarios (and this video) provide a useful starting point for consideration. At one end of the scale is the ‘clean exit’ or ‘No Deal.’ According to this scenario, almost every sector and business would face disruption, while leaving residents in the UK and Europe at the mercy of their host country. ‘A self-inflicted wound of historic proportions,’ concludes the FT. A less conflictual, but still hard, Brexit would be the ‘Divorce-only agreement.’ This highly protectionist outcome would require an interim arrangement relying on WTO trade rules, but would allow the UK to negotiate its own non-EU trade deals and devise new state aid rules. A ‘limited tariff-free deal’ would also give the UK freedom to sign trade deals, but would subject British companies to EU custom and regulatory checks, while the financial services sector would lose its ‘passporting rights.’
A Far-ranging trade deal would limit UK sovereignty, in particular over immigration, although freer labour movement would also benefit business. A Customs Union arrangement would be smoother, though not frictionless, and be welcomed by manufacturers. However, this outcome would negate a large part of the Brexit rationale of allowing the UK to negotiate its own trade deals outside the EU. Finally, membership of the single market would maintain the regulatory harmony and free labour movement that companies want, but the outcome would feel like the UK had remained in the EU but without a say on policy.

Uber not alles for corporate leaders

‘Imitation may be the sincerest form of flattery, writes Andrew Hill, the FT’s management editor, ‘but it is the most dangerous form of leadership development.’ He draws important leadership lessons from the management turmoil at global taxi firm Uber (whose founder Travis Kalanick has just resigned) which stands ‘accused of ignoring sexual harassment complaints, putting driver safety at risk and misleading regulators.’

A company that in eight years has achieved a $68bn valuation will inevitably win admirers and imitators. Many see Uber’s style of hustling, confrontation and dog-east-dog competitiveness as something to emulate. ‘There must be thousands of Kalanick clones out there who saw the way the Uber founder’s aggressive approach and mimicked it at their own companies,’ writes Hill.

For some, the Kalanick approach will be celebrated. Others will concede that it is an unfortunate but necessary by-product of driving ambition; at the very least, essential for survival. They point to Steve Jobs as the classic example of bad behaviour that is excused in the bigger Apple story. But is success and insufferable arrogance two sides of the same coin? Bill Gates is quoted as saying: ‘So many of the people who want to be like Steve have the asshole side down. What they’re missing is the genius part.’

The article carries a warning for slavish and lazy imitators (typically describing themselves as ‘the Uber of…’ ). A rotten culture left unchecked can eventually destroy a promising company. Some 15 years ago, escalating accounting fraud at much-admired WorldCom led to its bankruptcy and jail for its CEO. Suddenly the company ceased to be a role model for thrusting capitalists.

With Kalanick's departure can Uber change culture? Some basic management guidelines would certainly help: ‘set clear standards, measure compliance, reward those who live up to the new rules, get rid of those who do not.’ But change, as always, must start at the top.


The Brexit election: another fine mess

Seldom has the political cliché that ‘a week is a long time in politics’ been so true, as this discussion between FT editor Lionel Barber and political commentator Janan Ganesh explains. Last week, an all-powerful British Prime Minister was scheduled to meet the new French president who some felt would struggle to muster his own parliamentary majority. Today, the opposite, and more, prevails. This reversal of fortunes underscores important lessons not just for politicians, but risk managers and senior corporate decision makers trying to make sense of events.

First, received opinion, whether from polls or pundits, is still just opinion. As the respected US psephologist Nate Silver points out in his First Rule of Polling Errors: ‘polls almost always miss in the opposite direction of what pundits expect’. For business leaders, it’s sometimes wise to take the political temperature oneself. Although admittedly unscientific, simply talking to voters or customers without prejudice, and asking what they and their friends are thinking and feeling might just reveal something your market research is missing.

Second, look for deeper causes. Theresa May’s campaign was undoubtedly awful. But does that alone explain the outcome? With 42.4% support, it was one of the Conservatives party’s highest ever vote tallies. Perhaps it could have edged up a couple more percentage points, but the more significant factor was a 10 percentage-point surge to 40% for the opposition Labour party led by a largely unreconstructed socialist Jeremy Corbyn. For many, especially voters under 45 years old, the ideological wars of the 1980s are ancient history. The winning idea of that era, free-market meritocracy, like all ideologies, eventually loses some of its intellectual vigour. Its benefits are taken for granted; its failings—a global financial crisis, corporate corruption, stagnating household incomes and soaring executive pay—are ongoing sores. The anti-market backlash may have further to go.

Third, the investment future seems as unpredictable as ever. A united Labour party has the political momentum (in all senses) and would relish another contest with a weak divided government that is about to embark on its quixotic Brexit journey. A Corbyn-led government arguably represents a bigger threat to business than even a botched Brexit. Though the worst may yet be to come, political fortunes can also reverse in surprising ways. The UK election has been interpreted (albeit on shaky evidence) as a call for a soft Brexit. The election fallout could change the dynamic in negotiations with the EU where some leaders welcome a relatively straightforward departure as an opportunity to get on with ever closer-union for an inner core. The added threat of a hard left Britain emerging from the chaos might even focus minds on minimising the disruption.


Populism and its dangers

Free-market democracies have seen a wave of populism, from the far right, far left, and religious parties, lapping the defences of western political systems. Populism has enjoyed huge success from the US, across Europe, to Russia. Even the success of centrist Emmanuel Macron in France’s presidential election should not obscure the strong showing of his Front National opponent. Now, UK voters go to the polls in a febrile atmosphere in which a far-left message is proving to be alarmingly potent. One thing that populists share is their disregard for the fundamentals of free-market economics which has helped companies thrive for many decades.

It’s therefore worth corporate executives and investors pondering the damage that populism can wreak once it has taken power. The FT’s account of developments in two democracies, Turkey and Venezuela, illustrate those all-too-familiar paths to political and economic ruin. This short FT documentary describes how citizens of formerly oil-rich Venezuela (for long an inspiration for western-based socialists), are now scrambling desperately to find bread and medicines. Meanwhile, the political regime in Turkey is firing or imprisoning political ‘opponents,’ by the hundreds of thousands. This is sure to affect the country's economic and investment prospects too. As the FT’s Chief Foreign Affairs correspondent argues, ‘Turkey’s slide into a repressive autocracy serves as a warning to American citizens’ too.

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