In a stunning move, JP Morgan has automated a process that was worth 360.000 lawyer hours every year. This is detailed in Bloomberg’s ‘JPMorgan Software Does in Seconds What Took Lawyers 360,000 Hours‘. Of course the article does not mention in detauil how much it cost to develop this new ‘Contract Intelligence’ software, but the result is that a number of lawyers are not longer needed for basic legal checks.
This requires a tremendous investment (9% of revenue according to the paper, which translates into billions of dollars) but it is clear that the standard, mundane work is getting automated fast by the most performing companies. Apparently it has also allowed to diminish human error in the interpretation of contracts and deals.
Like traders have been displaced by algorithms, it looks like banking back office is ripe for being displaced by Artificial Intelligence and bots. And this might be the direction all transaction-based companies (like insurance and other similar industries) will take soon. This will create a huge social issue, that can already be observed as to the state of employment in the banking industry.
The Industrial Age has been built by the labor loop: pay workers more so that they can consume more factory products. This has led to unprecedented improvement of living conditions and overall wealth. This also worked well in an era of scarcity.
As we reach an era of abundance, where manufacturing can produce way more than we can or should consume, what will be the new model that will drive progress in the world? There is much talk about replacing it with a knowledge loop. An excellent post describes this transformation: ‘From the Job Loop to the Knowledge Loop (via Universal Basic Income)‘.
At the same time I find that the view of a knowledge loop supported by basic income where everybody would keenly participate to creating knowledge quite utopic. I am not sure everybody would indeed participate actively, and how the contributions of individuals could be valued.
Nevertheless, the crisis of the labor loop is upon us, as shown by the relative decrease of wages as part of wealth creation and we need to find an alternative model.
Irrespective of whether the amount of work available will change (it might remain quite stable), the number of ‘jobs’ (meant as being an employee) will certainly decrease.
Self-employment is already dramatically on the rise in many countries for a while and it is I believe a trend that will remain.
Platforms that serve to link self-employed people and clients are also on the rise.
Self-employment is not always a choice: it is sometimes the only way to keep some activity and a lot of self-employed people work are forced to work part-time and at weird times too.
At the same time, self employment means more freedom and flexibility, and the possibility to have several concurring activities.
It is strange how the administrative organization of most developed countries are so tweaked to considering people as being employee of some organization. This creates all sorts of complications for the self-employed, or requires to create a company to become an employee of sorts.
The trend to self-employment is here to stay. Our institutions should change to cater for this situation and better protect those who work under this model.
One of the key transformations from the Industrial Age to the Collaborative Age is related to the function of Business Control.
In Industrial Age organizations, the control function acts as the police that checks that cost is minimized and employees and resources are used at their maximum productivity. It also covers all sorts of fraud prevention. It is by necessity a function kept independent of operational and line managers, reporting to senior management. Traditionally it is a role that concentrates a large part of the data gathering and analysis capability of the organization.
In Collaborative Age organization, a large part of the control function is evolving into a function that is embedded in the business and supports management decision-making on a day-to-day basis. This is the case for example in project management: project control is embedded in the project and its main role is to support the project manager pilot the project to its objectives. That role is not so much control as organizing the gathering of data, checking for its accuracy, analyzing it and devising appropriate forecasts as to the direction taken by the business.
However, the use of the confusing terminology of ‘project control’ is sometimes misinterpreted. It is not the traditional business control role and must actually be kept separate.
While there will still remain some part of actual business control in the older sense, most of the analytical resources of companies are now devoted to support decision-making, through Business Intelligence and other tools. This evolution will be reinforced into the Collaborative Age. And it is important we don’t keep the terminology ‘control’ to describe that function.
In the Quartz paper ‘Zappos is struggling with Holacracy because humans aren’t designed to operate like software‘, the demise of the method and the negative outcomes at Zappos are described quite dramatically. The reason quoted is that the human element was excessively removed in the rigid holacracy method: “Ironically, as it seeks efficiency and attempts to eliminate human emotion, Holacracy imposes layers of bureaucracy and adds unnecessary psychological weight on to employees.”
Holacracy is too rigid and bureaucratic. It is not designed to address the challenge of complexity, which requires agility and scalability. This view is developed in the excellent post ‘Holacracy Is Fundamentally Broken‘ on Forbes.
Let’s never forget that organizations and projects are first of all a human adventure!
After reinventing itself as a consulting company in the 1980s (after being a hardware company), IBM is reinventing itself again, this time around Artificial Intelligence, as described in length in this excellent NY Times article ‘IBM is counting on its bet on Watson, and paying big money for it‘. Whether that will effectively replace the struggling consulting activities remains to be seen, but this time this seems to be a major strategic move.
One of the interesting aspects from the ability to analyse large amounts of data is the possibility to help human decision. In the example quoted in the article, while in 99% of the cases of cancer diagnostics the machine arrived to the same conclusion as the experts (doctors) it also proposed in 30% of the cases alternative treatments, due to the fact it had digested the 160,000 cancer research papers published yearly.
This move away from consulting (which was very successful in the 1990s and corresponded certainly to a real need) is also another confirmation that the economic future probably lies in developing AI applications instead of IT systems consulting. Food for thought for many IT consulting companies!
The network is composed of all stakeholders. It is from where the organization derives its direct revenue (clients) and where it creates its permanent value (collaboration between contributors). Some participants might be at some times clients and at other times contributors. Contributors may be full time or part time, or even occasional. They may have met or they may not have met. They may stay in touch with the organization loosely for some time and suddenly become very close contributors.
The network is the value of today’s organization. The network limits are a bit fuzzy and that is perfectly fine. The network is everything, and maintaining and expanding it should be the aim of all modern organizations, irrespective of if participants are within or outside the core organization.
In the Industrial Age, the identity of an organization was very much defined by its physical location and assets. In the Collaborative Age, the identity of an organization is rather its network.
Industrial-Age organizations had definite geographical locations that belonged to it, and often linked to very large and unmovable capital investments. It allowed to define a border between what was inside and outside of the organization. It was rare and even sometimes forbidden to go back home with anything that belonged to the organization.
In the Collaborative Age, walls and geographical locations are not so important. They may exist as just the means to an end: improve collaboration, and will generally be somewhat temporary (as they are not associated with expensive capital investments). Rather the important asset of organizations is its network, both internally and externally to the organization. And it also forms it identity, because the organization is now akin to the network it fosters.
The gist of the argument and of the findings is that “creativity calls on persistence and problem-solving skills, not positivity“. Hence, creativity would be found in rather tougher environments where problem-solving is paramount to survival.
It is a rather similar argument about the fact that expatriation and exposure to other cultures promote creativity: because problem-solving abilities are challenged significantly when moving to another country, plus exposure to other ways of thinking, there is a good fertile soil for creativity.
On the other hand there needs to be quite some protection afforded to allow for time and reflection that are involved in creativity. Extremely tough environments will not afford that. There must be some optimal spot in between perfect bliss and total disruption.
Conclusion: to achieve a creative environment, provide a protective setting but don’t pamper people too much!
In the banking industry, it is estimated that 80% of the client value (i.e. fees) is still generated by the 5% face-to-face contact. The 95% client contact through internet and mobile does not generate much value. In a context of much lower returns in general for the financial industries, banks are confronted to a key dilemma: increase e-banking and convenience but without losing opportunity for creating revenue!
This is a typical example of the impact of the Fourth Revolution on institutions. Bringing services online is not just a transpose of the actual brick and mortar relationship and value chain. It creates the question of creating a whole new value proposition.
And it so happens as well that if simple transactions can easily be carried over to online interfaces, more complex transactions still require a more in-depth contact, either by phone or face-to-face. In the banking industry those transactions carry the most fees: investments and loans. But keeping branches open create significant fixed costs that see their return diminish. The manner of implementing those interactions in an online world still remains to be invented.
The main lesson for the moment is that by bringing current services and transactions online, believing that the value proposition will remain similar is an illusion. It will change significantly and it will need to be reinvented.
“Kill that bulky IT department!”. That could be the war cry of many organizations these days as the influence and size of IT departments tend to diminish significantly. As a result, they don’t have the same regulation impact on investment in Information Technologies.
Two related changes are driving this transformation:
the move to the Cloud (and thus the lesser need for infrastructure setup and maintenance), and
the related fact that other departments can now spend directly for systems without any infrastructure infrastructure needs and thus without any prior authorization or even knowledge by the IT department
According to Gartner, 38% of IT spend in companies is now out of the hands of the IT departments and this tends to increase significantly over time [reference: attended speech from CapGemini CEO in Oct 2016]. The marketing department in particular for BtoC industries, becomes a major client for information services.
This decentralisation has many positives. In particular it removes the centralizing controlling power of the CIO which was oftentimes excessive, even taking strategic decisions without proper understanding of the business impact. It allows specialist trades to implement the tools that they really require. On the other hand it opens the door to issues related to data consistency, possibilities of business intelligence, and all sorts of security-related issues for company data. Actual control of the expenditure may also become an issue as more and more cloud services are Opex based instead of being visible, centrally authorized Capex.
In any case, for us involved in providing specialist software (cf my company ProjectAppServices), it certainly means that all our marketing effort should be directly with the user, and the IT department is just an annoyance to avoid as much as possible.
Are you fully aware of this change? If your IT department still decides everything you are going into the wall. Time to change!
Using social media today is not anymore an option. And this is the case as well in the professional world. If you don’t have any presence on Facebook or LinkedIn, or a minimum proficiency in social media, you look outdated and inadequate in the new world of work.
Let’s thus face reality: you have to have an online presence in the world today to exist.
It is not any more adequate to take a position of ‘non interest’ or ‘privacy defense’ to justify not to use social media. Not having any social media account to relate to brands or interests will increasingly become a handicap in the world of work and beyond.
We are not obliged to share the most intimate details of our lives or the faces of our children. But a minimum online presence around our interests, and the maintenance of a minimum social network, is now a must.
Strong message for all of you that have not yet started using social media!
Hat tip to Paul Hermelin, Cap Gemini CEO, for inspiring this post from his remarks at a conference.