Category Archives: Governance

“Preparing for the change that is on the horizon”

Abstract

Although we see change all around us, we aren’t yet fully aware of the coming impact that increasing computerisation and automation will have on the workforce. This paper looks at the research from leading academics and institutions and posits several implications for local businesses and economic development activities. Using a strategic foresight framework it outlines several courses of action that address the implications.

Current Research

Much discussion has been had with respect to the “40% of jobs will be lost between now and 2030” headline in recent times. But where has it come from, and what are the implications of this change.

Frey and Osborne, two researchers from the University of Oxford, released a paper in the latter part of 2013 entitled “The Future of Employment: How susceptible are jobs to computerisation”. They analysed the tasks of all of the standardised list of jobs (there are just over 700 different jobs – sales manager, hairdresser, CEO, etc). This analysis looked at the likelihood of computerisation of any of the tasks of any of the jobs.

Jobs and the probability of computerisation

 

Figure 1: The distribution of occupations and the probability of computerisation, along with the share in low, medium and high probability categories.

 

 

 

 

What they found was this. Firstly, that high-wage and high-skill jobs are the least susceptible. Secondly, that the more routine tasks that a job has the more susceptible that that job is to computerisation and automation.

Another of their findings was that employment in services, sales and construction is likely to be affected. Although this seems counter-intuitive, reflect upon recent technological advances. For example, robots are making their way into services, entry level sales jobs are being replaced by technology, and prefabrication, 3D printing and drone-based construction are forging paths into the construction sector.

Another major piece of research that you may not have heard about was that produced by David Autor and colleagues of the Massachusetts Institute of Technology (2013).

This research was focused on the types of tasks that a job is comprised of. Reflect upon the job that you do, even those of your colleagues or friends outside of work. Your jobs are made of manual tasks and cognitive tasks. Autor went one step further and divided these into routine manual, non-routine manual, routine cognitive and non-routine cognitive tasks.

Jobs and the demand for skill types

 

 

Figure 2: Trends in task input in the US Economy

 

 

 

As you can see from the graph (although it is of the USA job market, the trends nevertheless apply to Australia), the movement in skill demand is only good for non-routine cognitive tasks. That is, those that require non-routine interpersonal skills (social intelligence) or those that require non-routine cognitive skills (creative intelligence).

These historical findings make sense. For example, we have seen the replacement of a lot of manual manufacturing jobs with increasingly sophisticated machines over the years. Likewise with say routine cognitive tasks like account/book keeping where shoeboxes full of receipts have been replaced with automatically updated entries on some cloud-based software.

A third line of research related to employment is aimed at finding out how productive we are (Productivity Commission, 2016). That is, the better a firm is at turning its inputs into outputs the more productive it is. What flows from increased productivity is increasing profitability, higher wages, business growth, and so on.

Now, over the years, it used to be that the smartest and most productive firms (the frontier firms) were always a fixed percentage better than most. However, in recent times, these most smartest and most productive firms have been getting much more smarter and much more productive than the rest. The “fixed percentage better” is no longer fixed, the gap is increasing. So much so, that the majority of the economy seems to be stagnating.

Markey sector labour productivity

 

Figure 3: Productivity of the Australian economy

 

 

 

 

What this chart (fig 3) tells us is that the majority of Australian businesses either aren’t looking at making better use of their labour, or they are making sub-optimal investments in their business.

The final piece of research to mention is with respect to employment multipliers.

We know that one the tenets of economic development is that for every local job created, additional jobs are also created. This employment multiplier is dependent upon the industry and whether or not the job is in the tradable or nontradable sector. Moretti (2010) finds that for every local manufacturing job created, another 1.6 jobs are created in the local nontradable sector. Lee and Rodriguez-Pose (2016) report on research that found 4.9 additional jobs in the nontradable sector for every 1 job created in high-technology industries.

According to Kaplanis (2010a, 2010b) there are three factors that drive the formation of these additional jobs: increasing the density of high income workers drives an increase in the demand in the local nontradable sector, rising production complementarities as the density of local skilled workforce rises, and improvements in one firm’s productivity benefit other firms.

Implications

Based on this research, there are several implications for both businesses and economic development activities in your local area.

First. Jobs that involve thinking and/or people skills are the future-proof jobs. Think about the different industry sectors (ie, agriculture, construction, education, manufacturing, etc) and their impact upon your local economy both now and into the future.

Can you see a range of employment options developing that are rich in these two types of skills?

Second. Jobs happen in the context of a business. And with more and more jobs being computerised and automated, are the businesses in your local economy looking to improve how they operate their business and how they produce their goods and services.

Take, for example, a telemarketing business. Say there is such a local business (call is “Biz-A”) and it employs about 200 people. The staff are paid to call people and move them along the sales pipeline. Now, lets imagine a competitor. And this competitor (call it “Biz-B”) uses computerised voice services. There is significant potential for the Biz-B to compete profitably against Biz-A.

Have you heard of Amazon’s “Alexa”, Apple’s “Siri” or Microsoft’s “Cortana”. It is not beyond the bounds of possibility that Biz-B could simply be a computer with the right software and an internet connection to be just as effective as Biz-A. The potential is for those 200 staff to lose their jobs, and for Biz-A to close down.

So, for businesses to thrive, they must always be looking to both improve the efficiency of their operations (a total cost of ownership calculation) and to improve the effectiveness of how they generate profit (a return on investment calculation).

Is there a bias toward improvement and innovation across your local business sector?

Third. For businesses to succeed in the period ahead they need to be able to attract people that can think and that are good with others. That means that the owners of the business and the organisational culture must be biased toward new ideas and working with those outside the firm.

Is there a continual flow of good ideas and forward looking people into your local economy?

Fourth. There is a definite linkage between businesses that export product out of your area and growth of local lower-paid jobs. Although developing the manufacturing base will do it, greater local employment gains will be achieved with a focus on high-technology industries.

What steps can you take to develop local high-tech industry?

Actions through the lens of Strategic Foresight

Strategic foresight precedes strategic planning. Planning strategies is about decisions. It’s about asking two questions: “what will we do” and “when will we do it”. Whereas strategic foresight is about understanding the future and clarifying emerging situations. It answers the questions: “what seems to be happening” and “what might we need to do”.

One model that helps us understand the future is Dator’s matrix. This model holds that the future for any organisation, person, business, community group, family, etc will follow one of four paths:

  1. Business as usual
  2. Something transformational will happen
  3. Decay and degradation set in
  4. Restrictions and discipline are enforced

With so much change on the horizon, particularly in the world of work and business we can probably discount the “business as usual” future.

We can probably also make the case that the transformational path won’t happen (ie, hope is not a strategy) and that an increasing “nanny state” future is also not likely.

So that potentially leaves a retreat from the prosperity we currently enjoy.

Therefore, because we can see this change fast approaching and to forestall, mitigate and overcome this retreat, the recommendation is for local action.

Where the action includes a focus on either attracting, or developing, high wage high tech industries.

Where the action includes ensuring local businesses have a bias toward innovation.

Where the action includes community development that is attractive to the thinkers.

Where the action includes events and programs to facilitate business to business interaction.

References

Frey, C. Osborne, M (2013). “The future of employment: How susceptible are jobs to computerisation”, Oxford Martin School, Sep 2013

Autor, D. Price, B (2013). “The changing task composition of the US labor market: An update of Autor, Levy, and Murnane (2003)”. MIT Economics, June 2013

Kaplanis, J (2010a). “Local human capital and its impact on local employment chances in Britain”, SERC, London School of Economics, Jan 2010

Kaplanis, J (2010b). “Wage effects from changes in local human capital in Britain”, SERC, London School of Economics, Jan 2010

Moretti, E (2010). “Local Multipliers”, American Economic Review: Papers and proceedings 100, May 2010, pp373-377

Productivity Commission (2016). “Increasing Australia’s future prosperity: Productivity Commission working paper”, Nov 2016


 

This article was first published in the journal of Economic Development Australia, Autumn, 2017



 

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How to categorise influences – the PESTLE Framework

Often-times when need a way to think about the complexity around us. We need a framework for breaking down our macro-environment into manageable chunks.

The PESTLE framework is just such a framework.

And its very handy in the context of strategic foresight and strategy planning.

The PESTLE framework has been around since the late sixties, and has been refined with the passing of years. Being pedantic, it’s properly called “the PESTLE macro-environment scanning framework”. It first started out as 4 categories: PEST. But now its common usage is PESTLE.

So what does PESTLE stand for, and why is it useful? Let’s go through the letters:

P. Political. What is happening with business policies? Are changes likely within government? What are the latest in taxation policies, government subsidies and trade negotiation outcomes?

E. Economic. How are interest rates & unemployment tracking? What are people buying? What is happening to the world economy, to the local exchange rate? What industries are doing well, what markets are becoming more turbulent.

S. Social. Think about education, lifestyle, age and attitudes of your customers. What is happening in the world of people? Are social policies changing? What TV shows are popular, what are people writing about in the “Letters to the editor”?

T. Technological. Is there much R&D out there? What about automation, the pace of change. Think also of genetics, biotech, fintech and robotics. What is the latest software and app being made possible because of the internet?

L. Legal. What changes to laws are likely to impact you? Are financial regulator legal battles of note. Are there any statutes, laws or administrative arrangements that are likely to influence your organisation?

E. Environmental. Are energy consumption patterns changing? What of climate concerns. Getting closer to where you work and live, what of the surrounding geography. Are there any likely influences as a result of changes to ecology.

So this PESTLE framework, or taxonomy, gives us a way to think about what is happening around us. For we operate our businesses in a context, a context where there are political factors, where there are economic, social and other factors. To a greater or lesser extent, changes in each of these six areas affect us.

For example, think about your customers and perhaps and either their changing economic situations, or their changing attitudes. And on the other side of the business, what about your employees. With the social system, if you will, that they live in what are they expecting from your work environment?

And from a competition perspective, are you able to pickup on and capitalise upon changes in any of these 6 areas quicker than other players in your market?

Are you using the PESTLE framework as part of your strategy planning processes?

 

For more of what I have to offer, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, or review my IT Strategy blog.

How do you “win the future”?

Whilst the future is inherently unknowable, the path toward it is eminently discoverable. Reflect on the observation that today is yesterday’s tomorrow. That we are, in part, living out today what we dreamt of in times past.

As a thought experiment, consider the current ubiquity of Facebook, Twitter and other social media. Now, place yourself back in time to 2003 (the year when the “Matrix Reloaded” was released and when the Concorde made its last flight). And think about the technology trends in that year. Consider the growing spread of the internet and the increasing desire for mobile computing and communication technology. And attach these nascent trends to the basic human desire to be connected with others.

Thus we have the ingredients for mass virtual networking. With the opportunity afforded us through hindsight, we can see that these two technology trends in 2003 were used to great effect by people that understood that we are indeed a social being. And that technology and that understanding gave rise to the vision that these people had – that software applications would facilitate social interaction on a global scale.

Now, in futures work, this realisation of visions past being fulfilled can be explained by the three horizons model. Where the first horizon is called today, where the third horizon is tomorrow, and where the second horizon is that period of time between the first and third horizons.

Now, if you frame the current horizon in terms of “Business As Usual” and tomorrow’s horizon as an “Alternative Future”, one can make two inferences. Firstly, that the dominant characteristics of the third horizon are emerging today. And secondly, there are characteristics of today’s world that are no longer dominant in the future.

And it is through the tussle of this messy middle horizon that the winners of today’s competing emerging issues and trends will rise. It is these victors, who use to their advantage these issues and trends, that determine what the future will look like. They can see the weak signals of what is happening around them. And further, one notable characteristic of these victors is that they have an entrepreneurial mindset. They have a predisposition to be able to join the dots and to apply systems thinking to what is nascent.

Think about this messy middle in terms of the tussle between Facebook and MySpace from about a decade ago. Who took best advantage of the rise of the internet and mobile ICT to satiate our desire for connection? Facebook.

So, how does this apply to your situation? How can we relate this three horizons model to a current day circumstance. Well, how about the workings of government? What about how the direction of government is set. Think about this model in the context of say education policy? Or perhaps other areas like social, industrial or health policy? The application of this model is in terms of who can best take advantage of today’s emerging issues and trends in the context of a particular policy area.

One way of applying this three horizons model is by standing at that third horizon. What do you want the future to look like? What do you see around you? How do you describe this prospective landscape? Then, from this yet-to-be vantage point, what are the emerging issues and trends that you need to champion now, in today’s horizon, in order to bring about what you want to see?

For example, say you want to see, in a few years time, a situation where all homes have solar panels connected to a smart grid. What are nascent issues and trends that you could champion now to bring that to pass? Could you perhaps encourage one or more of: the acceptance of the sharing economy, the desire to do something for the environment, the increasing range of solar financing options? More completely, what are the embryonic political, economic, social, technological, environmental and legal developments that you need to support in order to successfully realise your policy objective?

The future is there for the winning, but it requires an understanding of what is emerging to shape the vision you see.

For more of what I have to offer, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, or review my IT-centric blog.