The importance of simple questions in assessing technology

A week or so back I watched You've Got Mail with eldest daughter. Released in 1998, the film centres on a couple who meet via email unaware that they are clashing in real life. 

Kathleen Kelly (Meg Ryan) runs a small independent bookstore, while Joe Fox (Tom Hanks) is a member of the Fox family that runs a chain of mega book stores and is planning to open a store near Kathleen's. It's quite fun, but what struck me re-watching was just how quickly business models date under the impact of technology.

In 1998, the big issue was the survival of the independent book stores in the face of the mega chains. Thirteen years later Borders collapsed under the impact of the internet. The online challenge is especially pronounced in publishing and book selling, but it is affecting all aspects of retailing. 

Here in Australia, the Sydney Morning Herald reported today on a new survey suggesting that internet spending in this country would exceed $A37 billion by 2013. A week back in the continuing patent wars between Samsung and Apple, a Federal Court preliminary injunction that prohibited the sale of Samsung's Galaxy Tab 10.1 in Australia saw a surge of Galaxy sales as Australian customers used the internet to buy in other jurisdictions.

In quite a bit of my writing I have tried to warn about the excessive hype attached to new technology. For every business that has succeeded in a big way, there are many more that have failed.

Further, many firms outside the new technology areas themselves have done considerable damage to their businesses through the misapplication of new technology. Costs may have been cut, but at the expense of customers and customer loyalty. The Australian banks that cut their branch networks to save money had then to invest heavily in rebuilding those same branch networks.

One of the key points in considering the application of new technology is that initial impacts are generally less than expected, the longer term effects greater than expected. Computing and communications technologies do create businesses on the supply side, but it is the enabling effects of those technologies that have the greatest long term impacts.

Borders collapsed in part because its customers were enabled to buy books in new ways independent of bricks and mortar and specific store visits. In Australia, Borders survives as a pale online shadow of its former glory.     

I am not sure that analysis of new technology needs to be all that complex in a general sense, although specific applications may be very complex. The single most important questions are actually quite simple:

• who will benefit from the new technology and how?
• who might lose from the new technology and how?

Take the Australian bank case.

The banks were expected to benefit from bank closures because it would reduce costs. The losers were customers who lost access to the closed branches. In certain cases, transactions and transfers, customers did benefit from greater personal flexibility. In other cases, customers simply drifted away from the bank. The banks ended by losing because they weakened their single greatest asset, direct contact with a previously loyal customer base.

The business cases put forward within the major banks to justify their actions centred on the expected gains to the banks. "Hard" number could be attached to the proposals. The "softer" questions about customer reaction in the longer term were not addressed.      

Postscript

On the Samsung/Apple issue, see Asher Moses' $30m tablet black hole: Harvey Norman hits out at Samsung ban. Apple blocks Samsung, consumers but elsewhere, Australian retailers suffer!

Postscript 2

Just recording two things:

• Group buying at consumer level
• Belshaw's World - caught between a tweet and a print place, a post of mine on newspapers & online. Recording this because I want use in in context of discussion of business models in an online world.
• Peter Dinham on cloud computing
   

Research in a total connect world?

I really wanted to record this one for later use.

I have now been involved at one way or another in the application of new technology for many decades. Now Orange has released a new research paper, What's left to Know, dealing with the impact of very large data sets. The report is subtitled research in a total connect world.

In writing the last sentence I almost made a major error. I wrote a total disconnect world instead of a total connect world. That was arguably a Freudian slip because it captured my reservations about some of the new approaches.

As I write, the Vice Chancellor of the University of New England (Professor James Barber) is continuing his campaign in favour of online learning. I quote: 

ONLINE education is revolutionising the way information is accessed to the point of redefining the roles of academic staff and casualising their employment - a trend of significant consequence to Armidale.

With the University of New England seeking to source internationally-based staff to direct its students over the internet, concerns of employment security in a casualised academic work environment have arisen on the Armidale campus.

UNE Vice-Chancellor, James Barber, would not rule out an increased casualisation of academic staff in Armidale, but wished to challenge the notion that permanent, full-time tenure was the only good mode of employment.

As I have argued in other posts, I have major reservations about the hype now attached to social media and the new communications technologies. I just don't believe the arguments. So far I have only scanned the Orange report, but it appears to contain some interesting material. I am interested as to how it might affect my present thinking.

Australia's continued economic disconnection

Note to readers: While short, this post took a little while to complete. I am bringing it up at the original scheduled publication date.

Interesting piece from Lorenzo, A misbegotten Union – Guest post by Lorenzo, on some current problems in the EU with a specific focus on the Euro.

From a purely management perspective, it illustrates the difficulties created for all of us when Governments' stuff up.

I don't think that any of us would argue that the creation of the EU and even the Euro has not made some aspects of doing business in Europe easier. It is easier to operate in a more harmonised environment. Yet, and this is something Australian business groups pushing for national uniformity should consider, common rules can come at a price.

I intend to do an update post on the latest developments in the Australian economy. The headline point is that Australia remains to some degree disconnected from developments expressed in terms of global or large regional unit data.

Today's Sydney Morning Herald story Indian coal rush heads Australia's way illustrates part of the reason, Australia's resource base. Demand will continue. The only issue really is price. However, there is a little more to it than that.

One of the wisest Australian Government decisions in recent decades was that taken in December 1983 to float the currency, allowing market demand to determine its value.  As I have discussed here before, the highly traded nature of the Australian currency creates its own problems since, as happened recently, the value of the currency can move in ways not directly connected to local economic conditions. However, the floating currency actually provides a very useful buffer, one that Greece would now find valuable.

In the lead up to the global financial crisis, the US dollar value of the Aussie declined sharply, providing one measure of protection to local demand. If, and on worst case scenarios, demand would continue if at a lower price for Australia's agricultural and resource exports. In this event, the currency would be likely to decline in value. However, this would of itself have some domestic stimulating effects.

A floating exchange rate combines with a good budgetary position and low Government debt.

To my mind, Government debt is too low. It is actually quite hard to deny that Australia has been under investing in public infrastructure. Further, the obsession with public-private partnerships has actually skewed public investment in a way that doesn't make a great deal of sense. Yet all this said, I cannot deny that Australia's budget and public debt position gives the country a great degree of flexibility in current circumstances.

How do we manage on-line technology?

Today I just wanted to look briefly at some changes in the internet and communications world.

Quite a bit of my time this year has been spent on ways of making on-line more effective from a work process and training perspective. I summarised some of my conclusions in one of my weekly columns in the Armidale Express, Belshaw's World - the online myth.

I mention this because Australia's IT Wire has reported on a study commissioned by Ericsson across 33 OECD economies, including Australia, that found that a doubling of broadband speed produced a 0.3 percent increase in the GDP of that economy - $A3.9b in the case of Australia. I don't actually doubt the results, they are what I would have expected, but they did remind me of the difference between the general and the particular.

There is no doubt that the new communications technologies and most recently the internet have been a tremendous aid to productivity improvement. They have also created entire new business sectors. And yet there have been real downsides.

To my mind, the most important ones fall into three classes:

• business activities have been damaged or even destroyed that are still of value to many
• business processes that should have been changed have survived because automation allows them to be carried out at a lower cost. Worse, the investment in the automation then makes them hard to change
• the new technology has facilitated a variety of controls and regulation at organisation and government level that greatly adds to overhead costs.

The message that I am trying to get across in a lot of my current writing is that we have yet to develop the best model for operating in the new environment. I have also tried to argue that if we don't do this, the incremental costs and problems associated with the new communications and computing technologies may ultimately impose risks and costs that will bring the whole system down.

This is quite hard to argue because it actually requires the adoption of a new and questioning mind set.

Take as a simple example, the way in which many firms are now trying to control or even limit email. Email is just so easy, is now so deeply embedded, that effective management is quite hard.

In some ways, on-line is like a drug, a quick hit with later problems.

I am not arguing that the technology should not be used. I am arguing that it should be managed.  

Using part time & contract staff effectively

Over the last decade, organisations have increasingly looked to the use of part time and contract staff to fill gaps. The reasons vary.

In some cases the move is designed to meet the needs of particular people who for personal reasons do not want to work on a full time basis. In other cases, the appointments may be intended to fill a short term need or to give the organisation greater flexibility in managing head count.

Given that over half the Australian workforce is now part time, contract or casual you would think that organisations would have learned how to manage part time and contract staff effectively. The reality is rather different. Most organisations don't manage part time or contract staff especially well.

To my mind, the core reason for this lies the continuing tendency to treat part time and contract staff as though they were long term full time employees. The organisation knows that they are not, but it and managers behave as though they were. I thought that the best way of illustrating this was by example.

The Case of the Part Time Employee

Let's start with someone working say three days per week. We can consider two cases, the first a stand-alone employee, the second a job share arrangement.

The distinguishing feature about a part time employee is just that, they are part time. Their time is limited. If you treat them like a full time employee and expect them to be involved in all work group activities, then the proportion of their available time involved in such activities is likely to be significantly higher than the full time workers. Conversely, the amount of time available for their main job is reduced.

The next problem is more subtle. Work flows on regardless of the attendance of the part time employee. Decisions are made that affect the work of that employee in their absence.  Supervisors and indeed work colleagues do not adjust for their colleague's part time work. The end result can be wasted time and great frustration on the part of the part time employee.

In theory, this problem is overcome where work sharing is involved, because one of the work share partners is always there. In practice, however, problems can arise where their is ineffective hand-over of tasks between the work sharers.

To manage this properly, a proportion of time must be explicitly devoted to first defining hand-over procedures and then ensuring that they actually work.

The Contractor

It may seem self-evident to say this, but contractors are not full time employees. They are there for a limited time and have to judge their performance against the results they achieve while there. However, serious problems can arise where this simple fact is forgotten.

To consider this further, consider the case of someone employed on a three month contact to complete a specific assignment.

In normal circumstances, the contractor should come into a defined assignment. Then the first part of the assignment is spent on task refinement and on acquisition of the necessary specific in-house knowledge required for the work, while the last part of the three months is devoted to finalisation and hand-over.

Too often, the task or tasks have not been properly defined. Too often as well, the contractor is expected to participate in work related activities actually designed for a long term employee.

The worst results come where the manager effectively forgets that the contractor is there for a defined time. Many managers are busy, making it difficult for them to allocate effective time for consultation. Long term staff are used to this and can adjust, but for contractors it can mean periods sitting waiting for decisions or guidance that simply chews up available time.

Many managers are also inconsistent, changing priorities or directions without thought in response to immediate needs. That's fine if the contractor is actually doing a defined staff role for a short period. However, problems arise if the contractor is meant to be on a specific defined task. In worst case, this may simply not get done, or not get done to the required standard because of the interruptions. 

The Need for Thought

Contractors and part time staff can be an effective way of fillings gaps or of meeting specific needs. However, and this is my key point, this requires a degree of thought and indeed discipline that is sometimes simply not there.   

National planning for global downturn

I concluded my last post, Global economic gloom, with the comment:

Like many, I have been mulling over what all this means (for Australia). I thought that it might be helpful, at least to me, if I did some of the same type of very basic economic analysis that I did during the GFC. You know, the simple stuff based on first principles. That's a better guide than the more complex analysis at a time of change.

As I write, the stock exchange and financial markets have been all over the place, with some of the type of breathless reporting that I have commented on before. One minute we are all ruined, the second everybody seems to breath a sigh of relief!

From a practical business perspective, what is important first is changes in the marketplace in which the business operates, rather than overall trends. I make this point simply because the two are not the same, but may diverge quite widely. Then there are the effects on funding of changing conditions in financial markets. This raises a different set of issues independent of individual market conditions. I make these points because there is a tendency to focus on general trends when some businesses may in fact be doing very well.

There is no doubt in my mind that the Australia economy has weakened, although the pattern is variable across the country. The latest Westpac-ACCI survey of Australian industry shows this quite clearly.

We have a number of effects working in combination here. One is the rise in the value of the Australian dollar relative to some other currencies. This has affected certain trade exposed industries in particular. Then, and as has happened before, anecdotal evidence suggests that business is cutting back on discretionary spend, creating flow on effects in related areas including legal services. Then, too, housing has been weak, as has retail spending,

Australia operates in a global marketplace and is affected by changes in that market. These flow through to Australia along four dimensions:

• Direct changes in demand for exports
• Financial affects associated with exchange rate movements and in the availability of funds to the banking system
• Psychological affects as people respond to global changes
• The impact on superannuation funds of global changes in an environment where a significant proportion of funds are invested in equity and off-shore. This one is insufficiently discussed for with compulsory superannuation it actually has major impacts on domestic behaviour.

Australia may be exposed to international conditions, but that exposure is more limited I think than most realise:

• Our main exports, minerals and primary products, have something of a natural buffer in that there is a stable base demand. Prices may fall - I have argued that present commodity prices are unsustainable -  but demand will continue
• Our floating exchange rate means that falling export income would (should) translate to a lower Australian dollar, with domestic stimulus effects. Quite a bit of Australian industry wouldn't mind in the slightest if all the hype about the mining boom #2 proved false!
• We are exposed to international financial markets, but the proportion of bank borrowings funded domestically has increased as local savings have increased
• We have strong institutional structures and relatively low Government debts, giving plenty of capacity to expand spending.

In the aftermath of the global financial crisis, one of the problems that I pointed too was the way in which many countries had lost their public infrastructure investment pipelines. This linked to changing approaches to public administration in many countries. I suggested that one practical result was that Government plans to expand infrastructure spending could not be realised in the proposed time limits.

Putting aside special pleading, there appears to be general agreement in this country that Australia has been under investing in public infrastructure for many years. We have also been under investing in housing, given population growth. Managed properly, there is scope for considerable expansion of public or even public private investment that is likely to yield considerable paybacks in economic terms.

The problem with the previous Rudd Government stimulus measures in this area is that, in the absence of a real investment pipeline and with a need for urgency, we arguably didn't get a long term return for our dollars.

This need not be the case if proper planning is put in place now.

If you accept conventional wisdom about mining boom mark two, then the place for such spend is limited. But who, now, would argue with certainty that that boom will occur? We really do need to have a fall-back position in the event that it doesn't.       

Global economic gloom

The release of the latest IMF global economic projections makes for gloomy reading.

In Australia, the latest minutes of the Reserve Bank's Monetary Policy Committee provides a useful summary of the overall domestic and global economic position as seen by the Bank.

It seems pretty clear that the IMF and others face considerable forecasting difficulties. That should not come as a surprise, for all the econometric models they use actually rely on a degree of stability that is presently lacking.

As it was during the GFC, Australia continues to be a lucky country. This is reflected in the Euromoney nomination of Treasurer Wayne Swan as the world's best finance minister. However, the country is still vulnerable at two levels.

The first is simply its reliance on certain markets and especially China and Japan. If they sneeze, Australia may catch a cold. The second is the high level of domestic household debt. This is manageable in a growing economy, but will become an increasing drag should economic conditions worse.

Like many, I have been mulling over what all this means. I thought that it might be helpful, at least to me, if I did some of the same type of very basic economic analysis that I did during the GFC. You know, the simple stuff based on first principles. That's a better guide than the more complex analysis at a time of change.     

Why multi-tasking is impossible

There is a fair bit of debate in Australia at the moment about multi-tasking. It's usually phrased in terms of kids who do their homework, watch TV, SMS and play a game.  it's sometimes expressed in terms of women having greater skills than men in doing multiple things at once.

My view is that multi-tasking, at least as normally expressed, is impossible.

To start with a simple example.

Say that I am cooking and listening to the radio. Normally, cooking is a routine task involving physical activity. The mind is not totally engaged, so that I can listen and work. Say, however, that I need to consult a recipe and actually make a decision. The mind is now engaged; the radio drops out.

Alternatively, say that the radio becomes very interesting. The mind is now engaged with it. Cooking will normally slow and even stop.

Another example still involving cooking. Normally in cooking, there are time breaks during which you can watch TV, hang out washing, sort something. At one level, you seem to be multi-tasking in the sense that you seem to be doing two activities or more at once. In practice, you are sequential tasking,

It may seem that those in very busy management roles are multi-tasking. In fact, they become skilled at task shifting and chunking, moving quickly from one task to another.

Leaving aside the tension involved in this, there is a cost where the move from one task to another reduces efficiency. That is why so much management advice centres on ways to increase time available for specific tasks - shut the door, turn off the emails, etc. If we could all multi-task in terms of doing two tasks at once, then this would not be necessary.

One of the difficulties with the discussion on multi-tasking is that is misleads. Not only does it imply that we should somehow be super human, it also confuses thinking about the organisation of work.     

Sustainability vs short term managerialism

As a professional adviser, I try to help firms improve business performance and to resolve problems. More and more, I have found a conflict between reality and aspirations. Reconciliation of that conflict comes back to one word, sustainability.

At a macro level, if the total business objectives set by all firms exceeds the possible growth rate in the economy, then some firms must fail to achieve objectives. If the gap between total firm targets and what is possible becomes large, then the shortfall between objectives and performance for most firms will also be large.

Since remuneration often depends upon achievement of immediate financial objectives, the incentive for managers to do whatever is required to get to immediate target is great. This leads to short termism. Cut now, with the costs coming later. In aggregate, this results in increasing economic instability.

Obviously, the position varies between firms.

If I am advising a start-up or a firm in a rapidly growing market place, then I provide one set of advice. If I am advising a firm that wants to increase market share and is prepared to pay the price, I provide a second type of advice. If the business is unprofitable, then that's another set of advice.

But what do I do if I am providing advice to an existing profitable business in a mature market that wants to improve performance to achieve new growth targets dictated by what is really managerial hubris? How do I say that you are doing the wrong thing? How do I say keep on going as you are, just improve at the margin?

If the reality is as it is that most businesses cannot achieve their targets, then shouldn't we be adopting a new approach? Isn't sustainability combined with incremental growth better?

Say you are a reasonably profitable law firm. What do your partners, your owners, really want?

They want to be able to get on with their professional work. They want a stable income with prospects of reasonable increase. Most don't want the prospect of big increases that risk the business.

Think how nice it would be as an adviser if your client said we want to improve what we do over time. Our focus is on business sustainability, not big targets. We want you to help make things better for clients, for partners and for our staff. We want you to give us practical suggestions to achieve this.

It would be nice, wouldn't it! 

Why do we underestimate the value of broad based skills?

I followed up China's foreign reserves - what they mean, what might happen with a post on my personal blog, Australia's economic fragmentation. Since then we have had the ending of the US debt crisis, new troubles in Europe, bad US economic data and something of a stock market crash. In the first minutes of trading this morning, falls slashed $A56 billion of the value of Australian stocks. There is a smell of panic in the air.

All this took my thoughts in a different direction, one that may seem a bit odd. One problem now is that many of those involved whether as commentators or traders, those trying to decide how to respond, actually lack the broad based experience required to respond sensibly. Further, they live in a wired twenty four hour world where initial responses feed on each other, where reporting heightens nervous excitement.

My original qualifications were in history and economics. Then I worked for twenty years as a professional economist and economic adviser before moving into the private sector as a strategic consultant and manager of professional services firms. I no longer claim to be a professional economist - the profession has moved on. In a way, the economics of finance has replaced the economics of economics, financial modelling has replaced a focus on economic principles.

I was in Shanghai when the Global Financial crisis struck. I watched it unfold on the television screens. Upon my return to Australia, I was struck by the fevered nature of reporting. Australian reactions just did not seem to match what I understood of the fundamentals affecting the Australian economic performance. I was actually drawn back into my past world as an economist.

The analysis that I did then suggested that, so far as Australia was concerned, the GFC was highly unlikely to have the type of catastrophic results forecast. It just wasn't going to happen. I said so, and I was right.

One thing that I have learned from my experience is the importance of time. There is a fundamental disconnect between most current analysis on the economy and the actual lengths of time involved in economic processes. For example, just as it takes time for economic imbalances to emerge, so it takes time for them to unwind. In similar vein, it takes time for new policy initiatives to work, especially where capital investment is involved.

In 1929, the effective closure of the London capital markets to Australian borrowings plunged Australian Governments into effective depression. In similar vein, the GFC had very real world affects. Yet it pays to stand back and look. You do not need complicated models to understand what is happening, nor do ideological positions help.

Economics is about relationships. If you are going to understand what is happening, you have to look at the relationships in general and as they affect your sector. One of the reasons why I have such a high opinion of Australia's Reserve Bank lies in the standard of their analysis of relationships. I may not agree with their analysis, but I can understand it and therefore respond to it. That is not true for a lot of the other analysis I have seen.

I am not sure why we have come to so distrust general skills and broad based experience, why we now place so much weight on narrow specialisation and very task specific requirements. You see, the problem is that narrow specialisations with task specific requirements are very good at getting things done within defined parameters, but hopeless at coping if those parameters change. Then everybody is at sea, lost without a paddle or, sometimes, even the boat.

I know that I sound jaundiced, but today we have managers who have never managed, economists who know a lot about a little but very little about a lot, lawyers whose knowledge is largely limited to a narrow specialisation, policy advisers who see their key roles in terms of narrowly defined statistical outputs. It's all very odd.

While I have been writing this post, share prices have continued to decline. Time, I think, to stand back and look at what is really going on.