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Deliveroo or Analogic?

Fri, 16th Dec 2016

Deliveroo or Analogic. In two words at the 2016 Global Peter Drucker Forum in Vienna in November, Columbia Business School's Rita McGrath put her finger on the fault-line running straight through today’s business economy.

Both companies are worth about £1bn. One of them, Analogic, is 40 years old, modestly profitable and employs 1,500 people worldwide making highly-rated medical and security equipment. The other, Deliveroo, a UK-based food delivery internet start-up, is three years old, made a loss of £18m last year on undisclosed sales, and uses 6,500, 13,000 or 20,000 couriers (take your pick) to deliver restaurant meals to home diners. Deliveroo’s couriers are ‘independent contractors’, not employees. Amid criticism of ‘Slaveroo’ conditions, its UK riders are campaigning for union recognition and the minimum wage.

What the world wants is more companies like Analogic. In Vienna Stanford’s Jeff Pfeffer quoted Gallup surveys – 'one of the most important discoveries Gallup has ever made' – showing that, where in the past they desired peace, freedom and family, today above everything else most people in the world want good jobs for themselves and their children. A good job (not a great job) is a steady 30-plus hours a week for the same employer and a pay packet. In another finding, Gallup observes a ‘perfect correlation’ between good jobs and economic wellbeing: the higher the percentage of employees with steady full-time employment, the higher the per capita GDP.

What the world is getting, meanwhile, is Deliveroo. As a variety of management big cheeses lined up to lament at the Forum, big companies these days are effectively on innovation strike. In so far as they invest at all, they prefer predictable efficiency gains (those that reduce headcount) to more speculative longer-term entrepreneurial efforts that might generate new markets and industries – and jobs. ‘Companies start out as equity end up as bonds,’ as Roger Martin put it.

This is not an accident. The mechanism is crystal clear: financialisation has decoupled corporate growth from job creation, with the consequence that new-economy companies like Google, Facebook, WhatsApp and others can be radically large in reach, market share and market capitalism but radically small in headcount. ‘Under our current conditions,’ concludes Michigan University's Jerry Davis in a recent paper, ‘creating shareholder value and creating good jobs are largely incompatible. Corporations are “job creators” only as a last resort’.

For some in Vienna and the wider world, especially, Silicon Valley, the decline of of corporate employment is a cause for celebration. They see the end of wage slavery as the forerunner of a truly entrepreneurial economy in which every individual is empowered to become anything they want to be. For MIT Professors Erik Brynjolfsson and Andrew McAfee predictions that technology will lead to a workless future are false. The internet of things and 3D printers will enfranchise a new generation of entrepreneurs – human ingenuity  and tastes are boundless. In the same vein, ‘The entrepreneurial society is going to happen,’ Tammy Erikson told Drucker participants enthusiastically. ‘Artificial Intelligence will take over our jobs. Organisations will shrink as transaction costs diminish. We can’t stop it… There’s a fabulous opportunity with great technology to transform the world of work.’

Before we reach entrepreneurial nirvana, however, there are two giant roadblocks to navigate. The first is that, as Gallup documents, while entrepreneurship may appeal to those with social and intellectual capital to leverage, it’s not what most people want. ‘I feel very uncomfortable with [the notion of the all-embracing entrepreneurial society ,’ said Maëlle Gavet, herself an internet entrepreneur of repute. She noted that there will be a large proportion of people who are unable or unwilling to be entrepreneurs – and that is not necessarily their fault, or indeed a fault at all. ‘We welcome and encourage disruption, but we need to remember that disruption disrupts real lives.’ In the absence of measures by governments to think innovatively about distributing risk and the increasing flimsiness of societal safety nets – ‘The UK hasn’t a clue what the state is!’ declared Sussex University’s Mariana Mazzucato – it’s hard to argue that the overriding desire for employment is anything but rational.

The second awkward reality is that even if people were keen to embrace entrepreneurship, this is actually not the current direction of travel. Economies like the US and UK are becoming less entrepreneurial, not more. Companies are getting older, more concentrated and less dynamic. Investment and productivity are lagging. In the US, home of Silicon Valley, the rate of new business formation has dropped by 50 per cent since the 1970s, Pfeffer pointed out. Corporate deaths outnumber births. Bureaucratic, industrial-age assumptions about people and organisations still rule. ‘The innovation engine is disappearing in the US,’ said über-guru Clayton Christensen. Curt Carlson of R&D institute SRI, while adamant that innovation and entrepreneurship can be learned and taught, acknowledged that ‘we’re doing a pretty terrible job at the moment. There are thousands of billion-dollar opportunities out there waiting to be taken’.

Instead, we have Uber, Airbnb and Deliveroo; and any number of Tindrs, Grindrs and Tumblrs. ‘We wanted flying cars; instead we got 140 characters,’ as entrepreneur Peter Thiel has caustically observed. The first two are disrupters all right, but as the McKinsey Global Institute has pointed out they create less value than they destroy. Defenders trumpet the benefit to consumers from the increased efficiencies, less so the losses to the same people as workers. On the evidence so far, the idea of maximising consumer value, as some are beginning to advocate, is as unlikely to lead anywhere good as maximising shareholder value.

None of this is inevitable. As the forum heard, cities and self-confident states that don’t deny themselves the opportunity (as the UK or the US do) can do a great deal to foster innovation (see Singapore and Israel respectively). In the private sector, it also heard about the thriving German ‘Mittelstand’, a large cohort of medium-sized, often family-owned companies harbouring a disproportionate number of ‘hidden champions’, below-the-radar world beaters that are quintessential providers of good jobs and community glue, often over generations. German manufacturing still accounts for 22 per cent of GDP, 10 points more than in the US and UK.

All this, let’s underline it, is the result of choice – choice about the way companies are run and governed, and crucially about their responsibilities and obligations to the wider society too. In other countries, companies like Analogic still hang in there  – just. But even if manufacturing, once lost, will be difficult to reproduce, the management principles that sustain these customer and community-focused firms are known, proven and available to anyone to use. Is management going to bridge the social gaps that have opened up to admit the current monsters, or widen them? Analogic or Deliveroo?


 

 


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