14 Jan 2014
Stayin’ Alive: Technology and the End of Institutions
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What happens to institutions when technology gives people the power to do everything on their own? Today it is easier than ever for individuals to start businesses, engage in politics, share information and ideas, and disrupt the status quo. Nicco Mele, Harvard Kennedy School faculty member and author of The End of Big: How the Internet Makes David the New Goliath, talks about why institutions are struggling to keep up, and what they have to do to stay alive.

The Business is a podcast from Harvard Business School that ran through 2015 and took a unique look at the business world through conversations with HBS faculty and entrepreneurs. It has since been replaced by Cold Call, a new podcast that distills the legendary HBS case method into digital form. Subscribe to “Cold Call” on iTunes, and iTunesU or follow us on SoundCloud.

 

Transcript

Brian Kenny: Welcome to our inaugural podcast for 2014. I’m Brian Kenny and we’re thrilled to have here as our first guest of the year on “The Business,” one of the most creative thinkers in the world of technology and how it changes our society. Nicco Mele says make no mistake, our lives will change as a result of the technologies that are at our doorstep this year. Nicco Mele runs the firm EchoDitto, which is an internet strategy company. He’s on the faculty of the Kennedy School of Government. And he is author of The End of Big: How the Internet Makes David the New Goliath. It’s a story about the institutions that Mele believes are too big to survive: big companies, manufacturing, law firms, governments, universities, armies, newspapers, and even big entertainment.

Nicco Mele: It’s also a story of how our institutions have not done a good job. And so, when an institution is not doing a very good job at something, then that’s an incentive to people to opt out. And our technology makes it easier than ever before to seek alternatives.

BK: And Nicco Mele says the alternatives are exciting, inventive and flourishing-- both here in America and abroad.

NM: There's a company in the UK called giffgaff, which is a mobile phone company. Everyone who works at the company is a customer. You earn minutes on your phone by doing customer service, by doing sales. So you might work an hour of customer service a week to bring down your phone bill by half. That's a kind of technology that wasn't possible before. It's becoming one of the largest mobile phone companies in the UK. And so, I think that if you're a CEO or leader of a large company, there's two kind of important lessons to take. One is to rethink your customers. Imagine they have more power to control your company than you do, and then figure out how to use that to your advantage in the production, in the marketing, in the customer support, whatever it is. You have to acknowledge the power people have with their internet connections and their smartphones and use it to your advantage.

And the second thing you have to do, I think, is structure your org chart and your corporation to be nimble, to be fast moving, to navigate the digital world with the speed that your much, much smaller competitors will.

BK: Harvard Business Review did an article last year talking about big data. One of the things they talked about was the emergence of this new role within large enterprises, the role of the data scientist. They said it's the sexiest job to have now. So this is the person who takes all that big data and makes sense out of it for people.

Is it possible that the Googles and the Facebooks of the world become the establishment at some point even though their origins, as it's described in your book, was really about anti-establishment?

NM: Well, right now, there are seven large internet companies that substantially control our online lives, right? Amazon, Apple, eBay, Facebook, Google, Skype, - which is how Microsoft sneaks in - and Twitter. And all seven of those companies are built on the long tail of business. Think about NBC. NBC has what, roughly 500 advertisers a year? How many advertisers does Google have? Like 500 million advertisers? These big internet companies, their business models are predicated on millions of small businesses and self-employed people using them to bootstrap their own operations.

Google doesn't want a whole ton of advertising dollars from Proctor & Gamble. It wants a whole ton of advertising dollars from every mom and pop store in the world, right? That's the way they get to any scale in terms of profitability.

So the very business dynamic of these big internet companies is as platform players, and that requires them to have the largest possible customer base going.

BK: You quoted Jeff Hammerbacher, the cofounder of Cloudera in the book as saying, "The best minds of my generation are thinking about how to make people click ads. That sucks." I thought that was really illustrative, and it made me wonder, are there disrupters out there right now? Are the nerds of the future, you know, sitting at home trying to think about how they disrupt the major platforms that you just described?

NM: Absolutely! Think about those big seven companies, right? Amazon has warehouses and trucks. Okay, that's actually kind of defensible. Apple has hardware, at least for now. But I look at eBay, Facebook, Google, Skype, Twitter. You know, every 18-year-old with $20,000 and a brilliant idea is a potential risk. Right? That's like a very precarious position to be in.

BK: To your mind, who's doing this right? If you think about the business landscape again, are there companies out there that have figured this out and that have made the right moves, or are moving in the right direction?

NM: I essentially would not want to be CEO of a large company because every day, the advantages of scale are eroding away.

BK: How are the advantages of scale eroding? What does that mean?

NM: What does it mean to be a big company? Why do you want to be the biggest player in your space, right? You want to be able to move the market. You want to overcome barriers to entry. You want to get to a scale where you can have efficiencies in price and logistics that your competitors can't match. On pretty much all of those, the key mover of efficiency is technology. And the technology's getting cheaper and faster and easier to implement for smaller and smaller players while bigger players are stuck with legacy systems and can't turn over on a dime, can't adopt a new system that might bring gigantic gains in fuel efficiency overnight.

BK: But, don't bigger players also have the advantage of if you think about going back to big data, we're all carrying smartphones, we're all giving away little pieces of ourselves every day to these large enterprises. They're taking that information and they're finding ways to use it. I mean, at some point, they do have a distinct advantage just from all of the information they've been able to amass about us.

NM: Most of the data being collected about us online, and we do live in a corporate surveillance state, but most of the data being collected about us online is by these big internet companies who are platform players, whose primary customers are actually the small companies, not the big ones. So in that sense, Google takes all of the data they collect on each of us, which is mammoth and terrifying, and they'll give it to the mom and pop store down the street from me, as fast as they'll give it to any other paying advertiser.

So it doesn't seem to me there are giant advantages to scale and data collection at this point. That's why the term big data is misleading because big data is accessible to a lot of small companies, you know? It's for sale.

BK: So how do you see some of these changes manifesting themselves in the workplace? You know, sort of on the immediate horizon, what's going to happen over the next 12 months or couple of years?

NM: I think a number of the trends we've seen about self-employed, consultants, contractor, episodic work, working from home, all of that continues to accelerate and grow, but one place it's pretty glaring is actually in our public policy. I think a lot of the struggle around the Affordable Care Act is trying to figure out what healthcare means when for the last 50, 60 years, our public policy around healthcare has been employer based.

And for at least a decade, that hasn't been the reality for most Americans. So our public policy can't figure out how to navigate a very different economy. And so I think that the next couple of years, especially as we head into the 2016 presidential, we're going to see the political leaders and our policy makers, struggle to understand what's happening in the economy and how to figure out policy solutions that are going to work for most Americans. We're a long way from any creative, interesting, compelling thinking that takes into account the reality of the current economy.

BK: Tell us a little bit about this movement around 3D printing. You've said that this is something we should be paying attention to. What is 3D printing?

NM: 3D printing is maybe a little bit of a misnomer. A more accurate way of talking about it is on-demand fabrication. 3D printing is a way cooler way to think about it, and I have basically a spool of plastic thread, and I download a blueprint off the internet, and I go to the file menu, I say print, and then it sprays--it melts the plastic and sprays it into the shape I've downloaded off the internet. My CubeX can print something the size of a basketball.

I'll tell you a story. I have these two little boys who are in preschool, and they're growing very aggressively, and I feel like we're tearing through shoe sizes, and we have our first warm spring day predicted last April, and I wanted them to wear sandals outside. So instead of piling them into the car and driving them to the shoe store and that whole misery, I downloaded some blueprints and overnight, printed some sandals for my boys to wear outside. It was imperfect. It was curious. It was an experiment. I was trying to figure out how close this technology is to what I think of as my mom being able to use it, and it's pretty exciting. I printed a new iPhone case. It's biodegradable plastic. I put my name on it. I also made it as a credit card holder.

BK: Wow, that is really cool.

NM: Yeah, it's kind of awesome.

BK: Yeah, it's sort of a slate color; it looks like a geometric design of some sort.

NM: Piet Mondrian inspired.

BK: So do you have a 3D printer in your home?

NM: I do. Well, my wife kicked it out of the home, and so it's in my office now. I feel like I should have my wife here to offer the alternative point-of-view on these things. Like the replacement dishwasher part I tried to print that ended up with a giant plumber’s bill. I'd read all this stuff about 3D printing. It seemed kind of awesome, but my experience using it was that it’s not quite ready for every household in America to have one, but could I see this within the next decade? Absolutely. Within five years I think that you could walk into many stores in America and order something and they’ll print it right there.

BK: But there's a downside to this, too, right? Because we've been hearing about the ability of the 3D printers to make weapons.

NM: Three or four days after I printed those shoes for my boys, a guy in Texas put up the blueprints to print all of the regulated pieces of an AR-15 assault rifle and an AK47, and later he published the blueprints to print a completely 3D pistol. You need a couple screws from, like, the hardware store. And again, this just speaks to the way our institutions, our public policy, are not on top of where the technology's going.

BK: So does the end of big mean the end of institutions, as we know them?

NM: Whoa! Well, when I look at our current era, I feel like we're at the beginning of a similar institutional shift that the institutions of the 20th century including, you know, some of the world's largest corporations, I'm not sure they will persist into the 21st Century. And, the question I ask is: Is there anything that gets lost that we don't want lost? What do we want to make sure we carry forward as we reimagine the future, as we build new institutions?

When the Roman Empire collapsed and we ended up with the Dark Ages, we lost a bunch of stuff. One of the things we lost for almost 1,000 years was the knowledge of how to make cement. And so as we're headed into what I think is going to be a number of decades of institutional fragileness, of our institutions changing and reshaping themselves and trying to figure out what it means to be a large entity in the digital age, I think that the important question--what are the core values that we want to champion, that we want to and protect?

BK: Are there people out there who are thinking that way? Do you see sort of visionaries who understand this?

NM: The moment we're living in, our institutions feel immutable. They feel powerful. I mean, I'm talking about the end of big, and aren't our banks the biggest they've ever been? Right. But in fact, our culture is built around a kind of obsessiveness with the present moment, right? That creates dangers in the sense of our history. And what I want to encourage and inspire is that we think about what kind of world we want to live in, and what does that mean for our children and our grandchildren, and what are our responsibilities and obligations?

BK: Nicco Mele, thank you for joining us.

NM: Thank you.

BK: You can find Professor Mele's latest book "The End of Big" at endofbig.com. To see photos of the cell phone Nicco showed me in the studio--the one he printed himself - go to hbs.edu/thebusiness.

Our next edition of “The Business” will be available January 28. The subject? How to start a successful business in a country where corruption is commonplace and you just don't want to pay bribes. We'll go to "Casablanca" to talk to the owner of the REAL Rick's Cafe- Spoiler alert: She's nothing like THIS guy:

"Of all the gin joints in all the towns in all the world, she walks into mine."

BK: Of all the podcasts in all the world-- thanks for listening to “The Business”- the official podcast of Harvard Business School. I’m Brian Kenny.

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