Tuesday, March 13, 2018

Travelling right: hotels bed in a new generation

The world’s biggest hotel companies are in the midst of rapid expansion as an industry boom has lasted far longer than many had predicted, bolstered by record demand from travellers. From budget to boutique offerings, Hilton Worldwide, Accor, InterContinental Hotels Group and Wyndham are among the companies busily launching new brands or making acquisitions to expand their portfolios. The bullish mood was summed up by Chris Nassetta, chief executive of Hilton, at the International Hotel and Investment Forum in Berlin this month. “We’re at higher occupancy levels as an industry, and a company, than we’ve ever been at in our history,” he said. “The pie is just getting bigger.” The ascendancy of digital upstarts such as Airbnb had led to dire predictions of home-sharing decimating hotel revenues. Meanwhile, analysts at Morgan Stanley in 2016 forecast a cyclical downturn in 2018 in the US, the world’s biggest hotel market. Yet travel industry analyst STR says that in key markets, such as London, Airbnb takes just 4 per cent of total accommodation revenue. Revenue per available room (revpar) — the industry’s preferred sales metric — rose 3.2 per cent in the US last year, it says, with at least 3 per cent growth predicted for this year. “We forecast that revpar growth would be nil about a year ago, and we were wrong,” says Robin Rossmann, managing director of STR. STR says revpar rose in almost every part of the world, with Africa and Europe recording the highest growth. Occupancy levels have stayed at record highs in many markets, while demand is outstripping supply in regions such as the US and Europe, it adds. Analysts say that a burgeoning middle class, particularly in Asia, is driving growth. Hilton’s Tru hotels, such as this one in Murfreesboro, Tennessee include games rooms and bars aimed at younger consumers © Tru by Hilton S├ębastien Bazin, chief executive of Accor, told delegates in Berlin that contrary to his expectations, there remains a strong desire among many travellers for the assurances in service provided by established hotel companies. “Four years ago, I was dead wrong, because I thought at the time that [hotel] brands would matter less,” he said. “Brands have enormous value, more than I ever believed.” Not all are convinced. Arne Sorensen is chief executive of Marriott International, which became the world’s largest hotel company after acquiring Starwood Hotels & Resorts in a $14.6bn deal in 2016 and has more than 6,500 properties and 1.2m rooms. He says that his company, which operates the Ritz-Carlton, W Hotels and Sheraton brands, has no plans to launch new brands, though it will open more hotels. The previous upturn in a notoriously cyclical industry was ended by the 2008 financial crisis, leading large hoteliers to adopt an “asset-light” model, concentrating on hotel management and franchising rather than ownership. Mr Sorensen says the industry is merely riding a period of global economic growth, and warns that groups which overextend themselves now may be caught out. “As we all know, we’re in a highly unpredictable world,” he says. “Whether you look at politics or . . . at some of the economic things that are happening, I think it’s right to be still fairly cautious.” But Marriott’s rivals are busy rolling out new concepts, many targeting millennials, in particular, with younger consumers thought to be least likely to be attracted to more traditional hotels. Hilton’s Tru is a mid-market brand where rooms, which cost $80 to $95, are smaller than average; instead the lobby is far bigger, offering entertainment areas such as bars serving craft beer and equipped with pool tables. Launched last year, Tru opened nine hotels in the US, and Mr Nassetta says the ambition is to have 3,000 to 4,000 globally, adding to the more than 5,200 properties it already has. Alongside this, adds Mr Nassetta, Hilton is devising a separate “urban, affordable” concept, which he dubs a “hostel on steroids” and says will offer even cheaper, shared accommodation to younger travellers. French group Accor, Europe’s largest hotelier which operates 4,300 properties and 600,000 rooms is attempting a similar move with its Jo&Joe hotels. These are aimed at cool foreign tourist “tripsters” needing somewhere to stay but also “townsters”, locals living nearby wanting a space to meet friends and socialise or do yoga. Described as “open houses”, they offer accommodation from private apartments and shared rooms to “out of the ordinary” stays in yurts in some locations. They look radically different from Accor’s other brands such as Sofitel and Novotel: rooms are fitted with sleek bunk beds, there are huge colourful lobbies and guests are encouraged to cook together in communal kitchens. The company aims to open 50 Jo&Joe venues by 2020. IHG’s Avid Hotels, also launched in the US last year, is another business offering smaller, cheaper rooms. Keith Barr, IHG chief executive, explains that modern consumers do not want the staples of more established hotels, such as large writing desks. “Customers are spending half their time working in their bed now, sitting with their laptop on their bed in the guest room, because they are not travelling with as many papers and documents as they used to as everything’s digitised,” he says. “It’s just making smarter use of the overall space.” STR’s Mr Rossman adds: “The reason why there aren’t more hotels catering to millennials is not because of a lack of demand, but that it has to be supply-driven at first. You can’t just break down rooms and remodel them. You can only do that with a significant uptick in performance.” But the expansion is not limited to targeting millennials, with another focus being building luxury brands catering to all ages. A dormitory in Accor’s Jo&Joe hotel in Hossegor, southern France, which opens in June © Jo&Joe The industry remains highly fragmented, with the vast majority of hotels being small businesses. Targeting these individual hotels, IHG plans to launch a “conversion” brand, encouraging upscale boutiques to come under a new single umbrella. Wyndham attempted something similar last year with “Trademark Collection”, which groups previously independent high-end hotels under one banner. Acquisition is another form of growth. Over the past two years the top five operators made $2.4bn of acquisitions, according to Dealogic, and this looks to be accelerating. In January, Wyndham acquired La Quinta, a US group which operates about 900 hotels, in a deal worth $1.95bn. Last week, regulators approved Accor’s $1.2bn takeover of Mantra Group, an Australian group with more than 100 properties across Australasia. Mr Barr, who became IHG’s chief in July last year, says the company’s plans to acquire a luxury hotels company is “imminent”, but provides no further details. “I want to keep us well-positioned to be one of the global leaders in the industry that lets us then acquire other brands over time,” he said. “It lets us control our own destiny. You don’t want to be left behind.”

Monday, March 12, 2018

How the market did last month, and what you can do about it: Foolish Wisdom

The stock market turbulence that began in January grew more pronounced last month. As it turned out, the only major asset class that made money in February was cash.
Specifically, the S&P 500 was down 3.6% for the month, non-U.S. developed-market stocks declined 5.1%, and emerging markets were down 5.4%. The assets that were down the least in the model portfolios in my Rule Your Retirement service were bonds (down about 1%) and commodities (down about 2%). And the asset that really took it on the chin in February? Real estate investment trusts (REITs), down almost 8% in the month as investors fear the effects that rising interest rates will have on highly leveraged companies.
Always remember: time and temperament are your allies
When I'm feeling down about my stocks' and the market's recent performance, I find it helpful to remember two basic principles of Foolish investing:
Investing in stocks requires a minimum five-year time horizon.
Think of it this way: You're sending some of your money on vacation ... while your other money takes care of the more immediate chores, like paying for car repairs, a house, or college tuition.
Of course, it can be hard to be a long-term investor in a short-term world ... which brings us to the second secret ingredient for investing greatness.
Successful investors have the ability to remain calm and levelheaded when everyone around them is freaking out.
That mind-set makes the difference between investors who consistently outperform the market and investors who get lucky for a while.
When a group of business-school students asked Warren Buffett why so few people have been able to replicate his investing success, his reply was simple: "The reason gets down to temperament."
After all, money, your IQ, or your lucky socks are no help when one of your investments is down 50%. But if you can keep your emotions in check and ignore the noise, you'll be able to hang on (even back up the truck and load up on more shares) rather than selling at the worst times.
If you look back at history and study how investing fortunes were made, you'll find that it wasn't by jumping in and out of stocks, but by buying great businesses and investing in them over the long haul.
How to hop off the emotional roller coaster
To cultivate a good temperament — one that focuses on the long term, not the short term, and ignores the crowd in favor of a well-thought-out strategy — channel your inner Buffett.
Build resistance to the emotional triggers that lead to bad investment decisions. Here are a few exercises you can do to keep your cool:
Memorize this affirmation: "I am an investor; I am not a speculator."
All together now: "I am an investor; I am not a speculator."
As investors, we:
  • Buy stock in solid businesses. We expect to be rewarded over time through share price appreciation, dividends, or share repurchases.
  • Don't time the market. And we certainly don't speculate when we buy stocks. Speculation is what day traders do.
  • Focus on the value of the businesses we invest in. We try not to fixate on the day-to-day movements in stock prices.
  • Buy to hold. We buy stocks with the intention of holding them for the long haul.
Tune out the noise: Put down the newspaper, turn off CNBC, and opt out of those alerts on your phone. None of it is doing you any good.
Fixating on the market's minute-to-minute news won't help you make your next brilliant financial move. That chatter is mostly noise. And it's costing you a serious amount of sound sleep — and maybe even some actual money.
Spread out your risk with a solid asset-allocation plan.
You should be building a portfolio (or working toward it!) that includes a bunch of investments that don't always move in the same direction — bonds and stocks, for example. You need to diversify.
Putting an assortment of eggs in various baskets isn't the only way to spread your risk. You can also avoid the risk of investing in a company at exactly the wrong time. Say you're interested in buying shares of Scruffy's Chicken Shack but you just don't know when to pull the trigger.
The answer? Take a bunch of shots!
Practically speaking, you do this through dollar-cost averaging (this means accumulating shares in a stock over time by investing a certain dollar amount regularly) through up and down periods.
So every month for three months, you purchase $500 of Scruffy stock, regardless of the stock price. The beauty of this system is that when the stock slumps, you're buying more, and when it's pricier, you're buying less.
"Buying in thirds" is another way to average into an investment: Simply divide the total dollar amount you want to devote to a particular investment by three, and pick three different points in time to add to your position.
Stay strong, think long!
For Fools, investing success is not measured in minutes, months, or even a year or two: We pick our investments for their long-term potential. So resist the urge to act all the time. Make decisions with a cool head after letting new information sink in. Sometimes the best action to take is no action at all.
Distract yourself with something useful.
If you're going to obsess about your investments, use your time productively and review your investment philosophy and process. For example, pick any investment that's interrupting your sleep. Write down why you bought the business in the first place. Ask yourself: Has any of that fundamentally changed? This exercise underscores that short-term ups and downs in the stock market have little relevance to winning long-term investments and wealth generation.

Sunday, March 11, 2018

How technology, millennials and gig economy will make HR obsolete

Is human resources (HR) in trouble? Will technology replace people in HR? Will artificial intelligence (AI), machine learningand automation change how it functions — from hiring to managing people? At a time when a Tesla Roadster is hurtling through space, it is difficult to predict the effect of technology. But there are indications that workplace will fast-forward to a future where HR will cease to be what it is.

The transformation of HR is at a nascent stage now. But organisations will soon be forced to adapt and those who do not will lose favour with potential employees. More than a dozen of India’s top HR practitioners that ET Magazine spoke to say technology is making inroads but HR is not obsolete yet.

Michael Bazigos, MD & global leader for talent and organisational analytics, Accenture Strategy, says: “There is a need for HR to change faster than it did in the past. Many HR leaders are cognizant of this. With technology and big data coming into play, the whole focus is on using experience-based moments that matter for employees, rather than having a very functional, policy-driven view.”

Here are a few indications of how HR is changing. Employees in their 40s perceive HR as just a department they have to deal with at the time of joining or leaving an organisation. It lays out processes for performance appraisal, leave policies, internal job openings and celebrations at workplace. There isn’t a constant engagement; the connect is more transactional. Over the past few years, this part of transactional HR has been disrupted.

At Mphasis, a Bengaluru-based IT services company, an app called Ask Dexter is key to managing its 22,000-plus employees. The internal, cloud-based chatbot, developed two years back, is doing many HR functions: it resolves employee queries related to leave and company policies. It fields technical support queries and provides simple ways of employee appreciation across all levels of corporate hierarchy. That’s not all. It specialises in giving an overview of openings, and jobs that will be created in the future along with the preferred skills for each.

According to Elango R, president, HP Business Unit, Mphasis, this has resulted in an enhanced user experience and improved productivity at the employees’ end.

A dynamic chatbot is one of the basic changes happening in how companies practise HR. This is set to accelerate.

Dear AI, I Am Looking for Opportunities...
HR consultancy PeopleStrong explains it in numbers. Almost 80% of help desk, 55-60% of traditional recruiter’s job and almost 20% of HR compliance work has been impacted due to automation. Almost 50% of HR compliance work will be automated if the government continues with its focus on digital agenda, says cofounder Pankaj Bansal. Not many HR practitioners admit to this, but technology is fast replacing humans in several areas, including hiring. Many see this as an opportunity for HR to reinvent itself as a function critical to business, a role it is ideally perceived to play, but has not been known to very often.

Explains Chandrasekhar Sripada, professor, organisational behaviour and strategic human capital, Indian School of Business (ISB): “All HR functions have two aspects: transactional and transformational. The ‘transformational’ parts of HR will definitely survive; while we find a new slave in robots to do the transactional work — albeit more intelligently.”

Take recruitment. AI can help in parsing and screening CVs far better than humans. Similarly, all parts of HR — compensation and benefits, performance management, talent identification, leadership development, employee relations — now include machine learning and automation.

A host of new-age companies are using AI in hiring and creating successful business models out of this. A threeyear-old startup, Belong.co, shows how. It uses AI to cherry-pick potential candidates for companies. Called outbound hiring, this helps in hiring passive candidates.

Its cofounder Rishabh Kaul cites the example of IT services companies that are taking on new projects. “Their usual talent pool is not useful for such businesses. Plus, they are trying to stop losing talent to startups. It’s a big opportunity for us.” Belong.co helps in hiring for mid-to-senior levels. Belong.co claims it regularly hires for posts with annual pay packages of Rs 1 crore-plus and has clients across sectors, especially those getting disrupted. The highest salary, including ESOPs, has been to the north of $1 million (Rs 6.5 crore), says Kaul.

He says technology plays a critical role in finding the right talent in early stages. Once the person is excited about the role, companies can have their HR come in to negotiate. “Technology is an aid, which can be personalised by companies to hire. It hasn’t replaced the people part completely,” he says. At least not yet. Belong.co has over 100 companies scouting for talent on its platform.

It is among a bunch of firms changing traditional recruitment practices. Experts say that companies are bound to use these advanced methods to hire, and startups such as Belong. co will work in tandem with talent acquisition departments at companies. This will result in leaner hiring departments that are focused more on cultural fit, values and other softer yet critical aspects of talent.

The back-end at search firms is automated and highly tech-driven, according to Navnit Singh, India chairman of leading global search firm Korn/Ferry International. “There is a lot of disruption in the hiring market. The mass scale of hiring is driven by artificial intelligence up until middle level,” he says.

Beyond that, automation has begun to impact CEO hiring as well, which is otherwise driven by one-on-one interaction.

HR Goes Bespoke Something extraordinary happened when Yale University opened registrations for its course in happiness in January. In a matter of days, it became the most popular course with nearly one-fourth of Yale graduate students enrolled for it, the New York Times reported. The course teaches students meditation and gratitude, and how to be happy. An unexpected choice for 20-somethings? Perhaps not.

How to be happy could be one of the top priorities for the younger generation that will soon enter the workforce. Ever since the millennials joined the workforce, organisations have been forced to change the way they function. Companies are taking cues from millennials on how to manage them, and are adjusting to expect the unexpected. Millennials live in the here and the now, and need instant feedback and gratification, says SV Nathan, chief talent officer, Deloitte.

New roles like tech detox managers will soon become a reality (**See Next Frontier). Plus, technology is enabling practices that were not possible earlier. For instance, tailor-made HR. With data and analytics, HR will have the ability to be granular, at the level of individual employee, says Richard Lobo, executive vice-president and HR head, Infosys. This could be the key to managing millennials.

At Infosys, many decisions, including on compensation, benefits, training and career movements, are being tailored for individual employees. The growing focus on technology means HR will shift its focus to areas like career counselling and creating and sustaining reskilling programmes, Lobo adds.

While daily, repetitive work will be taken over by machines, HR will have to evolve more than ever, towards an advisory function that maximises individual potential rather than bind them to performance frameworks and guidelines, says Anuranjita Kumar, MD-HR, International Hubs, Royal Bank of Scotland. Future workforce will need their own HR or career relationship managers akin to financial advisors, Kumar says (*See Personalised HR).

In this next phase, called the “second machine age”, many of the current HR roles need to be reinvented, says Sripada. One potential role is “workforce planner” who will plan the hiring and deployment of robots. The future HR manager will also learn to deal with free agents and gig workers as more and more skilled people will seek employment models founded on autonomy and flexibility.

“Millennials want self-service. They want everything on an app. It’s not making HR defunct but transform. The terminology is changing from HR personnel to employee experience officers,” says Bazigos.

Evaluating in Real Time
In the last five years, many companies moved from annual performance appraisals to half-yearly or even quarterly assessment. At Cisco, which gave up bell curvebased appraisals in 2015, assessment happens on a weekly basis. Every Friday, a prompt goes out to managers to have a conversation with their reportees on how their week went by.

Not so long back, Cisco had an annual performance appraisal cycle. In the last three years, the company has moved to weekly appraisals. “Instead of having a marathon in the form of an annual appraisal cycle, we have divided this into 52 weeks, 52 sprints,” says Christian Barrios, director, human resource, Cisco India & SAARC.

While a younger generation has pushed organisations like Cisco to move to shorter cycles of appraisal, technology is making it easier for organisations to adapt. “A lot changes in our business in six months. The best time to manage performance is right now. When an employee knows what her team leader thinks about her work, it minimises surprises,” says Barrios.

For its part, Deloitte has moved to periodic performance snapshots (assessment for a certain project or for a quarter), and relies on “weekly check-ins”. Says Nathan: “With the millennials as a majority, many of whom want feedback and coaching in the moment, appraisals will no longer be an annual event. It will be continuous assessment, and ‘touch points’ with managers, a way of seeking feedback.”

In the new system, an individual’s performance data will be available to him or her at all times, says Bansal of PeopleStrong. As gig economy becomes a norm, people will not be driven by promotion but by fair compensation and choice of work.

Will HR function become defunct? “It is not the function that is under threat but people performing repetitive and structured tasks who, unless they reskill, are under threat, says Hari TN, HR head, BigBasket. Nathan points out that HR will need fewer people in certain areas. “The number will come down in operations and routine matters. The number of HR professionals in all other areas will add greater value since they will not be bogged down by operational matters. The quality of jobs will increase.”

Some like Abhijit Bhaduri, former chief learning officer at Wipro, are optimistic. “People want feedback that helps them improve. Machines can provide real-time data. But a terrific manager can be an inspiration who can motivate people to realise their potential. Machines cannot do that.”

According to NS Rajan, group CHRO of IDFC Bank, HR¡¦s role is defined by the maturity of the company. It¦s a fallacy that human resources management is the responsibility of the HR department. It has to be driven by business leaders, and anything that HR does has to reflect the business needs.

Future HR practitioners will need to unlearn and learn. They need to embrace new technologies, and not fear them. They need to take advantage of tech disruption to save time and energy for newer and better purposes. The HR function could then be re-imagined to rise above what mere machines can do.

*Personalised HR
In the not-so-distant future, HR will become employee-specific rather than organisation-specific. When technology takes over basic functions across organisations, employees will constantly try to acquire portfolio of domain skills and management skills, to stay relevant at work. This will be done by career consultants and coaches. HR as a function will then become organisation-agnostic and individual-specific. “It will be an HR that understands my personal aspirations and needs, and accordingly navigates my current environment, keeping me future-ready through constant advice on growth and development,” says Anuranjita Kumar, MD, HR, Royal Bank of Scotland. Future workforce will need their own HR or career relationship mangers akin to financial advisors.

**Next Frontier
Dr Chandrasekhar Sripada, professor of Indian School of Business, predicts the emergence of a new HR role: Machine fatigue and tech detox manager. They will run deaddiction camps to free millennials from the menace of gadget/tech abuse or dependence. “We will see many new HR roles at the intersection of man and machine, demanding greater mindfulness, emotional intelligence and equanimity, he says.

South Korea’s elderly overtake young in workforce

South Korea has more economically active people aged over 60 than in their twenties, according to government statistics that highlight the demographic and economic crises facing the east Asian nation. Governments from western Europe to Japan are facing challenges as ageing populations trigger labour shortages and increasingly onerous social welfare liabilities. But nowhere is the issue as grim as South Korea, where unparalleled levels of elderly poverty are forcing many pensioners into menial jobs to make ends meet. Elderly poverty affects almost half of South Koreans over the age of 65 — a rapidly expanding demographic that will comprise more than 40 per cent of the country’s population by 2060. In December the nation reported more deaths than births for the first time as its fertility rate plunged to new lows. “If the natural population decrease continues, South Korean society will face serious difficulties from the greatly reduced number of young people and the relatively big portion of old people,” said Lee Sam-sik, head of the Ageing Society Research Institute at Hanyang University.  “It will be difficult to maintain the overall industrial structure given the decreasing number of working people and the reduced levels of consumption.” Share this graphic South Korea’s youth demographic is also facing challenges. Youth unemployment is hovering around 10 per cent as the nation’s economy struggles to find jobs for a highly educated workforce. “Unless there is a change in the social structure, such as easing job shortages or providing more housing, it will be difficult to convince young people to have more children,” said Prof Lee. The situation raises questions about South Korea’s economic model. Annual economic growth is roughly 3 per cent. But the nation’s manufacturing-heavy, export-oriented model — responsible for South Korea’s rapid development over the past 70 years — is fraying amid increasing competition from neighbour China and the growing threat from artificial intelligence and automation. South Korea’s youth also have little interest in pursuing the blue-collar jobs of their parents. Share this graphic Official figures released on Sunday showed that 4m South Koreans in their twenties were “economically active” — a term describing someone who is employed or searching for a job. The corresponding figures for South Koreans in their sixties was 4.2m, up from 3.9m the previous year. The statistics reflect the growing portion of older people in South Korea. The population of people aged 60 or more increased by nearly half a million last year. But the data also speak to the issues of elderly poverty as well as the nation’s corporate culture. Many of the country’s top conglomerates push staff to retire before the age of 60 despite South Koreans having one of the highest life expectancy rates in the world. The situation forces many older people to search for new jobs — often unskilled work — as the state pension is minimal. South Korean President Moon Jae-in has vowed to alleviate the situation by increasing the monthly stipends from Won200,000 ($180) to Won300,000 by 2021.

The Great Jobs Collision: John Mauldin

Today, I’m going to recap one of this year’s new speakers, Karen Harris from the Macro Trends Group at Bain & Company. She has done some ground-breaking research on job automation and the future of work.  

Labor 2030
Last month Karen’s group issued a magnum opus report called “Labor 2030: The Collision of Demographics, Automation and Inequality.” I’ve written on all three of those subjects, but Karen teases out the connections among them in ways I’ve not seen elsewhere.
First, the bad news: Bain thinks automation will eliminate up to 25% of US jobs by 2030, with the lower-wage tiers getting hit the hardest and soonest. That will be devastating, and it’s not that far away. Remember 2006? Right now, you are halfway between then and 2030. Time flies, and this time it won’t be fun. Interestingly, though, Bain predicts that the manpower needed to build out the technology that will ultimately eliminate all those jobs will be enough to keep us all working until 2030. The Bain team is a tad more optimistic than I am. But they have their reasons.
Why is this happening? Demographics and automation are mutually reinforcing trends. One we already see: Employers turn to automation increasingly because they can’t find workers with the skills they need in sufficient numbers. The Baby Boom generation is leaving the workforce (though many Boomers are delaying retirement as long as they can). The additional labor that came from one-time factors like China’s opening has mostly run its course. If sufficient numbers of qualified people aren’t available, employer turn to machines.
At the same time, technology is making the machines better and less expensive. Much of the job automation so far has been fairly benign, jobs-wise. It has replaced dangerous factory work or other repetitive, unpleasant manual labor. Often the automation makes human workers more productive instead of replacing them. That’s about to change as artificial intelligence technology improves. Machines will be able to perform cognitive tasks that once required highly trained, experienced humans.
Now, at any given company this trend can look like a good thing to the owners. Invest in machines, lay off people, mint more profits. But that’s short-sighted in the aggregate because someone has to buy your products. The workers your company and others just laid off won’t be able to spend as much unless new jobs replace the ones you just eliminated.
In theory, automation will enable lower prices, which will raise demand and create more jobs. Bain does not think it will happen that way. They foresee up to 40 million permanentjob losses in the US, even accounting for higher demand.
Surplus Workers
In other words, in the next 10–12 years the US economy will swing from a labor shortage to a huge labor surplus. With the labor force presently around 160 million, this implies an unemployment rate around 25%. I find it hard to see how we could call that an economic boom.
But let’s be optimistic and assume other jobs do appear for many displaced workers. The situation still won’t be ideal for either them or the economy at large, because they will likely make less money and have less spending power. Karen’s report points out that wages will face downward pressure long before workers get replaced by machines. The mere existence of the new technologies will cap wages as the price of automating vs. employing humans falls.
The result will be even more inequality between lower-wage workers, highly skilled professionals, and business owners. That will create a variety of problems, one of which is consumption growth. The small number of wealthy people at the top can only spend so much. They save most of their income. Lower-income people spend more of their income. This pattern will only intensify.
As you might imagine, this doesn’t end well. The best case is that reduced consumer demand caps growth and we’ll see more decades of flat or mild growth. The worst? Economic dislocation and inequality lead to social breakdown and more calls for government intervention, higher taxes on the wealthy, and more generous welfare programs.
None of those outcomes would be good, but it’s not clear to me how we’ll avoid them. Note also that these projections aren’t coming from some liberal think tank. Bain is as business-friendly as it gets. It employs talented people like Karen Harris to examine factual evidence and make accurate projections, so its clients can plan for the future. I invited her to SIC because these are facts we can’t ignore. We have to face them.
Wealth Tax Coming
Following Karen’s SIC presentation, I had her on stage with me and biotechnology expert Patrick Cox. He and I both follow the ongoing research aimed at extending both lifespans and “health spans.” We want to live longer and healthier, and we see many breakthroughs coming. These advances will have economic effects as well. At SIC Patrick quoted no less than Alan Greenspan saying that our debt and other problems are really healthcare problems. Improved health spans are among the solutions we need.
Karen is somewhat less optimistic on this issue. Her research shows lifespans increasing but not as quickly as Patrick and I hope to see. Here’s a chart from her presentation.
Being a consultant, of course, Karen zeroes in on the practical impact of these forecasts. One important point is demographic. Whatever degree of life extension we achieve, results won’t reach every population group at the same time. This inequity will result in distortions that could get uncomfortable, or worse.
For instance, enabling older people to work longer could accelerate automation-driven job losses. Younger generations will feel the impact of this trend disproportionately, and many won’t like it – which brings us to possibly the darkest part of Karen’s forecast.
As we see large parts of jobs destroyed, displaced workers won’t meekly surrender, nor will they be happy that small numbers of highly talented, mostly older workers receive most of the rewards. They will want help, and in a democracy they will have the power to demand it.
This response means that the populist movements springing up all over the world will probably keep gaining momentum and, increasingly, taking control of governments. Resulting policy changes could be significant. Karen pointed out that mild measures like job retraining probably won’t suffice this time. We could see major expansion and redesign of the “safety net” programs.

How to pay for all this? Karen expects pressure for a wealth tax. Not an income tax, mind you, but a tax on all your wealth. That will be aggravating to many who have already paid tax once when they earned that wealth. Now imagine having to “donate” 1% or 2% of your net worth to the IRS every year. It could happen, and if it does, it will make it that much harder to keep your assets growing against other headwinds. I agree that we want see a wealth tax under a Republican-controlled Congress and White House, but these things do not last forever. When a populist backlash takes us to a different state of mind, when a Bernie Sanders/Elizabeth Warren type figure emerges, likely much younger and more charismatic than his or her predecessors, with the siren song of how the rich should be made to pay to make society more “just” and equal, because they benefited the most and the majority of the population did not, that message will resonate.
I know what our premarket/libertarian rhetoric would say. Many of us would suggest that this outcome would be a terrible thing for the country. But it is quite possible that many more voters in this country will disagree with us, and things will change. Remember that significant majority of millennials, who will be voting in greater numbers, think that socialism is superior to free-market capitalism.

Facebook forges music deal with Warner

Facebook has struck a licensing agreement with Warner Music Group, the latest in a series of music deals that have pit the social media company directly against YouTube.  The pact allows Facebook and Instagram users to post videos or send messages with music from Warner Music artists, which include Ed Sheeran, Bruno Mars and Cardi B.  The deal, which the companies announced with videos on Facebook and Instagram, covers both recorded music and songwriting through contracts with Warner Music and Warner Chappell Publishing. Facebook has signed similar deals with other labels at a rapid pace in recent months. Since December, the company has reached agreements with Universal Music, the largest record label, Sony/ATV, the biggest publisher, and several other groups.  

Through these deals, Facebook will start paying for the music posted on Facebook and Instagram — such as fan covers of hit songs or wedding dance videos.  The number of videos on Facebook has ballooned in recent years, but any music playing in the background was until recently unlicensed. The big record labels have retaliated by hitting Facebook with notices for their content. Viral video memes, such as the “Mannequin Challenge”, which used a song by UMG artist Rae Sremmurd, have been viewed and shared on Facebook hundreds of millions of times. 

Facebook’s push into music will allow it to compete more directly with rival YouTube, which is the most popular online destination for music. As Facebook battles with YouTube for users, music is one way to encourage people to watch and upload videos on its site. 

Friday, March 9, 2018

The way we make things is about to fundamentally change

“Tooling” - the process of designing and engineering the tools that are necessary to manufacture parts - was the essential technology behind the early industrial revolution. It allowed manufactured goods to go from humans to machines and powered the production of complex mechanical inventions like the steam engine.
With new economies of scale driven by machines, raw materials travelled from developing nations to industrial ones, and cost-effective goods flowed back to other nations across the world. Our modern era of global trade and tariffs began.
Today, we make raw materials and ship them around the world to factories that make parts. Those parts are shipped to other factories that assemble them into product components, which are then shipped all over the world to more factories that make ever more complex final products. This process is the legacy of the first industrial revolution.
Tens of trillions of dollars in capital is travelling at any given time on boats and planes, for weeks on end, across the oceans. Almost every product has a part or component that has sluggishly moved through warehouses and customs facilities where bureaucrats have charged tariffs or VAT.
This antiquated process is slowly starting to change. We are at the beginning of a new S-curve, one that will forever advance the way we make and trade goods enabling a new era of productivity. A new class of high-speed industrial 3D printers from companies like Carbon, HP and my own, Desktop Metal, which are closer to a printing press than a printer, are enabling this change and quickly becoming an integral part of the Fourth Industrial Revolution.
These new machines are capable of printing complex parts at a lower cost than traditional techniques like casting and will break even at 100,000 parts or plastic parts. The costs for low to mid-range volumes are almost equivalent to those associated with injection molding.
As this technology matures, the points at which the process breaks even will improve, enabling an era of borderless production. In this new model, only raw materials are shipped and factories around the world digitally print parts as they need them for the final assembly of the products they make. There is no tooling and no waste of raw materials. Parts are no longer stuck on ships and planes, instead, they travel as digital files to the locations where they need to be printed for the final assembly.
The benefits of a borderless supply chain aren’t the only factor driving the adoption of these new printing presses. There are three additional motivations, all of which will lead to dramatically superior products:
1. Generative design
These new printing technologies make more complex parts possible. In 2015, a new class of software started to appear: generative tools that let the mechanical engineer tell the computer where a part should exist, outlines the external forces acting upon it and identifies the areas to avoid. Once the high-level requirements are entered, a high-powered, AI-driven cloud computer cluster designs the part in a multi-physics context. This flexible, AI-driven approach to design is known as generative design and produces fully optimized parts that are often 50% lighter than their conventional counterparts without sacrificing performance. These super complex shapes resemble nature and it is only possible to manufacture them through 3D printing. Thanks to these new, high-speed presses it's finally cost-effective to produce these previously impossible-to-create parts.
2. 'Reductive decontenting'
“Reductive decontenting” is the process in which the reduction of weight of many components through the use of new manufacturing technology results in further reduction of weight of total active components within a product. For example, if you reduce the weight of a vehicle, the brakes, shocks and engine can be smaller. Almost everything benefits when you use generative design to drastically make a product lighter and you can then take advantage of the lower weight for reductive decontenting. There are fewer materials to purchase, the end product is lighter so it takes less energy to move it, and performance increases as you are able to accelerate and brake faster.
3. Assemblies consolidation
Assemblies consolidation is an engineering technique enabled by 3D printing and which requires sophisticated design skills. It relies on a design process where you combine many parts in a product into a single, solid multi-functional part. While this is not a new technology, it is only possible to manufacture the end part with 3D printing because the result of this process is a super complex structure and only 3D printing gives you complete shape flexibility to print macrostructures that become multifunctional.
This process has a major deflationary effect on a company’s supply chain and can dramatically reduce costs in major companies. In fact, companies likeOptisys have used these techniques to reduce the components in a Ka band antenna from 100 to 1, while General Electric has effectively used this process to take the housing of a turboprop engine from 855 parts and reduce it to fewer than 20 multifunctional parts. While the collection and evaluation of data during the validation process for entirely new parts is more involved, it comes with dramatic reductions in the cost of the supply chain because you no longer need a staff to manage, certify, validate and qualify those 855 parts.
A new manufacturing S-curve
This revolution is very similar to what happened with digital photography and industrial printing, where offset presses have been disrupted in the past decade by digital presses. Once a digitally fabricated part reaches cost parity with conventional processes there are other economic forces that promote adoption. There is no need for inventory (parts on demand), tooling or shipping.
With these new digital fabrication techniques in place, we will be able to democratize production. 3D printing makes it possible to produce geometrically complex designs for free and liberates designers from the manufacturing process, allowing them to create the optimal shape. SMEs will be able to produce goods around the world with equal or greater complexity than their global counterparts.
A small company in Ghana or Buenos Aires will be able to print parts with the same quality as a major company in Connecticut. By eliminating tooling and allowing one part to cost as much as 100,000 parts, products can be localized, and designs changed faster. The best designs will be sent around the world digitally and printed on demand circumventing the global tariff and VAT systems that have taxed production since the last industrial revolution.
The world manufactures $12 trillion in goods every year, so it will take many decades to modernize the world’s manufacturing capacity to take full advantage of this technology. One thing is certain, at the end of this century, as we look back on how the Fourth Industrial Revolution changed things, we will see mass, borderless production via 3D printing presses as one of the crucial, enabling technologies that drove productivity, economic growth and prosperity.