Can big institutions learn new tricks?

Why using digital technology only to create efficiency might not cut it anymore

Most companies view transformative digital technologies as opportunities to dramatically streamline processes and operations. If properly harnessed, advanced technology like A.I., automation, robotics and others can help organizations get much more done much faster, and with less costly manual effort.

But John Hagel III sees it differently. The veteran Silicon Valley entrepreneur, bestselling author and business innovation consultant warns of what he calls a ”dark side” to the exponential growth promised by these technologies: he says the focus on driving ever-greater efficiency is not a path to long-term prosperity.

“If you’re just focused on efficiency and cutting costs, you’re playing a game of diminishing returns,” Hagel said during a keynote speech at SingularityU Canada Summit, a three-day thought leadership event held in Toronto in October.

Instead of the “scalable efficiency” approach to institutional growth that pervades Western society (and he includes governmental agencies, educational organizations and NGOs), Hagel advocates for organizations to adopt a new model. He calls it “scalable learning”.

How fast can your company create new knowledge?

Scalable learning requires organizations to not simply adopt digital technology to use workers more efficiently or replace them altogether, but instead to empower them—at all levels—to learn and create new knowledge that feeds back into the organization.

"In a world that is changing exponentially, the ability to learn faster at scale is going to become increasingly critical to success." - John Hagel III.

One real-world example: a U.S.-based call centre outsourcing company that deployed a real-time performance dashboard to its 20,000 remote workers in order to spur peer-to-peer learning and exchange of ideas. Employees who demonstrated aptitude for coaching received recognition and financial rewards.

Scalable learning is a thought-provoking but unproven vision that challenges fundamental assumptions about how large organizations work. British economist Ronald Coase first claimed in 1937 that it’s much easier and less expensive to coordinate the activities of a large number of people when they’re in a single institution instead of dispersed across many independent organizations.

Mounting pressure to perform

But Hagel says the world has changed and, driven by technology, continues to change at an accelerating pace—a trend he calls the The Big Shift. “There is mounting performance pressure on all of us, as individuals, and as institutions,” he said.

According to Hagel, you can measure this growing pressure in the long-term decline in the ability of companies to find and capture attractive opportunities relative to the assets they have, despite the advanced technology at their disposal.

Researchers at the Deloitte Center for the Edge, where Hagel is co-chairman, studied the performance of companies in the S&P500 index from 1965 to today. As a metric for long-term value creation, they used return on assets, the percentage of how profitable a company's assets are in generating revenue.

The results do not paint a pretty picture. “Return on assets has basically collapsed,” he said. “It’s gone down by 75% over that time frame. A long sustained erosion, and there is absolutely no sign of it leveling off, much less turning around.” Not that we aren’t all trying, he added. “We are squeezing as hard as we can, and yet, performance is declining at a sustained, extreme rate.”

The changing role of human work

Hagel believes there is an increasing disconnect between the exponential world evolving around us, and our linear business mindsets and practices. “In this world, scalable efficiency is actually becoming increasingly inefficient,” said Hagel.

Most companies are focused on either trying to replace expensive, unreliable human beings with a machine, or shifting fixed costs of full-time employees into more efficient variable costs of freelance contractors.

“I want to suggest there’s a different dimension to all this that’s not on the table, but should be,” Hagel said. “How do we use automation as a catalyst to fundamentally rethink what work should be for human beings?"

"How do we redefine work to really tap into unique human capabilities—curiosity, creativity, imagination, emotional and social intelligence—that would allow us to create far more value and deliver it to the marketplace?” - John Hagel III

A business imperative: Learn how to learn

Hagel acknowledges that transforming a business is by no means easy. Scalable efficiency is a deeply ingrained corporate mindset, and it is fundamentally in conflict with scalable learning. One punishes failure; the other rests on the idea that if you’re not failing, you’re not learning fast enough.

Hagel recommends an approach that starts small, at the edge of a business, with a low budget that does not attract attention and encourages a sense of urgency to seek partners to learn quickly together.

In fact, Hagel’s research has identified only a few companies, mostly in China and India, that have scalable learning models as significant part of their businesses. But economic forces show no signs of abating, and Hagel does not mince words. “My message is, this is not an opportunity that can wait. This is an imperative,” he said. “And if you don’t move to transform in a fundamental way, you will be increasingly marginalized.”

Rogers is a founding partner of SingularityU Canada Summit.