Rouse on Transformation

It is fairly common for the perceived benefits of current market offerings to fade and new value propositions to displace older offerings.  As noted in earlier posts, Schumpeter called this process “creative destruction.”  Steel ships replaced iron ships, which replaced wooden ships.  Microprocessors subsumed transistors, which replaced vacuum tubes. Change happens and creative destruction causes obsolete offerings to be replaced by new innovations.

This process of fundamental change sounds much smoother than it actually is.  The stewards of the “as is” enterprise — in other words, the stewards of the status quo — usually do their best to thwart the emergence of the “to be” enterprise.  In fact, they are likely to do their utmost to undermine the very thought that a new paradigm may emerge and be successful.

Last week, I spent a night in Bethlehem, Pennsylvania.  The carcass of the Bethlehem Steel Plant dominates the town.  This sprawling facility has been deserted for three decades.  This was once the “as is” enterprise.  There were thousands of people who did their utmost to steward this “as is” enterprise.  I expect that they simply did not believe that a different future was emerging.

This is not at all surprising.  The builders of wooden ships were not intrigued by the capitally intensive emergence of iron and steel ships.  The vendors of oil and gas lamps were not very enthusiastic about the possibility of electric lights.  The owners, managers, and employees at the Bethlehem Steel Plant were not big fans of high-efficiency continuous casting, not to mention low-wage foreign steel production.

Transformation is, to a great extent, very difficult because an enormous number of people are depending on change not happening. They expect the jobs at the steel plant or automobile plant to continue forever, generation after generation. A few members of each generation break out, perhaps becoming engineers after one generation, and lawyers or doctors after two.  However, the ranks of those seeking the factory jobs grow much faster than of those seeking to leave.

Of course, this phenomenon is not limited to factory work.  Teachers and doctors, for instance, argue against new processes and technologies that they perceive will undermine the value of the knowledge and skills they have long invested in gaining and refining. Thus, online education is impugned for not embodying the human skills of the physically present teacher.  Yet, the current generation of young people has mastered Internet-based interactions with people in far-flung other locations.  The trend in this arena is clear.

Transformation would be much easier if everyone were more adaptable in the sense that they would willingly gain new knowledge and skills whenever necessary.  Factory works would quickly become computer programmers.  Teachers would give up lecturing and rapidly refine facilitation skills for guiding students in online education.  Everyone would happily discard skills that are becoming obsolete and eagerly gain newly valuable skills.

Beyond the problem of motivating everyone to act in this manner, there is a more fundamental limit to this idea.  It takes a long time to become really good at something.  As Malcolm Gladwell popularized in Outliers, research has shown that it takes around 10,000 hours to become an expert.  This is five years if done full-time, perhaps ten years if work involves other activities than just focusing on gaining the targeted expertise.

So, it takes the factory worker 5-10 years to become a skilled computer programmer and the teacher 5-10 years to become an expert “guide on the side” rather than a “sage on the stage”.  I may be overestimating the time required, since the teacher, for example, would not be starting with no facilitation skills.  However, the point is that there is a limit to how fast people can adapt, even if they are willing.

A counter argument is that people do not need to be experts to be productive. But, would you want the flight management software on the plane you are flying in to have been programmed by a less than expert programmer?  Would you want to undergo surgery with a surgeon that just a few years ago was in a completely unrelated profession?  Clearly, high levels of expertise and the resulting high levels of performance are often very important.

Dynamic, innovative economies lead to high levels of creative destruction.  This results in needs for frequent and significant transformation of enterprises.  Often people do not want to make the changes transformation requires.  They may be unwilling, but more fundamentally, they are unlikely to be able to change fast enough to maintain their positions — and incomes — in the transformed enterprise. That is one of the basic reasons why transformation is so difficult.