Rage Against the Machine

Hall of Fame guitarist Pete Townshend is famous for his highly aggressive playing style, which culminates in him smashing his guitar in a fit of righteous rage at the end of many a Who concert. Perhaps this British luminary got his inspiration from another angry Brit named Neil Ludd, a textile worker in early 19th century England.

The first mechanized spinning looms appeared in British factories in the late 18th century and quickly began displacing workers who did textile work almost totally by hand using non-mechanized looms. In a period with no social safety net and when unemployment could literally mean starvation and death, the stakes were high. Perhaps driven by fear of displacement, Mr. Ludd—the inspiration for the anti-technology Luddite movement—smashed a mechanized loom to bits.

In their recent book, Machine, Platform, Crowd: Harnessing our Digital Future, Andrew McAfee and Erik Brynjolfsson address how workers should embrace artificial intelligence (AI) and work side by side with it. They also address how many of the old-school company structures that some consider ripe for destruction by technology actually have a viable future.

As the title of the book suggests, the future of work is based on three principles:

  1. Machines: the rapidly increasing capability of machines to do things that were previously thought only possible of being done by humans.
  2. Platforms: newly emerging companies using virtual networks that disrupt old ways of doing business.
  3. Crowd: the belief that the best ideas come from harnessing the power of a non-traditional group outside of the strictures of the modern company.

Messrs. McAfee and Brynjolfsson make it very clear that we (humans) and our employers aren’t going away. “Human abilities, excellent goods and services, and strong organizational capabilities remain essential to business success”, they contend. This doesn’t mean all will succeed, as those humans that are good at solving match problems and puzzles (i.e., things that can be automated), but lack intuition and real-world smarts are at a disadvantage. Those that have a combination of hard and soft skills, including human judgment, creativity and interpersonal skills, will be best off.

In the world of commercial real estate, interpersonal skills are key. The two CRE sectors that many say are ripe for technological disruption are retail and office. The basic argument is that because people can shop for almost anything on-line, there is less need for physical brick-and-mortar retail. Similarly, there is less need for office space because technology allows people to work remotely. In my view, both arguments are overblown. While some disruption in retail for commodity type goods will continue, people always will prefer to shop in person.

The same can be said for the office, but perhaps more so. There are several high-profile examples of the remote-working pendulum swinging back (IBM announced in March that remote workers should come back to the workplace). Many employers have reached what I consider the obvious conclusion that the office is a superior work environment that brings people face to face. It makes workers happier, more productive and more likely to stay with their employers.

Which companies will be successful? What is a company if not a collection of processes to get things done? The great disruption of e-commerce is that it extends the business process “beyond the four walls of the company and all the way to the consumer”, Messrs. McAfee and Brynjolfsson contend. But by extending the process, it’s clear that there always will be an important place for the “four walls” of the company. Maximizing the benefits of machine, platform and crowd is the challenge. Those companies that can create platforms or networks that provide deep troves of information are at an enormous competitive advantage.

The old adage “keep it simple stupid” (KISS) perhaps is the most important element of any business platform today. The authors note that “just about all the successful platform builders also do one other thing: they work obsessively on the user interface and user experience that they deliver to their participants”.  Or as better stated by Albert Einstein: “Make things as simple as possible, but not simpler”.

The same principles that make a successful platform also apply to a successful use of the crowd. The authors advise that “when things get really complex, don’t look to the experts. Instead, call in the outsiders.”  They use Wikipedia as an example, “because it adopted the principles of openness, non-credentialism and self-organization. It abandoned the notion of standardized, multistep work flows and the requirement that editors be experts or have PhDs”.

Even though the authors are bullish on the future of the traditional old-school company, they warn that it must adapt or face disruption. “It’s exactly because incumbents are so proficient, knowledgeable and caught up in the status quo that they are unable to see what’s coming”. Despite digital disruption, the trend of modern corporations is increasing concentration among the large players in most industries. The company’s continued existence, according to the authors, is based largely on the principle of transaction cost economics (TCE). In short, it is impossible to create a perfect contract, much like it is impossible to create a perfect algorithm and blockchain may never be able to facilitate complex transactions. As such, trust in contracting remains indispensable, and known corporations typically are more trustworthy than individuals.

The bottom-line conclusion of the book is that machines will never be perfect and algorithms are only as good as the data that supports them (garbage in, garbage out). This leaves broad latitude for humans and machines to work together, with the company an indispensable organizing entity that brings them together.

Unlike Neil Ludd, we shouldn’t resist today’s age of technological disruption by destroying machines or refusing to use them. Rather, we must work side by side with them. We must have a robust symbiotic man-and-machine future, otherwise the hammers will come out in the form of heavy regulation, robot taxes and, in extreme cases, nationalization.

By Spencer Levy, Americas Head of @CBREResearch | Senior Economic Advisor.