KJELL NORDSTROM: CAPITALISM IS A BIG SORTING MACHINE, ANNA SOKOLOVA
Rusbase (Site news), November 11, 2016
Advice of the famous Swedish economist about how not to lose your business in post-modern world
Lecture of Kjell Nordstrom known in Russia due to his bestsellers "Funky business" and "Karaoke capitalism. Management for mankind" took place behind the closed doors in Stockholm School of Economics yesterday.
In his work Nordstrom studies how business changes under thrust of technologies and globalization. He occupies the fifth line in the European rating of professionals in the field of management, he advises governments and corporations and reads lectures about strategic management.
He shared his vision of upcoming changed with Russian top managers and even voiced the preliminary name of his new book to be published in 2018 — Fuck Technology.
Rusbase wrote down the main ideas of the famous economist
Why Trump won
I have an explanation why Mr. Trump has won and why everyone is so surprised by this. Many people think that the world has gone crazy. The reason is that our brain does not differ from the brain of the people who have lived 200 years ago in any way. We do not evolve so quickly. What is happening to the world? Technologies accelerated time tenfold and increased human power by 300 times. If we multiply these parameters, we will receive 3,000 levels of changes. Political instruments that we have used five or ten years ago are not working anymore.
This is a planet of capitalists
We are all living in Matrix. This is a moment of human history when one system is functioning on the entire Earth. There are 219 countries on our planet and there is market economy in 218 of them. Only North Korea lives with another system. This is as if all residents of the Earth spoke English. That is why we speak the same language, business is arranged approximately similarly everywhere.
Urbanization has just begun
We are only at the beginning (and not in the middle) of the process of the fastest urbanization in human history now. There are 219 countries and 600 big cities in the world. Thirty years later, 80-85% of the people will live in these 600 megalopolises and they will account for 95-99% of economic activeness. The remaining territory will turn into junk space. This process is already underway in Russia, Australia, US and even China.
We are currently seeing a birth of multi-city corporations instead of the multinational ones. We see how cities start feeling their independence from the country and demand freedom. After Brexit London announced that it would like to remain in the EU. London represents one-third of the British economy. And this one-third announces that it has its own look at the things.
Digital or death
Everything that can be digitalized will be digitalized. Smart dust will surround us. It seems that makeup will become smart soon and will remind us when time has come to wash if off.
Everyone is interested in FAANG — what is it? No, this is not a little Chinese. These are Facebook, Amazon, Apple, Netflix and Google. Everyone has to look back at them. If your idea fits the world of FAANG you will be able to do this. If it does not, this will be difficult or impossible.
All technologies and behavior should look back at them, if this fits FAANG, you will be able to do this, if you do not, this is difficult or impossibly. Spotify has to be Apple to be in App Store. Power of FAANG is not good or bad, this is a standard. If you do not like capitalism, it is high time for you to go to North Korea, if you do not like cities, live in a village.
What is capitalism
When your children ask a question what is money, how to explain this to them? Market economy represents a machine that does only one thing: it sorts the things into efficient and inefficient. This may be anything: business schools, restaurants, any companies and products.
We can accelerate the work of this machine – give it information to enable it to sort businesses even faster and even more harshly. Corporation Kodak went broke in 2012 and thousands of people found themselves in the street.
Why we grow more stupid every day
We have bubbles in the head in which we have been taught to believe since childhood: parents, teachers, government.
After the birth of the Internet in 1994 the overall quantity of knowledge grew exponentially. During this time we produced a huge quantity of data and digital content. Machines accelerated production of information like they had accelerated production at farms earlier.
This means that every morning you wake up being more stupid than yesterday. No matter if you are the president of Russia or the US, architect, doctor, dentist, logistic specialist, teacher, tax consultant or photographer, this happens to each of us.
We were told that we should become masters at least in something. But there can be no masters now, we are all amateurs now. That is why we need to cooperate on all levels, local and international, because the world has become too difficult. Not a single scientist and not a single company can do anything all alone. Do you know how many people participate in creation of hits of Swedish musician Avicii? Sometimes 20 people. Or for example, the Nobel Prize was given to one person in the past. Now it is shared by two, three and sometimes five researchers. Because it has become impossible to do something all alone.
Plans are a tap dance
We were taught to compose plans since the childhood for our life, for the country, for the company. All these strategies, budgets and schedules. But now we have a problem, it is called "chaotic system of the second order." This is like weather – it is very difficult to forecast what will be next week. The same is just for shares and currency exchange rates.
This means that now plans have turned into an African rain dance. You can dance well but rain will not start anyway. The only alternative to plans is represented by trial and error. This is what scientists are occupied with: they conduct experiments and document the results. Now this logic comes from universities and laboratories to business and even to governments.
I have worked a lot with Germans, they are so funny. I worked with Siemens — do you remember, they have done mobile telephones? Very good mobile telephones although they looked as if they were developed in 1991. Siemens was losing money and I proposed them to experiment. But German engineers did not wish this, they wished to learn how it was correct at once.
Now experiments with smart phones are relocated to automotive industry. Tesla is an iPhone on wheels. You download new software into your automobile. This sector also turns into a chaotic system and you already cannot say what is right.
Inflation of education
This will sound strange from a professor of economics but value of higher education and scientific degrees has stopped growing and in some countries it is decreasing. Technologies have destroyed the monopoly for articulated knowledge that is given to us in universities.
But we also have another type of knowledge of which we are sometimes afraid. This is what is called tacit knowledge or silent knowledge. We always know more than we can say. And I believe that in the future competitive advantages will be based on hidden knowledge
But what can we tell our children? I have two sons. We should tell them that university knowledge is absolutely necessary but insufficient for decent life.
How to become a monopoly
In capitalism money is made through monopoly. There is no monopoly, there is no money. I know you think that I simplify this because monopoly is illegal. But I use this word in a different meaning.
Let us organize an experiment: I will say a sentence and you will prompt me the omitted word. I hate Ikea! I will better go away… You see, you have a problem. This is because Ikea has a temporary monopoly and it is in your head. And this is absolutely legal.
Forty percent of the people sitting in this will shiver if I say that iPhones are removed from production and you will have to use Android-based telephones. The reason is that Apple has created a temporary monopoly in your head. This makes it an incredibly profitable company.
All you need is to create a monopoly in the head of your consumers. It is possible to do this to a restaurant, to a bar, to an air company, this is a common principle. I have worked with a small Norwegian company that some of you should know. Do you recognize this children's chair? Yes, it is called Tripp Trapp. This chair enables a child to sit on the same level with adults. This is a very Scandinavian idea, is it not? It says that children are humans too and they have the same right and they should sit together with adults.
At present, Stokke Fabrikker works successfully in 60 countries occupying 50% of the market in each of them. When a European woman learns about her pregnancy she things, "Oh, we need another Tripp Trapp." Note, no Ikea. This is a temporary monopoly in the heads of parents.
Lady Gaga is also a temporary monopoly and that is why it is difficult to find a substitute for her. If you invite her to your Christmas party and she gets ill it will be difficult for you to find the second Gaga. Such mental monopolies are created mostly from tactic knowledge and not from the verbal one.
Do you remember Volvo 242? This is the most absurd automobile of all automobiles ever produced. This is a real East German tank! Why does it look so strange? People had a rich choice of automobiles: premium automobiles, sport automobiles, sexy automobiles. But Volvo 242 was the first automobile in the world that was fully designed as the safest one. This was a very popular model. Volvo sold almost 3 million such cars. But afterwards other automakers suddenly started making safe cars. Now almost all automobiles are as safe as Volvo 242. The company has lost its monopoly.
Our life like a chain of transactions
This year, the Novel Prize for economy was given for research in the field of theory of contracts. It turns out that the system of bonuses is very efficient if you sort potatoes. If you stimulate people materially they will sort like crazy! (this work well also for carrots).
For classic musicians bonus system does not work very well: they do not play better, they play faster. For all really sophisticated processes bonuses do not work. If you are a top manager in a big corporation you will try to understand bonus system instead of doing your work.
It is possible to present human life as a very long chain of transactions. Due to technologies these transactions (to order a book, to rent a car, to book a hotel) became cheap and as fast as they had never bee.
Any human activity from Skolkovo in Moscow to kindergarten in London may and will be organized in different ways. They look this way and not the other now exactly due to the costs of transactions that may change always.
Look how Uber has reconfigured the taxi market. We are possibly the last generation of car owners. In seven or maximum in 14 years we will not own automobiles, we will rent them. Incidentally, Germany is already preparing for full prohibition of automobiles powered by hydrocarbon fuel (2030).
What can we do?
If we are going to create a temporary monopoly (this is a task of business) we have a big problem. American professor Harold Bloom described it the best of all, I think he is the best literary critic of the planet. In summer, I was at his lecture. Having completed his speech of 1.5 hour, he turned around in the doorway and added:
— Remember, ladies and gentlemen: you should read only 26 authors, all the rest are their copies.
I call this karaoke world. All cars look similarly, all hotels look similarly inside and outside, everything turns into karaoke. The main challenge for business is to break through from this similarity, to preserve originality in the century of comprehensive standardization.