From left, David Kirkpatrick, and Penny Pritzker
Penny Pritzker, Secretary, U.S. Department of Commerce
On stage at last year's Techonomy 2015 conference, from left, Techonomy's Kirkpatrick, Cisco's John Chambers, Philips Healthcare's Jeroen Tas, Commerce Secretary Penny Pritzker, and McKinsey's James Manyika
John Chambers, Executive Chairman, Cisco
From left, David Kirkpatrick, Jeroen Tas, and Penny Pritzker
Jeroen Tas, CEO, Healthcare Informatics Solutions and Services, Philips
James M. Manyika, Senior Partner, McKinsey & Company
Founder and CEO, JC2 Ventures
James M. Manyika
Senior Partner, McKinsey & Company
Former U.S. Secretary of Commerce
CEO Connected Care & Health Informatics, Philips
Founder and Editor-in-Chief, Techonomy
The economy IS digital. It’s not coming soon; it’s now. What does that mean, for businesses, individuals and governments? And how can we work together to make sure the benefits, which are legion, have the widest, most substantive impact possible?
Kirkpatrick: John, James made a very, I think, quite compelling presentation about both the opportunities and the challenges. I mean, I don’t know if you had a chance to look at the data but—
Chambers: Yes, I did.
Kirkpatrick: The degree to which key industries in the American economy are not digitized comes out sort of loud and clear in that data. Now, you’re somebody who’s been such a strong proponent of the opportunity we have with digital to change our economy and the way we do business. What do you think about and does it worry you when you see a lot of it, some of the main ones were that retail is bad, healthcare is bad, hospitality is bad, places where huge numbers of workers work and productivity is actually declining because there is so little digitization? What about that?
Chambers: So maybe a couple quick thoughts. We’ve seen this movie one time before and the first generation of the Internet during the 1990s. Interesting enough, even though I’m a strong republican, President Clinton I think got it right, 22 million jobs were created, 17% growth in real per capita income, real per capita income for the average American, 18% growth in GDP capability. Think of digitization as the next generation of the Internet evolution and the ability, whether this country leads or not, starting with government but also each of the key industries that you talked about will determine our future. Eighty percent of American enterprise that exists today will not exist in 10 years. This will be tremendously disruptive. Jamie Dimon said it best, I think, for the finance industry. He said, “Understand Silicon Valley is coming and every industry must become a digital organization.” As this change occurs it’s not out of the question you will see some extreme business models, billion dollar companies, literally run by a CEO and a CIO.
Kirkpatrick: And that’s it?
Chambers: And that’s it. Because if you don’t change your organization structure, if you don’t move very, very quickly then you’re going to get left behind.
Kirkpatrick: I mean, the efficiencies are so great you think a billion dollar company could have two employees?
Chambers: Well, it isn’t the efficiencies it’s the business models, where you outsource legal, outsource manufacturing, outsource sales, outsource engineering. And if companies don’t turn themselves horizontal and work across those silos these different business models will make it happen. So Walmart must become a digital company. Doug understands that there. He understands he must win at the intersection of physical and virtual and our country’s future depends on how well we do this. Penny really gets it, she understands what this means. James’s number was actually very exciting. He used a number of $2 trillion dollars by 2025 in the U.S. Remember the whole IT sector in the global is $2 trillion. This will have one to three percent GDP growth, create an extra one to two million incremental jobs per year in our country—
Kirkpatrick: This meaning the digitization trend?
Chambers: Digitization of our country, yes.
Kirkpatrick: Well, and just quickly, talking about new business models, Cisco and our partner Ericsson and now it’s a major new partnership today that really is kind of mind-bending because it’s not a merger but it’s almost—it’s a very new model. Just very quickly summarize how that indicates what companies need to do these days.
Chambers: Yeah, if you watch, every country in the world, whether you’re in the U.S. or otherwise, is focused on growth, they’re focused on innovation, and they’re focused on speed. So the old world model of combining two large companies together, taking a year to get it approved, and then a year to integrate it, then another year before you get innovation I think are dead upon arrival.
Kirkpatrick: Speaking as someone who’s bought how many companies?
Chambers: One hundred and eighty companies.
Kirkpatrick: Bought 180—okay, go on.
Chambers: But we buy small companies to medium size. And so what we did with Ericsson, very simply was to say, “How do two companies—” and it took us a year to put it together, 5,000 hours of meetings, if you can imagine, to transform the service provider industry and people like AT&T and Verizon and Vodafone came out and said, “This is an industry-changing move.” By the way, it goes from service provider to enterprise to Internet of Things. We did the same thing with Apple four months ago. Literally transformed how mobility is going to occur in the enterprise accounts and how do you align in terms of collaboration and fast track Apple applications. And then we did it with Inspur in China. I taught my first class at Stanford this last week on not just mergers and acquisitions but on next generation partnerships. So the point that I think all of us are making on this stage is the speed of change in growth and innovation. And those who get left behind will be completely disrupted.
Kirkpatrick: But new things have to be, things have to be reconceived because of the nature of the environment.
Chambers: New business models, new technologies, new organization structures.
Kirkpatrick: Jeroen, you’re Philips Healthcare Informatics. You run a digital healthcare business, in effect, the global. And you’re in an industry that as James’s data shows, at least in our country, is unreconstructed so to speak. How big is the digital opportunity in healthcare and how would you extrapolate from that about what we need to be thinking about in the entire economy?
Tas: Well, today if you look at healthcare, including life sciences who are already 80% of GDP, so we’re talking about $3.2 trillion dollars. But if you peel the onion about 80% of the spend is on chronic disease, yet the system is organized around acute episodic care. Now we’ve seen that if we basically give people the basic tools to measure themselves, to see the trends, to spot early deterioration and intervene we can dramatically impact the health of people though we can also impact the efficiency of the system. So we’ve done a pilot with Banner Health in Arizona and we looked at the sickest patients. So people who have four or five chronic diseases, they have slight dementia, and these are the people that call 911 all the time. They’re the ones that are in the emergency room that get re-hospitalized all the time. Now we found out that if we give them the tools to monitor themselves, if we give 24/7 access to care, and that means we get them a little pendant that if they fall we know this. We can actually predict they’re going to fall, but they can also always press that button. Now, we’re integrating Alexa in that. So we want that little device to tell them, “Oh, you have to take your red pills now.”
Kirkpatrick: That would come out of this thing?
Tas: Yeah. Well, we can actually have it in the pendant itself because it’s actually a dedicated phone. We can see how people walk around the house. So we can say, “Hey, they’re not coming out of bed or they’re going to the restroom 20 times in the night.” And we’ve seen that with these kind of tools and capabilities and really make it very personal, so we talked about the experience, it’s got to be a seamless experience, but a lot of it will be driven by algorithms that tell, “Hey, deterioration, intervene.” “Hey, acute event, intervene.” How can we optimize behind it? You know, somebody falls, we know they have a rare condition, we can immediately bring them to the right hospital. They know that person when they come to the hospital, they get the right care with the right priority. That’s not the way it is today. It’s highly fragmented and it’s not seamless at all. So there’s a tremendous opportunity and with Banner we found that we could reduce re-hospitalization by 45%. We could reduce emergency care by 65%. Because these were the people that anything goes wrong, we call 911, ambulance comes in. Now that means about 27% overall net savings on providing the care, patients that live at home with dignity and a system that provides way better care for their patients. So I think the opportunity is tremendous. The opportunity is just opening up and I think it’s not just changing the care we provide for people like our parents or in my case, my daughter who has juvenile diabetes and we talked about it yesterday. I think the opportunity is also to craft a completely new world where we not only see this but also really go deep. So we now can combine what we saw on an MRI, so anatomical detail with detail about the cell. You know, we can take a tissue and do digital pathology on it, zoom in on cell protein level. And guess what? We also know how that cell grows because we can take the genomics of it.
Kirkpatrick: Okay. We can but will we?
Tas: Yeah, of course we will because the opportunity is there and it has such impact on everybody’s life. And you heard Sean Parker yesterday, you see people here in the room, they’re motivated by what they can do for their own children, in my case, but also for the bigger world the opportunity is huge.
Kirkpatrick: I’m glad you’re optimistic. One other thing you said that actually echoes something John just said when we talked earlier was that this wave of technology, opportunity is bigger than the internet, which is something John said.
Chambers: By 5 to 10 fold.
Kirkpatrick: You think it’s 5X. Does that sound right to you?
Tas: Yeah because it’s not just the Internet. It’s how do you interact between devices that are becoming part of your life, that augment your life? And it’s data of course. If I asked my people, “What’s truly differentiating us?” it’s essentially two things. It’s the experience we give and that can be a clinical experience for cardiologists or neurologists or it’s the patient experience. And it’s the algorithms because ultimately if we can detect a deterioration because we see somebody’s getting up much more slowly or their gait changes we know, hey, the probability of a fall is increasing so we can intervene. It’s all data driven.
Kirkpatrick: So James, one thing that was interesting—all three, James, Jeroen, and John, when I spoke to you by phone brought up one particular thing, which I’ve already spoken of on this stage and I want to talk about it, which is U.S. politics and the digital economy. And all three of you spontaneously said without me asking, even though it happens to be a personal passion of mine, that you were distressed to see the absence of an awareness of the digitalization of the American economy in the U.S. presidential election thus far. How distressed are you and what does that indicate? What should we think about that, James?
Manyika: Well, it actually worries me that, in fact, one of the most profound changes that’s going on through not only just this country but globally is absent from the conversation. We know as John put out the statistics, this is going to affect growth, this is going to affect productivity, this is going to change societies and yet the fact that we’re not talking about it, either side, in any of these forums is actually quite distressing. And I think the reason why it’s particularly distressing is because we know that on the one hand the pace of the technology, I mean, listen to all these examples, is accelerating and yet societies ability to adapt to the changes is much, much slower. One of the things that’s quite different between say what’s going on now with even previous revolutions, the industrial revolution and whatever have you, is that those changes were slow and they happened over generations. And so people just from a skill point of view from in terms of our institutions adapting had a lot of time to evolve and adapt. This time around the technology’s moving so fast and these changes are happening within each of our own work lifetimes and yet the fact that we don’t talk about it I think is quite distressing.
Chambers: Penny really gets this and I really admire what she’s doing. If she were a Republican she’d be almost perfect.
But every other major country in the world at the prime minister level and the president levels are articulating a vision for their country. Modi in India, he is basing his future of his country, 1.3 billion people, on a digital environment. Reskilling the Indian workplace, creating a million jobs per month, talking about how they move into manufacturing, 100 smart cities, 240,000 villages. You take Cameron in the UK, making a great place for the UK to do business, creativity driving very rapidly. Germany, Merkel’s key topic is industry 4.0, preparing her manufacturing base to be effective for the future. And France, how many of you in this room think France would lead in the digital revolution? How many—?
They’re kicking a bunch of country’s tails right now. They had 77 of their startups in the CES session, this last year, number two only behind the U.S. They are united at the President Hollande level, the Prime Minister Valls level. They’re going to create a million jobs with their business community over the next five years, will train 200,000 people, French men and women, in new skills that are needed for this future, we’re putting hundreds of millions of dollars into venture capital investment because they get it. And this is why I think it’s so important, Penny’s agenda, on really making this a topic, first, for the last year of this administration but it needs to be a topic for both the Republicans and Democrats. And we’re the only country in the world that isn’t even bringing it up. American leadership is at jeopardy here. Our political leaders have to, I think, put this at the forefront and translate it into jobs and real income for the average American. We’re not doing that.
Kirkpatrick: This is a tweetable, “America is not—” what was it? “American economic leadership is in jeopardy” is really—
Chambers: It really is because of lack of a technology plan and digitization plan.
Kirkpatrick: But Penny, you know, to your credit and one reason we really were thrilled to have you here, you are doing the right kind of thing. That agenda you outlined this morning is fantastic and, not by your fault, way over due in the commerce department in the U.S. government and thank god you’re here finally doing it. What were you going to say? But I mean, does it worry you that as John says, Modi and I mean, certainly Xi Jinping and plenty of other leaders are way more out there talking about this than we have been historically as a nation?
Pritzker: Of course you worry about it but what I would say is as follows, what I’m worried about more importantly is actually government saying one thing and doing another thing. So for example, there’s this enormous enthusiasm in Europe for the digital single market, but they just had an European court of justice case, which basically struck down portions of the existing EU Safe Harbor. So data flows between the United States and Europe are in jeopardy and we’ve been working for two years with European commission to take into account all the things that the U.S. government has done to change the way we protect privacy and security and yet there seems to be a lack of urgency on the part of the European commission about adopting Safe Harbor 2.0, which frankly we’ve negotiated. I mean, there’s some tweaks—but this case came out a month ago and we have 4,400 companies, whose data flows back and forth, depend upon Safe Harbor.
Kirkpatrick: 4,400 companies?
Pritzker: 4,400 companies and my—Commissioner Jourová, who this falls under, under the European commissioner, is coming next week to Washington and I said, “Let’s come and announce the deal.” She said, “Let’s have a milestone.” And I said, “But we have commerce going on every single day right now that’s in jeopardy because there’s uncertainty about how you can move data back and forth.” So my concern is not that we won’t invent and create and innovate here. I just am worried more that governments have visions but they don’t have the reality on the ground. And Safe Harbor is a perfect example of that.
Kirkpatrick: Well, there could be a little dichotomy between the EU and the individual countries too in the case of this.
Pritzker: But at the end of the day what their recognition is is with 28 different countries in the European commission, they have 28 different sets of data protection regulatory environments. It’s one of the reasons many of their innovators have moved from Europe to the United States is because there’s this lack of a uniform market there. And we want them to create a digital single market. Not one that’s protectionist. One that engages with the rest of the world. So part of our job around the world is when I say we’re focused on a free and open internet and free data flows, this is the kind of thing that we’re working on. You can tell I get very animated about this because I recognize what’s at stake here and I feel this enormous sense of urgency that these things need to be adopted. That is not necessarily the way the average bureaucrat in the average country feels.
Tas: Yes, I want to react to that.
I’m European, I’m from the Netherlands.
And no, I’m working closely with Commissioner Ansip who’s the promoter of the single digital market—
Pritzker: Yes, so am I.
Tas: And we run into the same issues. There’s data residency laws that say, “Hey, the data cannot leave the country.” There’s different regulations around data, which makes it very hard to create a single European market. We cannot live without U.S. technology, it’s very simple. I’m working very closely with companies like Amazon and Salesforce and together we can build these great innovative platforms that the whole world can benefit from. So I think if the European nations become myopic and keep focusing on, “Oh, we need to have the data here,” and don’t understand what it means to let data flow, to secure data, to manage identities around data, then we’re never going to make the big leap and reap the benefits from what John just outlined.
Chambers: But you know what’s interesting, every country gets into trouble for the same reason every company does. They don’t set the top three to five objectives you should have. Every country should be thinking one to three points of GDP growth, major job creation, inclusion of everyone in that country in this transition, a new generation of innovation as you do this, smart cities, broadband to every person that country, and the ability to really mine everything from healthcare to financial services to better government service to the employees. That is your overarching theme. Every regulation should point to that and if we’re not careful we end up in silos discussing what is the siloed issue to prevent data and get tied into some of the issues such as privacy. And I’m more European in my thoughts about privacy than I am American on it, but we need to set the high level goals and then say, “Here are the ways you get there.” And everything ought to move us closer to that goal. That’s why this does not work without the top leader of a company, the CEO, owning the digitization for their company and they need to know if they don’t do it they’re going to be history. And the same thing at the country level.
Kirkpatrick: I want to just stick on this politics thing a little bit longer because, John, you are ostensibly a Republican but by today’s standards I don’t know.
Chambers: There was a compliment there somewhere, maybe.
Kirkpatrick: There is a compliment there. But you know, your party gets this like football team full of candidates up there who basically seem about as deep on this as a football player would be. I don’t know, but how distressing is that to you as a Republican that, I mean, basically maybe Kasich and maybe Ted Cruz in his weird way, but basically you just don’t hear that these people seem to even know notice what their teenagers could tell them about the digital economy we’re in.
Chambers: Well, a couple thoughts. Neither side, in fairness, have even articulated a technology strategy for the digital future. Rubio, out of—
Chambers: He said, “I want to focus on technology—“
Kirkpatrick: He said, “I’m going to.”
Chambers: But this is where we have to change. Whether it’s leaders of a country or leaders of a company, you have to articulate the vision. You’ve got to take ownership. Anybody that doesn’t think digitization is the heart of this country’s future, and innovation, just doesn’t understand where this market’s going. And so our leaders have to become educated on it, they have to create the environment. This administration, Penny, I think, has a chance to lay a framework, regardless of which party wins, how you go forward. But we’ve got to have that as a national debate and we’ve got to really talk about the issues that are going to determine the future of our country and are you going to readdress the social issues where the average American will be better off for the future or not.
Kirkpatrick: Okay. Let’s go to that because you know, the jobs stuff that you’ve just announced, the article that you published on Friday is quite a kind of breakthrough article and I noticed “The New York Times” wrote about it, which distressed me because I was hoping we’d break that here. But the fact is that you’ve actually come up with a number of how many jobs are going to be lost because of digitization and automation and AI in the U.S. economy—is it the next 10 years? 5%?
Manyika: Next 10 years.
Kirkpatrick: U.S.: 5% of jobs will go away. Not typically low-income wage jobs but more middle jobs and also the big thing is this 30 to 40% of every job will get automated. Can you just talk about what the kind of policy implications are on work of the digitization of the economy and picking up on some of the things John was saying?
Manyika: Well, first of all, what we found is—so we tried a very deep study on this, working both economists as well as technologists on this. And I think the 5% number is important because, first of all, it’s much lower than some of the more alarmist numbers that are being thrown out in terms of the range of jobs that are going to be automated. So that’s an important thing to sort of calm down about, but still 5% is a big number, but it’s not 47% that’s been thrown around in other areas. But I think this point about the redefinition of jobs is probably the more important point because what we found in our work is that a lot of jobs will be redefined as opposed to whole scale automated. And I think that the impact that that will have is that people who are skilled enough, who have the skills or the learning, should be able to then compliment what they do with technology, are the ones who are going to do better. So the question is, as jobs get redefined how do we make sure people have the right skills to be able to work with technology? Because that’s what’s going to happen. That’s why I give the example of the bank teller. The bank teller didn’t go away with ATMs, they just moved on to do slightly different things.
Kirkpatrick: More sophisticated things.
Manyika: Often more sophisticated things or things that were more exceptions or different from the normal routine set of things. So the question is, how do we prepare everybody to be able to do that? I think one of the, perhaps the things that we failed to do is to recognize that there’s a return to more education.
Kirkpatrick: You mean an economic return.
Manyika: Economic return. I mean, Michael Spence, who’s, you know, he got his Nobel Prize for working on information signals in the labor markets. One of the things that he finds most surprising and we’ve done some work with him on this, is that despite the fact for the last 30 years we’ve known that there’s high returns to education, in terms of wages and everything else, there’s been a sluggish response to that. We haven’t seen people racing to get more education, we haven’t seen more skilling. So there’s a question of, how do we help people cope and adapt to the way jobs are going to change? And that’s a challenging thing. And one other point on this, this will effect especially middle-skilled people. So while of course a big chunk of what all of us on this stage and in this room do will get automated, we’re okay, right. We can learn, we can adapt, at some level I don’t worry about that as much. I worry a lot about the middle-skill category.
Kirkpatrick: Yeah, Penny and then people in the audience, we want to hear from you.
Pritzker: And the question I have for everyone here is, and what’s the role of the corporation in that change versus what’s the role of government in that change? If you look at training dollars the United States government spends about $19 billion dollars a year on training. The private sector spends about $450 billion dollars a year on training. So while we think of government as a big leader in this area, we’re a small part of the market place. What we’re trying to do is focus on making sure that training is geared towards what businesses need so that someone who is either spending or money or both to get more training is getting valuable training. And that’s the other thing we have to do. And we have to figure out how to do it in a way that is sustainable for people. How do I do my job and become something—30% of me has to become something else at the same time. Plus, oh, by the way, maybe I have a family or I have other responsibilities within in my community. And so how does that work? And I think we don’t have, we haven’t thought that through. We’ve made at the Department of Commerce a skilled workforce one of our areas of focus in our innovation pillar. And it’s been phenomenal. We have no money. It’s like we don’t give away grants or anything but we’ve been brought thought leadership about we have to change workforce training to address these issues and to be relevant and portable and timely and valuable so that for the individual who’s, we’re going to put now everybody, basically, through more training. How are we going to do that in a way that works socially? And I haven’t heard solutions about that.
Manyika: Well, actually, Secretary, you mentioned one issue that’s also quite important, this idea of portability and it effects many, many things. So we know that for example there are a whole bunch of things that go with work that are no longer portable. That aren’t as portable as they should be, whether it’s benefits or healthcare. But also even things like—one thing that technology has enabled is this idea of reputations is another compliment to skills. It would be good if those are portable too. So there’s something about how do we create things that enable more portability?
Kirkpatrick: Well, LinkedIn has done some work on that.
Manyika: LinkedIn’s done some work on that and there’s some growing innovations in that direction. But we also know there are other things like, you know, as we start to have these jobs that are, call it the on-demand economy, which has both benefits and some challenges, but if you think about how we set up to handle that you can almost put it in the, some have put it, the difference between a 1099 world and a W2 world. So in the W2 world, the world is set up to deal with people with W2s. You can get bank loans, you can get a whole bunch of things, you can get childcare benefits. That’s not so as much in the 1099. So there’s something about, how do we ease this transition to these new modes of working while at the same time helping to build new skills and reskill the population? It’s a critical issue, especially for the middle-income jobs because those have been the real engine for economic growth and prosperity in this country.
Kirkpatrick: But not being discussed much at the national level.
Chambers: Well, it’s worse than that. Basically we’re addressing this as though we have a decade or two to fix it. We do not. This game is over in five years. You’ve got to think differently on it. In socialistic parties in Europe, i.e. France and Germany, they have already understood their workforces have to change and they’re already focusing on how do we reeducate and do skills for the future. In the U.S. if we don’t get this to the forefront, and it can’t be something that’s going to happen over a decade, it’s got to be done in five years, maybe even in three to four. We have to make that a national topic and we can’t do it in the way that made it successful in the past. Why do companies or countries fail? They miss market transitions. Why do companies or countries fail? They stay doing the right thing for too long. Why do companies fail or succeed? They don’t have the courage to reinvent themselves, change the organization structure, and deal with the world the way it is. All of these are coming together at a tremendous speed and we’ve got to make this a national topic. And David, this is one of the many reasons I’m here is, how do we do this together? And when you can share the stage with one of the top government leaders in our country that gets it right, with McKinsey who really understands the statistics behind it, with one of the areas that for the first time ever may increase productivity. Healthcare has never increased productivity in my lifetime. This could dramatically change it and cut the cost. That’s the agenda I think you’re really bringing to the forefront.
Tas: And one way to do it is actually, we found out, is we forced people with different disciplines to work together and that made it totally change. We see it in healthcare as well.
Chambers: Knock the silos down.
Tas: You have a cardiology, neurology, now you bring these people together, you create a single team and then people—and you have an IT guy on the team, you have a designer who understands the experience, and then the magic happens, but they all learn.
Kirkpatrick: Well, tomorrow morning we have Bernard Tyson of Kaiser Permanente on stage, which is to combine health insurance and health provision, talk about silos, and they have incredible results as a consequence. Penny, I think you need to be excused, if I’m not mistaken. So thank you so much for your wonderful help.
Pritzker: Thank you very much.
Kirkpatrick: And let’s, I want to hear from the audience anything you have to say or comments, questions.
Jody Westby: Thanks. Okay, so I’ll give you, I’ll give you some thoughts on leadership for the U.S. I think we’ve had a vacuum and a complete void on U.S. leadership in the internet and cyberspace age for the last at least decade. The reason the European court of justice invalidated the data protection directive, I mean, Safe Harbor, for compliance with the data protection directive was because of our NSA surveillance. That NSA surveillance has also resulted in EU clouds, it’s resulted in EU companies competing against American companies and saying, “We’ll keep the data here.” It’s hurt the competitiveness of U.S. companies. We haven’t had visa reform so we can keep PhDs that we graduate to stay here. We haven’t had changes in our legal framework to investigate cybercrimes. So we can’t get international cooperation and investigate. We have an antiquated legal framework. We have cyber mechanics where no one knows how to fix their computers. We haven’t done anything to teach our society cyber mechanics. So they just run their computers until they stop. So the cybercrime is just running rampant. And we have almost given away one of the most critical national security interests we have, which is our control over ICANN, the department of commerce.
Kirkpatrick: Which we didn’t have time to get to.
Westby: And so we have this long list of stuff where we have, the U.S. government has failed to exert leadership or show leadership on a global stage. And John is right, it’s going to take the companies and maybe the Silicon Valley voice to stand up and say, “Washington, here’s what you need to do,” instead of just praising these politicians and dumping money in their pockets. You need to be the voice because they don’t get it. We don’t have Al Gore and Bill Clinton anymore. [INDISCERNIBLE] are leading this digital economy and it’s going to take the companies to do it.
Kirkpatrick: Thank you, Jody. That wasn’t a question. It was a good comment. Okay, Michael, get a mic here.
Audience 1: John, James, you guys talk about the value of digitization and the internet of everything, as you guys call it, and you put big numbers on it, in some cases you’ve been talking about this for a couple of years, all this stuff is supposed to make us more productive and all of that, but the productivity numbers that have come out over the last three years have been abysmal.
Kirkpatrick: You’re really into that topic. You asked the same question yesterday, but keep going.
Chambers: And by the way, unfortunately he’s right. You don’t get standard of living increase without productivity drives.
Kirkpatrick: And why is it? Why isn’t productivity going up?
Chambers: Because if you think about this, and I tend to think of it on axis, the easy part is actually the technology. And I think we all realize it isn’t easy, it’s going to be hard to do. The real issue is to get productivity you have to change your organization structure, using my words you have to break those silos down. At Cisco, we literally broke our silos down with an engineering, went horizontal on it, changed ourselves, organization et cetera. So you have to change your organization structure, whether you’re in healthcare, finance, or government. You’ve got to change your culture in terms of what you reward and recognize and you’ve got to design everything for what’s the process change you’re going to do behind it. The only reason I believe healthcare is finally going to get productivity, the technology’s been there for so long but it’s been siloed and there is no financial reward to make a change. Now you have to change it or we’re going to break the systems and we have no choice. But you hit it right, the technology will not solve the problem. You’ve got to change your organization structure, reward system, cultures, and processes most important behind it and that’s why we’ve seen, in my opinion, poor productivity for a decade. But I’d argue this digital revolution has the chance to completely change that and I think every country in the world is going to run with this and every company will as well.
Manyika: First of all, I agree with John, but I think what we may be about to see is a bit of a solo paradox round two. If you go back to what happened in the 1990s, companies have been investing in digital technologies for a very, very long time before it showed up in the productivity statistics. And when it did it was because the kinds of changes John was talking about started to take place and more importantly, they started to take place in the largest sectors in the economy. They started to take place in retail, in wholesale trade, and financial services. Now in this particular round, if you like, much of the, all the technology we get excited about from the last four or five years, as technologists they’re wonderful, we can think about all the iconic cases and case examples and use cases, the problem is we have not yet made the big changes that John’s talking about in the largest sectors in the economy. And until we do it won’t show up in the productivity statistics and that will take time.
Tas: Well, there’s other stuff that doesn’t show up in the statistics, which is stuff you get for free now. You know, you use Google Maps, it’s for free. You used to buy a Garmin or a TomTom. So that doesn’t show up. There’s a lot of things that we have access to, a lot of services that we get access to that are essentially free, that enrich our lives, but that don’t necessarily show up in the statistics. So I think we’ve got to look at it from that perspective.
Kirkpatrick: So if you said, “James, how much did a piece of software cost in the mid-1990s and how much does it cost in the ITunes store now?” $400 to $2 dollars.
Manyika: Yes, exactly. So I think one of the things—yes, it’s what economists call consumer surplus, right? So all the free stuff, all the cheap stuff. So a lot of these technologies that we love, cloud computing and all the rest of it, they’re wonderful as consumers but they do have an effect on the measures, statistics, and the output that—because remember, keep in mind that productivity is a mathematical calculation. There’s a numerator and a denominator. You can either improve the numerator or improve the denominator. It’s better it’s happened in the 1990s when you improve the numerator. That’s when you expand by adding output and you build more new products that are more exciting, that people get excited about and hopefully pay for because that’s how we measure it. Things that are unpaid for are, unfortunately our statistics don’t measure that. So I think there’s something about changing both—there’s the time frames and the changes that John’s talking about, but there’s also the fact we’re changing the nature of the things that we measure and get value from.
Kirkpatrick: But wages were growing when innovation was growing in that last round and now wages are stagnant even the innovation can’t be absorbed by the—
Manyika: Well, the wage question is more complicated. Yes, you’ve got the fact, when productivity goes up, especially when driven by the numerator, it does the kinds of things that we all love, which is wages go up, there’s returns to productivity, that’s what builds prosperity and improves societies. I think the one phenomenon that we’re starting to see that’s changing, particularly in the last 20 years in particular, is what economists and technical term, I apologize for this, is this idea of skill-based technical change, which is starting to change how the benefits from technological innovation flow to different worker categories and skilled categories. That is actually changing and it’s what comes back and raises this question about, what’s going to happen to the middle-skilled jobs? Because then the benefits and productivity don’t quite flow in quite the same way that they used to do to that particular part of the labor force.
Bonchek: So I’m Mark Bonchek. My question is about re-skilling at the higher level of the organization. So it’s not about the retail clerk but you’re talking about breaking down silos, leaders and managers having to completely re-think how they do their job. Whatever they learned in business school, if they went a number of years ago, that’s not how it works anymore. How do we re-skill leaders?
Tas: So in our company’s interest because we’re primarily a product company, so we sell patient monitors, imaging systems, you know, shavers, I think it took a couple of years for the whole leadership to embrace that we’re moving to a different model where you combine the physical product with software capabilities. You actually optimize the hardware for the software and you start wrapping it as services. So we can bring a weight scale in the market, put it at Walmart and sell it for $30 dollars or we can say, “Hey, we should be thinking about a weight management service.” Because we’ve been working with Weight Watchers for years, we have collected data on people and maybe a service is much more effective, but we charge then people $5 dollars a month. So you’re completely changing the way people look at business models because it’s quite different if you sell a service where the hardware is part of the service than if you sell products. So that takes time for people time to wrap their minds around it, it takes time to prove it’s a viable business model and it creates a completely different way of doing business because now we’re thinking, like John said, we’re a thinking ecosystem. We’re no longer having a traditional partner supplier relationship, we’re no longer going to buy a lot of companies. Now we’re going to look at, how can we work with Walmart? How can we work with Amazon or Salesforce or Cisco and collectively start creating these services that truly add value? And that’s not trivial and in our case, it’s taking years and we’re still in the middle of it.
Chambers: But the question you’re asking, I think, is a very valid one. First, the business schools have to change their curriculum. They’re training MBA students like they trained me and that’s been a long time since I got my MBA. The second issue is that companies have to realize they’re going to have to re-skill their workforce, especially at the top and you have to create a culture that is risk-taking and will reinvent. You have to think like a start-up because if you don’t you’re going to be road kill. You’ve got to think exponentially, not linearly like we were taught. And here’s a part that probably everybody in this room should get uncomfortable about, I know every illness of every employee in our company that is life threatening. Our attrition rate voluntary runs 4 to 5% a year in an industry that runs high teens to low 20s, yet, for the leadership team the changes we made at Cisco the last two years using engineering as an example, we took out in two months 24 of our top 92 engineers when we realigned, [INDISCERNIBLE] the top leaders horizontally because their skill sets could not make the transition. We changed 41% of our customer-interfacing sales reps because we did not have the opportunity to do this over five to six years if we were going to survive and really grow. Because in our industry half the top IT players will be gone, meaningfully, in five years. Anybody that has any doubts about it just look at the revenue growth and the earnings growth that many companies are facing. So this is one that I think is a call to action. It’s not only how do you retool the average middle level American so they can really participate like they did during the 1990s, you have to retool your top executive teams and if you don’t you’re going to have tremendous breakage or perhaps they just become irrelevant as a company, make you lose all the jobs.
Kirkpatrick: And to quote James and we don’t have time for you to say anything, but you said, “Even CEOs will see 30 to 40% of their job functions automated.”
Kirkpatrick: So everybody, including the top, has to rethink the way they work.
Kirkpatrick: But Dominique, I hope you have a comment, not a question because we don’t really have time for—go head. Make a comment ideally.
Turcq: Thank you. First, as the Frenchman in the room I have to thank John for some of the interviews he gave in France two weeks ago because it has given a real boost to the French economy.
Chambers: You all earned it. I would have never believed it but it unbelievable how much that country is united.
Turcq: Absolutely. So thank you. Then the comment is, I think this conversation is extremely useful because we switch from a generic debate on is technology creating or destroying jobs to a real debate, which is what is the impact on skills? And on skills we have three impacts, which are very different. One is, we need a number of new skills, which we don’t have today. Let’s identify them, let’s push for them. Second, a number of tasks are going to be de-skilled. For instance, a taxi driver needed to know the streets 10 years ago. He doesn’t need to know them today. So you can think he’s de-skilled. Okay, he loses maybe 40% of his former skills, but you can see the mirror effect of that. Thanks to technology anybody can become a taxi driver because now we have a GPS, you can drive in any city in the world. So the point I make is let’s try to identify which skills we lose and which skills we actually get thanks to technology. A nurse today can do blood analysis. She can do an electrocardiogram. These are things she couldn’t do five years ago. Thanks to new technology she can. So I think this is really where the debate is. Let’s not look on what we lose but we get thanks to technology.
Kirkpatrick: You know, you just made me realize, and we have to wrap the session, but you know our opening session yesterday was very much about empathy, but in fact, if you look at what’s really going to be the most effective taxi driver and nurse, it’s actually human skills that are going to be more important in almost every occupation because the stuff like knowing the streets or knowing the blood system or whatever, that’s going to be done for you by technology. You’re going to need to be more human just like the companies are as we were saying with Julie on stage yesterday. So that’s an interesting juxtaposition.
Manyika: In fact, can I just get one quick word in to link what Dominique and John has just described. So we’ve been here before, you may not know this David, but in 1964 President Lyndon Johnson set up a commission that was going to look at technology jobs in automation in 1964. One of its conclusions by the chairman of the committee was that yes, technology eliminated jobs but created work.
Kirkpatrick: Yes, interesting. What does that mean?
Manyika: We’ll have to have a longer conversation. This point was, take agriculture, right, in 1900 every culture employed 46% of the U.S. population. It now employees 2% of the population. That’s a good thing. It’s become very productive, but we created work elsewhere.
Kirkpatrick: Yeah, created more.
Manyika: We created work elsewhere.
Kirkpatrick: Okay. I was hoping that was what you meant. Good. So thank you, this was great. I really, really wish we could—this is what we do. This is a whole conference and this was the centerpiece of it. So thank you and thank you to Penny.