Time has been on my mind this week. As a weekend of clock-manipulation beckons, I have a growing feeling that time is, in a business sense, accelerating dramatically. I accept that the acceleration of time makes no scientific sense but bear with me. Google’s engineers have just used quantum computing power to solve a problem in 200 seconds which current supercomputers would take 10,000 years to solve. Armed with that mind-boggling evidence of machine efficiency, perhaps a more accurate statement of my feelings is that the world is speeding up rapidly. Not unlike our climate, the normal life cycle of a business is undergoing a profound change.
First, let’s remind ourselves of a normal business cycle. Molex Inc was founded in 1938 and started out business life making plastic flower pots. It quickly moved on to making plastic power connectors for General Electric and was instrumental in the development of the first car radio, the first mobile phone and the first Hi-Definition TV. Plastic power connectors are now almost a commodity (despite what Apple charges you for their notoriously delicate Mac chargers) and Ireland is not the place to be in the business of manufacturing a commodity type product. Little things can destroy profits in these types of businesses. Thanks to the Trump Trade war with China, profits at Molex are hurting and sadly its Shannon plant is to close with the loss of 500 jobs and its base in Ireland since 1971.
There will be further employment hits from trade wars and Brexit lunacy but do not be fooled into thinking we are experiencing once-off events or a normal business cycle. Nokia started life making toilet tissue and rubber boots. Then they conquered the world of mobile phones owning 40% of the mobile market and 50% of the smartphone segment by 2007. Unfortunately, Nokia didn’t focus on the development of the smartphone. Apple and Samsung did. Nokia’s phone business was sold to Microsoft in 2014 after a market share implosion to just 3%. So for the last five years, Nokia has reinvented itself as a mobile networks player. Until yesterday. Or, more precisely, until 5G. The life cycle of each generation of networks continues to shorten and the upcoming rollout of 5G is presenting profit challenges for Nokia and its share price; just the 23% collapse yesterday, the biggest share price fall since 2000.
This rapid evolution of technology is not just a challenge for technology companies. Be under no illusions that the integration of new technology into all types of businesses is now critical to compete and ultimately survive. Frankly, if businesses are not using data to connect with their customers and then understand what their customers want there will be disruptors more than happy to come up with the next smartphone, product or service. Disruptors can move quickly and don’t need the traditional fixed asset tools of business. Look at Uber – a taxi company that doesn’t own its taxis. New York taxi medallions/licenses as recently as 2014 were changing hands for $1.2 million. You might get $150k today for the same iconic yellow medallions.
Visit a McDonalds recently? A bank? Robo-servers and robo-advisors reign. Automation is happening now, and not just narrow task-based robotics. Artificial Intelligence(AI) is too often perceived as a replacement for repetitive human tasks. Think again because the machines will think, soon. The most powerful applications of AI will be the combination of experienced humans and deep learning; collaboration rather than substitution. Consider medicine and Atomwise which uses AI deep learning algorithms to massively speed up drug discovery/research with hit rates improving by 10,000x. The largest pharmaceutical companies have been under pressure for a number of years now and share prices have gone nowhere. Glaxo and Novartis share prices have barely moved in five years on market disappointment with the pipeline and delivery of new blockbuster drugs. The blockbuster model is dead so managements are searching for new strategies. Cost-cutting is one, as Cork discovered this week with the loss of 320 Novartis jobs.
These job losses are very sad for employees, their families and communities but the news is not all bad. Before the fall of the Iron Curtain and the entry of China into the global market place, Ireland Inc got it right, positioning itself as the world’s best high-end manufacturer and service provider. The consciousness of time and fast technology in this article is that Ireland needs to move again and avoid Nokia-type complacency. At a recent excellent Accenture presentation on AI, there was a fascinating factoid that Paisley in Scotland was at one point in the early 1900s host to the third-largest company in the world. Coats Group, the textile manufacturer was ranked globally behind US Steel and Standard Oil. Coats Group plc still loiters in the FTSE 250 index of medium-sized UK companies but the last thread mills in Paisley closed in 1993.
It is worth reminding ourselves of the political pressures to keep the Ford plant in Cork open in the mid-1980s. It didn’t happen for Ford’s unfortunate workers but Cork did get Apple in the same ‘80s period and its 4,500 employees today. Today Apple is a trillion-dollar company and Ford’s market value is below that of Tesla, its relatively tiny electric vehicle competitor!
A final thought on cycles. As Mario Draghi retires from the ECB without a single interest rate hike to his name, be prepared for Japanification of the business cycle. Ultra-low interest rates and low growth can keep zombie companies alive for long periods but ultimately they will wither and die. Financial markets may well be close to all-time highs but it disguises massive shifts in value and growth expectations across sectors; see retail, banking, auto, telecoms, energy and media sector performances as Mr. (pick your pronoun) Market’s concerns for the future.
The markets are already discounting a world of corporate zombies, super quick technology cycles and constant competition from new companies who can access capital cheaply and require no fixed assets.
Constant competition and low growth require business managers to be super-focused on customers, market trends and costs. There’s nothing particularly artificial or intelligent about acknowledging that reality. So, bank that extra hour of sleep at the weekend.
Then think time and technology.
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