[Andrew Sheng] Moving to digital economy

By Korea Herald
  • Published : Jul 11, 2018 - 17:42
  • Updated : Jul 11, 2018 - 17:42

When Amazon.com last month bought online pharmacy Pillpack for $1 billion, the stock market valuation of several large pharmacy retail chains fell by $14 billion. That is the power of clicks (online e-commerce companies) over bricks (and mortar retailers).

The once powerful GE being taken off the Dow Jones market index is an indication how old-style manufacturing and distribution companies are being marked down on a daily basis, whereas tech companies are valued in stratospheric terms.

The old economy is facing massive creative destruction in the shift to the new economy of the internet of things (digitization and then retailing of everything).

Every line of business, including the business of government and social services, is being disrupted. Every individual, company or nation faces marginalization if you don’t have a good digital transformation story.

The conventional wisdom is that digitization is good for the consumer (consumer surplus), but bad for jobs (job deficits or losses). When I am told that artificial intelligence can already tell from a picture of a human iris whether the person is male or female, and human ophthalmologists can’t, I know almost all jobs are now under threat. Job insecurity across all fields explains the populist votes for change and sentiments against immigrants, foreigners and globalization.

Governments are having a hard time coming up with the right policies to confront this massive job change, even within governments, where digitization can cut hugely bloated bureaucracies.

In practice, all jobs need to be reviewed under the new digital world. And the biggest change is not about things or people, but mindsets.

Coping with the digital revolution is really about how you should transform your business and organizing production of both goods and services. Jack Ma of Alibaba and Jeff Bezos (Amazon) are thriving because they understand this change and are making it happen.

The current Industry 3.0 is essentially linear and stability-oriented. When Henry Ford invented the assembly line for making cars, he basically made workers produce linearly in production and assembly, which is more efficient than craftsmen who have to build everything from scratch.

The linear assembly line quickly evolved into supply chains, whereby Toyota has a whole chain of subcontractors and component suppliers to enable Toyota to deliver cars. Apple doesn’t even manufacture phones, but designs and markets them, leaving Foxconn and others to do much of the research and development of how to manufacture what Apple designers want to suit the consumer.

Amazon and Alibaba (the pioneers of Industry 4.0) are the architects of their own digital ecosystems, orchestrating the manufacturing, distribution and retailing through digital channels, running on cloud computing that they own and operate. In short, they moved beyond linear production to dynamic multitasking of everything.

The common complaint by all employers is that the current education system is not producing the graduates that can be used straight away in jobs. All new and old economy employers have to spend considerable resources retraining and reskilling their new and present employees.

This is simply because the education system is still based on the linear assembly line process, whereby a young person goes through 15-20 years of sequential formal education from primary to university level, using curricula that are obsolete by the time they graduate. Current universities are producing balance sheet employees, assuming that their graduates remain on the books of a company for life. As more and more companies move to flexible production, subcontracting jobs out and cutting their full-time employees, that university education model is obsolete. In the internet world, all fixed costs are becoming variable. Fixed jobs are disappearing fast. And you don’t stay in the same company for too long.

To paraphrase Lord Acton, there are no permanent friends, permanent enemies, nor permanent jobs, only permanent interests.

Schools and universities also face the challenge of MOOC (massive open online curriculum) courses that are being offered by the top universities and teachers, often for free. Who needs second- or third-tier universities staffed by professors teaching outdated content, when you can access knowledge and branding (from top universities) cheaper and faster’

This is why there is a growing market for short-term specialized courses run by market-based professionals that help companies reskill their employees. Employers also use AI to cut down their hiring, because the leading companies need fewer and smarter employees who can be reskilled faster in real work experience.

The solution to the skilling and reskilling dilemma is internship. The education system should be regeared toward becoming an ecosystem for continuous upgrading of skills, working together with all employers -- government, business or civil organizations. Taxation and education-spending policies should be geared towards universities as pools of cheap labor for employers, who provide interns the real-life job skills in exchange for the employers’ opportunity to select and retain talent. In other words, university degrees should allocate up to half the students’ time for internship. The tax and education subsidy system should be tailored to allow universities, employers and students to be mutually interdependent to produce better employees for the Industry 4.0 age.

To some extent, this is already happening, as many interns in Silicon Valley and elsewhere drop out of university and join their employers in startup ventures, preferring on-the-job challenges, rather than learning more theory from textbooks. Teachers themselves would benefit from internship with companies, just as highly skilled workers would benefit from interchange of jobs to become professors of practice.

In the Digital Age, it is not the knowledge that is the problem, but how to acquire and apply the right knowledge that matters.

But the first step to conquer the digital divide is to change not just one’s own mindset, but all decision-makers at all levels. As the saying goes, those who know can’t decide, and those who decide don’t know.

And if you don’t decide and then move on, you become marginal.

Andrew Sheng
Andrew Sheng writes on global issues from an Asian perspective. -- Ed.

(Asia News Network)