Why It’s Really Hard To Figure Out Winners And Losers These Days

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Monday, 8.56pm

Sheffield, U.K.

Costs do not exist to be calculated. Costs exist to be reduced – Taiichi Ohno

I learned about something called Baumol’s cost disease recently and it got me thinking about how rare it for organisations to really understand the impact costs have on their customers.

Warren Buffet is famous for avoiding technology businesses – which is strange considering how technology businesses seem to dominate the world these days.

We are fooled, however, by thinking that because Apple, Microsoft, Google, Facebook, Amazon, Netflix appear to be doing so well that’s the way of all technology businesses.

Except these are the rarities – the ones that succeeded, for which the stars aligned.

For every one of these, thousands, perhaps tens of thousands of technology businesses have gone bust.

And that’s because they don’t understand a simple principle that Buffett articulated a long time back.

Most tech businesses come and tell you that they’re going to cut costs – they’re going to make you lean and quick and reduce the cost of doing business.

That’s almost always the sales pitch – if you use us you will save money and improve margins.

They’re right about the first part – you might save money.

But these tech businesses will sell their tech to you and to every one of your competitors – so you’ll all be able to save money.

And when you’ve got those margins someone will blink – and offer lower prices to customers – and then you’ll all have to follow suit or lose business.

So, the only people who benefit from your investment in technology are your customers – who get lower costs.

Now, it might seem like a vicious circle – one you can’t get away from.

After all, would you still be holding onto typewriters rather than buying computers for your staff?

But the important point is that the advantage of technology is actually not that much of an advantage – you don’t often lose if you want and buy later rather than being the first mover.

In fact, waiting can be an advantage, because you then buy cheaper, better tested product rather than new, untried stuff.

While tech businesses promise to cut costs other industries just seem to see costs increase without any corresponding increase in productivity.

People in public service are paid more for not doing much more than they were doing a decade ago, for example.

Salaries have to rise, apparently, to keep people who would otherwise move to better paid jobs in other sectors.

So, even though people aren’t producing more they’re paid more – which inevitably works its way through to lower margins for the business – because few industries can pass through all their increases in costs to customers without being asked some rather awkward questions.

Which means people in these roles get comfortable and happy without having to do much more.

Now, in the middle of a healthcare crisis, it’s probably wrong to question whether the public sector is doing all it can – but is it?

Is it systemically ready to do things without mistakes – to do them at the lowest cost?

It’s pretty unlikely, if only because you have a system full of highly paid, very experienced people who have spent their careers working in a system that is complex and almost certainly full of problems.

There is probably very little they can do to change things – and while they might do the best job they can – it’s probably not that different to what they were doing a decade or so ago.

It does seem that tech by itself or people by themselves don’t really add much value.

But, I also learned recently, the combination of tech and human might actually be surprisingly effective.

In my experience most people struggle with the technology they have to use.

It’s not their friend.

The example I was given was how an AI program and a doctor are much more effective working together at diagnosis than either working alone.

But if you use a computer then you’re in a similar situation – do you rail at the software you have or do you enjoy working on your computer?

People who have to use proprietary programs probably have very different views to those who use a free system like GNU/Linux.

I certainly do.

If I had to write these posts using the WordPress tools or anything from Microsoft then I probably wouldn’t create anything.

I suppose the point I’m making is this.

It’s tempting to think that because your technology cuts costs or because you work really hard that you’re adding value and are a winner.

But there are too many businesses and too many jobs that are failing the employee and the market.

The goal is to do something that challenges you – something you enjoy.

And you win if someone is willing to pay you to do it.

And that’s enough for me.

Cheers,

Karthik Suresh

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