A.I. Globalization And The Future Of Managers

McKinsey Quarterly decided to celebrate their 50th anniversary by arranging a gathering of some of the world’s leading business thinkers and asking them to look forward to the next 50 years of management. The resulting special issue of the Quarterly is inevitably a mixed bag peeking forward into the future however three areas stood out:

The first is that the rise of smart machines will have a dramatic impact on the role of executives. Andrew McAfee of the Massachusetts Institute of Technology points out that the first machine age gave rise to the modern discipline of management: companies hired armies of managers to co-ordinate the workers who operated the machines, and to organize supply chains and distribution systems. The second machine age will reconfigure the discipline: much of the work of bosses, from analyzing complex data to recruiting staff and setting bonuses, will be automated.

Some companies have already begun delegating management decisions to machines. Google’s “human-performance analytics group” uses algorithms to decide which interview techniques are best at choosing good employees, and to optimize pay. Deep Knowledge Ventures, a Hong Kong-based venture-capital firm that specializes in drugs for age-related diseases, has even appointed an algorithm to its board of directors. Its name is Vital, and it gets a vote on which companies the firm invests in.

Senior managers will have to rethink their roles dramatically if they are not to become latter-day Luddites. They will have to hand some of their functions to intelligent machines, which will always be better at data analysis than humans, and some to the heads of business units, who will be in a better position to make use of the crunched data. Executives will increasingly focus on the two things that humans can still do better than machines—motivating the troops and producing game-changing thoughts. Mr McAfee says, “I’ve never seen a piece of technology that could negotiate effectively. Or motivate and lead a team.” Tom Peters, a veteran American management guru, reckons the best leaders of the future will spend half their time reading books.

The second idea is a new twist on a familiar worry about productivity. Economic growth has traditionally been fueled by two things: higher productivity and more workers. But productivity growth has been disappointing in recent years, and, more important, the population is beginning to age: the United Nations predicts that, for the world as a whole, the number of people employed will increase by just 0.03% a year over the next 50 years compared with 1.8% in the past 50.

McKinsey argues that there are good reasons to be optimistic about improving productivity. The IT revolution is turbocharging what once looked like mature management technologies such as lean production and supply-chain management. Cloud computing lets small start ups harness computing power that was once reserved for big firms. But the biggest potential gains will come from focusing on areas of the economy that have either been overlooked, because of a lack of imagination, or have stagnated, because they are protected by powerful interests.

There is considerable scope for boosting productivity in the use of industrial materials: first, by greatly expanding the recycling and reuse of metals and other matter; second, by replacing suboptimal materials with better ones (eg, carbon-fibre composites to replace metal in cars and planes) and third, by using “virtual” materials rather than physical ones, as with digital books and records. John van Reenen of the London School of Economics also notes that many developing countries, particularly India, have a long tail of badly managed companies. Productivity would improve significantly if these laggards were subjected to greater competition: Alibaba is already shaking up the Chinese retail industry in the way that Walmart shook up America’s in the 1990s, and India’s productivity would be similarly boosted if it opened up its archaic retail sector to foreign companies.

Obscure cities of the future

The third idea is also a twist on a well-known worry, about globalization. Understanding emerging markets will no longer be enough. Managers will have to familiarize themselves with a mind-boggling number of mid-level cities in the developing world if they are to ride the next wave of globalization. McKinsey notes that almost half of the world’s GDP growth between 2010 and 2025 will come from 440 cities in emerging markets: managers will have to learn about big, obscure places like Tianjin (China), Porto Alegre (Brazil) and Kumasi (Ghana).

These cities could be homes to competitors as well as consumers: McKinsey thinks that by 2025 no less than 45% of businesses on Fortune’s Global 500 list of the world’s biggest companies will be based in emerging markets, compared with just 5% in 2000. Given these changes, strategists at multinationals will no longer be able to think in terms of a set of national markets, each divided into a handful of income brackets. They will have to learn to “zoom out” to produce a coherent global approach and then “zoom in” to tailor their strategies to the idiosyncrasies of particular cities and the taxonomy of consumers in each.

Such growing complexity hardly supports Mr Peters’s idea that the managers of the future will be able to devote half of their time reading books. But it certainly suggests they will need all the help they can get—and maybe smart machines will turn out to be better guides even than management consultants.

Read the full McKinsey Quarterly report; only viewable on Android and iPad. 

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