How to Avoid The Latest Outsourcing Dangers In 2018!

Money Case

(Previously published in OUTSOURCE, 01/04/2018, Updated 3/25/2018)

By now everyone knows about outsourcing, the big issue of the 20th century that revolutionized the 21st century! But outsourcing didn’t start in the 20th century. In the 18th and 19th century Europe developed Imperialism, setting up colonies around the world. These colonies provided the language skills and education systems that made offshoring possible.  

If you look at the map of outsourcing, it matches the map of European colonies from a century earlier. India was the first to lay claim to being a destination for knowledge work outsourcing. Hong Kong, however, has an even stronger case for being the 1st global financial outsourcing destination… even though that claim is slightly muddled by Hong Kong being the “property” of England up to the 20th century, and later becoming China’s financial powerhouse.

Such changes may be the fate of ex-colonies. Still, it is undeniable that the business acumen gained from a century of British colonialism in Hong Kong provided the foundation for mainland China building hundreds of cities specifically for outsourcing. Pakistan and Bangladesh, which rose as destination centers for textile outsourcing, were formerly part of India.

In 1980’s the United States focused textile outsourcing on South America, which has former Spanish and Portuguese colonies. These colonies had their laws, financial structures, culture, etc. shaped and adapted to European institutions. 

After price, the most important factor selecting a location for outsourcing was Language. In manufacturing, offshore managers need at least a moderate grasp of your language (usually, English). Contact centers go further, requiring each worker to have at least rudimentary English skills. Financial outsourcing and knowledge work required both a solid understanding of colloquial English plus expertise with the unique terms used in Investment Banking, Research, Accounting, Trading, or Healthcare.

Before the US became the financial center of the world, the UK Invented the financial today’s world. Today’s world is divided between the UK running European trading and finance, and America dominating most of the rest of the world. In the early 20th century, the financial world spoke English, French, German and other Western languages, with English as the undisputed king of the financial world.

By the end of the century, China will be the worlds largest economy and the financial leader. Chinese will undoubtedly become the second language of finance. Someday. But not yet. What is surprising is that after the dominance of English and before the dominance of Chinese, the financial world will need to learn German.

German? Yep! Big changes (big, BIG changes) are about to rewrite the rules of Wall Street, even changing the languages we speak. The first change is the Brexit. If you haven’t been following this, back in June of 2016, the UK were unhappy about how the European Union worked. Many felt that they were paying into a system that did not give back enough jobs and benefits to be worthwhile.

One improbable event followed another, and somehow the UK voted to leave the EU. Every economist, financial expert, and pundit said it would be massively expensive and politically risky to leave the EU, but it didn’t matter. The UK had until March of 2019 to complete their exit. If they don’t complete the exit, in April they will not be able to trade goods, move money across a border, or even visit another EU nation. At least that’s the threat.

There were questions if it was feasible, but on December 7th, 2017 a key agreement was settled, and the Brexit moved forward and newer agreements have moved them past the point of no return, but banks and financial firms cannot wait to see the fine details for life after the Brexit. Instead, UK financial firms are moving their headquarters to the EU before regulations are finalized in 2019. This ensures continued work with the EU, regardless of the final agreement between the UK and the EU.

Where will the UK’s financial firms go? Predominantly… Frankfurt. That means new work rules, new regulations, massive retraining and… German? Between 75,000 and 300,000 professional jobs are expected to migrate from London to Frankfurt. Let’s get back to this a little later, first let’s look at the second big change, MiFID II.

On January 3rd, 2018 MiFID II, a set of European regulations to ensure transparency in stock trading, become the law for all of the EU and UK. Formerly, when you bought stocks you were charged a fee for the transaction and were given access to “free” research. For decades this “free” research allowed the trading firms to decide the sort of research customers would need. The result? Research is concentrated in a few big firms.

Companies like Apple have 50 analysts, while others are lucky to have 1. The top 15 Investment Banks produce 40,000 research reports every week, but surveys show that less than 1% are actually read. This “throwaway” research costs billions of dollars to produce and increases the cost of stock transactions.

Now, unless trades can continue to provide free research without billing for it, customers will have a stronger say over what research is produced in 2018, and possibly over what it costs.

We can be certain that a third, half or even more of the research positions in the UK and possibly the US will disappear. Add that to the already high (50%) reduction in researcher positions over the last decade. This is just the biggest and latest step in a long process. Of course, MiFID will have other results.

MiFID II is a European regulation, but it will be followed by many US firms. Otherwise, they must follow two separate and incompatible sets of regulations. Very large financial firms, with multi-million dollar research costs, are discussing the virtues of building their own research departments.

However, big market data services… Thompson, Bloomberg, Moody’s… have incentivized the consolidation of global research departments by offering a lower price per seat. With half or more of the “seats” going away, can firms stay in business?

Changes in long-established rules, a dramatic drop in research positions, a shift from London to Frankfurt, and… that little language problem. Some seasoned British financial professionals will become Expats, and move to Germany, but new financial professionals are likely to be hired in Europe. The language of the financial world is about to be diversified. But what about the jobs already offshored from the UK to India?   

India has been hugely successful in offshoring> With English language work. Outside of English, success has been more limited. The British are very used to Indian English. Others find communication more challenging. Likewise, when faced with other European languages, or even accents (such as Scottish), communications slow and mistakes rise. Other languages have been piloted in India, but the results have rarely justified moving into production. Will India lose projects, or are there alternatives?

India could rely on its programming expertise, and integrate translation technology into offshore operations. AI translation could crack the language barrier. Unfortunately, while India creates a great deal of innovative technology, it is rarely patented by Indian firms. Instead, outsourcing clients usually own the technology. With the possible exception of IBM, outsourcers have not attempted to create an Indian translation software franchise.

Without Indian translation expertise, non-English work is not “anchored” to India. That makes it a prime target for China, for several reasons. First, China is investing in translation technology and is fanatical about patents. While China has not announced any specific plans for translation, they have announced plans to be the world leader in Artificial Intelligence. Translation is a sub-category of AI. Already a leader in search engines and robotics, China has plans to buy billions of dollars of robotics and AI firms. It would be a simple matter to scoop up a translation firm. 

The UK relationship with Hong Kong is as deep as the connection between the UK and India, allowing for a significant extension of financial work offshore. Of course, Hong Kong is also a direct path through to outsourcing in mainland China.

While India has created world-class Universities (IIT and IIM), it has failed to reform the overall quality of education. Outside of technology schools, China is not (yet?) known for its top-tier Universities, it has significantly reformed elementary, secondary and undergraduate schools, as well as adding at least 10 million new English speaking workers. 

The “change agenda” for 2018 is already overflowing. Dealing with MiFID, moving headquarters, dealing with new languages and regulations AND moving to new outsourcing providers is a lot to take on. In all likelihood, it is more than the Financial world can manage. By the second half of 2018, we can expect disruptions in the day to day operations, including outsourcing. Here are the five key areas to closely manage…

Client Contacts: Outsourcing firms spend years developing relationships with their clients. Client contacts are highly influential. Realistically, MiFID driven terminations will result in outsourcing programs without a known contact, especially in research programs! Big Investment Banks expect to lose half or more of their research staff. Even those that stay, may be reassigned. Expand your contacts before clients make staff changes.

Shifting Priorities: Outsourcing may still be a priority, but may other items will be added to their priority list. Expect more regular meetings to be moved or suspended. Ensure that all management reports are on time and you are ready to meet customers on short(er) notice. Continue to work as normal, but prepare for drastic changes in your program. In the past, a drop in staffing at your customer meant more work. There might be a temporary addition to outsourcing, but it is likely to be transitional rather than permanent.

Eliminated Positions: Research is ground zero for budget and staff reductions. Expect that many programs will shrink, merge, or be eliminated by the end of the year. Some of you may be thinking, “Your numbers MUST be wrong! The stock market is reaching new records. How could their budgets be down?”

Unfortunately, 40% of the trades made on the stock exchange are for indexed funds. Indexed funds are based on a market basket of stock, such as the NASDAQ. Since this is just a fund based on the stocks in an exchange, it requires no stock pickers, no funds managers, and no research. As much as 70% of market activity is expected to be generated by indexed funds by 2025.

As the market moves towards products that don’t use research, plus a dramatic reduction in the number of reports for the remaining funds that do use research,  we can expect major reductions in these departments.

New Positions: While the overall direction will be towards smaller outsourcing programs, with less staff… there may be new opportunities. Big fund managers, like Vanguard, are considering building their own research departments.

This may not replace all lost positions, but it will open up new positions for new clients. However, as fewer research reports are produced, only the best-crafted reports will remain. This could lead to consolidation in outsourcing. To remain in research outsourcing, you must be the best there is!

Contract Renewals: The contracts you have today may no longer be a good fit by mid-2018. Be prepared for renegotiation well before the contract expiration. Be very careful about committing to anything you’re not absolutely sure you can perform. Like, learning new languages.

Well, the future has arrived and changes are already being implemented. 2018 is going to be immensely challenging, but it’s not the last challenge you will face. Next year could have even more challenges as the Brexit arrives!

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The Surprising End After 25 Years of Successful Outsourcing To Mexico



1992 signing of N.A.F.T.A. by US and Mexico

When President Trump was merely Candidate Trump, he said that he was able to negotiate with Automaker Ford to end outsourcing and keep jobs in America. HIs campaign got a big boost, even though Ford said that it did not make any agreement with Trump to change its plans to outsource to Mexico. In the end, Trump’s version of their discussion has won out. Ford has announced that it will not outsource the Ford Focus to Mexico. Instead, the Ford Focus will be built… in China.

Let’s think about this for a moment. China has a GDP of $10.9 trillion, vs. $1.12 trillion for Mexico. The US exports $115 billion in goods to China, compared to $262 billion to Mexico. Let’s put that another way. China imports American goods worth 1% of its economy, vs. Mexico importing 22% of their economy. Nearly a quarter of the goods bought in Mexico are made in America. Mexico is incredibly loyal to U.S. products. American goods are insignificant to the Chinese economy. So. Which trading partner would you value the most? Maybe the one on your southern border?

What did Trump name his book, “The Art Of The Deal?” I’m pretty sure that Trump’s book doesn’t say that you should keep insulting your best customer. Nor does it say that you should then publically state that you are going to break your trade relations with your best partner. That kind of talk can lead to things like… Ford moving to China.

Ford’s decision to build the Ford Focus in China is bigger than you think! By building the Focus in China, it hands over two important markets to China. First, transfers critical knowledge needed to advance China’s fledgling automotive market. But not quite as much as you would think. China has been building up its experience in building cars, working for Volkswagen, Buick, Toyota, Honda, Audi, BMW, Fiat, and others. Ford is just the icing on the cake.

More importantly, it fulfills China’s ambitions in Robotics. China is already the world’s biggest buyer of Industrial Robots. With a massive $250 billion infusion of cash last year for automation, China is becoming the world’s biggest BUYER of robotics companies and the largest manufacturer of robots. While the 250,000 industrial robots built every year in America, Europe, and Japan are counted, the 100,000 Chinese manufactured robots are invariably omitted.

Why are they forgotten? Because they are often used by the firms that make them, they don’t register on the global market. Just one firm, Foxconn (the world’s largest corporation), has talked about building a million robots on their own. That’s a LOT of robots!

If we add China’s robots to global sales we will start with 350,000 robots in 2016. If sales continue to grow at the 35% rate of the past few years, in 2020 1.2 million robots will be sold. If one robot can do the work of just 10 people… that means that 12 million people will be replaced in 2020. In 2025, 5 million robots will be built. At the same rate of replacement, that’s 50 million jobs. Carry that forward for a few years and you can see the massive impact robotics will soon have on employment.

That seems like an impossible number! Yet, consider your first smartphone. There were earlier mobile phones, but the iPhone started the trend of a phone having a screen, GPS, music playback and other features. The iPhone is 10 years old. Before that most people didn’t have mobile phones, let alone smartphones. Today we manufacture 1.6 billion annually. Smartphones went from devices that no one knew that they needed to something that more than half of the world owns. Robots won’t be any different.

Also, just like the iPhone, robots will improve. The average robot of 2030 will be five to ten times as productive as robots today. Look at that original iPhone from 2007. Or your first iPad. Whoops! There was no iPad 10 years ago. It arrived in 2010. How advanced will industrial robots, or Artificial Intelligence, be in a decade? Meanwhile, you and I and the rest of the human race will be pretty much the same as the 2017 model.        

Back to today. Whether work goes to China or if it stays in the US, China will “own” the world’s workforce. That’s the future guys! The world spent the 20th century worrying about Communism taking over the world. Now we can spend the 21st century worrying about Chinese robots taking over our work. Who would have thought that Communist robots would take over the world! Gee. Thanks, President Trump!

OK. It’s not really Trump’s fault. Anyone sitting in the White House has the same options. Do you promote outsourcing, prevent it or just leave the issue alone. You can create all the penalties you want, but if the benefit is greater, you’re still going to outsource. Now that a lot of the work that has already been outsourced can be performed by AI’s robots and automation, that work WILL come back from Mexico to the US. After all, the robots cost the same regardless of where we put them, and if the work stays at home, we save the cost of shipping materials around the world.

Likewise, work that was going to go offshore will be re-evaluated and stay at home. But when we build new automated factories onshore that can compete with offshoring, old and inefficient America factories are going to upgrade. Instead of being built to Mexican workers, US goods are going to be built by America robots (well, Chinese robots rented by American’s).

What does all this mean? It means that if Trump does what he says, he will cut off manufacturing work in Mexico, and keep it in the US. He may be able to do that, but the work that is kept in the US will not create a lot of new jobs, due to automation. Taking jobs out of Mexico means that fewer Mexican will be employed, and unable to buy US products. If Mexico is unhappy about the new rules we create, they could retaliate and further reduce the sales of US products in Mexico.

If anyone in Washington is listening… a lot has happened in the last 25 years. It’s possible that back then America should have negotiated a different, better deal. But today the technology of outsourcing has changed. The White House believes that Mexico can be made to negotiate a deal that would have been more beneficial to the US in 1992. Perhaps it can. But will that deal truly benefit us in 2018? Maybe not. But the facts clearly show that Washington needs a better understanding of how the relationship with Mexico works today before we try to change the last quarter century of economic history.  Don’t agree? Then comment and tell us your opinion!

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MiFID II is Here And Layoffs Are On The Way

layoffsWe’re now a full month into 2018. For a long time, we’ve been saying that MiFID is coming. Well, it’s here!. MiFID II is a huge set of regulations but the big change was supposed to be transparency in transactions. In 2017 if you bought stocks or debt in Europe, you got a single fee that bundled transactions with research and other cots. After MiFID II, all 2018 will separate transaction from everything else. That means that customers, rather than research directors, will determine the size and direction of Equity Research. How big a difference will this make?


  • Lower Research Fees: As Fund Managers receive and review fees from traders, there are going to be differences. If two traders provide the same service, but one charges more, why not just keep the lowest cost provider? Isn’t that the core takeaway from years of working with procurement?
  • Fewer traders: There is an argument for some redundancy. What if something goes wrong? You need more than just one trader. You may need two or three, or if you use ten what do you gain? Before MiFID, it really didn’t matter since bundled fees made true cost analysis difficult. Now, dealing with fewer traders could significantly cut operating costs.   
  • Kill low-value reports: In the lead up to MiFID II, everyone agreed that far more reports were written than read. The 15 biggest investment banks produce 40,000 reports a week, with less than 1% read by customers. We’ve created a multi-billion dollar research and publication industry (with tens of thousands of employees) that has no readership.
  • High-value reports: Some reports are better written and more insightful than others. Apple has is covered by 50 analysts. The top five or ten probably have more original insights than the remaining 40+ reports. Do we benefit from more than 5-10 analysts covering a stock? Yet we have so many small-cap stocks that are barely covered.
  • Spread To USA: MiFID II is specifically a European regulation. However, the US and European market are so tightly integrated that it would certainly make sense to just follow MiFID rules in Europe AND the US. If so, the combined jobs losses in research will be huge.
  • Profitability: If equity research departments are aggressive, a hundred thousand or more positions would be terminated, and software and data service licenses reduced. Billions saved here could keep the stock market’s momentum going through 2018.


  • Fewer Reports: Fewer equity reports will be written and distributed, slashing costs. Firms like \Bloomberg and Thomson/Reuters will also need to reduce staffing. At a minimum, data firms can expect urgent demands for contract renegotiation.
  • Specialization: it’s hard to guess the “voice of the customer”.  But I’d bet that customers are going to say something like, “Kill that mediocre stuff!” Big, highly paid research departments need to produce reports with insight, with info directly from the c-suite and above. Few research department can do that across a large number of stocks. But maybe someone can develop a new approach to equity sales research that surprises the market?
  • Unfamiliar Faces: 2018 will be a year of unfamiliar faces. Many sell-side analysts will disappear, but some may reappear as buy-side analysts. Researchers on both sides may swap places, swap specialties or be retrained to fill new positions… after the “voice of the customer” is heard we will know which firms, industries, and specialties are worth the cost of research. 
  • Higher Efficiency: MIFID isn’t the only big thing happening in 2018. For decades automation and Artificial Intelligence has been at the forefront of Wall Street’s evolution. Automation is taking over processing (buy, sell, compliance, billing); AI is taking over decision making (what to buy or sell, when to change strategies, building portfolios); and customers are moving towards indexed funds that don’t require traditional research.     

During the first quarter, customers will analyze their billing. By the end of the quarter, trading firms are going to tell us what they do and do not want to pay for. By the Second quarter, we can expect a wave of terminations and position changes. In the third and fourth quarters, we will find out if the cuts are just 20-30%, or if MIFID plus new technology takes away 75-90% of research and other staff.  

Will 2019 be a quiet year for Wall Street to recover, or are this year’s changes just a ramp up to even deeper transformation? If you have insight into the next set in Wall Street’s evolution… we’re all ears! Tell us what you think!

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2018 – The Year of The Male Glass Ceiling?


It’s been going on for a few months now, even a few years, maybe forever… depending on how you look at it. Women have finally had enough and are demanding basic worker rights. However, demanding rights and EFFECTIVELY getting men to pay for many years of harassment and underpay is just beginning. We are nowhere near the peak of this revolution.

Cultural change in America is often led by celebrities and the pretty people. Taylor Swift raised eyebrows when she refused to follow the script. Instead of, “Your honor… I’m sorry I’m pretty. But could you please protect me from this terrible molester?” Instead, she said, “He stayed latched onto my bare ass!” Perhaps most importantly, Taylor said, “I am not going to allow your client to make me feel like it is any way my fault because it isn’t.”   

The real story is that her being angry in court. Or that her molester felt that he could get away with putting his hand up Taylor Swift’s dress while they stood on a public stage. It’s not even that he molester sued Swift for telling his employer what happened. The real story is that the molester’s point of view accurately maps America’s beliefs about how often and how deeply sexual abuse is woven into our culture. 

We’ve heard interesting stories from Hollywood. Harvey Weinstein seems to be the source of at least one hundred molestation cases, probably more. And there seems to be a problem in Washington as well. If this was a movie, the Trailers haven’t even started. No, we’re just wandering around finding our seats, hearing an occasional cough in the distance. Everything so far, that’s just background coughs. The real story is about to play in IMAX with 3D sound. 

A new year of indignities is about to start. In high paying professions… lawyers, doctors, accountants, stock brokers, media firms, marketing, etc. … this is when bonuses are calculated, checks are handed out, and new promotions are announced. Bonuses are usually not made public, but top executives may be legally required to announce their compensation.

As the list of molesters grows and becomes ever more public, will victims and co-workers keep their silence as new Harvey Weinstein’s and Roger Ailes are put into positions of power? Will HR departments finally take actions against misbehaving executives? Is it time that the Board of Directors or major stockholders demand a code of standards to force out predators? Will executives see victims as liabilities that need to be eliminated? When it’s time to hand out raises and promotions, corporate America will either…

  • Hand out overdue promotions: Don’t expect this to happen too often as long as current managers and HR departments are in charge. If managers are able to promote without the approval of others, they will be legitimately frightened that they are providing evidence that they are fixing an obvious problem.  
  • Promote undeserving workers: The focus has been on unwanted sexual advances of managers. But what about managers that traded undeserved promotions for sex? When managers pay for sex with company resources, qualified workers are penalized. Putting unqualified workers in management positions weakens good companies. What does your HR handbook say about “pay for play”?   
  • Unfairly and illegally terminate victims and witnesses: Nothing new here. This has been corporate America’s default action. Molesters often threaten victims with termination and tarnished reputations. Hiding indiscretions and then punishing victims is the only “solution” that some managers understand. Rather than reform, expect some managers to double down on bad decisions.

How will victims and coworkers react? We can expect many more leaks about executives and their abuses. Some workplaces, such as the US government, will probably pass “protective” laws that silence whistleblowers. Like the 1995 Congressional Accountability Act. You may get an official statement that the molester is guilty,  but the minute the victim starts the process they are bound to silence. We don’t need more silence. When workers see bonuses and promotions for the year, we can expect many “revelations”.  

#MeToo and #TimesUp are spreading around the world to even the most isolated locations. Like Silicon Valley and corporate IT. You don’t think they’re isolated? Care the count the number of female executives? Even the tools created by Internet Billionaires (Facebook, Twitter, etc.) follow rules that protect people molesters and punish victims. Women are constantly shamed, trolled and generally abused by a largely male audience. 

Many of these actions may be illegal under the 1963 Equal Pay Act, which guarantees equal pay for equal work (and a fair workplace) regardless of sex, race or creed. But Congress and our court system have had little interest in seeing if it applies to how women have been treated. Now, Congress is frantically working on new legislation to address sexual abuse and pay inequality.

Will they succeed? Maybe. Will it get done in 2018? No, they won’t. But to quote Winston Churchill, “… this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Consider how much needs to be done.  In 1960, women only earned 60% of what men made. In 2016 it rose to 80%. Unless you have a highly paid job, like a stockbroker. Here, women make just 55% of what their male counterparts make.

Let’s face it, women just aren’t going close this gap as long as men keep moving the goalposts. To make serious gains, women must have the ability to change the game. What a minute… if women held more than 20% of the seats in Congress, maybe Congress would have a different agenda, with different priorities.

Why not go for it in 2018? I know, I know, you feel that you can’t take a position if you are unqualified. But GOOD NEWS! That’s no longer a barrier in Washington. No one has ever been less qualified for political office than President Trump! Yet, even when his supporters that he doesn’t know what he’s doing, they still say he’s doing a great job! It’s time to join the Trump revolution and run for office!

There are some signs of early progress. Imperative Entertainment tossed Kevin Spacey from the movie “All The Money In The World” due to his bad behavior. But ***sigh*** negative Kudo’s for not paying any of the women for reshooting scenes, yet having the money to pay at least one male actor (Mark Wahlberg) $1.5 million!

Michelle Williams, who respot the same scenes,  only received an $80 a day per diem (total of $1,000). This serves as a gentle reminder that even when Hollywood says it will do the right thing, their sense of justice is so corrupted that they cannot see how bad their daily decisions are.

As you read through this story, you might notice a pattern emerging. Men are all about personal rewards, be it money or title and most often both. When they have power, men use it for personal gain, often putting their interests ahead of their peers, employees, and stockholders. Women tend to think in terms of personal sacrifice, the success of the group, and mentoring. Not just in these few examples. Studies repeatedly show that women are better leaders, even when it measuring traditionally “male” characteristics like initiative and getting results.

Don’t agree? Fair enough. Men and women are, after all, individuals. If women dominated at work for a few centuries, they might make decisions that are just as bad as those made by men. Male culture has enforced two very corrosive policies which make the workplace unfair to all women, and most men.  

(1) Cult of the individual: Since the emergence of the modern corporation, CEO’s were paid around 10 times as much as the average worker. That is the way it was for a very long time. However, towards the end of the 20th century, CEO pay began to rise. By 1980, CEO’s were paid 27 times the average pay in their corporation. But as corporations continued to grow, executive pay outpaced corporate growth and profitability. 

Do stockholders really believe that in a company of 50,000 workers, just 1 person deserves such a large share of the profits? In the day of high sea pirates, the exact process of handling pay… excuse me Booty… was very specific. Everyone in the crew got a share, and the Captain received two shares. CEOs are now paid 300 to 400 times the average worker pay.  

Are CEO’s and other top executives really three or four hundred times as responsible for corporate performance than other workers? If that is true, when profits fall or corporations are penalized by regulators, do executives take a disproportionate share of the responsibility and the penalty? Very rarely! Pirates, on the other hand, were tried for their misdeeds and hung. Starting with the Captain.

When corporations fail and global economies fail, CEOs and other executives are rarely jailed, to say nothing of executed. When things go bad, executives usually say that they aren’t responsible for the actions of their corporations, or didn’t know what their employees were doing. Maybe, just maybe, when big corporations make big mistakes, it should be reflected in compensation. Over reward and over protection of executives created the environment where they are free to sexually prey on workers without fear of penalties.

(2) Little worker recognition: If the CEO and a few key executives are singularly responsible for the success of the firm, then it is logical that other workers must contribute very little. Ensuring that mediocre workers are well paid seems… pointless… given their limited impact on the bottom line. This is what has happened in corporate America.

According to the PEW research center, pay for the average worker stagnated in the mid-1960’s, about the time that executive pay started to accelerate. This is also when women started to move into the labor force and into professional positions. Whatever the thinking of corporate executives, their actions showed that they consistently favored their own compensation over everyone else.

Before unions were in complete decline, in bad financial years executives demanded lower pay, lower benefits, and no bonuses. For workers. Yet in the same year, executives often received full pay or even pay increases. When executives consistently get more and workers get less… less pay, few worker rights, and no protection from sexual predators in the workplace… we shouldn’t be surprised to find that executives rarely pay attention to the rights of women.

Interestingly, when executives were guilty of molesting workers, corporations wrote the checks to pay the victims. Executives have created an unfair working environment, violated worker rights, and then used he corporate balance sheet to bail out their mistakes. At FoxNews, the board of executives eventually found out that Roger Ailes alone cost them over $20 million in hush money payments.

If we looked at all of the payoffs, the unwarranted terminations, the bad promotions, and all of the other tangible costs of the abuse of women, how many billions of dollars are we all paying to keep this corrupt system going? I’m guessing that in boardrooms across America, this question is being asked. 

So, here we are. The first major worker revolt of the 21st century. Will it keep growing and become a political revolt? Will inequitable pay go away as long-delayed promotions are awarded? Will midterm elections lead to a Tsunami of female winners? How about the Oscars having just a single best “Male or Female actor” category? Change is coming… let’s see how many glass ceilings we can break in 2018!

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Why Do We Need 11 Billion People?

People 2

If we ever have a contest for the “Golden Age of Man”, my vote is for the last 200 years. Ancient Greece would probably get more votes for inventing philosophy, Democracy, dramas and comedies, and classical architecture. Which is a pretty good argument. But I have a stronger argument. We have more people! I don’t mean that people today are any better (or worse) than those from any other time. I mean that there are numerically more people today than ever before!

Greece might have great art, the Romans might have a mighty empire, but the 21st century has more living people than any other period of history. Every generation since before the pyramids has valued people as the primary source of wealth. Only people could labor! Only people performed work! True… tools, or a horse, or maybe a tractor can make a farmer more productive, but it is only the farmer that can harvest the crops.

The same is true with blacksmiths, bankers, ship makers, artists and any other human occupation. Global population has slowly risen throughout history, with occasional big drops due to plague, war or natural disaster. A growing population produces more and consumes more. Rising population has always gone hand in hand with rising wealth.  Before the year 1 A.D, global population rarely got above 250 million yet now it is 7.6 billion. And never before have we been so wealthy, with such a small percentage truly poor.  

We also live longer than ever before. Long-life may not in itself make you wealthy, but if you are wealthy a long and healthy life certainly has more value than a short one. 2000 years ago Romans lived 30 to 40 years. Today we live until we are 80 years old. Mostly because children that are born today live until they become adults. That’s something new. In other societies, few children grew to maturity. Childhood diseases and the dangers of life meant that only one child out of 5 or 6 became an adulthood.

Between the need for food and resources and high rates of childhood death, humanity was on a treadmill. We needed a lot of children and new adult workers. The population grew dramatically in the last two hundred years, but productivity grew even faster. More people produced more wealth faster than ever before.

This steady march towards higher population and greater wealth will all come to an end as we reach 11 billion in the year 2100. After that, population retreats, and billions will disappear from around the world. Never again will there be so many people on earth. But if we can keep our wealth even with fewer people, it might be a very good thing.

Technology has been an important wealth multiplier. Today’s worker is far more productive than their predecessors. Transporation is faster and cheaper.  It takes less effort to produce a given good. New farming techniques and seeds produce far more food. America’s greatest efficiency expert, Peter Drucker, said that farms and factories became 50 times more productive in the 20th century. Every human being on earth benefits from this greater productivity.

Consider how this increase in efficiency has impacted our workforce. In 1850, 70% of all American workers were farmers. Today farmers are 1-2 percent of the labor force, and these remaining farming jobs will be automated away in a few years. Next, factories became the main source of American employment, peaking in the mid-1960’s. Today, factories are a mere 8% of the workforce and falling. Robots and artificial intelligence will replace the remaining industrial jobs in 10-15 years.

Today, we have a service economy, combining low paying workers (cashiers, fast food workers, taxi drivers, warehouse workers) and highly paid knowledge workers (lawyers, stockbrokers, researchers, software developers). All of these positions have been targeted for replacement by automation, robots and artificial intelligence.

Tools and machines have always improved human productivity, but only lately have they replaced human beings directly, and in large numbers. Early farmers managed their own fields, but with a tractor, more fields could be plowed. Today’s farming equipment has created farms without farmers. Factories have introduced robots that replaced large numbers of workers, but outside of the structured environment of the factory, older robots have had limited impact.

Newer, intelligent, robots are able to able to deal with the ambiguities of the “real world”. Self-driving cars work in all weather, and traffic conditions. “Lights out” factories are able to work without human supervision. In corporations, sophisticated work functions such as performing sophisticated procedures, researching lawsuits, or selecting stocks for an investment fund have all been performed by machines with increasingly little or no human intervention.   

This breaks the labor treadmill. If machines are workers, more robot-workers can be built without growing our human population. Of course, such a major change will create major “disruptions” throughout the economy. By the second half of the 21st century, the old and new economies will clash. 

Look at China, the world’s most populated nation. China will continue to grow for just five or ten years, reaching a peak population of 1.5 billion. Then population will tumble by 500 million citizens by the end of the 21st century. Before population growth stalls, Chima will have an aggressive automation program in place. China is already the largest buyer of industrial robots but has started to buy robotics companies. By the 2020’s, they will build the majority of the world’s robots.

In order to meet their own needs, China must create the ability to produce millions of robots every year. After their own needs are met, by the mid-2020’s China will produce many times more industrial robots than the entire world produces now. Each of these millions of robots will replace 10 or more workers, driving a wave of automation across the world. Today we worry about jobs moving offshore. In the future, it won’t matter where the work is performed, if robots replace people.

Some believe that transitioning to robotic labor will take much longer, that people won’t accept such massive changes in a short period of time. But some nations have already achieved high levels of robot integration. For every 10,000 workers, China has only 75 robots; in the US that rises to 175.  But the nation with the highest robot ratio is South Korea, with 531 robots.

These ratios are not guesses at the future, rather they are milestones in industrial production. Just as farmers in all developed nations have dwindled to just 1-2 percent of the labor force, we can expect manufacturing workers around the world to achieve these ratios. And then exceed them.

For China to match South Korea’s average robot ratio, 4.5 million robots must be installed. But that’s just an average. In the automotive industry, which is more heavily automated than the average workplace, the US has  1,300 robots per 10, 000 workers. Attaining the automotive ratio in just the US and Europe will replace tens of millions of workers. While just industrial models have been discussed, the same level of automation will be achieved in banking, legal, insurance, and other “knowledge” based professions.

With robots and automation, the treadmill of ever-larger populations to achieve ever greater wealth is forever broken. We can add machines instead of adding people to mine resources, grow crops and build housing. In the past, the expansion of human population has forced humanity to transform the earth. When our population was in the low billions we began to run out of food. So we found out which seeds grew best on what land. Then we invented artificial fertilizers and pesticides. Now we are altering the genes of plants and animals to increase productivity. Without this boost from science, the world would have starved to death years ago.

Not enough food, fighting over water, worn out farmland, air and water pollution, whole species fished out of existence, all the result of population pressures.  Yet by the end of the 21st century, we will reach peak global population at 11 billion. We will no longer need to grow. In about 25 nations we already see a stable or falling population.

If it wasn’t for immigration, population growth in the US would have stalled. Our fertility rate, the number of children women give birth to, is 2.0. That’s our replacement rate.  But Russia is just 1.75,  Germany 1.5, and Spain just 1.2. Take Bangladesh. In 1982 their fertility rate was 6.1, but in 2015 it was just 2.1… and falling. All of these numbers are just milestones along the normal curve for developed nations.

The United Nations projects that by 2200 the world’s population will be between 2 and 5 billion. And population will continue to shrink. That gives fish room to repopulate the ocean, exhausted farmland has time to regenerate, and for the carbon in the can be absorbed by trees and plants.

In the 23rd century, human population may continue to drop. But along the way, we will hopefully have found a source of free power to join with unlimited labor. Whether that power is renewable, nuclear, fission, or something else… joining free power with robotics will create goods that are so cheap that they are essentially free. The rich may be even richer than today, even the poorest of people will be able to have more than enough to meet their needs. So, here’s to the 23rd century, to sub-1 billion and to the next Golden Age of Man!

Posted in Employment, Environment, Robots | Tagged , , , | Leave a comment

Intelligent Automation Inspires New Plans For Onshoring


Flying car

Photo… All rights, Newsweek


(Previously published in Outsourcing Magazine, 11/4/2017)

Offshoring and outsourcing don’t exist in a vacuum. These are processes that take advantage of and are influenced by technology, politics and the larger economy. Look at the last big round of offshoring at the start of the century. It didn’t just “happen”, without any reason. Very specific changes that facilitated this age of outsourcing.

The three biggest changes… globalization, ubiquitous computers, and cheap telecommunications… created an environment that uncoupled work from work management. Managers could stay in their traditional locations (onshore factories, corporate headquarters) while the work was moved around the world. Initially, work was outsourced to nearby cities, then to other states. Eventually, it went offshore, spreading to nations around the world. This process of “uncoupling”, over greater and greater distances, allowed work to keep moving, in search of still lower wage locations.

Another wave of change is now approaching! Intelligent automation and artificial intelligence. Call it, “The Robot Revolution.” Now, human labor, in both manufacturing and knowledge work (accounting, law, software programming, financial analysis, etc.), is being uncoupled from the local labor market. As machines replace people, the cost of labor is essentially the same everywhere. The same robots, with the same cost of operation, can be installed anywhere.

There will be a few instances where the cost of electricity is a deciding factor. But it will be the cost (and time) of transportation that is the deciding factor. Today’s outsourcing, at least of physical products, requires shipping materials and finished products around the world. Avoiding any part of shipping reduces costs and brings products to market more rapidly.

When shipping matters, the best place to manufacture is in the home market, where the products are sold. Outsourcing moved work to China and India years ago. Since then, both complex electronics and simple textile manufacturing have been moved even further, to the lowest cost locations on earth… Cambodia, Vietnam, and Bangladesh. The next round of outsourcing must come from efficiency, not wage arbitrage. That’s why robots and artificial intelligence will drive the next relocation. However, it is not just the lower cost of machines vs. human labor that is driving work back home.  

Political Risk Is Back – In the early days of 21st-century offshoring, moving work to India or China was still a radical idea. Corporations wanted to quantify the level and cost of risk, but there were no clearly established risk metrics. Still, there were discussions about the range of Pakistani nuclear weapons, if you wanted to outsource to India. The C-Suite wanted to know if China’s communist government would be overthrown. Or if both countries would reverse their recent movement towards globalization and one day nationalize western factories. 

The outsourcing industry has continued to be deeply interested in risks such as rising wages and international currency exchanges, but after 5 or 10 years of successful operations, meta-issues like global stability tend to be forgotten, or at least discounted. Now, political risk is back.

China, as we all know, has become far more expensive in a very short time. A contract with China could lead to sub-contracting to Vietnam or Cambodia. Or you may be tempted to move to the Philippines when your contract renews. Now that parts of China, India, and Russia, and all of Japan, and Taiwan… fall (or will soon fall) within the range of missiles from North Korea, will this affect your outsourcing choices? On October  30th of 2017, we found out that 200 North Koreans were killed in an accident near a nuclear test site. It was probably a tunnel collapse, but it may have released radiation. We’ll see.

The general instability has Japan seriously considering rearmament, possibly building nuclear weapons. In recent years the China Sea has been the site of regular military conflicts between China and just about all other local nations, plus the United States.  Ongoing conflict is degrading the value of these locations.

Cyber Security – One of those “early days of outsourcing discussions” was, “What if your outsourcer steals your information?” Sometimes it took the form of, “What if your outsourcer has bad data security and they let in hackers who can steal your data?”  

American and European corporations have been repeatedly hacked, often by China or independent hackers in Eastern Europe. European hackers usually wanted money.  China wanted technology and the ability to silence anyone interfering with “internal Chinese” issues. When the New York Times wrote about Chinese government corruption, they became targeted by the cyber warfare division of the Chinese People’s Liberation Army. 

One very clear message from repeated attacks from China was this… even if you are a big, internationally known corporation, your cyber defenses will not stand up to an attack from foreign military hackers. Yet, Richard A. Clarke, one of America’s best-known authors of cybercrime books, said that China wasn’t the threat that we should keep our eyes on. Instead, we should watch Russia, the only other nation in the world that could match the US in cyber spying. Just a few years ago when he said this, everyone thought, “How can that be? we’re constantly hearing about Chinese spying, but we never hear about Russia?”

Clarke’s answer was… That’s because only America and Russia are good enough at this to steal data without leaving a trace.” And then we had the 2016 Presidential elections. We’re still trying to sort that one out. There was direct hacking by the Russians, but also the “not-yet-illegal” use of social media to spread fake news.

The newest news from Russia comes via Israel. It seems that Israeli spies, who were possibly spying on US computers, noticed that these computers were sending data to Russia.  The computers had Kaspersky’s Anti-Virus installed, which was made in Russia. Kaspersky denied infecting the machines. That leaves Russia. Did they have spies in the factory or did they add hacking tools somewhere in transit? To add insult to injury, the Israelis said that the hacking tool that Russia used was stolen from the NSA (National Security Agency), American’s top spy group. So now it’s spies, spying on spies, who get caught by other spies. Great.

Did you know that most popular anti-virus tools come from Eastern Europe or Russia? Other communication and server maintenance tools were written all over the world. Big corporations have tools from global banks and organizations. Apparently, we really don’t know what is on our networks, especially if our data is “in the clouds”. Add to that whatever we will learn about how Russia was involved in the 2016 US Presidential Elections, and we all want to lock away our data in a lead-safe at the bottom of the ocean.

Like it or not, firms will outsource massive amounts of data to cloud services to stay competitive. But, given the rising number of government based cyber hacks, a growing number of customers may want “onshore only” storage. There are enough onshore risks. Plenty of hackers in your own backyard that you need to worry about. The best hackers are the biggest threat, and these hackers appear to be government sponsored. The best protection against having a foreign government placing spyware in your data is to not send your data offshore. Banks, media, utilities, hospitals and other prime targets in a politically motivated cyber attack will increasingly look for cloud services that offer an option for “home shore only” data centers.    

Logistics – We’ve already discussed the cost of shipping goods around the world. When goods are manufactured where they are used, there are big savings in transportation. However, goods may still need to be shipped between offshore sites for final completion. The US and Europe are about to have a huge drop in internal shipping costs.

Before the turn of the last century, the US Post Office partnered with Rail Road companies to provide low-cost shipping of mail-order catalogs. Nearly a century before Amazon, Sears, Roebuck and, Co. created America’s first virtual marketplace. Sears grew into one of the world’s largest firms, even though they would not open a physical department store for another 30 years. Everything had to be shipped to customers, from pocket watches to full-size prebuilt homes.

FedEx and other “overnight” carriers launched a new age of logistics. When the speed of business picked up in the 1980’s and 1990’s, customers couldn’t wait for slow rail deliveries. They wanted overnight delivery. FedEx, DHL, and others firms gave customers what they wanted.

Then, email drained revenue as many of their most profitable corporate customers. Instant mail was better than overnight mail. Luckily, online shoppers picked up the slack. Internet purchases could be made anywhere in the world, but you needed your purchases to be delivered to your hometown. Now we’ve come full circle, and we’re back to the days of the Sears’ virtual store.

Now, a new age of driverless vehicles is dawning. Drones, self-driving cars, electric planes, and other vehicles will be both more energy efficient and (without the cost of a driver) far less expensive to operate. This will not only reduce the time and cost of any local transportation, it will also make logistics one of the top outsourcing industries for the next decade.     



Logistics looks at the efficiency of “total” transportation systems… cars, planes, trains, ships, etc. 

The market is looking for a combination of UBER and Amazon. UBERzon? It would take over advertising, marketing fulfillment, and delivery. Amazon already performs these functions and is looking to add drones for delivery. UBER wants to take over ALL vehicles in the US, replacing individuals and corporations as the owners of vehicles and vehicle fleets. UBER has piloted services where a single vehicle is both a taxi and a UPS delivery truck… with a personal messenger service rolled in. UBERzon would need to eventually compete with (or buy out) FedEx and DHL, for national and international air cargo deliveries.


Offshoring Goes Both Ways: A lot has changed in how we outsource. Offshoring used to be defined as moving work from the West to lower cost geographies, especially China, India and nearby countries. However, when modern offshoring took hold a couple of decades ago, “offshore” countries had no brand name recognition in the west. Now offshore brands, especially Chinese brands, have strong name recognition in the West.  

Lenovo (formerly IBM laptops) is a top-selling Chinese computer brand. At about the time that Microsoft and Apple abandon China and build the products back in their home markets, we can also expect Lenovo to do their equipment assembly in the US and Europe. Huawei, China’s leading hi-tech phone manufacturer, is expected to win a big slice of the Android market with their flagship Mate 10 Pro. By the time the Mate 12 is released in a few years, expect Huawei to assemble phones in the US.

China is already heavily investing in the US and Europe. Hotel chains (Hilton), media firms (Dreamworks, Legendary, and Lionsgate), General Electric’s consumer goods and just about everything else. In the UK, over 280 firms have been bought out by the Chinese.

In the last round of outsourcing, these relationships existed. Relationships were awkward and there was little certainty.  Now that both sides have a deeper understanding of each other,  many more deals in many different forms are possible. While no one knows exactly what form new alliances and contracts will take, it is almost certain that they will be much more complex and multi-layered.

China VS. India: China and India both became offshoring powerhouses, with China dominating in manufacturing and India in knowledge work (especially IT services). China went on to aggressively invest in the west. India, however, has made few visible investments and does not seem to be actively pursuing the next wave in offshoring. 

China has done more than merely invest in western corporations. They prepared for the next wave by building out its expertise in robotics. Today, China buys more robots than any nation on earth. Soon China will manufacture most of the world’s industrial robots.

Today, China is the premier global manufacturer, giving them significant control over the global manufacturing workforce that builds the goods the world buys. As offshore manufacturing fades, China will switch from providing workers to providing robots. Soon, robots will build the goods the world buys. Then,  regardless of where work is performed, China will have even greater control over manufacturing across the entire globe.

India, on the other hand, has not invested in the west or created partnerships in the US and Europe at anywhere near the same rate as China. Instead, India is “all in” on traditional outsourcing. Accenture, TCS, and Wipro have become recognized brands among the Fortune and FTSE 500. Regulations make it difficult to take money out of the Indian economy to invest abroad. Still, if India does not invest in other areas, it may be shut out of big outsourcing deals by China.

Ironically, much of the talent that is creating new AI software comes from India. Work outsourced to India is building many of the most advanced AI and machine learning systems. In raw numbers, the 43,000 patents India creates annually are a great improvement over the past. However, it pales before the 578,000 from the US or the 928,000 from China. Furthermore, according to the Times of India, 80% of the patents that India has secured are for foreign corporations doing work in India. Indians have been pivotal to the development of the AIs that will rule the world, but unlike China, India may not directly benefit from this achievement.

Brave New World: Twenty years ago, modern offshoring caught fire and became a massive, global business. There were earlier waves of offshoring, but each new wave becomes bigger than the last. In the coming wave, offshoring from the west will recede, as a wave of offshoring approaches from China, South Korea, Japan and the rest of Asia. 

We don’t know how this new outsourcing will express itself, but the earliest forms we will see in the next year will be more sophisticated than the most complex contracts we saw this year. Especially if onshoring is super-charged by tariffs against offshoring in 2018.

Foxconn, the largest employer in the world, is finalizing a $3 billion incentive deal for a mega-factory in Wisconsin. Will Foxconn completely manage the construction and operation of this factory complex? More likely, the government of Wisconsin will negotiate co-management to stimulate local businesses and employment. This is just the start of the new onshore mega-deals. If you’re ready to step up to a new level of outsourcing, a whole new world of opportunity is about to come knocking on your door!

Posted in cars, Environment, Improvement, Robots, Uncategorized, Unique Ideas | Tagged , , , , , | 1 Comment

High Tech Cars Fascinate Buyers and Save the World


Photo, all rights, TechCrunch

Photo, all rights, TechCrunch

You’ve heard that robots are taking over? It’s true! A lot of people are frightened about a “workless” future, but parts of the Robot Revolution will be useful. Like cars that can drive themselves. Just a couple of years ago, car experts said that they wouldn’t heavily impact the market until 2050. It made sense. Car companies take decades to introduce new features. Yet, just last year, A.I. experts said that 2030 would be the key transition year. Now, Unicorn firms plan to have production vehicles on the road by 2020. It looks like self-driving cars will hit the road, at least in several major cities, by 2018. 

In past articles, we’ve discussed how cars that can drive themselves will impact employment. Vehicles with paid drivers will go autonomous far more quickly than consumer cars. The financial incentives are huge for taxis, trucks, the UPS and FedEx. And government vehicles! Critical public and government organizations want to go autonomous, but they have special constraints that make their implementation date a toss up.

The United States Post Office (USPS) has been looking for autonomous vehicles for years. They NEED autonomous vehicles to stem their financial bleeding. They haven’t had a break-even year in the last two decades. Since 2001 they have lost over $50 billion, $6 billion just last year. Half of all post offices will close. Perhaps very soon.

The USPS needs a game changer, and autonomous vehicles may be their only hope. Small towns have a similar problem. The ups and downs of the economy have left many with big financial problems. Towns operate a lot of vehicles… school buses, garbage trucks, repair vehicles. They can barely afford to operate this fleet.

These days town vehicles are usually operated by union drivers or managed by 3rd parties under inflexible contracts. It can take years, even decades, to work out new agreements. The US military purchases a huge number of vehicles and has begun asking suppliers about electric and autonomous vehicles. Robot war machines? Seems a bit too sci-fi? Really? Remember, not too long ago, when you first heard about military drones?

When will consumers buy cars that drive themselves? Not in 2018, but not too far in the future either. Right now quite a few models can drive themselves… in some places, at least some of the time. Cars that park themselves or that can apply the brakes in an emergency have been around for years. Your next car will probably be able to drive under “safe” conditions… slow driving stuck in a traffic jam, certain roads with little traffic. 

VW BuzzBy 2022 we can expect to see fully autonomous vehicles from the big manufacturers, starting with Volkswagen. Remember the “Hippy Bus” from the 1960’s? VW has committed to delivering a slick looking, all-electric, self-driving version by 2022. Of course, the production vehicles can look very different from the concept vehicle, but it it is a VERY good looking concept vehicle. It can be a 6 seater van, a camper, or even an “office on wheels”. It has the potential of being a huge success.

Which brings us to an amazing detail that few experts have mentioned. The autonomous car revolution IS the electric car revolution. A gas-powered car can be self-driving, but it is much more efficient to make it an electric vehicle. Here’s why…

  1. Simplicity: In order to turn the steering wheel or press the brake pedal, you need actuators or electric motors, plus circuitry for the computer that runs the car’s Artificial Intelligence. If the car is all electric, you can skip a variety of mechanical “in-between” parts. That lowers the cost of manufacturing.
  2. Weight: Fewer parts means lower weight and higher reliability. The engine is removed from under the hood and replaced by 4 smaller electric motors inside of the wheel hubs. This eliminates most of the gear system and the entire powertrain (heavy parts that distribute power to the wheels). Electric motors also provide braking power, eliminating today’s separate braking system. Finally, the 12-volt electrical system is replaced with more lightweight cables. All told, nearly 1,000 lbs can be cut from the car’s weight.   
  3. Reliability: Internal combustion engines (ICE) have a few hundred to a few thousand moving parts. Electrics have just a handful of moving parts. That means less effort to design and build electric vehicles and lower maintenance costs. Imagine… no more oil changes!
  4. Efficiency: A lot of power in an Internal Combustion Engine (ICE) is turned into waste heat. Gas powered cars waste 75% to 85% of the energy from their fuel. Electric vehicles waste a more moderate 40% of their power. There’s still a tweak or two for the ICE, but after a century of evolution, it’s just about as efficient as it can get. Alternatively, electric motors have more room for improvement.

The same experts that missed the autonomous/electric connection have missed an even bigger point. They usually tell us that if America moves from petroleum to electricity, it could spell the end of the oil industry. That could be good. That could be bad. It depends on what you think about the oil industry. And if you own any oil funds. But what about electricity? When we plug in our cars, what happens? Won’t we need more power plants? What kind of power plants will we build?

Plug And Pray?: First, we have the simple matter of recharging our vehicles. Our 263 million vehicles! America’s 150,000 gas stations can easily add recharge stations as we transition from petroleum to electric. In fact, they need the business. In the 1990’s America had 200,000 gas stations. Consolidation in the oil industry eliminated 25% of all gas stations. The higher efficiency of electric vehicles will probably mean that a recharge will be less profitable than a fill-up. 

As our vehicles transition between power sources, gas stations will have competition. The perfect time for a recharge is when you park. Parking lots and municipal parking meters could easily add rechargers, providing a big boost to municipal revenues and private parking lot profits. Consider the sales of air filters, spark plugs, fan belts and oil changes. Electric cars don’t use these products.

But the big, BIG, change is that you can recharge your car at home. Plug it into the wall and recharge your car overnight. That could be 50% or more of all car recharges. Put all of this together and in 20 years when almost all American cars are electric, there may be as few as 50,000 traditional gas stations.

Astronomical Numbers!: Problem one solved. In fact, more than solved! Replacing petroleum-based vehicles with non-polluting electric cars will take a huge bite out of global warming! Think about it, millions of carbon spewing vehicles retired and replaced by zero pollution cars. Finally, freedom from foreign oil! Well, freedom in around 20 years.

The average new car is sold after 6 years. It then passes down through other hands for another 10 or more years. But 20 years, just about every car is ready to be scrapped. Most cars will be self-driving and electric. Isn’t it great that we can have a win/win with no environmental cost whatsoever? Yep. No cost! None!

Uhhh. Unless. Hmmm. If every gas-powered vehicle in America, all 263 million, become electric… won’t we need to produce more power than we do today? On a typical hot summer day when air conditions are cranked all the way up, cities across America have blackouts, which means that more power is used than is available. If millions of electric vehicles plug in somewhere to recharge, we’re going to need more power. Or we’re going to have blackouts all year round.

Miami trafficHow much power will we need? Every year America consumes 170 billion gallons of petroleum (gasoline and diesel). If we convert this into electricity, we get 5.4 million Gigawatt hours (GWh). To meet this demand, we would need to more than DOUBLE the That’s more than all of the electricity… that’s coal, nuclear, hydroelectric, natural gas, geothermal, wind, solar, everything!… consumed by Americans every year!   

Luckily, we won’t need to add quite that many new electric power plants. We already know that electric vehicles are more efficient than petroleum vehicles. At least twice as efficient. Also, our power grid still has some excess capacity. Not on those hot summer days, but just about every night, especially very late at night. Just when we will program our cars to recharge themselves. So, lets cut our needs in half again. Now, we need just 1.3 million GWh. Spread that over the next 20 years, we only need to build 67,000 GWh of new power every year.  That’s still a lot, but it is far less astronomical than the total power gap.

Power Is  A Breeze: Of course, this leads to another question, “What type of power plants will we build?” Let’s start with wind turbines. Wind turbines are rapidly evolving. Every year they are bigger and more efficient. New turbines are averaging 2-3 MegaWatts (1/1000 of a gigawatt). The largest wind turbine (so far) can generate 7 MWh and is a massive 650 feet tall. For now, let’s stick to more modest models. Something in the 2.5 MWh range, and just 300 to 400 feet tall. How many will we need?

The first rule of power generation is, “No power system produces at full capacity all year round.” Even a nuclear power plant needs downtime for maintenance. And then there are low demand times when the plant runs at less than 100% capacity. Since the wind isn’t always blowing and some days are cloudy, wind, tide, and solar power generation all have low utilization.  

Wind TurbineRule number two, “Location, location, location!” Some locations are windier (or sunnier) than others. The same turbine in two different locations will generate different amounts of power. Wind and solar are more land intensive than nuclear or petroleum based power. Identical wind turbines, in different locations, could have dramatically different costs per MWh.  For example, if the turbine is placed on the coast, just offshore where the wind blows continuously, utilization is high and the land may be given to you by the government. Onshore, most locations will have a much higher cost.

Most turbines are likely to average 30% utilization. That means that America needs 1.8 million wind turbines to power our 263 million cars, or 90,000 installed every year (1,900 every week) for 20 years. That would create quite a very large wind power industry. But, it wouldn’t work quite this way. 

That’s our next rule, “Costs are rarely linear.” The first new turbine we added would be in a great spot, where the wind blows often, the land is cheap and we’re near the users (farther away and you lose too much in transmission). The next turbine will be put in a slightly less ideal location. You go from great to good, to barely break-even locations. After 100,000 turbines… maybe 200,000 possibly 500,000… either the wind isn’t reliable or the land costs too much, or something else is wrong. Wind and solar power can be a big part of the solution, but other power sources will also be needed.

Carbon Is Back: Other options? Hydro-electric is out. Rather than building new dams, dams are being torn down across America because of environmental concerns. There’s always nuclear, but its reputation is so far from spotless that it’s a non-starter. Which is a pity. That bad image comes from reactors built to 1950s design specifications. The latest designs, using Thorium instead of Uranium or Plutonium, are simpler, cheaper and far more reliable. Still, it takes such a long time to approve and build a reactor, even without public opposition, that if we planned a new reactor today the first watt of nuclear power won’t appear until well after our 20-year time frame. Let’s move on.

So. Ahhh. Ahem. Coal.  A third of our electricity comes from coal. Even if we don’t build a single new coal-fired power plant, we are likely to ramp up the utilization of existing coal plants, especially overnight. We could also close the oldest and dirtiest coal power plants and replace them with newer, cleaner facilities. However, the newer the plant, the more it will be automated. Which is another rule… Newer = Cleaner = Less jobs. Clean coal is technically possible, it’s just not likely to be economically feasible. Of all of the forms of energy we can expand, coal offers the fewest jobs.

Nonetheless, ever since the 2016 Elections, Washington has talked about putting coal miners back to work. But more coal, clean or dirty, isn’t going to create a lot of new jobs. The problem isn’t the power plant, it’s the mine itself. Political ads show coal country miners from Virginia, Kentucky, and Tennessee taking crowded elevators deep underground into claustrophobic tunnels. That’s an accurate picture of the coal industry… a century ago. But not today.   

Today, two-thirds of America’s coal comes from open pit mines and draglines. It works like this. Find a mountain with a seam of coal running under it. Now, carefully lift the top off of the mountain and gently put it down in the valley. Sorry… got that wrong. I meant to say, use tons of high explosives and turn the mountain into gravel.

Now put a gigantic crane, weighing as much as 1,000 school buses, on the highest spot overlooking the coal seam. This crane is the dragline. It throws out a massive bucket that is dragged across the floor of the mine, scooping up hundreds of tons of rock and coal. The largest dragline ever built is operated by a crew of five.  That’s why the Department of Labor lists a mere 3,150 jobs in “Excavating,  Loading Machine, and Dragline Operators”.  From cramped mines filled with miners to one machine digging up more coal with a crew of 5, it seems obvious that the next step is fewer, if any, workers. 


Big Muskie Bucket

Dragline bucket

Likewise, the giant trucks and other vehicles to move coal from the mine to the nearest train are the heavy duty trucks we’ve already said will be the first vehicles to be converted to self-driving. If we use more coal to meet the demand for electricity, it will unquestionably accelerate automation throughout the coal industry.

Natural Gas?: Of all the petroleum products we can use, natural gas seems to be the best option. It’s abundant, inexpensive, and the cleanest petroleum fuel. For all of these reasons, it has been natural gas… more than pollution regulations… that killed coal.  

Then, fracking came along. Well, that’s not quite true. Fracking…  using hot pressurized water to crush shale deposits deep in the earth… was invented in the 1950’s. This process produces oil and natural gas. Fracking picked up speed when horizontal drilling was developed, allowing the profitable extraction of small pockets of petroleum.

However, the new technology made so much new drilling possible that new problems were created. Oil spills. Petroleum showing up in drinking water. Even earthquakes! We’re not talking about a tiny but statistical number of quakes. Ohio used to have 2 quakes a year. Now it is well over 1,000 every year, with each quake under an active fracking site.

Clearly, fracking has been misused. And environmentalists can point to some pretty bizarre side effects, like drinking water that catches fire. Or pipelines that are being forced onto Native American tribal lands, completely ignoring tribal rights. The 200 trillion cubic feet of natural gas in US shale deposits could recharge our cars for the next 300 years. If we were just a bit more selective in where we drill, we could greatly reduce these effects. Or we could ignore fracking and just use non-fracked natural gas, which is enough to keep things running for the next 50-100 years.   

Getting There:  There are tremendous benefits to self-driving cars. It seems inevitable that all developed nations will quickly adopt vehicles that are intelligent enough navigate our streets and highways. However, the transition to intelligent vehicles entails another transition, from petroleum to electricity.  THAT transition requires a massive expansion of our national power grid… the biggest expansion ever!

Most of the power grid is nearly a century old. It’s not just the powerplants, it’s the distribution infrastructure. Cables that carry current from the power plant to our homes and offices are still made of copper. Using copper cables means that we lose between 8% and 15% of all the power we generate in the transmission and distribution process. Newer alloys and even some early superconductors can reduce power losses, saving billions of dollars every year.

And then… Change is on the way! Self-driving electric cars are all but inevitable. But the changes that these cars will bring are based on decisions we have as yet to make. We can build new industries, change how we work, and perhaps… just perhaps… save our environment.

But before we reap all these benefits, we have to make those decisions. How will we grow our power grid? Should we utilize the unused capacity of our coal power plants or should we focus on building a next-generation power plant that we can roll out in force? Should we even consider what happens after our 20-year timetable? We will have consumed much of our remaining global petroleum reserves. Is it time to start talking about fusion power? What do you think? Comment and share your opinions!

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The Other Shoe Just Dropped


(Previously published in Outsourcing Magazine)

For years, the outsourcing world has been buzzing about reshoring (or “backshoring” in Europe), taking the jobs we sent offshore years ago and bringing them back to the US and Europe. Low wages, cheap property, and favorable taxes made offshore manufacturing very attractive. But in recent years property values rose, staff turnover increased, and wages just keep heading up. Despite weakening economics, offshore still made sense. Until today!

By far, the greatest financial advantage to offshore manufacturing was derived from labor arbitrage – lower wages from “replacement” workers. Low wages plus workers who can do the work are a winning combination. To access low-cost labor, manufacturers will happily build the factories, roads, and infrastructure needed for manufacturing. China has been the gold standard for outsourcing, but western manufacturers are being lured by still lower wages in Vietnam or Thailand. Now, technology has taken a big leap forward, and suddenly… wages don’t matter!

Today’s robots are intelligent machines that can perform almost every function a human being can. The latest intelligent machines don’t just help workers to be more productive, they completely replace workers. Robots eliminate the need to build factories where low-cost workers live. You can just build the factory where you want and install robots instead of workers. When wages no longer matter, onshore factories make a lot of sense.

Onshore factories certainly make sense to Adidas. Last year Adidas built their first SpeedFactory in Germany. A SpeedFactory is their name for a new generation of onshore factories that provide three benefits. First, it is highly automated, delivering a lower cost of operation than an offshore factory. Second, by building the factory in major consumer markets, transportation costs are greatly reduced. Lastly, because SpeedFactories are built near consumers, Adidas can quickly restock sold-out products and reduce customer frustration.

Not surprisingly, Adidas is building a second SpeedFactory in Atlanta, scheduled to open in 2017. Reebok, a subsidiary of Adidas, has announced the construction of a similar factory in Rhode Island. Nike has been talking about building a new factory in Oregon for the last year. (Come on Nike… Just do it!) What looks like a pretty good idea today, will be an irresistible financial proposal in a year or two.

One of the biggest difference between a human worker and a robot is the way costs change over time. Workers want raises and promotions. Over time, the same factory producing the same number of goods has higher labor costs. When the factory is offshore, this happens even faster due to higher offshore inflation and increasing competition for workers. Robots, however, cost less every year. Next year’s model will work faster, have more capabilities, and still cost less. As time goes on automation looks better and better.

If this is the beginning of a new era, where onshore can be more efficient than offshore, what will happen to all of the work that is already offshore? If a location only offers lower wages, we can expect that work to be reshored in a few years. Offshore factories need more compelling advantages to resist reshoring? Since China has the most to lose from reshoring, let’s see if their plans tell us anything about the future of offshoring.

  • Domestic Market. When offshoring took off at the turn of the century, products were manufactured almost exclusively for the West. Today, China is the largest consumer of Chinese manufactured products. For example, while America has peaked at 100 million iPhone users, China has 135 million users and plenty of room for expansion. China is able to be a “local” supplier for East Asia and India… if they maintain their manufacturing edge.
  • Energy. Manufacturing requires electricity, and next to labor, energy is often the highest cost for manufacturing. America has a significant cost advantage for electricity compared to most of Europe. Underdeveloped countries have high-cost power and unreliable power grids. In many offshore locations, manufacturers must invest in generators and other infrastructure. The cost of electricity in China is comparable to America. However, in the past decade, China built hundreds of new coal plants, is building 20 nuclear plants and has more solar and wind power in production than any other nation on earth. Old and inefficient plants are being closed. By the 2020’s, China may set a record for low-cost power generation.
  • Technology. China’s population has almost plateaued, and by 2100 will decline by 500 million. China already has problems hiring for manufacturing jobs, which has led to runaway wage increases. China has very ambitious plans to add between 1 and 4 million robots by 2020. If China succeeds, China will need to build and install enough robots to become the world’s undisputed #1 manufacturer and consumer of industrial robots. Furthermore, because of this robotic work, by 2020 China must develop the ability to build the most efficient factories in the world.
  • Financing. If hundreds (if not thousands) of robotic factories are going to be built in America and Europe, that will require capital financing. Four of the top 10 banks in the world are Chinese, two of which have “Industrial” or “Construction” in their names. China also happens to be home to six of the world’s largest construction firms. With leading positions in banking, construction and robotics China is going to build most of the world’s new factories.

Adidas pointed out the value of reshoring, and other big-brand athletic gear companies are hot on their heels to find new onshore manufacturing efficiencies. If China dominates in robotics, energy production, financing, and construction, they will move beyond the title of “The World’s Manufacturer”. China is positioned to also dominate in building the next generation of factories throughout the world, or at the very least to be the default option for every factory that is built in the 2020s.

The latest generation of technology will level the playing field for manufacturing, making a factory built onshore as financially attractive as locations halfway around the world. After a very long time, the tide has turned and new factories will be built in America and Europe. The trend has just begun, but every week we’re going to see new models of industrial robots at ever lower price points.

Everyone who manufactures offshore will soon start thinking, “Does it make sense to stay offshore?” If you are an outsourcing provider, you need to ask yourself, “If low wages no longer matter, what is my new value proposition?”

When it comes to robotic factories, onshore and local has big advantages over offshore and distant. As all factories become robot factories, the change in locations is just the beginning of changes that factory owners, outsourcers, consumers and experience as technology replaces workers, and the world’s factories are made in China!

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The Evolution Of The Millenial


The Robot Revolution is on their heels and catching up! By the second decade of the 21st century, everyone can see that “change” is speeding up. By the third decade, a quick glance in the rearview mirror and all you can see is the Robot Revolution. Robots are expected to take over half of the world’s jobs. Self-driving cars, banking on your mobile phone, order kiosks at McDonald’s, virtual reality, and automated factories are our future.

What about the human beings? You remember them? The rulers of the planet… the top of the food chain? It’s obvious that technology is changing our world, but is technology changing us? As more of our economy and our culture becomes robotic, will humanity could become nothing more than a wetware interface to the corporate machine? Technology could change the very definition of what it means to be human. But this isn’t the first time that the evolution of man has been dictated by technology.

Humans started out as nomadic hunters. After tens of thousands of years we developed tools to produce more food. Farming became a better option than hunting. We settled down. First in small settlements and then in cities. We discovered metals, which made better tools than bone or wood. Humanity experienced the bronze age. Then an iron age. And, a long time later, we built our civilization on steel. Soon, it will be carbon fiber and robots.

When the human race moved from settlements to cities, we went from individual self-sufficiency to becoming specialists. Specialists… such as blacksmiths… would make their specialty products (swords, shields, nails, and iron wheels) and then trade for foods and other necessities. Trade-based society requires other technologies… shipbuilders, gold miners, coin makers, horse breeders, paper mills, insurance… which fuel the trading routes that spread goods and technologies around the globe. Well, after we invent the globe, of course.

Other species ruled the earth before, but they changed themselves. They evolved into new species to fill in gaps in the environment. Humanity, on the other hand, makes the environment change until it suits us. We leveled mountains, changed the course of rivers, turned forests into farmland, and then our well-clothed ancestors moved into colder climates. As difficult as it is to believe, the next century will bring even bigger changes.

Human beings can change faster than any other species. In fact, humanity has changed so quickly in the last few centuries that the rest of the planet is having a hard time keeping up with us. We’ve heated up our atmosphere, wiped out countless species, emptied the ocean of fish, cleared away rainforests. 

When archeologists examine ancient civilizations, they look for artifacts. These bits and pieces, a fragment of pottery here and an arrowhead there,  tell us how this civilization came into being, how it’s people lived and how a new civilization came to replace them. For example, let’s consider Otzi. 

Back in 1991, archaeologists discovered the body of Otzi. Otzi lived 5,000 years ago, during the end of the last ice age. One cold winter night, he froze to death. For thousands of years, Otzi and all of his possessions were entombed in ice, beneath an Alpine tundra. When the ice above Otzi melted, he was found by mountain climbers and whisked away to a local museum. His perfectly frozen body… and a knapsack full of artifacts… tell us all about his civilization and even Otzi’s last days on earth.

What if we could do the same? What if we could look at our world from the point of view of a future archaeologist? What would they think about our lives and culture? Imagine if one of our Millenials was found a thousand years from now? Along with an iPad clutched in his frozen hands? Let’s call our future corpse, Milo.

Meet Milo: Milo is a typical Millenial. He is ambitious, well educated, overly stressed, too often medicated, and a tad… ahhh… fat. Still, even though he has a few problems Milo, and all the Millenials, lived a long life. Longer than any generation before him.

Millenials are generally considered to be weak, soft and temperamental. And they are, at least compared to earlier generations. But they had problems unique to their generation. If we look back at our iceman, Otzi, we believe that he died escaping… someone. He was injured just before he died, possibly by a flint knife. He was carrying an ax with a copper blade, indicating that he was either wealthy or important. He might have trespassed on someone’s property, or he just might have made a good hostage. In either case, he escaped his pursuers by hiding in a ditch in the hills. Unfortunately, that’s where he froze to death and was later covered by an Alpine Glacier.

Milo never feared these life or death situations. Except when he plays Call Of Duty. His office job did not leave scars upon his body, although his bathroom scale would beg to differ. The unique thing about the Millenials, Milo included, were their brains. Just about every generation of workers in the world worked with their hands and their muscles. Milo’s was the first generation where Knowledge Workers dominated the workforce.

Food: You can tell a culture by what the people eat. And drink. Otzi had a simple diet, and he burned off his calories running cross country, up and down and across the Alps. Otzi’s last meal was fatty meat, providing lots of energy for mountain climbing. It was probably an early form of bacon. Milo was not unfamiliar with bacon. While many Millenials were vegetarian, bacon was very popular. Still, when it comes to energy, Milo and the Millenials had a special secret. They called it…  

Caffeine! The Millenials didn’t discover caffeine, but they may have perfected it. Sure there was coffee. Millenials love coffee. And soda. But it was Millenials that doubled down and became the energy drink generation. Milo loved coffee. On an average day, Milo drank 2 cups of coffee, a half cup of tea, 2-3 glasses of cola, plus an occasional energy drink.

You can understand why Otzi would need caffeine to elude his pursuers, but why did Milo need so many stimulants? When Milo graduated college with an MBA, he expected to become a corporate executive. Instead, he spent years in other low-level positions, including a job as a barista. A bit ironic, eh?

Milo had a much more varied diet that our Iceman. Otzi would have been jealous of Milo’s dietary choices. Rather than being thrilled with his choices, food made Milo anxious. Is today’s lunch special organic, or all natural? Is it gluten-free? The shrimp look good, but doesn’t shrimping destroy the sea floor? Can’t have the hamburger. Cattle make methane. Maybe almond milk? Nope! Almond trees use too much water. Millenials are hyper-aware of their environment and know that everything will doom them… eventually. For Millennial, life is like that line from GhostBusters, “Choose and perish!” Then the Stay Puft Marshmallow Man attacks New York. I wonder if the Stay Puft Marshmallow Man is free trade?

Education: Milo was privileged to belong to the most educated generation in history. Milo had an MBA, a degree in business. This late 20th-century invention was intended to make business management more predictable, reduce financial risks and make business more profitable. For Milo, an MBA was synonymous with debt. He needed two barista jobs to pay his school loans, while he waited for several years to land a “real” corporate job. Milo spent endless sleepless nights worrying about his loans. Good thing barista’s get a discount for that midnight coffee run!

But coffee alone won’t get you through school. It takes focus, determination, and willpower. Or Adderall. Traces of Adderal in Milo’s system tell our future archaeologists that he first tried Adderall in grade school, and became a daily user in high school and then in college. Of course, Milo didn’t have a prescription for Adderall. Milo didn’t have attention deficit or any other specific complaint. He just needed Adderall to give him the super-human focus needed to get into a highly ranked college.

Unlike the opioid crisis, or the anti-depressant crisis, or the sleeping pill crisis, or even the diet pill crisis, Adderall isn’t addictive. But Milo was never an “A” student, before Adderall. It got him into a good college. Of course, staying in a good college, meant 4 more years of Adderall. OK, 6 years. Milo had a few setbacks.

If we go through the files on his iPad we can see that it was easy for any Millenial to obtain Adderall. Just turn to Craigslist. Put in an order and have it delivered to your dorm room. Along with just about any other drug you need. Eventually, after Milo graduated and went through a few dead-end jobs, Milo went back to his Adderall addiction to compete for a high paying corporate job.

Work: Slavery and warfare fueled the prosperity of many civilizations. Work was long and hard and took place out in the fields. You worked on a farm, or dug in a mine, or traveled with a caravan. Perhaps you were a soldier. Very few workers, such as craftsmen and artists, worked indoors. Glorious, glorious indoors! You didn’t get rained on. There weren’t any wild animals. You rarely dealt with floods and avalanches.

Milo lived in the golden age of work. Milo works indoors in airconditioned splendor! As a knowledge worker, Milo is even allowed to sit… all day long. Most of America’s workforce has similar indoor jobs. That’s historically unprecedented! Yet, these spectacular working conditions led to the greatest paradox of the early 21st century.

Factory workers used to be the core of the economy. They manipulated materials, creating higher value goods. Knowledge workers manipulate data, also creating value. In the last quarter of the 20th-century knowledge workers… financial analysts, lawyers, computer specialists… were relatively rare. By the time Milo was promoted to a corporate executive, the workforce was full to the brim with knowledge workers. For example, Milo’s bank had tens of thousands of financial analysts. To manage this number of knowledge workers, positions needed to be more standardized and templated.

The irony, of course, if that you hired knowledge workers for their brains, for the independent decisions they could make. But as their numbers swelled it was more important to get everyone to work the same way. Like a factory. A Knowledge Factory. Banks, accountants, consulting and law firms have all “evolved” into knowledge factories. The rise of knowledge workers happened alongside the rise of computers.

Knowledge workers combined with computer processing made a powerful… and irreversible… alliance. Now every corporation was becoming a knowledge factory. If we look at the files on Milo’s iPad, we can see that his job required him to fill out computer templates and fix templates from other workers. Everyone used the same software and the same templates. Milo was a cog in the machine. Or maybe a CPU cycle in the corporate computer. When all of the workers work in exactly the same way, it certainly increases efficiency. But it also means that the computer that assisted the Millenials could soon do their jobs. And, as we’ll see, they did.

Recreation: Previous civilizations had little time for leisure. Work was too tiring. By the time you were middle-aged, assuming that you lived that long, you were bent over and arthritic. When Milo was middle-aged, he stood up straight, need neither walking stick nor wheelchair. His blood pressure was too high, but he felt relatively good. And his lifespan was the longest in history so far.

Milo had more time for recreation than any generation before him. Workers in the mid 20th century watched Baseball and participated in urban team sports like Bowling and Pool. If Milo ever played bowling or pool it was on a game console. Milo’s preferred his recreation as video games. He also has binge nights streaming NetFlix and media services. A big part of Milo’s recreation is keeping up with his friends from college and the gaming world, who are spread around the globe.

Milo spends hours every week on his social network, what he did, ate and met. His iPod (and his iPhone and his computer) was central to his recreation. At work, he spent all day on the computer and at home he spent all night on a computer. Hey, those selfies aren’t going to take themselves! While the Millenials were very intelligent, they failed to notice that they were being shaped to fit the way that computers worked, and computers were being shaped to fit the way that Millenials lived. Millenials and microchips were co-evolving. Soon their work would be interchangeable.

Robot Revolution: And then it happened. The technology took over. The first self-driving cars were cool! It was great when his smart TV told Milo about a new movie to watch. As artificial intelligence improved, AIs arrived in the workplace. At first, AIs helped knowledge workers. But just a little while later, AIs replaced many of Milo’s friends.  Every year computers became faster and cheaper. Alternatively, a Millenial’s brainpower peaks in the late 20’s or early 30’s, and every year they ask for a raise. If buying an AI isn’t a better deal than hiring a Millenial, just wait a year or two and it will be.

Every year computers got faster and cheaper, while the brainpower of a Millenial probably peaked by their late 20’s or early 30’s. Millenials expected a raise every year, compared to computers which got cheaper and faster with time. Inevitably, computers stopped assisting and started directing. With a small twist in job descriptions and a slight change in HR rules, Milo found himself reporting to an AI.

The computer revolution was a good thing. Computers improved our lives. Computer-driven cars eliminated the 35,000 deaths a year that human drivers caused. The stock market prospered when financial analysts like Milo selected the stocks for Mutual Funds. But computer managed funds consistently outperformed humans, including Milo.

As AI’s took over, the world became a safer place and everyday goods became cheaper. On the downside, a lot fewer people were employed. It used to be that new technology meant new jobs. AIs created new jobs, but they also took those jobs as quickly as they were created. Eventually, the government realized that it wasn’t getting anywhere with 6 months of unemployment insurance and job training for jobs that no longer exist. Slowly, the Federal government piloted UBI payments. UBI (Universal Basic Income) is basically a paycheck for being a citizen. The idea is that no matter how cheap things get in an AI world, people still need some money.

Some of Milo’s co-workers tried to keep up by taking higher doses of Adderall, using enough stimulants to work all night and even using electrical stimulation to improve brain functions. For a while, they were hyper-productive, but a year or two later a new  AIs could outperform them.

By the mid-21st century, Millenials were pushed out of employment and forced to play game and binge TV watching all day long. With his bills paid by the UBI, Milo and his generation retreated to their man caves and worked no more. A terrible end for a promising generation, but a better ending than getting flash frozen and buried under a Tundra.

Life After Milo: Wipe away your tears for Milo. Remember, Milo life is a possible future. Like Scrooge said to the Ghost of Christmas Future, “I yet may change these shadows you have shown me, by an altered life!” Maybe. Millenials still have a few years to change. The Robot Revolution will be focused on big corporations and manufacturers. Small firms will adopt far aggressive automation and will take longer to replace jobs. The creative economy will continue to make millionaires and billionaires, in art, music and innovative services.

Our Iceman, Otzi, was a victim of the dangerous times he lived in. He probably spent his entire life just one step ahead of the bandits that eventually killed him. Milo, on the other hand, never had to deal with physical violence. Just the same, those robots are catching up with Milo and the temperature is dropping. Will the Millenials learn and change their ways? Don’t ask me! In my house, Alexa gives all the advice!



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Back To The Future… Of Outsourcing!

Future Image

Photo, All rights Kristian Bjornard

(Previously Published in Outsourcing Magazine Sept., 30, 2017)

To understand the future, it often helps to examine the past. The past may not have all our answers, but we often find useful models that can be repurposed in new ways. Turn back the clock one hundred years, and we will find just such a model for future outsourcing… the modern hospital! Don’t worry, you don’t need to get the croup or have the vapors! We will step back in time to the early days of the modern hospital, and Go Back to the Future… of Outsourcing!

Hospitals have been around for millennia. Early hospitals had few effective medicines. Instead, they were more like rest camps. Still, the best hospitals were relatively clean and they were often built by a mountain or a lake where patients had clean air and fresh water. Removed from a polluted city and it’s contaminated water, and given regular meals, a patient had a much better chance to recover.

Prior to the turn of the last century, “intensive care” meant little more than sawing off infected limbs. Hygiene was a bit of a mystery to the medical staff, and the operating room was often fatal. Still, with a little luck, you just might get better. By the mid-1800’s medicine became “scientific” and the rate of recovery for patients slowly improved. By 1920, a hospital had a 50/50 chance of improving your condition.

As hospitals improved, health improved… in hospitals, and across every developed nation. Infectious Diseases… cholera, diphtheria, tuberculosis… were the primary causes of death in the early 20th century. Hospitals joined with departments of sanitation and medical colleges, and infectious diseases began to disappear. By the mid-20th century developed countries eliminated most infectious diseases. Hospitals turned to more complex medical challenges… heart disease, cancer, and genetic research.

To meet these new challenges, hospitals needed to retool. Early hospitals had a lot of beds, trained staff, and operating rooms. Early hospital labs had a lot of test tubes and Bunsen burners, but conquering cancer required more advanced medicine and sophisticated diagnostic equipment.

X-ray machines were one of the first miracle machines. Doctors could now look inside patients without cutting them open. Ultrasound, MRI and PET scanners soon followed and the inner workings of human biology became an open book. To cure cancer, radiation equipment, cryotherapy, and many other devices were invented. Hospitals were soon filled to the brim with futuristic equipment.

Doctors and nurses, however talented, were not trained to deal with this sophisticated equipment. With too many multi-million dollar pieces of equipment to count, hospitals needed help to maintained and repair their fleet of medical devices. Some equipment, especially in nuclear medicine, requires special care in its use and in the disposal of radioactive components. And, of course, this technology requires extensive training. Tools like the “Gamma Knife” (a knifelike beam of radiation), can cure if correctly used, but can also do great damage when operators are not properly trained. With life and death consequences, outsourcing is essential!

Just containing all this equipment, and providing room for the volume of patients needed to keep these expensive devices fully occupied, forced hospitals to grow even larger. Typical hospitals contain multiple buildings and thousands of workers. These “Super-Hospitals” have become campus-wide structures, with power plants, warehouses and immense parking lots to keep the hospital running and fully stocked.

“Super-Hospitals” are incredibly capable, but even they need help as medicine has begun to peer into humanity’s own genetic code. Healthcare is now dominated by clusters or networks of organizations that work together to cure patients… government agencies, insurance groups, education and certification bodies, specialty clinics, and (most recently) data outsourcers using tools like IBM’s WATSON to develop insights into medical care and personalized treatments.

Very impressive! But exactly how does the evolution of the hospital predict the way that outsourcing will evolve? Let’s take a look, starting with…

Last Generation Outsourcing: We’re just at the tipping point where outsourcing becomes something new. Until very recently, outsourcing was driven by lower wages in common offshore locations, such as India and China. However, we until recently, outsourcing meant moving from a relatively sophisticated work environment to a less sophisticated one. The offshore factory would have less automation and equipment than the previous factory. Buying all of that equipment offshore would have raised the cost of operation, increased capital investments, and slowed down implementation. 

Instead, we chose to hire more people offshore than we had onshore. It meant working in a different way, but the results often satisfied all parties. Remember, offshore nations allowed us to work in their country because we provided employment. Money spent on equipment (that was manufactured in another country) did not help the offshore economy. Besides, when offshore wages are one-fifth of onshore wages, you could hire two workers for every one you had onshore, and still be ahead financially.

50/50 Chance: Early on, outsourcing was unreliable. Some projects worked well and some failed. “Lift and shift” alone failed. When outsourcing exploded in size at the turn of the 21st century, outsourcers had very variable results. Around this time McKinsey, both the world’s largest consulting firm and an early outsourcer, stated that only 50% of outsourcing is successful. Failures often arose from skipping necessary steps, lack of specific skills, and unreasonable expectations.

Now outsourcing… at least when a reputable outsourcing firm is used… is better understood and generally more successful. Yet, there remains a nagging sense that some forms of outsourcing, especially for knowledge work, just won’t work offshore. At the very least, it is more difficult to convince some customers that they can perform work offshore rather than onshore.  

Proximity: Intelligent automation and robotics diminish the role of wages in outsourcing. Automation produces products with few or no wage earners. The more we automate business functions, the lower the total cost of production. We’ve also learned that when we offshore, wages eventually rise. Offshore wages usually will rise far faster than onshore. The cost of automation, on the other hand, falls over time.  

We are at the beginning of a wave of onshoring. Athletic shoe manufacturers were a big part of the offshoring culture of past decades. Athletic shoes, and athletic clothing, aggressively moved offshore, leaving little production onshore. Automation makes onshore manufacturing viable. By being onshore, manufacturing not only met the price of offshore but could add new value.

Work can be sent halfway around the world efficiently, but it adds to turnaround time. When the next iPhone is released, orange might be the most popular color. But if there weren’t enough orange phones on hand, a request will be sent to an offshore factory to for the orange phones. Total turnaround time to produce new parts, assemble the phone and ship them back to the customer? A month or more. By then, the buyer might give up and buy a different phone.

Size: When manufacturing was outsourced to China, the scale of outsourcing changed. The U.S. and Europe already had big factories, producing cars and airplanes. In the last decade, China built over 500 new cities (capable of supporting a million citizens). These cities were created to house the workers needed by new factories. Factories and related networks of factories (bicycle factories built next to bicycle tire factories) took on a new scale in China. 

This scale of operations not only created big single use factories, it has created a new type of outsourcing. Foxconn corporation is the world’s largest private employer and is based in China. What does Foxconn do? They assemble consumer electronics. They don’t build CPUs, or memory chips, or circuit boards. They just assemble the parts into a phone, for almost every cell phone in the world. They also assemble a huge percent of the computers, tablets, flat screens and other electronics that consumers buy.

By assembling every possible type of cellphone, Foxconn developed unique expertise in phone assembly. When a new iPhone is released, Apple’s marketing campaign has publically announced (and very tight) release dates. This has been amazingly effective in marketing the iPhone, creating huge lines at Apple stores when a new iPhone is released. Samsung’s Galaxy and other top-tier phones are now released in the same way. Without the massive capacity of Foxconn, this would not be possible. Assembly firms like Foxconn didn’t exist a decade ago, but now many products cannot exist without them. We’ll get back to Foxconn in just a little bit.   

Technology: As discussed earlier, when work moved offshore, key equipment and technology were left behind. This reduced the time to ramp up and required less investment to implement. It took more people offshore to replace a team onshore, but if wages were low enough it still made financial sense.

To understand relative levels of technology between the U.S. and China, consider the “robot ratio”, the number of robots per 10,000 workers. In early 2016, China had 36 robots for every 10,000 workers. Today, China may have as many as 50 per 10,000. The U.S. has 175. As you can see, workers in China have quite a disadvantage. Still, you can see that China is quickly catching up. By the early 2020’s China will pass 100 robots per 10,000. However, the world’s robotic leader is South Korea, with 530 robots. That tells us that there is a LOT of room for automation even with just existing technology.

China is investing heavily in robots. They are already the world’s largest buyer of industrial robots, and China is investing in its own domestic robot industry. Recently, China started investing in European robotics firms and has already bought several multi-billion dollar firms. As soon as 2020, the majority of the world’s industrial robots will be “Made in China” or will be made by firms owned by China.

Onshoring will explode in size in the next few years. Domestic factories will become much more automated. Work will move from China back to the U.S. and Europe. But only a fraction of the jobs will be re-shored. Robots will do most of the work. Traditional factories in the U.S. won’t always have the ability to maintain these robots. Just as hospitals turned to outsourcing to deal with training and maintenance, the arrival of a massive number of industrial robots provides a huge opportunity to outsourcers… IF they have the skills and the scale needed to support this transition.

Need another example? Consider… computer support. The old model was that any corporation of significant size ran its own IT department to roll out servers, add hard drives, and monitor networks. Amazon WEB Services (AWS) and Microsoft Azure have taken over the IT functions of thousands of companies. Startups are now starting up without server rooms. Amazon Marketplace has taken over warehousing, distribution, and other aspects of America’s small businesses.  

Consolidation: What’s next? Remember our friend’s over at Foxconn? They negotiated a deal to build an “assembly factory” in Wisconsin. The key factors to follow in this deal are…

  • Scale: The factory, when fully built, will employ 13,000. Keeping in mind that Foxconn has stated that it will build a VERY automated factory, that makes it a VERY BIG factory. Inside of this huge factory, Foxconn will initially build flat screen TV’s, but by building on the expertise they developed in China, they can create virtual assembly lines for smaller customers with a variety of assembly needs.  
  • Automation: Whoever builds the robots usually gets the first opportunity to maintain them. Because China is building these machines, and will soon be seen as the nation that best understands robots, we can expect Chinese competition. Both the firms that build the robots and a new generation of Chinese outsourcers. Local outsourcers must step up their game if they want to compete in this area.  
  • Government Relations: Giant factories need government support. Mega-factories lead to mega-employment or at least new revenue. Foxconn shopped around its plans to several states and chose the one that offers the most. Modifications to the minimum wage, changes to environmental regulations, and many other “perks” that can be offered only by the government are being discussed. Future outsourcing will involve more mega-projects. Tomorrow’s outsourcers need to be skilled in government negotiations.
  • Financing: Wisconsin will provide $3,000,000,000 in government incentives. That’s a staggering amount of money. If all government incentive packages start to look like this, government funding could become the key element in every new project.
  • New Industry: Foxconn and Amazon are developing new types of outsourcing. In a world where our homes are filled with electronic gadgets, assembly and technical support will be HUGE and growing industries. Start-up firms increasingly want to focus on design and market, leaving it to other partners to manufacture their products.
  • Customization: This new model of automated, onshore, manufacturing allows more products to be released, more often. Soon, customization will become the norm. For example, smartphones offer different amounts of memory, color options, and processor types. But these customizations are built-in to the phone and must be installed when you buy the phone. That means a long wait for the next batch of phones if you choose popular options. When the factory is just a few miles away, and robots can be quickly reprogrammed, new assembly lines can be instantly converted to build your product. Then, your custom phone could be just a day away… especially if it is delivered by an Amazon drone!

Hospitals grew, developed new technologies, grew some more, developed a network of services and suppliers, and then outsourced many of their day to day functions. On-shore manufacturers are in a very similar position. The new wave of onshoring will trigger the movement of more work in product distribution, IT support, hardware management and other services to outsourcing providers. 

If the Foxconn deal proceeds, who will build the factory? Foxconn has powerful connections with China’s government, construction firms and banks. In other nations, Chinese companies that build new factories use Chinese construction firms (the largest in the world) and Chinese banks (which are in the top 10 largest) to finance projects. If Chinese firms are not brought into the Foxconn deal, Foxconn is likely to make major investments in local construction firms and contractors.   

The arrival of intelligent robots and advanced automation are changing the way that factories manufacture and corporations work. This in turn will lead to larger outsourcing projects, and the need for multifaceted outsourcers with a wide range of skills and deep pockets. There will still be room for specialized outsourcing and smaller implementations, but more and more money will be tied up in big projects that only a small number of outsourcers can deliver. If you want to be in this elite group, now is the time to start lining up your partners!

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