Seeing Around Corners
Page 7
Using just these two uncertainties, we considered the following scenarios:
Centralized grid dominates
Decentralized networks that also use solar and wind
Highly increased demand
Steady as she goes: investment in large-scale generating and distribution equipment merited
The smart-grid future: technology and channels highly likely to dominate
Demand slow, flat, or declining
Victory to the efficient: investment in smaller-scale, more efficient systems merited
Tidal wave of disruption: need to completely rethink industry economics
Now, for each scenario, we came up with a few time zero considerations. A time zero event should be a crisp articulation of a specific outcome in the future that could represent the inflection point at the moment it occurs. In the example we ran for the energy company, the time zero events looked something like this:
Centralized grid dominates
Decentralized networks that also use solar and wind
Highly increased demand
Time zero: 80% of capacity provided by high-end, expensive machinery
Time zero: two-thirds of all energy investment made in solar and wind technology
Demand slow, flat, or declining
Time zero: more than 50% of power provided by smaller-scale or remanufactured equipment
Time zero: 50% of all grids become markets where energy comes and goes based on supply and demand
You can do this for as many uncertainties as you think merit serious consideration, but try not to come up with too many. Three to five are probably enough to digest.
Time Zero Events
It’s important to have a variety of scenarios to think about, which will broaden the range of potential futures you anticipate. The next step is to begin putting some early warnings around those potential futures. Generally, we ask the question, What would have to be true at six months, twelve months, or eighteen months before the scenario could occur? Then we create indicators of this outcome becoming more or less likely.
Based on the previous example, let’s take as a case the time zero event that two-thirds of all energy investment will be made in solar and wind technology.
Time Zero Case: Two-Thirds of Energy Investment Is Made in Solar and Wind
Six months before:
Battery prices make renewable-based grid solutions as cost-effective as conventional energy supply.
The order pipeline for new equipment is consistent with this event.
Twelve months before:
Capital budget allocations shift resource requests from conventional to renewable technology.
New energy storage capabilities make it possible to cost-effectively store energy generated by renewable sources at scale, eliminating the need for conventional peaker plants (which are run only when there is high demand).
Renewables are at parity with other sources of energy—so-called grid parity.
Legal schemes laying out who benefits and who pays with respect to DERs begin to be put in place.
Eighteen months before:
Significant government transitions are made from conventional to renewable supply in emerging markets.
Changes in incentives favor renewables, such as investment tax credits and production tax credits.
Lots of newcomers, whether startups or established firms, enter this space.
Significant retirements of nonrenewable capacity, such as coal, occur.
Now:
Predictions of increased investment in solar and wind, leading to two-thirds of all energy investment in renewable sources within a few years.
Predictions of rapidly increasing demand.
Predictions of rapidly increasing efficiency, so demand can be met without increased investment.
An enormous amount of legal scuffling around who pays and who benefits from DERs.
Having created a set of indicators, two key actions follow. The first is to make it someone’s job to stay on top of that emerging time zero event and to let everybody with the potential to come upon relevant information know who that person is. The reason for this is that I often find in firms that are surprised by an inflection that the knowledge about what was going on was actually plentiful in the organization—somewhere—but no one had a complete enough picture to make sense of it.
Having one person who is explicitly keeping an eye on a particular future event increases the likelihood that whatever knowledge is in the organization has somewhere to go and will be seen holistically. And remember to incorporate feedback from people who may not be sitting in the executive suite. Go back to the periphery for information and insights about these events.
The second key action is to devote a set amount of time in the management meeting agenda to freshen your team’s knowledge of those early warnings. The indicators should be tracked and updated regularly. At the regular review sessions, you can also adjust the scenarios and time zero events as new information becomes available. An additional benefit of doing this is that it creates a learning record, which can help people recall why specific decisions were made at given times. This can be helpful in testing assumptions about things that may have changed.
It is crucial in these meetings that data that challenge embedded orthodoxies be presented along with information that supports the common view. Otherwise, this effort is a waste of time, as people will continue to do business in the echo chamber of their existing assumptions.
School’s Out . . . or Is It?
Let’s take another example of a sector that promises to be disrupted in some way by the digital revolution.
Education was supposed to have been thoroughly disrupted by now. Why is it proving so resistant? Because it’s still very hard to prove to others what you know. For that, you can’t beat a credential from a respected institution.
But what if we could have credentials without a degree? Think of the music business. When music began to be sold (or stolen) by the song and not by the album, the resulting unbundling, together with the increasing popularity of streaming services and live performances, created a major inflection point for the established industry. Imagine if something similar happened in higher education, with credentials offered for the level of a skill rather than a degree?
Higher Education: Early Warnings of a Long-Overdue Inflection Point?
Predicting the disruption of education has a long history, with experts forecasting that motion pictures, then radio, television, and, of course, computers and the Internet, would overturn the existing model for education. Some went as far as to say that motion pictures would entirely take the place of education.
Many decision-makers saw the advent of the Internet as a credible threat to the model for higher education. In 2000, an online educational platform, the ill-fated Fathom, attempted to be a first mover on the World Wide Web. Now we have massive open online courses (MOOCs), with millions of learners flocking to platforms like Udacity, Coursera, and edX. Even more people regularly get their knowledge free from YouTube, with “classes” of 400,000 not being at all unusual.
Yet despite their popularity, MOOCs and their ilk have not yet prompted an inflection point that could disrupt higher education. They struggle with how to make the experience personally relevant, how to make money, and, most significantly to me, what kind of credential a student should receive.
Degree Inflation
The university degree may well be the last barrier standing between traditional education models and a major disruption. One reason is sheer laziness. Degrees are a handy shortcut. Want to reduce the number of résumés sitting in your in-box? Easy—make some kind of credential, like a bachelor’s degree, a requirement. Boom! In one fell swoop that list of candidates will get a lot shorter. In fact, according to the Bureau of Labor Statistics, 21 percent of entry-level jobs today require a four-year degree.
While it does make life easier for the personnel department, the degree requirement has a
large number of unanticipated negative consequences and unintended side effects. It knocks out as many as 83 percent of potential Latino candidates and as many as 80 percent of potential African American candidates. That is a lot of talent to overlook.
Harvard’s Joseph Fuller and Manjari Raman have put numbers to what they call “degree inflation.” In an exhaustive analysis of 26 million job postings, they found that
the degree gap (the discrepancy between the demand for a college degree in job postings and the employees who are currently in that job who have a college degree) is significant. For example, in 2015, 67% of production supervisor job postings asked for a college degree, while only 16% of employed production supervisors had one. Our analysis indicates that more than 6 million jobs are currently at risk of degree inflation.
In addition, making a four-year degree the barrier to obtaining a good job creates a vicious cycle. Students find themselves taking on seriously debilitating education loans. That, in turn, makes them more expensive for employers to hire.
For the price employers are willing to pay, the economics of education debt repayment means that there are fewer candidates willing to take what Fuller and Raman call “middle skill” jobs—supervisors, support specialists, sales representatives, inspectors and testers, clerks, and secretaries and administrative assistants. This makes it hard to hire for these roles, leaving companies without the workers they need to grow and people without access to the opportunities that might get them a start on a middle-class life. As Fuller and Raman point out, employers are effectively locking the two-thirds of Americans who do not have a four-year degree out of workplace opportunities.
It isn’t for want of trying that people lack college degrees. Forty-four percent of new high school graduates enroll directly in a four-year college, according to the New York Times, but less than half of them will earn a degree within four years. And college is not getting any cheaper. One study found that tuitions rose 498 percent from 1985 to 2011, nearly four times the overall consumer price index. In 2017, Americans owed $1.3 trillion in student debt, more than two and a half times what was owed a decade earlier.
College or a Dead End?
The difficulty of matching qualified candidates without a degree to jobs they could do that don’t require a degree is leading people in the United States to look for alternatives such as apprenticeships. In Switzerland, for instance, 70 percent of students who have completed the ninth grade elect to go on a vocational track. As the New York Times reported in 2017, “Beginning in 10th grade, students rotate among employers, industry organizations and school for three to four years of training and mentoring. Learning is hands-on, and they are paid. Switzerland’s unemployment rate for the young is the lowest in Europe and about a quarter that of the United States’.” In contrast, in the United States “most students are offered a choice between college or a dead end.”
In the Swiss system, an apprenticeship is considered as valuable as a college education for the establishment of a good life, and college is meant for those who have careers (such as law, medicine, or accounting) that genuinely require advanced classroom instruction.
A great many participants in the American system are not being well served. Many students are taking on debt they will struggle to pay off. Employers can’t find the kinds of employees they need. Opportunities are closed to millions of people who could quite adequately perform a particular work role. And all because we continue to use a degree as a proxy for other things we really care about—soft skills, the ability to write cogently, the ability to interact with technology, and so on.
So Why Am I Reviewing Current Issues in Education?
Whenever a system has a sufficient number of badly served constituents, an inflection point has fertile ground to take root. I believe that alternative forms of credentialing, in which some kind of respected accreditation body certifies skills based on the level of the skill, rather than the degree, are beginning to gain real traction.
There is definitely demand. The presence of so many online resources and other tools that individuals can use to learn is creating a hunger for alternative certification systems. Considerable experimentation has been conducted with students using online badges and verified certificates to complement their traditional transcripts. While these things have been around for a while, the notion that they might substitute for a conventional degree has been met with ongoing skepticism.
This is changing. Evidence from a LinkedIn insiders’ survey of knowledgeable learning and development specialists shows a softening of the traditional model. Sixty percent of those surveyed believed that employers are well on their way to skills-based-hiring—in other words, “choosing candidates based on what they can do, rather than degree or pedigree.” Fifty-seven percent of respondents said they believe employers will start to place more value on nontraditional credentials, with one respondent going so far as to say that traditional credentials are “boring.”
We are starting to see business models that support alternative credentialing emerge. Pearson, a leading supplier to higher education, has an entire business line devoted to helping institutions create alternatives to traditional degrees. This is gaining traction as educational institutions pick up on the need and incorporate alternatives into their curricula. Pearson’s Acclaim platform partners with companies to provide respected credentials of achievement for their workers.
Startups such as Degreed are also building a business out of certifying people for skills they possess. With competencies ranging from change management to public speaking to HTML coding, the Degreed process provides a certificate verifying that a candidate has gone through a rigorous evaluation process by experts in that particular field of study. It also certifies the level of a candidate’s mastery of the skills evaluated in that process.
Another innovation that could prove disruptive to the traditional education model was introduced by Purdue University in 2016. It’s called the income share agreement (ISA), by which schools offer free or heavily subsidized tuition in exchange for a share of students’ future earnings. While such programs are not without controversy, the fact that they are attracting increasing attention is another signal that the existing model is working poorly for a good many stakeholders.
What About the Universities?
The current state of higher education institutions today reminds me of the integrated steel mills that suffered a major disruption at the hands of mini-mills, particularly when I think of large research universities. Clayton Christensen has, of course, been talking about this issue for some time and published his ideas in the book Disrupting Class.
As in the integrated steel mills, the economics of higher education exist because there are few alternatives. Students in the United States feel they have no choice but to attend college in order to access opportunities, just as steel customers had few alternatives to buying from integrated mills. Students must take a full slate of courses, some of which are required, regardless of whether they are interested in the topics or not.
Professors are not rewarded for being inspired curators of the social learning process, but rather for their research prowess. Teaching in many of our institutions is seen by many professors as somewhat of a nuisance. For instance, with respect to research in business schools, Michael Harmon of Georgetown University wrote a delightfully titled article, “Business Research and Chinese Patriotic Poetry: How Competition for Status Distorts the Priority Between Research and Teaching in U.S. Business Schools.” In this piece, he fiercely criticizes the business of producing scholarly research in business schools, which has “obliterated any evident connection between research productivity and the furtherance of any praiseworthy social, practical, or intellectual values.” More recently, my colleague Steve Denning took business schools to task for offering obsolete lessons to their students.
Normally, when a system doesn’t create results for its constituents, it goes out of business. The university system, however, is buffered by
its dominant control over that all-important credential, the degree.
Just as mini-mills started at the “low end” of the steel market, basically making the worst-quality steel for the most unattractive and price-sensitive customers, alternative credentials are starting at the “low end” of the education market, with boot camps, online programs, and short training events. Just as with mini-mills, however, we can predict that their quality, reach, and access will improve and that the effect on established institutions will be greater over time.
As this change starts to have an impact on more universities, several outcomes are likely. The first is the shrinking of the research-based model for faculty deployment and incentives and the shift to what we might think of as the celebrity model. Schools are already relying more heavily on adjunct faculty in their classrooms at an increasing rate. As a result, popular instructors are more likely to be in demand than those who focus on scholarship.