fbpx
The 4th Industrial Revolution and what does the future look like for SMEs?

The 4th Industrial Revolution and what does the future look like for SMEs?

The Conglomerate

The 1960s saw a plethora of conglomerates being used to raise finance with low interest due to their risk diversification and other factors. It was also glamorous to be seen owning diverse industries, like Woolies or Woolworths Group in UK. Free cash flows providing risk capital for investment and cross-selling between customer databases were some of the advantages. However, this was short lived as the conglomerate could not keep up with inflation, interest rate and manageability. It was difficult to sustain or justify the share price in the market. Conglomerates began consolidating, de-merging and returning to their core competencies.

The problems with conglomerates were many – cash management, costs, cross-subsidies, increased layers of often diverse management, decreased transparency in accounting and cash position, bureaucracy, inertia and difficulty in calculating true value of the stock. Spin-offs of subsidiaries of conglomerates to counter disruption or effective evaluate them were options, but too expensive to even consider. The conglomerate was no longer serving its purpose and are fast becoming disrupted with technology which contributed with increased confusion over digital, big data and data analytics due to their diverse nature. Take for instance conglomerates like Kodak who were too arrogant to recognize simple disruption by refusing to acknowledge digital photography.

The Digital Revolution

According to the World Economic Forum – “The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third (3IR) used electronics and information technology (technology) to automate production. Now a Fourth Industrial Revolution (4IR) is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres”.

Technology brought about a new age of small businesses with big changes. Changes disrupting conglomeration. 3IR brought in a new age of entrepreneurship. Individuals began their own businesses. These companies brought in techies, nerds and geeks together to begin small but disruptive companies. The internet boom and bubble were born. With computers and the internet, the 3rd industrial revolution (3IR), everything began to change. Disruption. Information along with services and products were delivered at the doorstep. But traditional SMEs were scrambling to stay relevant. They still are.

4th Industrial Revolution

Riding on 3IR, the 4IR is further bringing in individuals who are fast embracing individual businesses or companies led by a key handful of people. Concepts like AI, AR, VR, IoT, robotics, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing merge the virtual with reality. Changes which used to take years are now converted into months and weeks.

Industries today are fast becoming disrupted with these technologies which are capable of rendering many, conglomerates and individuals alike, jobless. Typical cases in big companies were Novar plc and those mentioned above. However, even though businesses based on 4IR were disruptive on human capital, their valuations were based on projections and investments and not on the value of the company itself. Cost of the company was the exit potential it provided; mainly in trade sales or the holy grail of startups – the IPO. Technology might very well be a victim of its own success.

The Disruption

Many traditional industries which are primarily process driven, face problems of survivability and sustainability. Many are content to compete for the ever-shrinking market. While few key players continue to survive, ones without USPs or MSPs, are in clear and present danger of folding up. 3IR and 4IR provided power to the hands of small businesses and individuals. It became the great equalizer. What a small startup or SME can achieve in a few dollars would take a larger corporation weeks or months and a high budget. The digital revolution disrupts businesses and populations. Tech companies too have their own problems. Management and perception issues like those faced by Uber in the US and Housing.com in India. Wisdom and maturity are key issues ignored by these fast companies.

Advanced countries that have trained its citizens on process based thinking are in immense danger of having their jobs displaced by technology. While large companies build their own technology in-house, the problem is the objective and objectivity. Such companies have a specific direction and the in-house department solves that. Many a times the universality of application of that technology is lost. Not so with the smaller guys. Their problem-solving ability is more objective. More global. They begin ideating with the objective of scaling up, internationalizing and disrupting. But great care must be exercised with in-house tech or a tech acquisition. There are many failures such as Mattel Inc’s 1999 $3.6 billion acquisition of The Learning Company; who can forget Napster, a company in its death helped monetize customers for companies like Apple and Amazon; and my own personal favourite, Palm.

The CoAggregation

There is a solution. What is the future for SMEs if it cannot be a conglomerate or ride on 3IR and 4IR? A CoAggregate. Where smaller companies or SMEs in the same or similar sector create a larger company and co-own it. So as the age of conglomerates descend, the startup/entrepreneur/SME must also evolve. Both these forms of business need to adapt rapidly with changing their business models, collaborate, innovate and future-proof disruption. They need to survive and sustain. A process where the SMEs get together and co-own a larger enterprise while pursuing their own company interests. Creation of a matrix of complementary in-line companies – that are intertwined and where they are of the highest relevance to each other – ensures survivability and sustainability. Just as senior more experienced workers can impart invaluable experience and wisdom to millennials and millennials provide drive and innovation to the experienced, so also do traditional SMEs provide the valuable input to new and modern technologies and the latter provides not just customized, but a much broader perspective to industry applicability. Technology SMEs need the wisdom and maturity of the traditional SMEs. They must expand their business universe – together.

They must “CoAggregate”.

Yang Yen Thaw Managing Director, 2iB Partners

For partnerships, speaker and general business enquiries with 2iB Partners:

Contact Person Dylan Tan
Designation COO
Email Dylan@2ibpartners.com

YOU MAY LIKE

M&A – The Legal Angle

M&A – The Legal Angle

M&A - The Legal Angle The solution and problem in a merger or acquisition is regulatory in nature. In all cross-border deals, there is no go-around to regulations. Laws are enacted to essential protect life and property of its citizens. Therefore, it...

read more
Why M&As Go Wrong

Why M&As Go Wrong

Acquisitions that are rushed can result in problems and challenges after closing in a transaction: Some of the reasons why M&As go wrong are:   1. Assumption Asymmetry Leaders and owners may over value a target by making assumptions including...

read more
Investing in the right instruments – Human Capital

Investing in the right instruments – Human Capital

Human Capital

Human capital may be defined as a measure of the economic value of an employee (from a contractor to the CEO). Measured by his skills, contribution, value and cost to his company. But if it is only measured by economic value, then the potential of that employee at different stages of his life or career is destroyed.

Before we proceed, let us make a simple differentiation between human resource and human capital. Human resources deal with the present. Managing what is there and applying it in the right silos. It is tactical. Human capital deals with all three tenses. It is strategic and should take into consideration issues beyond logic as well.

Data and statistics as we know only measures what was and projects on what it will be based on what was. So, if the employee makes a mid-career change that is far more profitable (even in terms of economic value), it cannot and will not be taken into consideration. One of the main reasons that I am no longer interested in chess is that while it used to be a game of strategy, today it is merely arithmetic and only measures your memory. Just like IQ tests only measure your ability to take an IQ test and not really your intelligence. I apply this analogy to measuring an employee merely by his current skill sets. Try getting a computer to put a value to a signature of Van Gogh at his time or a painter who just might be the next Pablo. Ergo, data will always be insufficient.

Some Observations Questions Hypothesis & Analysis

 

Digital Displacement

Investments should be made in people first, ideas next and issues last. I have been subject to a few interviews in my life by recruiters for jobs. But they were enough to make a lasting impact. My first observation was that interviewees to them are merely a database. The focus is always on the employers. Perhaps it is merely the law of supply and demand. After all, it is the employers that pay the recruiters. It is human tendency to think within the box, act on instructions and use forms and precedents to arrive at a hiring conclusion. In the fast approaching age of digital transformation, such boxers like the recruiters are ironically going to be displaced by technology first. This can be extended to similar professions like property agents, financial advisors, etc.

 

The Senior Professionals, Managers, Executives, Technicians (PMET) Conundrum

Another problem with human capital is the PMET Conundrum. Do we lay off PMETs or upskill and utilize them? Singapore has made valiant efforts to remain relevant by upgrading the silver workforce with SkillsFuture. While I fully endorse the effort, I am not sure about its intended outcome. Sometimes I see it as teaching an old dog new tricks. It is difficult. However, with due credit to Singapore, they at least offer you the opportunity and availability. Such efforts to upgrade one’s self must come from within the individual. Indeed, learning only stops when you are dead. So, can such persons and individuals be recapitalized or should they be invested in?

I believe redefinition and reallocation of their roles and change in perception is necessary. After all, persons like recruiters and PMETs also have the added advantage of being data points for future applications. If you haven’t discovered the worth in your employee, then the fault is yours solely.

Human capitalization and re-capitalization can be aggregated and deployed. The experiment comes later.

Concluding Points

Human capital, in my definition, is the analysis and application of resources from schooling to silver learning and investment therein. So, while this may not be achievable by and within a company or organization, it must come from various combined sources.

Every employee is equal to the mass of their experience and knowledge; and their contribution to company and society. The employee’s relative skill, worth, experience and knowledge changes over time and this need to be capitalized. The human capital is invested to provide profits or just more capital.

Persons such as recruiters, financial advisers, compliance experts, etc., should transform themselves into corporate psychologists to realign and relocate human capital. With all their recruiting experience and interviews, they should be in the best position to understand and differentiate the strengths and weakness, truth and cover ups, wheat and chaff of candidates.

PMETs should be recognized for their gold mine of practical skills, information and experience. They are a crucible of knowledge. A plethora of mentors. Their relative contributions over time should be thoroughly exploited. Fitting an engineer into the finance sector brought tremendous change in the way stock markets functioned. This is way I desire human capital seeing tapped and recapitalized.

Displaced, retrenched or redundant employees need not form part of a “Cost-Savings + Efficiency” exercise. Human capital should be redeployed into different sectors and the categories above serve that purpose efficiently.

Application of all of the above by a collection of companies – in the context of Singapore and other first world countries, export (on a reimport basis) and international interaction of this human capital to other countries, developed, developing and under-developed – will make a change to world economy as we know it.

So, invest in your people – your human capital and your great minds. Ideas will follow. The capitalized employee will fetch ideas which are after all an aggregation of data, thoughts – logical and illogical (takes 100 bullshit ideas to fertilize one good one) and a eureka moment. A good and smart investment, in terms of money or effort, in human capital will provide exponential returns to a group of companies. At least valuation of human capital is better realized than tech valuations. It is long term and not an exit strategy like some recently listed tech companies. Unless, I should wait for an application where I could upload all the collective experiences and knowledge of human capital onto a cloud platform and run algorithms.

 

Yang Yen Thaw- Managing Director, 2iB Partners

For partnerships, speaker and general business enquiries with 2iB Partners:

Contact Person Dylan Tan
Designation COO
Email Dylan@2ibpartners.com

YOU MAY LIKE

M&A – The Legal Angle

M&A – The Legal Angle

M&A - The Legal Angle The solution and problem in a merger or acquisition is regulatory in nature. In all cross-border deals, there is no go-around to regulations. Laws are enacted to essential protect life and property of its citizens. Therefore, it...

read more
Why M&As Go Wrong

Why M&As Go Wrong

Acquisitions that are rushed can result in problems and challenges after closing in a transaction: Some of the reasons why M&As go wrong are:   1. Assumption Asymmetry Leaders and owners may over value a target by making assumptions including...

read more

Pin It on Pinterest