Micro Reset

The Micro Reset as Klaus calls it relates to industry and business and will require a long and complex series of changes and adaptation.(173).

Klaus make the observation that:

“… some industry leaders and senior executive may be tempted to equate reset with restart.” (173)

I don’t believe that is an unfair assessment, but I don’t think it should mean delete then restart.

Klaus believes returning to normal can’t happen because Covid changed the working landscape forever.

As I’ve stated previously, it was the response to Covid that changed the working landscape forever, not Covid itself, but

“the pandemic is a unique opportunity to rethink their organization and enact positive, sustainable, and lasting change.” (173)

It will create a new normal.

That new normal will cause all companies to ask the same questions.

• Encourage remote work?

• Reduce air travel and face-to-face meetings and replace with virtual meetings?

• How can the business transform its decision-making to become more agile, move faster, and move decisively?

• How can I accelerate digitization and adoption of digital solutions?

As Klaus states and is true, digital transformation will help and has helped businesses navigate Covid and for many it has given them an edge.

The curious thing about this chapter is Klaus’ sage like knowledge of things that have yet come to pass.

Klaus even speaks in the past tense in some instances, which seems to indicate at least to me this book was already written and never published, then used for Covid.

An example of such is:

“During the peak of the pandemic…” (177)

Remember this book was published in July 2020, that is six months into a two-year pandemic and Klaus already believes we are past the peak?

It could be a poor choice of words, but I think that is unlikely. I may be wrong in that assessment, but it is definitely something odd when it appeared that January 2021 was the peak

Klaus uses telemedicine and virtual meeting infrastructure as examples to tell us that digital transformations such as these are here to stay and given this “new normal” things like telemedicine can take it a step further and provide things like wearable diagnostics and smart toilets that can perform health analyses.

Same goes for education.(178) 

A shift to online learning is clearly something that has caught on.

I think everyone has to agree that medicine and education are two things that are stuck in the 1800s, with very little in the way of innovation from certain perspectives.

You’re sick, you go to the doctor, or he comes to you. Going to school means going to a place where you learn.

A teacher stands in front of a class and teaches you things.

All the digital transformation is doing is using technology to do the same thing. I don’t know if I find that innovative. Perhaps over the coming years studies can be done to see if the online version of learning and medicine provide the same level of quality as its analogue brother.

Klaus seems amazed at the speed of the digital expansion. He cites some statistics which are impressive.

• Britain 2019, 1 percent used telehealth, under lockdown 100 percent

• Curb-side delivery business launched in one week when it expected to do it in 18 months.

• Online banking rose 90 percent from 10 percent.

To me, all I see are people trying to live their lives and are doing what they need to do with what they have.

This doesn’t strike me as impressive, in, fact, all it shows is that when people can’t interact physically, digital interaction takes its place.

What would be interesting to see is if people who adopted this digital transformation will continue to use it to the same extent when physical options are back on the table.

Klaus seems to be genuinely amazed how e-commerce has accelerated.

He almost seems to dismiss, or at least not address, why it accelerated.

The reason is that society had to change due to how governments addressed the issue of COVID, ie, lockdowns.

If lockdowns didn’t exist and if governments only isolated the sick online would still be accelerating just not at the extreme speed, we saw over the last two years.

One thing I will say is that Covid shone a light on, in glaring detail, was the supply chain.

Klaus even admits as much when he stated:

“the very nature of global supply chains and their innate fragility means that arguments about shortening them have been brewing for years.” (180)

It has always amazed me that businesses make conscious decisions to outsource vast swathes of their manufacturing processes all in the name of efficiency and chasing EBAITA.

Klaus even acknowledges this when he very succinctly states,

“it is epitomized in the formula that ‘just-in-case-‘ will eventually replace ‘just-in-time’” (181).

In other words, things will go from complicated and distant, to local and simple because, as Covid has shown, it is possible to disrupt the supply chains and have global consequences.

Locally sourced products, services, and resources limit the ability of a supply chain to disrupt a business’s offerings to the public.

We’ve focused too much on a supply chain that is:

“… extremely lean and efficient but also exceedingly complex and, as such, very vulnerable.” (181)

Now it’s time to look inward.

A problem with this, as Klaus points out, is:

“Every business whose profitability is contingent upon the principle of a just-in-time global supply chain will have to rethink how it operates and probably sacrifice the idea of maximizing efficiency and profits for the sake of ‘supply security’ and resilience.” (182)*

As many will no doubt have to grapple with is the question of black swan events; change the supply chain to insulate one against something like covid again, or roll the dice and leave things as they are?

Both decisions have consequences, it just depends on your level of risk.

Governments are not immune to this either but Klaus thinks they will require some kind of limitation for the businesses who get their stimulus packages.

I don’t recall any such limitations on any monies provided to employers, but to Klaus he believes things like bonuses,share buy-back, and employee termination will be things governments will require businesses NOT to do if they want government funds. (183)

He provides examples, such as Lufthansa.

To Klaus, there needs to be

“better alignment between public policy and corporate planning.” (184)

He uses the example of ventilators in the US and the debacle that was created which caused the US to not have 40,000 ventilators that were ordered back in 2012. (184)

Yes, things like this is a problem. 

Klaus opines that

“The bottom line: the maximization of profit and the short-termism that often goes with it is rarely, or, at least, not always consistent with the public goal of preparing for a future crisis.” (184)

Or, someone should have been tasked with ensuring that these ventilators were manufactured and delivered to the government was done.

In other words, if someone in the government was doing their job, this situation should never have happened.

It then appears that problems like the one mentioned are a result not of poor alignment of policy and corporate planning, but of people’s lack of diligence in doing their job, or in the vernacular;

Their give a shit meter is low 

Because if it wasn’t, this would never have been an issue.

Klaus then talks about the gig workers. He seems to be fascinated by them since he’s brought them up before.

Basically tells us that corporations will have to employ them and since the pandemic will:

“radically alter social and political attitudes towards gig workers…” (185). He even thinks companies that employ gig workers and who are forced to employ them with benefits etc, may cease to exist because their profitability is now gone. (185)

Curious that Klaus isn’t interested in middle-class jobs, like construction, or professional type jobs.

Maybe he believes nothing of substance will change regarding them, or maybe gig economy jobs will filter up to professional jobs who knows.

No need to employ and engineer, we can just hire him for a project.

Maybe that is not correct, but it’s curious that he mentions gig jobs almost in passing that it’s something governments seem to be worried about.

Why would any government be worried about something like this when all of those jobs are “low income” unless they become the norm and not the exception.

What is more worrying is Stakeholder Capitalism and ESG, which just happens to be the next section.

Klaus tells us:

“they have made stakeholder capitalism and environmental, social, and governance (ESG) considerations increasingly relevant to sustainable value creation (ESG can be considered as the yardstick for stakeholder capitalism).” (185)

The odd thing about ESG is that it’s relatively new and as it has shown to date, it provides less of a return than traditional metrics.

The key here is sustainable.

As I’ve said previously, sustainable doesn’t mean maximum, so in essence it can’t be “better” than the traditional ways, when you have to worry about things like

• The environment
• Social Issues
• Governance.

From a purely logical standpoint, if you are constrained in the way you can make money, or anything for that matter, it will always be less than those who aren’t constrained by anything.

Klaus tells us that climate change, gender diversity inequalities, and #MeToo scandals

“had already begun to raise awareness and heighten the criticality of stakeholder capitalism and ESG considerations in today’s interdependent world.” (186)

Again, curiously Klaus says:

“… nobody would now deny that companies’ fundamental purpose can no longer simply be the unbridle[d] pursuit of financial profit; it is now incumbent upon them to serve all their stakeholders, not only those who hold shares.” (186)

The problem as I see it with this very simply is this is an ideal. 

Thomas Sowell stated,

“Socialism is a wonderful idea. It is only as a reality that it has been disastrous.”

When I read about Stakeholder Capitalism this is the impression I get.

I am sure everyone would rush to invest in a company that created a product that:

• Everyone wanted
• Saved the whales
• Was moral and righteous in its dealings with all humans and the environment,
• Provided maximum profit to investors.

That sounds like a win win win win situation for everyone involved.

Does anyone honestly think this is real?

By ESG’s very nature, profit would be constrained if all factors were optimized.

Not to mention, if the world really wanted something like this, governments around the world would demand and put into law that all corporations would have to provide either X percentage of monies to these endeavours or provide manpower at their expense, or some other scheme to ensure ESG and such were adopted.

Creating a widget everyone wanted would be great, but:

• What’s it made from?
• Where are the materials sourced?
• Living wage anyone?
• Work environment?
• Health care?
• Environmental impact?
• Mental health?
• All laws are followed
• Internal policies and procedures are tightly regulated.
• Self imposed policing of said polices.

Ensuring “everyone” is happy means no one will be happy.

This creates an undue amount of time, effort, and money in things that should have no bearing on the product, other than price and quality.

You can’t make a product with “great quality” at a “great price” when there are factors that take away from those aspects.

You can still make a great product but it could have been better and the price could have been lower, and this brings up another problem, price.

It is very unlikely anyone wants to pay more for a like product.

Certain things are commoditized, like t-shirts.

Are you honestly going to say you’d pay a premium for a t-shirt because:

• The cotton for the shirt, was grown hydroponically, so not to disrupt the soil.
• The workers were massaged twice a day.
• Paid lunches and a place to nap to ensure their mental health was optimized.
• No quotas on the amount of cotton because we don’t want to create a slave to metrics mentality in the company.
• Only green energy powers everything and carbon credits for those things we can’t control.
• Not to mention we’ll plant a tree, and build a playground to ensure our stakeholders are all happy with our company.

Or are you going to buy a shirt from a company that cares about making shirts?

To be blunt, do you really care about any of that if in the end it’s all about the price?

I’m not saying this is not a noble goal, I’m also not saying you shouldn’t invest in companies that make things like ESG and Stakeholder Capitalism a priority, what I am saying is:

If you’re interested in maximizing profits, companies that adhere to things like ESG will perform worse than companies that don’t, I can’t see how they can’t.

Or as the Forbes article “If ESG Enhances Profits, Then Why All The Fuss?” states:

“Pension funds that simply focus on maximizing returns will invest in companies with superior fundamentals, regardless of the reason. Therefore, ESG invest criteria are only necessary if investment resources are allocated based on non-financial reasons.” Sure they are talking about pension funds, but I think the rationale holds, ESG is a non-financial metric."

Strangely, on page 188 Klaus states:

“… irrespective of anybody’s opinion about the merits of stakeholder capitalism and ESG strategies and their future role in the post-pandemic era, activism will make a difference by reinforcing the trend.” (188)

What? So am I to understand that regardless of ESG’s merits or not, it is going to be forced on us?

So, what Klaus is really saying is that it’s political.

 Well, at least he’s being honest.

Just as an aside, it’s things like this that make me feel this book wasn’t written for the masses, but for a select group of insiders. I find it a very curious thing to say.

Anyway, he cites Leo Strine, who states:

“We are again paying the price for a corporate governance system that lacks focus on financial soundness, sustainable wealth creation and the fair treatment of workers. For too long, the stock market’s power over our economy has grown at the expense of other stakeholders, particularly workers. Although overall wealth has grown, it has done so in a skewed way that is unfair to the bulk of the American workers who are primarily responsible for that increase. The shift towards satisfying insatiable stock market demands has also led to increasing levels of corporate debt and economic risk.” (188-189).

I think that is an accurate observation, but I would also say this has its roots in the fact that manufacturing has been outsourced for decades and “real” manufacturing jobs aren’t creating the wealth, so it needs to be made by the paper pushers.

That view may be simplistic, but I don’t think it’s far off the mark considering the stock market is now becoming the economy.

Klaus provides some examples of activism that is, according to him, going to change the world in some fashion.

He offers up Google, and its employees who successfully convinced them to not build AI and machine learning algorithms for the oil and gas industry. (189)

Yet, here is a research paper which specifically states:

“… companies must grow in-house teams composed of data and AI specialists.”

So who do we believe?

Klaus and the media or the guy who wrote the paper that I cited? His name is Dmitry Koroteev, from all appearances, he seems to know and understand what he’s talking about.

At the very least, there is another point of view to acknowledge instead of taking everything the news tells us as gospel.

Page 190, Klaus tells that low-wage workers protested as well by staging walkouts etc.(190)

He cites the article “How the Pandemic is Driving Labour Activism Among Essential Workers” by Rebecca Barid-Remba.

To me the article could be called how to “How to Use Leverage To Get What You Want”.

To me there is nothing new.

The pandemic didn’t do anything other than people who, it appears, would have protested in some other form or fashion to use the pandemic to hopefully get what they wanted, and maybe a little more.

• Better working conditions
• More money
• Better benefits.

Sure, who wouldn’t want that, but most will quietly complain.

In the article, a non-profit called United for Respect organized a walkout at Walmart.

It wasn’t the employees. This is significant, at least to me.

We’ve all heard the horror stories about Walmart and Amazon’s practices, and I’m not justifying them.

I’m saying they can get away with it because everyone complies with their station in life.

People treat you the way to let them treat you. Never forget that

The reason multi-national corporations can get away with it is because there is always someone who is willing to put up with more shit than you to get a pay cheque.

It would be an entirely different scenario if all the employees quit and the community supported them by not going to the store or try to get that job that just came available.

Want to see a company fall on its knees?

That’s what needs to happen, but it won’t we all know that.

The end of the article says as much:

“… coronavirus will lead to ‘a significant wave of workplace activism with new, more concrete demands. The ultimate result of that, I don’t know. It could be 1935 where you have a new wave of legislation, or 1894 where you don’t.’”

It doesn’t seem to end on a positive note, does it?

According to Klaus, Covid did one thing, and that was an “Industry Reset”.

Covid changed the way companies operated, and it appears they will continue to change the way they operate in the coming months and years.

I think that is true and I also think it is true when he observes that most consumption is driven by human interaction and those very jobs and industries will be the slowest to recover while others can pivot on the technology front, make a virtual presence and carry on as usual. (192).

Klaus goes on to provide examples such as restaurants that were hardest hit during the pandemic and the very real question of survivability was on the lips of the very people whose lives depend on those establishments continuing.

I think a lot of restaurants, if they are to survive going forward, will have to ensure an online presence, not to mention multiple dine-out options, be it delivery or to-go, maybe even a food truck or some other delivery method.

The point is some traditional businesses will have to pivot and make the best of the situation they will find themselves in.

One thing is clear, and Klaus even acknowledges this

“small business is the main engine of employment growth and account in most advanced economies for half of all private-sector jobs.” (193)

Curious why governments had them shutdown then?

Doesn’t it make you wonder what the thought process was that brought them to the conclusion to literally shutdown the economy over something that isn’t even dangerous to the majority of the population?

I don’t think it was lost on anyone that small businesses were told to shut down, yet Amazon, Walmart and their ilk of the world could stay open, selling non-essential goods at the same time, I might add.

The ultimate eventuality to all of this is a reduced workforce through layoffs, or bankruptcy.

“British Airways, for one, has announced that it will cut up to 30% of its current workforce of 42,000 employees. At the time of this writing(mid-June 2020) the restart may be just about to begin.” (194)

A curious thing to state given we are three months into a lockdown, with no end it sight.

Klaus goes on to tell us that our bits and pieces of the economy are inter-related and some industries can’t recover until other industries do so first. He provides some examples, but I think you get the idea.

Another thing that Klaus tells us is there will be behavioural changes in the way we consume products. I think it’s true that things differ from before the pandemic and people will adapt in order to make the current circumstance more palatable.

The big takeaway from this section is things have changed and while the pandemic basically stopped the economy, the ramifications of that stoppage will now be felt in all industries.

Those industries that pivoted to online and work from home will now have the problem of getting people back into the office when it has been shown that a business can operate successfully while its staff can operate from home.

Same goes for things like university, but with the added dilemma of tuition.

Should it cost the same for online/virtual or in class?

Most would think not, but universities I am sure don’t, but one thing is clear, it will become partially virtual. (204)

Klaus succinctly states on page 210 the entire point of this section:

“The micro reset will force every company in every industry to experiment new ways of doing business, working and operating. Those tempted to revert to the old ways of doing things will fail. Those that adapt with agility and imagination will eventually turn the COVID-19 crisis to their advantage.”