The Robots are Coming

The Robots are Coming

The cry that “The Robots are Coming” is not new. Robots and AI have been replacing humans for some time; however, COVID has accelerated that trend. As businesses seek to get up and running again, they realize that it will be more difficult with humans and social distancing. Adopting robots and AI allows businesses to keep operating and reduce health risks to human workers. Thus companies are turning to industry giants like Fanuc Corp., Keyence Corp., and Harmonic Drive Systems Inc.

In addition to the industry giants, many companies are providing AI and robotics for specific industries. Brain Corp reports its customers are employing robots about 13% more than they were in the months before the pandemic. The autonomous cleaners can do basic cleaning tasks “so that workers can use their time to do essential sanitation. Robots are something a lot of our customers are looking at now, and it’s making a big difference.” says Phil Duffy, Bain’s Vice President of Innovation. Tally, an autonomous shelf-scanning robot produced by Simbe Robotics can audit inventory at grocery stores through computer vision and machine learning. Food markets are finding this essential as they struggle to keep products on the shelf during the disruption of the pandemic. Fetch Robotics, through its cloud platform, allows for the rapid deployment of robots in warehouses and similar facilities. Due to social distancing, robots are making up the difference, says Melonee Wise, Fetch’s CEO.

Autonomous mobile robots (AMRs) have more agile navigational abilities. They so are able to move about a warehouse by navigating with built-in sensors and laser scanners, retrieving goods, and bringing them to people. AMRs can avoid obstacles in their path, including people, but they can also work in collaboration with people. So AMRs can adjust to new layouts and patterns. With e-commerce and the variability of SKUs and orders that characterize it, these robots provide organizations the ability to flex and scale as needed without changing their infrastructure.

Intelligent robot arms ability to assess a wide range of objects and grasp each with the correct force and grip is improving dramatically. Thus, such robots arms can quickly sort items into appropriate bins or packages for shipping. With the expected, soaring demand for smaller, more local warehouses located closer to points of delivery, the need for quick and flexible operations will drive demand for these robots.

Nearly 28% of respondents to IDC’s 2020 Supply Chain Survey ranked “improving supply chain resiliency/responsiveness” as a top concern driving strategic change in their supply chains. An acceleration of automation and robots in warehouses is coming, as supply chains seek to ensure less fragility. More companies will operate “dark warehouses,” which operate 100% autonomously. However, more change will come as organizations seek to replace non-value-added movement with automation and robotics to make them more efficient.

IDC presented its 2020 predictions in January, pre the COVID crisis. Simon Ellis, program vice president, Global Supply Chain Strategies at IDC, said, “Digital transformation is now the overriding priority for most manufacturers and retailers, with the adoption of digital technologies aimed to improve efficiency and effectiveness in the shorter term while providing the opportunity to either disrupt their market segment or be resilient to others that may try.” The key predictions were:

  • By the end of 2020, half of all large manufacturers will have automated supplier and spend data analysis.

  • By year-end, half of all manufacturing supply chains will have invested in supply chain resiliency and artificial intelligence.

  • By 2022, 35 percent of firms’ logistics business outsourcing budget will be dedicated to process automation, focusing on order, inventory, and shipment tracking.

  • By 2023, 65 percent of warehousing activities will use robots and situational data analytics to enable storage optimization, increasing capacity by over 20% and cutting work order processing time in half.

  • To reduce stress on the service supply chain, by 2023, 25 percent of OEMs will leverage blockchain to source spare parts.

  • 2023, 60 percent of G2000 manufacturers will invest in AI-driven robotic process automation to automate tasks.

Worldwide, robot adoption has remained low as many companies have had little desire to deal with integrating them into operations, or in triggering a politically sensitive social backlash. However, approximately 60% of global production work can easily be automated. Robotic adoption across industries is different as tasks requiring significant dexterity remain difficult for machines. However, COVID is lowering the barriers to adoption, which are predominately attitude. South Korea and Germany are positive examples of countries that have achieved high factory-automation levels while keeping unemployment low.

A survey by Pricewaterhouse Coopers LLC found that while the majority of industrial production companies’ CFOs are expecting to cancel or defer investments, only 15% are planning to cut investment for automation, artificial intelligence, and industrial internet-of-things.

Given the high level of unemployment, a concern is many of the jobs lost to automation will not be regained. According to the International Labour Organization, COVID could reduce working hours by 6.7% across globally, the equivalent of 195 million full-time workers. This automation creates a new issue, what to do with displaced labor.  Low-income jobs are particularly vulnerable to automation. Thus, “automation and digital technologies are exacerbating social cleavages and could be a source of unrest for years to come,” said Carl Benedikt Frey of Oxford’s Future of Work. Social unrest will put pressure on companies to re-skill and accommodate their workers.

The pace of change is increasing daily, and addressing the resulting social problems will be hard. Watch this space.

 

Copyright (c) 2020, Marc A. Borrelli

Recent Posts

EOS is just that, an Operating System

EOS is just that, an Operating System

The EOS Model® provides a useful foundation for businesses, but it falls short in addressing key aspects of creating an growth. By incorporating additional elements from the Gravitas 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes growth while maintaining smooth operations. Focusing on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent, the 7 Attributes of Agile Growth® offer a more encompassing approach to achieving success.

What has COVID done to Company Culture?

What has COVID done to Company Culture?

COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

Profit ≠ Cash Flow

Profit ≠ Cash Flow

Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.

What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Explore the importance of company culture and the potential pitfalls of adopting a “Family” culture in organizations. Learn how to foster a high-performance culture while maintaining key family values and discover success factors for family businesses. Rethink the “Family” culture concept and create a thriving environment for your organization.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Spectacular Rise and Fall of the European Super League

The Spectacular Rise and Fall of the European Super League

The European Super League (ESL) collapsed within 48 hours of its announcement due to hubris, a lack of value creation, and fan backlash. The founders’ arrogance led them to disregard European football’s deep-rooted traditions and culture. At the same time, the focus on wealthy club owners instead of merit undermined the essence of the competition. The fierce backlash from fans, who felt betrayed by their clubs, demonstrated the importance of prioritizing supporters’ interests in football.

Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...

COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.

What Kind of Office Will We Return To?

What Kind of Office Will We Return To?

As the Federal Government has gone effectively AWOL, it is up to the States to determine when to open the economy and start letting people go back to work due to the coronavirus. Unfortunately, most States are going their ways, as described by FastCompany and Wired. Former FDA Commissioner Scott Gottlieb told CNBC that employers need to have specific plans in place for how to return workers to the office or shop floor safely. Gottlieb suggested, “In an office, you could split your employees — have half of them work at home, half of them come into the office on alternating days. . . . You should continue to encourage telework where you can.”

Even as things open up, many are following Gottlieb’s advice and teleworking. Amol Sarva, CEO Knotel, says that Uber is planning to get its staff back to their offices in San Francisco, but only 20 percent of personnel allowed in the building on a given day. Google and other large tech companies have announced that their workers should prepare to work remotely through the Fall and possibly the end of the year. But the office won’t disappear, it is here to stay as many challenges come with working from home, and people are social creatures.

 

Working from Home

However, regardless of the States opening up, many employees will not return to the office, or at least not full time. According to an MIT report of Americans who previously commuted to work, 34 percent were working from home by the first week of April. Before lockdown, only 4 percent were working from home. Kate Lister, president of Global Workplace Analytics, predicts that 30 percent of people will work from home multiple days per week within a couple of years.

According to Travis Vance, at Fisher Phillips, “I think some people may never want to go back to an office setting.” Steve King, a partner at Emergent Research, told Recode, “[Remote work] had been proven before this, but a lot of company management and leaders showed great skepticism . . . That skepticism will go away because companies recognize that remote work does work.”

With employees working from home, it was quickly apparent was that the better-prepared companies were those whose employees had already worked from home. Data shows that the most frequent employee expenses in the first half of March were computer monitors, desks, office supplies, mice, and keyboards — a departure from the norm.  According to a recent PWC study, about half of businesses expect productivity to fall during the pandemic due to a lack of remote work capabilities. Also, more formalization and company policies around remote work are necessary for the shift to be successful.

Many employees are finding that their home environments are not well suited to work, and so are spending money to create better home offices. Katie Storey, principal at Storey Design, says “there’s now a real focus on where can we convert a closet or add a room under the steps or where can we reconfigure parts of the house to be more functional work-from-home space.”

 

Initially On Return

Companies are going to have to implement systems that make workers feel safe before they will return. Many companies will adopt quick changes that have limited costs, like:

  • Providing face masks and deeper office cleaning;

  • Adding foot-pulls to the bottom of doors for hands-free access;

  • Developing hand signs or space markers for co-workers to remind others to keep their distance;

  • Seating may be roped off or removed from conference rooms to cut occupancy in half.

  • Doors may be taken off hinges or propped open so employees can avoid touching handles;

  • Signs are likely to point people in one-way traffic flows through hallways to help employees avoid passing each other close by — even if that means taking the long way to the bathroom;

  • Well-spaced desks with large dividers between them. “In the immediate future, “we’ll see physical, hard things that create separation,” according to Cavataio, President and COO of the Cuningham Group;

  • In common areas like meeting rooms and kitchens, expect to see fewer chairs and posted documentation of cleaning reports;

 IBM is eliminating buffets and shared serving tools in its cafeterias and taking out furniture in other spaces to ease social distancing concerns in conference rooms. Lunchtimes could be staggered as employers try to thin crowds in campus cafeterias. “It’s like in school, where you have lunch starting at 10:45 and going until 2 p.m. You’ll see a lot more of that,” says Vance.

 

The Future of the Office

The modern office was initially designed by Frank Lloyd Wright, which emphasized natural light and space between desks. However, we have lost that vision as today’s open offices are used to cram more employees into smaller spaces. For years, the amount of privacy allotted to each person working in an office has steadily decreased as companies of all type adopted the often loathed open office plan. After the 2008 recession as office jobs increased, companies have been packing more and more people into open space offices, a practice known as “densification.” The effect has been a more distracted workforce, and surveys have shown that face-to-face communication declined by 70 percent, while electronic communication increased.

Well, that model is gone!

So what is the future? We’ve already seen a little of the future, as many organizations implemented greetings policy changes before sending employees home. Handshakes are out, and new greetings have emerged. Earlier this year, billboards in Beijing promoted clasping one’s own hands. The UAE and Qatar asked citizens to avoid nose-to-nose greetings, and the French government frowned on greetings with a kiss. It is likely handshakes, and French embrace will not return.

Here are the things we can expect.

 

Design

Offices still need personal space, natural lighting, and quiet enough to concentrate on being fully productive. As Cavataio notes, “Over time, we will start to design differently to create space versus how tight we can get it. Can we get our generous six feet of physical distance and still create a company environment people want to be in, knowing you have safety inherently based in the design?” Rather than desks facing each other or next to each other, workstations may be back to back with more distance between them. Conference rooms may have their seating cut in half. Also, an increase in private spaces and personal offices for individuals may return. Communal areas like kitchens and lobbies will have their seating areas reduced with more space.

Beyond desk arrangements, designers and public health researchers will have to address all spaces people move through offices, i.e., elevators, corridors, hallways, etc. Plans to address COVID, may become a regular feature in office design in the future, i.e.

  • restroom entrances without doors, like in airports;

  • corridors wider than the current five feet;

  • voice-activated elevators or touchless elevator controls;

  • Antimicrobial materials in new construction; and

  • Videoconferencing even within the office to avoid the conference rooms.

While meeting rooms will still be necessary, companies will reconsider what types of meeting rooms they want, and what kinds of meetings will require in-person attendance. Expect new meeting rooms geared towards group projects and collaboration.

In response to a flexible workforce, companies will require adaptive energy systems. Currently, office design accommodates a certain number of employees on any given day. If only half of the employees are now in the space, the energy usage is unlikely to change much, but the rooms may end up being colder than usual.

Expect increased automation and voice technology throughout the office. Voice technology, like Amazon Alexa for Business, could become a new interface and remove the need for physically pushing a button or touching a surface in an office. According to Bret Kinsella, founder & CEO Voicebot.ai, “There is voice tech in warehouses today but very little in office settings. That will absolutely change.”

An example of the future is already here in Bee’ ah new headquarters in Sharjah, UAE. Designed by Zaha Hadid Architects, the building has “contactless pathways,” enabling employees to touch the building with their hands rarely. Office doors open automatically using motion sensors and facial recognition, while lifts – and even a coffee – can be ordered from a smartphone.

Cushman Wakefield, over the past month, has helped 10,000 organizations in China move nearly 1 million people back to work after the country reopened its. Managing 800 million sq. ft. of office building space in China has enabled Cushman & Wakefield to get ahead of the learning curve. According to Despina Katsikakis, of Cushman’s occupier business performance, Cushman used its learnings, World Health Organization data, and medical specialists’ advice to develop a concept called the Six Feet Office. It has already applied inside its Amsterdam headquarters.

CUSHMAN & WAKEFIELD – THE 6 FEET OFFICE CONCEPT CONSISTS OF SIX ELEMENTS:

  • 6 Feet Quick Scan: A concise but thorough analysis of the current working environment in the field of virus safety and any other opportunities for improvement.

  • 6 Feet Rules: A set of simple and clear workable agreements and rules of conduct that put the safety of everyone first.

  • 6 Feet Routing: A visually displayed and unique routing for each office, making traffic flows completely safe.

  • 6 Feet Workstation: An adapted and fully equipped workplace at which the user can work safely.

  • 6 Feet Facility: A trained employee who advises on and operationally ensures an optimally functioning and safe facility environment.

  • 6 Feet Certificate: A certificate stating that measures have been taken to implement a virus-safe working environment.

Some companies are looking into mandating thermal scanners, according to Tom Puthiyamadam, leader of PwC’s U.S. Digital practice. “Not every enterprise is going to command and control mode, but I think right now some of these practices are warranted. I don’t think many employees are going to say no because a lot of [them] are actually scared to come back in,” said Puthiyamadam. Goldman Sachs is leading this as it considers installing infrared body temperature scanners to some offices, and ensuring that, once they are available, virus and antibody testing kits for employees are in offices.

 

Hoteling

Kay Sargent, of HOK, thinks more companies will turn to shared desks, known as “hotelling” or “hot desking.” “Perhaps you divide the workplace in half, and half the office can come in on Monday and Wednesday, half of the office can come in on Tuesday and Thursday,” said Gable Clarke, of the architecture firm SGA. Alternating days would come with alternating desks or non-designated desks. As shared workstations have long been a hotbed of disease transmission, designers expect the disappearance of shared keyboards and for companies to introduce clean desk policies. “Janitorial staff often cannot clean desks with personal items on them, as it’s a liability,” said Armen Vartanian of Okta. “It will likely be more sanitary to have open desks and workstations — equipped with the latest technology — that employees can pick each day and  cleaned afterward.” All nonessential items stored in cabinets and drawers rather than on the desk to ensure proper cleaning and sanitation.

 

Sanitation

First, get ready for the “health cop,” as companies will have to deputize someone to enforce the new social distancing rules. “Enforcement becomes important because it’s human nature to sort of want to congregate together,” said Clarke.

However, sanitation efforts could be tremendous. According to Cavataio, regular offices will look to health care design as every surface; door handles, light switches, countertops, copy machine buttons, AV equipment, coffee makers, and many more, have to be cleaned. Like healthcare, businesses may require:

  • copper fixtures;

  • fabrics that retain fewer germs and cleaned easily;

  • more space in kitchens and bathrooms;

  • as well as more attention paid to how far liquids can splash;

  • UV lighting to disinfect offices at night or meeting rooms in between uses;

  • increased cleaning rotations;

  • virus-killing ultraviolet light to sterilize surfaces;

  •  install air filters; and

  • touch-free technology, such as automatic doors and sinks.

Designers say they are receiving inquiries about disinfecting UV lights and easier to clean materials. Nicole Keeler, of Nelson Worldwide, said companies and building owners are enquiring about easy-to-clean materials. “There’s surfaces that are antimicrobial, just like you would see in a healthcare system or in a laboratory,” which may become a new norm for workstation surfaces, she said.

Many expect upgrades to office HVAC systems to stop the spread of infection, i.e., Purgenix. The International Facility Management Association (IFMA) is working with other specialized groups for cleaning and ventilation systems to create guidelines and protocols for building operators around the world. While proper ventilation is key to preventing the spread of COVID-19, a big trend could be merely opening a window. However, many offices are currently sealed, controlled units requiring a significant renovation. Where filtered air is the only option, high-end office climate control systems may be the best solution. Due to China’s poor air quality, such systems were already popular; however, these systems may have assisted the return of office workers so quickly.

 

Tracing Tools

While there appears to be general resistance to tracing tools issued by the government, companies are free to require them. Such tools would be either a new app or an updated business app that workers already have on their phones, which runs in the background. Using Bluetooth or WiFi signals, they would catalog other co-workers’ phones that come near. When an employee tests positive to COVID, managers would quickly identify and notify any colleagues the employee had been in contact with to help limit a broader outbreak. The advantages are that such tools avoid the lengthy interviewing process of employees, asking them to recall their interactions.

PricewaterhouseCoopers is launching a new contact tracing tool for businesses in early May, and more than 50 clients have shown interest. PWC’s tracing works only on corporate properties, doesn’t collect location data, and can only be accessed by authorized managers. Over the last four to five years, companies have increasingly used motion- or WiFi-detecting sensors installed on ceilings or desks to whether spaces are underutilized. Now they are going to be used for the opposite purpose, are spaces appropriately utilized. Is the right spacing? Are there pinch points where there’s overcrowding? Sensors will be able to tell when people vacate a seat and alert cleaners to clean it again before the next employee uses it.

 

Coworking Spaces

Many large companies were increasingly taking advantage of the flexible terms of coworking space rather than taking on long-term leases. Aside from the pre-COVID collapse of WeWork, the issue now is, “are companies going to want to put their entire team in one place, where they’re closely mingling with other businesses?” While some form of coworking spaces may remain, they will be very different – the bars, hang out areas will all be gone, and the models will revert to move of a “Regus” system.

 

The Commercial Real Estate Market

What will be the impact on the commercial office market? COVID is having a considerable effect, but the net outcome is hard to measure right now. Employees working from home have effectively expanded the supply of office space significantly. As a result, the amount of space needed by companies should fall. However, with the increase in space required for social distancing, more space will be required for each employee. “In short, it is too early to tell if companies will lease less space,” Julie Whelan, head of occupier research for America at CBRE, told Recode. “While they may need less space because some people may conduct some of their work remotely, they may also need more space to provide the social distancing that employees may feel they need to be comfortable.” These two trends may cancel each other out.”

 

Copyright (c) 2020, Marc A. Borrelli

Recent Posts

EOS is just that, an Operating System

EOS is just that, an Operating System

The EOS Model® provides a useful foundation for businesses, but it falls short in addressing key aspects of creating an growth. By incorporating additional elements from the Gravitas 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes growth while maintaining smooth operations. Focusing on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent, the 7 Attributes of Agile Growth® offer a more encompassing approach to achieving success.

What has COVID done to Company Culture?

What has COVID done to Company Culture?

COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

Profit ≠ Cash Flow

Profit ≠ Cash Flow

Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.

What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Explore the importance of company culture and the potential pitfalls of adopting a “Family” culture in organizations. Learn how to foster a high-performance culture while maintaining key family values and discover success factors for family businesses. Rethink the “Family” culture concept and create a thriving environment for your organization.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Spectacular Rise and Fall of the European Super League

The Spectacular Rise and Fall of the European Super League

The European Super League (ESL) collapsed within 48 hours of its announcement due to hubris, a lack of value creation, and fan backlash. The founders’ arrogance led them to disregard European football’s deep-rooted traditions and culture. At the same time, the focus on wealthy club owners instead of merit undermined the essence of the competition. The fierce backlash from fans, who felt betrayed by their clubs, demonstrated the importance of prioritizing supporters’ interests in football.

Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...

COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.

Coronavirus, What Does It Mean for Your Business

Coronavirus, What Does It Mean for Your Business

As of today, the status is as follows:

  • About 79,930 confirmed coronavirus cases;

  • Two thousand four hundred sixty-five deaths are a result of the virus. Deaths worldwide exceed those from SARS.

  • South Korea cases have surged past 600.

  • Outside of Asia, Italy’s number of confirmed cases has risen from three to 132 over the weekend.

  • Iran’s health ministry has confirmed 43 cases of the virus, including eight deaths, which is concerning given the little connection between China and Iran. Lebanon and Israel have reported their first cases.

  • China reports that 1,716 medical workers have COVID-19 (1,502 of those cases in Hubei Province), and six of these workers have died;

  • 34 confirmed U.S. cases;

  • Of the 3,700 passengers aboard the Diamond Princess, about 355 individuals have tested positive for the coronavirus so far. One passenger has died. Americans passengers were evacuated last week.

 

What Does This Mean for You?

Contrary to the theory put forward by President Trump, warm weather may not slow down the spread of the coronavirus, according to the CDC, and according to the financial markets and many pundits, not much. However, I believe that many are looking at the SARS as a guide and I don’t think that is a good one for several reasons:

  • The incubation period of the coronavirus is 10 – 14 days vs. 2 – 7 for SARs, which allows more contagious people to infect others without knowing it.

  • In six weeks, coronavirus has infected eight and a half times the number of people and killed two times the number of people that SARS did in eight months.

  •  At the time of SARS, China was much poorer, so its citizens didn’t travel as much, allowing the spread of fewer infections.

  • In 2002 China accounted for 4.3% of World GDP; in 2017, it accounted for 15.2%.

  • The Chinese provinces most affected by the coronavirus are home to 49,884 branches or subsidiaries of foreign corporations, including nearly 9,500 American operations, according to Dun & Bradstreet.

 

The Economic Effect

Chinese Manufacturing
Following the Lunar New Year, Chinese factories should have reopened on February 10; however, the crises lead to several day extension. However, with many workers unable or unwilling to return to employers located in a sprawling quarantine region, the resumption of routine operations in many workplaces has been delayed. According to Caterpillar, most of its Chinese suppliers have returned to work. Still, Foxconn, a major supplier to Apple, said it would be the end of the month before even half of its facilities are operating.

Chinese Research
The coronavirus has interrupted research and development efforts and thus may also delay the introduction of next-generation models for many companies. Among those possibly affected is Apple, which relies on China for almost half of its 775 global supply facilities. Also, AT&S of Austria, which produces printed circuit boards for Apple and Intel as well as European automakers, cut its revenue forecast for the current fiscal year by nearly 7 percent as a result of disrupted production at its Shanghai and Chongqing facilities.

Chinese Banking
According to banking sources, over 300 Chinese companies are seeking bank loans totaling at least 57.4 billion yuan ($8.2 billion) to reduce the impact of the coronavirus outbreak. Among the key companies listed are:

  • Xiaomi, the world’s fourth-biggest smartphone maker, is seeking 5 billion yuan ($716 million);

  • Meituan Dianping is seeking 4 billion yuan; and

  • Megvii, the facial recognition start-up, has applied for 100 million yuan.

Large companies will get loans and possibly survive, but many mid-sized and small Chinese companies will not leading them to bankruptcy. While it is likely that Beijing will increase lending and fast pace these loans, many non-performing loans will be included in this list, leading to further troubles later. All of which will further disrupt international supply chains. U.S. and European manufacturers may benefit in the long term as manufacturing returns, but consumers will suffer from higher costs.

International Travel
The first tangible effects seen in the United States is a decline in the number of Chinese tourists. Visitors from China are a lucrative market for U.S. airlines, hotels, luxury retailers, and entertainment venues, with average spending of about $6,500 per person. By February 7, the number of passengers flying between North America and China was 75 percent below last year’s level and was shrinking by the day. Sino American Tours, a Manhattan travel agency that caters to Chinese Americans, bookings have by 20% to 30%.

United Airlines and American Airlines have said they would not resume regular service to mainland China until April 24, almost a month later than planned. Carnival Cruise Line has announced the virus would have a material impact on its financial results, and I would expect other cruise lines to follow suit. Airlines have pulled 200,000+ flights. The disruptions will likely cause the first dip in global air travel demand since 2009.

There were sufficient concerns to cancel the Mobile World Congress, which is held annually in Barcelona. While things may recover, the MWC has an economic impact of 492 million euros and also generates 14,100 part-time jobs, which for 2020 will never return. With the increase in Italian cases, the Venice carnival was called off. Italy shut down public events in 10 cities as a result of its spike in infections. According to its Finance Minister, France is experiencing a 30%–40% drop in tourists since the outbreak. Almost 8% of its GDP comes from tourism, and around 2.7 million Chinese tourists visit annually.

International Shipping
The ocean freight market disruptions may cause lasting effects on global trade. Shipping rates on some routes out of China are down by one-quarter, despite new international regulations that took effect January 1, requiring the use of cleaner but more costly fuel. Major retailers and manufacturers will soon be negotiating long-term shipping contracts amid an unpredictable market, and they might benefit in the short run from lower prices. However, if these artificially depressed rates are committed to for an entire year, one or more shipping lines could tumble into bankruptcy and further unsettle global trade.

International Manufacturing

The effects are spreading to manufacturing with the auto industry hardest hit so far. Nissan has temporarily closed one of its factories in Japan after running short of Chinese components, one week after Hyundai in South Korea did the same. Fiat Chrysler warned that it might shutter one of its European plants. Some U.S. manufacturers could face parts shortages in one to two weeks.

Amazon is reportedly already stockpiling orders of Chinese-made products. Health care officials warn that protective medical equipment is already becoming scarce, as demand in China outweighs the amount the country can supply.

In 2018, China exported $539.5 billion in goods and services to the U.S. in 2018, which is over 21% of all imports into the country. The most significant exports to the U.S. were electrical machinery ($152 billion), machinery ($117 billion), furniture and bedding ($35 billion), toys and sports equipment ($27 billion), and plastics ($19 billion). Agricultural products came in at $4.9 billion.

However, the above figures can hide some of the issues. China supposedly supplies 60% of the apple juice consumed in the U.S. China is also is a leading supplier of critical ingredients in drugs many Americans rely on, including medicines for blood pressure, depression Alzheimer’s, and Parkinson’s. According to the Department of Commerce, 97% of all antibiotics in the U.S. originate in China. China is a major supplier of ingredients for medicines. According to Axios, if the outbreak worsens and production levels don’t return to normal, approximately 150 prescription drugs could face shortages.

Under Armour warned investors of a $50 million to $60 million potential Q1 financial shortfall because of the outbreak, saying it expected “industry-wide” delays in deliveries. Many companies are issuing profit warnings related to coronavirus, including:

  • Adidas

  • Air France-KLM

  • Alibaba

  • American Airlines

  • Apple

  • Aptiv

  • Carnival Cruise Line

  • Cochlear

  • Golden Ocean

  • HSBC

  • Jaguar and Landrover

  • Maersk

  • Macy’s

  • Mastercard

  • Nike

  • Pernod Ricard

  • Princess Cruises

  • Proctor and Gamble

  • Puma

If there is one company that should benefit, it is Zoom Video Communications as more people avoid crowds.

Fracking
Gasoline and diesel prices at the pump have fallen about 6% since the beginning of the year, primarily due to coronavirus. At $2.42 regular and $2.91 diesel, these prices are not the lowest prices ever, but they are a respectable drop from the $2.58 and $3.08 of the first week in January. The continuing fall in prices from the 2010s is due in large part to expanding oil supplies, mainly through fracking.

“In the last ten years, world oil consumption has gone up by about 13 million barrels a day. Close to 75% of that oil came from U.S. shale,” said Adam Rozencwajg, of G&R Associates. However, with economic activity and consumption of oil in China down significantly and a moderate winter, the IEA expects demand to fall by 30%. Thus, the falling prices are expected to continue, which poses a problem for the fracking industry where new fracking is barely profitable, if at all.

For fracking,  a price drop between $65 and $50 a barrel is the difference between being profitable and being unprofitable. Shell, Exxon, and others are taking massive write-offs as they recognize that the value of their reserves wasn’t what people thought they were. Smaller companies, many of which had borrowed too much and are over-leveraged, are getting hit even harder. Access to capital has shut off, and banks aren’t lending, and there are no [monetary] infusions to be had.

While the coronavirus may be short term, fracking conditions were already deteriorating. The fracking oil rig count was down 25% year over year even before the outbreak, and that shale growth between 2018 and 2019 had slowed by 55%. This year might see growth near zero.

“We believe that the great shale oil revolution in America is in the process of coming to a close,” said Goehring of G&R Associates.

 

Conclusion

Every business owner needs to think through how this is going to affect their business and what steps they need to take to protect themselves. The key is thinking it through many layers and not just direct implications.

“I worry that it’s going to be a bigger deal than most economists are treating it as right now,” said Mohamed El-Erian, chief economic adviser at Allianz, the German financial services company. “It will take time to restart all these economic engines.”

I disagree with Larry Kudlow and the Administration as I think the effects of coronavirus will be more significant than expected. As the above lays out, the results of the virus are interlinked; the ripple effects are bound to be large, from disruptions to supply chains to layoffs in many sectors from falling demand.

For all companies, it is the time to ensure you have a Line of Credit so that you can survive if things get tight.

 

Copyright (c) 2020, Marc Borrelli

Recent Posts

EOS is just that, an Operating System

EOS is just that, an Operating System

The EOS Model® provides a useful foundation for businesses, but it falls short in addressing key aspects of creating an growth. By incorporating additional elements from the Gravitas 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes growth while maintaining smooth operations. Focusing on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent, the 7 Attributes of Agile Growth® offer a more encompassing approach to achieving success.

What has COVID done to Company Culture?

What has COVID done to Company Culture?

COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

Profit ≠ Cash Flow

Profit ≠ Cash Flow

Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.

What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Explore the importance of company culture and the potential pitfalls of adopting a “Family” culture in organizations. Learn how to foster a high-performance culture while maintaining key family values and discover success factors for family businesses. Rethink the “Family” culture concept and create a thriving environment for your organization.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Spectacular Rise and Fall of the European Super League

The Spectacular Rise and Fall of the European Super League

The European Super League (ESL) collapsed within 48 hours of its announcement due to hubris, a lack of value creation, and fan backlash. The founders’ arrogance led them to disregard European football’s deep-rooted traditions and culture. At the same time, the focus on wealthy club owners instead of merit undermined the essence of the competition. The fierce backlash from fans, who felt betrayed by their clubs, demonstrated the importance of prioritizing supporters’ interests in football.

Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...

COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.

Wicked! The Queen Lost at Martian Tennis Again, You Shouldn’t

Wicked! The Queen Lost at Martian Tennis Again, You Shouldn’t

Many, if not most, people draw from experience to solve problems, and they do it very effectively. They look at a situation, draw on their expertise, and execute. If you were to ask them, they might even say that they do it without thinking, they are on autopilot. While this works very well in many areas, we find that it doesn’t work in all. They are specialists and excellent at what they do. So why does it go Wrong?

 

The Queen

My wife and I binge watch the Crown on Netflix, as she loves it, and I, as a Brit, enjoy it as it brings back many memories of the times I lived in England and ex-colonies. However, watching the episode on the Aberfan mining disaster in Season 3, I suddenly reflected on several situations that have all caused significant issues for the Queen.

 

Aberfan Mining Disaster

Aberfan is a Welsh mining town, and on October 21, 1966, after heavy rains, a landslide of liquified coal waste descended a mountain slope above the town. The mudslide decimated several farm cottages and the Pantglas Junior School resulting in the death of 133 people, mainly children. The Queen delayed her appearance there, despite advice to the contrary. Royal biographer Sally Bechdel Smith claimed this was because the Queen feared her presence would be a distraction to the rescue efforts. Members of the Queen’s inner circle at the time have said the Queen does regret not visiting sooner. “I think she felt in hindsight that she might have gone there a little earlier,” said Sir William Heseltine, who worked in the royal press office at the time. “It was a sort of lesson for us that you need to show sympathy and to be there on the spot, which I think people craved from her.”

  

Death of Princess Diana

Following her divorce from Prince Charles, Princess Diana had started dating Dodi Al-Fayed, son of Harrod’s owner Mohammed Al-Fayed in the summer of 1997. Paparazzi were following the celebrity couple in Paris in the early hours of Sunday, August 31, 1997, when their car crashed and they were both killed. Prince Charles, Prince Philip, and the Queen were first to receive the news, and their reaction was one of “dazed bewilderment,” according to royal expert and author Ingrid Seward. The royal family, holidaying at Balmoral, had no idea of the crisis that was about to overwhelm them when they received the news. The British public’s reaction to Princess Diana’s death was unlike anything the Royal Family or the country had ever seen. Mourners left thousands of floral tributes and messages at the gates of Buckingham Palace. Diana’s fans held candlelit vigils and wanted the flag above Buckingham Palace to be raised to half-mast to honor the princess. While against royal protocol, the Royal Family eventually caved to mounting public pressure and pandered to the demand. Furthermore, in an unprecedented Royal move, Princess Diana was even given a state funeral, which thousands of mourners turned out to watch.

  

Prince Andrew’s recent interview on BBC

Prince Andrew appeared on the BBC recently to clear his relationship with Jeffrey Epstein and disabuse the notion that he had had sex with a minor provided by Epstein. Many thought that the interview was a bad idea; however, he proceeded, and it was an unmitigated disaster. As a result, Prince Andrew is stepping down from all Royal engagements and has lost most of the corporate support for his various charities.

Looking at these three cases, the commonality in all of them are:

 

  • A Bad Situation 
  • A Royal Response that is Inappropriate for the Time
  • A Public Reaction which damages the Royal image/brand

With hindsight, it may be easy to say that the Queen and her advisors should have known better, but is that the case? The issue, I would argue, is that the Queen and her advisors are all specialists at the Crown.

We have all heard of the 10,000-Hour Rule made famous by Malcolm Gladwell in Outliers! The claim is that greatness requires enormous time, 10,000 hours of practice. The Queen was brought up to be Queen; she knew all that she needed to know about being Queen. Her advisors, over the years, were well-educated people with great diplomatic backgrounds.

At the time of the Aberfan disaster, her private secretary was Baron Michael Adeane, who had attended Eton and Cambridge. Baron Adeane had been an aide-de-camp to the Governor-General of Canada for two years. He served in World War II and afterward was Assistant Private Secretary to King George VI and Queen Elizabeth for seven years before becoming Queen Elizabeth’s Private Secretary. Baron Adeane was a member of the Privy Council, a body of advisors to the sovereign who comprises mainly of senior politicians. Thus, he knew the role of the Monarch and what the country expected, but he failed.

When Princess Diana died, the Queen’s private secretary was Baron Robert Fellowes, who was also Diana’s brother in law. Baron Fellowes attended Eton and then joined the Scot Guards, after which he entered the banking industry where he was a managing director of Allen and Harvey and Ross for 11 years. He was then recruited to join as Assistant Private Secretary in 1977 and finally became Private Secretary to the Queen in 1990. Again someone who knew the role, the country, the people, and was prepared for his job.

There is no need to go through the latest situation as I am sure the advisors to Prince Andrew were as equally well trained and prepared.

These men had the 10,000 hours of training, they were well educated, they knew their jobs, but it all went wrong. Why?

 

Range

Research by Daniel Kahneman identified two kinds of environments:

  • Kind: where a learner improves simply by engaging in the activity and trying to do better, the rules are known, with repeatable patterns. Examples of Kind Environments are Chess and Golf.

  • Wicked: where experience doesn’t improve the results of the specialist because the rules of the game are often unclear or incomplete, there may be no repeating patterns, and often feedback is delayed. Examples of Wicked Environments are emergency rooms, insurgencies.

David Epstein’s recent book, Range, Why Generalists Triumph in a Specialized World, defines Wicked environments as “Martian Tennis.” You can see the players on the court with balls and rackets, but nobody has shared the rules. It’s Martian, so even how things operate in the environment is different. It is up to you derive the rules, and they are subject to change at any time without notice. “

Thus, in all these situations, the Queen and her advisors were playing Martian tennis. The rules had changed; the public expected new things from her, and what worked no longer did so. It was not that she and her advisors were wrong; it was that they were playing the wrong game.

Unfortunately, most of the world is more like Martian tennis than Chess, and that in most fields—especially those that are complex and unpredictable—generalists, not specialists, are primed to excel. According to Epstein to succeed in a Wicked Environment; we don’t need specialists, we need generalists, who juggle many interests rather than focusing on one and who are more creative, more agile, and able to make connections between all their area of interest.

Thus when looking for people to lead or advise at top levels, we need to look for people with Range and generalists that can succeed in these Wicked Environments. Ideally we want polymaths, but failing that I would suggest the following three things business leaders can do when looking to hire people with range:

  1. Variety. Look for variety in what the person’s interests and activities. Epstein notes that Noble Laureates are more likely to play musical instruments or act than non Noble Laureates.
  2. Experimentation. Look for people who have tried many things before specializing. Not necessarily people who have tried many things and given up, but who have completed them but then changed direction as they seek to maximizing what economists call “match quality,” or the degree of fit.
  3. Don’t seek precocity. You don’t want someone who has done this all their life from an early age. Those people suffer “fadeout” and have not range when shown something outside their expertise.

Along the same lines, James Carse, the NYU professor and religious scholar has identified two types of games:

  • Finite games have known players, fixed rules, a clear end. The purpose is to win. Like a football game.

  • Infinite games have known and unknown players who shift around. Rules change, and there’s no finish line. Also like a football game.

The problem, according Simon Sinek, is that too many companies think they’re in a finite game. You can’t “win” business, and approaching it like you can could open you up to failure. In Sinek’s new book, The Infinite Game, he offers a framework for individuals, groups, and organizations to shift their thinking and practices to play an infinite game. From a local police department to the Fortune 500, he shows who’s done this successfully…and who’s failed.

As I have reflected on Range and The Infinite Game, it reminds me of the The Wisdom of Crowds, where I think the Crowd recreates Epstein’s range. For wise crowds to outperform irrational ones, these critical criteria are needed:

Criteria Description
Diversity of Opinion Each person should have private information even if it’s just an eccentric interpretation of the known facts.
Independance People’s opinions aren’t determined by the opinions of those around them.
Decentralization People are able to specialize and draw on local knowledge.
Aggregation Some mechanism exists for turning private judgements into a collective decision.
Trust Each person trusts the collective group to be fair.

The three conditions for a group to be intelligent are diversity, independence, and decentralization, and the best decisions are a product of disagreement and contest. There is no need to chase the expert.

However, the authors note that Crowds produce terrible judgment when the members of the crowd were too conscious of the opinions of others and began to emulate each other and conform rather than think differently. If the decision-making environment is not set up to accept the crowd, the benefits of individual judgments and private information are lost, and that the Crowd can only do as well as its smartest member, rather than perform better. In looking at historical failures of Crowds, the first item he identified was Homogeneity – the lack of sufficient diversity within a Crowd to ensure enough variance in approach, thought process, and private information.

Looking at the Queen and her advisors, they had all come up through the same system, schools, and training. There was too much homogeneity.

So what does this mean for business? Since most of the world is not on the Kind end of the Spectrum, especially not in the fast-changing business world, CEOs have to either hire people with range or ensure that the C-Suite has enough diversity to operate as “great crowd.” They learn beyond practice and assimilate lessons that might even contradict their own direct experience.

May you win at Martian Tennis!

 

© 2019 Marc Borrelli All Rights Reserved

 

Recent Posts

EOS is just that, an Operating System

EOS is just that, an Operating System

The EOS Model® provides a useful foundation for businesses, but it falls short in addressing key aspects of creating an growth. By incorporating additional elements from the Gravitas 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes growth while maintaining smooth operations. Focusing on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent, the 7 Attributes of Agile Growth® offer a more encompassing approach to achieving success.

What has COVID done to Company Culture?

What has COVID done to Company Culture?

COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

Profit ≠ Cash Flow

Profit ≠ Cash Flow

Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.

What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Explore the importance of company culture and the potential pitfalls of adopting a “Family” culture in organizations. Learn how to foster a high-performance culture while maintaining key family values and discover success factors for family businesses. Rethink the “Family” culture concept and create a thriving environment for your organization.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Spectacular Rise and Fall of the European Super League

The Spectacular Rise and Fall of the European Super League

The European Super League (ESL) collapsed within 48 hours of its announcement due to hubris, a lack of value creation, and fan backlash. The founders’ arrogance led them to disregard European football’s deep-rooted traditions and culture. At the same time, the focus on wealthy club owners instead of merit undermined the essence of the competition. The fierce backlash from fans, who felt betrayed by their clubs, demonstrated the importance of prioritizing supporters’ interests in football.

Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...

COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.

TikTok, Why and Should You? Yes

TikTok, Why and Should You? Yes

Even if you are not on TikTok, you have probably seen the videos. In the world of social media, you’ve got to move with the times and if you’re not fast, you’re last. TikTok is the fastest growing social media platform with more members than Snapchat, and as a marketer, you shouldn’t ignore its rapid growth and rise in popularity. Currently, TikTok is taking share from all the other social media channels and growing like crazy. If your business is B2C you need to understand it. If you are B2B, you should so that you understand the under 30s coming your way!

What is TikTok?

  • TikTok is a mobile app that allows users to create a short, 15-second video of themselves, often featuring music in the background, which can be sped up, slowed down, or edited with a filter.

  • Users can film their reaction to a specific video, and with the app’s “react” feature, place it in a small window that is movable around the screen.

  • The “duet” feature allows users to film a video alongside another video. The “duet” feature was another trademark of musical.ly which TikTok acquired

  • Users to set their accounts as “private” and can choose whether any other user, or only their “friends,” may interact with them through the app via comments, messages, or “react” or “duet” videos.

  • Users also can set specific videos to either “public,” “friends only,” or “private” regardless if the account is private or not.

  • TikTok’s “for you” page is a feed of recommended videos to you based on your previous actions on the app, consisting of what kind of content you’ve liked.

  • TikTok has over 1 billion all-time downloads, and its popularity and influence have only continued to spread.

  • TikTok enables everyone to be a creator and encourages users to share their passion and creative expression through their videos.” Music is the gold in TikTok, and the platform works with musicians whose videos are going viral to help them improve the use of the platform.

While TikTok is a social network, it has nothing to do with one’s social network. It doesn’t ask you to tell it who you know. The app has a “Discover” page, with an index of trending hashtags, and a “For You” feed, which is driven by an AI system that analyzes and tracks user behavior to provide a continually refined, never-ending stream of TikToks optimized for your attention. Essentially, the platform is an enormous meme factory, and giving small pieces until you yell enough!

 

How did it get here?

ByteDance, a Chinese tech company, founded in 2012, owns TikTok. In 2016 ByteDance launched a short video app in China called Douyin, and Douyin took off. Within a year, Douyin had 100 million users and 1 billion video views a day. A year later, Douyin decided to expand outside of China to select international markets under a new name – TikTok. As TikTok shot up the charts in other Asian markets, in the US, a short video app was taking off, Musical.ly, which focused on 15-second lip-syncing music videos. When Vine closed in October 2016, many of its influencers moved to Musical.ly to continue their work. In November 2017, ByteDance acquired Muscial.ly for $1 billion. In August 2018, ByteDance announced it was shutting down Musical.ly and merging it with TikTok. In December 2018, TikTok peaked in the US with 6 million installs that month. ByteDance received a three-billion-dollar investment from SoftBank, and last fall, it was valued at more than $75 billion, the highest valuation for any startup in the world.

 

How does it make money?

TikTok generates a million dollars annually, according to Crunchbase. However, TikTok is aggressively investing in growth right now and is grabbing market shares away from other popular social media channels.
A few potential monetization strategies might be:

  • Advertising revenues generated via targeted ads (similar to YouTube)

  • Allowing content creators to monetize their content as a user-generated platform is critical to the platform long-term success

  • A subscription model for original, more extended form content from the platform that assembles the best short-form content

TikTok has grown so fast that Facebook has taken notice and is building an app, Lasso, to compete against TikTok. However, given TikTok’s position, that may not be easy. TikTok is following its users of a specific demographic around the web via paid ads, and it appears to be ubiquitous. It is blitzscaling to gains as much growth and share as fast as possible.

 

Some TikTok Stats

  1. TikTok was downloaded more than 660M times in 2018.
  2. TikTok is more popular on Android than iOS with 80% of users on Andriod
  3. More than 500 million people globally use TikTok monthly, and 26.5 million are in the US
  4. TikTok’s user base is primarily based in India at 43% of all users.
  5. 66% of users are younger than 30-years-old.
  6. Users typically spend around 52 minutes per day on the app.
  7. In-app purchases increased by 275% year-over-year.
  8. 29% of monthly users open TikTok every day.
  9. The #RaindropChallenge has over 685.7 million views on TikTok.
  10. Jimmy Fallon’s #TumbleweedChallenge created 8,000 videos with over 9 million views in seven days.
  11. There are more than 5 million #InMyFeelings challenge videos on TikTok compared to 1.7 million on Instagram.

 

The Content

TikTok is available in 150 markets. Typically built around music, language doesn’t pose a significant barrier for its videos. As few of the videos have anything to do with the news, they don’t quickly become dated. Kids do TikTok better than adults. According to Jack Wagner, a “popular Instagram memer, “I haven’t seen one piece of content on there made by an adult that’s normal and good.” However, adults are also using the platform, including:

  • Arnold Schwarzenegger, riding a minibike and chasing a miniature pony

  • Drag queens

  • Opera singers

  • the Washington Post

  • dogs on Instagram; and

  • The self-made celebrities of Generation Z.

 

 

Why it is appealing

The platform doesn’t pretend to require a good reason to visit; the only reason is it serves videos that retain your attention. Through its AI system, half an hour has passed before you realize it. What makes it unique is that unlike Instagram and Facebook, it doesn’t make us feel irritated, looking at friends having a better life. The whole family can watch together if the content is appropriate, making it more fun and engaging rather than falling into our closed silo with our device.

Further, TikTok focuses on whatever will retain our eyeballs, and it provides the incentives and the tools for users to copy that content with ease. The platform then adjusts its predilections based on the closed-loop of data that it has created. The scary thing is that the algorithm provides what we want, and we deliver what it wants. When do we know what the difference is between the algorithms and us?

In addition, TikTok has a couple of differentiators. First, as a Chinese company, it has huge market penetration in China, unlike many of the other large social media companies. But TikTok has local market adoption more than other social media companies, helping get more user attraction. Finally, TIkTok is focused on developing local creators in each market and limiting influencers.

 

US Government’s Concern

In January 2019, the Peterson Institute for International Economics, an American think tank, claimed that TikTok poses a national security threat to the West. It noted the app’s popularity with Western users, including armed forces personnel, and its ability to convey location, image, and biometric data to its Chinese parent company, which is legally unable to refuse to share data to the Chinese government. There is discussion in Congress about legislating or banning it, but for now, it is still up and running.

 

So Why Should You Care?

Brands are slowly appearing on the platform. From fashion brands like River Island and Guess to restaurants like Chipolte, to massive sports teams like NFL’s New York Giants, an array of favorites taking up space on the channel now. If your demographic includes Generation Z then you should definitely be considering TikTok as a brand channel. Also, remember that as teens are often ahead of the curve on most things, so even if Gen Z isn’t your thing, your actual target audience may be moving to this platform in the near future so it’s worth reserving your handle and get experimenting!

 

© 2019 Marc Borrelli All Rights Reserved

Recent Posts

EOS is just that, an Operating System

EOS is just that, an Operating System

The EOS Model® provides a useful foundation for businesses, but it falls short in addressing key aspects of creating an growth. By incorporating additional elements from the Gravitas 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes growth while maintaining smooth operations. Focusing on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent, the 7 Attributes of Agile Growth® offer a more encompassing approach to achieving success.

What has COVID done to Company Culture?

What has COVID done to Company Culture?

COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

Profit ≠ Cash Flow

Profit ≠ Cash Flow

Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.

What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Explore the importance of company culture and the potential pitfalls of adopting a “Family” culture in organizations. Learn how to foster a high-performance culture while maintaining key family values and discover success factors for family businesses. Rethink the “Family” culture concept and create a thriving environment for your organization.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Spectacular Rise and Fall of the European Super League

The Spectacular Rise and Fall of the European Super League

The European Super League (ESL) collapsed within 48 hours of its announcement due to hubris, a lack of value creation, and fan backlash. The founders’ arrogance led them to disregard European football’s deep-rooted traditions and culture. At the same time, the focus on wealthy club owners instead of merit undermined the essence of the competition. The fierce backlash from fans, who felt betrayed by their clubs, demonstrated the importance of prioritizing supporters’ interests in football.

Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...

COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.

Can’t Solve a Problem, Maybe Its The Wrong Problem

Can’t Solve a Problem, Maybe Its The Wrong Problem

Often we have a problem we are trying to solve. In our life, at work, in design, product, or solution. However, if you are struggling, you are probably trying to answer the wrong question. Dr. Paul MacCready, one of the best mechanical engineers of the 20th century, said it, “The problem is we don’t understand the problem.” Inversion is an excellent tool because it exposes errors and problems that are not immediately obvious. What if the opposite is true? What if I focus on the reverse of this situation? Instead of seeking how to do something, ask what the opposite is and who do I ensure that I don’t do that. The stoics visualized the worst of all situations, i.e., death so that they would appreciate life. Groundbreaking artists invert the status quo to succeed. Effective leaders ask, “What stops us succeeding” as much as they chase the skills that accelerate it.

More often, we should try Inversion. Inversion is a crucial skill that nearly all great thinkers use to their advantage. Carl Jacobi, the German mathematician, who was known for his ability to solve hard problems by following a strategy of man “Man muss immer umkehren” or, “invert, always invert.” Jacobi believed that to clarify, your thinking was to restate the problem in inverse form. He found that if he wrote down the opposite of the problem, he was trying to solve the solution came to him more easily.

Charlie Munger took Jacobi’s lesson and introduced it to value investors. When deciding on the purchase of a stock is to estimate intrinsic value in the long run, we typically ask the following questions:

  1. How much will I make?
  2. How long will it take, or what are the growth drivers are there?
  3. What is the stock worth, or what is a fair discount rate?
  4. What is the future growth rate?

All these questions are forward-looking, and if the prospects are there, we are about to dive in. However, Jacobi and Munger would invert the problem. What is the inverted question? Well, if the problem is, “How much money I can make?” the inversion is “How do not lose money?” Or, as Warren Buffett says, “Rule No 1: Never Lose Money. Rule No. 2: Never Forget Rule 1.” Thus if we look to questions about how to prevent losing money instead of making money, our four items above become:

  1. How can I make money?
  2. How much is the stock worth?
  3. What can go wrong?
  4. What is the market-implied discount rate?
  5. What is the market-implied growth rate?

By focusing on the inverted questions, we get a better idea if this is a good stock. Listening to a recent interview with Steven Schwarzman, CEO of The Blackstone Group, he has applied Munger’s approach to investing. The concept of inversion is applicable across many areas.

In 1959 Henry Kremer, a British industry magnate, left a haunting question: “Can an airplane fly powered only by the pilot’s body power?” Kremer believed it was possible, so he offered the Kremer prize – £50,000 ($1.3 million today) to the first person to build a human-powered plane that could fly a figure eight around two markers one half-mile apart. Furthermore, he offered an additional £100,000 ($2.5 million today) for the first person to fly a human-powered plane across the English Channel. Kremer effectively offered the first X-Prize.

Over twenty years, dozens of teams tried and failed to build an airplane that could meet the requirements. It looked impossible. However, MacCready decided to try and win the prize. As he looked at the problem, why the existing solutions failed, and how teams iterated their planes, he came to the startling realization that people were solving the wrong question. “The problem is,” he said, “that we don’t understand the problem.”
MacCready’s insight was that everyone would spend over a year building an airplane on conjecture and theory without the grounding of empirical tests. With much fanfare, they would wheel it out for a test flight, and minutes later, a year’s worth of work would smash into the ground. Even successful flights ended in a couple of meters, with the pilot physically exhausted. With a new single data point, the team would work for another year to rebuild, retest, relearn. Resulting progress was slow, but everyone accepted that it was just how it was.

The problem was the problem. If he inverted the problem, Paul realized that the problem was not succeeding at human-powered flight, as that was a red-herring. The issue was minimizing the time not flying due to failure. He came up with a new problem: can you build a plane that could be fixed and flying again in hours, not months. Making a plane with Mylar, aluminum tubing, and wire, Paul succeeded.

The first airplane didn’t work. It was too flimsy. But, because the problem Paul set out to solve was creating a plane he could fix in hours, Paul was able to iterate quickly. Flying three or four different planes in a single day, the rebuild, retest, relearn cycle went from months and years to hours and days.

Paul MacCready got involved eighteen years following the challenge and changed the understanding of the problem to be solved. Within half a year, MacCready’s Gossamer Condor flew 2,172 meters to win the prize. Just over a year later, the Gossamer Albatross successfully crossed the Channel.

What’s the take-away? When you are solving a difficult problem, re-ask the question. To quote Jacobi again, “invert, always invert.” If the issue you are trying to solve involves creating a magnum opus, you are answering the wrong problem.

A Vistage Group is a great way to have a Peer group challenge you to look at the problem from a different perspective. In our issue processing process, after asking questions and before getting input from the members, we always check, “Is the problem asked the actual problem faced?”

 

© 2019 Marc Borrelli All Rights Reserved

Recent Posts

EOS is just that, an Operating System

EOS is just that, an Operating System

The EOS Model® provides a useful foundation for businesses, but it falls short in addressing key aspects of creating an growth. By incorporating additional elements from the Gravitas 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes growth while maintaining smooth operations. Focusing on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent, the 7 Attributes of Agile Growth® offer a more encompassing approach to achieving success.

What has COVID done to Company Culture?

What has COVID done to Company Culture?

COVID has affected everyone. However, companies need to examine if they have lived their core values during COVID, how they are reinforcing them in a WFH environment, and especially with the onboarding of new hires.

Profit ≠ Cash Flow

Profit ≠ Cash Flow

Knowing how much cash you generate is essential for planning for growth. Too many companies don’t know and when they grow they find they are continually running out of cash. Understand your cash flow generation and how to improve it through improvements in your Cash Conversion Cycle and using the Power of One.

What Are Your Critical and Counter Critical Numbers?

What Are Your Critical and Counter Critical Numbers?

The key to achieving long term goals is to define short term goals that lead you there. Focusing those short term goals around a key metric is essential. However, ensure that the metric will not lead other areas astray by having an appropriate counter critical metric act as a counter balance.

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Rethinking ‘Family’ Culture in Business: Fostering Performance and Success

Explore the importance of company culture and the potential pitfalls of adopting a “Family” culture in organizations. Learn how to foster a high-performance culture while maintaining key family values and discover success factors for family businesses. Rethink the “Family” culture concept and create a thriving environment for your organization.

Do You Truly Know Your Core Customer?

Do You Truly Know Your Core Customer?

Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”

The Spectacular Rise and Fall of the European Super League

The Spectacular Rise and Fall of the European Super League

The European Super League (ESL) collapsed within 48 hours of its announcement due to hubris, a lack of value creation, and fan backlash. The founders’ arrogance led them to disregard European football’s deep-rooted traditions and culture. At the same time, the focus on wealthy club owners instead of merit undermined the essence of the competition. The fierce backlash from fans, who felt betrayed by their clubs, demonstrated the importance of prioritizing supporters’ interests in football.

Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...

COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.