The Real Unemployment Innovation Challenge

While unemployment rates in certain parts of the world appear to be slowly improving, unemployment in many other parts of the world remain stubbornly high and, in some cases, are even increasing. More fundamentally, there’s a growing concern that rising unemployment may be one of the most significant economic, social and political issues that we will face in the decade ahead.

As we mobilize to address this issue, we need to avoid the temptation to rush too quickly into developing solutions until we’ve clearly understood and framed the problem. Otherwise, we may end up treating symptoms and, at best, providing temporary relief, rather than addressing the real issues in a more fundamental and permanent way.

So, what is the problem? Well, there are many problems – that’s one thing that makes it so complicated and challenging.

Matching supply and demand

One set of problems involves various gaps between labor supply and demand.  For example, there are many jobs out there that go unfilled, even though there are people who have the ability to do the work, simply because of information imperfections.  

At another level, there’s a mismatch between the jobs that are available and the skills that are required to do the jobs.  Some skills are in very high demand and yet the supply of workers with those skills is very limited.

There’s yet another challenge in matching supply and demand.  Many workers have the necessary skills, yet aren’t able to connect with the work requiring these skills because of powerful biases among potential employers – gender, ethnic and racial biases continue to make it difficult to connect the right workers with the right jobs.

If we go beyond the US to a global level, we see even more significant mismatches between labor supply and demand. There’s a powerful generational imbalance, with more developed economies dealing with rapidly aging populations while the younger generations are increasingly concentrated in developing economies where work is in shorter supply. Parts of the world are mired in conflict and corruption, limiting the availability of work for those who need it. The symptoms of this global imbalance are manifest in increasing concern over the influx of refugees and illegal immigration in certain countries.

As serious as these problems are, they’re only a small part of the real challenge that we’ll face in the decades ahead.  These are static problems – they reflect an existing mismatch between the supply and demand of labor. But that mismatch has the potential to become much more significant over the decades ahead, driven by dynamic forces that are rapidly changing the global business landscape, something that I’ve called the “Big Shift.”

The changing nature of supply and demand

As a growing number of commentators have warned, the pace of automation is accelerating, driven by exponential improvements in the price/performance of digital technology. Robotics is increasingly making inroads into manual labor while artificial intelligence and deep learning technologies are targeting a growing array of white collar, “knowledge worker” jobs.

And for the jobs that remain, the skills required to perform these jobs are rapidly evolving. The skills that we have today are becoming obsolete at an accelerating rate.  By some estimates, the half-life of a skill today is shrinking to about five years.

In the face of this accelerating pace of change, our educational system is not keeping up, so we have a growing imbalance between the output of our educational system and the jobs that are available. Rather than training students for a period of time and certifying that they then have a given set of skills, we increasingly need a learning system that will foster life-long learning and help all of us to rapidly evolve our skill sets on an ongoing basis.

As we look ahead, the changing nature of labor supply and demand will rapidly overshadow the existing mismatch between supply and demand. If we don’t address this more fundamental set of issues, we will at best be putting a Band-Aid on a wound that will continue to spread and become more painful.

Re-framing innovation

Many people have put their faith on innovation as a way to resolve the unemployment challenges that we face.  Yet, their focus is on how to create more jobs at a faster rate, rather than fundamentally changing the nature of the jobs that are created.

If we’re going to address the challenges ahead, we need to re-frame what we mean by innovation. Rather than focusing on product or service innovation, or even process and business model innovation, we need to focus on a form of innovation that isn’t yet on the agenda of our leaders – institutional innovation. What do I mean by that?  I mean that we need to innovate regarding the basic rationale for all of our institutions.

Today, the rationale for all of our institutions is scalable efficiency. We justify our institutions because it is easier and lower cost to coordinate activities across a large number of participants if they are within a single institution than if they are spread across many independent organizations.

The way we have implemented scalable efficiency is to tightly specify all activities, carefully standardize them so they are performed in the same efficient way anywhere in the organization and tightly integrate all activities to remove those inefficient buffers across activities.  What have we done as a result? We have defined a computer algorithm – work that can be done far more efficiently, predictably and reliably by a computer than by a human being.  We have put a bull’s eye target on the back of every worker, making it just a matter of time before a machine comes and takes their job.

This rationale defines a task centered view of the organization. It’s a view that expects people to fit into their precisely defined role within the organization.

There are many problems with this rationale. First of all, it’s less and less compelling as a rationale simply because powerful digital technology infrastructures now make it far easier and lower cost to coordinate activities across a very large number of independent entities. It's also shaped by the assumption that we live in more stable times, where the highest priority is to get to lower cost operations through predictable activities.

Even more fundamentally, it defines work in a way that makes it highly vulnerable to automation, thereby dramatically increasing the risk that more and more work will be taken by the machine.

So, is there an alternative? Our work on the Big Shift suggests that there is a powerful alternative rationale – scalable learning. In a world that is increasingly driven by exponential change and growing uncertainty shaped by exponential technologies, if we’re not learning faster and improving performance ever more rapidly, we increasingly risk being marginalized and ultimately pushed out of the market.

If we were to pursue this rationale seriously, we would finally create work environments that would encourage each of us to achieve more of our potential and deliver more and more value to our organizations and stakeholders.This is, in effect, the highest form of pull that I explored in The Power of Pull - pulling out of each of us more and more of our potential.

Rather than viewing workers as expense items to be squeezed and cut as much as possible, we would finally see workers as resources capable of creating and delivering growing value. And this wouldn't just be the case for "knowledge workers" - it would drive home that every worker is ultimately a knowledge worker, capable of driving accelerating performance improvement wherever they are in the organization by learning faster. The focus would shift to how to hire more people so that even more value could be created, rather than finding ways to fire them so that costs could be reduced.

Shifting our focus to scalable learning would also broaden our horizons. Rather than just focusing on the people within the four walls of our organizations, we would systematically seek to reach out and cultivate broader networks of participants.  Rather than viewing these outsiders as “contractors” to be squeezed, we would begin to view them as potential catalysts to help all of us learn faster by working together around challenging performance issues. Rather than focusing on narrowly defined transactions with outsiders, we would seek to build much deeper trust-based relationships that would enhance our ability to work together to learn faster. We would evolve towards much more networked institutional models that could scale very rapidly.

This scalable learning rationale fosters a people-centered view of the organization, one in which the challenge is for the organization to adapt to the needs of each individual as they seek to learn faster, rather than squeezing the individual into pre-defined roles in the organization.

In these work environments, employees would certainly benefit from the rapid improvements in digital technology that would help to give them more leverage in their work. But we would focus on the imagination, creativity and social and emotional intelligence that are uniquely human and that would help us to learn even faster as we work with the machines.

Re-framing our mindsets

At an even more fundamental level, all of us are going to need to re-frame our mindsets about what work really is. Today, the vast majority of workers around the world go to work to earn a paycheck – work is viewed as a means to support oneself and one’s family so that we can pursue the things that excite and interest us outside of work.

We need to change that view of work. We need to find ways to more effectively integrate our passion with our work.  Passion turns mounting performance pressure from a source of growing stress and burn-out to a source of excitement, driven by the potential to take our capabilities and impact to a new level. If we go to work simply to earn a paycheck, we will never learn as fast or improve our performance as rapidly as someone who is pursuing their passion.  

Here’s the challenge.  Based on research that I’ve led at the Center for the Edge, only 12% of the US workforce has what we call “the passion of the explorer” – the kind of passion that fosters rapid learning and performance improvement. That leaves 88% of us who have to find ways to more effectively integrate our passion with our work.

The opportunity ahead

There’s no doubt about it.  The dynamic forces that I described above are going to intensify the risk of significantly increasing unemployment and social turmoil around the world in the decades ahead. Without a doubt, they are going to lead to a painful and tumultuous transition phase as we begin to question some of our most fundamental assumptions about work and the institutions that provide us with that work.

But, I’m an optimist.  I believe these forces are going to be a significant catalyst in getting us to step back and re-think work at a fundamental level. The institutional innovation and mindset shifts that I’ve just described will come together in powerful ways to redefine our work environments.  Together, they will redefine work in ways that will help all of us to achieve more of our potential and, in the process, lead to new forms of economic growth that will create more opportunity for all of us.  

Here’s the thing, though.  This is not an opportunity. It’s an imperative.  If we don’t get to this more fundamental level of change, we’re going to become increasingly stressed and face more and more economic, social and political turmoil as the work that we had taken for granted slips away from all of us. We need to move beyond the static imbalances that frame a lot of our discussions of unemployment today and focus on the fundamental forces that are shaping the real challenges ahead.

Comments

[Emranseo88]

unemployment innovation challenge great article , Your post is very informative and helpful for us to improve my knowledge and skills.
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[Carlos]

Great great article. Important the point on how we view workers. 2003 I worked on an amzing experience at Mercedes-benz, were older workers (accountants) ready to be fired became process innovators and cost savers. Though it was a total breakthrough, soon managers started to view them again in the old way. I asume yearly bonusses are incentives to quick and easy cost saving procedures like job rationalization and job rationalization technologies

[David michaelis]

In a way you are talking about mis employment,when people are working without explorer motive,just to adjust.
Mis employement leads to high level of frustration which is a lose lose proposition for both sides.Employer and employee.
From there the road to becoming a discardable worker is a short one.
The big shift is happening in unpredictable ways,which institutions are Not capable of digesting. The innovation will
Happen from outside,and force the institutions to die or change.

[Victor Mamou]

Thanks John, despite these innovative approaches, I can't help myself being optimistic about unemployment. Hopefully you McKinsey guys can make politician more proactive on this one!

[Lee]

great thinking.
Its not clear to me that organizations know how to identify and hire individuals whose passion creates valuable contributions to the business. I have personal experience where explorer passion was a hindrance. Growth is limited to volume increase and other simple tools.

[Debra F. Cole]

The lack of true transparency & he failure of not reporting M3; the real unemployment is only reported based on an system of farm and non farm job numbers. Furthermore, when one is unemployed for a long period and are no longer collecting unemployment, they are no longer counted as the unemployed. With all the true unemployment is somewhere between 42 to 46%! And if you count those that are trying and working three or more jobs and still are below poverty level; this is not recovery econocally speaking. As much as the new Technology and Start-ups many fail, and can not get the funding. We need a better more effective system to re-educate and change the structure of the system or we will unwind the whole economy which will have a Global financial crisis and the Middle Class will be evaporated!!!

[Meilinfung]

John - Let's grab the imperative and run with it.

This then becomes the wonderful opportunity for thinking about what we want as humans, that the current economy does not provide for.

Here are some examples of goals we could set and work out how to incent engagement and participation. And this would not necessarily be just as volunteers. (1)

1. More fulfilling lives. More fulfilled lives. Where people of all generations have a right to a sense of purpose right up to their dying breathe.

2. Learning how to go about achieving #1 - in education, in social services, in environmental and transportation and housing planning,

3. Acquiring skills that make us more emotionally intelligent and socially intelligent, so we can collaborate together with more joy and less angst to learn how to make progress in #2

4. Working out how communities can distinguish themselves at something (like an Olympics for communities instead of individuals - think about what a breakthrough it was to have the original Olympics provide an alternative to wars for gaining admiration and social kudos for physical prowess. We need the next breakthrough for communities/tribes for showing off community prowess) So that as we do #1,2,3, communities can look at each other and say 'how did they do that?" just like soccer teams look at the teams who beat them and work out how to not be beaten next time.

5. Working out what is important to us as humans - and how to measure it, and how to get better at "taking care" of what is important to us. I brought this up at the SVFI4J event where John Hagel spoke last week: We focus on what we measure, and now we find that we don't measure what matters to us, than we should not be surprised that we don't improve what matters to us. Like the quality of our lives, how much where and how we live, contributes to our thriving or suffering.

(1) We value the tracking of 'usage patterns" (eg browsers, mobile phones) because it helps businesses understand how to create value.
There might be ways to have constant experiments that people could participate in on an opt in basis and receive compensation for. Each action might warrant a micro payment. Participants who are adaptive and quick learners could be highly sought after as pioneers in value creation.