The Shift Index

On December 5, I was watching a live stream of the Humanity+ conference at Caltech. My interest was a speech by John Hagel with Deloitte. The topic of his presentation was "Harnessing Increasing Technological Progress in Business Performance." Seemed intriguing.

John is the author of The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion. He works at the Deloitte Center for the Edge.

Hagel started off his speech with some research showing that the return on assets (ROA) for all US publicly-traded firms has fallen to almost one-quarter of 1965 levels. Even though labor productivity has increased. Now that got my attention!

John is suggesting that the current methods we use for detecting and measuring trends are very much out of date. Things like the Composite Index of Leading Indicators isn't leading anymore. The data are too old and look at the wrong things. By the time we can see a shift, it has long passed us by.

During his speech, John reviewed the classic business cycle of technology change. Someone invents something really big, like a steam engine or electricity. Engineers develop ways to harness that new technology. A few early adaptors start to use the new technology. The adaption curve increases until nearly everyone is using the new technology. The business refine there applications and the curve flattens for a while. Then something else comes along. He wanted to point out that there is a fairly long period of time where the technology is known and being used. Things are stable between technology shifts.

But there is no stability for business anymore. As soon as the leaders are aware of a new technology and trying to understand and use it, it changes to something bigger and faster and greater. This is the Principle of Accelerating Change that Ray Kurzweil discusses so well in his book, The Singularity is Near.

John and his pals at Deloitte have come up with a new index for these challenging times. It is called the Shift Index. It is a conceptual model of the world economy based on complexity dynamics. Scott Page, with the University of Michigan at Ann Arbor, says, "Shift happens. If we can measure shift, we can manage it."

The Shift Index assumes there are three "waves" of change. The foundation wave affects fundamentals in the way business is conducted and involves mostly digital techniologies. It also covers resulting long-term public policy changes. The second wave looks at the flows of knowledge, capital, and talent that come after the foundation changes. The third wave looks at the consequences of these flows.

Each of these waves is supported by a dozen or so specific measurements. You can download and study the concepts behind this Shift Index by going to the Deloitte site. These are heavy ideas and will take some time to comprehend.

John Hagel finished off his speech by suggesting that current management practices are fundamentally broken. He suggests three things necessary to turn around the corporate decline in ROA:
Seek knowledge, build trust, and support talent

Much easier said than done.