On July 14, two people, who know a thing or two about disruption, came together to discuss, well, disruption.
One of them was Richard Dobbs, a director at the McKinsey Global Institute and co-author of the book No Ordinary Disruption, which was launched that evening at the Trident hotel in Mumbai’s Nariman Point. The book talks about four global forces that have the power to cause disruption: The shift of economic activity to emerging markets like India and, with that, to cities; the economic impact of technology; world demographics; and lastly, the fact that the world is more connected through trade and through movements in capital, people and information, which Dobbs calls ‘flows’.
The possibility of disruption means a change is required in the way decision-making is viewed, Dobbs points out. It has become important to think analytically and employ solid data, which could mean less intuition, he adds. This is in line with the works of Daniel Kahneman, the winner of the Nobel Memorial Prize in Economic Sciences in 2002, who believes that human beings have two states of thinking. A typical manager relies heavily on System I thinking, which is fast, intuitive and easy to handle. But System II thinking is more analytical, slow and deliberate. It requires effort. People are reluctant to use System II thinking as it takes you away from intuition. Dobbs argues that, in the future, it will become important to reset our intuitions to make decisions, and this is not going to be easy.
He would have been gratified to hear Uday Kotak—executive vice-chairman and managing director of Kotak Mahindra Bank, who has spearheaded several transformative moves at his bank as well as in the industry—say he already sees a shift away from intuition. Kotak agreed to join in a short, but lively, discussion on disruption with Dobbs for Forbes India, and the result was some food for thought. Edited excerpts.
Uday Kotak: The key issue to me is technology disruption. It is both fascinating and frightening. What does disruption do to jobs? The traditional answer is that we had a similar situation during the Industrial Revolution and we found a solution. But just because we solved it then, I’m not sure we can solve it now.
Richard Dobbs: I agree. But let’s first look at the traditional answer. The printing press helped the monks who used to hand-write the Bible move on to something else. When we took our first job, there were switchboard operators and typewriter operators. These jobs don’t exist anymore. Historically, jobs have vanished and, historically, we have dealt with the situation. I think the challenge, this time, is that technology might disrupt the scene in a much bigger way. We may now have to get around it by retraining people more number of times to keep their skills relevant. Secondly, technology creates new jobs. Take for example, Uber. Some say the company is causing a lot of trouble for drivers. But Uber means more people travelling by taxi than before. Look at San Fransisco: The number of people working as Uber drivers is increasing. But sometime in the future, the cars are going to self-drive and then the drivers might lose their jobs again. But, we also need to understand that the world’s working population is shrinking, with the exception of India and Africa. In such a scenario, technology might just help us.
Forbes India: But what will happen to jobs if technology starts building technology? And can we assume that we have to look at the future based on our past?
Dobbs: There are additional jobs coming up. As the population ages, we will need people to look after the elderly. As people get older, they might suffer from problems like dementia, or other disorders. I think these are areas where there will be many jobs coming up.
Forbes India: A classical manager takes decisions based on his personal experiences, which leads to intuitions. It is not easy for most people to move away from intuitions to analytics. Since we do not understand how the future is going to work out, you are saying that it is not a good idea to completely rely on intuitions. Can you explain why?
Dobbs: When it comes to things like allocating resources and dealing with competitors, then you need to have facts behind it than just intuitions. I’m not saying that you have to completely rely on data, I’m talking more about resetting intuitions. McKinsey research and client experience suggest that 50 percent of all efforts to transform companies fail because senior role models fail to drive change due to their inherent tendency to defend the status quo. I think it is important to be self-aware. For instance, the great things you did when you set up your bank (Kotak Mahindra Bank): There was intuition about the type of partners to work with. But when it comes to allocating resources or thinking about the actions of your competitors, then you need to have more facts, rather than just intuitions.
Kotak: Are we not moving away from intuitions already? I’m talking about Indian policy making. Every time you hear the Reserve Bank of India (RBI) governor addressing the media, he says, “I will go with data.” We are already moving towards analytics. The RBI governor (Raghuram Rajan) comes from the Chicago school, which is very focussed on data. We are underestimating how big data and analytics are changing our world and our lives. Therefore, when you have solid data, the judgement can be taken after having a thorough review of the data. And some of the challenges we are facing in terms of how the RBI governor is approaching policy versus how some of us are approaching it, is the classic debate between data and intuition.
Dobbs: I’m not arguing against intuition. I’m saying that we must supplement it.
Kotak: But there is that last judgement call that is based on solid data, which is much better.
Dobbs: We all have blind spots. But it is important to be aware of these blind spots. That’s another way of looking at it.
Forbes India: Do you think the cost of capital will increase in future?
Kotak: I think you are seeing the world at two very different points in time. While the rest of the world has a very loose monetary policy where interest rates are zero or negative, India is at a point in time when interest rates are positive, and cost of capital is high. As someone told me, ‘India is too much of a good boy in a bad world today’.
Dobbs: The reality is, when I look at emerging markets, one of the big issues is that companies are getting capital cheaply, but what about returns? Other emerging markets can learn from India, particularly the capital discipline of Indian promoters. The Indian promoter is capital constrained and so he wants to deliver high returns. I think that is a good lesson for other emerging markets.
Kotak: I would add that some Indian promoters are so smart that they put in very little equity and take bank loans and consider even that as equity.