I recently had the opportunity to reflect on the butterfly effect – the idea that small actions can have disproportionately large effects on complex systems. The concept is often illustrated with a butterfly flapping its wings in one part of the world that results in a typhoon in another part of the world.
I was talking with Mark Barlow, the CEO of an exciting company named Applearn. We were chatting about Manchester, where he is based. Manchester has been called the world’s first industrial city, During the first industrial revolution, it was certainly one of the most important economic centers of the world, thanks to the textile industry. Mark asked if I knew what started the whole decline of Manchester. I did not, but having roots in India I knew that Manchester used to source cotton from there. I crossed my fingers under the table and hoped that the answer was not “India”.
It wasn’t, but the real answer was even more surprising to me. It was the American Civil War. The US was a big cotton supplier, and with the Civil War came a disruption of that supply chain. This led to the Lancashire cotton famine of 1862-1863. Many Lancashire mill workers lost their jobs. However, as an aside, despite the economic hardship, most people in the Greater Manchester region still supported Lincoln’s fight against slavery.
Back to the butterfly effect. The Civil War started the decline of Manchester. Not many would have predicted this in the mid-1800s, but it happened. Anyway, I’m glad to see that Manchester is back on the upswing. It’s one of my favorite cities in the world and the second most visited city in the UK again.
The Butterfly Effect in Another Era and Another Industrial Revolution
Fast forward to today’s Fourth Industrial Revolution…
When COVID19 struck, the initial conversations turned to the negative implications to the Shared Services industry. “Shared Services” is the consolidation of traditional business operations like Human Resources, Finance and Information Technology with the intent of improving cost and productivity by “sharing” these across the enterprise. The Shared Services industry often uses centers in skilled-resource countries, such as India, the Philippines, Poland and Mexico. So, when the pandemic struck, the immediate belief was that if developed nations closed borders to travel, offshore centers would be negatively impacted. Much of the early literature therefore focused on delivering continuity of operations.
Then, something interesting happened. Offshore centers proved themselves extremely competent in handling disaster situations. After all, this was a base expectation for organizations that provided critical services to remote clients. On the other hand, as the pandemic swept the developed countries, and offices shut down, the conversation changed to remote working. Once you move work out of the central office, it doesn’t matter in most cases if that “remote location” is within your town or in another country.
Which brings us to the current situation. Not only has the conversation evolved from on-shore vs. offshore, into physical office vs. remote, but enterprises are also eager to improve productivity due to economic disruption. And, shared services is already a proven model for cost reduction. The shared services market is now projected to grow at a CAGR of 17% through 2024.
Thus, the pandemic, which has understandably been associated with nationalistic introspection will also accelerate globalization in some sectors.
What This Means for Digital Change
What does the pandemic and the acceleration of digital change mean for us? Will it lead to more national vs. global models of commerce? Will there be a backlash against digital change? At this point, I believe your crystal ball is as good as mine. However, I am personally convinced of three things.
The butterfly effect will become more important. As digital technology drives more complex, interwoven systems, the potential of small changes to exponentially affect complex systems will become more pronounced. We can help ourselves by developing agility. Building the ability to react faster will pay off better than betting on a nostalgic return to a simpler past.
Productivity “plays,” such as Shared Services, are a given in the short term. The price of the pandemic in the open market economy will force for most companies to cut costs. Relying more heavily on proven strategies like Shared Services makes eminent sense.
Be the change you want to see. While the American Civil War hurt Manchester badly, it didn’t bring the city down. In fact, starting from the end of the Civil War, the last quarter of the 19th century was perhaps its golden age. Even while Manchester declined as a cotton-manufacturing center, it grew as the commercial and financial nucleus of the textile trade. Many specialized types of engineering developed from the early textile-machinery industry. Those products included steam engines and locomotives, armaments, machine tools, and eventually, electrical engineering. By 1910 Manchester has built Trafford Park, the first, and still the largest, industrial estate in Britain.
Much later, the second industrial revolution would eventually bring about the city’s decline, but while the first industrial revolution lasted, the people of Manchester led the change they wanted to see.