Episode Transcript
[00:00:00] Good morning everybody. Today I want to talk a little bit about the economy and the stock market. Yesterday The S&P 500 hit a new all time high, which is great for those of you that have a lot of stock portfolios. And the US economy came in at a GDP growth of 2% per year on an annual basis, which is strong, but not what everybody wanted. But the interesting thing about it for all of us is that 70% or more of the GDP growth came from capital investment in AI related stuff. Computers, data centers, build out engineering, software engineering, being hired, all of that related technology.
[00:00:44] Now I'm not sure I've ever seen anything quite like this before, where an entire economy is pivoting towards one thing. Now, it's obviously not one thing. It's got many, many tentacles to it. There's the data centers, the real estate around the data centers, the chips and related technologies in the computers themselves, the staffing of all of this, and then the money being put into the AI companies to help them to hire. And as I published a couple of weeks ago, the number of software engineers in the job market is going up, even though there are layoffs at some specific and I think we all are in agreement, including some execs I talked to yesterday, that the layoffs that are being announced by some companies like Meta and Block and others are really just companies that overstaffed and are they're reallocating resources. So we're the country, at least here, is making this huge pivot towards this new technology. And it's significant because the investment in the housing market went down by 8%, which is a big number. And it's really unfortunate because the housing prices are so high. We have a huge problem with energy prices. If you live out here, it's almost $7 a gallon for gas, where most of you probably live, it's less. And the consumer spending, which is normally 70% of the American economy, is actually almost flat, slightly increasing. So all of this capital investment is going to a relatively small number of people compared to the rest of the United States, which creates more income inequality and more political focus on things like wealth taxes and billionaire taxes, which are, you know, really controversial, especially where I live. So it's a very interesting period of time. While all that is going on, there was another interesting story and I was quoted in the Financial Times and there was a big story in Business Insider and there's lots of stuff out about, about this is that a lot of companies are reducing their employee benefits, they're reducing benefits for new mothers, for Childcare for family leave, for various forms of drugs, for your reimbursements. And I don't know exactly why they're doing that, but my guess is this whole shift from labor to capital or moving towards a more automated workforce of machines is encouraging financial execs and HR execs to say, well, well, you know, maybe we don't have to lavish so many benefits on people anymore. So I was talking to a couple reporters about it. The history of this whole investment in employee benefits has been really interesting to watch. If you look at the data from the Bureau of Labor Statistics over time, there's a pretty interesting chart somewhere buried in all their stuff that shows the percentage of wages in the United States that go to non cash benefits. Non cash benefits is health insurance, vacation leave and other things like that. Not, not bonuses or stock options, but things that are not cash. And it go, it has gone for the last few decades from the high 20 percents to the 30%, 31%, 32%, a little bit over 32%, almost 33% around the pandemic. And the reason I think that happened is that as I wrote about in a fairly detailed article on Substack, we've been going through a very long period of decoupling workers from employers and workers having more agency and power because they have more job seeking opportunities with the Internet. And so for those of us that have had reasonably good careers, we've been able to move around between companies fairly easily. It's not been, it's not a, it's not a fun thing to do, but it, it is possible. And part time work, there's gig work, there's, you can become an influencer, you can go online and do stuff. And so employers have been adding more benefits as an attraction tool to get people to come work there.
[00:04:51] And not so much as a benefit to make you a more productive employee, but rather to just convince you that the deal at this company is good. And it's been kind of irrational to me because some of these things are like well being programs and payday loans and real time pay and lots of things that are accommodations for the fact that some employees aren't making enough money to basically just support their families and others are highly paid and they don't really need these benefits. But what the heck, you know, why not go to the company that has better stuff? But as you know, most of you that are in hr, and I certainly know this, the real value proposition of work has nothing to do with the benefits. The benefits are a hygiene factor. There has to be enough benefits that you feel, you know, you have healthcare and stuff. But once that's satisfied, what you really want at work is, is flexibility, a great job, the opportunity to learn, work that you enjoy, work that fulfills your personal desires and aspirations and strengths and interests, an environment of people that you enjoy working with, a mission, a purpose. Those are the things that actually drive success at work and actually drive employees to move around or leave. And benefits aren't good. And if there's no benefits, you may have a hard time hiring people. But actually that hasn't been a problem for some companies because if you pay people well, the fringe benefits don't really make a huge difference. So all of a sudden that stuff's getting pulled back. And I'm not making a statement one way or the other. I think every company has their own relationship with their employees and their own demographics of employees. Like, for example, if you're a healthcare provider, you have to offer types of childcare support because a lot of your workers might be women who are the caretakers for children, and they cannot come to work under certain conditions unless you help them with childcare. So there's definitely tons of situations where you have to have different kinds of benefits. But the fact that the number got so high, 32, 33%, and it's being ratcheted back and economically more and more of that money is going into data centers is really kind of sort of staggering to just sit back and think about. You know, I've had this debate a lot. We're going to be publishing at our conference the first chapter of the book that we're launching in the fall on all this. It's book about the super worker, which I think you guys are all going to really get a lot out of. And the. The thesis of the book, which we prove with lots and lots of data and examples and analysis, is that despite the fact that AI has enormous potential and enormous opportunities for us, in many, many ways, the human part of work is not going away. And in fact, the more effectively we manage people, the better, because people leverage even more productivity tools than ever before. When each employee has a supercomputer attached to their eyeglasses or their desk or their clothes or their PC or their phone, and can do 10 times as much work, then managing the infrastructure around people is even more important than before. And this is. You're going to read about this in HR 2030. You're going to read about this in the book and a lot of other things. And we're witnessing it in the macroeconomic environment of the United States right before our eyes. You know, one of the big topics I'm going to be talking to a bunch of people about this week in Florida is the role of managers. And we started a year or two ago a thesis on the changing role of managers. And the thesis was that managers not going away. This idea of having one manager to 50 employees that Facebook's been talking about, I don't buy that. I don't think that's going to happen. There are lots of roles that managers play. Managers are either. Sometimes managers are project leaders, sometimes managers are people managers, sometimes managers are discipline leaders, functional leaders, operators, et cetera. That is not going away. Every one of us has management responsibilities. Even if you don't consider yourself a manager title, there are times when you have to manage things and people and teams and projects. And in the current environment where we have hackathons and experiments going on all over the world, managers have to facilitate change. We had a, we have a really interesting client big company in the northeast that's coming to our conference. Almost a $10 billion company in the consumer goods area, I won't mention their name, that's doing a company wide hackathon this week. Every single person in the company is involved in a hackathon in their area to come up with new ideas on how to apply AI, including the managers. So that's just a simple example of how manager roles have changed. We just are finishing a big study of this that's going to be launched at our conference. And we did this partnership with SAP, had thousands of managers take a survey on what they believe their role is going to be and what they like and don't like about their jobs and what they think the impact is of AI. And the thing that actually struck me the most of many of the things that you'll read about is that 90% and this is a lot big survey, a lot of people, 90% of the people in supervisory or manager roles would not be unhappy to move back to an individual contributor role.
[00:10:15] 90% and that's really surprising. And I, I don't know exactly what it means, but I think what it implies is that if we don't redefine what we expect leaders to do, they may or may not want to be there in that job. Most people move to manager roles because they're given an opportunity to make more money or a higher level title or a higher level in the structure of the organization, that they have experience, that they have domain expertise and that they have people skills and that they have interest in managing larger scopes of responsibility and that they're good at leading people. It's a very complex job. For those of you that have been leaders, it's impossibly difficult. The first few years you're a leader, you are. I mean, I remember my situation. I'm sure most of you've been through this. The first time you become a manager, you're really surprised at how tricky it is to deal with different personality types and projects and issues and people. You learn over time. And some people are born leaders, some people learn how to become leaders, some people become leaders and later realize what their blind spots are. I think many leaders who are domain experts or subject matter experts become promoted and they become super subject matter experts and mentors. But they maybe didn't want to really be managers. And you know, technical organizations have roles for that where they have technical leaders and project leaders and functional leaders that are all different. So you all have these situations, whether it's a store manager. And I think one of the things we're seeing in the frontline worker space where we're doing a ton of research, is that frontline leaders are now being recognized with so much power and importance that they're making large salaries. I mean, you've probably seen the research that came out. Walmart's paying store managers 200, $250,000 a year. I assume that's going to happen in other companies because the frontline workforce is so important and the frontline business in a company is so important that those roles increasing in importance. So we've got a lot of perspectives on this that we're going to talk about at the conference. And I would say that the super manager issue probably isn't one you've thought about enough because everybody's worried about job redesign and productivity and layoffs and automation and stuff at the moment. So stay tuned for that. But economically, going back, for somebody who looks at these big numbers and thinks about them all the time, this is a very strange situation.
[00:12:44] And I think it's an odd1 for two reasons. One is because of the volume and the size of the investment taking place in technology. And the second is the lack of perspective on the human side of this and where the human side is going to go. One more thing I want to just point out that came up this last week in my world, when I wrote the big article about Workday a week ago and talked to a lot of you about it, there was a lot of excitement in various different places about the story and you know what's going to happen to these big enterprise software companies.
[00:13:19] And what I realized, and I ended up having to write another piece, is that the reason these big software companies don't disappear overnight is not because they don't have legacy architectures or legacy tools. They do, of course. You know, every big piece of software you have in your company has things about it you don't like. I mean, I've never had an enterprise system that was perfect. You never will. There's thousands of lines of code in there and they were built over periods of time. And some of it's up to date and some of it's, you know, not kind of what you wanted. I think the analogy that I use, it's sort of like the old mainframe world. It's like your home. You've lived in your home a long time, you've added to it, you've fixed things. But every now and then the plumbing gives out. My sprinkler system in my yard never seems to work correctly. There's little things about the house that drive me crazy. But I love my house and I'm not moving because it's too much work to find a new house and it's not worth the effort. And I think there's a lot of similarities there. In these big HCM platforms, you have to understand there's layers of software that have matured over years in there. The payroll system alone is extremely complex. If you're a global company and you have global payroll, don't assume that you can just switch to another payroll provider and it's going to all work. It's not. Those are just. That alone is extremely complex. The business rules you've set up, the way the content in the system is managed, all sorts of things are extremely legacy oriented and under the covers. There's technologies that were built over many, many years to make that all work. And these big companies like Oracle and SAP and Salesforce and Workday are filled with software engineers trying to improve these subsystems all the time. And you can pick any point in time and you could do an ABC comparison and say, this guy's better at this, that guy's better at that. Therefore, we're sorry we bought what we bought. But you can't operate that way because these are operational systems. When I was at Sybase, Bob Epstein used to laugh. Bob Epstein was the founder of Sybase, that a legacy system is a system that works. In other words, just because it's old, it may be running the company. And if you don't like it, you can try to fix it, you can improve it, you can add on to it, you can buy all sorts of new things and connect them to it, or you can replace it. And if you're going to replace it with some new thing, some new agentic thing that doesn't really exist yet, then you're taking a risk that your company will be somehow interrupted during that process.
[00:15:56] So it's going to take a long time for some vendor to build something that's a replacement. If this ever happens for Oracle, SAP, Workday, adp, these big systems. Now I'm not saying it won't happen because you know, I know a lot of software companies. One of them ones in particular that I'm very excited about is a company called hibob. Hibob. And there's others that are very different in their architecture that were designed in a more modern infrastructure. But many of these newer, more agile HCM platforms at least were not designed for global enterprises. In every industry you have to understand that big companies have very complex domain management problems and then different industries have very different human capital needs too. One HR system doesn't apply to every organization. I mean, just the frontline work roles and companies are so unique that you need almost a whole system just for that. And that's where Workday's been investing, for example, and SAP and Oracle, you know, to try to deal with those issues. So I don't buy this idea that this stuff's all going to go away. What's more likely to happen, and this is where I'm going to try to steer most of our clients, is to buy and invest in AI infrastructure that sits on top or leverages the tools that you already have to allow you to build agents for HR 2030 or the AgentIQ ERP of the future, you know, work with the vendors you have while the market matures and slowly select tool sets that meet the architectural needs of your company. Some of those tool sets will come from existing companies like Workday or Oracle or SAP. Some of them will not. And I talked a lot about in the article about why I think Workday is doing the right stuff. But there'll be others. And so, you know, just like the IBM mainframes didn't disappear overnight and I'd imagine a lot of them are still there, although I haven't seen one in a long time. These big cloud based HCM systems and CRM other areas are not going to disappear overnight either. And then the if the VC community who's excited about finding new erps and new HCM platforms, wants to invest in some of them, fine. They think that's a great thing to do, but that's going to take years for them to build the experience and functionality that these other bigger systems have. So it's very much like the cloud. When the Internet started, we thought pets.com was the answer to everything. Pets.com went out of business most of the, in fact, most of the first five years of the Internet. Most of those companies are gone. They just didn't have the architectures or the long range thinking to build what eventually became the stack of tools that were needed in the Internet. And we're pretty much in the same time here, so that's a little perspective on that. So that's my Friday sort of perspective for you guys. We've got a whole bunch of really interesting podcasts coming up. I've got one with Jen Morgan that I'm going to put out next week. The CEO of ukg, who you're going to love, hearing from her and quite a few others coming. If any of you have spectacular stories of your AI transformations or projects or agents that you're building, would you reach out to me or us and so we can talk to you? We're very much in the listening mode right now as we build out a lot of these HR 20, 30 stories and architectures and every single good idea is worth sharing with others. That's it for now. Have a great weekend. Bye.
