This video probably summarizes what I have learned this year not only as an investor, but also as a human being. Do you want your company to make a difference? Create and nurture an outstanding culture. It might sound odd to most people, even from people within, but you have to put your beliefs in practice. That's how others companies also work. As Dalio puts its, the real difference is either on people or culture.
In his company's case, the ruthlessly transparent internal environment (forcefully) creates a trustful atmosphere, in which thoughtful disagreement foments knowledge creation. The possible issue: as people are smart in so many different ways, they must appreciate each other and make a team of them – the possible solution: the culture itself. It takes a genius to make it simple, and Dalio indeed did it by building an environment built on truth and thus, trust.
The role of humans as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the end of introduction of tractors.
Thanks to functionality, and lower prices, the global 'labor-cost arbitrage' trend, which was the predominant macroeconomic feature of the past decade, may now be coming to an end.
Automobile manufacturers were the main beneficiaries of robotization wave #1, followed by electronic devices industry. More recently, we have seen other industries also benefit from the same trend.
The most staggering fact though is that we may be entering into a new revolution within this decade – a Robolution – as lower robots costs and inflationary labor costs converge, favoring robots adoption by industry participants.
That said, categories 3 and 4 certainly fall at risk, while we (equity investors & research analysts) certainly follow under category 2 – non repetitive and complex tasks – and are likely shielded from robots. Thus, if we are indeed safe from robots, how could we lever our skills to better perform our jobs at the individual level, but more importantly, at the company level? Here kicks in Edward Hess and his recently published book "Learn or die: Using science to build a leading-edge learning organization".
the way to unify operational excellence and innovation in an organization is to have a learning culture, because learning underlies operational excellence and it underlies innovation.
In a recent interview with Hess conducted by Shane Parrish from Farnam Street blog, Hess lied a couple tenets of a learning culture, such as de-emphasized hierarchy, intellectual and leadership humility, curiosity, questioning, the right to debate freely, clarity, preparation, a praise for vulnerability, strong processes, accountability, empathy, compassion, humane relationships, no complacency, and so on.
As I don't to spoil Hess' amazing book, I will finish this post with a couple quotes I got from his previous mentioned interview.
Number one, underlying innovation and operational excellence, go back to root cause analysis, or the five why's. Unpacking assumptions, good digging, the why, why, why, is underlying both processes.
Hierarchy as an elitism is de-emphasized, and there is a real push for highly engaging employees and leadership humility, and intellectual humility. (…) Does the CEO own the learning culture and walk the talk? (…) Has the organization put in place culture, structured leadership behaviors, HR policies, measurement and rewards to enable and promote learning behaviors? (…) You've got to start small and figure out and prioritize what you are really going to start working on.
Arrogance is a huge inhibitor to learning. Arrogance comes also from success in positional authority.
Where can I improve? What happened today? What would I do differently in how I think? What would I do differently in that conversation as to how I relate?
A leadership model that is very, very humanistic and people-oriented.
The purpose of the whole system at Bridgewater is to overcome our humanness in a humane way. (…) The first thing they want to talk about is their vulnerability.
You don't put things off. You deal with them directly, honestly, openly. (…) everything about everybody is public record.
There's this whole concept in the business world that if you're humanistic and engaging with people, you'll come across as soft. People will take advantage of you. (…) It's not the case. You can be humanistic and have high standards and high accountability. The companies I write about, every one of them are outstanding performers because they have the highest of standards that they hold themselves to. There is no softness in standards. There's a human element.
As the old saying goes leaders are chosen by the people. In a highly competitive environment, employees tend to be egoistic and afraid. Why not create a great and complementary team based on trust and cooperation? It's not a coincidence that Patagonia's owner Yvon Chouinard hired friends and friends of friends to his company in its early innings. It's all about creating a great environment so people feel comfortable to give their best efforts for the company and his co-workers.
If you have the time, watch the complete speech.
If you are still interested, check his most recent book Great Leaders Eat Last.
What if we make the link that people drive good business and then we got the (in)famous bottom line "E" so we finally have our estimated multiple? Then, value investing is all about people and corporate culture after all! Have you thought of that?