Productivity - Thought experiment started at the Berkshire meeting

[Guest longinvestor]

Productivity was discussed many times during the Berkshire meeting last weekend.  Here is an archive https://www.youtube.com/watch?v=xE_9nxAcNKM&t=9934s. I do not know at what time marker on the video this discussion took place. Someone else may know this and post here to cut to the chase.

 

Buffett started this thought experiment during the meeting and the back and forth between him and Munger ended somewhat abruptly (I thought). Hence the reason for the poll and this sort of topic is discussed around here quite often.

 

Depending on which way one is inclined, there are far reaching implications on investment ideas, societal impact, standard of living, life expectancy and on and on.

 

Have at it.

 

edit: I've stated it as Buffett did. "150 million Americans" can be the proxy for 4 Billion across the globe. Realize that there are many nationals here.

[John Hjorth]

More than one day and night has passed - still no reply ...

 

I appreciate that you bring this topic up, longinvestor.

 

It's complicated - very complicated - basically it's out of of my circle competence.

 

So I'll just post some thoughts here - without considering it even a stab on the topic in mention.

 

Since I read the 50th year anniversary shareholder letters from Mr. Buffett and Mr. Munger about the future of Berkshire, my thoughts has been circling around this topic, constantly - on/off.

 

The point here is, - what you mentioned from the Berskhire 2017 AGM session about how Mr. Buffett and Mr. Munger responded to this topic is - at least to me - in reality, that both those gentlemen don't really have a deep knowledge about it. They are "only" capital allocators - very good ones over time - what they say at the Berskhire AGM's are simply just hear-say, from the CEOs of the subs - but still very important - based on trust on the CEO of the subs and their information flow from the CEOs of the subs.

 

So in short - the CEOs of the subs simply has to get this right going forward in the long term - it would be potentially nothing less than crippling to me and my familys living conditions going forward otherwise.

 

And please do not ever forget: You can fire Mr. Buffet and Mr. Munger as your capital allocators whatever day the NYSE is open. Mr. Buffett and Mr. Munger are stuck with whatever wholly owned subs they have bought on behalf of Berkshire, and have to get the best out it, be it not a total disaster.

 

- - o 0 o - - -

 

No vote from me on the poll.

[LC]

Can someone paraphrase what the thought experiment we are talking about?

[rkbabang]

"One button push will produce all of the current output of 150 million Americans".  And an AI will make the decision to push the button and a robot will push it.

 

[John Hjorth]

Speach by CEO of Blue Ocean Robotics ApS, Odense, Mr. Claus Risager, held at TEDxOdense 1st April 2017: "The Cloudworkers - Your next job is to help your robot".

 

There is a Youtube clip a bit down on the page. It is in English language, actually. To me absolutely worth your time, if you have just some interest in this topic.

[rb]

Speach by CEO of Blue Ocean Robotics ApS, Odense, Mr. Claus Risager, held at TEDxOdense 1st April 2017: "The Cloudworkers - Your next job is to help your robot".

 

There is a Youtube clip a bit down on the page. It is in English language, actually. To me absolutely worth your time, if you have just some interest in this topic.

Isn't that something all of us are already doing?

[indirect]

If you look at the long term trend of productivity, it is increasing (low or high rate does not matter). So unless we have thermonuclear WW III, my working theory is that we will continue to have higher productivity and society will be richer.

 

[Guest longinvestor]

I listened (again) to the numerous questions posed at the AGM suggesting  that 3G capital's (& corporate America's as well) aggressive productivity improvements (Job cuts mainly) somehow does not fit in Berkshire's current culture. Buffett and Munger, expectedly, defended them vigorously. A couple of years ago, Buffett drew the connection between the threat to branded packaged goods revenues and the need for such productivity measures. I'm good with that.

 

Beyond 3G, Berkshire's future depends surely on sensible capital allocation which becomes harder with size. But how about if, in due course, there are 160 subsidiaries to "manage"? While there is near certainty of the original owner operator passing the reins on to successors! Will the aggressive productivity improvements of the 3G kind become necessary across the Berkshire operating companies? Will that be the emergent culture at Berkshire?

 

Any outperformance in the future will hinge on productivity gains in addition to the continuance of sensible aquisitions. Who knows, the next guy could be much better than Buffett in this regard. Buffett admits to being reluctant to cut costs. Took him 20 years to shut Berkshire Hathaway down.

 

 

 

 

[Guest longinvestor]

The term "Lean" is now common parlance in industry. These are some widely practiced ideas mostly rooted in the Toyota Production System. I've been practicing this myself for the past two decades.

 

When it comes to productivity, everyone gets things like automation which results in getting more output for the same or less input. But, the big underlying principle in lean or similar practices is the reduction or elimination of that which should not be done at all. The term "non-value-added" work is used. This is the kind of work we don't get paid for. Automation driven productivity is often not the first answer, or even the second. Because there is so much NVA in the typical business.

 

The great businesses, Toyota, Danaher (Where I worked for a long time) get this very well. So do some private equity players. Some businesses within Berkshire also are known for this. Clayton homes, Geico, Marmon(80-20) and of course the 3G companies supposedly excel at this.  Tom Murphy is often quoted by Buffett as saying " Best way to avoid firing an employee is to not hire that position in the first place". In my opinion, the scandalization of 3G capital is that they go after costs that somehow hurt genteel sensibilities; you know, white collar jobs, refrigerators in offices, free product samples, unnecessary airline travel etc. Someone I worked with had a friend at Kraft HQ in Chicago who lost his job to this kind of cost cutting. Too bad for the person losing the job. The genteel sensibilities are what makes it to the headline on WSJ or Chicago Tribue. Cutting cost does not always have to be the assembly worker's job alone. In fact, that is often the silly syllabus of cost cutting. One that traditional accounting has readily prepared us to understand. 

 

A great example of productivity we all witness at the annual meeting is that one person, Carrie Scova, puts the whole annual meeting together. This would cost a fortune at other businesses of this size. Buffett calls this out at every meeting for the past 5 years or so. I think he is sending a big message to us but a bigger one to his subsidiaries by shining the spotlight on Carrie. He insists on the spotlight ;)

 

Get rid of activity that should not be done in the first place. This would take decades in my experience. Automation should be sensibly used. In fact, I've seen too many efforts at automation that are counter productive. You reduce direct labor but add indirect (costlier) labor to fix the complexity that comes with automation.

 

Anyone with similar experience?