Prof Raghu Rau says new developments in technology have changed the way people coordinate with each other.
“Over the last 10 years, technology has been changing literally everything about our world. Over the space of the last year, all my classes went online. My students came in from all over the world. Our work patterns changed completely in the space of one year. But though the last year has just seen all these changes in hyperdrive, all these changes and more have been happening over the last decade or so, ever since the financial crisis. These developments in technology have changed the way we coordinate with each other,” says Prof Raghavendra (Raghu) Rau.
Raghu is the Sir Evelyn de Rothschild Professor of Finance at the Cambridge Judge Business School. He is also a founder and director of the Cambridge Centre for Alternative Finance (CCAF), as well as a member of the Cambridge Corporate Governance Network (CCGN).
How we coordinate is evolving
Raghu explains that there are two forms of coordination possible – one is entirely contractual (based on prices, like a marketplace) and the other is based on command (where someone takes control and issues instructions, which are then followed by other people, essentially how a firm operates).
As an example, he talks about transport options in India when he was a boy. Using public transport could be an example of a marketplace, where you paid a price for a ticket and made do with the routes and schedules available. If you wanted convenience and reliability, you might hire a driver and pay their salary, which is akin to a firm setup. However, Raghu notes, technology is now disrupting these models. For example, services like Uber give you access to a car and driver at any time.
“With something like Uber, you've created a commoditized marketplace solution from an individual hierarchical firm solution (a car and hired driver),” he says. “But even within the traditional firm, things have changed rapidly. Previously, in the firm, the first thing you had to decide is who is the person should be making the decisions (for example, the CEO). And should the CEO be the most senior person in the organization, the smartest person in the organization, or the person is best able to get on with other people? Now, take the example of an blockchain protocol firm called Mimblewimble, all the people in the company use anonymous Harry Potter names to log in. How do you judge who's the smartest person? How do you judge who should be taking the decisions for the whole firm? Perhaps we might need to engineer a solution whereby a smart contract kicks in automatically, changing decision rights from one person to another, as in a digital autonomous organization.”
Aside from decision-making, Raghu says that technology is also disrupting incentives. Whereas firms might previously negotiate predominantly based on salary, now perks might include working from home or duvet days. “It's multi-dimensional preference matching,” says Raghu. “And aside from the decision and incentive questions, the third idea that needs consideration is how to measure performance. In the old days, HR would do an annual review and try to assess what you had and hadn’t done for the company. Now, you can have real-time productivity software, which checks exactly how much you're doing at any one point in time. All these developments have changed the way we do things together and this is applicable across businesses.”
Technologies in focus
In his course, Raghu focuses on three core technologies: sensor technology, crypto technology and artificial intelligence (AI).
“If you think of sensor technology, sensors are everywhere, from doorbells to web cameras to your cell phone. For most of us, our phones have become our singular most valuable devices. But your phone also has enormous amounts of information about you. And that’s Big Data. But the problem with Big Data is there’s too much of it, and so we need some way to analyse it. And that’s AI. AI is good because it recognizes complex patterns, but it's bad because it doesn't understand what it's doing. So, for example, it may be true that people who drink more beer are also more likely to vote Republican, but it may not be true for you. It is only true in the aggregate. But if you use an AI system, it might go down from the aggregate to the individual which might result in overt or implicit discrimination. For example, if you order beer once, the AI system might classify you as a Republican and serve you Republican leaning ads. If you disagree with the system classification, there is no way to get the algorithm changed. So, there are negatives and there are positives.”
When it comes to crypto, Raghu says he’s interested in how it affects the concept of trust. “For example, if you're importing goods from China, how do you know the seller is reliable? How does the seller know that you will reliably pay up once the seller has shipped the goods? This is a chicken-and-egg problem. If I write a contract with you, how do I know that you haven't changed the contract after we wrote it and agreed on it? I need a good lawyer and an impartial court system, all of which is expensive. Cryptographic blockchains allow you to trust your counterparty because you know that neither of you can alter the terms of your transaction, after you have written a contract with each other.”
He says that people who think crypto currencies are a passing fad are underestimating the technology. “This course is for anyone who's interested in understanding how technology is changing the way we live today. The big question in the face of all these technologies is ‘how do we coordinate? How do we do something together?’ That's the idea behind this course.”
For more information, visit the course webpage.