In the late 1960s, many people around the world sang along to a hit produced by the South African pop group Four Jacks and A Jill.
However, “It’s a strange, strange world we’re living in, Master Jack”, rings truer today than it ever did back then.
According to McKinsey & Company, the global economy is currently being disrupted so quickly and at such a scale that the impact will be roughly 3 000 times that of the Industrial Revolution.
This monumental change is being brought about by four global forces:
- The age of urbanisation is shifting the locus of economic activity and dynamism to emerging markets and to the cities within those markets. By 2025, China will be home to more large companies (those with revenue of $1 billion or more) than either the USA or Europe. It is also expected that by that time more than half of the world’s large companies will be headquartered in emerging markets.
- An ageing population worldwide, given that 60% of the world’s population now live in countries where fertility rates are below the replacement rate of 2,1 children per woman. Labour forces are shrinking and in future, caring for large numbers of elderly people will put severe pressure on government finances.
- People, finance, data and trade are becoming more connected, and flow in a web that becomes ever more complex, sprawling and intricate. The implications of these connections are not fully understood yet, but we do see how dependencies are created (in countries that rely almost exclusively on one commodity for their GDP), and how nationalist politics is creating a backlash against growing interconnectedness.
- The accelerating scope, scale and economic impact of technology.
I would like to unpack the fourth global force – the impact of technology – in some detail in this article.
Technology permeates just about every aspect of our lives.
However, as business professionals and leaders, we are most interested in the impact technology has, and will have, on businesses.
Our future survival depends on how well we can prepare our organisations for the new world of business.
McKinsey & Company identifies 10 tech-enabled business trends to watch – and prepare for.
1. Distributed co-creation becomes mainstream
In the past few years, the ability to organise communities of Web participants to develop, market and support products and services has become accepted business practice.
Cisco, for instance, has a self-help portal, called MacWiki, for the Mac users in the company.
It came about when Cisco allowed employees to use their Macs, instead of the standard-issue Lenovo laptops, for work but made it clear that the company would not supply IT support.
The Mac users formed their own support community in response.
They could ask questions and, when users figured out solutions, such as how to connect to a printer, they would post it on the platform.
The support users gave each other was better than what IBM provided through the official channel. And cheaper.
McKinsey estimates that when customer communities handle an issue, the per-contact cost can be as low as 10% of the cost to resolve the issue through traditional channels such as contact centres.
Online communities can also add huge value when it comes to product research and getting customer feedback.
People participate in communities for different reasons.
These include social recognition, the opportunity to be of service, showcasing expertise, and even building a profile.
Examples exist of active and creative problem solvers being headhunted by companies.
Ensuring co-creation success:
- Do upfront research to identify potential participants who have the right skill sets and will be motivated to participate over the longer term.
- Appreciate that co-creation is a two-way process. As a company you too must provide feedback to stimulate continuing participation and commitment.
- Think carefully about incentives. Co-creators often value reputation more than money.
- If you want the best people to participate, you have to earn the trust of the Web community.
- Adapt your management mind-set. You cannot control the people who co-create.
2. Making the network the organisation
The Web is opening the boundaries of organisations, allowing non-employees to offer their expertise in novel ways.
The best people in your industry don’t always work for you; the question is how to leverage them, across internal and even external borders, when you need them.
Not only do such networks make organisations more effective; the new generation of workers are demanding it.
Increasingly, young professionals prefer to work on contracts, instead of taking up fixed positions in companies.
Management practices are the biggest obstacle to the creation of more porous, networked organisations.
By limiting themselves to using full-time employees who are tied to existing structures, companies are limiting their ability to tackle increasingly complex challenges.
We will be well served to start organising work around the tasks that need to be done rather than the “ownership” of workers and the constraints imposed by corporate structures.
3. Collaboration at scale
In many economies, the number of knowledge workers has grown far quicker than production and transaction workers.
They are typically paid more than others, hence labour costs are increasing along with the demand for corresponding efficiency and productivity improvements.
Because knowledge workers are expensive, they are often overworked, which leads to churn.
As a result, there is broad interest in collaboration technologies that could improve knowledge workers’ efficiency and effectiveness.
An example is a tech company that turned to videoconferencing and shared electronic workspaces to replace a sales model that depended on extensive travel.
The latter led to high costs, burnt out employees and difficulty in scaling operations.
By only allowing travel that was customer-facing and revenue-generating, the company saved on travel four times what it spent on its technology investment.
More importantly, customer contacts per salesperson rose by 45%, while 80% of sales staff reported higher productivity and a better lifestyle.
But technology does not improve collaboration by itself.
For technology to be effective, organisations first have to understand how knowledge work actually takes place.
For example, meetings between knowledge workers are supposed to create organisational capital, but all that is captured are meeting notes and minutes.
However, in a digital meeting that capital can be recorded and stored as a valuable source of knowledge.
4. The growing Internet of Things
When machines talk to each other, they become smart assets that can capture, communicate and collaborate around information.
This “Internet of Things” can make processes more efficient, give products new capabilities and spark novel business models.
Vehicle manufacturers are leading the way with innovations such as networked sensors that can automatically take evasive action when an accident is about to happen.
In medicine, sensors embedded in patients continuously report changes in health conditions to physicians, allowing them to adjust treatments.
In the insurance industry, telematics make it possible to create policies based on individual behaviour, instead of classes of drivers.
5. Experimentation and big data
What if you could analyse every transaction and capture insights from every customer interaction – in real time?
Data is currently being captured at unprecedented levels, but it is not being put to full use yet.
We know how to collect data, but not how to use it in real time in a physical environment, such as a supermarket.
It is that divide that exists between the digital and the real world that is still not bridged.
Some banks and insurance companies do segment customers, but they don’t use big data or analytics during any of their customer interactions yet.
Companies are also only starting to understand and use social media interactions to gather information and experiment.
There are, for instance, untold opportunities in using Facebook comments to shape customer experiences and then generate profitable sales interactions.
Using experimentation and big data as essentials components of management decision making requires new capabilities, as well as organisational and cultural change.
Most companies are very far off from leveraging the true power of big data to experiment and model the outcomes delivered by different options.
This is most probably the biggest single opportunity that exists in our markets today – enabling companies to capture, analyse and intelligently shape every customer interaction, independent of the access channel used by the customer, to create a better experience or to upsell.
6. Wiring for a sustainable world
Sustainability is becoming an increasingly important corporate performance metric.
IT plays a dual role in this as both a significant source of environmental emissions and an enabler of strategies to mitigate environmental damage.
For the first time, companies are now taking steps to reduce the environmental impact of their IT by adopting things like green data centre technologies and cloud technology.
IT’s bigger role, however, lies in its ability to reduce environmental stress resulting from economic activity.
Research has shown that the use of IT in areas such as smart power grids, efficient buildings and better logistics planning could eliminate five times the carbon emissions produced by the IT industry.
Managers need to understand sustainability’s growing importance.
The younger generation of consumers looks at a company’s green profile when they make purchasing decisions.
It is no longer only about price and quality.
Sustainability is not merely a box to be ticked; it must be an active focus area in the organization.
7. Imagine anything as a service
Technology allows us to build and use assets for a very short time.
Why do I need a car, for instance, when I can use Uber and rent a vehicle to go on holiday?
People and companies alike are rethinking capital investments because they only want to pay for what they use, for the duration of use.
Consumer acceptance of cloud-based services for everything from email to video is growing, and companies are following suit.
Software as a service, for example, is growing at an annual rate of 17%.
As business leaders we have to find the opportunities to transform what we currently sell as products into services.
In this disruptive view of assets, physical and intellectual capital combine to create platforms for a new array of service offerings.
But innovating in services, where the end user is an integral part of the system, requires a mind-set that is fundamentally different form the one involved in product design and systems integration.
We will need to build capability and capacity to act as system integrator of services, presenting anything as a service to the customer, sometimes using somebody else’s services, that could even be a competitor.
The Microsoft go-to-market model of running virtual machines on an Amazon compute platform is one of the best examples of this.
In this instance, the most profitable route to market for Microsoft is actually via their biggest competitor.
8. Age of the multi-sided business model
Multi-sided business models create value through interactions among multiple players, rather than traditional one-on-one transactions.
Google AdWords is a good example. It delivers a service to a customer (search results), but gets its revenue from a different source (advertisers).
In this case, the bigger the customer base, the more advertisers are willing to pay for access to it.
As more people migrate to online activities, network effects can magnify the value of multi-sided business models.
The “freemium” model is a case in point. A group of customers gets free services supported by those who pay a premium for special use.
The leverage effect is important: the greater the number of free users, the more valuable the service becomes for all users.
Another example of this is advertising on television.
A pay-TV company for example would get subscription income from their customers, but at the same time will receive advertising revenue from advertisers – this is the best example to describe a multi-sided business model.
9. Innovating from the bottom of the pyramid
Disruptive business models arise when technology combines with extreme market conditions, such as customer demand for very low price points, poor infrastructure, hard-to-access suppliers and low cost curves for talent.
M-PESA is an excellent example. In Kenya, this mobile banking innovation provides eight million people with services that traditional retail banking models could not.
The lesson here is that emerging market innovations have to be born in those markets.
You cannot invent for emerging markets from an office in New York if one does not understand the local limitations on infrastructure, etc.
It is equally important to understand that innovations that may work in some markets, will not be fit for other markets – the example of the failures of M-PESA and equivalents in South Africa is a good example of market conditions and access to established infrastructure that makes the same technology innovation fail.
10. Producing public good on the grid
The role of governments in shaping global economic policy will have to expand in coming years.
For one, the implications of urbanisation have to be addressed. Creative public policies that incorporate new technologies could help ease the economic and social strains of population density.
Wired cities, for instance, are already a necessity and no longer a nice-to-have invention.
Similarly, networked smart grids will be critical to address the need for clean water and consistent electricity delivery.
Technology can also improve government services.
In Dubai, for instance, traffic offenders receive their fines in real time and, if they choose to pay immediately, get a discount.
In South Africa we can file our taxes electronically, but most other government services are still a matter of submitting hard copy documents, in person, to an official behind a desk.
Governments will have to be disrupted themselves in order to keep up with technology.
For some organisations, these trends will unlock significant competitive advantages; for others the disruption will prove a bridge too far.
Source: McKinsey & Company article: Clouds, big data and smart assets: ten tech-enabled business trends to watch
How to deal with the 10 trends
Trends 1 – 6: Start by assigning the responsibility for identifying specific implications to functional groups and business units. But local accountability is not enough. The most powerful applications of the trends cut across traditional organisational boundaries, hence senior leaders should regularly get different teams together to build a comprehensive response.
Trends 7 – 9: These trends require radical shifts in strategy. It is the task of CEOs and their senior teams to grapple with these to arrive at interdisciplinary, enterprise-wide insights.
Trend 10: These implications cannot be resolved by a management team or even within the corporation. Business executives, consumers, government decision makers and suppliers all have to collaborate. The challenge becomes how to work with stakeholders who are not under your control.
For more information, visit the Bytes website.
Article written by Dr Willie Oosthuysen, Altron group executive: strategy & technology.