In their now popular book on The Second Machine Age Andrew McAfee and Eric Brynjolfsson describe one of the forces behind our accelerating pace. This force could be key to understanding the dynamics of our environment; the number of potentially valuable building blocks is exploding around the world, and the possibilities are multiplying like never before.
The journey to the future is gaining more attention for both the opportunity it presents, and the fear of unintended consequences. Dialog and proactive action are critical to shaping this emerging future in human-centric ways – a story line that is nicely articulated in a new book titled Shaping the Fourth Industrial Revolution. I am a firm believer that shaping the future requires a different mindset. As stated in the book, we must all adopt a zoom-in and zoom-out strategy: zooming in to acquire an understanding of the characteristics and potential disruptions of specific advances in science and technology; and zoom out to see the patterns and combinations that emerge.
TCS and the Clayton Christensen Institute have collaborated to produce a series of articles and whitepapers that explore the future of industries through the lens of a set of fundamental theories developed by Harvard Business School Professor Clayton Christensen (Mr. Christensen is a TCS Board member). The theories offer a form of what-if analysis that leaders can leverage to better understand the cause and effect between actions and results. These theories include Disruption Theory, the Theory of Jobs to Be Done, and Modularity Theory. In this case, the author focuses on the disruptive potential of innovation, and this first piece in the series tackles Disruption in the Banking Industry.
In my last future of business series post, I focused on a recent book titled No Ordinary disruption. That post explored the author’s belief that our intuitions must be reset. In that same book, the authors explore what they call “trend breaks”, or shifts away from the trends of the recent past. This post will look at these breaks and their impact on 21st century organizations – and it starts with value. In the rapidly growing world of ecosystems, the way value is created and captured is changing. But, more fundamentally, even our traditional views of value are being challenged. The authors use GDP as a way to underscore this point. They estimate that digital capital is now the source of roughly one-third of total global GDP growth, with value delivered via intangible assets like Google’s search algorithm or Amazon’s recommendation engine. Even our long standing view of capital itself is shifting, as human creative capital becomes a critical source of value.
Additionally, future value increasingly accrues to consumers. In a recent article titled Why Every Aspect of Your Business is about to Change, the author talks about the destruction of value for incumbents and the creation of value for consumers in the form of consumer surplus. They use a powerful example to make their point: Skype brought in $2 billion in 2013, but McKinsey calculates that at the same time, they transferred $37 billion away from telecom firms to consumers via free or low-cost calls. Even the innovative new company only gets a fraction of the value created (Skype: $2 Billion, Consumers $37 Billion). So back to value and GDP: consumer surplus is not accounted for in the way we measure GDP. This creates two challenges: First, do we need to change the way we measure value? Second, how do companies monetize the newly created consumer surplus?
So what does this mean for the future of business? Let’s start with something right from the aforementioned book: On the first day of classes at Ivy League colleges, it was common for the dean to warn students: “Look to the left, look to the right. One of you won’t be here next year.” That seems very appropriate when looking through the lens of company viability. This real phenomenon unfolds over the next decade, driven in part by several trend breaks as identified by the authors:
Will our fundamental beliefs be challenged in the coming decade? In a recent book titled No Ordinary Disruption, the authors talk about the need for an intuition reset, where everything we thought we knew about the world seems to be wrong. They see our world changing radically from the one in which those intuitions that drive our decision making were formed. Skeptics abound, but I for one see the writing on the wall. In the future-of-business series kick-off, I focused on Future Scenarios as a major force in altering the future of business. Let’s continue the series by focusing on other forces.
In the book referenced above, the authors compare the coming transformative period with the Industrial Revolution of the late 18th and early 19th centuries – where one new force changed everything. As I have tried to depict in my future scenario Visual, we are dealing with multiple forces or shifts that are converging. In their analysis, the authors conclude that our world is undergoing an even more dramatic transition due to this convergence. They focus on four forces (urbanization, technological change, aging, and connectivity) and deem that any of them would rank among the greatest changes the global economy has ever seen. Compared with the Industrial Revolution, they estimate that this change is happening ten times faster and at 300 times the scale, or roughly 3,000 times the impact – digest that as you consider whether our fundamental beliefs will change in the coming decade. Here is a quote from the book: “Although we all know that these disruptions are happening, most of us fail to comprehend their full magnitude and the second and third-order effects that will result. Much as waves can amplify one another, these trends are gaining strength, magnitude, and influence as they interact with, coincide with, and feed upon one another. Together, these four fundamental disruptive trends are producing monumental change”
I’m struggling with the term disruption and its effectiveness in driving urgency. Most definitions describe a radical change in an industry or business strategy, and most involve the introduction of a new product or service that creates a new market. My struggle is not with this decades old view of disruption, but its application in the context of our exponential world. The word disruption is viewed through a traditional lens. I end up in debates about the validity of a disruptive scenario as viewed through this lens, versus the massive implications of these future scenarios viewed through an exponential lens. The ensuing dialog focuses on:
- Coming up with disruptive innovation before our competitors do
- Embracing protectionist behavior to block a disruptor
- I’m not worried, regulatory hurdles in my industry block the impact of disruptors
- I’m safe, my industry is very stable
The pace of change is such that no forward looking visual can stay static for too long. I have therefore updated the anchor visual that looks at the digital platform, the innovation accelerators, and the disruptive scenarios that result from the convergence of societal progression, science, and technology. It is impossible to capture the current environment in one visual, but I hope what has been captured drives a clear message: there is a lot happening, on a rapid pace, and its convergent effects are multiplicative. There are several changes to the visual, and my thanks to the authors of The Future of Business for their inspiration:
I had the pleasure of joining The Digital World with Game Changers radio program for the second time this year. Joining me as panelists were Futurist Gray Scott and SAP Innovation Evangelist Timo Elliott. First, kudos to program host Bonnie D. Graham for doing a wonderful job keeping the discussion energized and interesting. The title of the session was Eating Disruption for Lunch: Digesting Decentralization. Now there’s a term not heard much outside of futurist circles. Decentralization is one of those structural changes that make what lies ahead so impactful. According to Wikipedia, decentralization is the process of redistributing or dispersing functions, powers, people, or things away from a central location or authority.
I recently dipped my toe into the Metals and Mining waters and walked away with the reinforcement that every industry is susceptible to disruption. There has long been a feeling that non-digital industries are safe from the power of disruption. In a recent piece on a New Economic Paradigm, this topic is explored in greater depth, questioning the long term viability of not just current industry structures – but the economic paradigm itself.
Disruptive scenario analysis should be a critical focus for every business across every industry. In addition, as these scenarios converge, the implications of this convergence to a given industry or industries must be understood. The anchor visual below identifies a number of scenarios to consider. Let’s take a look at disruption in the context of the Metals and Mining industry, as well as some possible industry responses.
I thought it would be interesting to get a slightly different perspective on the questions that I posed to Futurist Gerd Leonhard in our recent interview. So I reached out to IT Futurist Thornton May. Thornton and I have interacted on a number of occasions at various events. His bio describes him as a futurist, educator and author. His extensive experience researching and consulting on the role and behaviors of C-level executives in creating value with information technology has won him an unquestioned place on the short list of serious thinkers on this topic. Thornton moderates the nationally recognized CIO Solutions Gallery program, intended for executives and senior leaders in the technology and operations communities.
With that background, I was excited to explore these broad topics with Thornton. His perspective follows.
This Presentation tells the full business evolution story articulated below.
Several key drivers have positioned the next two decades to deliver a staggering – perhaps unprecedented – amount of change. The accelerating pace of business, the growing impact of digital, and several other major indicators suggest that a next generation enterprise is on the horizon. The first of these indicators is the level of societal change impacting everything from business to war. In the business world, the implications of this change can be seen in our employees, where for the first time in history, four generations of workers are in our work force. The associated challenges are coming into focus, as some of these workers are digital natives, but the vast majorities are digital immigrants. With customers, the shift of power to the individual has changed their role forever and placed them at the center of the company ecosystem. Other indicators include an intense focus on growth, which increasingly requires collaboration within and outside the four walls of the Enterprise. This growth agenda drives a new type of value ecosystem, enabling growth that in many cases is outside a company’s traditional business.
Something Economy: seems like a popular trend – stick a word in front of economy and use it to describe the next big thing. Some of these words are: Peer, Maker, Sharing, Gig, Collaborative, Green, Circular, Mesh, Digital, Innovation, semantic, and more. This combining of words speaks to the truly disruptive nature of the early 21st century. As part of my focus on business evolution and the inevitable move towards digital enterprises, I have analyzed a number of disruptive scenarios and their implications to traditional companies. This visual describes a combinatorial innovation dynamic that spawns disruptive scenarios:
In a recent Post, Geoffrey Moore expands his Systems of Engagement (SOE) vision to focus on disruption. Many by now are familiar with his views on SOE and next generation edge architecture. Mr. Moore describes a future dominated by Social and Mobile on the client side and Analytics and Cloud on the server side. In this recent piece, the focus broadens to include the inevitable disruption facing every industry. In doing so, he introduces a new Systems of Business (SOB) concept and provides some examples that highlight the differences between SOB and SOE. These examples help visualize a distinction that Mr. Moore is making between these two systems: systems of engagement instantiate new operating models, while systems of business instantiate new disruptive business models.
A recent Report by John Hagel and others describes how the exponential improvement in technology is driving exponential innovation. The core technology building blocks (computing power, storage and bandwidth) continue unabated on a cost-performance improvement curve. These building blocks create a foundation for rapid advances in innovation, which in turn combine to create disruptive scenarios. A visual depiction of this phenomenon might look like this:
The next post in this continued look at disruptive scenarios focuses on the Logistics Internet. In his recent book titled The Zero Marginal Cost Society, Jeremy Rifkin describes an Economic Paradigm Shift driven by a Third Industrial Revolution (TIR) platform. The Logistics Internet is one of three components that make up this TIR platform (communications and energy are the other two). As the three components converge, they create a general purpose technology platform that drives a third revolution. Mr. Rifkin believes we are in the early stages of an automated transport and logistics Internet, and he describes his thinking in this short Video.
In his new book, Rifkin describes the process by which suppliers and buyers connect and conduct business (Logistics) as the driver of the whole economic system. Yet, he maintains that the means by which goods and services are stored and delivered is grossly inefficient and unproductive. Rifkin suggests that a rethinking of the way we store and ship materials and goods is in order. Several supporting facts are provided in the book:
In my continued look at disruptive scenarios, the focus shifts to Connected Health. In a recent White Paper, the term is used as an umbrella description that covers digital health, eHealth, mHealth, telecare, telehealth, and telemedicine. Analyst firm IDC defines it as “a broad spectrum of technologies that use telecommunications to facilitate the exchange of health information and delivery of care across a geographic distance as well as manage chronic conditions and promote health and wellness.”
There are several drivers that make this both a viable and desperately needed scenario. According to the IBM Institute for Business Value, inefficiency in the Healthcare ecosystem wastes over 2 trillion USD per year. According to the popular Internet Trends Study produced by Mary Meeker each year, healthcare costs have reached 17% of the U.S. GDP and 27% of health spending is wasted. The same study found that over 25% of family income is likely to go to health spending in 2015, and 50% of bankruptcies are driven by health costs.
In my continued look at disruptive scenarios, the focus shifts to 3D printing. Growth in this key innovation is expected to accelerate to $10.8 billion by 2021 according to Goldman Sachs. The economic implications are significant: Research by McKinsey Global Institute suggests a possible impact of $550 billion per year by 2025. Some believe that 3D printing will play a crucial role in launching a third industrial revolution at a personalized level.
This next post in the analysis of disruptive scenarios focuses on next generation automation enabled by combinatorial innovation. By way of reminder, the visual below depicts a convergence of innovations that have historically been viewed in isolation. As the building blocks of innovation multiply, their combination drives disruptive scenarios. By analyzing these scenarios, future implications and potential responses are determined.
The last two posts focused on disruptive scenarios driven by the future introduction of autonomous vehicles. However, the context for viewing disruptive potential must be broad – not just one possible scenario. With that in mind, let’s take a look at the Healthcare industry with a broader lens. The authors (Chunka Mui and Paul Carroll) of The New Killer Apps do a masterful job of doing just that. They make a rather bold statement in a chapter dedicated to the Healthcare industry – specifically:
“Without a course correction, hospitals will lose their central place in medicine and many will disappear.”
Strong maybe, but not hype. The risk is real and not limited to Healthcare. The visual below is a great representation of the law of disruption. The progression of technology is riding an exponential curve. With this acceleration comes a progression of disruption where incremental business change can no longer keep pace. Disruption and the need for transformative actions occur when this scenario takes hold, and the enterprise has not taken steps to respond. A failure to respond in this fast paced, change oriented world is likely catastrophic, but the opening for killer apps depicted in the visual presents both risk and tremendous market opportunity.
The Law of Disruption (source: Unleashing the Killer App)