Economy 4.0: the global revolution and its five disruptive forces (Part 7 of 7)
CONCLUSIONS AND RECOMMENDATIONS: WHAT IF MUCH OF OUR ACCUMULATED EXPERIENCE AND EDUCATION, FAMILIAR AND COMFORTABLE MIND-SETS AND DECISION PATTERNS WON’T HELP US MANAGE OUR FUTURE BUSINESSES, PROJECTS, EDUCATION AND CAREER – OR BECOME AT LEAST FAIRLY QUESTIONABLE?
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The old order of the economic and business environment will erode and be gone as we face massive disruption, change, trend break, exponential speed and challenges everywhere. A decision-horizon of a few years has expanded into an eternity, as we live in times of near-constant discontinuity.
Although there is a ‘big but’ as uncertainty and volatility increases, in my opinion, Economy 4.0 – this vast global revolution and trend break era which will bend the curve of human development and society even more vertically than it did in the first Industrial Revolution – offers us far more opportunities than risks.
Despite all the daily news about sad, worrying and ‘unpleasant’ events, I see the present as a time for great optimism. Why? As so many more people are expected to be lifted out of poverty and join the consuming class (see part 2), the world is getting richer – countries and their people are becoming less unequal – especially in emerging economies, prosperity and new technologies will help us to live healthier lives and hence we may expect significantly longer lifespans. Meanwhile, an ever-larger spectre of products and services is becoming available to consumers around the globe. Technology will provide evermore economic opportunities to hundreds of millions, even billions of people, empowering the next waves of entrepreneurs and start-ups and changing the building blocks of our societies, education and healthcare.
Of course, these times and the coming decades may redefine who runs and lead the world’s economy – from countries to companies and individuals.
Just think about a few of these new opening opportunities: following the shift of the world’s economic centre of gravity back to Asia, if you consider launching your products or services in just one or a few of the new, emerging mega-cities (see part 2) with millions of inhabitants, you could acquire new markets more easily – in that each city is the equivalent of some European states – but in a bounded area so that you can develop on your growth-strategy from there. You could also check whether you could tailor your services and products to the greying market (see part 5); or think about the gigantic business opportunities as the amount of vehicles double by 2035, giving rise to a desperate need for a solution and infrastructure to fight pollution, congestions and parking, or about the green energy sector (see part 4).
There is also the ‘new growth theory’ from American economist, policy entrepreneur and university professor Paul M Romer to consider. He argues: “Economic growth occurs whenever people take resources and rearrange them in ways that make them more valuable. Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new ideas were discovered. And every generation has underestimated the potential for finding new ideas. We consistently fail to grasp how many ideas remain to be discovered. Possibilities do not merely add up; they multiply.”
I fully agree with Prof. Romer’s theory, even more so when it comes to transforming analogue products, services and solutions into the digital world of business.
But think also about some of the key impacts: the world has made bewildering progress in the last 25 years, raising hundreds of millions of people out of poverty (see part 2). But this, the industrialisation and rapid urbanisation has triggered soaring demand for food, energy and natural resources. Since the new millennium, prices for commodities related to agriculture, metals and energy have almost doubled and hit the poor even harder, while the trend has recently reversed in relation to oil.
MGI expects that the following four major drivers of rising prices (none of which is likely to be temporary or short lived) will keep them volatile in the years ahead:
- Demand: the first factor is sharply rising demand from the world’s expanding number of middle-class consumers.
- Supply: rising demand wouldn’t be such a problem if supplies of commodities were increasing across the board at the same rate, however, accessing the supply of resources needed to meet soaring demand is increasingly challenging.
- Interlinking: the increase in resource prices isn’t restricted to food, and it doesn’t only affect households. As global interconnections rise, the world’s resource markets become ever more closely linked. In many instances, rising demand for one type of commodity can lead to serious stresses on supplies of other commodities. E. g. agriculture accounts for approximately 70 per cent of global water use and two per cent of global energy use.
- Environmental costs: for a century, the world essentially ignored the externalities and impacts of production. Now, governments around the world are taking the first steps to impose costs to compensate for environmental factors related to local resource production and for global issues such as increasingly frequent climate change events, ocean acidification and deforestation.
But MGI also questions whether we might see a farewell to increasingly cheaper capital, as there is every reason to think that the rate of investment will continue to rise, with industrialisation and urbanisation of emerging economies fuelling the boom. Or, as the world continues to age, household savings will decline, causing a de-accumulation of assets etc.
Of course there might still be the other side of the coin going on – as has been the case in recent years, the world’s central banks have shown an increasing willingness to take interest rates into uncharted territory and print money at an unprecedented rate. Between 2007 and 2012 alone, the governments of the United States, the United Kingdom and the Eurozone collectively saved nearly $1.4 trillion on lower interest payments on their debt. MGI recommends: as demand-supply dynamics change, business leaders need to be prepared to navigate both worlds.
But let’s come back to the latest upheavals, attacks and even the not at all amusing trouble spots and crises. As sad as many are, there is at least always also a positive flipside, as they challenge us all to rethink and cherish our core values and prosperity, like sovereignty, democracy, peace, freedom from hunger, safety, privacy, free speech and movements as well as travelling, the ability to communicate freely, transparency etc. which so many of us take for granted and forget to contribute to the legacy of those who went before. But of course we are faced with challenges of adjustments and improvements too, which could also lead us to a better world.
So here is one of my RMK-principles: be aware that there is a business behind the daily provided news! As ‘bad news is good (selling) news’ we don’t get the fantastic whole ‘picture’ of the massive amount of very good news out there, in your neighbourhood or on the globe!
Sure, pessimists – which some say are the better informed optimists, though I very much doubt that – still have their share these days, even more than they had in recent years or decades, that the world looks out of joint. But it’s essential to note that the long-term trend of so many indicators and parameters points just up and to the right, not down! This is the reason why I have great confidence and optimism as well as a strong belief in a very promising and bright 21st century!
So I’d recommend to everyone now more than ever to balance themselves and live with confidence and optimism in their thinking, feeling, speaking and behaviour, and even to let decisions and sentiments be formed and supported by them.
Now many might expect a check-list of golden rules to deal with these disruptions and its forces, whereby they just have to tick the boxes to stay on top of the future. But sorry, the addressed mega-transformations and trend breaks in this Economy 4.0 series are way too complex and on a magnitude not to be dealt with so simply.
It is a fundamental challenge with all predictions on such a scale as there are too many dependencies, an infinite complexity and number of indicators or parameters. This exponential trend break era and vast global revolution is too rapidly changing – excessively full of opportunities but also fraught with peril. This is why no one on the planet knows or would be able to predict the future precisely by looking into a crystal ball, it’s just impossible. The future’s development is free, open and thus unforeseeable!
The only thing one might be able to do is, if you invest a lot of time, armies and efforts in in-depth analysis, research and perspective, to assume and think about theory-tendencies, carry out ‘what-if’ analysis and models, and simulate assumptions. But most of us fail to comprehend their full scope and the omnipresent potential of side effects of the so-called second, third or even fourth order changes and their resulting impacts!
My first intention when writing this Economy 4.0 series was to put these mega disruptive challenges on your radar, particularly if you haven’t have a chance to attend one of my talks or read or learn about them otherwise via some of the mentioned sources. My second intention was to share some of my conclusions, thoughts and recommendations which might support you to take it on from there.
The important thing to understand is that these mega trend breaks will create significant and profound implications for all kinds of business-oriented or related organisations, be they companies, corporations, NGOs, governments, universities and so on.
Today’s global economy is in fact entering into an array of crucial economic, political, historical, technological but also social crossings and turning points. The upheavals we are going through can’t even be compared to the previous Industrial Revolutions, as in fact, they all pale in comparison to today’s convulsions, because the changes are happening much more rapidly everywhere, and are interlinked and on a much bigger scale than ever, beefing up one another. Thus, they challenge our minds as much as they do our skills, capabilities and talents.
So what is the challenge to ourselves – decision makers, entrepreneurs, leaders and policy makers – to deal with this kind of future in the right way?
We have to fundamentally rethink how, when and whether we should use our accumulated experience and education, familiar and comfortable mind-sets and decision patterns in the future, as a decision-horizon of a few years has expanded to an eternity. And the game will change ever-faster – “we have dared to reach in the unknown, where no man has gone before” (NASA and Star Trek reference). Decision-making based on using the rear-view mirror of experience and knowledge primarily might frequently be dead-wrong.
As MGI outlines:
- Speed, surprise, and sudden shifts in direction in huge global markets routinely impact the destinies of established companies and provide opportunities for new entrants.
- Ours is a world of near-constant discontinuity.
- Competitors can rise in almost complete stealth and burst upon the scene.
- Businesses that were protected by large and deep moats find that their defences are easily breached.
- Vast new markets are conjured seemingly from nothing.
- Many of the long-standing trends that made life so pleasant for investors and managers during the Great Moderation have broken decisively.
- In developed economies, parents generally assumed that their children, upon becoming adults, will be more prosperous than they were.
- Although inequality between countries continues to shrink, in many parts of the world, individuals – particularly those with low job skills – are at risk of growing up poorer than their parents.
- That’s just the beginning! That familiar world is no more. A radically different world is forming.
Many suffer from a surprising degree of inertia, especially when it comes to backing up strategy. That could become hazardous. As already quoted in part 3, the influential management thinker Don Tapscott states, “Those with vested interests fight the change. The shift demands such a different view of things that established leaders are often last to be won over, if at all.”
But we could learn from start-ups for example, as they don't think like established leaders. They don't think linearly in terms of growth, but rather, they think exponentially. Start-ups want to move with a speed that is not one or two times faster, but 10 to 20 times, including when it comes to innovations, which is key to their success. They don't think about the amount of resources they can throw at a problem, but run their organisation unbelievably lean, flexible and fast. How can they pare it down to the bone? They are willing to fail, learn and restart fast – again and again!
Another interesting lesson is one we can get from family businesses. As Josh Baron wrote about the “three generation rule” in his article, ‘Why the 21st Century Will Belong to Family Businesses’ in the Harvard Business Review
“Everyone already knows that family businesses don’t last. He’s perfectly right. An oft-cited statistic is that only 30 per cent of family businesses make it through the second generation, 10-15 per cent through the third, and 3-5 per cent through the fourth. These are disheartening numbers. But let’s put them in perspective. How many companies of any kind are still around after the equivalent of three or four generations? A study of 25,000 publicly traded companies from 1950 to 2009 found that, on average, they lasted around 15 years, or not even through one generation. In this context, family businesses look pretty enduring.”
Family businesses have nowadays – and more so with each passing day – a lot of benefits. To highlight a few: in order to be successful globally, public companies are losing their clear advantage in the scale economy or in raising capital, as even SMEs can now become micro-multinationals easily, and as the investment priority has shifted from quantity to quality, they don’t need lots of money, apart from the fact that going digital globally today is cheap (see part 6).
Another advantage is their agility and potential to be more adaptive to increasingly intense competition, as the new tune is to shorten the distances between decision-makers and the forefront. And here, the majority of family business and their leaders are great at dealing with this requirement, as they have flatter and more efficient structures and business processes, fast and easy information flows, direct connections to their employees and customers, and can come out with decisions in less time.
But they also provide a higher calling for their recruitment and team with an immanent value which unleashes more of their potential, contribution, responsibility, talents and loyalty. Without any need to please external markets, they can take a long-term perspective and make decisions on the basis of sustainable economic value, thinking in terms of generations and usually caring a lot about their promises and reputation. And as the money at stake is their own, family businesses tend to be cautious on how to spend it, and the discipline that comes from this care is a remarkable upside when top line growth is tougher to achieve.
Decision-making in large public companies is largely done and executed by management which is rarely orchestrated of majority owners (the ‘principal-agent’ problem). At least by the end of the 20th century, if we think about the efforts to motivate managers to act like owners through stock options, it has been proven that this undertaking has not just failed, but backfired. In family businesses we see this ‘principal-agent’ problem far less because they foster ‘engaged ownership’ – and to bear also in mind the simple fact that fewer owners makes the oversight and making of decisions far easier and quicker.
And as it matches quite well with some remarks from part 6 regarding globalisation, the principle of the 21st century economy as professor Klaus Schwab, Executive Chairman of the World Economic Forum quotes it, is: “In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.” This should encourage SMEs and start-ups a lot!
To stay ahead in the future, entrepreneurs, chief execs, leaders, decision makers, policy makers and individuals need to seriously question their approach, thinking and decision patterns again and again and should courageously and fearless reset them if for the better, as what worked well in the past might not lead to success in the future!
In addition to all the above mentioned conclusions and recommendations, to master this necessary adoption to these challenges successful, leaders should first start with themselves – open up, get curious and optimistic, learn, and be prepared to venture new strategies and leadership models. The second requirement is checking whether leaders might be able to either turn around quickly or change their surrounding influencers accordingly, as they need to contribute strongly as change or even reset promoters.
Meanwhile, the third important focus point is resisting the old thinking and decision-patterns and the view of ‘half-empty-bottles’ and instead concentrating on the vast opportunities of the future and ‘half-full-bottles’. The good news is that we live in very exciting and the best of all times – in many ways we live in an age of recurring miracles! As history proves, development turns for the better in the long run.
A young researcher at Oxford University, Max Roser, with an impressive commitment to collect and aggregate special economic data, provides the webportal www.ourworldindata.org, an online publication of facts and developments that shows how living conditions around the world are changing. It’s almost therapy in optimism.
And at the close of this blog-series, I’d like to mention a few more of my favourite guidance notes.
According to ‘The 92 per cent of your concerns…’ - (by Dr Florian Langenscheidt, Entrepreneur of a privately held famous German publishing company in its fourth generation, specialising in language resource literature, dictionaries, investor and author):
“There is an incredibly interesting statistic which I remember five times a day:
- 92 per cent of all concerns that we face before a bold step – whether it’s changing a job or starting a company – turn out to be unfounded later.
- But other things will come up, problems and challenges you weren’t thinking of.
- Still – the 92 per cent will not occur!
- So, think about the 92 per cent and their opportunity costs and the meaningfulness in your current occupation or business.
- Get in the driver-seat of your life and start your own or new business roadmap now!”
And a few more of my RMK-principles:
- Always remember, neither the past nor the future was or will be just black or white, grey or colourful! Hence the most promising way to deal with our lives and businesses, is ‘carpe diem’ – seize and enjoy the day, today! As we human beings, we are only able to think, plan, act, live and make our life right now, today!
- It might be wiser to aim to grow better, different – not just bigger!
- What we all desperately need in the 21st century is a revival of trust, reliability and credibility!
I look forward to any questions or comments.
Reinhold Karner (aka RMK – Reinhold M. Karner)