Notes from a session at Brainstorm 2006 led by Diana Farrell, McKinsey Global Institute.
1. Shifting centers of economic activity
China and India. From global GDP, in 15-20s years from now, non-Japan Asia will be 25%. The US will continue to represent 35%. Industry shifts: deindustrialization towards services. Even in China, 15M manufacturing jobs have been lost.
2. Overburdened public sector
20-30% of GDP in most countries. Health care and pension burdens are more drastic than we believe. In Japan, they would have to increase taxes by 125% to make good on obligations. This is not going to happen, perhaps a new social contract, or a massive disruption. This is the case in Europe and to a degree the US and UK. Appetite for 1st world services from the 3rd.
3. New Consumers
In the developing world, 975M households becoming consumers over the next 10 years. From $4 trillion to $9, which is the consuming power of Europe today. This consuming class will be quite different, will require innovation to market to them. New entrants from the developing world will capture this as well. Population 60 or older is increasing at 2x the pace of the rest within the developed world. The Hispanic market in the US has 60% of the purchasing power in the US in 10 years.
Social & Environmental
4. Social Life in a Connected World. 2B use cell phones, 9trillion emails, 1B searches, $1 trillion invested in fiber. The impact this is having socially -- the percentage of internet newlyweds last year is 12%. Vendors, consumers, price transparency. Online retail is 13%, 54% of computer sales.
5. Turbulent Tides of Talent
Emerging global labor market for talent. Young professional (university grads with 7 years exp) 33M in the developing world, twice that of the developed world.
6. Social Cost of the Free Market
Markets as social weapons. Business has never been loved, but there is a different tone, fueled by tech and edu. No high school grad can get into college without community service. Danish cartoons was an expensive proposition for their economy. A clash of civilizations. $639B socially responsible funds.
7. Limited Resources, Unlimited Demand
Like the demands on the public sector, can't happen, so a place to look for discontinuity. The growth of every commodity is 200% over the past two years in China. Water as a resource may be more constrained than energy, takes 39k liters of water to produce a car. China emits 12% of CO2, in 12 years will be 40% unless something changes. Potential for innovation and discontinuity (particularly regulatory).
8. New Global Industry Structures
A few patterns: Massive scaling of large companies, market cap of the top 150 companies from 2 to $11 trillion over the last 10 years. Average of 123k employees. Blurring of organizational structures into ecosystems. Disaggregation of thte value chain that comes from integration India and China, not just call centers. Gives rise to a whole other kind of innovation. Because of a capital to labor tradeoff. In the developed world 70% labor, 30% capital, so they are optimized around labor. In the developing world it is the inverse. $3k car is possible because of this shift. Role of Private Equity, a catalyst for transforming sectors. Shift from public equity will provide performance pressure.
9. New Science of Management
Reliance on local and technology driven management. Data driven market capabilties, complex logistics, science management systems. Value creation over time when innovation is commoditized quickly, becomes adding value upon what was just created
10. New Economics of Knowledge
Rise of patent production, R&D investment, time and energy going into knowledge creation, when it is easy to access and harder to keep. Consumers creating knowledge themselves. Wikipedias of the world suggest a very different notion of generating knowledge.
My reaction, posted in the private event wiki.
In this session there was a focus on data-driven decision making and operations. The example was given of a loan officer. 10-20 years ago a loan officer used a combination of data and more independent judgement to approve a loan. Now most banks have automated limits for what the loan officer can do. Competitiveness comes from continually advancing their models. Somehow this also implies the creation of new products by leadership, although this wasn't said explicitly
I'd beg to differ with this approach to competitive advantage. The loan officer of old outperformed in:
- ability to manage exceptions to process
- customer service
- employee loyalty
- understanding product development opportunities
But what the loan officer couldn't do was share the better practices learned on the job with peers. And of course, had less developed risk models to inform decisions.
Before we though out the loan officer of old for the new: Is there an opportunity for knowledge workers to actually make decisions? To share the innovations the occur through exception handling? Could this be a better source of sustainable competitive advantage?