"Realize that much of what we thought we knew about how the world works is wrong."
Despite the realization that we live in a fast-changing world, most of us tend to expect the future to look much like the past. And in the 25 years leading up to the 2008 meltdown (a period economists James Stock and Mark Watson called the Great Moderation), there was some reason for that. Economic news was generally good -- asset values moved up, natural resources became more abundant, jobs were plentiful and children were raised with the assumption of rising prosperity.
But in No Ordinary Disruption: The Four Global Forces Breaking All the Trends (Public Affairs, May 2015), authors Richard Dobbs, James Manyika and Jonathan Woetzel of the McKinsey Global Institute warn that the global economy is going through a transition that is happening 10 times faster than Britain's Industrial Revolution and at 300 times the scale. Leaders whose formative years came in the last 25 years need to "reset their intuition" based on what is ahead, not what they've experienced in the past.
What are these four disruptive forces? It's a potent cocktail of demographic and technological trends that are so powerful because they are happening at the same time:
The global economy is going through a transition that is happening 10 times faster than Britain's Industrial Revolution and at 300 times the scale.
• The center of economic growth is shifting to 440 cities in emerging markets that many western executives have never heard of. The authors point to Surat, India, or Foshan, China, each with more than 4 million residents, as representative of cities where a massive migration coming from the countryside is driving rapid growth and expanding consumption. These 440 cities will account for nearly 50% of the world's additional GDP growth between now and 2025. Corporations pursuing growth will have to develop city-level market intelligence, say the authors, to determine which of these urban markets offer the best opportunities.
• The accelerating scope, pace and economic impact of technology is shortening the lifecycle of companies and requiring executives to make decisions and commit resources much more quickly. For example, it took 13 years, $3 billion and hordes of scientists to sequence the first human genome in 2003. Last year, Illumina offered a supercomputer that can sequence 20,000 genomes a year at a cost of $1,000 each. The risks of this technology onslaught can be high. Invest in the wrong technology or take too long to introduce it (think Blackberry) and it can crush a company.
• An aging world could lead to the first global population plateau. In 2013, the book notes, "60% of the world's population lived in countries with fertility rates below the replacement rate." A graying workforce will cause employers to look at more flexible working hours and other arrangements to keep seniors on the job, and companies to develop more age-friendly products.
• Trade flows are changing from a series of lines connecting North America and Europe to a "complex, sprawling web." Asia is becoming the world's largest trading region and "South-South" trade between emerging markets is expanding rapidly. More connected supply chains favor companies that are nimble, the McKinsey authors write, such as Fujitsu, which was able to recover its semiconductor manufacturing production levels less than a month after seven of its factories were hit by the Tohoku earthquake in March 2011. Redundant manufacturing capacity and emergency plans for restoring utilities were key.
For manufacturers and their leaders, Jonathan Woetzel told IndustryWeek, this more volatile environment will bring a need for an organizational dynamic that attracts curious people and is open to questioning. "It's not about the hierarchy," he notes. "It's much more about how we address the market challenge."