The 4th Industrial Revolution – coming ready or not
We are living in the age of accelerated transformation. While transformation itself is not necessarily new to us, the frequency, pace and impact of transformation today is. There has never been a more important time to stop and consider the question:
How will we increase our capacity to adapt to a world of accelerated change?
The imperative for organisational transform is now in full swing across developed markets. According to BCG analysis , 52 per cent of large public companies in Europe and North America announced transformations in 2016 – a 42 per cent increase over the past 10 years.
BCG’s analysis sought to determine whether transformations were creating value by comparing the growth of total shareholder return (TSR) of transforming companies, with that of their respective industry. What they discovered was that only 24 per cent of transforming companies experienced greater TSG growth than their industry average over both the short term (one year), and the long term (five years +).
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So why are digital transformations failing?
According to McKinsey , only 8 per cent of organisations believe their current business model would remain economically viable if their industry continues digitising at its current course. Their research identifies five explanations of why digital strategies are failing:
Lack of a clear, wholistic organisational definition of digital and its connection to their business;
Misunderstanding the economics of digital as it disaggregates value propositions where economic rent becomes primarily redistributed in favor of customers. Scale and network effects dominate markets where economic value drives winner-takes-all economics. First movers and fast followers develop a learning advantage to out-execute competitors;
Understanding the new economic rules that digital will apply to the broader value chain as industries increasingly become ecosystems. The platformification of industries allows players to traverse across traditional boundaries that are increasingly becoming blurred;
Overestimating digital attackers and under estimating the impact of a digitised incumbent with significant market share, and;
Not digitising their traditional businesses and innovating with new models as discussed earlier observed with digital leaders and renovators.
What then makes digital leaders and innovators succeed?
There are still many industries and organisations that are yet to fully embrace all that the third industrial revolution era has to offer technologically. A performance gap has now emerged, between those organisations that invested in digital transformations and are applying digital technologies and strategies, compared to those that are still competing in traditional ways.
McKinsey’s research reveals that digital leaders and innovators were found to exhibit common characteristics. These were:
Business transformation – They innovate their business models in a transformational way (opposed to some incremental adjustments to strategy and core business);
Scale cutting edge technologies – They scale up cutting-edge technologies and techniques. Apply design thinking at scale across the organisation or within business units.
Decisive and significant investment – They invest decisively and three times as much, and for the long term relative to traditional companies.
Strategic context – They see the world as interconnected ecosystems.
So, if nations and organisations aren’t yet fully capitalising on the 3rd Industrial Revolution
– how ready are they for the fourth?
Unsurprisingly not very, according to Deloitte Global and Forbes Insights that asked that question of 1,600 C-level executives in business and government across 19 countries. Only 14 per cent reported they were ready in four key areas: social impact, strategy, talent and technology.
The study also found that:
The private sector was considered to have the most influence on how the fourth industrial revolution shapes society (public business organisations 74 per cent and private business organisations 67 per cent).
Despite this, executives were not confident in the level of influence their own organisations would have over societal factors (agent of change 24 per cent, Serving underserved markets/accessibility/affordability 19 per cent).
Over the next five years, executives reported that changing regulation and emergence of new delivery models would have the greatest impact on their organisations (Changing regulation 41 per cent; new delivery models 40 per cent; economic trade landscape 32 per cent)
While executives recognise the need to invest in technology to drive new business models, making the business case inhibits investment due to lack of strategic alignment and focus on short term (Lack of alignment 43 per cent; lack of collaboration with partners 38 per cent; short-termism 37 per cent).
Relative to all organisations surveyed, high-growth organisations more often see themselves as ‘architects of society’ as well as business leaders.
The results reveal some interesting contradictions. On the one hand executives believe overwhelmingly (87 per cent) that the private sector will have the most influence in how this revolution will shape society, yet the same optimism was not reflected in their own organisation (24 per cent). At an individual level, only a third are confident of acting as stewards in their organisations, and only 14 per cent are highly confident their organisations are ready to benefit from this revolution.
Despite recognising that the emergence of new businesses and delivery models would pose the greatest threats, executives continue to rely on strategies that prioritise traditional business operations and models. When it comes to workforces, 86 per cent of executives reported that they are doing everything possible to create a better workforce for this revolution, but less than a quarter are highly confident they have the right workforce composition and skills for it.
To use yesterday’s logic to prepare your leaders, organisations or policies will not set leaders on the right trajectory for the fourth industrial revolution. We need new thinking, as history has no precedent for what’s to come. While this revolution builds on the third (the digital revolution), it will be unlike all others in terms of its speed, impact and scale. It will be a cyber-physical social system characterised by new technologies that are merging the physical, digital and biological worlds and is predicted to impact all disciplines, economies and industries globally.
This revolution is expected to also witness the emergence of breakthrough technologies in the areas of artificial intelligence, robotics, the IoT, autonomous vehicles, blockchain, 3D printing, quantum computing and nanotechnology.
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What makes this industrial revolution different from others?
According to the World Economic Forum , there are three reasons why this is not just an extension of the third industrial revolution, but rather a distinct fourth. Let’s reflect on these which are comprehensively analysed in my new book Youthquake 4.0 – A Whole Generation and the New Industrial Revolution.
1. Exponential versus linear models. My analysis in the book, highlights how platform based, data intensive and capital light models exhibited four distinct characteristics.
a. The multiplication effect where price/performance of computation doubles about every eighteen months;
b. Information enablement, where once an industry, product or technology becomes information enabled, its price/performance doubles approximately every year;
c. Acceleration, once doubling begins, it doesn’t stop, and;
d. Exponential information enabling technologies that alter both demand and supply curves that now behave more exponentially.
2. Capacity augmentation. I further analysed disruption across industries and organisations noting that leaders and organisations are yet to fully capitalise on the full potential of the technologies delivered by the third industrial revolution offer and leaving them under-prepared for the augmentation of emerging technologies coming in the 4th Industrial Revolution.
3. Systems impact. I further explored the value-chain restructuring effect of these disruptions through disintermediation, dematerialisation and disaggregation and how the emergence of new business models is transforming production, consumption and fulfilment. This is analysed in detail in the book through a case study that looks at the digitisation of China’s economy and how this nation, its industries, and investment policies and programs support its transformation.
In the past 10 years, price/performance has seen the costs of processing power, bandwidth, and cloud infrastructure decline exponentially. This is now powering a new generation of emerging technologies that are fusing the digital, physical and biological worlds.
As Klaus Schwab, founder and executive chairman of the World Economic Forum describes “we are at the beginning of a revolution that is fundamentally changing the way we live, work and relate to one another”. He also proposes that “businesses, industries and corporations will face continuous Darwinian pressure and as such, the philosophy of “always in beta” always evolving will become more prevalent” .
To many leaders, digital transformation has suggested that disruption is one-time event, and that belief has perhaps distorted expectations of performance. However, successful leadership in the 4th Industrial Revolution requires a new principle – one based on constant adaption. I refer to it as ‘Juvenescence’ – defined as the constant state of youthfulness. It’s time to get your juvenescence on.
Sources for this article
- BCG (January 2018), ‘The CFO’s Vital Role in Corporate Transformation’
- McKinsey & Company (January 2018), ‘Why digital strategies fail’
- Deloitte Global and Forbes Insights (January 2018), ‘The Fourth Industrial Revolution is here – are you ready?
- Schwab, K and David, N, World Economic Forum (2018), ‘Shaping the Fourth Industrial Revolution’
- Schwab, Klaus (2017) (2016). “The Fourth Industrial Revolution” Crown Publishing Group
Rocky Scopelliti is a world-renowned futurologist. His pioneering behavioural economics research on the confluence of demographic change associated with Millennials, and digital technology, have influenced the way we think about our social, cultural, economic and technological future. His new world-first book ‘Youthquake 4.0 – A Whole Generation and The New Industrial Revolution’ was launched in September 2018. You can find out more about Rocky on his website.
Youthquake 4.0: A whole generation and the new industrial revolution
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Other countries can purchase this book here
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