Irving Wladawsky-Berger

Global Trends and Business Strategy

McKinsey recently published an article on the long-term trends that are reshaping the business environment.  The article reminds us that the trend is your friend is an old adage that applies to business strategy as well as to investing.  The ability to anticipate where your industry is moving and to begin to reposition your company ahead of competitors is one of the most important elements of business strategy.  Companies that correctly identify and ride the tailwinds of technology and market trends will generally perform significantly better than companies for whom these same trends become tough headwinds.

But, the full version of the phrase is “The trend is your friend, until the end when it bends.”  Identifying long term trends is easier said than done.   Major trends involve competing complex forces interacting with each other, making it even more difficult to ascertain where things are heading.  And, they will eventually change direction.  It can be just as painful to miss an important trend as to stay with the trend once it starts to bend.

The article discusses nine major global forces organized into three distinct mega-trends: global growth shifts, accelerating industry disruption, and a new societal deal.  Let’s take a closer look at each of them.

The Emerging Data Economy

The Economist’s May 6 issue referred to data in its cover as the world’s most valuable resource.  Its lead article, - Data is giving rise to a new economy, - called it the fuel of the future.  “Data are to this century what oil was to the last one: a driver of growth and change.”  Both oil refineries and data centers fulfill similar roles: “producing crucial feedstocks for the world economy.”  Much of modern life would not exist without the cars, plastics and drugs made possible by oil refineries.  Similarly, data centers “power all kinds of online services and, increasingly, the real world as devices become more and more connected.”

Data has been closely intertwined with our digital technology revolution since the early days of the IT industry.  Data processing was the term then used to describe the applications of IT to automate highly structured business processes, e.g., financial transactions, inventory management, airline reservations.  Over time, increasingly sophisticated applications were developed to better manage key business operations along with their associated data, including enterprise resource planning, customer relationship management and human resources.  Beyond their use in operations, the information generated by these various applications was collected in data warehouses, and a variety of business intelligence tools were used to analyze the data and generate management reports.

These commercial applications dealt mostly with structured information in those early years of computing.  But at the same time, the scientific community was developing tools for managing, analyzing and visualizing the high volumes of much more unstructured data generated by their  experiments and observations.  Physicists, astronomers, biologists, and other scientists and engineers were developing methodologies and architectures for dealing with very large volumes of unstructured data, as well as analytical techniques, like data mining, for discovering patterns and extracting insights from all that data.

Then came the explosive growth of the Internet in the mid-1990s.  Ever since, digital technologies have been permeating just about every nook and cranny of the economy, society and our personal lives.  Data is now being generated by just about everything and everybody around us, including the growing volume of online and offline transactions, web searches, social media interactions, billions of smart mobile devices and 10s of billions of smart IoT sensors.

Peering into a Confusing, Paradoxical Future

Every four years since 1997, the US National Intelligence Council has been publishing a Global Trends report on the key trends that will shape the world over the following twenty years.  This unclassified strategic report is intended to provide the incoming administration and other senior leaders with a framework for long-range policy assessment.

Global Trends 2030: Alternative Worlds, released four years ago, identified four overarching megatrends that are expected to shape and transform the world by 2030: the empowerment of individuals - which will accelerate the reduction of poverty and raise the standard of living around the world; the diffusion of power among states, - which will shift power to networks and coalitions in a multipolar world; changing demographic patterns especially rapid aging, urbanization, and increased migration; and growing demands on resources such as food, water and energy, - which might lead to scarcities.

The latest Global Trends report, Paradox of Progress, was released earlier this year.  It begins by explaining its title. “We are living a paradox: The achievements of the industrial and information ages are shaping a world to come that is both more dangerous and richer with opportunity than ever before… The progress of the past decades is historic - connecting people, empowering individuals, groups, and states, and lifting a billion people out of poverty in the process.  But this same progress also spawned shocks like the Arab Spring, the 2008 Global Financial Crisis, and the global rise of populist, anti-establishment politics.  These shocks reveal how fragile the achievements have been, underscoring deep shifts in the global landscape that portend a dark and difficult near future.”

Globalization at a Crossroads

Earlier this year I wrote about the future of global firms, based on two recent articles on the subject, - The retreat of the global company in The Economist, and The Global Enterprise: Where to Now? in Foreign Affairs by IBM’s former CEO Sam Palmisano.  As both articles noted, global firms boomed over the past few decades, driven by IT advances that made it much easier to do business around the world and by the fierce global competition that forced companies to become more efficient and lower costs.

But now, “The biggest business idea of the past three decades is in deep trouble,” said The Economist.  Palmisano pointed out that the world stands at a major crossroads.  “A rising chorus of nationalism echoes across developed countries; it calls for tighter borders and restrictions on immigration.  Global trade negotiations have essentially ceased, and regional trade deals face strong headwinds of opposition.”

How should business address the very important issues now surrounding globalization?  This question was explored in two recent Harvard Business Review articles, - People Are Angry About Globalization. Here’s What to Do About It, by NYU and IESE professor Pankaj Ghemawat, and An Agenda for the Future of Global Business by BCG strategists Martin Reeves and Johann Harnoss.

Not Your Grandfather’s Manufacturing

The February 23 issue of the NY Times Magazine was devoted to the future of work, and in particular, to what it called the new working class.  The Oxford Dictionary defines working class as “The social group consisting of people who are employed for wages, especially in manual or industrial work.”  The working class includes many traditional blue-collar occupations, - factory workers, truck drivers, electricians, plumbers, - but it also now includes an increasing number of white-collar and service jobs.

While the new working class comprises a variety of jobs, most discussions on the topic are generally centered on the deindustrialization of America over the past few decades, as well as on the ensuing decline in both the number and the wages of manufacturing jobs.  “Now when politicians invoke the working class, they are likely to gesture, anachronistically, to an abandoned factory,” notes the issue’s introductory article.

The ongoing transformation of manufacturing jobs was the subject of Learning to Love Our Robot Co-Workers by Kim Tingley.  Her article nicely explained the major changes taking place in US manufacturing, especially the appearance of a new generation of flexible, programmable, moderately priced robots that are designed to safely collaborate with humans, - each doing what they do best.

Robotics is an exciting, fast moving discipline, which is playing an increasingly important role in the future of manufacturing.  All computers are defined by what their brains, - that is, their hardware and software, - are capable of computing and controlling.  Robots are computers that have both a brain and a body.  A robot’s capabilities are defined by what its brains and body can jointly do.