McKinsey&Company (MKC) have been publishing their “Quarterly” for 50 years and are therefore celebrating by looking to the next 50 years. In an article by Dobbs et al, (“Management Intuition for the Next 50 Years”, September 2014) they suggest that the “collision of technological disruption, rapid emerging-markets growth, and widespread aging is upending long-held assumptions that underpin strategy setting, decision making and management.” This ‘collision’ is so significant that “much of the management intuition that has served us in the past will become irrelevant…” Their research has led to some interesting analysis and insight:
· The world saw 5 exaflops of computing capacity added in 2008, 20 in 2012 and 40 in 2014. “Global flows of data, finance, talent and trade are poised to triple in the decade ahead, from levels that already represent a massive leap forward.”
· By 2025, MKC estimate that more than 45% of Fortune 500 companies will come from emerging markets (c.f. 5% in 2000) and nearly half the growth of global GDP between 2010 and 2025 will come from 440 cities in emerging markets (95% of which are small or medium-sized).
· 60% of the world’s population now lives in countries with fertility rates “considerably below those needed to replace each generation.” Germany estimates that in 2060 its population will have shrunk by 20% (and its working population by 28%).
Changing world, Changing Management
So what are the implications for management? MKC propose 5 focus points to address the “magnitude of the coming changes…”
Setting Strategic Direction
MKC estimate that 66% of a company’s growth is determined by momentum (i.e. the environment): to continue to capture that momentum companies will now have to be more agile just to keep up… For strategy analysis, instead of thinking of national markets broken into value ‘segments’, think of multiple offers varied by city, distribution channels and demographic segments…
Technology has to be seen as a strategic issue; it is no longer “simply a budget line… it is an enabler of virtually every strategy.” Executives need to think about how specific technologies are likely to affect every part of the business and “be completely fluent in how to use data and technology.”
Managing the New Workforce
Machine intelligence needs to be used in innovative ways as soon as possible to change and reinvent work itself. Displaced workers (est. 140 million FTEs globally) will need to be retrained. Developed and emerging markets will experience issues differently – the challenge for global companies is paramount.
Combining IT, nano-science, biology and industrial technology should yield “substantial resource-productivity increases” enabling wealth creation for economies becoming more consumer and service orientated. More ‘productive’ natural resource use is vital to support growing consumption.
MKC research showed that “companies almost always allocated resources” on the basis of pastrather than future opportunities; however the most active companies in resource allocation achieved on average 30% higher total returns than the least active. Be forward looking!
The world is changing fast and MKC suggest we are at an inflection point. The ‘intuition’ that current management has gleaned during the last 20-40 years is rendered redundant by the multiple changing paradigms. Is the easiest solution simply to replace the ‘old guard’ with the new generation? No – the change is too significant and too rapid for it not to be addressed immediately by ‘new’ and ‘old’ alike. So what to do? Two key words are going to determine the potential for success in the very near future: adaptability and agility. Both need to be accelerated in all areas: riding the wave of emerging market growth, seizing opportunities and mitigating threats from demographic shifts and being at the forefront of technological change!