Your short term goal? To create long term thinking

Whether we like to admit it or not, short-term thinking is entrenched in many of our political and economic systems, and as a result in many of our working assumptions as business people. Many policy level decisions are taken with the next election in mind – usually a four or five year process, whilst quarterly reports dominate stock market sentiment and many business’ outlooks.

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The focus on the short-term certainly has tactical benefits and for certain companies, short-term trends assume an understandable primacy. However, short-term trends offer at best a glimpse, and at worst a misrepresentation of deeper seated megatrends that take longer to evolve but are more disruptive, and potentially advantageous.

Our current climate is characterized by incredible uncertainty; political, economic and social norms are being rewritten globally. This perhaps partially accounts for the ever-shortening business horizon detected in research since uncertainty breeds limited outlooks. Harvard Business Review notes that in its analysis of the ‘…extent to which the share prices of S&P 500 firms are driven by a firm’s present value of future growth options (PVGO) rather than cash flow from current operations[i].’ In the decade to 2015, firms’ degree of exploration decreased by 7% points—larger firms, including Apple and IBM, are even more affected with an average 10%-point reduction. The bottom line is that the focus on the short-term and on defending business models rather than exploring new ones represents a significant loss in future option value. HBR estimates that collectively, investors now value the future growth options of these firms relatively less, by $1Trillion[ii].’ This would seem proof enough that a myopic focus tends to generate less growth and value over the long term[iii].

Organisations across a range of industries and a spectrum of sizes are being forced to adapt to ever changing consumers, rapidly evolving technology and a quickening of the business environment. Opportunities will increasingly need to be ‘discovered’ since technology alone does not constitute a strategy nor is it plug and play in the sense that a new tech overlay cannot compensate for a fundamental legacy infrastructure – whether mindset, technology or organisational structure. Business would do well to begin a process of alignment, using deep-seated changes that fundamentally create change as a guide. Several of the key drivers of changes are forces larger and more complex than many standard industry-level trends normally interrogated by standard strategic tools such as Five Forces.  Even three horizons has been cited as unable to keep up with the rate of change. However, taking the longer view – often beyond ten years – can often feel too abstract, and beyond the job tenure of most CEOs.

As most businesses are becoming aware, either through business model pressures, friction from grafting new technologies onto legacy systems or else organisational issues, a new level of planning is needed. A yearly competitive analysis of predefined competitors no longer suffices. New competitors, new pressures and new opportunities are emerging and cannot be ignored.

 

 

[i] https://hbr.org/2015/11/dont-let-your-company-get-trapped-by-success

[ii] https://hbr.org/2015/11/dont-let-your-company-get-trapped-by-success

[iii] https://hbr.org/2017/02/an-agenda-for-the-future-of-global-business

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The next geopolitical imperative: space

Despite a 1967 United Nations treaty calling for the peaceful use of space ‘…there is not an agreed upon code of conduct,’ for space operations[i]. From a security perspective, this is cause for alarm: the twin realities of huge civilian and military dependence on satellites concurrent with rising geopolitical tension presents an obvious and relatively easy target. Michael Schmitt, professor of public international law and a space war expert at the University of Exeter warns that ‘…we cannot wait until it starts happening to then try to figure out what the law is. By then, it will be too late.’ He also believes without such safeguards, ‘…it is absolutely inevitable that we will see conflict move into space[ii].’

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The rationale for his argument is simple enough; the future of space is linked to geopolitics and there are more than 70 nations operating earth-orbiting satellites today. Nano-satellites launches by universities and corporations are no longer rare and given the growing list of companies able to launch and recover payloads on demand, even small states, and potentially non-state actors, can purchase advanced equipment ‘off the shelf[iii].’

This accompanies a key shift on how we conceive of space. It is noted that state actors are transitioning from situational awareness in space towards toward a battlespace awareness[iv], one exemplified by President Trump’s mooted space force but also one that goes beyond it. DARPA’s Robotic Servicing of Geosynchronous Satellites programme, for example, seeks to develop a robotic system capable of servicing satellites in geosynchronous orbit. The agency also wants to demonstrate the utility of constellations of dozens to hundreds of satellites ‘…to provide a persistent, resilient ISR (intelligence, surveillance & recon) network unlike any that we’ve seen before[v].’ To this end it has a goal of placing a 20-satellite ‘subconstellation’ into orbit by 2022.

Other developments in space are also likely; the U.S has announced the presence of space based sensors by 2023 and while these could be a precursor to weaponry, the possibility of the Internet of Space also emerges[vi]. To that end, the European Space Agency has indicated a desire to ‘…start mining the moon by 2025[vii],’ and China to put a solar farm in space by the same date[viii]. Space tourism, meanwhile, is forecast to be a $3 billion market by 2030[ix].

The political and economic implications of space could be significant. Bank of America sees the space industry growing to $2.7 trillion in 30 years, nearly triple Morgan Stanley’s still sizeable estimate of $1.1 trillion by 2040[x].

 

[i]  https://www.weforum.org/agenda/2016/11/the-4th-industrial-revolution-and-international-security/

[ii]  https://www.theguardian.com/science/2018/apr/15/its-going-to-happen-is-world-ready-for-war-in-space

[iii]  https://www.weforum.org/agenda/2016/11/the-4th-industrial-revolution-and-international-security/

[iv]  https://www.forbes.com/sites/saadiampekkanen/2018/03/29/asian-powers-step-up-their-readiness-for-space-warfare-following-americas-lead/#49db217412c0

[v] http://www.thespacereview.com/article/3567/1

[vi] https://www.nextbigfuture.com/2019/01/us-will-have-space-based-sensors-by-2023-but-will-not-deploy-space-weapons-yet.html

[vii] https://www.extremetech.com/extreme/284239-esa-wants-to-start-mining-the-moon-by-2025

[viii] https://www.engadget.com/2019/02/18/china-solar-farm-power-station-space-2025/

[ix] https://www.cnbc.com/2019/03/18/ubs-space-travel-and-space-tourism-a-23-billion-business-in-a-decade.html

[x] https://www.cnbc.com/2017/10/31/the-space-industry-will-be-worth-nearly-3-trillion-in-30-years-bank-of-america-predicts.html

Design thinking and the future of business

Digital platforms are becoming the tools of choice for building next-generation products and services around consumer experience. They are also key in scaling entire ecosystems in the digital and physical worlds. Such platforms will be transformational for companies and industries, owing to the ecosystem they create. 81 percent believe that in the future, industry boundaries will dramatically blur as platforms reshape industries into interconnected ecosystems. Such blurring will necessitate the design of truly customer-centric products and services, as well as a new organisational approach[i]. In a blurred business environment, design can be the factor that helps organisations stand out.

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Fully 89 percent of customers have started doing business with a competitor following a negative customer experience[ii]. Designing a seamless experience throughout the lifecycle of a service or product is fast becoming a key point of differentiation in an increasingly commoditized world. In 2016, only 4 percent of organisations said it is “very easy” for customer service people access the information they need and to provide rapid service[iii]. A holistic approach also helps mitigate against a bigger source of disruption than technology itself.

Changing customer behavior and expectations are the biggest source of disruption[iv] and are often overlooked by organisations fixated on technology as providing plug and play capabilities. The medium is clearly of great import, and greatly tied to design, but the bigger picture must be grasped by those who wish to build a superior customer-centric product or service.

In its widest sense, design thinking encompasses an approach to innovation that depends on a deep understanding of, and drawing insights from, the people at the centre of a given change. With sufficient insight, designers then take an iterative approach to generating, prototyping and testing their ideas[v]. This includes previously undervalued areas of business such as customer service.

Since more business in the future will be digitally enabled and handled, it follows that increasing volumes of product and service design will be digital. It would be mistaken to see technology as a design paradigm in and of itself however; the medium is in some ways less important than the orientation a brand brings to it[vi].  A design led approach will require companies as a whole to think like designers, and incorporate an expanding array of tools from the world of design. This must be fused with a strong focus on human behaviour. Design thinking will become essential to business success[vii], but only if it is done right.

As traditional industry barriers erode and technology becomes ubiquitous, it is likely that the medium of a given brand will matter less than the service provided through it. Service design is therefore effective in both driving business model change and generating value for customers and organisations alike across a range of industries[viii]. It will also be key in unlocking new pockets and forms of value in the future if WEF’s prediction of all products becoming services by 2030 comes to fruition[ix].

[i] http://techtrends.accenture.com/us-en/business-technology-trends-report.html

[ii] http://www.digitalistmag.com/executive-research/live-business-live-customer-experiences-for-the-digital-economy

[iii] https://hbr.org/2016/05/tracking-the-trends-in-bringing-our-own-devices-to-work

[iv] http://www.ey.com/gl/en/services/transactions/ey-capital-confidence-barometer-executive-summary#003

[v] https://www.cognizant.com/perspectives/design-thinking-meets-informed-manufacturing-part-1

[vi] https://medium.com/@adaptivepath/the-road-to-service-design-the-future-with-leah-buley-f863acec222#.tacd5njp0

[vii] https://www.theguardian.com/ing-direct-being-human-in-a-digital-world/2016/dec/05/the-future-of-design-thinking

[viii] https://www.theguardian.com/ing-direct-being-human-in-a-digital-world/2016/dec/05/the-future-of-design-thinking

[ix] https://medium.com/world-economic-forum/8-predictions-for-the-world-in-2030-c06828ac4add#.rn9vqt8go

Beyond digital: the future of the bioeconomy

Steve Jobs once remarked that ‘…the biggest innovations of the 21st century will be at the intersection of biology and technology[i].’ Biology is fast becoming the new digital and biotechnology (broadly speaking the combination of the two) a key driver of the future economy. Using living organisms to make products or manipulate existing processes could fuel innovation across healthcare, industry and the food sector and beyond. If DNA does indeed emerge as the new silicon as is suggested, Wired proclaims that ‘…biology will be the next great computing platform[ii].’

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Indeed, biotechnology is held as able to ‘…help address many global problems, such as climate change, an ageing society, food security, energy security and infectious diseases, to name just a few[iii].’ The way in which biotech addresses these issues will ensure disruption to existing business models and structures, spur innovation across the ecosystem and remake what it is that industries do and how they do it. The speed of biotech’s impact on a given market is likely to be exponential once initial case uses are established and commercialized.

As organisations we remain unprepared for the changes that biotechnology could instigate within healthcare, industrial and agricultural spheres. The biggest change of all may occur outside of these three main biotech realms however, as none adequately convey the extent of change that consumers will experience. This alone makes biotech a key technology even for players outside these three sectors. One need only look at the ripple effect from Amazon’s customer experience to acknowledge that expectations set in one industry often translate to others.

Our interaction with biotech will likely become a daily phenomenon in line with going online or using a smartphone. Our health, our houses and built environment and our food will likely all be impacted, as could the way we consume. Supply chains, partnerships and the necessary skills or business models to take advantage of this technology will undergo flux, challenging existing models and creating new opportunities.

Biotech is itself will prove transformational, but tomorrow’s winners will be those who craft new propositions, processes and models based on the confluence of a range of other emerging technologies and biotech. The IoT, 3D and 4D printing, data analytics, machine learning and other forms of artificial intelligence stand out as the most likely to combine with biotech and provide real innovation and disruption to our current consumer and industrial landscape.

[i] https://www.oreilly.com/ideas/how-synthetic-biology-startups-are-building-the-future-at-rebelbio

[ii] https://www.wired.com/story/biology-will-be-the-next-great-computing-platform/

[iii] https://www.weforum.org/agenda/2016/12/what-is-biotechnology-how-will-it-change-our-lives/

6Gen consumer market

Companies like Amazon and Baidu have helped heighten consumer expectations to the point that 76 percent of consumers now expect organisations to understand, and presumably act upon, their individual needs[i]. This sense of predictive personalisation and ease of doing business is becoming a prerequisite, rather than a source of competitive advantage; 75 percent of consumers now expect a consistent experience wherever they engage and 87 percent think brands need to do more to provide a seamless experience[ii].

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Whilst many consumer serving industries are struggling to adapt to this new reality, accelerated change is on the horizon. The World Economic Forum, for example, states that fluid consumer demands will ‘…cause the retail and consumer packaged goods landscape to change more in the next ten years than it has in the past forty[iii].’

The most obvious conduit for addressing these levers is technology. Engagement technologies powered by 5G, such as virtual reality and augmented reality that give rise to immersive retail, will help create new and increasingly personalised consumer experiences. The confluence of advanced analytics and context-specific data shift the balance of power away from the blurring manufacturer/retailer and towards the consumer – leading to proactive and predictive recommendations that support the user’s short, mid and even long term goals.

However, digitalisation is but one trend to consider will play out over the next decade in conjunction with other trends such as the primacy of the Asian consumer and Millennial spending and habits. Digitisation opens the way for new ways of servicing markets but is far from the only driver; a rage of other factors need to be considered. By 2026, we will have the world’s first six-generation consumer market[iv], and thanks to a plethora of new engagement methods, a very crowded concept of the omnichannel. Transforming to meet, or even help set expectations, is perhaps the only way forward for those wishing to prosper from the emerging commercial ecosystem.

The gap between ‘What’s possible’ and business as usual is in many cases widening. Technology is evolving at a rate far greater than many businesses can adapt to, let alone use effectively in a strategically coherent manner. Boundaries between on and offline will continue to blur, as will retailer, manufacturer and consumer. New value pools and markets could open to those with the vision and strategy to make this happen. We at the start of the consumer evolution, not the end. Companies need to adapt accordingly.

[i]  https://www.forbes.com/sites/stanphelps/2017/01/27/mind-the-customer-expectation-gap/#768f9ef57cb7

[ii]  https://www.forbes.com/sites/danielnewman/2018/04/25/4-technologies-driving-the-future-of-customer-experience/#1a4b8c293089

[iii] http://www3.weforum.org/docs/IP/2016/CO/WEF_AM17_FutureofRetailInsightReport.pdf

[iv] https://www.atkearney.com/web/consumers-250

The intelligent divide and the future of leadership

Our current thinking, embedded in models from the 19th and 20th century, is ill-prepared for the uncertainties of the current decade, let alone the fundamental changes that artificial intelligence heralds for how we lead our organisations.

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As we transition from the digital to the intelligent age, few would argue that we live in an age of data, yet alarmingly, the share of companies that call themselves data-driven is falling, not rising[i]. Data and A.I, specifically machine learning, are becoming ever closer intertwined – in some cases the former is already worthless without the latter.

Organisations are already aware of this, and some major companies are transforming their core and rethinking their functions. ‘The process expertise honed by HR, finance, marketing and IT will largely be automated. The most critical skills will be digital, analytical and communications oriented[ii].’

Much of the focus of automation has focused on two paths; the first to come into popular literature was the chances of a given job being automated. The second more granular approach was to look at the percentage of tasks within a job that could be automated. The third, as yet under-explored path, is arguably of greater pertinence in terms of the impact automation has on leadership and how it translates into cultural and organisational change.

It is also forecast that by 2022, more than half of significant new business systems will incorporate continuous intelligence that uses real-time context data to improve decisions[iii]. Few if any current organisations are ready for this technologically, let alone in terms of culture, leadership or structure. Three years later may witness more than half of all data being managed autonomously[iv]. This outsourcing’ will place a premium on data skills and comfort of working in the intelligent age.

Future leaders, while fully versed in data, will need to place culture and individuals at the forefront of their transformation efforts. Change management, job design, continuing education and other facets traditionally delegated to HR are now key future drivers of success and should be on the CEOs radar. The current gap (and future tension) between the expectations of the intelligent age and corporate realities is exacting and without remorse. However, leaders unable or unwilling to adapt will find their skillset, practice and business models challenged and made redundant.

[i] https://hbr.org/2019/02/companies-are-failing-in-their-efforts-to-become-data-driven

[ii] https://www.strategy-business.com/article/HQ-2.0-The-Next-Generation-Corporate-Center?gko=83800&sf205503319=1

[iii] https://www.information-age.com/gartner-data-and-analytics-technology-trends-123479234/

[iv] http://www.oracle.com/us/solutions/cloud/oracle-cloud-predictions-2019-5244106.pdf

Globalisation is dead: long live globalisation

The 1990-2010 period of globalization is over. Recent political trends may in time find themselves buttressed by technological ones. Chinese investment into Europe and America fell by 73 percent in 2018. The Economist has noted that this slowdown has been observable since 2011, and will increasingly reinforce deeper links within regional blocs. Globalisation, in its current guise, is being replaced by regionalism. ‘Supply chains in North America, Europe and Asia are sourcing more from closer to home. Asian firms made more foreign sales within Asia than in America in 2017. As global rules decay, a fluid patchwork of regional deals and spheres of influence is asserting control over trade and investment[i].’

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There is enormous scope for this to happen since the foreign operations of multinationals around the world generate only around 9 percent of global output – a sizeable chunk for sure, but perhaps below most people’s assumptions. Harvard Business Review further notes that ‘…exports of goods and services add up to 29 percent of world GDP, but that figure comes down to ~20 percent adjusted for output that crosses borders more than once[ii].’

Counter to popular perceptions, today only 18 percent of goods trade is based on labour-cost arbitrage, while over 80 percent of today’s global goods trade is not from a low-wage country to a high-wage country[iii]. Technology could further hasten regionalism: ING suggests that up to 50 percent of manufactured goods (some $6 trillion) could be 3D (or 4D) printed by 2060[iv]. Some scenarios in which investment doubles every five years even show this threshold reached by 2040. The result could be a reduction of world trade by one quarter by 2060, or even two fifths by 2040 under the accelerated scenario[v].

The confluence of political, technological and perhaps eventually, economic trends, suggests that globalization 2.0 is, if not already dead, in serious trouble. Whilst many suggest something dark could take its place, it is entirely plausible that globalisation 3.0 will emerge for the better. Fueled by 5G and assuming the net does not succumb to regionalism or worse, it is likely that future value chains will become increasingly intangible and knowledge based. As McKinsey notes, ‘…in the next round of globalisation, it will be countries with the best talent, not those with the lowest wages, that will have the upper hand[vi].’ With the global economy forecast to double by 2050, there is all to play for[vii] and all to gain for those able to reorient their education systems to prepare.

[i] https://www.economist.com/leaders/2019/01/24/the-steam-has-gone-out-of-globalisation

[ii] https://hbr.org/2019/02/the-state-of-globalization-in-2019-and-what-it-means-for-strategists

[iii] https://www.mckinsey.com/featured-insights/innovation-and-growth/globalization-in-transition-the-future-of-trade-and-value-chains?cid=other-soc-twi-mgi-mgi-oth-1901

[iv] https://think.ing.com/reports/3d-printing-a-threat-to-global-trade/

[v] https://think.ing.com/reports/3d-printing-a-threat-to-global-trade/

[vi] http://fortune.com/2019/01/17/globalization-trade-cheap-labor-mckinsey/

[vii] https://www.valuewalk.com/2019/01/top-10-largest-economies-2050-china/