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

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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.

data

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/

Unleashing finance: banks’ response in a changing ecosystem

It is suggested by Harvard Business Review that the coming phase of technological disruption is set to change banking more than the Great Recession did[i]. At the core of the issue is that ‘… strategic success now requires a structural response. A company can’t adapt to 21st-century conditions without modernizing its 20th-century structures[ii].

platformeconomy

Indeed, only 19 percent suggest their organisation has market leading digital capabilities[iii]. This should be conceived as a systemic issue; leadership, technology, organisation (and business models) and future skills and talent all impact each other to such a degree that, from a strategic sense, you cannot look at technology in isolation. This has been well documented with regards to digital transformation and being data driven.

By 2025, around 160 zettabytes of data are forecast to emerge every year. For context, if all the words ever spoken over the last 3000 years were converted to audio files, the overall size would approach 40 zettabytes of data[iv].  By this date, nearly a fifth of all data generated worldwide is forecast to be marked as ‘critical’ to daily life, and nearly a tenth forecast as ‘hypercritical[v].’

Being data driven does not equate to using plug and play technology, however. 54 percent of executives say that having a corporate culture unable to embrace digital technologies is one of their biggest barriers[vi]. 68 percent of executives say that their organisation needs new leadership to compete in the digital age[vii] and only 7 percent to 18 percent of organisations possess the digital dexterity to adopt new ways of work solutions, such as virtual collaboration and mobile work[viii].

Legacy systems simply won’t cut it with fifty years of digital transformation happening in the next five years[ix], whether from a technical, cultural, organisational or managerial perspective. Gartner’s suggestion that 80 percent of incumbents will expire by 2030 might well be an exaggeration or evidence of unwarranted hype, as has been widely noted. Yet the fact remains that banks have no right of place in the new economy and if they themselves do not enact systemic change, their Kodak moment could imminently arrive. Those unwilling to adapt their business model to the emerging ecosystem will miss the bulk of opportunities inherent in a new era of increasingly decentralized, distributed and ambient finance.

[i] https://hbr.org/2017/10/how-the-great-recession-changed-banking

[ii] https://www.strategy-business.com/article/The-Insurance-Industry-Needs-an-Intervention?gko=edb5b&sf192099736=1

[iii] https://www.bcg.com/en-us/publications/2018/global-corporate-banking-2018-unlocking-success-through-digital.aspx

[iv] https://www.forbes.com/sites/quora/2017/12/20/which-areas-in-investment-banking-are-experiencing-talent-gaps/#2a9b6a0b5450

[v] http://www.itpro.co.uk/big-data/30541/smart-cities-to-become-the-norm-by-2025

[vi] https://www.cmo.com/features/articles/2017/12/25/the-times-are-achangin-for-change-management.html#gs.vAewvis

[vii] https://sloanreview.mit.edu/article/common-traits-of-the-best-digital-leaders/

[viii] https://idm.net.au/article/0012055-gartner-says-digital-dexterity-missing-ingredient

[ix] https://www.cognizant.com/perspectives/the-future-of-it-infrastructure

Ambient CX

Global consumer patterns are being permanently rewritten along the lines of influence, personalisation and trust. Indeed, personalisation is reckoned by Boston Consulting Group to drive a revenue shift of $800bn by 2022 for the companies that get it right[i]. The most obvious conduit for addressing these levers is technology. Engagement technologies such as virtual reality and augmented reality that give rise to immersive retail will help create new and increasingly personalised consumer experiences. However, the gap between promise and execution will be a treacherous one for many organisations. In a Pew study (2018), 47 percent of respondents predicted that individuals’ well-being will be more helped than harmed by digital life in the next decade. Interestingly 32 percent say people’s well-being will be more harmed than helped[ii]. Despite the advantages of digital, there is clearly a degree of mistrust, resistance and antipathy towards processes seen as ‘impersonal.’ Perhaps nowhere is this clearer than with customer service.

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It has been suggested that by 2020, 85 percent of all customer interactions will be handled without a human agent[iii]. Chatbots could account for a full quarter of all customer service operations[iv] and 90 percent of retailers believe A.I infused virtual assistants will improve customer service[v]. However, PwC data suggests that 75 percent of consumers say they want more human interaction in the future, not less. Indeed, around two thirds of consumer feel that companies have lost touch with the human element of customer engagement[vi]. Whilst emotionally intelligent applications of artificial intelligence can undoubtedly improve overall service – whether through advanced natural language processing or cognitive systems/ machine learning, only 3 percent of U.S, consumers say they want fully automated experiences[vii].

The answer will in part, lie in empowering frontline workers with precise and accurate technological tools, as well as augmenting backend systems to work as seamlessly as possible. Indeed, a fully human system is unlikely to satisfy consumer demands at scale since it cannot match the efficiency provided by expectation setting companies such as Amazon. Those who find how to balance ever spiraling expectations and a desire for ‘connection’ will likely be tomorrow’s winners. To succeed at scale will require close attention to design principles and crafting truly consumer-centric business models that incorporate technology ‘invisibly’ and unobtrusively as well as significant investment in change management and human skills and preparedness. Some 83 percent of shoppers currently believe they’re more knowledgeable than retail store associates[viii]; such perceptions are simply unsustainable. Firms need to ‘…adopt a customer-based approach that considers value within the broader context of a customer’s lifeworld[ix].’

[i] https://www.bcg.com/publications/2017/retail-marketing-sales-profiting-personalization.aspx?linkId=41155830

[ii] http://www.pewinternet.org/2018/04/17/the-future-of-well-being-in-a-tech-saturated-world/

[iii] https://www.ibm.com/blogs/watson/2017/10/10-reasons-ai-powered-automated-customer-service-future/

[iv] https://www.computing.co.uk/ctg/news/3026950/chatbots-to-make-up-a-quarter-of-customer-service-operations-by-2020

[v] https://www.letslinc.com/wp-content/uploads/2017/07/Linc_Brand-Garage_Customer-Service-and-AI-Report.pdf

[vi] https://www.pwc.com/us/en/press-releases/2018/experience-is-everything-heres-how-to-get-it-right.html

[vii] https://www.pwc.com/us/en/services/consulting/library/consumer-intelligence-series/future-of-customer-experience.html

[viii] https://www.retaildive.com/news/survey-83-of-shoppers-think-they-know-more-than-store-associates/438307/

[ix] https://www.researchgate.net/publication/264429263_Interpreting_value_in_the_customer_service_experience_using_customer-dominant_logic

The agile airport

Despite lower middle class growth, Europe is expected to add the most passengers of any region, other than Asia-Pacific to 2036. Indeed, just four years later could mark a doubling from 2017’s figures as 4.5 billion in total fly into and around the continent[i]. The nature of such growth is not without challenges for airports however. Since it is low cost carriers (LCCs) that are primarily driving European passenger growth, growth models will need to be carefully considered – even on an airport by airport basis. Low cost carrier growth implies, as ACI Europe notes, ‘…significant pressure on aeronautical revenues, [ii]’ since 90 percent of European airports offer discounts to attract, retain and grow air traffic. The shift towards LCC’s also provides airports opportunities for the provision of services not met by airlines – whether in terms of food, lounges or other ancillary services. Within Europe alone, not to mention other faster growing markets, there is likely to be significant bifurcation of airport models, airline-airport relations and perhaps even financing. All of these factors have significant implications for the environment in which aviation players will be able to make future decisions.

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Underlying this is a need for a new infrastructure paradigm: on a global scale, air traffic could grow at 4.4 percent annually to 2037, requiring some 37,400 new passenger and freighter aircraft totaling $4.8 trillion in value[iii]. Since every region is likely to see a doubling or more of passenger aircraft between 2018 and 2037, the implications for the need for new infrastructure is clear.

Between $1.2 and 1.5 trillion is expected to be spent on global airport infrastructure development up to 2030, according to IATA[iv]. China alone, plans to build 136 new airports by 2025[v]. Additionally, all of London’s major airports are forecast to be at capacity by 2030, India’s to exceed capacity by 2022 while the United States needs $75 billion invested by the early 2020’s[vi].  Despite the significant increase in capital spending this would represent, there are reasons to suggest it may still prove insufficient if middle class livelihoods enjoyed in the West go global.

Putting aside physical space, apron capacity, runway development and other ‘hard’ infrastructure issues for a moment, a report from the World Economic Forum states that the entire underlying travel system will need an overhaul. The rationale is simple enough; the current network of passports, border control points and customs checks is not able to be both highly secure as well as efficient enough to cope with a 50 percent increase in worldwide travel[vii]. Technology could undoubtedly help mitigate this, but it is not clear whether infrastructure projections include root and branch reform of airport operations in addition to the necessary hard infrastructure needs.

Technological progress, in the wider sense, could also present direct challenges to current business models. The diffusion of sharing economy practices and eventually autonomous vehicles could create a financial issue for many airports – parking revenue typically represents a quarter of annual airport budgets[viii]. Such revenue typically averages 40 percent in North America and 20 percent in Europe. Similar challenges and opportunities abound in the wider smart city environment – indeed it has been noted that airports will increasingly resemble smart cities in microcosm[ix] and share many of the issues relating to data flows and consumer centrism.

With future growth likely significant but the extent unknowable, future proofing airports is a significant challenge – especially given long lead times for construction[x]. Agility, in design, business model and even use of space will be central to this, since the future remains fundamentally unknowable. If, for example recent trends evident in the United States and elsewhere, such as trade protectionism or forms of travel restrictions, proliferate, up to 1.1 billion fewer passenger journeys could occur annually in 2036. Conversely, an increased push for liberalisation of trade and travel could result in a tripling of passengers by this date[xi]. Making calls now, for a future where these margins have vastly different outcomes, will require a new sense of business agility, the use of futures methods such as scenario planning and an increasingly multi-sided business model.

Airports in key strategic locations are already placing their bets. Future megahubs like Istanbul New Airport, Dubai World Central and Beijing Daxing International, ‘…have each been designed to accommodate upward of 150 million travelers a year[xii].’ All are built on a relatively traditional hard infrastructure however and future possibilities may force the current mental models on which they are built to undergo reassessment. For example, it has been suggested that ‘…by 2050, runways could become circular, double-decker or be built remotely in the sea. Circular runways will tackle weather restrictions such as wind and allow planes to take off from any direction. Remote runways in the sea are also expected to exist as well as double-deck runways so no added space is used[xiii].’ Whether this becomes standard, proves a point of competitive differentiation or even appears at all, it is unlikely that huge current investments or existing infrastructure will be able to adopt to such practices seamlessly. The question then becomes ‘…what role do we see (current) airports fulfilling in the future?’

[i] Source: Independent (Ireland), 2018 https://www.independent.ie/business/world/airport-traffic-in-europe-tipped-to-double-by-2040-37029090.html

[ii] Source: Independent (Ireland), 2018 https://www.independent.ie/business/world/airport-traffic-in-europe-tipped-to-double-by-2040-37029090.html

[iii]Source: Airbus, 2018  https://www.airbus.com/aircraft/market/global-market-forecast.html

[iv] Source: IATA, retrieved 2018  https://www.iata.org/whatwedo/ops-infra/airport-infrastructure/Pages/index.aspx

[v] Source: CNN, 2018 https://www.cnn.com/travel/article/asia-airports-worlds-best/index.html

[vi] Source: Virgin Hyperloop One, 2018 https://hyperloop-one.com/blog/five-realities-shaping-future-airports

[vii] Source: WEF, via CSO Online, 2018 https://www.csoonline.com/article/3259889/biometrics/self-sovereign-biometrics-and-the-future-of-digital-identity.html

[viii] Source: Bloomberg, 2017 https://www.bloomberg.com/news/articles/2017-07-21/the-airports-of-the-future-are-here

[ix] Source: Apex, 2018  https://apex.aero/2018/1/25/smart-connected-airports

[x] Source: International Organization for Standardization, 2017 https://www.iso.org/news/2017/01/Ref2154.html

[xi] Source: IATA, 2017 https://www.iata.org/pressroom/pr/Pages/2017-10-24-01.aspx

[xii] Source: Apex, 2018  https://apex.aero/2018/1/25/smart-connected-airports

[xiii] Source: Vero Solutions, retrieved 2018 https://vero.solutions/future-airports-can-expect/

Aviation in the Asian century

Aviation is a core platform for economic development around the world, supporting some 63 million jobs and around $2.7 trillion in economic development[i].  This is largely dependent on the 10 million passengers who embark on aircraft every day, a number that could increase to 21 million in around 15 years’ time[ii].

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Not only does this growth necessitate new infrastructure, it compels a new mindset since the future ‘destination’ is continuously evolving. For example, from close to 4 billion today, almost 6 billion annual international air passengers are expected by 2030[iii], some 7.2 billion in 2035[iv] and 7.8 billion by 2036[v]. This carries implications for infrastructure (including technology), sustainability, design, capacity, and even pricing.

Each of these issues will have regional expressions. Indeed, given the relative aviation infrastructure gaps in say Africa and Latin America, to say nothing of Asia, we would expect exciting new development concepts to appear there unencumbered by legacy systems and driven by strong middle class growth.

While the growth of the middle class is not the sole driver of passenger growth, earning between $4,000 and $40,000 has been proven as a key driver of international mobility. Certainly, in many emerging markets the coincidence of rising middle class and passenger growth is evident. Regions with strong middle class growth to 2037 also see strong passenger growth.

Despite the significant growth in Asia-Pacific, both in terms of middle class numbers and passenger growth, it is plausible that forecast Asia-Pacific passenger numbers are overly conservative in the long term.

This is because, while the ratio of passengers to middle class numbers in Asia is set to rise from 1:1 in 2017 to 1.25:1 in 2036/7, this remains far below ratios seen in Europe and North America. Respectively, these ratios are forecast to grow from 2.09:1 to 3.13:1 and from 2.87:1 to 4.54:1, while the highest growth is set to occur in the Middle East which almost doubles from 1.04:1 to 1.99:1. If anything the growth of extra passengers in Asia Pacific appears relatively ‘weak,’ given its strong middle class growth and when in comparison to Latin America and the Middle East, where each new middle class consumer correlates with around a doubling in demand for international movement. This is not the case in Asia. This relative ‘weakness,’ can also be seen in overall ratios.

Indeed, were Asian ratios to approach forecast North American or European levels, travels per middle class resident would almost triple. With lead times approaching 20 years for some forms of airport infrastructure, there is a need for planners to assess technologies that enable for more flexible construction as well as create new financing models quickly able to scale.

These figures do not account for domestic travel, which will naturally skew high in large countries such as India and China, and do not account for travel by High-Net-Worth-Individuals. They do however, suggest that even higher growth than is currently predicted is possible, with longer term growth in Asia, and indeed Africa, plausible beyond the forecast range.

[i] Source: International Organization for Standardization, 2017

https://www.iso.org/news/2017/01/Ref2154.html

[ii] Source: CNBC, 2018 https://www.cnbc.com/2018/05/03/worlds-airports-need-investment-to-cope-with-massive-growth-in-the-future-ceo-says.html

[iii] Source: ICAO, 2017 https://www.icao.int/SAM/Documents/2018-USAPCMA/Global_Aviation_Security_Plan_November_2017_en.pdf

[iv] Source: ABC News, 2018 http://www.abc.net.au/news/2018-02-01/flight-of-the-future/9380290

[v] Source: IATA, 2017 https://www.iata.org/pressroom/pr/Pages/2017-10-24-01.aspx

[vi] Source: Airbus, 2018 https://www.airbus.com/aircraft/market/global-market-forecast.html

[vii] Source: IATA, 2017 https://www.iata.org/pressroom/pr/Pages/2017-10-24-01.aspx