Megatrends Are Reshaping the Globe, Here’s What Your Business Can Do to Ride The Wave
Words by Greg McKenna. Designed by Daniel Goh
Words by Greg McKenna. Designed by Daniel Goh
Change is constantly remaking the society in which we live. But the ability to identify these changes as they happen is essential to getting in front of the wave.
With the benefit of hindsight, it’s easy to see what drove Brexit, the rise of Donald Trump, and that there was a chance Bernie Sanders could have defeated him when Hillary Clinton could not. It’s easy to see the shift in appetite for fossil fuels, that Amazon was going to remake retail, and could soon do the same with US trucking. And it’s easy to see how Uber and Lyft would so utterly shake up the global taxi industry, or that the access to the cloud and digitalisation that drove this disruption would also shake up many industries across the globe.
Hindsight also makes it possible to see the signals that were missed by the major political powers of Europe, but which precipitated the First World War. It also seems possible to see the changes the climate is rendering right now. And, if we pay enough attention, perhaps we can identify in real time the emergence of trends that will remake the world we live in the next year, the next decade, and 30 years from now.
We might notice: Modern Monetary Theory, the rise of Alexandria Ocasio-Cortez, the globe’s aging population, the emergence of AI, and the acceleration of climate change, and the new movement to push back against it and what many see as corporate greed.
These and many other trends — nascent or emerging — have been years in the making and no doubt, in the future, we’ll look back and wonder why the obvious was missed by today’s leaders in business and politics.
Understanding these changes and the convergence of global forces – megatrends if you will – that change the shape of the way people, business, society and politics operate as we move further into the 21st century is going to be critical to business survival in the years and decades ahead.
Put simply, there are a number of megatrends driving changes in the geopolitical, economic, environmental, social and technological sectors. These changes are in turn increasingly reshaping what were previously seen as fixed or established relationships across the globe, blurring business boundaries, and driving the rise of “ecosystems” — where different businesses collaborate to work in synergy as one whole — as a way to think of and operate in the global economy.
As a result of the rise of ecosystems, there has been a blurring of boundaries between what were seen as previously unrelated industries and businesses. This has necessitated a new way to think about how businesses operate.
But first, let’s understand the changes rendering the old world order fundamentally changed, if not redundant.
Stefan Hajkowicz, director of the CSIRO’s Data61 Insight team, wrote in his 2015 publication “Global Megatrends, Seven Patterns of Change Shaping Our Future” that megatrends are powerful forces that can reshape the world we live in and it’s dangerous to ignore them or push back against them.
According to Hajkowicz, megatrends are the “gradual yet powerful trajectories of change that will at some point express themselves with explosive force and throw companies, individuals and societies into freefall”.
He believes the message is clear: businesses, management, staff and all stakeholders, as well as the general population, must be aware of these megatrends and adapt to ride them by making active choices – not passive ones which will cause the businesses to be swept along by the trend.
How to Look Ahead
The good news is Hajkowicz doesn’t just highlight the megatrends, he also gives businesses a framework they can use in order to conceptualise what their future may look like.
Hajkowicz sets up that framework by way of analogy. Imagine a camper with one torch who asks: “Is that a tree stump or an angry bear up ahead?” The single torch beam can only show part, but not the whole object. He said a “megatrend is a like a beam of light illuminating parts of a distant object. The distant object lies in the future. The further away it lies the harder it is to illuminate”.
Hajkowicz said if it’s not a tree stump and a bear emerges, businesses will have a moment of freefall. “Once you discover an angry bear your world will change radically. If you’ve not taken precautions you’re not likely to emerge in one piece,” he said.
Uber and the global taxi industry are a good example of how this can happen in business. This chart from Bank of America in 2016 shows how swiftly Uber and Lyft started to kill the business of traditional taxis.
It is clear, taxi companies didn’t see the disruption coming. They were suddenly in “freefall” and in recent times, Lyft has gone public at a $24 billion valuation while Uber went public at a $90 billion valuation.
It’s one industry example, among many, in recent decades where we have seen the disruptors sneak up on traditional business models.
A Framework for Reading the Future: “The Four Ps”
Hajkowicz said we need to think in terms of the “four Ps of the future” – the probable, plausible, possible and the preferable.
The Probable “are events which are known to have occurred in the past and are expected to occur again in the future”. That is, there is a dataset which allows some forecasting using “statistical models and confidence intervals”.
Think rainfall, temperature, humidity, and population projections.
The Plausible “stretches us beyond the probable to events which may not have occurred in the past and for which a statistical calculation of future occurrence is not feasible.” But a plausible event flows from “an evidence base from which a future event can be deduced using logic and reason”.
Hajkowicz suggested the emergence of the online retail industry was a plausible future as the “internet was beginning to emerge” and as “websites were developing a functionality to record credit card details and charge electronic bank account”. He said from there it is easy to see a plausible future where a wallet is no longer required and our identification cards, credit cards and loyalty cards are all on our smartphone.
It should be noted Hajkowicz was writing in 2015 and this year the NSW Police Force website announced “the NSW Government will introduce the Digital Driver Licence (DDL) state-wide in mid-2019”.
The art of the plausible in action.
The Possible is simply “anything that could potentially happen in the future” casting a wide net over even those which “may have a low or incalculable probability”. The possible is really a calculation of X-Factors which can have an impact on the future.
The Preferable is simply the “desired pathway of change we can attempt to make” and falls somewhere within the other three potential outcomes. Preferable is “not always achievable,” Hajkowicz said, but this is where companies can work what might happen into actual strategy.
Putting the Framework into Action
To properly undertake this planning process Hajkowicz used what he called the “foresight study”. His team at the CSIRO have identified 4 major stages:
- An environmental scan in the form of “an exhaustive search for signals and trends potentially relevant to decision makers” which must “cast a wide net.”
- Validate and prioritise information to identify trends ensuring two tests are passed, (a) proof that it’s happening and (b) the so-what-factor – why does it matter?
- Craft the narrative of the future.
- Communicate the results.
Megatrends Taking Shape Now
Clearly what flows from the four Ps is that each person, business, governmental department or whole of government is going to be faced with a different set, or subset, of megatrends depending on their operational focus.
Either way, it is smart for businesses to have an understanding of the megatrends in action right now.
According to the CSIRO, the 8 baseline megatrends reshaping the globe right now include:
- More for less – is the narrative about resource scarcity, which Hajkowicz said in his 2016 book “will change the way we live … change the way markets operate and the ways societies govern themselves”.
- Planetary pushback – whether it’s antibiotic resistance, climate change, or other pushback from the planet, Hajkowicz said in a May 2019 article in the Australian Institute of Company Directors magazine “your company will be vulnerable to new and increasing risks associated with environmental change”.
- The Silk Highway – is analogous to China’s Belt and Road initiative and the emergence of China and Asia as global economic powerhouses. Business leaders can’t just ignore the Asia Pacific.
- On the move – whether it’s the concentration of populations into cities, the commuting that flows from that, the interconnectedness of the global economy for business and leisure travel, not to mention data mobility or the movement of freight transport and logistics. All are a continuing important focal point and trend.
- Forever young – as birth rates fall across the globe, there is a clear demographic shift toward an older population. This is becoming true of many emerging countries, as it is of developed economies, at differing stages. This is going to pose resource allocation and productivity issues for governments and society.
- Digital immersion – “the rise and continued rise of the digital world” and technology is reshaping “business models, jobs, learning, communications, governance systems and lifestyles for practically every profession,” which means business leaders “won’t need a digital strategy because there won’t be any other type of strategy,” Hajkowicz said.
- Intelligent machines – technology has got to the point now where “we are building machines that have the ability to learn and improve their operations without explicit human guidance,” Hajkowicz said, which means “science fiction has become science fact”. Thus, business needs to adapt to this “new world of autonomous systems”.
- Keeping it real – as digital immersion deepens the value of “real” experiences and digital detoxes will grow. Hajkowicz said this means business leaders need to ensure they “don’t lose sight of what the human customer wants” during the company’s digital transformation journey.
Turning Megatrends Into Action – The Rise of Business Ecosystems
The geopolitical, economic, environmental, social and technological changes driven by megatrends have led to the need to blend boundaries across business and create ecosystems.
Ecosystems are groups of companies that have crossed over established boundaries, blurring the lines of traditional industry relationships. Business ecosystems generate an interconnectedness, which allows companies to work together to better deliver value for their companies, their customers and stakeholders by sharing knowledge, understanding and processes.
Michael Jacobedes, a professor of strategy at the London Business School and global expert on business ecosystems, explained how ecosystems emerged in a BCG Henderson Institute podcast with Martin Reeves, a senior partner and managing director in the New York office of Boston Consulting Group.
Jacobedes said ecosystems have arisen due to technological advancement allowing the combination of different business modules in new ways. The result is that these changes are driving the emergence and strengthening of interconnected businesses. It’s a new way for managers to think about their businesses and the relationships on which they are built – with competitors and partners.
For example, we have “seen the dissolution of the ways that we had structured our economy. We had them in fairly clustered sectors and firms that were insular — and now what you see is the result of both changes and regulation — but also changes in technology”.
In a 2017 McKinsey podcast senior partners at the firm, Venkat Atluri and Miklos Dietz, spoke with McKinsey’s David Schwartz about how business is evolving in a world of sectors without borders.
Atluri defined ecosystems as, “a complex network of interconnected businesses that depend on and feed on each other to deliver value for their customers, to the end users, and their key stakeholders”. He added that within an ecosystem, you may see loosely defined relationships or contracts between the stakeholders. As the businesses or sectors intersect, you will ultimately see a blurring of borders. There are multiple elements that are driving the rise of ecosystems. Atluri highlighted three of the primary drivers:
- “We’re seeing a growth/exponential effect on what technology could do for a player in one sector to go and capture value beyond their own sector. A good example of that would be the ability to go buy compute power, the ability to go buy compute storage”.
- “The by-product of that is that’s driving the pace of change and accelerating the level of innovation, a level of potential for value delivery, a lot more than we have ever seen before. The effect of acceleration that the technology and data availability is having is really unprecedented.”
- “Consumer expectations have evolved to a point where they’re expecting you, as a provider of goods and services, to know what their needs are and serve those needs proactively”.
Granny Wanted Email, She Just Didn’t Know It
It’s easy to think that technology is driving all these changes but Alturi’s colleague at McKinsey, Miklos Dietz, said technology is simply facilitating the satisfaction of human desires.
“It is actually a natural human need, which is evolutionarily programmed into us and has always been in our brains, that we want things immediately. We don’t want to hustle. We want to maximize enjoyment. We want to get things ideally as easily and as simply as we can,” Dietz said.
“In this respect, what happened was that this technology is finally ready to realize deep, human need, which we had, and our grandmothers had when they were waiting in huge lines. They also wanted email. They just didn’t know that, and at that time, it could not happen.”
The wash up is that CEOs need to be thinking about sectors without borders – or ecosystems – and how to leverage them, Alturi said. He believes it all comes down to a mindset.
“Having the mind-set that the sum of the parts is going to be larger than the parts themselves,” Alturi said.
Making Ecosystems Work for Your Business
The case is clearly made that business managers and owners need to think deeply about the trends that will influence their business in the future, e.g. data, digitisation, the trend to a zero-carbon economy. These trends will change the very fabric of a modern Australian economy.
McKinsey’s Alturi and Dietz said the myriad of ecosystems that exist now will collapse into a much smaller number. The Commonwealth Bank’s Head of Client Solutions in Europe, Jack Russell agreed, he said that global connectivity and connections are reshaping the economy, and this is why the bank has recently reorganised into ecosystems to better help clients make the most of these emerging megatrends. These trends include the ubiquity of data and digitisation and will propel Australia to a more connected future. The Commonwealth Bank is well positioned to work with managers and business owners to navigate these new waters, which will be essential to the future success of Australian businesses.
BCG’s Jack Fuller, writing with the aforementioned Michael Jacobides and Martin Reeves in the MITSloan Management Review said ecosystems are, “multi-entity, made up of groups of companies not belonging to a single organization. They involve networks of shifting, semi-permanent relationships, linked by flows of data, services, and money.”
Fuller, Jacobides and Reeves explain that for businesses to flourish they need to be at the forefront of the move to ecosystems and strike the balance between commitment and flexibility.
“In order to make use of ecosystems, organizations need to shift from using a traditional, static, company-centric perspective, and instead apply new ways of thinking about strategy from an ecosystems perspective,” the report noted.
The US Director of National Intelligence website said in its article, “The Future Summarised”:
“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. Whether promise or peril prevails will turn on the choices of humankind … actors of the future will draw on networks, relationships, and information to compete and cooperate. This is the lesson of great power politics in the 1900s, even if those powers had to learn and relearn it”.
Of course, the DNI is speaking of great power and politics more than anything else but the message is as true for businesses as it is of politics, and their need to network into ecosystems.
This matters because business ecosystems have evolved as a result of the confluence of trends that have reshaped the global economic, geopolitical, environmental, societal, and especially technological backdrop in which business operates and interacts with customers, partners, and competitors. Ecosystems recognise the interdependence and interoperability of companies and industries, which were once seen as discrete with little, if any, crossover.
It's time to get busy, to find the right partners, to change your thinking, and look to take out points of friction in your business by thinking more broadly and outside your discreet industry or business, so you can ride the wave of change, not be swept along uncontrolled by it.
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