In an article titled, “Management intuition for the next 50 years,” the authors highlight the following forces at work:
1) Dynamism in emerging market: The paper states that for the first time in more than 200 years, emerging markets contributed more to global economic growth than developed ones did. By 2025, emerging markets will have been the world’s prime growth engine for more than 15 years, China will be home to more large companies than either the United States or Europe, and more than 45 percent of the companies on Fortune’s Global 500 list of major international players will hail from emerging markets—versus just 5 percent in the year 2000.
Many small and medium-sized cities are witnessing the bulk of new economic activities. See for example the economic map of China showing some of the new entrants.
2) Technology and connectivity: The article estimates that the world added roughly 5 exaflops of computing capacity in 2008 (at a cost of about $800 billion), more than 20 in 2012 (to the tune of just under $1 trillion), and is headed for roughly 40 this year. These extraordinary advances in capacity, power, and speed are fueling the rise of artificial intelligence, reshaping global manufacturing, and turbocharging advances in connectivity.
3) Aging populations: For the first time in human history, the planet’s population could plateau in most of the world and shrink in countries such as South Korea, Italy, and Germany. Without a boost in productivity, a smaller workforce will mean lower consumption and constrain the rate of economic growth.
4) The great collision: The dynamics witnessed on both the demand and the supply side of the global economy is potentially leading to an inflection point. On the demand side, since the 1990s we’ve been enjoying a virtuous cycle of export-led emerging-market growth that created jobs, raised incomes, and generated enormous opportunities in those markets, while also reducing prices for goods in developed ones and enabling faster consumption growth in the West. As emerging markets get richer, it will be harder for them to play the low-cost-labor arbitrage game, making it critical for local consumers to emerge as growth drivers in place of ever-rising exports to developed markets. It will also be harder for Western consumers to continue enjoying de facto gains in living standards resulting from ever-falling import prices. As all this happens, trade between emerging markets, already on the rise, should continue growing in importance.
On the supply side, we’ve been operating for many years on a two track productivity model, with developed markets continually pushing forward and emerging markets playing catch-up. Emerging markets are still less productive than developed ones, and those with capital intensive catch-up models will find them difficult to maintain as their economies become more consumer and service oriented. On the other hand, digitization and mobile technologies should provide a platform for product and service innovation, as we are already seeing in Africa, where 15 percent of transactions are carried out via mobile banking (versus 5 percent in developed markets), and in China, where Alibaba has proved that consumer online markets can take on unprecedented scope and scale.
Management Implications:
1) Setting strategic direction: About two-thirds of a company’s growth is determined by the momentum—the underlying growth, inflation, income, and spending power—of the markets where it competes. Harnessing market momentum in the years ahead will require covering more geographies, more industries, and more types of competitors, prospective partners, and value-chain participants— as well as more governmental and nongovernmental stakeholders.
The importance of anticipating and reacting aggressively to discontinuities also is rising dramatically in our increasingly volatile world. That means monitoring trends, engaging in regular scenario-planning exercises, war-gaming the effects of potential disruptions—and responding rapidly when competitive conditions shift.
The strategist increasingly needs to think in multiple time frames. These include a company’s immediate tactics and ongoing improvements to counteract new competitive threats, market selection and emphasis given current capabilities and competitive positions, investments to enhance capabilities within the current strategic construct and to enable entry into adjacent markets, and, for the longest term, the selection and pursuit of new, long-lived capabilities.
2) Building new management muscle: This can be done by considering the following –
- Everyone a technologist
- Managing the new workforce
- Rethinking resources
3) Breaking inertia: The period ahead should raise the rewards for moving with agility and speed as digitization blurs boundaries between industries and competition in emerging markets heats up. It would be easy, though, for organizations and leaders to become frozen by the magnitude of the changes under way or to tackle them on the basis of outdated intuition. Taking the long view may help.
Source: Dobbs, R., Ramaswamy, S., Stephenson, E., Viguerie, S. P. 2014. Management intuition for the next 50 years. McKinsey Quarterly, September 2014.