The upside of disruption Megatrends shaping 2016 and beyond Contents
4 Foreword
5 From disruption to megatrends
6 EY on disruption
8 Section 1: Understanding disruption
1. How did disruption become mainstream? 2. How is our understanding of disruption changing? 3. What are the root causes of disruption? 4. Why is responding to disruption so critical? 5. Why is it so difficult to respond to disruption? 6. How do businesses seize the upside of disruption? 7. How does disruption lead to megatrends?
18 Section 2: Megatrends 2016
1. Industry redefined 2. The future of smart 3. The future of work 4. Behavioral revolution 5. Empowered customer 6. Urban world 7. Health reimagined 8. Resourceful planet
52 How will you seize the upside of disruption?
The upside of disruption Megatrends shaping 2016 and beyond 3 Foreword From disruption to megatrends
Welcome to EY’s The Upside of Disruption. Disruption is As disruption becomes an everyday occurrence, we explore its everywhere and the future is uncertain — no one knows what the primary causes and the megatrends that are shaping our future world will look like even a decade from now. Our response is to help organizations find the opportunity in this challenge and ask: Disruption is fundamentally changing the way the world works. Today’s businesses, how do you seize the upside of disruption? government and individuals are responding to shifts that would have seemed unimaginable even a few years ago. Artificial intelligence and robotics are reinventing This report has been produced by EYQ, a new initiative from EY that will bring the workforce. Drones and driverless cars are transforming supply chains and logistics. together businesses, the public sector and academia to challenge entrenched thinking, And changing preferences and expectations — most notably in the millennial generation — shift perceptions and help catalyze change. This is the first of many insights to come are altering consumption patterns and demand for everything from cars to real estate. from EYQ. For more information on EYQ, see page 7. We have looked at the root causes of these transformative trends and, consequently, In this report, you’ll see the primary causes of disruption and how these give rise to a have identified three primary forces behind this current wave of disruption: technology, range of megatrends that are shaping our future. globalization, and demographic change. By understanding the interaction between these forces, we’ve identified eight global megatrends which are shaping the future. These are We investigate how each of these megatrends are affecting the world of work large, transformative trends that define the present and shape the future by their impact and society as a whole, and we share the questions that organizations must ask on businesses, economies, industries, societies and individual lives. themselves to stay relevant. Asking better questions is now more important than ever. The eight megatrends generate key questions to answer: Due to the accelerated pace of change, plans of today might be obsolete tomorrow, and thus learning how to ask the better questions can create or lead to the right thinking. Industry redefined.Is every industry now your industry?
When responding to disruption and these megatrends, organizations cannot afford The future of smart. What intelligence will we need to create a smart future? to fall back on old solutions. Embracing creativity, entrepreneurial spirit, diversity and inclusivity will enable businesses to challenge the prevailing paradigm and create The future of work. When machines become workers, what is the human role? new business models. By building robust and responsive ecosystems and driving collaboration in previously unexpected places, they can meet the evolving demands Behavioral revolution. How will individual behavior impact our collective future? of customers. Innovative practices such as these will be key to revealing the upside of disruption. Empowered customer. How will you change buyers into stakeholders?
The era of being afraid to make mistakes and take risks is over. Over the next 5 to 10 Urban world. In a fast-changing world, can cities be built with a long-term perspective? years, those who are bold and able to embrace disruption — and transform the way we all operate — will be the winners. Health reimagined. With growing health needs, is digital the best medicine?
Resourceful planet. Can innovation make the planet resource rich instead of resource scarce?
Uschi Schreiber EY Global Vice Chair — Markets and Chair, Global Accounts Committee @uschischreiber [email protected]
4 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 5 EY on disruption
See the connections, not just the dots
The march of disruption is unrelenting and this can leave today’s decision makers and leaders grappling with tremendous uncertainty and a broad array of challenges. Responding to disruption has become a central issue for incumbent organizations everywhere.
EY’s approach to disruption is to amplify the signal rather than the noise, and see the connections, not just the dots. We do this by widening the lens through which we see disruption.
Disruption has commonly come to mean a transformation of business models and value networks driven by technology or business innovation. However, the evidence is growing that it EYQ can come from public policy, macroeconomic trends, geopolitical events and other developments. At the same time, disruption EYQ helps organizations seize the upside upends more than business models and value networks; it can of disruption. We generate new insights by transform political systems, regulatory regimes, social compacts bringing together people from business, and much more. the public sector and academia to challenge entrenched thinking, shift perceptions and Just as important, the perception of disruption is shifting help catalyze change. from that of threat to opportunity. Incumbents have begun to embrace disruption to take advantage of the rapidly By asking better questions around changing environment. megatrends and other disruptive forces impacting the global economy, we can At a time when there are so many unknowns and no easy answers, we believe we must ask better questions. As people tease out more creative answers. This are becoming less afraid of disruption and more accepting of its report is an example of the insights EYQ inevitability, the better question becomes: How do you seize the will continue to deliver. upside of disruption? Asking better questions helps reveal the upside of disruption, which leads to a better working world.
6 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 7 Section 1: Understanding disruption
8 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 9 1. How did disruption become mainstream?
Disruption has worked its way into every sphere of our lives. Meanwhile, hundreds, perhaps thousands, of firms — from The rapid acceptance of disruptive innovations has led to a Blockbuster Video to Waldenbooks and Zenith Electronics — failed growing awareness in the business community that disruption is to adapt in time, and ended up either shadows of their former ubiquitous and accelerating. selves or out of business altogether.
To highlight how commonplace the idea has become, we charted The birth of disruption the number of media articles mentioning “disruptive innovation” between 2010 and 2015. Our research found an increase of The theory of disruptive innovation was first more than 440% during this period (see Media mentions of posited by Harvard Business School professor “disruptive innovation”, below). Clayton Christensen in 1995. According to Christensen, the term describes the transformation However, despite growing commercial awareness, only a handful of business models and value networks by technology of companies have successfully disrupted their own business or business innovation. models. For instance, Netflix switched its business model from one built on DVD home deliveries to one built on streaming. More At the time, he wrote about “disruptive technologies,” recently, auto giant Daimler have begun experimenting with since the most visible examples of disruption were moves into car-sharing and ride-sharing. in the information technology space. The frame of analysis soon expanded from disruptive technologies to disruptive innovation, since the phenomenon is not just about technological breakthroughs — disruption Media mentions of “disruptive innovation“ can equally come from other innovations, such as new business models or production processes. For instance, the disruptive innovation that allowed automobiles to displace horse carriages was not the internal combustion engine but rather assembly line production, which created reliable automobiles at an affordable price point. 378 624 918 1,528 1,745 2,075 Number of media articles about Number of innovation” “disruptive 2010 2011 2012 2013 2014 2015
Source: EY analytics using Factiva database. Figures show number of media articles mentioning “disruptive innovation” in each calendar year, excluding duplicates.
10 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 11 2. How is our understanding of disruption changing? 3. What are the root causes of disruption?
In the past two decades, the definition of disruption has expanded between governments and citizens, and perhaps even calling into Based on our analysis, we see three root causes behind disruption — what we refer to as “primary forces.” These forces — far beyond its textbook meaning — the transformation of business question fundamental aspects of the human experience. Indeed, technology, globalization and demographics — are not new. Indeed, they have been around for centuries. But they evolve in models and value networks by technology or business innovation one reason that the concept has gained widespread traction — successive waves, and it is these new waves that generate new megatrends. Understanding the next waves of disruption — and the (see The birth of disruption on page 11). appearing in everything from Hollywood movies to the surge of interactions between them — gives this root-causes-first approach more predictive power. populist political movements — is that it resonates so well with For one, it is increasingly evident that disruption does not stem much of our shared experience. Our approach also provides a simpler and more balanced perspective. It narrows the field of vision by focusing on three causes rather solely from technology or business innovations — it is also than a longer list of effects. It also widens the field of vision, since focusing on new waves of primary forces reinforces that any list of influenced by demographic shifts, globalization, macroeconomic megatrends is by definition incomplete and will expand over time. trends and more. The three primary forces of disruption are: It is also evident that the effects of disruption are beginning to extend far beyond the business world. For example, “sharing Technology. While we usually think of disruption in the of Africa and a more multipolar world — will increase complexity economy” start-ups such as Uber and Airbnb are already 1relatively recent context of IT, advances in technology and require flexible business models to respond to global shifts. disrupting regulatory frameworks. Meanwhile, some of the most have been disrupting business models for centuries. The disruptive technologies on the horizon (e.g., AI and robotics) will Industrial Revolution, for instance, eliminated guilds and Demographics. Throughout human history, demographics not only disrupt corporate business models, but also society as created massive labor displacement. In our lifetime, successive 3have determined destiny. In the decades ahead, relatively a whole — realigning income distribution, altering relationships waves of the IT revolution (PC, online, mobile, social) have high birth rates will make Africa and India engines of economic democratized data, empowered consumers and spawned opportunity. Aging populations will transform everything from scores of new industries. The next waves — the Internet of health care to real estate. Millennial-dominated workforces Things (IoT), virtual reality, AI, robotics — promise to be will reinvent the workplace. Urbanization will increase cities’ even more revolutionary. economic and public policy clout, even as it strains their ability to grow in sustainable ways. Migration and immigration will have Globalization. Like technology, globalization has been profound impacts on workforces and economic development. 2upending the status quo for centuries, going at least All these demographic shifts will require new strategies and as far back as the 15th century launch of the Age of business models. Discovery and colonialism. Globalization has accelerated in recent decades, thanks to trade liberalization and emerging The continued evolution of these primary forces — and market growth. These trends disrupt existing business models interaction between them — leads to the disruptive megatrends by creating new competitors, reordering supply chains and outlined in section 2. lowering price points. The next waves — including the emergence
12 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 13 5. Why is it so difficult to respond 6. How do businesses seize the upside 4. Why is responding to disruption so critical? to disruption? of disruption?
Business’ response to disruption is perhaps the most important Smart strategy and execution are not enough. It may Incumbent companies typically fall victim to disruption. Fortunately, as disruption becomes mainstream, organizations strategic imperative facing companies, for three reasons: 3sound counterintuitive, but organizations get disrupted not The reasons for this have been well documented in Clayton have become more proactive in addressing the challenge. by doing the wrong thing, but by doing the right thing. The long Christensen’s classic book, The Innovator’s Dilemma.2 With the right response, disruption offers tremendous upside Everyone is affected. The pace of disruption is accelerating list of companies that have fallen victim to disruption includes to firms that can harness its forces. Discovering the upside of 1and impacting a growing list of sectors. The next wave of firms that dominated their industries for decades. They were Incumbents dismiss the initial disruption of their industry disruption requires both learning from those who do it well and digital innovation — harnessing AI, robotics and virtual reality — often ruthlessly competitive, relentlessly focused on the market because it appears inconsequential relative to established being aware of the constraints that companies face in formulating will transform activities long considered safe from disruption. and led by competent strategic thinkers. In many ways, they products/services and fails to meet the needs of existing their responses. Indeed, these developments are already starting to disrupt succumbed to disruption not despite, but because of, that focus. customers. However, a small core of customers embraces the sectors such as legal and professional services in ways that Organizations are typically structured and incentivized to focus disruptive offering, giving market entrants a toehold, and the Companies in the technology sector are laser focused on creating would have seemed unimaginable even a few years ago. on fulfilling the needs of their existing constituents — blinding offering improves more quickly than incumbents expect. Its disruptive opportunities. For example Alphabet, the parent them to disruptive opportunities, which often do not initially meet capabilities soon surpass those of the prevailing product or company of Google, has its famous “20% time” policy, which Meanwhile, disruption no longer emerges from Silicon Valley those needs. service — at which point existing customers, who have so far encourages employees to spend as much as a fifth of their time alone. It can just as easily come from emerging markets. Today’s resisted the offering, adopt it en masse. on any idea they consider promising, even if completely unrelated • The strategy that got you here may not be the one you’ll need leaders need to be aware of the game-changing threats and to their regular work projects. for the road ahead. opportunities bubbling up in markets around the world. Incumbent firms now scramble to move into this new market, • How are you realigning incentives and structures around but it is often too late, particularly if the space has significant More generally, the title of the late Andy Grove’s 1999 book is • If you think you won’t face disruption, it’s not because you disruptive innovation? network effects or switching costs. Time and again — whether part of the DNA of technology firms: Only the Paranoid Survive. won’t — it’s because you don’t yet know how it will happen. with the 1980’s PC revolution that disrupted mainframe Without exception, the titans of technology are obsessed with • What are you doing to understand the myriad ways in which computers or the more recent disruption of standalone GPS getting into each other’s business because they understand how your organization could be disrupted? devices by smartphone apps — the same pattern occurs with real the threat of disruption is. predictable regularity. It’s easy to underestimate the pace of change. Sometimes these ventures are successful, sometimes they aren’t 2“In retrospect, all revolutions seem inevitable. Beforehand, — but technology firms know that this single-minded focus gives all revolutions seem impossible.” That observation, attributed them their best shot at remaining relevant in the long term. to Michael McFaul, former US Ambassador to Russia, is just as applicable to business and economic revolutions as it is to However, companies outside tech face constraints that are political ones.1 It’s easy to declare in hindsight that the collapse not an issue for tech firms. Investors are often willing to give of the Soviet Union was inevitable, but in the summer of 1989, technology firms more leeway — until recently, Amazon never even amid the rumblings of perestroika and glasnost, one would posted a quarterly profit and Apple sat on a US$200 billion have been hard pressed to find anyone predicting that the Berlin stockpile of cash without issuing dividends, and neither firm’s Wall would fall just a few months later. stock price suffered as a result. But investors aren’t always as forgiving of firms from sectors that don’t have the same In 2012, when Google announced that it had been testing disruptive innovation aura and credibility around efforts to driverless cars on US roads and had already driven over 200,000 disrupt their own business models. miles in everyday traffic conditions, the news reverberated like a shock wave across the world. Driverless cars — a staple of science Companies looking to disrupt their business models need to fiction just a few years earlier — had become reality faster than begin a process of rigorous self-interrogation. To start the most of us expected. Time and again, we underestimate the conversation, we offer a few better questions at the end of this significance and speed of disruptive innovation. report. See How do you seize the upside of disruption? on page 52. • Time is not on your side. • Are you embracing disruption quickly enough?
2 Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms 1 David Brooks, “Fragile at the Core,” The New York Times, 18 June 2009. to Fail (Harvard Business School Press, 1997).
14 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 15 From primary forces to megatrends
GLOBALIZATION
7. How does disruption lead to megatrends? EMPOWERED CONSUMERCUSTOMER The three primary forces — technology, globalization and How will you change buyers into stakeholders? demographics — are evolving in a succession of waves including AI, robotics, global urbanization, aging populations, millennial workforces and more. As these new waves of technology, globalization and demographics interact, they give rise to a range of megatrends. FUTURETHE FUTURE OF WORK OF WORK For instance, just as global demographic shifts (population growth When machines become workers, what is the human role? and an increasingly urban world, a trend explored on page 40) RESOURCEFUL are straining resources and fueling an urgent need for sustainable PLANET solutions, the rise of technologies is providing an answer — Can innovation make the planet resourcefulresource rich something explored in The future of smart, page 24. The instead of resource scarce? same basic interaction between demographic-driven resource constraints and technology-empowered sustainable solutions is at the heart of two other megatrends — Health reimagined, page FUTURETHE FUTURE OF SMART OF SMART 44 and Resourceful planet, page 48 — which examine industry- What realintelligence intelligence will wewill need we need specific implications. to create a smart future?
Meanwhile, sectors themselves are being redefined, as information technology lowers entry barriers and challenges driven by demographic change and globalization, such as climate change and chronic disease, attract companies from BEHAVIORAL REVOLUTIONSOLUTIONS far-flung sectors to develop innovative solutions. This blurring How will individual behaviourbehavior impact impact our collective future? of boundaries — explored in Industry redefined,page 20 — is also being driven by the rise of the empowered customer, page 36, DISRUPTIVEINDUSTRY REDEFINED a product of digital disruption and the changing expectations CONVERGENCEIs every industry now your industry? of the millennial generation. text to follow text to follow text to follow text to follow? There are two final megatrends that will fundamentally reshape our future. The next wave of technology is transforming D E the future of work, page 28, with disruptive implications Y M URBAN WORLD G for businesses, governments and society. Meanwhile, In a fastfast-changing changing world,world, cancan citiescities bebe O O a budding behavioral revolution, page 32, is allowing G built withlong-termwith long-term perspective? perspective? L behavioral economics to solve urgent challenges such R O A as climate change and chronic disease as digital platforms N P H enable real-time, real-world behavior modification. H C IC E Exploring these megatrends in depth can give companies S T the power to understand a rapidly changing world and adapt accordingly. HEALTH REIMAGINED With limitedgrowing resources, health needs, is digital is digital the best medicine?
Primary forces Megatrends
16 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 17 Section 2: Megatrends 2016
18 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 19 Industry 1 redefined Is every industry now your industry? 1. Disruption is driving 2. Technology underpins • Incumbents may be burdened with greater regulatory constraints than convergence convergence smaller, more agile start-ups. Traditional diversification or Technology companies — both start-ups consolidation sees competitors enter and existing titans like Alphabet and The automotive industry is a clear new industry categories, even unrelated Apple — are disrupting industry spaces example of how technology can disrupt a ones. These models allow a company to and uprooting incumbents. Several traditional sector and drive convergence. meet its business objectives, whether reasons are behind this phenomenon: In the recent past, a handful of global car spreading risk, adding new revenue manufacturers competed against one • The growing software content of streams, gaining greater control over another to design, manufacture and sell products and services confers an supply chains, or more. However, neither vehicles. Today, value in cars is shifting advantage on companies that excel at strategy alters the basic characteristics from being 90% hardware-based to being code and algorithms as they enter new of the industries involved. Even though more than 50% software and experience- competitive spaces. new competitors enter the space, based.6 The vehicle has become a rolling the boundaries of the industry — key • Opportunities to substitute digital software platform able to deliver services activities, value chain fundamentals, platforms for physical world ecosystems based on data, sensors and analytics, the customer value proposition, and catalyze convergence. Uber has allowing technology companies such as The US retail chain CVS eliminated dominant economic characteristics — disrupted the taxi industry and could Alphabet and Apple to compete directly tobacco products from its stores, remain virtually the same. do the same for packages and prepared with car manufacturers for “ownership” changed its corporate name to food delivery. of the dashboard and connected driver Four mobile telecom operators CVS Health, and now operates Alphabet is competing hard to win Industry convergence — the blurring experiences. When cars, trucks and over 1,100 retail-based health • Technology companies tend to be the race to driverless transport, of two or more previously distinct other vehicles become autonomous, care clinics across the country.5 asset-light. Industry incumbents are logging more than 3 million miles industries and sets of participants — the automotive, transportation, and saddled with legacy costs in real estate, is different. It is about what happens logistics industries could converge IT infrastructure, supply chains, and to industries when disruption takes into a broader mobility industry. This other hard assets. recently received licenses from place. Disruption reconfigures and new sector will likely attract new per day in simulation and the Reserve Bank of India to democratizes information, creates new • Incumbents can lack the digital savvy competitors and success will go to those 10,000—15,000 autonomous launch payments banks within the levels of complexity, and takes place at at the leadership level — both C-suite that offer the best capabilities for the miles per week on public streets.3 next 18 months.4 unprecedented speed. In turn, barriers to and board — to react and compete redefined marketplace. entry are lowered. Disruption dramatically effectively when challenged. 3 “Google Self-Driving Car Project Monthly Report,” January 2016, https://static.googleusercontent.com/media/www.g.u.00rz.com/en//selfdrivingcar/files/reports/report-0116.pdf alters the “invaded” industry’s basic 6 Don Butler, Ford Motor Company, “Digital Transformation 4 “Reliance Industries, Bharti Airtel, 9 others get RBI nod for payments banks,” The Financial Express, 19 August 2015. and often long-held characteristics. and the Automotive Industry,” CXO Talk, 8 May 2015, 5 Walter Loeb, “Why CVS’ New Health Initiatives Are A Winning Strategy,” Forbes, 18 December 2015, http://www.forbes.com/sites/walterloeb/2015/12/18/why-cvs-health-new-initiatives-are-a- https://www.cxotalk.com/connected-vehicles-automobiles- winning-strategy/#1e3b333530f0 The converged industry is redefined. technology-platform-don-butler-ford
20 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 21 INDUSTRY REDEFINED
3. Customer empowerment Regardless of industry, when customers Upsides drives demand for novel feel chronically underserved, they welcome offerings from insurgent players. solutions Industries with high customer pain points may be those most ripe for convergence. Consumers benefit when disruptors Just as every company is now a enter a traditional industry space, technology company, every company — reducing pain points and delivering whether B2C or B2B — is also a consumer 4. Companies should seek better solutions. company. The rise of digital technologies opportunity beyond their has democratized consumer access to Incumbents can look beyond their own knowledge, given customers a more own industry walls industry walls for opportunities. They powerful voice, allowed more informed decision-making, and enabled greater In a converging world, all industry spaces can also fend off disruption by acquiring choice between providers. will be hotly contested. As boundaries Start-ups can leverage or partnering with new competition or break down, incumbent companies will innate advantages such reinventing their own business models. Empowered consumers with greater face competitive threats from start-ups as lean operations and choices are helping redefine traditional with disruptive business models and technical excellence, which markets and accelerate the elimination of from formidable companies in previously means they can quickly traditional boundaries. They are becoming unrelated sectors. grab market share. the center of evolving industries. See Empowered customer, page 36, for more While disintermediation captures on this megatrend. headlines, cross-sector collaboration, Bringing together many brains from partnerships and acquisitions within many disciplines can help solve the One such example is the power and utility contestable industries will be far more world’s biggest challenges — from space. Renewables, smart metering and likely. The world is challenged by large, climate change to chronic disease smart grids are reshaping the sector. But costly problems such as climate change, customers themselves are also redefining rapid urbanization and soaring health to poverty. the industry. The industry was once prone care costs, which are beyond the scope of to viewing customers as impersonal any single organization or even industry ratepayers and has traditionally suffered to address effectively. In the face of such from low levels of customer satisfaction. challenges, the future of competition Today’s enlightened customers demand will shift from company versus transparent and competitive pricing, as company in a single industry to cross- well as energy-efficient, environmentally industry ecosystem versus ecosystem. Better questions friendly solutions. Partnerships and alliances will become ever more important. Do you understand who your competitors are, and would your customers agree? This has led retail companies from industries such as telecommunications, In this context, organizations need to What are the fault lines to indicate your industry is ripe for convergence? consumer products, security services and think differently. For those companies that technology to move into the home energy look beyond traditional industry borders, Putting aside what you do or make today, what new problems could your company management market. The distributed asking not what they can sell but what energy revolution allows residential, problems they can solve, convergence help solve? commercial and industrial customers to represents a major growth opportunity. generate and store their own electricity, Indeed, industry convergence should be What will you do alone and what will you do as part of collaboration or an ecosystem as well as sell it back to the grid. The considered alongside more traditional of companies? former ratepayers have evolved to market considerations as companies become actual suppliers to incumbent strategize, plan and allocate investments Will tomorrow’s business landscapes still be comprised of individual sectors? power and utility companies. for future growth.
22 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 23 The future 2 of smart What intelligence will we need to create a smart future? 1. Smart brings 2. Robotics and AI launch And investors and industries are seeing technology to life smart to a new level the significance of AI. In recent years, investor funding in AI has risen nearly Smart is a term that has come to AI is integral to smart because it can sevenfold, from US$45 million in 2010 describe everything from health and autonomously assimilate inputs, perceive to US$310 million in 201510. Across banking to entire cities. It takes an asset, and understand a need and deliver industries, the widespread rollout of infrastructure, or even transaction, the best possible decision. It is hard robotics is already under way, with ensures it is connected, analyzes its data to overstate the possibilities of AI. It is spending expected to reach US$67 billion and makes it more autonomous and already being deployed in call centers to annually by 2025.11 effective. Smart is the layer of insight and answer basic queries, in autonomous cars decision-making above the interactions to transform mobility, and in smartphones between connected things. as a personal assistant. The next step 3. Smart is changing is the combination of AI’s autonomous the world We are on the cusp of a smart revolution reasoning with “deep learning.” By that could fundamentally change the way learning from every new input and Smart drives economic, environmental the world works for two reasons. experience, AI adds to the efficacy of and social benefits, but the nuance lies subsequent actions. in where, when and how. Each year, utilities collect four For US drivers, autonomous In 2015, By 2020, First, in an aging world that is becoming data points about usage in each vehicles could free up almost smart that figure more resource-constrained, globalized Together, AI and robotics will combine In the past, an energy grid was deemed household. A household smart cities used will rise to meter can allow utility and urbanized, governments and greater decision-making power with the successful if it kept the lights on. companies to collect organizations see the need to invest in ability to execute. Organizations could see Exploring a grid’s limits was perceived almost more efficient and smart solutions. exponential improvements as software as too risky. However, when decisions 1.1 billion and hardware develops and costs decline. become more autonomous and are based connected Second, the demand for such solutions on more complex and varied inputs and things. is being fulfilled by the next wave of AI’s deep learning and robotic automation the consequences are tested, assessed data digital disruption: the industrialization also bring closer the possibility of and adjusted in real time, the grid can points.7 of technologies such as the internet of “singularity”: the point at which machine be optimized. things (IoT), AI and robotics. thought supersedes human capability. It 50 billion hours each year.8 9.7 billion.9 sounds like science fiction, but consensus suggests that, within a decade, smart 10 “Deep Interest In AI: New High In Deals To Artificial Intelligence Startups In Q4’15,” CB Insights, February 2016. might solve problems that humans 11 International Federation of Robotics; Japan Robot 7 EY Analysis. struggle to conceptualize. Association; Japan Ministry of Economy, Trade & Industry; 8 “The Massive Economic Benefits Of Self-Driving Cars,” Forbes.com, 8 November 2014. euRobotics; Company Fillings, Boston Consulting Group; 9 “Gartner Says Smart Cities Will Use 1.1 Billion Connected Things in 2015,” Gartner, 18 March 2015. EY Analysis.
24 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 25 THE FUTURE OF SMART
other things, smart grids and meters Now, apply the same approach to can reduce carbon emissions, combat Upsides transportation networks, production energy piracy, increase competition and lines, health services and supply chains. competitiveness and drive investments Reallocating passengers, resources and in infrastructure. By improving access to and energy to different parts of a network management of resources, eases peak demand and lessens periods 2 Transforming beyond the core: If smart can help to improve of downtime. The smartest networks can smart is to be effective, it requires an anticipate issues and, if necessary, self- end-to-end redesign of organizational provision for underserved Stakeholders will see different diagnose and self-heal. models. Companies with a heritage populations and communities. outcomes from smart. Some will in manufacturing, health care, see increased efficiencies and The ability to assimilate, analyze and engineering and other established reduced costs, while others will see make decisions in more complex and industries are becoming more like IT improvements in outcomes such as scalable ways than ever before also and data organizations. This will create Mitigating different more accurate medical diagnosis. enhances effectiveness. Using personal new roles and increase the importance forms of risk is made sensors and AI to analyze patient data, of others, such as the chief data officer. even to the level of detecting subtle easier through smart, 3 Activating inside and out: Smart changes in individual biochemistry, whether it’s the Investments in smart goes far beyond technological makes it possible to diagnose diseases detection of fraud or have ancillary and implementation and organizational with greater accuracy and to deliver preventing network far-reaching benefits. change. Like any strategy, it improved outcomes. failures in various Smart grids raise the requires activation. For example, the systems from energy stakes in infrastructure empowerment of customers is about Smart is also empowering customers with more than installing meters or providing grids to production lines. and enhance market more information and greater insight than access to data. A smart strategy is competition as ever before — but insight is not enough. activated through educating customers well as a market’s The empowered customer is expected about what to do with the data and competitiveness. to use those insights to take action, to Smart is a what actions to take. adapt their energy usage, change their differentiator that travel habits or manage their health adds competitive proactively. See Behavioral revolution, advantages. It enables page 32, for more. better, more efficient and more agile use of 4. The smart solution existing assets. is holistic
The greatest challenge in smart is execution. It is easy to view implementation through a narrow lens, focusing only on technology transformation. Smart requires Better questions holistic change encompassing three core elements. When AI controls decisions, who controls your company? 1 Setting the change agenda: In many aspects, the business case for smart How can smart best combine efficient and effective? still needs to be clarified and repeatedly tested. Even in smart utilities, where the case is better understood, the Does your organization know enough to be smart? rationale varies by context. Among
26 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 27 The future 3 of work When machines become workers, what is the human role? 1. An unprecedented 2. Even white-collar 3. Moving from the reinvention of work and creative work will gig economy to the is coming be affected machine economy
The coming reinvention of work is unlike AI is now disrupting jobs long considered We see the future of work evolving in anything we have witnessed before, even immune to technological displacement two stages: in this era of disruption. such as white-collar work and creative • The gig economy. The rise of platforms endeavors. Algorithms have uprooted such as Airbnb, Deliveroo, Didi Kuaidi, The displacement of labor by technology white-collar work in the financial sector Etsy, TaskRabbit and Uber has already and globalization is hardly a new (high-frequency trading) and are starting spawned what is often referred to phenomenon. Technology has been to do so in health care (mobile health as the gig economy — in which non- reshaping work since the first Industrial apps, robotic surgery and diagnosis by employee freelancers provide labor in Revolution, which demolished guilds and algorithm). They are even expanding temporary assignments. replaced artisanal craftsmanship with into spaces once considered exclusively assembly line production. Globalization the domain of human creativity. • The machine economy. The next stage The World Economic Forum Also by 2020, Intuit predicts that has been changing work for decades, Already, algorithms are writing articles will be driven by AI and robotics: the estimates that a confluence of thanks to trade liberalization and indistinguishable from those written mass disruption of labor and the rise of technological, socioeconomic and In late 2015, several respected emerging markets. by humans and have even recently the machine economy. demographic drivers will displace thinkers and technology leaders composed a musical play.15, 16 Now, the next waves of disruptive We are in the early stages of these shifts, technology — AI, robotics, virtual reality, Not all jobs will be affected and not all and it’s hard to know exactly how they IoT and sharing economy platforms — affected jobs will be eliminated — as will play out. On one hand, it has been 40% of American workers will be independent contractors — an are poised to take labor displacement always, automation will both replace and predicted there will be massive net losses estimate that may be conservative to a higher level. Automation has long supplement human labor — but jobs that of jobs. Today, for instance, a worker — including Stephen Hawking and since it was created in 2010, displaced workers in blue-collar jobs, are truly untouched will be the exception displaced by globalization may freelance Elon Musk — highlighted the risks when platforms such as Uber from factory laborers to supermarket rather than the norm. as an Uber driver. In the future, many raised by the rapid rise of AI and 5.1 million jobs across 15 major and TaskRabbit had barely been cashiers. To appreciate the scale of more office workers will be displaced economies by 2020.12 its implications for humanity.14 15 Shelley Podolny, “If an Algorithm Wrote This, How Would launched.13 blue-collar displacement ahead from You Even Know?” The New York Times, 7 March 2015. by AI — but they won’t have the option driverless vehicles alone, consider that 16 Joe Berkowitz, “Computers Writing Broadway Musicals Is of becoming freelance drivers if the The Next Phase Of The Inevitable Robot Uprising,” Fast driving is the single largest occupation Company, 5 February 2016, http://www.fastcocreate. ride-sharing platform of the future uses 12 World Economic Forum, “The Future of Jobs Employment, Skills and Workforce Strategy for the Fourth Industrial Revolution,” 2016. of US men today. com/3056409/computers-writing-broadway-musicals-is- driverless cars. 13 Intuit, “Intuit 2020 Report: Twenty Trends that will Reshape the Next Decade,” 2010. the-next-phase-of-the-inevitable-robot-uprising (accessed 25 14 Nick Statt, “Bill Gates is worried about artificial intelligence too,“ CNET, 28 January 2015, http://www.cnet.com/news/bill-gates-is-worried-about-artificial-intelligence-too/ (accessed 25 April 2016). April 2016).
28 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 29 THE FUTURE OF WORK
On the other hand, history shows that it is a fundamental part of the Meanwhile, the machine economy Upsides automation surprises us with new human experience. The radical promises to deliver a “leisure dividend” sectors and forms of employment. Just disruption of work has profound unlike anything we have seen before. We as digital disruption spawned jobs for political and social implications. don’t yet know whether we will use this web designers and app developers that spare time to enrich our lives culturally The machine economy drives huge society- few foresaw in the computer revolution’s 2. Disrupting government. Gig and intellectually or whether the loss early days, the machine economy is economy start-ups are already of work will deprive us of something wide benefits — from fewer medical errors likely to generate jobs, companies and challenging regulations governing the elemental that gives our lives a sense to reduced traffic fatalities. even entire sectors that we are unable to operation of hotels, restaurants, taxis of purpose. envision today. and more. The trend will accelerate with the move to such machine How do you build a better working world The “leisure dividend” frees up economy innovations as driverless in a world with less work? individuals to pursue other interests and 4. The future of work cars and medical algorithms. unleashes a wave of entrepreneurship. will disrupt business, Workplace protections could well be challenged. In the growing gig Companies gain government and society economy, hard won rights that tremendous increases have become commonplace such in efficiency and 1. Disrupting business. The disruption as collective bargaining, the five- productivity. of work is already spawning business day workweek, paid time off and model innovation. Ride-sharing insurance against workplace injuries platforms, which use transportation and unemployment could all resources more efficiently, envisage come under threat. Independent a future with fewer vehicles. So, contractors in a gig economy have Government regulation becomes more auto manufacturers are exploring none of these protections. nimble, real-time and responsive to the ways to reinvent traditional models needs of citizens. (GM’s partnership with Lyft) while The start-ups disrupting work argue disruptive entrants (Uber and Lyft, that existing regulations were plus newer entrants Fasten, Split designed for another era and do not and Bridj) are experimenting with apply to the gig economy. There’s multiple approaches. some validity in that, but regulation also protects consumers and workers In the future of work, the ultimate in important ways. Governments resource that companies will use will need to find the right balance, more efficiently is the human creating regulatory regimes designed resource. Labor-intensive firms for the future — nimble, real-time and everywhere will need to reinvent powered by big data and their business models, deploying smart technologies. smart technologies and using labor Better questions more productively. One result is 3. Disrupting society. Income inequality that work will be unbundled. Just as could be greatly exacerbated by disruption unbundled music albums wholesale labor displacement and by How will workers and citizens be motivated in the machine economy? into songs, it will unbundle jobs into the dismantling of key elements of tasks, with each task performed in the social safety net such as health How will governments adapt to remain relevant for the future of work? the most efficient manner. care benefits and retirement savings, which are often provided through the How do you build a better working world in a world with less work? However, some of the biggest employer-employee relationship. To disruptive implications will extend maintain social stability, we will need With massive labor displacement ahead, how will we address income inequality? beyond the business world. Work is bold solutions — including, perhaps, a more than a cog in a business model; universal basic income.
30 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 31 Behavioral 4 revolution How will individual behavior impact our collective future? 1. Behavioral economics 2. Global challenges and The growing use of BE will stem from two will become a growing tech drive the growth of major shifts: resource for business behavioral economics • Increasingly urgent behavioral challenges. As the cost of issues such as chronic disease and climate change Some of the biggest, most intractable BE has sought to demonstrate our rises with aging demographics and challenges confronting humanity irrational behavior in a number of ways. globalization, the imperative to address — chronic disease, climate change, For example, we excessively discount them becomes increasingly urgent. This excessive household and public debt — the future (hyperbolic time discounting), is leading more governments to use stem from human behavior such as poor making us value an impulse purchase BE. The UK’s pioneering Behavioural diet and lack of exercise, unsustainable today over a secure retirement decades Insights Team has been advising foreign energy use and excessive consumption. later. Our status quo bias leads to governments interested in adopting BE. dramatically different participation The US became the latest government These challenges have been around for rates for retirement savings and organ to do so in September 2015, when it decades, but they are now becoming donation, depending on whether the established the Social and Behavioral increasingly urgent — due to demographics choice is an “opt in” or “opt out.” Sciences Team. and globalization — bringing behavioral The World The National Institute on Retirement Citi estimates that the economics (BE) into the mainstream. Meanwhile, loss aversion bias means The huge economic opportunity in Economic Forum Security estimates that between cumulative global cost we dislike losing US$100 more than these behavioral challenges is also estimates that of climate change will BE marries insights from psychology and we like gaining US$100 — leading to attracting the private sector. Large chronic disease reach US$44 trillion economics and, despite being around unpredictable behavior on stock markets companies, in a variety of sectors, are 17 will cost the by 2060. global since the 1970s, has only recently begun and elsewhere. Social norms can experimenting with BE approaches. economy moving from academia to the real world. motivate us more powerfully than market And, intriguingly, a number of start-ups norms — one of the reasons behind the have sprung up with disruptive business US$47 Incentives to act rationally are all around success of Wikipedia’s volunteers. models built entirely around BE — trillion 65%—92% of Americans (depending us — from legal restrictions to the ways see Inventive businesses are already on net worth) aren’t saving enough in which companies price goods and However, our behavioral biases are employing behavioral economics, between 2010 18 for retirement, leading to a savings motivate workers. The vast majority consistent and unidirectional, which page 34. and 2030. 19 of these enticements and impositions means we can build incentives that gap of as much as US$14 trillion. • The march of technology. The digital assume that people are utility-maximizing correct for them. Instead of hurting us, revolution is catalyzing the deployment rational agents who act in their best our biases can be used to help us make of BE. Smartphones and sensors can 17 Citi, “Energy Darwinism II: Why a Low Carbon Future Doesn’t Have to Cost the Earth,” 2015. interests. Except, as BE demonstrates, better decisions. 18 World Economic Forum and the Harvard School of Public Health, “The Global Economic Burden of Non-communicable Diseases,” 2011. monitor behavior and adapt incentives 19 National Institute on Retirement Security, “The Retirement Savings Crisis: Is It Worse Than We Think?” 2013. we aren’t.
32 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 33 BEHAVIORAL REVOLUTION
in real-time, real-world conditions. BE can also motivate sustainable as they nudge (not force) people toward Upsides In addition, social media can tap energy and resource use. Opower — better choices. the immensely motivating power a start-up that was recently acquired of social norms and gamification — by technology giant Oracle — helps A second challenge is that chronic harnessing game-playing principles utility companies nudge consumer disease and climate change will play Society benefits from minimizing the such as competition to motivate human behavior by applying the motivating out over decades, requiring long-term impact of looming collective-action behavior. Digital and online platforms power of social norms. The company behavioral change. Behavioral economists crises, such as chronic disease and can deploy A/B testing — a key designs personalized energy bills don’t yet know enough about whether climate change. technique for customizing nudges — at informing consumers how their energy nudges that work in the short term tremendous speed and scale. use compares to that of neighbors will lose their impact over time, and and energy-efficient households. practitioners will need to experiment This simple tweak has delivered and learn along the way. Individuals lead healthier lives and have 3. Inventive businesses considerable savings — and far more healthier savings. cost-effectively than traditional marketing Lastly, businesses and organizations are already employing Governments avert or economic incentives. need to realign short-term institutional behavioral economics incentives, such as election cycles and the fiscal impact of In the area of retirement savings, quarterly earnings expectations, toward these potential crises. The power of BE can already be seen companies are paying close attention the long-term focus needed to address in a number of sectors. In health care to the presentation of different choices our biggest collective challenges. and wellness, BE start-ups such as Pact (known as choice architecture) in their and stickK are helping people improve plans. For instance, in the “Save More behaviors such as diet and exercise, Tomorrow” plan, created by behavioral using approaches that succeed where economists Richard Thaler and Shlomo traditional incentives fail. Benartzi, employees commit to increasing their contributions at a future date The financial pain of gym membership rather than today — curbing the desire fees fails to motivate most people to delay because of hyperbolic time to exercise because the fees are discounting. Increases in contribution automatically deducted from their rates are tied to pay raises — minimizing bank accounts (defanging the bite loss aversion. Employees stay in the of loss aversion), while hyperbolic plan until they choose to opt out — and time discounting makes lazing today status quo bias ensures that most remain. more attractive than better health Firms implementing this approach years later. have significantly boosted employees’ retirement savings. Pact is an app that uses BE to turn behavioral weaknesses into strengths. Users make a weekly pact, choosing 4. The next challenge: Better questions how often they intend to exercise and long-term behavioral wagering money on their commitment. How will societies improve collective behaviors without restricting individual freedoms? Users who fail to honor their pact forfeit change the money they wagered — aversion to this tangible loss has proven to be a Businesses and governments will have to How can organizations be motivated to focus on the long term? great motivator. The forfeited money overcome challenges as BE approaches is pooled and distributed to those who are more widely adopted. One stems from How can we nudge individuals to save more — and save our collective future? did go to the gym — turning hyperbolic concerns about “Big Brother” taking away time discounting on its head by making individual freedom. To address this issue, How will we nudge people to adopt healthy behaviors — for the rest of their lives? rewards from exercise immediate instead it is critical that incentives be designed of deferred. to preserve individual freedom, even
34 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 35 Empowered 5 customer How will you change buyers into stakeholders? 1. Empowered customers and Coca-Cola displays your name more faith in peer recommendations know their worth on billboards as you drive by. and earned media such as customer tweets than they do in traditional paid Today’s individual customers understand Customers are bombarded daily with advertising. Today’s brands are built by their commercial value. They can block information, promotions and brand consumers themselves, not advertisers. ads and they can opt out at a moment’s messages. Curated retail options such notice. However, they are willing to pay as Stitch Fix or Birchbox and social Today’s customers distrust traditional for what they value. reading apps such as Kite are helping ways of selling and eschew traditional consumers overcome the paralysis of supply chains. They want multiple routes Customers expect to be understood too many choices. to transaction — whether website, mobile and appealed to in their full complexity. app or physical store. They expect Organizations need to see them as Software hasn’t killed retail, but retail’s seamless engagement across these nuanced individuals. One consumer future, as well as the future of all channels. Customers anticipate that their may say, “I’m a 21-year-old female business types, depends on delivering providers will have a deep understanding who skateboards, listens to jazz rap, experience. While mundane products and of their needs contextually at any point wears Boho Chic, goes to poetry slams, commoditized services will increasingly in time; all provider touch points must be and plans a career in environmental be delivered via subscription, experiences highly relevant or be discarded as spam. GE is using immersive Companies such as Levi’s and conservation. What can you do for that employ all five senses are becoming virtual reality technology to Mercedes-Benz are creating and me?” Another says: “I’m a 46-year-old distinct offerings. Differentiated demonstrate large, distributing content starring entrepreneur who founded an online interactions — both live and virtual — will 2. Empowered customers complex deep young gaming service, has a wife and one be embedded in everything human beings sea oil and gas “influencers” want a piece of the action son, loves to shop in Hong Kong, owns do — from dining to vacationing to riding drilling on Snapchat, a BMW, likes to try new grooming in a taxi. The growing primacy of Today’s customers are creative. They equipment YouTube, to its B2B Vine and Consumers are leveraging products, and when in Beijing, dines in delivering differentiated experiences sell their dreams through Etsy. They use luxury-branded cafes. What can you do will have profound effects on how value small-scale desktop 3D printers such as customers.20 other social invention platforms like Edison media Nation and financing these for me?” Customers can no longer be is created and measured — both for those sold by MakerBot to print products channels.21 projects through crowdfunding conveniently categorized. companies and economies. sourced from free designs provided by the platforms such as Indiegogo Thingiverse 3D design community. They and Kickstarter. In this culture of the niche, all As the demand for personalized services work hand-in-hand with organizations interactions, products and services has grown, the direction of trust has to co-create products and services. need to be personalized. Spotify also changed. Customers trust each They expect to participate. Through the 20 Lauren Johnson, “GE’s First Stab at Virtual Reality Takes You Under Water,” Adweek, 16 January 2015, http://www.adweek.com/news/technology/ges-first-stab-virtual-reality-takes-you-under- personalizes your music, Netflix other more than they trust brands European Citizens’ Initiative, citizens are water-162392 21 “How Brands Market with Top Instagram Influencers,” MediaKix, 2016, http://mediakix.com/2016/03/brand-guide-to-working-with-top-instagram-influencers/ customizes your entertainment, or businesses. Online shoppers have co-developing EU policies by successfully
36 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 37 EMPOWERED CUSTOMER petitioning the European Commission to return for their personal data. Consumers to-professional) companies and solutions. Upsides consider specific legislative proposals. will likely demand greater choice about For example, India’s cross-border who receives their data. At the same time, payments company, Transpay, enables Treating customers as stakeholders rather And customers are entrepreneurial. organizations that provide consumers freelancers across the world to get paid They demand vehicles for commercial more control over how their personal quickly and securely when contracting than buyers generates a virtuous cycle — self-expression. Crowdfunding platforms information is leveraged may gain with online workplace platforms such customers benefit from better products and such as AngelList, Crowdcube, Demohour, competitive differentiation. as Upwork. services and companies are more likely to Indiegogo and Kickstarter provide access meet their needs. to capital and visibility for entrepreneurs The power of analytics is not just about From maker spaces to crowdfunding as well as foster communities of understanding consumer behavior but also 6. Invent the future to invention platforms, there are more evangelists. And their clout matters. For influencing it. Nearly all companies are with customers ways than ever to get an idea example, the growing affinity for small, using advanced data to build algorithms off the ground. local, craft products has had an impact intended to influence the choices that Organizational aspiration and ability to on big companies. Customers are not just consumers make. When building these be customer-centric across the value Co-creation gets buyers, but stakeholders. big data strategies, businesses need to chain, including innovation, will be a key customers invested in Empowered customers consider not only how to preserve human determinant of future competitiveness. carry their rights Customers drive efficiency and speed values such as privacy and confidentiality, Of course, companies will still need to the success of an idea and builds loyalty — with them into other to market. The global B2B platform but also need to examine the ethical help invent the future for customers. As domains. Empowered Buyerparty facilitates gathering orders dimensions of subverting free choice. Henry Ford allegedly said: “If I had asked even evangelism. citizens help when products are in the design stage, people what they wanted, they would governments to become allowing their owners to move into costly have said faster horses.” But they may production only upon sufficient demand, 4. B2B must adopt B2C also have said that they preferred Ford more transparent and responsive, boosting helping to eliminate problems like techniques to satisfy to continue making cars in colors other Delivering rich overstock and resource wastage. than black. Innovation can no longer take efficiencies and helping experiences — either empowered customers place in hermetically sealed places of to achieve policy goals. invention — tomorrow’s success requires wrapped around products 3. Customer empowerment Business-to-business (B2B) organizations innovation in lockstep with customers. or services or standalone is a business opportunity increasingly will need to adopt business- — has the potential to to-consumer (B2C) techniques. Business improve margins and Customer empowerment is a chance for customers want the same level of create new revenue consumers and providers to realize greater empowerment relative to their suppliers streams. value from a more intimate and trusted and distributors that they receive from relationship. However, there are challenges Amazon as individual consumers. This that businesses must overcome. raises supply chain questions for B2B companies that work with middlemen. Providers must develop the right mix of For example, the supply chain required Better questions automated and human touch points. They to deliver in bulk to a distributor is must manage paid, owned, and earned much different than that designed to media channels — as well as data across all accommodate individual consumers. Power has shifted to customers; what will they do with it next? consumer touch points and the physical/ digital divide — seamlessly. If today’s customers are kings, will tomorrow’s customers be kingmakers? 5. Customers continue They must view customers holistically, to evolve When experiences trump things, how will you delight your customers? both end-to-end and continuously. Advances in artificial intelligence and the Customers themselves will continue What can you offer the customer that has it all? IoT will turbocharge customer analytics, to evolve. The emerging gig economy is but also raise the stakes around privacy spawning a whole new customer When you can go over-the-top to your customers, how will it change your value chain? and the kinds of products and services group — freelancers. These professionals that customers are willing to accept in are being targeted by new B2P (business-
38 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 39 Urban world In a fast-changing world, can cities be 6 built with long-term perspective?
1. Asia and Africa will see spaces — all inhabited by connected and Philippines, among others. Greenfield the bulk of urban growth aware citizens — are already beginning urban experiments serve as test beds to emerge. Dubai is testing electric for addressing environmental and In 2008, the world reached a milestone. buses and driverless cars with plans to sustainability challenges. Tianjin Eco-city, For the first time in history, the majority deploy them during its hosting of Expo a joint venture of China and Singapore, is of the world’s population lived in cities. By 2020.28 Singapore is on the verge of being built from scratch on a sustainable 2050, at current rates of urbanization, launching a driverless taxi pilot. Seoul model that emphasizes green buildings the world will be two-thirds urban and is leveraging smart technologies and and transportation, as well as affordable one-third rural, a reversal of the global mobile-web applications to provide housing. South Korea’s brand new urban distribution pattern of 1950.25 citizen-centric services.29 zone, Songdo International Business District, offers one of the highest number Most of that growth will occur in Asia and Innovation to reduce the cost curve of of LEED-certified projects in the world. Africa.26 Those regions are expected to infrastructure — ranging from smart receive an additional 1 million inhabitants grids and better network load balancing China has combined trade incentives — roughly the population of Boston to less expensive natural gas extraction and tax subsidies to build or jump-start and Zurich combined — every week for to improved flow rates across roads — is new cities in the interior as part of its Go the next 40 years.27 Such growth puts helping cities to become sustainable and West program. Some of China’s newer In 1970, there pressure on existing megacities to expand more habitable. Urban residential and cities, such as Zhengdong New District, were two megacities and for new cities to form, heightening commercial customers are generating are beginning to fill up, suggesting that (defined as populations infrastructure demand. The effects of more of their own energy and getting
1970 > 10 million) — Tokyo and climate change — especially rising water more of their power from distributed New York. Today, there Singapore tackles density levels — will leave many cities in both renewable sources. Net zero energy — are 23 megacities, with through “checkerboard” the developed and developing world where the renewable energy generated by the total expected to planning; high-rise 25 United Nations, “World Urbanization Prospects,” 2014, Today vulnerable. This puts pressure a building in a given year equals the total http://esa.un.org/unpd/wup/Publications/Files/WUP2014- rise to 41 by 2030. The developments are The Colombian city of Medellín Report.pdf fastest growing urban interspersed with lower-rise is winning awards for inclusive on infrastructure to be sustainable energy the building uses — has become a 26 United Nations, “World Urbanization Prospects,” 2014, growth; it is building gondolas and and resilient. goal for many buildings around the world. http://esa.un.org/unpd/wup/Publications/Files/WUP2014- areas will be mid-sized developments and surrounded Report.pdf cities (populations of 1 by green boundaries, creating electric staircases to help integrate 27 Joel E. Cohen, “Beyond Population: Everyone Counts to 5 million) in Asia and its poorer hillside communities with in Development,” Working paper 220, Center for Global a spacious effect and Development, July 2010, http://www.cgdev.org/ 2030 Africa.22 community feel.23 the larger city.24 2. Innovation is at the heart 3. New cities are being files/1424318_file_Cohen_BeyondPopulation_FINAL.pdf 28 “Driverless cars plan for Dubai Expo,” The National UAE, 22 of the cities of the future built from the ground up February 2016, http://www.thenational.ae/uae/technology/ 22 United Nations, “World Urbanization Prospects,” 2014, http://esa.un.org/unpd/wup/Publications/Files/WUP2014-Report.pdf driverless-cars-plan-for-dubai-expo 23 Limin Hee and Scott Dunn, “Does High Density Mean the End of Liveability?” Skyline, March/April 2013, https://www.ura.gov.sg/skyline/skyline13/skyline13-02/files/Does%20high-density%20 Future cities built on driverless transit Brand new cities are being built in China, 29 “Smart Cities Seoul: A Case Study,” ITU-T Technology Watch mean%20the%20end%20of%20liveability.pdf Report, February 2013, https://www.itu.int/dms_pub/itu-t/ 24 Coby Joseph, “Medellín Metrocable improves mobility for residents of informal settlements,” The City Fix, 26 August 2014, http://thecityfix.com/blog/medellin-metrocable-improves-mobility- systems, smart buildings and green India, Malaysia, Saudi Arabia and the oth/23/01/T23010000190001PDFE.pdf informal-settlements-low-income-accessibililty-equity-development-coby-joseph/
40 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 41 URBAN WORLD what were termed ghost cities by the above existing highways or rail lines) have profound effects on future Upsides international press were actually just can be an alternative to building new geopolitics, governance, and cities slowly coming to life.30 infrastructure. The most effective corporate plans. investment and creative planning will Dense living promotes While centrally planned urbanization has also be underpinned by behavioral efficiencies, convenience and its challenges, unplanned urbanization solutions, such as pricing mechanisms to the exchange of ideas. Cities has its costs as well. Roughly 32% of reduce vehicle usage. offer inhabitants a Making cities smart and resilient is a city dwellers in 2050 will live in slums, a rich variety of jobs, services 31 trillion-dollar opportunity for product doubling of today’s numbers. Subsisting and cultural opportunities. on informal economies to a large extent, 5. Public-private and services providers, small and some slums have become ungoverned partnerships will be large companies alike. and unserved cities within cities. The realities of slums — unemployment, the foundation of the poverty, disease and despair — make Cities hold the key urban world The clustering them fertile recruiting grounds for to a sustainable of talent, capital criminal and terrorist networks. The idea Successful urban solutions will entail future — pioneering of inclusive urbanization, whereby all public and private cooperation. Meeting and supporting the sharing economy, citizens share in the benefits, is gaining the challenge will require the creativity infrastructure green architecture, traction but will require real political and investment of the private sector make cities microgrids, driverless commitment and innovative mechanisms. alongside the long-term vision and perennial hotbeds transport and more. funding of the public sector, as well as of entrepreneurial Successful urbanization a dedication to inclusive growth. The activity. requires the private 4. Mature cities must gravest challenges cities face will require sector and the public international cooperation, such as the upgrade or replace sector to work together, COP21 Paris climate talks. infrastructure leveraging their respective competencies. Many established cities in mature markets 6. Cities will become as face the challenge of retrofitting and powerful as nations upgrading their existing infrastructure. Four-fifths of the £1.3 trillion (US$1.9 Within decades, cities are likely to trillion) cost of the London Infrastructure become as powerful, if not more so, 2050 plan is earmarked for upgrading than nations themselves. Local city existing infrastructure, for example.32 governments are better positioned to understand the specific needs of citizens In a time of fiscal stress, policymakers and tend to be pragmatic (and less driven Better questions and the public have tended to favor new by raw politics) in their approaches to projects, but maintaining and upgrading urban challenges. existing infrastructure is also essential. Will we become citizens of cities not nations? A 2014 EY survey highlighted that Cities are already leapfrogging national In a world where income inequality is rising, how can urban growth be more inclusive? the public’s willingness and ability to roadblocks to play an important role 30 Wade Shepard, “The Myth of China’s Ghost Cities,” pay for infrastructure are the keys to in determining what our urban world Reuters, 22 April 2015, http://blogs.reuters.com/great- debate/2015/04/21/the-myth-of-chinas-ghost-cities/ shaping the future of urban projects will look like. For example, the C40, 31 Richard Florida, “The Amazing Endurance of Slums,” The How can cities be made resilient to the future’s known and unknown stressors? and real estate over the next decade.33 a network of the world’s megacities, Atlantic CityLab, 23 January 2014, http://www.citylab.com/ work/2014/01/amazing-endurance-slums/8120/ Extracting additional value from existing is acting both locally and collaboratively 32 “The Cost of London’s Long-Term Infrastructure: Greater New cities are built with “brains,” but how will they develop their hearts and souls? assets, whether through optimization to reduce greenhouse gas emissions. London Authority (GLA): Final Report,” ARUP, 29 July 2014. 33 Urban Land Institute and EY, “Infrastructure 2014: (e.g., dynamic tolling rates on roads to The potential for megacities to Shaping the Competitive City,” 2014, http://www.ey.com/ How will the public and private sector co-author this century’s urban story? shift peak use) or creating new revenue emerge as the world’s most Publication/vwLUAssets/EY_-_Infrastructure_2014:_ shaping_the_competitive_city/$FILE/EY-infrastructure- streams (e.g., selling air rights to build important economic entities will 2014-shaping-the-competitive-city.pdf
42 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 43 Health 7 reimagined With growing health needs, is digital the best medicine? 1. Disruption and economic of individual markets. In the US, the Over time, these trends promise to sustainability drive the Affordable Care Act has significantly take us to Health 2.0, a fundamentally expanded access to health coverage and different model for health care. Instead of health care revolution led to considerable experimentation with being passive recipients of care, patients approaches that align incentives with will become empowered consumers, with Health care is being reinvented. The shift value (pay-for-performance) instead of more information and control over their is being driven by two main factors: the volume (fee-for-service). Hospitals across health decisions. Sophisticated analytics search for economic sustainability and the West are implementing initiatives to will allow providers to focus on prevention digital disruption. Health care spending maximize efficiencies with better resource and disease management. Instead of is on an unsustainable trajectory, thanks scheduling, discharge planning, and being delivered only in hospitals and to demographic shifts (aging populations) clinical pathways. clinics, health care will be available and globalization (sedentary lifestyles wherever patients happen to be. that accompany economic development Developing economies in Africa and and urbanization). elsewhere are using mobile health solutions to expand access in rural areas. 3. The next wave of digital This is motivating health care systems to Resource-rich economies in the Persian innovation will be even
2.3 ex focus as never before on sustainability Gulf and emerging markets such as China The volume of health In 2015, an astonishing 165,000 and value as they strive to balance three are investing in health care systems more disruptive data worldwide is mobile health apps were available fundamental imperatives: expanding and have the opportunity to build more projected to balloon to on the 2.3 exabytes iOS and access, improving quality and managing sustainable approaches from the start. The next generation of smart technology ab costs. Meanwhile, just as health systems promises even greater change. Consider The World Economic Forum (2.3 billion gigabytes) Android
yt need to contain costs, digital health Developing sustainable approaches the disruptive potential of the following: estimates that chronic disease by 2020 — platforms — (mobile apps, wearables, social media, will require varied skills, from app will cost globally growing 48% es about twice • Artificial intelligence:Much of and analytics) is providing a key part of development to analytics and $47 between 2010 per year and as many medicine involves heuristic, rules-based the answer by enabling approaches that customer engagement. So, entrants and 2030.34 outpacing the as just problem solving based on symptoms growth of two years 2013 are dramatically more cost-effective. from once far-removed sectors — and test results. This is fertile ground big data 36 technology, telecommunications, and 101 101 1010001 1010101 1010001011111 1010101000010 1010001011111010101010101 1010101000010100101011111 1010001011111010101010101010101011101010100010101 1010101000010100101011111101010101010101111010111 earlier. for AI. Today’s decision-support overall.35 2015 retail, for example — are moving in. For tools could soon be replaced by 165,000 2. The journey to Health 2.0 more, see Industry redefined, page 20. 2020 sophisticated algorithms that diagnose Their entry creates opportunities for and prescribe — with greater accuracy The search for economic sustainability cross-sector partnering — but also raises and less random variability than their 34 World Economic Forum and the Harvard School of Public Health, “The Global Economic Burden of Non-communicable Diseases,” 2011. is playing out in different ways across the specter of disruption for mature 35 EMC and IDC, “The Digital Universe Driving Data Growth in Healthcare,” 2014. human counterparts. 36 IMS Institute for Healthcare Informatics, “Patient Adoption of mHealth: Use, Evidence and Remaining Barriers to Mainstream Acceptance,” 2015. geographies, reflecting the realities health care incumbents.
44 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 45 HEALTH REIMAGINED
• Sensors: Monitoring health in real-time, health technologies has grown rapidly, Upsides real-world conditions promises huge mainstream adoption has remained efficiencies through disease prevention elusive. Payers often do not provide and care management. Today, this reimbursement and providers remain is done through medical devices, skeptical in the absence of scientific Entrepreneurial start-ups become smartphones and wearables, which are data on efficacy. The next generation of the new health companies, essentially mobile platforms packed sensors — less invasive and with more creating and capturing value in with sensors. The next generation of accurate and useful data — could finally innovative ways. sensor technology — cheaper, smaller, take us to the tipping point. more efficient — will unbundle sensors from phones, embedding them in Digital health has also compounded the Societies and governments benefit tattoos and adhesive bandages. challenge of fragmentation in health from improved quality, expanded • Real-world analytics: Sensors do more care. Achieving the vision of Health 2.0 access and reduced costs. than enable timely interventions; they requires integrating data across diverse streams to see the big picture. This also deliver an abundance of real- Incumbents become time, real-world data. Today, analytics has never been easy in health, where better aligned with health firms are combining and analyzing interoperability is limited and data sharing outcomes and the needs big data streams across health care restricted by regulations and concerns organizations, but the gold mine of data about privacy and security. The rapid of the patients they serve. from sensors sits largely untapped. proliferation of data sources is making Imagine combining the information in the challenge considerably more difficult. a patient’s health record with round- The need to address this challenge the-clock sensor data on diet, activity will continue to drive partnerships and Individuals become levels and medication adherence to acquisitions to access data, as well as more proactive in work on analytical techniques, industry comprehensively understand the managing their health. drivers of her blood pressure. When it standards and platforms to integrate it. happens, this will be a game changer. As the chronic disease burden escalates, • The sharing economy: Sharing systems will be forced to tackle the economy platforms are terrific at biggest challenge of all: behavioral deploying underutilized assets — change. Expect to see increasing action allowing people to list their unused in this space, as payers, providers cars on Turo or their guest bedrooms and employers combine insights from on Airbnb, for instance. This approach behavioral economics with mobile health could have tremendous applicability in technologies to “nudge” behaviors. See health care systems, which are rife with Behavioral revolution, page 32, for more. excess capacity. Start-ups have already begun tackling the problem. Better questions 4. Fragmentation, adoption and behavior patterns When algorithms prescribe and diagnose, how will providers adapt? challenge Health 2.0 In a world of fragmented health data, how do we see the big picture?
It is relatively easy to imagine the future While everyone in health care is focused on the short term, how do we incentivize the of health; getting there will be more long-term behavioral changes needed for tackling chronic disease? challenging. While the number of mobile
46 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 47 Resourceful 8 planet Can innovation make the planet resource rich instead of 1. The resources and achieving net global carbon 2. Industry convergence resource scarce? neutrality, the COP21 agreement transformation is at an signaled a global course change in creates the fourth inflection point energy use and development. industrial revolution in • Rise of renewables: Aided by falling natural resources As demographic trends push the world’s costs, renewables are the fastest- population to 9.7 billion by 2050, growing energy source. Renewables The resources transformation is already natural resource constraints — whether in accounted for half of global new challenging utility business models availability or infrastructure — challenge generating capacity in 2014 and are and driving down coal’s share of the established modes of consumption, from expected to represent more than 50% global energy mix. A convergence in the individual through to global corporate of all capacity growth through 2040.40 energy, batteries, smart technology supply chains. (see The future of smart, page 24, for • Shift to gas: Natural gas is on more) and transportation is driving the track to surpass coal as the world’s At the same time, changing climate establishment of innovative, integrated second-largest energy source by patterns, rising seas and more frequent and networked resource solutions with 2035, thanks to its low prices, its extreme weather events exacerbate even broader potential disruption and low-carbon characteristics and new natural resource issues. The Earth’s upsides — the fourth industrial revolution export facilities.41 ability to absorb human-generated in natural resources. Unchecked, rising temperatures carbon emissions is arguably our most • Corporate energy and resource due to climate disruption would important resource constraint. optimization: Corporate adoption of Corporate power customers are combining on-site clean energy The world’s population consumed cause a 23% reduction in global renewables as part of an optimization 39 the equivalent of incomes by 2100. Of necessity, the future will be resource- strategy is beginning to cascade generation, energy management efficient, carbon-constrained and beyond a core group of Fortune 500 technologies and energy storage to 1.6 planets’ worth resilient. companies. reframe their relationship to the of resources in 21 of the world’s 37 largest grid and participate in energy markets. • Global utility market reform: More 2015; aquifers, providing the water for The recent alignment of a number The growing penetration of the than 30 countries are reforming their more than 2 billion people, have 23% of drivers suggests we are at an Internet of Things (IoT) paired this figure is set to energy and water markets. Most of rise to two planets passed their sustainability inflection point in a natural resources with machine learning in industrial 38 these reforms enable increased clean by 2030.37 tipping points. transformation that has been gaining energy production and introduce force over the past decade: resource efficiency innovations. 40 “World Energy Outlook 2015 Factsheet,” International Energy Agency website, http://www.worldenergyoutlook. • Growing political will: With its org/media/weowebsite/2015/WEO2015_Factsheets.pdf, 37 “World Footprint,” Global Footprint Network website, http://www.footprintnetwork.org/en/index.php/GFN/page/world_footprint/, accessed 21 April 2016. accessed 21 April 2016. 38 “Study: Third of Big Groundwater Basins in Distress,” NASA Jet Propulsion Laboratory website, http://www.jpl.nasa.gov/news/news.php?feature=4626, accessed 21 April 2016. objectives of limiting global warming 41 BP, “BP Energy Outlook: 2016 Edition,” p. 15. 39 “Study finds climate change will reshape global economy,” Berkeley News, UC Berkeley, http://news.berkeley.edu/2015/10/21/study-finds-climate-change-will-reshape-global-economy/, accessed 21 April 2016.
48 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 49 RESOURCEFUL PLANET Upsides
Energy technology and business model innovation could avert the worst impacts of climate disruption and drive economic growth. energy, logistics and manufacturing become economically compelling. maintaining existing water infrastructure. meet growing energy needs. Lack of a systems is enabling new levels of energy Economical energy storage paves Emerging markets contend with the centralized resources infrastructure in efficiency and performance optimization. the way for upsides in renewable fundamental challenge of meeting the many regions is leading to the adoption This is also enabling the wider energy integration, energy trading, needs of growing populations — 770 of distributed resource innovations, such Distributed energy and water innovations aggregation and monetization of energy grid optimization and electric vehicles, million people lack access to clean as off-grid solar for lighting, mobile phone hold the potential to transform the lives demand response. which could all potentially disrupt drinking water. 45 charging and water purification. Distributed of billions of people who lack access to industry incumbents. resource innovations could have a centralized resources infrastructure. The increasingly distributed and Crisis is spurring innovation and transformative impact for the billion people connected nature of resource adoption. Water system managers are without access to power and clean water. technologies is pushing assets to the 4. Carbon and deploying sensors and smart meters edge of the network and changing water solutions that enable more resource-efficient ownership models. For example, sharing operations. Distributed water systems are 6. Disruptors will be Competitive differentiation based on business models have made it possible Fossil fuels will be critical to meeting the being integrated with centralized systems the winners resource optimization and an embrace for residential customers to buy solar world’s massive energy needs for years to avoid expensive infrastructure build- of resource innovation will provide energy from someone else’s leased to come — 80% of the global energy mix out. Modular water treatment systems While the resources transformation is increasing value to global corporations. rooftop panels. is expected to be supplied by fossil fuels and innovative business models are at an inflection point, it will not be easy in 2035 — making carbon solutions a helping to bring water to remote and or occur in a linear fashion. Remaking In terms of transportation, electric critical part of the approach to climate underserved communities. how the world produces and consumes drivetrain vehicles, connected and disruption.43 A growing number of resources such as energy and water will Improving energy storage autonomous vehicle technology, and conventional energy companies are Supply chain risks and license-to- require mobilizing vast amounts of capital, cost and performance ride-sharing platforms are converging to embracing the need to participate in operate challenges arising from water replacing incumbent systems and spurring factors will catalyze transform mobility. the low-carbon energy transition. Fresh issues are leading corporations to adopt innovation. Inherent in this process are new value streams impetus is being given to developing on-site water treatment innovations disruptions and upsides that will reshape and business models Value is shifting away from the asset innovations in carbon capture, reuse and water efficiency measures as well industries, generate new sources of value that enable the next owner to the network operator who and sequestration. as engage with local communities on and alter the corporate and international aggregates demand, drives utilization mitigation initiatives. competitive landscape. phase of the resources and provides services on assets it does The United Nations’ climate conference transformation. not own. (COP 21), held in December 2015, gives In this context, nimble innovators are Convergence of resource new energy to putting a price on carbon 5. Distributed resource combining new technologies, digital, and smart technologies is Smart technology is being embraced by to provide the much-needed economic innovation could understanding of the customer and new empowering customers to cities globally to create smart “systems drivers to achieve climate objectives. Only financing models to disrupt resource share, trade and optimize of systems” that yield more resource- 12% of annual global greenhouse gas transform lives in incumbents. Corporations are accessing resources. efficient and resilient infrastructure. emissions are covered by a carbon pricing emerging markets this resource innovation pipeline and San Francisco, for example, is piloting mechanism.44 In the run-up to COP21, crossing industry boundaries — in pursuit a cellular network for the internet of six oil majors called for a global carbon The demographic growth, urbanization of new revenue opportunities. Competitive things as a platform for urban innovation. pricing system to set a level competitive and economic development of this century differentiation based on resource playing field and incentivize development will be centered in emerging markets; optimization and an embrace of resource of mitigating technologies. China plans to so will growth in resource consumption innovation will provide increasing value to Better questions 3. Energy storage will be launch the largest carbon market in the and the impact of climate disruption. global corporations. a catalyst for disruption world in 2017, which could help neutralize Emerging market countries have embraced How will we link prosperity and sustainability? competitive objections to carbon pricing renewables and nuclear energy as part For corporates, governments, innovators, Steeply declining energy storage costs mechanisms in other regions. of an “all of the above” strategy to investors and other stakeholders, now is Can business disruption also address climate disruption? — the price of grid-scale lithium-ion the time to assess current capabilities and battery packs is projected to fall 47% Water has become the most important competencies against the disruptions and 42 “Market Data: Advanced Batteries for Utility-Scale Energy How is climate purpose reflected in your over the next five years — will be an medium for climate disruption, with rising Storage,” Navigant Research, 1Q 2016, p. 12. future upside opportunities created by essential catalyst for the fourth industrial seas, drought and flooding exacerbating 43 BP, “BP Energy Outlook: 2016 Edition,” p. 6. accelerating change toward a resource- corporate purpose? 44 “FEATURE: Climate change and sustainability key to revolution in resources.42 As energy resource challenges in developed and future development agenda, says former UN official”, efficient and low-carbon economy. storage costs fall, new value streams emerging markets. Developed markets UN News Centre, http://www.un.org/apps/news/story. Who is your Chief Resources Officer? asp?NewsId=50165#.VxmV200UWPw, accessed 21 April and a rising number of business models face a trillion-dollar investment gap in 2016.
50 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 51 Companies looking to disrupt their business models could start by asking important questions such as: How can we set the right tone at the top? What rigorous processes should we institute? What metrics will encourage experimentation?
These are all good questions. But we argue that the starting point is elsewhere. When disruption upends incumbent business models, it challenges many of the most basic assumptions underpinning those models. The first, and most important, step in self-disruption therefore involves challenging long-held assumptions about matters as fundamental as what your business is and who your customers and competitors are. Here are five better questions to ask yourself.
How do you 1. What business are you in? social media and blogs, they have had to create business models built on new value propositions — convenience, 24/7 access, seize the Disruption has a way of changing the very business that customizability — to remain relevant. companies are in. You may have thought you were in the business of assembling steel and glass into motor vehicles upside of — but disruption clarifies that the business you are really in is 4. Who are your competitors? mobility. Customers don’t necessarily want to own a car. Their disruption? real need is to get from point A to point B, which can just as Responding to disruption requires making the right comparisons, easily be accomplished with a ride-sharing service. including comparing yourself with the appropriate competitors. Since disruption attracts non-traditional entrants from other Are you in the business of manufacturing compact discs sectors, the peer group you once used may no longer be relevant. — or the business of streaming music? Are you in the business of licensing human drivers — or the business of regulating Fifteen years ago, should executives at Circuit City have compared algorithms in driverless cars? Understanding how your core themselves to Best Buy and Radio Shack — or should they have activity has changed is the first step in reinventing your been more concerned about a Seattle start-up named Amazon? business model. How can Ford face the challenges presented by GM and Uber? Today, is it more important for car makers to compete with each 2. Who’s your customer? other — or to understand how they are competing with sharing- economy start-ups that are disrupting their business? Disruption does more than empower customers. It creates entirely new customer segments, with different needs and expectations. Are your customers’ corporations buying 5. What’s the risk of standing still? mainframe computers — or individuals buying PCs? Are you selling to doctors buying medical devices — or patients managing Time is not on your side. We tend to underestimate the speed their health on smartphone apps? Understanding how the of revolutions. In assessing the cost, benefit and risk of customer base has changed, and what the needs of the new investments, we often make comparisons in the context of customers are, are critical inputs for self-disruption. a world similar to today’s.
The more meaningful comparison, however, is against the 3. What’s your value proposition? environment that will exist in the near future, which could be radically different. The market potential of a disruptive To respond to the expectations of the new customer base, you opportunity may seem insignificant relative to the size of your need a different value proposition — the one that customers business today — but that calculus could be very different traditionally appreciated may be entirely different from what in a disrupted environment, where the market share of the new customers demand. The traditional value proposition of traditional offering has shrunk dramatically. In a world where newspapers was authoritativeness and reputation. In a world of everything is changing, the biggest risk is standing still.
52 The upside of disruption Megatrends shaping 2016 and beyond 53 Megatrends 2016 The upside of disruption The upside of disruption Megatrends shaping 2016 and beyond 53 This report was produced by EYQ.
To discover more insights and stories on disruption: ey.com/megatrends and betterworkingworld.ey.com/disruption
Your contacts for this report:
Uschi Schreiber Gautam Jaggi Global Vice Chair – Markets EYQ (primary contact for The future and Chair, Global Accounts of work, Behavioral revolution Committee, EY and Health reimagined) [email protected] [email protected]
Gil Forer Andrea Potter Lead Partner, Digital and Business EYQ (primary contact for Disruption, Global Markets, EY Industry redefined, Empowered EYQ, co-leader customer and Urban world) [email protected] [email protected]
Karin Lutz Martyn Whistler Lead Partner, Global Strategy & EYQ (primary contact for Analysis, Global Markets, EY The future of smart) EYQ, co-leader [email protected] [email protected]
John de Yonge EYQ (primary contact for Resourceful planet) [email protected]
54 The upside of disruption Megatrends shaping 2016 and beyond The upside of disruption Megatrends shaping 2016 and beyond 54 The upside of disruption Megatrends shaping 2016 and beyond 55 EY | Assurance | Tax | Transactions | Advisory
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