McKinsey Global Institute McKinsey Global Institute Disruptive technologies: Advances that will transform business, life, and the global economy May 2013 Disruptive technologies: Advances that will transform life, business, and the global economy The McKinsey Global Institute The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with the facts and insights on which to base management and policy decisions. MGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Our “micro-to-macro” methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy. MGI’s in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on four themes: productivity and growth, the evolution of global financial markets, the economic impact of technology and innovation, and urbanization. Recent reports have assessed job creation, resource productivity, cities of the future, and the impact of the Internet. MGI is led by McKinsey & Company directors Richard Dobbs and James Manyika. Yougang Chen, Michael Chui, Susan Lund, and Jaana Remes serve as MGI principals. Project teams are led by a group of senior fellows and include consultants from McKinsey’s offices around the world. These teams draw on McKinsey’s global network of partners and industry and management experts. In addition, leading economists, including Nobel laureates, act as research advisers. The partners of McKinsey & Company fund MGI’s research; it is not commissioned by any business, government, or other institution. For further information about MGI and to download reports, please visit www.mckinsey.com/mgi. 3D-printing photo courtesy of Andy Ryan, Formlabs Copyright © McKinsey & Company 2013 McKinsey Global Institute May 2013 Disruptive technologies: Advances that will transform life, business, and the global economy James Manyika Michael Chui Jacques Bughin Richard Dobbs Peter Bisson Alex Marrs McKinsey Global Institute Disruptive technologies: Advances that will transform life, business, and the global economy Preface Technology is moving so quickly, and in so many directions, that it becomes challenging to even pay attention—we are victims of “next new thing” fatigue. Yet technology advancement continues to drive economic growth and, in some cases, unleash disruptive change. Economically disruptive technologies—like the semiconductor microchip, the Internet, or steam power in the Industrial Revolution—transform the way we live and work, enable new business models, and provide an opening for new players to upset the established order. Business leaders and policy makers need to identify potentially disruptive technologies, and carefully consider their potential, before these technologies begin to exert their disruptive powers in the economy and society. In this report, the McKinsey Global Institute (MGI) assesses the potential reach and scope, as well as the potential economic impact and disruption, of major rapidly advancing technology areas. Through extensive research, we sort through the noise to identify 12 technology areas with the potential for massive impact on how people live and work, and on industries and economies. We also attempt to quantify the potential economic impact of each technology across a set of promising applications in 2025. By definition such an exercise is incomplete—technology and innovations always surprise. The potential applications we consider reflect what McKinsey experts and respected leaders in industry and academia who aided our research believe are illustrative of emerging applications over the next decade or two and provide a good indication of the size and shape of the impact that these applications could have. The combined potential economic impact by 2025 from the applications of the 12 technologies that we have sized may be denominated in the tens of trillions of dollars per year. Some of this economic potential will end up as consumer surplus; a substantial portion of this economic potential will tranlate into new revenue that companies will capture and that will contribute to GDP growth. Other effects could include shifts in profit pools between companies and industries. Our goal in pursuing this research is not to make predictions, either about the specific applications or the specific sizes of impact. Rather we hope this report will act as a guide for leaders to use as they consider the reach and scope of impact, as well as the types of impacts that these disruptive technologies could have for the growth and performance of their organizations. We fully expect and hope others will build on and enrich this research, as we plan to do. As a companion piece to this research on disruptive technologies, we have updated prior work on business trends enabled by information technologies, which will be available for download at the MGI website (www.mckinsey.com/mgi). In any case, we believe that these technologies will have large and disruptive impact. More importantly, the results of our research show that business leaders and policy makers—and society at large—will confront change on many fronts: in the way businesses organize themselves, how jobs are defined, how we use technology to interact with the world (and with each other), and, in the case of next-generation genomics, how we understand and manipulate living things. There will be disruptions to established norms, and there will be broad societal challenges. Nevertheless, we see considerable reason for optimism. Many technologies on the horizon offer immense opportunities. We believe that leaders can seize these opportunities, if they start preparing now. This work was led by James Manyika, an MGI director in San Francisco, and Michael Chui, an MGI principal, working closely with McKinsey directors Jacques Bughin and Peter Bisson. We are particularly indebted to our team leaders—Alex Marrs, who managed the project, and Joi Danielson, who co- led a portion of the research. The project team included Hyungpyo Choi, Shalabh Gupta, Tim Wegner, Angela Winkle, and Sabina Wizander. Geoffrey Lewis provided editorial support, Karla Arias assisted with research, and we thank the MGI production and communication staff: Marisa Carder, Julie Philpot, Gabriela Ramirez, and Rebeca Robboy. We thank McKinsey experts whose insight and guidance were critical to our work, in particular directors Matt Rogers on oil and gas exploration and recovery, Stefan Heck on renewable energy, Philip Ma on genomics, and Mona Mourshed on education and training. Roger Roberts, a principal in our Business Technology Office, provided multiple insights across various areas of technology. Katy George, a director in the North American Operations Practice, provided expertise on manufacturing, as did Lou Rassey, a principal in the practice. Susan Lund, an MGI principal, provided insight on the changing nature of work and on energy. We were assisted by many experts in our Business Technology Office, including Steve Cheng and Brian Milch, as well as Bryan Hancock from the Public Sector Practice and Jimmy Sarakatsannis from the Social Sector Practice. We also thank Jonathan Ablett, Sree Ramaswamy, and Vivien Singer for their help on many topics. We are grateful to our external advisers Hal R. Varian, chief economist at Google and emeritus professor in the School of Information, the Haas School of Business and the Department of Economics at the University of California at Berkeley; Erik Brynjolfsson, Schussel Family professor of management at the MIT Sloan School of Management, director of the MIT Center for Digital Business, and research associate at the National Bureau of Economic Research; and Martin Baily, senior fellow in the Economic Studies Program and Bernard L. Schwartz Chair in Economic Policy Development at the Brookings Institution. This work benefited from the insight of many technology and business thought leaders, including Chamath Palihapitiya, founder and managing partner of The Social+Capital Partnership and a former Facebook executive; Eric Schmidt, executive chairman of Google; and Padmasree Warrior, chief technology and strategy officer of Cisco. We also thank McKinsey alumni Jennifer Buechel, Rob Jenks, and David Mann, as well as Vivek Wadhwa, vice president of innovation and research at Singularity University; and Ann Winblad, managing director of Hummer Winblad Venture Partners. We thank David Kirkpatrick, CEO of Techonomy; and Paddy Cosgrave, founder of F.ounders. McKinsey colleagues from many practice areas gave generously of their time and expertise to guide our analyses for each technology. Dan Ewing, Ken Kajii, Christian Kraus, Richard Lee, Fredrik Lundberg, Daniel Pacthod, and Remi Said McKinsey Global Institute Disruptive technologies: Advances that will transform life, business, and the global economy were our experts in mobile Internet technology. For automation of knowledge work, we received input from Rickard Carlsson, Alex Ince-Cushman, Alex Kazaks, Nathan Marston, and Chad Wegner. Our McKinsey experts on the Internet of Things were Mike Greene, Aditi Jain, Nakul Narayan, Jeffrey Thompson, and Peter Weed. Cloud computing insights were provided by Brad Brown, Abhijit Dubey, Loralei Osborn,