Sunday, April 20, 2014
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The Disruptive Dozen

SAN FRANCISCO – History is littered with technologies that were once hailed as the next big thing. That can be annoying for consumers when they realize that, say, the quadrophonic stereo they purchased was a waste of money. But when companies bet on the wrong technologies, the consequences can be devastating for them.

In the late 1990’s, for example, the belief that B2B exchanges would prove to be the “killer app” for commerce resulted in the formation of more than 1,500 of them. Most have since vanished, taking billions of dollars in investment with them.

To help cut through the hype that surrounds the arrival of almost all new technologies, the McKinsey Global Institute examined more than 100 rapidly evolving technologies and identified 12 that are almost certain to disturb the status quo in the coming years. The MGI estimates that the combined annual economic impact of this “disruptive dozen” – which span information technology, machinery and vehicles, energy, bioscience, and materials – will reach $14-33 trillion by 2025. Much of this value – in many cases, a significant majority – is likely to accrue to consumers.

Consider the mobile Internet, with an annual economic impact that is projected to reach $10 trillion by 2025. As advanced-country consumers continue to amass benefits from constant access to an increasing amount of information, apps, and online services, more than two billion developing-country citizens could gain access to the same benefits from technological progress in the rest of the world. The value of these benefits would dwarf the value likely to be reaped by suppliers of mobile devices and Internet services.

Similar user-oriented value shifts are occurring across Internet-related technologies, including those not among the disruptive dozen. For example, only a small fraction of the $1 trillion in estimated annual value of online search will likely go to the service providers.

But, for workers, the news is not all positive, with machines replacing humans in an increasing number of domains – far beyond routine physical and clerical activities. As computer-processing power grows and artificial-intelligence software advances, machines are increasingly able to perform complex tasks requiring abstract thinking, such as inferring meaning and making judgments.

As a result, companies are beginning to automate more highly skilled knowledge-based jobs in fields like law and medicine. While this process will generate a significant amount of value – more than $5 trillion in 2025, according to MGI estimates – it will not be distributed evenly among workers, leaving many to confront the need to retrain for new jobs.

Entrepreneurs, executives, and stockholders face similar uncertainty as disruptive technologies change the rules of the game by reducing entry barriers and lowering the minimum efficient scale (the smallest amount a company must produce while still taking full advantage of economies of scale). For example, 3D printing allows start-ups and small companies to “print” highly complicated prototypes, molds, and products in a variety of materials with no tooling or setup costs.

Likewise, cloud computing gives small enterprises IT capabilities that were previously available only to larger firms – as well as a growing assortment of back-office services – on the cheap. This is an unwelcome development for software providers whose business model is based on licensing and annual maintenance fees, not electricity usage. Indeed, large companies in almost every field are vulnerable, as start-ups become better equipped, more competitive, and capable, like larger firms, of reaching customers and users everywhere.

Moreover, disruptive technologies will cause value to shift among economic sectors, as occurred when television overtook radio or, more recently, when online media gained predominance over print publication. Businesses in all sectors now must invest in understanding new technologies, so that they are prepared to seize opportunities or mount an effective defense quickly.

Indeed, CEOs and other top executives need to be technologists, or at least technology-savvy, and constantly assess how innovations will affect the status quo, specifically their profit pools. But, in devising relevant strategies, business leaders should recognize that the disruptive dozen’s economic potential is exactly that – potential. Rather than assume that the value is theirs for the taking, bosses must develop innovative business models that monetize technology’s potential and avert value shifts to competitors or players in other sectors, who will increasingly be able to participate – often more efficiently and with few legacy constraints – in any sector.

Experience shows that companies that develop innovative business models can win. Google, for example, continues to provide search and other online services for free, while using the expressed search intentions and other behavioral data to sell targeted advertising – a model that has proved highly profitable. This kind of “multi-sided” business model is appearing in other sectors, too, as companies use big-data analytics to find ways to monetize the information that they would collect anyway.

While consumers stand to reap the rewards of disruptive technologies, workers and companies can take nothing for granted. Workers must come to terms with the imperative of life-long learning, as their skills’ half-lives shrink, while companies must anticipate and adapt to rapid change.

Governments, too, must be prepared to cope with the ripple effects of technological disruptions. Policymakers will need to meet new demands for education and training, and implement effective mechanisms for regulating, say, self-driving cars or the use of genomic data to develop personalized drugs. In an innovation-driven economy, only innovative solutions can work.

Read more from the "The Innovation Revolution" series

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  1. CommentedNathan Coppedge

    Both in the article, and in Laventurier's comments, I find seedlings of the idea that citizenship has a lot to do with these issues. For example, the concept of modular citizenship: the cheap, valuable, equipped, mobile citizens of the future plug into technologies and exploit them. In fantastic terms, these might be like Silicon Valley start-ups that only require QOL benefits for compensation. Some of this is being realized already with crowd-sourcing (a word that I think has become taboo in the upper circles, because it is an unstated dependence. Or I could be wrong. Perhaps it is still being under-used). There is probably a sense of information overload hitting the upper levels, as a lapse transpires between consumer-creations and consumer-applications. Yet, this is still the vital juice of things to come. As usual, little secrets add up to a new mythology or role-playing game of possibilities.

    One key will be to standardize the available integral circuit (metaphorically, the interface between the citizen and the future social platform such as architecture and other environments), so that new technologies appear like visions from the future, that automatically integrate to some degree with other emergent technologies. The recent failure of this trend or possibility is felt in the relatively slow or non-integrated emergence of the self-printing industry. Yet it has the common element of modular parts. I'll tell you what I think about modular parts: we need more permanent, more perfect technology, and we need more virtual consumption. The only way to do this is to improve the physical, technical infrastructure, and to more greatly perfect information.

    There are several jumping off points for ideas of the future, and they are not all recent. For example, architecture has responded to concepts of futurism for at least 100 years, although it has not always responded to hand-held technologies, it has certainly responded to technological meaning. Many new technological ideas can be traced backwards to basic, emergent concepts in architecture, although sometimes the architecture that it comes from is already a figure of the past.

    For example, we will ultimately depend on the kind of ornateness that exists in Gothic cathedrals, and the Alhambra. But these are no longer the form of architecture. Therefore, we make the mistake of distancing ourselves from its significance. However, more recent architecture is even more prescient and subtle. Modular concrete emerged relatively recently and is still considered prohibitively expensive for small budgets. Modularity is a brilliant technical concept that can be applied to information, organization, and planning. It is just as important as hieratics and historical indexing.

    Even without new political concepts, people reach out for a new idea. The first instinct is to declare that old ideas are dead and new ideas are uninteresting. Then they rely on concepts of stimulation, 'sex appeal' to grant meaning to reality. But another approach is to reach from concepts of reality, leaving stimulation as an incidental feature which is only a function of mental concepts---a projection which can be fitted cheaply to any passing taste, to the most nonchalant, inscrutable instances. Images must be made cheap, someone famous said. But that is just the spicy surface of the future economy. The interior has to do with how to realize reality. And it has to do with the relations of concepts like historical indexing, hierarchies, and modularity, combined with the most imaginative applications the heart could desire. These applications are the boundary between that ultimate reality ('god', 'society', 'materialism') and the emergent tangible image. The easiest thing to do is to look at recent or ancient styles of architecture, and decide, 'how does it fit into the program'? After all, these are already real, tangible, living metaphors that have been accepted, and manifest, for generations. Then apply it to all known styles of art, and to the granted preferred modalities of the most cultured citizens according to genetics or current science. Then apply it to the emergent cusp of art, science, and information. And at that point, information will be gratifying, and people will accept that one of the virtues of society is living in the future, that compartment, that aperture of the childish philosopher, where lightning strikes and the fundamental codification takes place.

  2. CommentedMarc Laventurier

    The third of A.C. Clarke's 'laws of prediction', found in his essay, "Hazards of Prophecy: The Failure of Imagination", is familiar: "Any sufficiently advanced technology is indistinguishable from magic."

    Wall Street may come to find that a fully realized social graph is indistinguishable from socialism.