BRAVE NEW WORLD
A lot of noise and confusion surrounds transformative technologies, with claims and counterclaims that range from the utopian to the catastrophic. Here three members of McKinsey & Company identify four areas that could challenge the status quo – and tell
Changing the building blocks of things
To successfully sequence the first human genome in 2003, it took 13 years, $3 billion, and teams of scientists from all over the world. Rapid advances in technology mean that the speed of gene sequencing has exceeded Moore’s law. Barely a decade later, in January 2014, Illumina, the world’s leading seller of gene sequencing machines, unveiled the HiSeq X, a supercomputer that can sequence 20,000 genomes a year at a cost of $1000 each. This is spurring studies in how genes determine traits or mutate to cause disease. Increasingly affordable genetic sequencing combined with big data analytics will allow rapid diagnosis of medical conditions, pinpointing of targeted cures, and potentially even the creation of customised organisms through synthetic biological methods, with applications in agriculture, food, and medicine.
Advances in materials science are another disruptive innovation. The process of manipulating materials at the molecular level has made nanomaterials possible. Such breakthroughs have already transformed ordinary materials such as carbon and clay to take on surprising new properties – greater reactivity, unusual electrical properties, and greater strength. Nanomaterials have already been used in products ranging from pharmaceuticals to sunscreens to bicycle frames. New materials are being created with enormous strength and elasticity and remarkable capabilities such as self-healing and self-cleaning. Smart materials and memory metals (that can revert to their original shapes) are finding applications in a range of industries such as aerospace, pharmaceuticals and electronics.
Rethinking energy comes of age
In North America, fracking has unleashed a shale energy boom that few saw coming. In less than a decade, the price of natural gas has fallen from more than $12 per unit (million British thermal units) to around $4 to $5 per unit in the US. And as gas supply outstrips demand and prices remain low, producers are turning to fracking for oil. Other unconventional sources are also being explored, including coal-bed methane and methane clathrates.
Meanwhile, the cost of renewable electricity generation continues to fall rapidly. Since 1990, the cost of solar cells has dropped from almost $8 per watt of capacity to one-tenth that amount. Many countries are working on aggressive plans to
accelerate adoption of wind and solar installations and increase the amount of energy they produce. By 2025, solar and wind power could become a source of 15 to 16 per cent of global electricity generation, up from 2 per cent today, and reduce emissions by up to 1.2 billion tonnes of carbon dioxide annually. Energy storage technologies are also seeing disruption. Technologies such as lithium-ion batteries and fuel cells are already powering vehicles and portable consumer electronics. Prices for lithium-ion battery packs for cars could fall from more than $500 per MWh to $160 per MWh by 2025, even as their life cycle increases. Such advances could make battery-powered vehicles cost competitive.
Machines working for us
Industrial automation has been around for several decades, and the robots on the factory floor are now changing fast. Past generations of robots were isolated from humans. They cost hundreds of thousands of dollars and needed engineers to program instructions into them., a process that could take several days. Today, a new generation of increasingly capable robots with enhanced perception, dexterity, and intelligence is being developed thanks to advances in machine vision and communication, sensors, and artificial intelligence.
Autonomous vehicles are another disruptive technology that has made dramatic advances in a single decade. In 2004, DARPA (Defence Advanced Research Projects Agency) funded the Grand Challenge, a competition that offered $1 million to the first driverless car that could drive 240km across the Mojave Desert. Nobody won the prize money; the best-performing car (from Carnegie Mellon) managed a little over 4.5km. Ten years later, Google’s fleet of selfdriving cars has already logged 1,126,541km in city streets – with the only accident occurring when a human was operating one of the Toyota Prius cars.
Finally, additive manufacturing technologies could become another disruptive force in production. While they are not new, 3-D printers are becoming more prevalent because of better technology and performance, new materials, and falling prices. Their use in simple consumer goods and prototypes is widely known. Today, they are also used in medical and dental products, such as hearing aids, dental braces, and prosthetic limbs, and are starting to be used in other high-complexity, low-volume applications, such as aerospace components and turbines. New applications are proliferating. The world’s first 3-D printed car, the Strati (made by start-up Local Motors), was assembled and driven in Chicago in September 2014. Artificial human organs have already been 3-D printed, using a sugar-based hydrogel to create a scaffolding of a kidney or other body part and an inkjet-such as printer to spray onto it stem cells from the patient’s own tissue.
IT and how we use it
We may think of the mobile Internet as a familiar technology, but with more than one billion people already using smart phones or tablets, it is dramatically changing the way we perceive and interact with the world around us. Consider the rapid growth of the Internet of Things – embedded sensors and actuators in machines and other physical objects that are being adopted for data collection, remote monitoring, decision making, and process optimisation in everything from manufacturing to infrastructure to health care. Sensors in lime kilns can tell operators how to optimise temperature settings; in consumer goods, they can inform manufacturers about how products are being used; and in bridges, they can warn city administrators about maintenance needs. While there is no silver bullet that is effective across different sectors, functions, and markets, business leaders who adhere to five principles stand the best chance of staying on top and reinventing themselves to keep up with the “new normal”.
Make the most of your digital capital
Many companies are realising the important role their unstructured data can play: everywhere we look, companies are putting data to use – driving market share, reducing costs, raising productivity, and improving products and services. Retailers are using big data to optimise prices dynamically, forecast demand, generate recommendations, and improve stock management. Manufacturers are using big data to create bespoke products.
Exploit lower marginal costs of digital
Digitisation significantly reduces the costs associated with the access, discovery, and distribution of goods and services. Kiva, the world’s largest online platform for peer-to-peer micro-lending, has facilitated loans worth more than $630m, mostly in the emerging world. Kickstarter, a crowd-funding platform that connects entrepreneurs to individuals interested in funding creative projects, has facilitated pledges of more than $1.4bn to fund 70,000 creative projects since 2009. In markets such as search, e-commerce, social media, and the sharing economy, the low marginal costs of digital infrastructure allow upstarts to build business models with nearlimitless scale. WhatsApp, the mobile messaging platform that Facebook recently snapped up for $19bn, reached 500 million monthly active users within five years of its launch. Snapchat surpassed the photo-sharing activity on both Facebook and Instagram with 400 million users only two years after its foundation.
Find new ways to monetise consumer surplus
There’s an interesting implication to the rise of big data and increasingly cheap digital business tools. In theory, both trends should be immense boons to the companies that can afford to gather, maintain, and use data to their advantage. Consumers, however, remain king and queen in our age of accelerating technological change. Consumers capture as much as two-thirds of the value created by new internet offerings in what is known as consumer surplus – lower costs, better products, and improved quality of life. The challenge for companies is how to get consumers to pay for all of the great new stuff being made available to them. So far, only a few monetisation models have proven effective at shifting value back to companies. One is advertising revenue, which has fuelled the highly profitable growth of tech giants such as Facebook and Google. Direct payments and subscriptions reflect an increasing ability to charge for online content. Under this model, the use of “freemium” pricing strategies – offering no-fee basic services and charging for enhanced features such as the ability to avoid advertising, virtual goods in games, or a higher level of service and access to valuable features – is increasingly common. A third model is monetisation of big data, either through innovative business-to-business offerings or through developing more relevant products, services, or content for which consumers are willing to pay. LinkedIn, for example, makes 20 per cent of its revenue from subscriptions, 30 per cent from marketing, and 50 per cent from talent solutions, a core part of which is selling targeted talent intelligence and tools to recruiters.
Don’t wait for the dust to settle
The instinct, in the face of rapid technological churn, can be to wait for the dust to settle before placing your bets on a new technology. But time is the enemy. Today’s technology could be outdated tomorrow, and a seemingly irrelevant acquisition or strategic move may wind up shaking up the industry. Figuring out which of the dozen types of 3-D printing technologies will become standard is a time-consuming effort with a low likelihood of success. Most companies struggle to make such efforts an integral part of their business-as-usual processes. For many established companies, placing big bets on early technologies is simply not an option due to strictly defined risk appetite, high hurdles for new investments, and legacy IT systems. Embracing innovation could potentially redefine the way companies monitor customers’ actions – and hence set prices and assess risk. Tech giants have stood out as an unsurprising exception to the rule, using their deep pockets and eagle eyes for the latest innovations to place large bets on the next transformative technologies. Google acquired Android in 2005 when the mobile Internet was in its infancy. The following year, when online video advertising was in its infancy, it paid $1.6bn for YouTube. Both proved to be masterstrokes, defying the prevailing conventional wisdom. Large companies in other sectors have realised that establishing symbiotic relationships with vibrant tech start-ups can be an increasingly effective way to place technology bets. Doing so minimises risk and disruption to the core business, while potentially providing companies with the option to take ownership of or deploy promising new products and services.
Some companies have successfully institutionalised the technology mindset by appointing a chief digital officer and elevating the role throughout the organisation. In 2008, Sona Chawla joined Walgreens, the large US pharmacy and retail chain, from Dell as senior vice president of e-commerce. A couple years later, she was promoted to president of e-commerce, and in 2013 she became the president of digital and chief marketing officer, reporting directly to the CEO. Under Chawla, Walgreens acquired drugstore.com in 2011 and developed one of the most popular US mobile health apps, which allows customers to refill prescriptions by scanning bar codes and set personal medication reminders. Today, more than 40 per cent of the chain’s online refill requests come from the app, and multichannel customers spend 3.5 times more than brick-andmortar customers.
Other companies have used the “acqui-hire” approach – buying a start-up in order to acquire the team that runs it – or established partnerships to catch up on promising trends and accelerate access to intellectual property, talent, and technology. Yahoo laid out $1bn for Tumblr in part to bring wunderkind founder David Karp into the fold. In May 2014, Walmart acquired Silicon Valley–based ad software company Adchemy for $300m and incorporated Adchemy’s 60-person team into @Walmart Labs, the company’s in-house tech shop. In 2013, Sephora, the cosmetics retailer with 1300 stores in 27 countries, acquired Scentsa, a specialist in digital technologies, to improve the in-store shopping experience and keep Scentsa’s technology out of the reach of competitors.
Excerpted from No Ordinary Disruption: The Four Global Forces
Breaking All the Trends by Richard Dobbs, James Manyika, and Jonathan Woetzel. Available from PublicAffairs, a member of The Perseus Books Group. Copyright © 2015.