McKinsey's Richard Dobbs says changes are coming—some positive and some negative—and the people who can adapt best will be the winners.
In No Ordinary Disruption: The Four Global Forces Breaking All the Trends, the directors of the McKinsey Global In- stitute (MGI), the flagship think tank of McKinsey & Com- pany, interpret masses of data from MGI's 25 years of research to guide readers through the next two decades of a dramatically different future. For instance, in just ten years, some 140 million knowledge workers' jobs could be replaced by computers and 75 million jobs by robots. The authors go behind the current headlines to analyze emerging trends caused by four disruptive forces trans- forming the global economy. They are: Emerging markets and cities; the pace of technology breakthroughs and adoption; aging demographics, and, the global trading system. To shed light on these forces, along with other disruptions, McKinsey's Richard Dobbs, one of the authors of the book, the director of MGI and a Senior Partner based in London, sat down with Consulting to discuss No Ordinary Disruption and its implications for the future.
Consulting: Can you give me a sense of where the idea and inspiration for the book developed?
Dobbs: For 25 years, McKinsey has funded a think tank, the McKinsey Global Institute to produce research as well as to help policy makers, business leaders, investors etc. around the world. The idea is to help inform them how the world is chang- ing and the opportunities to improve productivity and growth. James [Manyika], John [Woetzel] and I are the three directors of MGI and do a lot of deeper dive reports. But increasingly clients and other policy makers have asked us to put them all together. Instead of us telling them about one area or another, pull them together and tell us how the world is fundamentally changing. Over the last five years, we've been stringing together a lot of what's in various reports and making presentations, but we hadn't published anything around those insights. We started to realize that the world is changing at a such a rapid pace that company leaders, policy makers and others' intuition about how the world works is wrong. So, the three of us decided to write this up as a book.
Consulting: How did you come up with the four global forces? Did you have pre-conceived ideas about them when you began or did they develop over time as you did the research?
Dobbs: We had a pretty good feel for the first three, I think, but that forth one—the interconnectivity of the global trading system—came a bit later. It sort of evolved as part of our overall research agenda.
Consulting: Are the four forces equally important or do you see one that's more important than the others?
Dobbs: If you're a government in the West, the aging demographic is prob- ably bigger than the rise of emerging markets. But if you're in an emerg- ing market than that one would be more important and so on. If you're in a legacy business than technology and the rise of emerging markets are probably the most important to you. It's not that one or another is bigger or more important in and of itself, it depends who you are. One thing we can say is this: As far as we can tell, these forces are larger than anything the global economy has ever seen be- fore. Over the next decade, 440 cities in emerging markets are going to be half of the world's GDP. Actually, emerging markets will account for three-quarters of the world's GDP. There is an example that comes to mind as I think about the impact of this: There is a city called Tianjin, which is just outside Beijing. When I talk to executives in the West, maybe 5 percent have ever been to Tianjin. Tianjin's GDP at the moment is the same as Stockholm, one of Europe's fastest growing cities, but it's not on people's radar at all. By 2025, Tian- jin's GDP will be about the same as the entire country of Sweden. But when I asked executives who cov- ers Stockholm, they have a answer for me. When I ask them who covers Tianjin, they don't know and have to go digging through the files to find out and it usually turns out the person, if there's one at all, is a junior-level person. The rise of emerging markets is not a surprise, but re-allocating our resources to cover those emerging markets is the challenge.
Consulting: And it sounds like just being able to identify the correct emerging market is difficult enough…
Dobbs: That's right, and we don't think by country is the correct way to do it. That's the more traditional way of looking at it, but we think it should be by city. That's where the growth is happening right now.
Consulting: It's probably not a major surprise that technology is playing a role, but how is the global pace of technology and adoption impacting the global economy?
Dobbs: I think business leaders un- derstand it when it's happening directly to them, but I don't think they are thinking far enough ahead. I've talked to a lot of executives in the Oil industry, for instance, and they're worried about there being too many wind farms. But those same people aren't worried enough, in my opinion, about what the rise of driver-less cars will mean to their industry and how that impacts where you'll want to have gas sta- tions located. If we move to bat- tery-powered cars, what does that mean? And with the rise of online retail, for instance, do these gas or charging stations take on different roles, perhaps as a place where you can go to pick up your Amazon or- der? Because you may not need to go there as much for gasoline. Some of these technologies have second- and third-order effects that are quite challenging, and I don't think business leaders have thought through all the possible consequences.
Consulting: Why is that?
Dobbs: I think the cultures of many companies are such that those people who have succeeded are the ones that have done very well internally. It is interesting that at many large compa- nies the executives spend too many hours focused internally. Three indus- tries where I've seen this a lot is Fi- nancial Services, the Oil industry and the Pharmaceutical industry. When success is driven by how successful you've been internally, it means that executives can not be as externally focused about how the world is going to change and how that will ultimate- ly impact their businesses.
Consulting: One of the four forces focuses on aging demographics. How do you see that having a major impact?
Dobbs: There is going to be a grow- ing proportion of the elderly in the population. For businesses that is an important factor—how do you mar- ketwhen,insomepartsoftheworld, a third of your customers are over the age of 60? What does that mean for your products? I was talking to a sports company executive recently and he said they really don't want to focus on the elderly. That's under- standable, but the reality is someone will produce products—shoes with Velcro on them so they are easier to get on and off—that will be attractive to that segment.
There's another factor: Since the second world war, the global econo- my has grown by about 3.5 percent a year. Phenomenal growth powered by two engines. We've had demo- graphics driving that growth along with great productivity. But as the demographic machine comes to an end, we're going to be facing lower growth. And I think there is a consequence for businesses. If you're in a world that's only growing 2 percent that means if you add too much capacity you can't out pace that with growth. It also means that taking share suddenly becomes more important since it will be more difficult to just grow with the market. There are also challenges for policy makers. How do you sustain your debt levels in a lower-growth world? If you're a country like Greece and you're suddenly growing less and the demo- graphics are going the wrong way, how do you sustain your debt level?
Consulting: You mentioned the interconnectivity of the global trading system being the one that sort of emerged after the fact. Can you talk a little about that force?
Dobbs: The fact is: we're connect- ing the world through people, cap- ital, trade, ideas, political systems. And we've gotten a huge benefit from this, but we're also assuming some risks, too. We've just seen the first global recession since the sec- ond world war. And I don't think the Lehman Brothers news was that big—it's just that we threw a shock into the system that had suddenly be- come connected. We threw a whole bunch of shocks into the system over the last 50 years, it's just that the system was disconnected so it didn't impact the world like this one did. Greece has been in default for 50 percent of the time it has been an independent country, but unless you were a bank lending to Greece, it really didn't matter whether Greece was in default or not. Now, since we've connected Greece through a political system, suddenly its default impacts all of Europe, and thus, all of the world. I think people are start- ing to finally realize how all these connections we've made create vulnerabilities. It's now possible for a hacker to sit anywhere in the world and take down a power grid because we've connected the control sys- tems to the Internet. Maybe, in hindsight, that wasn't the wisest thing we could have done.
Consulting: During the course of the research or the writing of the book, was there any one particular finding or fact that surprised you?
Dobbs: I think that as we look at this big picture one thing that jumps out at me that we haven't really talked about yet is there is going to be a co- hort of people in the Western world that is going to grow up poorer than its parents. Up until now, the system has worked and it's been relatively easy to sell to the next generation because each generation has been better off than the one before it. But when we put these four forces to- gether some will be worse off. On average, lots of people in the world will be better off, of course. We've taken close to a billion people out of poverty so far through the urban- ization that's gong on in emerging markets and that's great. But, there is going to be this cohort that will grow up poorer than their parents and how that plays out politically will be interesting to watch.
Consulting: What are the actionable takeaways that leaders should be doing right now to prepare?
Dobbs: I think there are three basic themes for leaders: The first is about being externally focused. Make sure you know what is going on out in the world and how that impacts how you run your business, how you set policy etc. The second theme is around responsiveness and how you set yourself, your company, your employees up to be able to respond to changes. In the future, there will be a big premium on agility. The third attribute is around an individ- ual's attitude to change. Some of these changes we're talking about can be looked at as negatives, especially in certain parts of the world. Or, you can look at the positives that are happening around the world for the good of humankind.
We're going to have a consuming class of some 4 billion people, and there will be many winners and huge opportunities. We think the winners will be the optimists because the op- timists will be able to see the big- ger picture and see the opportunities these changes bring about. Others may still be trying to figure out ways to keep change from happening.
Consulting: What impact do you hope the book will have?
Dobbs: I'd like to think that the book will make people more aware, more externally focused on what is going on around them, outside their company. We really hope it starts some of those conversations.
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