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Ten trends
to watch in 2006
The right product
markets, technology, and geography are critical components of
long-term economic performance. Bad industries usually trump good
management, however: in sectors such as banking, telecommunications,
and technology, almost two-thirds of the organic growth of listed
Western companies can be attributed to being in the right markets
and geographies. Companies that ride the currents succeed; those
that swim against them usually struggle. Identifying these currents
and developing strategies to navigate them are vital to corporate
success.
Predicting short-term changes or
shocks is often difficult. But by identifying trends through an
analysis of deep history rather than of the shallow past it is
possible to forecast long-term directional change. Even the Internet
took more than 30 years to become an overnight phenomenon.
Macroeconomic trends
We would highlight ten trends that
will change the business landscape. First, we have identified
three macroeconomic trends that will deeply transform the underlying
global economy.
1. Centers of economic activity will shift profoundly,
not just globally, but also regionally. As a consequence of economic
liberalization, technological advances, capital market developments,
and demographic shifts, the world has embarked on a massive realignment
of economic activity. Although there will undoubtedly be shocks
and setbacks, this realignment will persist. Today, Asia (excluding
Japan) accounts for 13 percent of world GDP, while Western Europe
accounts for more than 30 percent. Within the next 20 years the
two will nearly converge. Some industries and functions—manufacturing
and IT services, for example—will shift even more dramatically.
The story is not simply the march to Asia. Shifts within regions
are as significant as those occurring across regions. The United
States will still account for the largest share of absolute economic
growth in the next two decades.
2. Public-sector activities will
balloon, making productivity gains essential. The unprecedented
aging of populations across the developed world will call for
new levels of efficiency and creativity from the public sector.
Without clear productivity gains, the pension and health care
burden will drive taxes to stifling proportions.
Nor is the problem confined to the developed economies.
Many emerging-market governments will have to decide what level
of social services to provide to citizens who increasingly demand
state-provided protections such as health care and retirement
security. The adoption of proven private-sector approaches will
likely become pervasive in the provision of social services in
both the developed and the developing worlds.
3. The consumer landscape will change
and expand significantly. Almost a billion new consumers will
enter the global marketplace in the next decade as economic growth
in emerging markets pushes them beyond the threshold level of
$5,000 in annual household income—a point when people generally
begin to spend on discretionary goods. From now to 2015, the consumer's
spending power in emerging economies will increase from $4 trillion
to more than $9 trillion—nearly the current spending power
of Western Europe.
Shifts within consumer segments in developed economies
will also be profound. Populations are not only aging, of course,
but changing in other ways too: for example, by 2015 the Hispanic
population in the United States will have spending power equivalent
to that of 60 percent of all Chinese consumers. And consumers,
wherever they live, will increasingly have information about and
access to the same products and brands.
Social and environmental
trends
Next, we have identified four social
and environmental trends. Although they are less predictable and
their impact on the business world is less certain, they will
fundamentally change how we live and work.
4. Technological connectivity will transform the
way people live and interact. The technology revolution has been
just that. Yet we are at the early, not mature, stage of this
revolution. Individuals, public sectors, and businesses are learning
how to make the best use of IT in designing processes and in developing
and accessing knowledge. New developments in fields such as biotechnology,
laser technology, and nanotechnology are moving well beyond the
realm of products and services.
More transformational than technology itself is
the shift in behavior that it enables. We work not just globally
but also instantaneously. We are forming communities and relationships
in new ways (indeed, 12 percent of US newlyweds last year met
online). More than two billion people now use cell phones. We
send nine trillion e-mails a year. We do a billion Google searches
a day, more than half in languages other than English. For perhaps
the first time in history, geography is not the primary constraint
on the limits of social and economic organization.
5. The battlefield for talent will
shift. Ongoing shifts in labor and talent will be far more profound
than the widely observed migration of jobs to low-wage countries.
The shift to knowledge-intensive industries highlights the importance
and scarcity of well-trained talent. The increasing integration
of global labor markets, however, is opening up vast new talent
sources. The 33 million university-educated young professionals
in developing countries is more than double the number in developed
ones. For many companies and governments, global labor and talent
strategies will become as important as global sourcing and manufacturing
strategies.
6. The role and behavior of big business
will come under increasingly sharp scrutiny. As businesses expand
their global reach, and as the economic demands on the environment
intensify, the level of societal suspicion about big business
is likely to increase. The tenets of current global business ideology—for
example, shareholder value, free trade, intellectual-property
rights, and profit repatriation—are not understood, let
alone accepted, in many parts of the world. Scandals and environmental
mishaps seem as inevitable as the likelihood that these incidents
will be subsequently blown out of proportion, thereby fueling
resentment and creating a political and regulatory backlash. This
trend is not just of the past 5 years but of the past 250 years.
The increasing pace and extent of global business, and the emergence
of truly giant global corporations, will exacerbate the pressures
over the next 10 years.
Business, particularly big business, will never
be loved. It can, however, be more appreciated. Business leaders
need to argue and demonstrate more forcefully the intellectual,
social, and economic case for business in society and the massive
contributions business makes to social welfare.
7. Demand for natural resources will
grow, as will the strain on the environment. As economic growth
accelerates—particularly in emerging markets—we are
using natural resources at unprecedented rates. Oil demand is
projected to grow by 50 percent in the next two decades, and without
large new discoveries or radical innovations supply is unlikely
to keep up. We are seeing similar surges in demand across a broad
range of commodities. In China, for example, demand for copper,
steel, and aluminum has nearly tripled in the past decade.
The world's resources are increasingly constrained.
Water shortages will be the key constraint to growth in many countries.
And one of our scarcest natural resources—the atmosphere—will
require dramatic shifts in human behavior to keep it from being
depleted further. Innovation in technology, regulation, and the
use of resources will be central to creating a world that can
both drive robust economic growth and sustain environmental demands.
Business
and industry trends
Finally, we have identified a third
set of trends: business and industry trends, which are driving
change at the company level.
8. New global industry structures are emerging.
In response to changing market regulation and the advent of new
technologies, nontraditional business models are flourishing,
often coexisting in the same market and sector space.
In many industries, a barbell-like structure is
appearing, with a few giants on top, a narrow middle, and then
a flourish of smaller, fast-moving players on the bottom. Similarly,
corporate borders are becoming blurrier as interlinked "ecosystems"
of suppliers, producers, and customers emerge. Even basic structural
assumptions are being upended: for example, the emergence of robust
private equity financing is changing corporate ownership, life
cycles, and performance expectations. Winning companies, using
efficiencies gained by new structural possibilities, will capitalize
on these transformations.
9. Management will go from art to
science. Bigger, more complex companies demand new tools to run
and manage them. Indeed, improved technology and statistical-control
tools have given rise to new management approaches that make even
mega-institutions viable.
Long gone is the day of the "gut instinct"
management style. Today's business leaders are adopting algorithmic
decision-making techniques and using highly sophisticated software
to run their organizations. Scientific management is moving from
a skill that creates competitive advantage to an ante that gives
companies the right to play the game.
10. Ubiquitous access to information
is changing the economics of knowledge. Knowledge is increasingly
available and, at the same time, increasingly specialized. The
most obvious manifestation of this trend is the rise of search
engines (such as Google), which make an almost infinite amount
of information available instantaneously. Access to knowledge
has become almost universal. Yet the transformation is much more
profound than simply broad access.
New models of knowledge production, access, distribution,
and ownership are emerging. We are seeing the rise of open-source
approaches to knowledge development as communities, not individuals,
become responsible for innovations. Knowledge production itself
is growing: worldwide patent applications, for example, rose from
1990 to 2004 at a rate of 20 percent annually. Companies will
need to learn how to leverage this new knowledge universe—or
risk drowning in a flood of too much information.
Find
out more about us. We invite you to learn
more about us by exploring the links to the left. Email
us for more information.
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