The Game Changers – How Disruptive Technologies will impact business

THE mobile Internet, the ‘Internet of Things’, automation of knowledge work, cloud technology, advanced robotics and 3D printing are among the elements that will shape tomorrow’s world, and could have an annual global economic impact by 2025 of between US$14 trillion and US$33 trillion, according to the McKinsey Global Institute . . . 

DISRUPTIVE TECHNOLOGIES will bring tremendous change to the way people live or conduct business in coming years. The past decade has already given a preview of tomorrow’s business world. The Internet only came into mainstream usage after it was commercialised in 1995, and the first smartphones came into the market in 2007. In a brief few years, these two technologies have wrought almost unbelievable change to the way people communicate, live their lives and do their work.

McKinsey Global Institute (MGI) says that, today, a US$400 iPhone offers roughly equal performance to the fastest supercomputer available in 1975, at a cost then of US$5 million. It says that performance relative to price in computing power is actually doubling almost every two years. Such advances in computational power have been accompanied by significant strides in data storage systems, big data (the ability to process and analyse huge amounts of data, such as real-time location feeds from millions of cell phones) and cloud computing. Asia has enthusiastically embraced new technologies, and in many cases has used them to leapfrog developments in a number of areas. MGI says people who still have poor access to education, healthcare, and Government services, and have never participated in the formal economy, could become participants in the global economy through the Internet.

MGI, the independent research arm of McKinsey & Co, the world’s largest business consultancy, has distilled from a long list of powerful new technologies just 12 which, in its opinion, will have the most disruptive impact on the global economy. To have a sense of how these technologies will alter the future of Asia, ATI turned to Richard Dobbs, Director of MGI and one of the authors of a 162-page report on disruptive technologies, to interpret the implications . . . 

NEW technologies are both a boon and a hindrance for Asian countries — depending on where you are born. Developed parts of Asia will ride the technological wave to greater prosperity. But the less developed could struggle to keep abreast of swirling change around them.

New technologies could change the form and shape of manufacturing, which has provided the pathway to economic development for Asia over recent decades. Richard Dobbs, Director of the McKinsey Global Institute, says this will be a big issue for the next wave of Asian countries moving down the path of industrialisation. These include Laos, Burma, Cambodia and even India.

He says industrialisation has doubled world per capita gross domestic income since the British industrial revolution in the 18th century. 

Asia, and most recently China, has alleviated hundreds of millions of peasants from poverty by going down the manufacturing path. (According to the World Bank, 835 million Chinese lived in extreme poverty in 1981, but that figure had dropped to 156 million by 2010.)

Manufacturing has been the key to lifting people out of subsistence farming, which has not added to wealth creation for the past 100 years, says Dobbs. Living standards improve as peasants move to work in factories. They can do that without education, as long as they have the discipline of work, he says. But, Dobbs warns: “In future, manufacturing is going to be less labour-intensive, so you don’t need as many workers. 

“People will have to compete with advanced automation for jobs.”

“One hundred years ago, if you were to tell someone that cars would one day be built by robots, you would be laughed at. But today, if you walk through a car plant, you see robots and a few human workers whose job it is to repair the robots when they break down.

“As robots take over, the question then is: Where will the jobs come from when you take people out of agriculture?”

In his view, advanced robotics will be more of a threat to jobs than 3D printing, which he
believes is “over-hyped” for the simple reason that the cost of a 3D printed product will not be economical.“If you can 3D print a smartphone, it will cost 10-20 times more than to have it made in factories.” Dobbs says 3D technology is not ready for complex areas of manufacturing, like stitching garments or shoes. “It will still be cheaper to make textiles, clothing and footwear in factories in Asia.”

Then, there is the so-called Internet of Things, which is basically machines talking to machines through sensors. Radio-frequency identification (RFID) tags are the first generation of this technology. Sensors installed inside a warehouse will track every item, replacing what used to be the job of storemen to keep an inventory of items in the warehouse. 

McKinsey Global Institute says that, to fully exploit the potential of the Internet of Things, organisations will need to have systems and
capabilities to make sense of the flood of data that remote sensors can provide.

Dobbs says policy-makers are obsessed with manufacturing as the source of employment. But increasingly, they will have to change their mindset to think about value-adding, research and development and the services sector.

Some countries have moved successfully into services. Singapore is a good example of a Government which has identified services as important to its economy. Singapore is successful with tourism, and the conference and convention markets. “It is hard to justify not going to Singapore to hold conventions and conferences,” he says. Tourism, which creates one in every 10 jobs today, is expected to create
another 70 million jobs — 47 million of those in Asia — in the next 10 years. (see page 22)

 Sitting in his office in the middle of Seoul, clearly a country that is an adept adopter of new technologies, Dobbs says South Korea’s productivity is very high in manufacturing, but productivity in its services sector is only 30 per cent of that in manufacturing.

Given the greying of the population in Asia (see page 25), and the breakdown of extended families, the care of the elderly will be left to professionals. Some chores will still have to be done by human carers. Robots cannot make beds, he quips. Care of the elderly will become professionalised, and an industry will emerge around services for the aged.

Dobbs says: “I see the use of highly-sophisticated monitoring of elderly people in their homes. The system will monitor their pulse rate, heart beat, movements around the house and whether they have taken their medication.” Just as a person can be dispatched to a home today when a burglar alarm sounds, similarly a healthcare professional can be sent to the home of the elderly when the monitoring system detects a problem.

While some jobs will be lost, Asia’s advantage in future will be its large number of graduates in science, technology, engineering and mathematics (STEM). “China and India produce 50 per cent of the world’s engineers,” says Dobbs. “This pool of talent will become increasingly important for Asia — and the world.

“Multinational companies will look to base their research in these countries to be close to where the engineering talent is.”

Talent will emerge as a huge global issue — the result of the present-day education system. The number of STEM graduates in the US is shrinking. “If you are manufacturing in the US and you need STEM graduates, you are not going to be able to rely on your local education system, which is not able to produce enough engineers,” he says. 

Increasingly, countries like the US are becoming reliant on immigration to fulfill their staff requirements. As a result, he expects tension to arise over migration.“Increasingly, we will see more protectionism on immigration. That is going to be very difficult, because countries with an ageing population are going to be desperately short of workers.”

Technological advances will continue to change many other facets of human life, and will influence the design of cities.

He says E-commerce is continuing to change retailing in developed countries like the United States. The chain of retailers from high street shops to big national stores which evolved over time has been broken. Online shopping knows no borders, and has spawned companies like Amazon. Asians in Singapore, Hong Kong, Japan, and China are now avid online shoppers.

By next year, E-commerce in China is going to be bigger than in the US, says Dobbs. McKinsey estimates that E-commerce could reach US$650 billion in China by 2020. It has grown at 120 per cent a year since 2003.

Dobbs says people in Tier Three or Tier Four Chinese cities can access the varieties of goods available in Tier One cities through the Internet. This will make it redundant for big retailers in Tier One cities to have branches in Tier Three or Tier Four cities. Historically, retailing centres were based on high streets or shopping malls, but as more people buy online, the function of high streets and shopping malls will change to cater to leisure and entertainment activities. 

With the growth in E-commerce, the key is the last mile of logistics, Dobbs says, and this will influence future house designs.

This will be no different to the olden days, when houses were designed to take delivery of coal without having to go through the house. “Victorian houses had coal holes near the front door, and coal went into the hole to a storage area in the basement.

“I can see houses being designed to accept parcel deliveries from online shopping when the occupant is not home. Future houses could have electronic boxes where the delivery man can leave parcels and get electronically-issued receipts,” Dobbs says.

Alternatively, high-tech pick-up centres could be set up at locations such as train stations, where parcels could be collected by swiping one’s mobile phone.

Urban designs will evolve to reflect the need for new amenities to accommodate the high-tech age, and future cities will be designed for higher productivity. Developing Asia will benefit from mobile Internet, accessed through a mobile phone or a tablet.

McKinsey says the full potential of the mobile Internet is yet to be realised — that over coming decades, this technology could fuel significant transformation and disruption, not least from its potential to bring 2-3 billion more people into the connected world.

Dobbs says that mobile Internet will help accelerate development in developing Asia and other developing countries. A country like Indonesia, which has a massive unbanked population, could see banking services on offer, for example, without the need to set up a branch network. Customers could use the mobile phones to access services.

In Africa, where 2G only is currently available, he says people have been using the mobile phone to do their banking. Vodafone has developed and operates a successful, secured payment service, known as M-Pesa, there.

The cycles of technology are shortening. It took 40 years for 50 million people to have television, and in intervening years many technologies fell by the wayside.

“I have a hypothesis, and that is that the credit card will be the shortest payment system in history, compared with cheques, which have been around for 300 to 400 years. In 50 years people will go without credit cards. Our payment system will be on our phones.” 

And when biometrics comes into widespread use, he expects iris recognition or thumbprints to become the key to personal
financial transactions.

Debate on the pros and cons of big data continues. On the positive side, big data is about harvesting vast amounts of data from search and social network sites to identify people’s behaviour and consumption needs.  

Application of the data is extremely important, says Dobbs, for instance when it comes to monitoring elderly relatives living on their own. “Big data has huge privacy issues, but you can design the system around that,” he says.

The final value of that data to marketers is very high. “A business case could be built to provide Internet and phone access in exchange for using personal data,” he says. “I am prepared to give a lot of my data to people in exchange for free broadband and access to Internet as long as privacy protection is in place.”

The era of Big Brother is well and truly here. Will it be far more pervasive and intrusive than we could ever have imagined?