Technology and industry changes will create business gaps, the Governance Leadership Centre has found.

    The fourth industrial revolution

    Technology and industry changes will create business gaps, the Governance Leadership Centre has found.

    High-performing boards understand the importance of governing strategy over different timeframes. The same is true of technology. Directors must assess how short-, medium- and long-term technology trends could affect their organisation and industry.

    It is not easy. Boards, in effect, have to think concurrently about multiple streams of innovation. Is technology sufficiently embedded in their organisation to drive performance now? How could the digitisation of business models disrupt the organisation over three years? And which radical innovations could reshape the industry landscape over five to 10 years?

    Nicholas Davis, head of society and innovation at the World Economic Forum, has considered several emerging technologies that could reshape the global economy and create unprecedented challenges and opportunities for organisations and their boards.

    These combined technologies are so significant that the World Economic Forum describes them as the Fourth Industrial Revolution. They include the rise of artificial intelligence, 3D printing, precision genome editing, new materials and neurotechnology (brain studies).

    Davis gave insights from the January 2016 World Economic Forum in Davos at an Australian Institute of Company Directors’ (AICD) Governance Leadership Centre briefing in Sydney in March. Davis leads the forum’s work on the Fourth Industrial Revolution and is a member of its executive committee.

    Attendees at the breakfast briefing included AICD managing director & CEO, John Brogden AM FAICD; former New South Wales Premier, The Hon Nick Greiner AC FAICD; University of Sydney chancellor, Belinda Hutchinson AM FAICD; Professor Guy Ford of University of Sydney Business School; Terry Moran AC, chairman of the Barangaroo Delivery Authority; Oil Search director, Dr Eileen Doyle FAICD; and Aurizon director Samantha Lewis.

    Global Trends

    Davis said key topics at this year’s Davos summit included: growing global inequality; China; rising geopolitical risks and global security; the migration and refugee crisis in Europe; and the environment and water accessibility.

    He said more CEOs were giving greater priority to long-term technology trends as different markets oscillate between the Digital Revolution, which began in the 1970s and is still unfolding, and the embryonic Fourth Industrial Revolution, where ground-breaking technologies are still being researched and are years from being commercialised.

    “A lot of these technologies are still sitting in university labs or being discussed in the media, but have not yet been commercialised in any meaningful way. But, these changes are coming and their impact is now a bigger part of CEO agendas,” Davis says.

    “The development of a new set of technological capabilities will fundamentally change how we create, store and distribute value, and relate to each other.”

    The Digital and Fourth Industrial Revolutions are inextricably linked, Davis says. Technologies developed in the Digital Revolution are providing the tools for the next industrial revolution.

    Advances in supercomputing, for example, are making it faster and cheaper for precise genome editing – a key emerging technology identified by the World Economic Forum.

    “Organisations that do not get their digital infrastructure right will find it very hard to play in the Fourth Industrial Revolution,” Davis says. Boards, therefore, must ensure that their organisations develop a true digital mindset – not only to capitalise on the Digital Revolution, but to get set for the next great industrial revolution which is just beginning.

    Brave New World

    Consider the magnitude of what is ahead. Machines that can think, such as self-driving cars, could transform the transport, infrastructure and insurance sectors. Artificial intelligence and robotics in manufacturing, as plant and equipment communicate via the “Internet of Things”, could reconfigure supply chains and create unprecedented productivity gains.

    Davis likens 3D printing to a new form of manufacturing that in time could fundamentally change construction processes across industry. Genome editing could accelerate the pace of medical breakthroughs, in turn transforming healthcare and adding to the ageing population, which has profound implications for economies, government spending and the environment.

    The development of new and advanced materials, such as graphene, could disrupt a range of industries. Lighter, stronger and more energy-efficient materials, in theory, mean lighter products and greater scope to use renewable energies rather than fossil fuels to power them.

    Advances in neurotechnology and human understanding of brain function could affect everything from medical devices to big data and information processing.

    Organisations that do not get their digital infrastructure right will find it very hard to play in the Fourth Industrial Revolution.

    Industrial Revolution Gaps

    Davis says boards should consider the gaps between the Digital and Fourth Industrial Revolutions and use them as a framework to guide their thinking. He outlined four key gaps: the uneven distribution of industrial revolutions; technology hype and fear; the relationship between technology, values and ethics; and stakeholder partnerships.

    Boards must understand that different markets will be at different stages of industrial revolutions. Multinational organisations, for example, might have operations in developing countries that are still, in some regards, in the Second Industrial Revolution and have yet to provide electricity distribution or clean water for all residents.

    Other markets, such as in parts of South-East Asia, are starting to fully embrace the Digital Revolution. Rising internet penetration rates and rapid uptake of mobile telephones are creating opportunities for Western companies in those developing countries.

    Davis says boards must also address the gap between technology hype and fear in their thinking on the Fourth Industrial Revolution.

    “People seem to be either huge technology optimists or very concerned about the impact of technology on global inequality.” For boards, that means understanding the opportunities and threats from the Fourth Industrial Revolution and developing different scenarios of what could emerge.

    The third gap – between technology and organisation values and ethics – is arguably the most important for boards to consider. As directors think more about the organisation’s environmental, social and governance (ESG) standards, they must ask whether new technologies, which, for example, rely on the capture and analysis of vast amounts of personal data, are upholding the organisation’s broader corporate social responsibilities.

    Boards must also examine the fourth gap: stakeholder partnerships. Davis says the implications of the Fourth Industrial Revolution are so profound that no organisation on its own can hope to have the answers. The key is developing innovation ecosystems where firms complement, rather than only compete with, others to create value.

    For boards, this means ensuring the organisation has relationships with government, academia, start-up enterprises and other stakeholders, and is capable of open innovation in a global market. Davis says: “Building partnerships that align with the different strategies of organisations in different sectors is a huge challenge. In my experience, Australia is further behind in this regard compared to the US and UK or the Netherlands.”

    Implications For Boards

    The takeout for boards from the AICD Governance Leadership briefing is twofold.

    The first is the importance of boards assessing long-term technology trends, not only those that affect the organisation today, but in the next few years.

    Technology trends often take years to unfold, are overlooked or underestimated along the way, then can damage industries in a blink. The development of online advertising, for example, took many years. When it arrived in full force it hurt traditional print media companies that underestimated its significance.

    The second takeout is the importance of having frameworks to understand how organisations can navigate between the Digital and Fourth Industrial Revolutions.

    The work of Davis, a leading innovation expert, provides the basis for boardroom discussions about long-term technology trends, particularly in areas such as values, ethics and external partnerships, and scenario planning for the impacts of disruptive technologies over the coming decade.

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