CSIRO's Data61 Senior Scientist Stefan Hajkowicz outlines the major trends reshaping the business landscape, and how directors can manage the associated risks.
In April 2010, the CSIRO inadvertently launched its first megatrends report, Our Future World, at the Melbourne Convention and Exhibition Centre when a video link failed during a global consulting company’s address. The conference host, journalist Kerry O’Brien, asked us to step in and deliver an impromptu presentation of an internal and incomplete strategic foresight study aimed at shaping CSIRO strategy.
The audience of more than 500 industry, government and community leaders responded well to the science-based narrative for Australia’s future. Soon after, we received requests for boardroom briefings and research consultancies. The Australian Institute of Sport and real estate investment trust GPT Group were first to commission megatrends studies of their own.
Today, the CSIRO Data61 Insight Team has completed numerous research consultancies and hundreds of boardroom briefings and executive team seminars and workshops on megatrends. Each project contributes to an expanding dataset on the future comprising geopolitical, economic, environmental, social and technological trends. We’re now sitting on a vast trove of data about the future and we’re starting to use econometrics, machine learning and predictive analytics to push it further.
The megatrends arising from this research have been covered in Company Director over the years, and now the AICD has partnered with CSIRO’s Data61 to keep them live.
The concept of megatrends emerged from the field of strategic foresight, a growing space of study and profession centred on exploring plausible futures. The term “megatrends” was first used by Professor John Naisbitt, whose book, Megatrends: Ten New Directions Transforming Our Lives (1982) was on The New York Times best-seller list for almost two years, selling more than 14 million copies in 57 countries. Naisbitt’s work gave us the concept of powerful trajectories of change occurring and the intersection of numerous trends and drivers.
Megatrend analysis is widely used by companies and consulting firms. For example, Hewlett Packard has a public website on relevant megatrends to inform customers, investors and staff about opportunities. In the public sector, the Organisation for Economic Co-operation and Development (OECD), the National Intelligence Council in the US, the Centre for Strategic Futures in Singapore, and the European Commission also use this approach.
Megatrends have become a powerful way of analysing change. There is scope within ASX-listed companies to make much better use of megatrends to proactively harness opportunities and to mitigate risks.
Megatrends develop gradually over years and decades, but eventually express themselves with explosive force, reshaping the business landscape within months. One example is the impact of ride-sharing apps on the taxi industry. This revolution was part of a broader digital megatrend that combined trends about technological advances — such as smartphone penetration and the accuracy of GPS signals — with trends about cultural change and shifting notions of consumer trust. The change was already underway in 2008, when smartphones were introduced, but it was several years before the marketplace was reinvented.
And when it happened, it happened quickly.
According to Queensland government data, published in the Brisbane Times in February 2018, the price of a taxi plate in Brisbane fell from $530,000 in 2014 to $113,000 in late 2017, a decline of 78 per cent in three years. This megatrend developed gradually during the preceding decade but, when it hit, there was no catch-up time for the taxi industry, which needed the same digital tools as its new competitors five to 10 years before the marketplace flipped. Catching up was, and will continue to be, a hard slog.
Megatrends also herald opportunities. In 2012, Michael Cameron, at the time CEO of the GPT Group, commissioned CSIRO to research megatrends affecting the property sector. One megatrend GPT noted was the rising transfer of economic activity from physical retail to background logistics — basically, every time we buy online we transfer a little of the economic activity from the shop floor, which GPT rents, into warehouses, trucking, ports and logistics to get the parcel from the manufacturer to our front door. Because online trade is growing rapidly, GPT increased the size of its logistics business from $832m in 2012 to $1.485b in 2015, with plans to invest another $400m. Following the success of this logistics shift for GPT, Cameron concluded “one of the best ways to anticipate change in your sector is to spend time outside of it”.
Megatrends have high-level implications for corporate strategy. But as a business, you can’t choose whether or not the change happens, as you’re in a powerful current. However, you’re not totally at the mercy of the wind and waves. Adjustments now will make a big difference in a few years.
In 2019, CSIRO will release an update of material found in its 2016 book, Global Megatrends. Some of the narrative is similar in that megatrends have multidecadal time frames. However, there’s significant new material, including artificial intelligence (AI), the risk of infectious disease, economic restructuring of Asia-Pacific economies, geopolitical shifts, energy storage technologies, the rise of renewables, blockchain, and the continued growth of online platforms. Here are CSIRO’s eight megatrends reshaping the future operational landscape for business.
More from less
According to data from the United Nations, by the year 2030, the world will welcome another one billion people. Data from the Australian Bureau of Statistics indicates the Australian population will grow to 30 million by the same year, up from the current 24.6 million. The OECD estimates the size of the world economy (GDP/year) will grow from US$103 trillion in 2020 to US$137 trillion by 2030. More people with more buying power will place greater pressure on scarce global food, water, mineral and energy resources. For example, the International Energy Agency says all forms of energy consumption will grow by 30 per cent by 2030, with renewables the fastest growing category. The Food and Agriculture Organization of the United Nations estimates the global food system will be expected to increase production by as much as 35 per cent by 2030.
The bottom line: Companies that are innovative and develop solutions to more-from-less dilemmas, such as batteries for solar electricity and food for Asian populations, will find a large marketplace ready to buy their products and services.
From global to microbial scales, human activity has changed the way the Earth’s ecosystems operate. On the global scale, climate change continues along a trajectory roughly consistent with scientific forecasts. In Australia, we can expect a more variable climate with annual average temperatures one degree Celsius warmer by 2030. At the microbial scale, the excessive and sometimes incorrect use of antibiotics has fuelled the rate of resistance. A survey by the World Health Organisation, in early 2018, found that in some countries, up to 82 per cent of people with bacterial bloodstream infections were carrying a “superbug” with known resistance to one or more commonly used antibiotics. Herbicide and pesticide resistance is creating similar challenges in agriculture.
The bottom line: Your company will be vulnerable to new and increasing risks associated with environmental change that need solutions today, not when they happen.
The Silk Highway
In Asia, the focus isn’t just on the magnitude and speed of economic growth, it’s also on a different type of economic activity. Asian economies are transitioning from an industrialisation phase into advanced-service sector economies with different demand profiles. For example, Reuters reports China spent 1.76 trillion yuan ($382b) on research and development last year, 14 per cent more than the year before. Education, health, banking and finance, tourism, administration and other service sectors are growing rapidly in China.
The bottom line: A global strategy can’t ignore the Asia-Pacific. This is where the action is in terms of wealth generation and the shifting focus of economic activity.
On the move
Whether it be relocating from a farm to a city, commuting to work, international jet-setting or going on a cruise, people are moving more than ever before. For example, Boeing’s most recent 20-year market outlook forecasts rising demand for 42,730 new aeroplanes valued at US$6.3 trillion. The aviation company also predicts the global aeroplane fleet will double in size by 2037.
Freight transport is also on the rise. As e-commerce and online deliveries expand, more parcels and packages need to be moved. Boeing predicts air cargo traffic will grow 4.2 per cent per year for the next 20 years.
Data has also become more mobile. Digital data is migrating into the cloud from people’s hard drives and organisational servers. The quantity of data transmitted over the internet continues to rise exponentially.
The bottom line: Now is a good time to think about transport and logistics, both as a business and for your business.
The Australian population is ageing. Retirement ages are rising, demand for aged care facilities is growing and costs are soaring. Healthcare expenditure is increasing unsustainably, creating challenges for budget planners in state, territory and federal government treasuries. The Australian Institute of Health and Welfare forecasts total health expenditure to rise from $180.7b in 2017 (10 per cent of economic activity) to $320b by 2035. Rates of chronic illness associated with diet and lifestyle remain high and sedentary behaviour is increasing as we spend more time on computers.
The bottom line: If you can find health and ageing solutions, you may well have a viable business model.
As digital technology continues to improve, increasingly it will reshape business models, jobs, learning, communication, governance systems and lifestyles for practically every profession, industry, demographic and geographic region. The transformation of the economy will be significant. A recent report from AlphaBeta Advisors economic consultants and Data61 estimates digital innovation could deliver $315b in gross economic value for Australia. The global corporate landscape has been reshaped in line with the digital age, with technology companies becoming dominant. Technological innovation can explain the bulk of growth in market value over the past two decades.
The bottom line: Companies soon won’t need a digital strategy because there won’t be any other type of strategy. Digital will play a significant role in boosting profits and raising prices.
Breakthroughs in general purpose AI technology have elevated the capability of machine learning, robotics, computer vision and natural language processing. We are building machines that have the ability to learn and improve their operations without explicit human guidance. Currently, 20 nations have AI strategies, and in November 2018, Germany became the latest country to announce its plan, committing $4.7b to developing AI technology by the year 2025.
The bottom line: What was science fiction has become science fact: AI is a powerful technology and your company needs to adapt to a new world of autonomous systems. If you don’t, your competitors will.
Keeping it real
As we become immersed in the virtual world, the marginal value of the real — physical — world will grow. While there’s no “unplug” option in the physical world, consumers, citizens and society dealing with information overload are seeking “digital detox”. The best digital technology solutions will be invisible to the customer and simplicity will be key to success. The physical spaces in which we work, play and live will hold greater significance.
The bottom line: The business models best incubated from digital disruption will involve real people, places and physical experiences. Don’t lose sight of what the human customer wants in your digital transformation journey.
Data61 releases its 2019 megatrends report, Our Future World, at the Vivid Sydney festival on 15 June. Visit vividsydney.com or @Data61news on Twitter for details.
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