FREEDOM AND SAFETY
The winners in business have shifted markedly in the last decade. When the 2010s began, the world’s top 10 public companies by market capitalization were based in five countries; only two of them were in the tech sector, and none was worth more than $400 billion. Today, all of the top 10 are in the US and China, the majority are tech companies, and some have at least temporarily exceeded $1 trillion in value.
We expect the keys to success will be just as different in 10 years’ time. Several developing trends are likely to fundamentally reshape the future competitive environment, including the rapid advancement of artificial intelligence, the changing global economic order, and increasing scrutiny of the broader contribution of business to society, to name just a few.
To stay ahead of these forces, leaders need to question current assumptions and retool their organizations. This goes for both tech companies and traditional ones, who will face equally critical challenges in the next decade: digital giants will need to “come of age” and navigate issues like maintaining users’ trust, while older businesses will need to evolve their approaches and organizations to harness new technologies.
So, how should you prepare your company to emerge as a winner in the 2020s? We see five emerging imperatives that will apply across industries and regions:
The emerging wave of technology – including sensors, the internet of things and artificial intelligence – will turn every business into an information business. With exponentially more data available, better tools to decode that data and a rapidly changing business environment, companies will increasingly need to compete on the rate of learning by leveraging technology to identify and fulfill each individual customer’s changing needs.
The arenas of competition will also look different in the 2020s. Traditional industry boundaries will be blurred; instead, competition and collaboration will occur within and between ecosystems – clusters of companies that form temporary, mutually evolving partnerships. Ecosystems are dynamic and not perfectly controllable, so companies will need to be more externally oriented, to deploy indirect influence through platforms and marketplaces, and to co-evolve with their partners. A few digital giants have already achieved outsized returns by harnessing the power of ecosystems. For example, Alibaba became one of the world’s most valuable companies by building platforms that connect providers of all e-commerce functions (such as manufacturing, logistics, and marketing) with each other and with end users – in other words, orchestrating an evolving ecosystem. However, there is not yet a definitive playbook for this era: practice is racing ahead of theory, and pioneers who can crack the code will be greatly advantaged.
Finally, companies will increasingly compete on resilience. Accelerating technological change, shifting geopolitical power, increased scrutiny of business and the polarization of society all point to an era of protracted uncertainty, in which corporate life cycles are likely to continue shrinking. Companies will therefore need to worry not only about their immediate competitiveness, but also about their ability to weather unanticipated shocks.
Big data and artificial intelligence are already transforming our ability to learn. History has shown, however, that organizational innovation is needed to unlock the full potential of new technologies. Applying AI to existing process steps is not enough: companies must embed the technology in “integrated learning loops" that continuously gather information from data ecosystems, derive insights using machine learning, and act on those insights autonomously, all at algorithmic speed.
Faster timescales are not the only ones that matter, however – companies must also better position themselves for slow-moving forces, such as social and political changes, that are increasingly transforming business. Leaders will therefore need to design organizations that learn and adapt on all timescales by combining the best of humans and machines. Algorithms should be trusted to recognize patterns in data and act on them autonomously, while humans should focus on higher-order tasks like validating algorithms, imagining new possibilities and designing the hybrid “human+machine” organization itself. Some pioneers are already beginning to adopt these principles: for example, Amazon’s pricing and recommendation engines, among other functions, are run by autonomous data science systems; humans take a “hands off the wheel” approach and instead focus on more creative tasks, such as redesigning those systems to account for new strategic priorities.
The new learning organization must be designed with flexible backbone systems and evolvable business models, so it can constantly adapt to the environment. It also requires new interfaces that enable humans to understand and trust the actions of machines. And it requires a new model of management – one based on biological principles like experimentation and co-evolution. In other words, leaders need to shift their emphasis from designing hardwired structures to orchestrating flexible and dynamic systems.
Reinventing organizations to compete in the 2020s will not be a trivial task. Whether because of risk aversion or complacency, today’s leading companies may be understandably reluctant to unleash fundamental change. But our research shows that the single biggest factor affecting the success of major transformation programs is how early they are initiated. It is therefore critical to create a sense of urgency within the organization to ensure that everyone truly understands the need for change.
Even for companies that are committed to transformation, it can be a risky endeavor: most large-scale change efforts fail. Therefore, leaders need to employ evidence-based transformation - based on understanding empirically what works and why, rather than relying on plausible assertions and rules of thumb.
Leaders also need to diversify their approaches to implementing change. Large-scale transformation programs comprise many types of challenges; leaders will need to tailor their approaches accordingly, moving beyond one-size-fits-all programs focused only on standardized processes and premeditated timelines.
Diversity is not only a moral imperative – it can also make businesses more effective in the long run. Our study of more than 1,700 companies around the world shows that diversity increases the capacity for innovation by expanding the range of a company’s ideas and options. Diversity also increases resilience: like biological communities, companies that encompass more heterogeneity are better positioned to withstand unanticipated changes.
The most obvious sources of diversity, such as gender, ethnicity and sexual orientation, are indeed important in driving innovation. But variety of work experience and educational background are also meaningful – and companies that are diverse on multiple dimensions are even more innovative. To unlock the full potential of diversity, organizations also need a culture conducive to embracing new ideas; they must install enabling measures like open communication practices and a commitment to building diversity in top management.
Negative external effects like the climate crisis are increasingly visible, automation is sparking fear about the future of work, trust in technology is falling, and the most successful companies are becoming more powerful. As a result, the role of business in society is coming under question, risking the sustainability of the current model of corporate capitalism.
To keep the game of business going, business needs to be part of the solution. Leaders will need to master the art of corporate statesmanship, proactively shaping critical societal issues that will increasingly affect business. And they will need to focus on their companies’ Total Societal Impact, ensuring that the business creates social as well as economic value. Not only can this increase a company’s financial performance in the long run, but it can strengthen the social contract between business and society, ensuring that the relationship is able to endure.