Frontiers of disruption: The next decade of technology in business Introduction Is technology-led innovation slowing down? Some observers consider this to be the case, believing that technology advancements are not having the transformative effects on life and industry experienced in previous periods.1 Business leaders beg to differ, at least when it comes to the changes they expect technology to bring to markets and industries over the next decade Having witnessed the profound effects that the Internet, wireless communications, enterprise applications and other technologies have recently had on organisations, executives might be excused for expecting a lull Judging by the views expressed in this Economist Intelligence Unit survey, however, technology is certain to be the source of continued disruption to markets and industries between now and 2020 Business leaders’ expectations include wrenching change to their vertical markets, a decisive shift of power to customers, far-reaching decentralisation of management authority to the periphery or organisations, and a much more virtual working environment For many, technology will enable significant leaps forward in terms of innovation, efficiency, customer relationships and many other areas of competitiveness Some, on the other hand, doubt their organisations will even survive by 2020 Managing technology-enabled change in organisations will unquestionably remain a difficult challenge for all Some executives wisely warned us that there is no way of divining what types of disruption are to come—that technology is disruptive precisely because its effects are so difficult to predict They took up the challenge all the same, and we discuss below the major conclusions from the survey.2 See, for example, Michael Lind, “The Boring Age”, Time, March 11, 2010; “Are We Behind on Innovation That Matters?”, Paul Kedrosky blog, January 4, 2010 The survey results, along with insights from leading technology thinkers, business executives and other experts, will form the basis of an Economist Intelligence Unit white paper to be published in early 2012 The findings will be discussed at “Technology Frontiers”, a major pan-European event hosted by Economist Conferences in March 2012 in London, where experts and practitioners will share their ideas on how technology can help people transform their business, social and economic fortunes Sponsored by Economist Intelligence Unit 2011 Frontiers of disruption The next decade of technology in business About the survey The Economist Intelligence Unit surveyed 567 executives in September-October 2011 on their expectations of the future technology impact on business The survey sample is global, with 32% of respondents based in Europe, 29% in North America and 28% in Asia-Pacific They hail from over 20 sectors, with financial services, government and public sector (including healthcare), education, professional services, IT and technology, and manufacturing especially prominent in the sample The respondents are relatively senior—46% hold C-suite positions—and they work in organisations of different sizes, with 43% earning annual revenue of US$500m or more For more information about the survey sample, please see the Appendix Key findings On the cards: significant disruption to markets and industries In the past decade, technology-enabled business model innovation has changed the face of the music, video, book publishing, travel and other businesses Other sectors will undergo similar change in the next decade Nearly six in ten respondents believe that the vertical market in which their organisation operates will bear little resemblance in 2020 to how it looks today Not surprisingly, media and entertainment top the list of sectors executives expect to undergo significant convergence with adjacent ones in the next ten years Somewhat unexpected, given its heavily regulated nature, is a belief that the banking industry is also in for far-reaching restructuring Respondents from the financial services industry itself are convinced of it: 70% believe significant convergence with organisations from other industries is on the cards, compared with 45% of respondents in the overall sample Share of respondents agreeing that "The vertical market in which my organisation operates will bear little resemblance in 2020 to how it looks today." (% respondents saying "strongly agree" or "agree") 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 Total Europe Asia-Pacific North America Financial services IT & technology Manufacturing Education Relentless efficiency improvement and Big Data will heap pressure on competitors, margins and business models Supporting the prediction of continued disruption is the conviction that technology will continue to afford organisations big opportunities to gain a jump on their rivals For example, a large majority (70%) of survey participants affirm that there remain plenty of gains to be made in improving Economist Intelligence Unit 2011 Frontiers of disruption The next decade of technology in business operating efficiency (although education and public sector respondents appear far less convinced of this than others) Executives also expect technology advances to deliver greater speed and responsiveness toward customers and, through ever more sophisticated data analysis, the ability to tailor products and services to an unprecedented degree This combination means intensifying competitive pressures— including price and margin reductions in many markets—faster change in business models, and thus continued disruption to markets and industries Do you agree or disagree? "When it comes to improving operating efficiency, enterprise technology has reached a plateau— there is not much more room for achieving efficiency gains." (% respondents) Strongly agree Agree 25 Disagree 45 Strongly disagree 25 Don’t know The negative side of this is that organisations which cannot keep pace will suffer This concern is palpable amongst a significant minority of the survey sample Over one-third of participants fear that their organisation will be unable to keep up with technology change and will lose its competitive edge More than a few—13% of the overall sample, and as high as one-third of those from the IT sector—even believe that their business will disappear within the next decade due to technology-driven business model change Share of respondents agreeing that "I worry that my organisation will not be able to keep up with technology change and will lose its competitive edge." (% respondents saying "strongly agree" or "agree") Total 38 Europe 38 Asia-Pacific 32 North America 41 Financial services 46 IT & technology 51 Manufacturing 35 Education 30 Government/public sector 29 Technology will shift considerably more power toward customers Thanks to the Internet, social media and other communications technologies, customers in both B2B and B2C markets have become more adept in recent years at gaining leverage with their suppliers Many executives in our survey expect this shift in the balance of power toward customers to gain momentum over the next decade For example, increasingly sophisticated data analysis will certainly benefit companies looking to gain Economist Intelligence Unit 2011 Frontiers of disruption The next decade of technology in business a deeper understanding of their customers, but customers will also gain from better, and much faster access to, product and market data One survey participant opines, for example, that “pervasive mobile technologies will reduce the information asymmetry between vendor and customer There will be nowhere to hide for ridiculous mark-ups and prices.” Customers will also enjoy a more direct influence on their suppliers’ innovation processes When asked which of various groups will be the main source of new product or service ideas in 2020, top of the respondents’ list come customers and online communities, ahead of internal R&D and employees (Manufacturers are the most firmly convinced this will be the case.) More than eight in ten also believe that internal project teams in 2020 will typically include representatives from customers, partners or external communities Among other activities, they will be advising firms on business processes: when asked who will be the main source of new ideas for process improvement, almost as many executives point to customers (18%) as to their own employees (20%) Better data and faster networks will clearly help organisations improve how they innovate, but these findings suggest also that learning how to treat customers as innovation partners will be at least as important What is the main source of new product or service ideas today, and what you think it will be in 2020? (% respondents) Today R&D In 2020 38 18 Customers 21 30 Competitors 13 Employees (non-R&D) 12 Online communities 19 Emerging markets Partners Other industries Other 1 Don’t know 1 Flatter structures, with more decision-making authority at the periphery Our survey respondents are undecided on how precisely technology change will impact on the organisation itself For example, just over half expect all of today’s familiar departments (eg, procurement, accounting, human resources) to remain in existence a decade on, while others expect the responsibilities of some of these to shift elsewhere There is considerably more consensus, however, when it comes to the IT function: 62% of the sample believe that in 2020, responsibility for delivery of most IT services will reside within individual business units rather than a central IT function And over three-quarters think that most of the Economist Intelligence Unit 2011 Frontiers of disruption The next decade of technology in business organisation’s IT services will be delivered by external parties (eg, “cloud computing” providers) Expectations of decentralisation extend beyond the IT function A clear majority of executives believe that technology change will lead to a “far-reaching devolution” of decision-making authority to the periphery of organisations Assuming decentralisation also means greater local freedom to design individual processes, this may also explain why a majority (52%) of respondents believe that ensuring good operational risk management and governance will be much more difficult in the future An identical majority also fear that compliance requirements will become so extensive as to discourage some firms from implementing new technologies There may also occur a flattening of decision-making structures, as technology advances are expected to reduce the ranks of middle managers Share of respondents agreeing with the following propositions about the organisation in 2020 (% responding "highly likely" or "somewhat likely") Total Financial services Manufacturing Education Government/public sector 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 Responsibility for the delivery of most IT services will reside within individual business units rather than a central IT function Most of the organisation's IT services will be provided by external parties (% responding "strongly agree" or "agree") Total Europe Asia-Pacific North America 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 Technology will enable a far-reaching devolution of business decision-making authority to the periphery of organisations As enterprise technologies advance in sophistication and speed, the middle management layer will be vastly reduced in organisations A more virtual working environment, but what does this mean? There is agreement with the notion that the working environment will be substantially changed in a decade’s time thanks to technology Economist Intelligence Unit 2011 Frontiers of disruption The next decade of technology in business advances For example, eight in ten survey participants are certain that “virtual working” will be the norm thanks to more secure mobile technologies and cloud computing models This will not necessarily translate into widespread teleworking, however: more disagree than agree with the proposition that most employees will work from home rather than the traditional company office It does, however, point to a vast reduction—possibly even the disappearance—of “non-digitised” information used by employees It also suggests that most employees will conduct all their communications and electronic work using just one device Technology advances are rightly viewed by many people as liberating, but views of the future working environment emanating from this survey are not uniformly rosy A majority of executives are convinced, for example, that they will be working more hours on average than they are today, and also more years on average—views no doubt coloured by today’s economic doldrums and the growing threats to pension funds Do you agree or disagree with the following statements about business and work in 2020? (% respondents) Strongly agree Agree Disagree Strongly disagree Don’t know The majority of employees will work from home rather than from a traditional company office 40 44 61 Employees will work more hours on average than today 55 33 The working environment will become ‘virtual’ thanks to more secure mobile technologies and cloud computing models 14 66 16 2 The concept of non-digital information will be utterly foreign to most employees 50 33 Conclusion Thinking about technological progress often brings forth a sense of optimism about the future This research is no exception, as the executives in our survey see significant opportunities for technology to improve not only how they conduct business but also to provide solutions to challenges in areas as wide ranging as energy conservation and poverty reduction However, their optimism is tempered by recognition of the related challenges and risks ahead As the survey suggests, many organisations will not be able to keep pace with the changes to come As new business models take shape thanks to technology advances, older ones will wither, and companies’ ability to survive will rest on their capacity to adapt Rather than slowing down, as some experts believe is happening, this process of technology-led innovation if anything is likely to accelerate Polling executives provides just one prism through which we can glean the future impact of technology on organisations and industries Other perspectives are needed to gauge the likelihood that the former’s visions will become reality, and to offer alternative outlooks In a report to be published in early 2012, the Economist Intelligence Unit will offer different scenarios of future technology disruption based on discussions with some of the world’s leading technology and business thinkers as well as with practitioners Economist Intelligence Unit 2011 Frontiers of disruption The next decade of technology in business Appendix: The survey sample In September-October 2011 the Economist Intelligence Unit conducted a survey of 567 executives from across the world Our sincere thanks go to all those who took part In which region are you personally based? (% respondents) North America 29 Western Europe 28 Asia-Pacific 27 Latin America Middle East and Africa Eastern Europe What is your primary industry? (% respondents) Government/Public sector 19 Education 15 Professional services 15 Financial services 13 IT and technology Manufacturing Healthcare, pharmaceuticals and biotechnology Energy and natural resources Construction and real estate Entertainment, media and publishing Consumer goods Chemicals Telecoms Agriculture and agribusiness Retailing Transportation, travel and tourism Logistics and distribution Automotive Economist Intelligence Unit 2011 What are your company's annual global revenues in US dollars? (% respondents) Frontiers of disruption The next decade of technology in business $500m or less 57 $500m to $1bn 13 $1bn to $5bn 10 $5bn to $10bn $10bn or more 16 Which of the following best describes your job title? (% respondents) Board member CEO/President/Managing director 28 CFO/Treasurer/Comptroller CIO/Technology director Other C-level executive 11 SVP/VP/Director 16 Head of business unit Head of department 17 Manager 11 Other Economist Intelligence Unit 2011 What are your main functional roles? Select all that apply (% respondents) Frontiers of disruption The next decade of technology in business General management 49 Strategy and business development 39 Operations and production 28 Marketing and sales 20 Finance 18 IT 16 Customer service 14 R&D 11 Risk 11 Information and research 10 Human resources Procurement Supply-chain management Legal Other About the sponsor Ricoh provides technology and services that can help organisations worldwide to optimise business document processes Offerings include managed document services, production printing, office solutions and IT services LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8476 E-mail: london@eiu.com GENEVA Boulevard des Tranchees 16 1206 Geneva Switzerland Tel: +41 22 566 24 70 NEW YORK 111 West 57th Street New York NY 10019 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 1181/2 HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: newyork@eiu.com E-mail: hongkong@eiu.com E-mail: geneva@eiu.com Economist Intelligence Unit 2011 .. .Frontiers of disruption The next decade of technology in business About the survey The Economist Intelligence Unit surveyed 567 executives in September-October 2011 on their expectations of the. .. affirm that there remain plenty of gains to be made in improving Economist Intelligence Unit 2011 Frontiers of disruption The next decade of technology in business operating efficiency (although... disruption to markets and industries In the past decade, technology- enabled business model innovation has changed the face of the music, video, book publishing, travel and other businesses Other