1. No Ordinary Disruption: The sign of four

No Ordinary Disruption: The sign of four

TWO SUBJECTS that still get more authors than the financial crisis are ‘change’ and ‘leadership’.

By: | Published: September 13, 2015 12:08 AM

No Ordinary Disruption: The Four Global Forces Breaking All the Trends
Richard Dobbs,
James Manyika & Jonathan Woetzel
Public Affairs
Pp 277
Rs 799

TWO SUBJECTS that still get more authors than the financial crisis are ‘change’ and ‘leadership’. Both lead to several suggestions on how companies should plan the future and strategise for a better tomorrow. The book, No Ordinary Disruption, is written by three McKinsey Global Institute directors and, hence, was expected to provide several insights on what is happening in the world around us. The book does not disappoint and while it may not say anything different from what various management experts have been saying, it reiterates quite cogently the current waves that are sweeping us, which should help companies gear up for the challenge.

Let us see how the authors go about putting these ideas together. They point out that there are four major disruptions taking place in the world today, which have positive implications, but also have the ability to shock. The word ‘disruption’ is used from the point of view of major changes taking place rather than being barriers to growth. At the same time, not responding to these changes could make these phenomena impediments.

The first is that the fulcrum of economic and business activity is shifting away from developed countries to emerging markets—China leads the way here, with other emerging markets like India, Brazil, etc. The authors point out, quite interestingly, that the new power centres are no longer countries or regions, but new cities that have been growing. And these will dominate the global scene in the years ahead. This rapid pace of urbanisation, which is inherent in the transformation process, is the game-changer and will keep generating demand for various products at a progressive rate, providing new opportunities for everybody.

The second is technological change, which goes beyond what happened during the industrial revolution in the 19th century. Few would have expected the hydraulic fracturing and shale energy discoveries disrupting the oil economy, which we can see today—oil prices have crashed with this new oil coming in. Robotics is another field that is fast catching up, with autonomous vehicles without human drivers set to be the next big thing. The takeaway is that companies must keep thinking of ways to rejuvenate their business by leveraging technology.

Third, the demographic changes taking place are quite distinct, with a rapidly ageing population in the West. This trend is normally interpreted as being a burden for governments, wherein they have to provide social security benefits. Alternatively, it is looked upon as a blessing when dealing with the trait of demographic dividend for countries like India. But from a business perspective, two features stand out. The requirements and demands of the ageing group of people are quite different from the lower age groups, and the way forward is that companies should gear their product processes towards this population. The other is a mirror reflection of this phenomenon: the working population has been affected with the replacement demand not being met due to the non-availability of skill sets. This will be a challenge going ahead. A common development in all countries is that people who started working, say, 20-30 years back, have been through a phase, where their skill set became redundant, forcing them to reorient their professional course. This will continue.

The fourth disruption is greater connection through globalisation, which has brought people and countries closer. The two major areas, which have enabled free flow of goods across countries have traditionally been trade and finance. Growth in trade in goods and services has been hastened across the world with new agreements, bringing about considerable integration between countries. Finance has become universal with the proliferation of markets, resulting in easy access. The financial crisis in the US clearly showed how integrated the global financial system was, encompassing several countries. The authors conclude that smart planning, willingness to change and openness to new ways of conducting business will be attributes in harnessing the power of global flows.

However, the suggestions made for corporates are more practical. The authors say corporates need to think of new opportunities in terms of cities and urban clusters. Products have to be customised to meet local tastes and they need to build lower-cost supply chains and innovative models to become competitive. One has to design and control multi-channel routes to the market, and rethink brand and marketing strategies. Organisation structures and talent strategies have to be returned to this new setting. Here, the authors give examples of how some companies have been adaptive: Frito-Lay has captured 40% of the branded snacks market in India. Instead of tailor-making their products to local requirements, they created Kurkure, inspired by traditional street-side food. Tingyi in China became the leading food and beverage vendor by redesigning instant noodles just like Wrigley’s in the gum market.

Besides these four changes or disruptions, the authors also examine three other significant challenges for countries. The first is resource management. Here, the challenge is not just in the use of resources, but also in discovering new ways of doing things. A proactive stance needs to be taken, the authors say. For this, they put forward themes like recycling, efficiency and conservation. These lead to competitive advantage when resource prices become volatile, as efficiency efforts become the distinguishing factor.

Second, the authors highlight the uncertain nature of the cost of capital. The Federal Reserve’s moves to lower rates (or go in for quantitative easing), withdraw easing programmes and increase interest rates can impact the cost of capital across the world. Various actions have been suggested by the authors—which, on second thoughts, are no-brainers. The first is to improve the productivity of capital followed by exploration of new sources, where sovereign wealth funds find special mention. Next, risk has to be addressed through appropriate mitigating measures, as new commercial opportunities are exploited.

Finally, governments have an important role to play in terms of creating the right policy framework. This will evidently vary across nations and will be the differentiating factor for the future performance of companies.

The authors put forward the McKinsey view of how things are looking and are likely to proceed with a fair degree of competence. While their suggestions may not be entirely new, the fact that the authors are practitioners from McKinsey, which has great experience in reshaping companies and countries, leads us to believe that the suggestions can be taken as a refresher course for CEOs.

Madan Sabnavis is chief economist, CARE Ratings

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