The Davos guide to the fourth industrial revolution19 February, 2016 / Articles
Last week, public and private leaders of the world gathered in Davos to discuss the implications of the fourth industrial revolution. In his latest book, released in time for the World Economic Forum (WEF) Annual Meeting, Klaus Schwab—the WEF’s founder and executive chairman—argues, “the changes are so profound that, from the perspective of human history, there has never been a time of greater promise or potential peril”. [Ed Note: The book is The Fourth Industrial Revolution.]
Profound the changes are indeed. From new materials to new manufacturing processes and new ways to optimize assets and supply chains, this new phase of industrial revolution has the potential to impact the entire economy, adding up to $15ttn to global GDP by 2030.
To capture those gains, companies will have to redefine their long-term strategies and the role that technology plays within them. For many of the large industrial players, this means embedding big data and connectivity at the core of their business models. Original equipment manufacturers, for instance, are now deploying platforms as services to help their clients increase productivity and reduce unplanned downtime.
This move is not motivated by altruism. It makes business sense. Current technology trends are turning IT from a capital expenditure to an operating one—thus positioning your company at the heart of the new optimisation services enabled by connectivity is a great way to deliver increased value to customers while simultaneously generating new revenue sources. Additionally, it helps establish long-lasting relationships with both suppliers and customers. In fact, 68% of CEOs see data and analytics technologies as generating the greatest returns in stakeholder engagement, according to a global survey released last week at Davos by PricewaterhouseCoopers.
With technology and now innovation playing such important roles, access to talent becomes key to maintaining a competitive edge. Innovative hiring strategies will help, of course, but as many Davos panellists pointed out, so will the need for companies to develop and nurture an ecosystem of innovation around them. To deliver, such ecosystems must include suppliers and customers—also third-party providers and, sometimes, competitors.
The result is a move to more open forms of innovation and collaboration, but such move will require cultural change. The key question, says Alcoa chairman and CEO Klaus Kleinfield, is “how do you make sure that everybody [in the company] feels that there is a real revolution going on?”
Leadership from the top is obviously necessary, but it’s not sufficient. One of the reasons, many panellists pointed out, is the concern that some employees might have over what their company’s digital transformation means for their work and for their job security. As Guy Ryder, director-general of the International Labour Organization (ILO), pointed out, “this technological revolution has inherently within it the capacity to transform fundamentally the way work is performed. Not just the number of jobs but the way the work is undertaken”.
There is no easy answer. For instance, in the same way that some new jobs will inevitably be created, others are bound to disappear. “We have technologies that are really good at doing routine work now—both physical and intellectual. Jobs that relied on these routines are not coming back,” warned Andrew McAfee, principal research scientist at MIT and co-director of the Initiative on the Digital Economy.
Overall, however, the civil and business communities are quite optimistic about the job-creation potential of the fourth industrial revolution. According to GE’s 2016 innovation barometer, a global innovation survey of 2,748 business executives and 1,346 members of the informed public, just 17% of executives and 15% of informed civil society members believe that the digital revolution will have a negative impact on employment. “This is a stunning result that flies in the face of all the scaremongering articles telling us that innovation will destroy jobs,” says Marco Annunziata, GE’s chief economist. “There is now a much greater understanding that the industry of the future is one where humans and machines will work side by side, and that this will result in more and better jobs,” he adds.
Reforming education to ensure that the existing workforce is retrained and the upcoming one is properly skilled will be an important priority in the short term. Panellists at Davos also called attention to the distributive aspects of the fourth industrial revolution and the need to ensure that the increased value-generation arising from technology helps mitigate income inequality, not strengthen it.
In the longer term, governments will also have to adjust their systems to reflect the way digitisation is affecting how we work. The recent series of actions against sharing economy giants like Uber or Airbnb, for example, are clear signs that our regulatory systems have not yet fully absorbed the disruptions brought about by these new business models. Going forward, the rise of the so-called gig economy will also force governments to rethink how services that are essential to a developed economy, such as healthcare or pension schemes, are financed. “The traditional mechanism for delivering those kinds of benefits has been through employer contracts. Well, those employer contracts are a reducing share of the workforce, so we have to start to think about this now,” said Laura D’Andrea Tyson, director of the Institute for Business & Social Impact at the Haas School of Business, University of California, Berkeley.
For companies and governments alike, therefore, a key task will be to define the ethical values that will guide this new phase of industrial revolution. After all, progress does not come from the technical advances we achieve or the innovations we create—it comes from what we make of them.