Reading my morning newspaper over the weekend, I was struck by one of the stories describing how crises have frequently been the trigger for some of the most outstanding developments in medical sciences — they made researchers look for out-of-the-box solutions for problems that, till then, appeared unsolvable. As a management consultant, I am frequently asked to help clients think about major trends or mega-trends around the world. Both crises and mega-trends affect many aspects of human development and even alter the competitive landscape of industries; they’re often two sides of the same coin.
Today, we are faced with not one, but several crises of different durations and urgency. These will change our world of tomorrow. Do they lead business leaders to become risk-averse, or do they make them freeze like rabbits caught in the headlights of a passing car? Or do business leaders see them as emerging mega-trends that open up opportunities to think out of the box and enable them to achieve industry-leadership?
Of the various crises we’re faced with, the first one is the unprecedented economic crisis, which started in the financial services industry in the US and soon affected pretty much every other country and industry — some more than others. The crisis is estimated to have already cost the governments around the world over $8 trillion and will probably cost much more before things get back to normal — this is money which could have been used much more productively elsewhere.
The second crisis, which has been in the making for many years now, is that of global warming and the sustainability of the world in the way we know it. Experts now suggest that the Arctic ice shelf will disappear, not in 50 years as thought earlier, but in the next 20 years. The consequent rise in sea levels will lead to unprecedented flooding of low-lying areas in the world. The unpredictable weather patterns we are beginning to observe will get a lot more severe. Last year was the first year in recorded history when the east coast of the US was hit by a major hurricane each month — just fixing the physical damage cost the US over $41 billion. There are then the warnings that this will also lead to large tracts of fertile land becoming water-starved and the local conflicts this will trigger.
These crises are bad news for the world’s poor. Most of them live in the developing nations in the countryside where one out of every four has an income under Rs 60 per day (according to the World Bank). This crisis will drive perhaps the greatest migration in human history. In 2000, we had about 2.8 billion urban inhabitants, of which 1.9 billion were from developing countries. By 2030, it is estimated that the urban population will reach nearly 5 billion, of which nearly 3 billion will be from developing countries. The time taken for adding a billion extra people to the urban population effectively reduces by half in this period. This rapid urbanisation of developing countries will create huge pressure on physical and social infrastructure that, if not tackled on a war footing, will lead to another big crisis.
The Boston Consulting Group recently helped one of the largest companies in India develop a vision which, as their board said, should be ‘timeless’. During the vision development exercise, which touched over 1,000 of the senior-most managers in the company, two themes stood out — the emphasis on the environment, and on corporate governance and ethics. It was also quite clear that this firm’s senior managers wanted to go beyond mouthing mere words of good intention. They are putting in place a clearly-defined set of metrics to measure the progress against these difficult-to-measure themes. The economic crisis has already started to have a profound effect on the ownership patterns of businesses, regulatory oversight and, most importantly, in defining the purpose of these businesses. Profit for profit’s sake is becoming a dirty word for future business leaders. Those who are seeking to become or to remain industry leaders are moving fast to shape their companies and their cultures to align with this new reality — otherwise they will be left behind.
Many crises require technology breakthroughs to overcome them. The quest for sustainability or the ‘green’ revolution is one such crisis. The transportation industry, which contributes 20 per cent of the total CO2 emissions in the world, is under enormous pressure to reduce its greenhouse gases. The shift to electric propulsion is a potential solution but only if its significant cost disadvantage can be overcome. BYD, the largest rechargeable battery-maker in the world, has announced plans to become the leading producer of electric cars in the world and has 5,000 automotive engineers working on this project, supported by thousands of battery-engineers. The Chinese government looks at this as an opportunity to overcome the country’s technology handicap and leapfrog to industry leadership. It has appointed a former auto engineer as the chief scientist for its electric vehicle research programme. The government is also giving a subsidy of $8,500 for each electric car sold in the country. BYD may or may not succeed in becoming the industry leader, but it clearly does not suffer from a lack of ambition or a desire to change the status quo in the automotive industry.
Last month, I was in Europe for a meeting and the CEO of a rail equipment company asked me what I thought about the ‘Nano’ effect in his industry! I was stumped for a moment. I had heard of the ‘el-Niño’ effect but the ‘Nano’ effect was something new. It then struck me that business leaders around the world are struggling with the challenge of meeting the needs and aspirations of the ‘next billion’ customer-segment — low-income customers, who are currently not served or are under-served by existing products and business models. These customers form the bulk of those migrating from their rural homes to the fast-growing, high-density urban population centres — this is the third mega-trend. In just the Bric countries, they represent over $1 trillion of consumption. New industry leaders of the 21st century will emerge by developing ‘Nano’ products for these customers.
The last big economic crisis of 2001 was a waterloo for many firms but also saw break-out growth of others. Google introduced its click-per-view advertisement in 2001, at the height of crisis when advertisers were looking at reducing their costs significantly. Google has never looked back since. Going into 2001, AMD (Intel’s great competitor) had its revenues growing three times faster and it had also made major capacity investments to exploit its higher growth. As the crisis hit industry sales, AMD was weighed down by its high-cost investment while Intel aggressively built new state-of-the-art plants at a much lower cost and heavily promoted its new chips. By the time the recession lifted, Intel had fundamentally changed its competitive position and emerged as an undisputed leader of the semiconductor industry.
The human race faces unprecedented challenges today. These challenges are also mega-trends which will reshape the political and social dimensions of our world and re-draw the competitive landscape in many industries over the next few decades. This time too, the winners will be those who view these challenges as mega-trends, as opportunities to shape their destinies. Others, too risk-averse to make bold moves, will be in danger of becoming a footnote in history.
The author is Partner and Director, The Boston Consulting Group