Dean of Disruption
James Manyika is positioned perfectly for grasping the future. As a senior partner at global consulting firm McKinsey and director of its business and economics research arm, the McKinsey Global Institute, he has advised many CEOs and senior executives from prominent tech companies in Silicon Valley, where he is based. A Rhodes Scholar, Manyika earned his PhD in robotics and engineering from Oxford University.
In his conversations with tech executives, Manyika glimpses the technology trends of tomorrow. A more long-term view comes from his work leading the institute, where for the past seven years he has overseen a research program that examines the impact of technologies on business and the economy, as well as related topics such as innovation, competition, and labor markets.
Manyika and his fellow directors wrote a book, No Ordinary Disruption: The Four Global Forces Breaking All the Trends, which grew out of their work at the institute and was published in May of 2015. The trio crunched their research into a presentation they often gave to boards of directors, but they realized that a book would enable them to reach many more people.
Manyika is optimistic about the future and the many changes it will bring, from accelerating urbanization and technological change to aging populations and growing global connectivity. Nevertheless, succeeding in our rapidly changing world will require major adaptation by workers and businesses.
INTELLIGENCE checked in with Manyika to dissect how such disruptions are changing the economy, forcing businesses to adapt, and creating a new archetype of tech leadership.
This conversation has been edited for length and clarity.
The Enormous Scale of Coming Change
We all imagine we know these disruptions are happening, but the scale of them is still a big surprise. So, if you think about the industrial revolution, it took the U.K. something like 154 years to double GDP per capita in what we thought was a fairly profound change. It took the U.S., mostly starting in the late part of the 19th century and into the early part of the 20th, about 54 years before it doubled its GDP per capita. When the U.K. did it, it was working off a base population of 9 million people. When the U.S. did it, it was off a base of about 10 million. The pace of change, while still relatively slow and coming off a small base, was already picking up.
Fast-forward to China and India. China doubled its GDP per capita in the space of 12 years, working off a base population of a billion people. India took 16 years, with just under 900 million. So just the pace and scale were astounding, much more so than we’d all intuitively felt.
Growth of the Consuming Class
Right now, we all have angst about inequality and that is quite real, but that’s in the context of what’s happening within individual countries. If you look on a global scale—you can go all the way back to the 19th century up until recently, about the 1980s—the world only had a tiny proportion of its population in what you might call the consuming class: people who earn enough to spend on things beyond subsistence, to buy products, goods, and services. That sliver in the early 1900s used to be about 7%. By 1990, it had grown to the low twenties, call it 23%. For the first time, right now, we have close to 25% of the world’s population in the consuming class. On current course and speed, by 2025 we’ll have half the world in the consuming class. That’s never happened before.
Think Differently About Customers, Markets, and Products
Who your customers are changes dramatically. They’re everything from individual consumers—because technology can now reach them—to companies. Where they are is changing as dramatically too, right? They’re not just in the advanced economies as you’ve known them. They are in a lot of these emerging markets, too. So where they are has changed dramatically.
One of the big changes that has occurred is that a little bit more than half the world now lives in urban areas. Even more are going to live in urban areas. On current course and speed, over the next decade, something like two-thirds of global GDP is going to be driven through 660 cities, and 440 of those are in emerging markets. We’ve always used countries as a unit of analysis to think about opportunity. It may very well be that cities are the way to think about it going forward.
What products and services your customers want—that’s where the other trend around aging kicks in. Most advanced economies, plus China, are aging so fast. We’ve never had a situation like this before. In a decade, something like just more than 20% of China’s estimated population of 1.4 billion will be over the age of 60. That’s an astounding number. Most companies have always thought about their products and services as mostly oriented toward just young or working-age people. And so, except for health care companies, maybe, most companies don’t think enough about that aging demographic as a consumer market.
Globalization is also becoming more digital. That has implications to supply chains and value chains in a world in which you’re doing additive manufacturing, the industrial version of 3-D printing. It changes how much closer you can get to demand in terms of assembly and manufacturing and so forth.
We’ve always used countries as a unit of analysis to think about opportunity. It may very well be that cities are the way to think about it going forward.
The New Form of Competition
Competition’s going to be that much more intense, but in new ways. First, you’re going to be competing with companies hailing from different geographies much, much more than you think. And because they’re going to be able to participate, they will have access to the same technologies as you do. So if you’re a technology company in the “developed world,” guess what? They’re coming at you from emerging markets. If you look at the Fortune Global 500 in 1990, something like 5% were from emerging markets. It’s flipping, and right now it’s 25%. On current course and speed, it will be 45% in 2025.
Second, there are competitor startups that can now use platforms and Internet technology to reach the same customers that you reach, too. These companies can play as well as you can in any other arena. Third, there are going to be competitors from outside of your sector. So, who’s a car company these days? Google and Apple, right? You don’t think of them as being in the automotive sector. Many with access to technology platforms can now participate in almost any sector. For example, Alibaba is being granted banking licenses in China.
Well, it turns out that there are a lot of markets where that could happen, such as personal services but also a bunch of corporate services. It’s going to get more interesting—exciting for some, challenging for others who don’t transform themselves.
Strategies of Adaptation
It’s hard to be prescriptive about adapting to disruptions because they vary by industry and company situation. But organizations that have more diverse talent pools—in the sense of age, approach to problem solving, or approach to innovation—tend to do better, although they tend to skew younger. So how do you cultivate them and how do you attract those diverse profiles into your companies?
It’s also important to think in terms of platforms. If you look at most of these companies that have been incredibly successful—whether it’s an Amazon or an eBay or a Google or a Facebook—they’re a platform of one sort or another. They’ve built something that seems to be global, that others can build on or put things that are valuable on. There’s kind of a platform way of thinking that is pretty important.
The days in which companies pursue singular strategies—where you say, “I’m going to pick this one thing, and we’re going to do this one thing only”—are long gone. You need to develop some sort of portfolio mix of products and services where you’re learning, experimenting, and scaling the things that work.
The New CEO Archetype
What competencies seem to make a difference in the companies that are doing well? How good they are at technological innovation is a big deal. If you think about all the tech companies we celebrated in the years roughly between the 1990s and the early 2000s, in the majority, if not all of them, the CEO came out of sales. That was appropriate at the time.
Do another similar mental exercise. Between 2005 and now, think of all the companies we celebrate and love to put on our top 10 most amazing companies in tech. Almost all of those CEOs are engineers or product-centric people. Maybe one or two exceptions, right? Product innovation and user experience orientation seems to really, really matter. At the risk of annoying people who work in sales and do amazing things, especially in business-to-business settings, the other thing that seems to matter more perhaps than it used to is marketing and messaging—and the ability to use digital platforms and capabilities to do that. Company leaders increasingly need to be smart about how they leverage their technologies and digital media to position themselves.
The Future of Work
Looking at just the changes in the economy and technology, my conclusion is that the future is net positive, but not everything looks rosy. When you think about how much economic potential there is going to be, how much economic growth, all of that is the positive stuff. But there are a couple of things that I worry about. One is the future of work. We’re going to see more disruption in terms of employment than we’ve seen in a while.
The U.S., between 2000 and 2010, lost an estimated 5.8 million jobs in manufacturing. The story that’s usually told, at least in the public press, is that they’ve all been offshored. That’s only a small portion of the story. Let’s take the high end of that and assume 25% of lost jobs went offshore. (Our own analysis, by the way, suggested it was more like 20%; some put it at 15%.) The rest of it was largely about the rapid pace of productivity gains from technology and automation and changes in demand.
That’s the bigger story. Go to a new factory that’s been built today and look how many people work there. I don’t care if that factory is in China or America, there aren’t very many people working there, generally. So the impact of technology on jobs is a big deal that we haven’t quite gotten our minds around.
I also worry about income inequality, not so much because the rich are too rich but because there’s a whole segment of middle-skilled people who possess more education and training than a high school diploma but less than a four-year college degree in America and most countries with strong economies. Their wages have been stagnant for the past 25 years. These are the people that drive much of the aggregate demand in the economy for products and services which in turn is necessary for GDP growth. If this is not addressed as a societal and prosperity issue, it will cause angst about the extent to which the economy works or doesn’t work for everybody, among other things. I think we need to accept that those are real issues, and we need to work on trying to solve them.