The Upside Of Disruption – Megatrends Shaping 2016 And Beyond by EY

From Disruption To Megatrends

As disruption becomes an everyday occurrence, we explore its primary causes and the megatrends that are shaping our future

Disruption is fundamentally changing the way the world works. Today’s businesses, government and individuals are responding to shifts that would have seemed unimaginable even a few years ago. Artificial intelligence and robotics are reinventing the workforce. Drones and driverless cars are transforming supply chains and logistics. And changing preferences and expectations — most notably in the millennial generation — are altering consumption patterns and demand for everything from cars to real estate.

We have looked at the root causes of these transformative trends and, consequently, have identified three primary forces behind this current wave of disruption: technology, globalization, and demographic change. By understanding the interaction between these forces, we’ve identified eight global megatrends which are shaping the future. These are large, transformative trends that define the present and shape the future by their impact on businesses, economies, industries, societies and individual lives.

The eight megatrends generate key questions to answer:

  • Industry redefined. Is every industry now your industry?
  • The future of smart. What intelligence will we need to create a smart future?
  • The future of work. When machines become workers, what is the human role?
  • Behavioral revolution. How will individual behavior impact our collective future?
  • Empowered customer. How will you change buyers into stakeholders?
  • Urban world. In a fast-changing world, can cities be built with a long-term perspective?
  • Health reimagined. With growing health needs, is digital the best medicine?
  • Resourceful planet. Can innovation make the planet resource rich instead of resource scarce?

EY On Disruption

See the connections, not just the dots

The march of disruption is unrelenting and this can leave today’s decision makers and leaders grappling with tremendous uncertainty and a broad array of challenges. Responding to disruption has become a central issue for incumbent organizations everywhere.

EY’s approach to disruption is to amplify the signal rather than the noise, and see the connections, not just the dots. We do this by widening the lens through which we see disruption.

Disruption has commonly come to mean a transformation of business models and value networks driven by technology or business innovation. However, the evidence is growing that it can come from public policy, macroeconomic trends, geopolitical events and other developments. At the same time, disruption upends more than business models and value networks; it can transform political systems, regulatory regimes, social compacts and much more.

Just as important, the perception of disruption is shifting from that of threat to opportunity. Incumbents have begun to embrace disruption to take advantage of the rapidly changing environment.

At a time when there are so many unknowns and no easy answers, we believe we must ask better questions. As people are becoming less afraid of disruption and more accepting of its inevitability, the better question becomes: How do you seize the upside of disruption?

Section 1: Understanding disruption

1. How did disruption become mainstream?

Disruption has worked its way into every sphere of our lives. The rapid acceptance of disruptive innovations has led to a growing awareness in the business community that disruption is ubiquitous and accelerating.

To highlight how commonplace the idea has become, we charted the number of media articles mentioning “disruptive innovation” between 2010 and 2015. Our research found an increase of more than 440% during this period (see Media mentions of “disruptive innovation”, below).

However, despite growing commercial awareness, only a handful of companies have successfully disrupted their own business models. For instance, Netflix switched its business model from one built on DVD home deliveries to one built on streaming. More recently, auto giant Daimler have begun experimenting with moves into car-sharing and ride-sharing.

Meanwhile, hundreds, perhaps thousands, of firms — from Blockbuster Video to Waldenbooks and Zenith Electronics — failed to adapt in time, and ended up either shadows of their former selves or out of business altogether.

Disruption

2. How is our understanding of disruption changing?

In the past two decades, the definition of disruption has expanded far beyond its textbook meaning — the transformation of business models and value networks by technology or business innovation (see The birth of disruption on page 11).

For one, it is increasingly evident that disruption does not stem solely from technology or business innovations — it is also influenced by demographic shifts, globalization, macroeconomic trends and more.

It is also evident that the effects of disruption are beginning to extend far beyond the business world. For example, “sharing economy” start-ups such as Uber and Airbnb are already disrupting regulatory frameworks. Meanwhile, some of the most disruptive technologies on the horizon (e.g., AI and robotics) will not only disrupt corporate business models, but also society as a whole — realigning income distribution, altering relationships between governments and citizens, and perhaps even calling into question fundamental aspects of the human experience. Indeed, one reason that the concept has gained widespread traction — appearing in everything from Hollywood movies to the surge of populist political movements — is that it resonates so well with much of our shared experience.

3. What are the root causes of disruption?

Based on our analysis, we see three root causes behind disruption — what we refer to as “primary forces.” These forces — technology, globalization and demographics — are not new. Indeed, they have been around for centuries. But they evolve in successive waves, and it is these new waves that generate new megatrends. Understanding the next waves of disruption — and the interactions between them — gives this root-causes-first approach more predictive power.

Our approach also provides a simpler and more balanced perspective. It narrows the field of vision by focusing on three causes rather than a longer list of effects. It also widens the field of vision, since focusing on new waves of primary forces reinforces that any list of megatrends is by definition incomplete and will expand over time.

The three primary forces of disruption are:

1. Technology. While we usually think of disruption in the relatively recent context of IT, advances in technology have been disrupting business models for centuries. The Industrial Revolution, for instance, eliminated guilds and created massive labor displacement. In our lifetime, successive waves of the IT revolution (PC, online, mobile, social) have democratized data, empowered consumers and spawned scores of new industries. The next waves — the Internet of Things (IoT), virtual reality, AI, robotics — promise to be even more revolutionary.

2. Globalization. Like technology, globalization has been upending the status quo for centuries, going at least as far back as the 15th century launch of the Age of Discovery and colonialism. Globalization has accelerated in recent decades, thanks to trade liberalization and emerging market growth. These trends disrupt existing business models by creating new competitors, reordering supply chains and lowering price points. The next waves — including the emergence of Africa and a more multipolar world — will increase complexity and require flexible business models to respond to global shifts.

3. Demographics. Throughout human history, demographics have determined destiny. In the decades ahead, relatively high birth rates will make Africa and India engines of economic opportunity. Aging populations will transform everything from health care to real

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