NO ORDINARY DISRUPTION
The Four Global Forces Breaking All the Trends
Richard Dobbs, James Manyika and Jonathan Woetzel
PublicAffairs
277 pages; Rs 799
Start-ups challenging incumbents and disrupting the status quo is hardly new - the Schumpeterian notion of creative destruction is, in fact, an essential part of capitalism. But the rate of churn that is taking place now is truly staggering.
Traditional markets are under siege with threats to businesses springing up in the most unexpected of forms. Newspapers are struggling to deal with Twitter. Record stores are losing business to iTunes. Uber has upended the traditional taxi market. Telecom major Airtel seems more perturbed by apps like Whatsapp and Viber than by long-standing rivals like Vodafone. 3D printing promises to disrupt traditional manufacturing.
Examples such as these abound but the real challenge is how to make sense of this chaotic transformation. In No Ordinary Disruption three researchers from the McKinsey Global Institute attempt to do just that. Drawing on a wide range of research, the authors posit that four forces that are reshaping the corporate landscape in unimaginable ways - the acceleration in the scope, scale and impact of technology, the shifting locus of economic activity to emerging markets, the age of rapid urbanisation and a graying labour force and greater connectivity.
The pace of disruption, they argue, has accelerated due to a confluence of factors - falling fixed and marginal costs of operations, cloud computing and mobile internet. Together, these disparate trends have succeeded in lowering entry barriers, making it easier for upstarts to scale-up quickly and challenge the dominance of market leaders. As a result the traditional product cycle is being upended at rates never seen before.
Although much has been written on these issues, the authors have successfully managed to weave these disparate trends into a coherent narrative. But the book sputters in the manner in which standard business dictums have been passed off as sage advice. It is replete with management mantras like "Learn to market and sell through multiple channels" "Bring technology to the rescue", "Find new ways to monetise consumer surplus" - nothing a standard marketing textbook won't teach you.
One big theme that runs through the book is the rise of emerging markets. "Seven emerging markets," the authors state with an air of inevitability, "will be fuelling almost half of all global GDP growth over the coming decade."
This is hardly new. In fact, this argument has been repeated so often that it has become conventional wisdom. The reality is more complex. The rise of emerging economies is anything but preordained.
The emerging market growth spurt over the past decade was in large part a consequence of two factors - an ultra-loose monetary policy pursued by the US Federal Reserve and the rise of China. But the situation has changed. With the US Fed expected to reverse is stance on monetary policy, the era of cheap money is coming to an end. Second, the law of gravity is finally catching up with China. Growth is expected to slow significantly as the country transitions from one reliant on exports and investment towards one in which domestic consumption plays a dominant role. How this plays out is difficult to decipher and its impact on emerging market growth is anything but obvious. Yet the authors assume that growth will continue unabated.
One area that should ideally have received more attention is the jobs dilemma. The problem is more acute in developing countries like India where despite high growth job creation has barely kept pace. Part of the problem can be traced to the inability of countries to emulate the China model - that is, create a labour-intensive manufacturing sector to absorb surplus labour currently tethered to agriculture despite dwindling returns from the sector. This shift to the manufacturing sector helps raise productivity levels and wages.
But emerging and developing economies have been unable to replicate this strategy. As Dani Rodrik points out, countries like India are, in fact, deindustrialising at much lower per capita incomes. They are simply not creating the low skilled manufacturing jobs that are needed to pull people out of agriculture. Growth is being driven by highly skilled jobs in the services sector which is not enough to pull millions into the ranks of the global consuming class. If these economies are unable to create a strong manufacturing base it will call into question the entire consumption theory the authors posit.
How this jobs dilemma impacts urbanisation, which is one of the four forces the authors talk about, is also barely explored in the book. Historically, the two have been closely related. The rise of American cities such as Detroit was largely due to the growth of manufacturing in the region. Rapid urbanisation of China has also been coterminous with the growth of manufacturing. The logic is straightforward. Shifts from rural to urban areas will occur only if there are job opportunities. Thus, central to the massive urbanisation wave the authors expect is the creation of a labour-intensive manufacturing sector. Unfortunately, the authors offer no unique insight into how this tension will be resolved.
The Four Global Forces Breaking All the Trends
Richard Dobbs, James Manyika and Jonathan Woetzel
PublicAffairs
277 pages; Rs 799
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The corporate landscape is being redrawn at an unbelievably fast rate. In 1950, an average company on the Standard & Poor's (S&P) 500 was likely to stay on the index for around 60 years. In 2011, this duration was down to 18 years. Dominance no longer lasts decades; by one reckoning, three-fourths of the incumbents currently on S&P's index are likely to be replaced by 2027.
Start-ups challenging incumbents and disrupting the status quo is hardly new - the Schumpeterian notion of creative destruction is, in fact, an essential part of capitalism. But the rate of churn that is taking place now is truly staggering.
Traditional markets are under siege with threats to businesses springing up in the most unexpected of forms. Newspapers are struggling to deal with Twitter. Record stores are losing business to iTunes. Uber has upended the traditional taxi market. Telecom major Airtel seems more perturbed by apps like Whatsapp and Viber than by long-standing rivals like Vodafone. 3D printing promises to disrupt traditional manufacturing.
Examples such as these abound but the real challenge is how to make sense of this chaotic transformation. In No Ordinary Disruption three researchers from the McKinsey Global Institute attempt to do just that. Drawing on a wide range of research, the authors posit that four forces that are reshaping the corporate landscape in unimaginable ways - the acceleration in the scope, scale and impact of technology, the shifting locus of economic activity to emerging markets, the age of rapid urbanisation and a graying labour force and greater connectivity.
The pace of disruption, they argue, has accelerated due to a confluence of factors - falling fixed and marginal costs of operations, cloud computing and mobile internet. Together, these disparate trends have succeeded in lowering entry barriers, making it easier for upstarts to scale-up quickly and challenge the dominance of market leaders. As a result the traditional product cycle is being upended at rates never seen before.
Although much has been written on these issues, the authors have successfully managed to weave these disparate trends into a coherent narrative. But the book sputters in the manner in which standard business dictums have been passed off as sage advice. It is replete with management mantras like "Learn to market and sell through multiple channels" "Bring technology to the rescue", "Find new ways to monetise consumer surplus" - nothing a standard marketing textbook won't teach you.
One big theme that runs through the book is the rise of emerging markets. "Seven emerging markets," the authors state with an air of inevitability, "will be fuelling almost half of all global GDP growth over the coming decade."
This is hardly new. In fact, this argument has been repeated so often that it has become conventional wisdom. The reality is more complex. The rise of emerging economies is anything but preordained.
The emerging market growth spurt over the past decade was in large part a consequence of two factors - an ultra-loose monetary policy pursued by the US Federal Reserve and the rise of China. But the situation has changed. With the US Fed expected to reverse is stance on monetary policy, the era of cheap money is coming to an end. Second, the law of gravity is finally catching up with China. Growth is expected to slow significantly as the country transitions from one reliant on exports and investment towards one in which domestic consumption plays a dominant role. How this plays out is difficult to decipher and its impact on emerging market growth is anything but obvious. Yet the authors assume that growth will continue unabated.
One area that should ideally have received more attention is the jobs dilemma. The problem is more acute in developing countries like India where despite high growth job creation has barely kept pace. Part of the problem can be traced to the inability of countries to emulate the China model - that is, create a labour-intensive manufacturing sector to absorb surplus labour currently tethered to agriculture despite dwindling returns from the sector. This shift to the manufacturing sector helps raise productivity levels and wages.
But emerging and developing economies have been unable to replicate this strategy. As Dani Rodrik points out, countries like India are, in fact, deindustrialising at much lower per capita incomes. They are simply not creating the low skilled manufacturing jobs that are needed to pull people out of agriculture. Growth is being driven by highly skilled jobs in the services sector which is not enough to pull millions into the ranks of the global consuming class. If these economies are unable to create a strong manufacturing base it will call into question the entire consumption theory the authors posit.
How this jobs dilemma impacts urbanisation, which is one of the four forces the authors talk about, is also barely explored in the book. Historically, the two have been closely related. The rise of American cities such as Detroit was largely due to the growth of manufacturing in the region. Rapid urbanisation of China has also been coterminous with the growth of manufacturing. The logic is straightforward. Shifts from rural to urban areas will occur only if there are job opportunities. Thus, central to the massive urbanisation wave the authors expect is the creation of a labour-intensive manufacturing sector. Unfortunately, the authors offer no unique insight into how this tension will be resolved.