Frontiers of disruption the next decade of technology in business

2 The survey results, along with insights from leading technology thinkers, business executives and other experts, will form the basis of an Economist Intelligence Unit white paper to be

Frontiers of disruption: The next decade of technology in business

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Introduction

Is technology-led innovation slowing down? Some observers consider this to be the case, believing that technology advancements are not having the transformative effects on life and industry experienced

in previous periods.1 Business leaders beg to differ, at least when it comes to the changes they expect technology to bring to markets and industries over the next decade Having witnessed the profound effects that the Internet, wireless communications, enterprise applications and other technologies have recently had on organisations, executives might be excused for expecting a lull Judging by the views expressed in this Economist Intelligence Unit survey, however, technology is certain to be the source of continued disruption to markets and industries between now and 2020

Business leaders’ expectations include wrenching change to their vertical markets, a decisive shift

of power to customers, far-reaching decentralisation of management authority to the periphery

or organisations, and a much more virtual working environment For many, technology will enable significant leaps forward in terms of innovation, efficiency, customer relationships and many other areas of competitiveness Some, on the other hand, doubt their organisations will even survive by 2020 Managing technology-enabled change in organisations will unquestionably remain a difficult challenge for all

Some executives wisely warned us that there is no way of divining what types of disruption are to come—that technology is disruptive precisely because its effects are so difficult to predict They took up the challenge all the same, and we discuss below the major conclusions from the survey.2

1 See, for example, Michael Lind, “The Boring Age”, Time, March 11, 2010; “Are We Behind on Innovation That Matters?”, Paul Kedrosky

blog, January 4, 2010

2 The survey results, along with insights from leading technology thinkers, business executives and other experts, will form the basis of an Economist Intelligence Unit white paper to be published in early 2012 The findings will be discussed at “Technology Frontiers”, a major pan-European event hosted by Economist Conferences in March 2012 in London, where experts and practitioners will share their ideas on

About the survey

The Economist Intelligence Unit surveyed 567 executives in September-October 2011 on their expectations of the future technology impact on business The survey sample is global, with 32% of respondents based in Europe, 29% in North America and 28% in Asia-Pacific They hail from over 20 sectors, with financial services, government and public sector (including healthcare), education, professional

services, IT and technology, and manufacturing especially prominent in the sample The respondents are relatively senior—46% hold C-suite positions—and they work in organisations of different sizes, with 43% earning annual revenue of US$500m or more For more information about the survey sample, please see the Appendix

Key findings

On the cards: significant disruption to markets and industries In the past decade, technology-enabled

business model innovation has changed the face of the music, video, book publishing, travel and other businesses Other sectors will undergo similar change in the next decade Nearly six in ten respondents believe that the vertical market in which their organisation operates will bear little resemblance in 2020

to how it looks today Not surprisingly, media and entertainment top the list of sectors executives expect

to undergo significant convergence with adjacent ones in the next ten years Somewhat unexpected, given its heavily regulated nature, is a belief that the banking industry is also in for far-reaching restructuring Respondents from the financial services industry itself are convinced of it: 70% believe significant convergence with organisations from other industries is on the cards, compared with 45% of respondents in the overall sample

Relentless efficiency improvement and Big Data will heap pressure on competitors, margins and business models Supporting the prediction of continued disruption is the conviction that technology

will continue to afford organisations big opportunities to gain a jump on their rivals For example, a large majority (70%) of survey participants affirm that there remain plenty of gains to be made in improving

Share of respondents agreeing that "The vertical market in which my organisation operates will bear little resemblance in

2020 to how it looks today."

(% respondents saying "strongly agree" or "agree")

0 10 20 30 40 50 60 70

0 10 20 30 40 50 60 70

Education Manufacturing

IT & technology Financial services

North America Asia-Pacific

Europe Total

operating efficiency (although education and public sector respondents appear far less convinced of this than others) Executives also expect technology advances to deliver greater speed and responsiveness toward customers and, through ever more sophisticated data analysis, the ability to tailor products and services to an unprecedented degree This combination means intensifying competitive pressures— including price and margin reductions in many markets—faster change in business models, and thus continued disruption to markets and industries

The negative side of this is that organisations which cannot keep pace will suffer This concern is palpable amongst a significant minority of the survey sample Over one-third of participants fear that their organisation will be unable to keep up with technology change and will lose its competitive edge More than a few—13% of the overall sample, and as high as one-third of those from the IT sector—even believe that their business will disappear within the next decade due to technology-driven business model change

Technology will shift considerably more power toward customers Thanks to the Internet, social

media and other communications technologies, customers in both B2B and B2C markets have become more adept in recent years at gaining leverage with their suppliers Many executives in our survey expect this shift in the balance of power toward customers to gain momentum over the next decade For example, increasingly sophisticated data analysis will certainly benefit companies looking to gain

3 25 45 25 2

Strongly agree Agree Disagree Strongly disagree Don’t know

Do you agree or disagree? "When it comes to improving operating efficiency, enterprise technology has reached a plateau— there is not much more room for achieving efficiency gains."

(% respondents)

38

38

32

41

46

51

35

30

29

Total

Europe

Asia-Pacific

North America

Financial services

IT & technology

Manufacturing

Education

Government/public sector

Share of respondents agreeing that "I worry that my organisation will not be able to keep up with technology change and will lose its competitive edge."

(% respondents saying "strongly agree" or "agree")

a deeper understanding of their customers, but customers will also gain from better, and much faster access to, product and market data One survey participant opines, for example, that “pervasive mobile technologies will reduce the information asymmetry between vendor and customer There will be nowhere

to hide for ridiculous mark-ups and prices.”

Customers will also enjoy a more direct influence on their suppliers’ innovation processes When asked which of various groups will be the main source of new product or service ideas in 2020, top of the respondents’ list come customers and online communities, ahead of internal R&D and employees (Manufacturers are the most firmly convinced this will be the case.) More than eight in ten also believe that internal project teams in 2020 will typically include representatives from customers, partners or external communities Among other activities, they will be advising firms on business processes: when asked who will be the main source of new ideas for process improvement, almost as many executives point

to customers (18%) as to their own employees (20%) Better data and faster networks will clearly help organisations improve how they innovate, but these findings suggest also that learning how to treat customers as innovation partners will be at least as important

Flatter structures, with more decision-making authority at the periphery Our survey respondents

are undecided on how precisely technology change will impact on the organisation itself For example, just over half expect all of today’s familiar departments (eg, procurement, accounting, human resources)

to remain in existence a decade on, while others expect the responsibilities of some of these to shift elsewhere There is considerably more consensus, however, when it comes to the IT function: 62%

of the sample believe that in 2020, responsibility for delivery of most IT services will reside within individual business units rather than a central IT function And over three-quarters think that most of the

38 18

21

30

13 8

12 7

6

19

5

9

4 6

1 2

1 1

1 1

R&D

Customers

Competitors

Employees (non-R&D)

Online communities

Emerging markets

Partners

Other industries

Other

Don’t know

What is the main source of new product or service ideas today, and what do you think it will be in 2020?

(% respondents)

Today In 2020

organisation’s IT services will be delivered by external parties (eg, “cloud computing” providers)

Expectations of decentralisation extend beyond the IT function A clear majority of executives believe that technology change will lead to a “far-reaching devolution” of decision-making authority to the periphery of organisations Assuming decentralisation also means greater local freedom to design individual processes, this may also explain why a majority (52%) of respondents believe that ensuring good operational risk management and governance will be much more difficult in the future An identical majority also fear that compliance requirements will become so extensive as to discourage some firms from implementing new technologies

There may also occur a flattening of decision-making structures, as technology advances are expected

to reduce the ranks of middle managers

A more virtual working environment, but what does this mean? There is agreement with the notion

that the working environment will be substantially changed in a decade’s time thanks to technology

Share of respondents agreeing with the following propositions about the organisation in 2020

(% responding "highly likely" or "somewhat likely")

0 10 20 30 40 50 60 70 80

0 10 20 30 40 50 60 70 80 Government/public sector Education

Manufacturing Financial services

Total

Most of the organisation's IT services will be provided by external parties

Responsibility for the delivery of most IT services will reside within individual business units rather than a central IT function

(% responding "strongly agree" or "agree")

0 10 20 30 40 50 60 70 80

0 10 20 30 40 50 60 70 80 North America Asia-Pacific

Europe Total

As enterprise technologies advance in sophistication and speed, the middle management layer will be vastly reduced in organisations Technology will enable a far-reaching devolution of business

decision-making authority to the periphery of organisations

advances For example, eight in ten survey participants are certain that “virtual working” will be the norm thanks to more secure mobile technologies and cloud computing models This will not necessarily translate into widespread teleworking, however: more disagree than agree with the proposition that most employees will work from home rather than the traditional company office It does, however, point to a vast reduction—possibly even the disappearance—of “non-digitised” information used by employees It also suggests that most employees will conduct all their communications and electronic work using just one device

Technology advances are rightly viewed by many people as liberating, but views of the future working environment emanating from this survey are not uniformly rosy A majority of executives are convinced, for example, that they will be working more hours on average than they are today, and also more years

on average—views no doubt coloured by today’s economic doldrums and the growing threats to pension funds

Conclusion

Thinking about technological progress often brings forth a sense of optimism about the future This research is no exception, as the executives in our survey see significant opportunities for technology

to improve not only how they conduct business but also to provide solutions to challenges in areas as wide ranging as energy conservation and poverty reduction However, their optimism is tempered by recognition of the related challenges and risks ahead As the survey suggests, many organisations will not be able to keep pace with the changes to come As new business models take shape thanks to technology advances, older ones will wither, and companies’ ability to survive will rest on their capacity

to adapt Rather than slowing down, as some experts believe is happening, this process of technology-led innovation if anything is likely to accelerate

Polling executives provides just one prism through which we can glean the future impact of technology

on organisations and industries Other perspectives are needed to gauge the likelihood that the former’s visions will become reality, and to offer alternative outlooks In a report to be published in early 2012, the Economist Intelligence Unit will offer different scenarios of future technology disruption based

on discussions with some of the world’s leading technology and business thinkers as well as with practitioners

The majority of employees will work from home rather than from a traditional company office

Employees will work more hours on average than today

The working environment will become ‘virtual’ thanks to more secure mobile technologies and cloud computing models

The concept of non-digital information will be utterly foreign to most employees

Do you agree or disagree with the following statements about business and work in 2020?

(% respondents)

8

8

14

9

40

55

66

50

44

33

16

33

6

1

2

6

1

3

2

2

Strongly agree Agree Disagree Strongly disagree Don’t know

Appendix: The survey sample

In September-October 2011 the Economist Intelligence Unit conducted a survey of 567 executives from across the world Our sincere thanks go to all those who took part

29

28

27

6

6

4

North America

Western Europe

Asia-Pacific

Latin America

Middle East and Africa

Eastern Europe

In which region are you personally based?

(% respondents)

19

15

15

13

8

5

4

4

3

2

1

1

1

1

0

3

2

2

Government/Public sector

Education

Professional services

Financial services

IT and technology

Manufacturing

Healthcare, pharmaceuticals and biotechnology

Energy and natural resources

Construction and real estate

Entertainment, media and publishing

Consumer goods

Chemicals

Telecoms

Agriculture and agribusiness

Retailing

Transportation, travel and tourism

Logistics and distribution

Automotive

What is your primary industry?

(% respondents)

57

13

10

4

16

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

What are your company's annual global revenues in US dollars?

(% respondents)

3

28

2

2

11

16

6

17

11

5

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

Other C-level executive

SVP/VP/Director

Head of business unit

Head of department

Manager

Other

Which of the following best describes your job title?

(% respondents)

LONDON

26 Red Lion Square London

WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8476

NEW YORK

111 West 57th Street New York

NY 10019 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 1181/2

HONG KONG

6001, Central Plaza

18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com

GENEVA Boulevard des Tranchees 16

1206 Geneva Switzerland Tel: +41 22 566 24 70 E-mail: geneva@eiu.com

49

39

28

6

4

4

20

18

16

14

11

11

10

8

6

General management

Strategy and business development

Operations and production

Marketing and sales

Finance

IT

Customer service

R&D

Risk

Information and research

Human resources

Procurement

Supply-chain management

Legal

Other

What are your main functional roles? Select all that apply

(% respondents)

About the sponsor

Ricoh provides

technology and

services that can

help organisations

worldwide to

optimise business

document

processes

Offerings

include managed

document services,

production

printing, office

solutions and IT