One of the memorable moments in the 1967 film ‘The Graduate’ is where the main character 21-year-old Benjamin Braddock is taken aside by a Mr. Maguire, who says ‘One word Ben ‘plastics’, there is a great future in plastics!’
If the film was remade today, it is hard to know what might replace ‘plastics’ because there is such a mind boggling array of new technologies and technological applications bursting through. For example, a recent report by McKinsey on top technology trends flagged areas like ‘the future of programming’, ‘the bio revolution’ and ‘applied AI’ as the trends to watch.
I could add many more, but the point is that one characteristic of the post COVID economy is a bewildering array of new sub-industries, ESG related norms and consumer areas, that bring the future to our doorsteps almost to the point of exaggeration (e.g driverless flying taxis).
This wave of innovation is accompanied by a surge in entrepreneurship, and a noticeable improvement in the formation of entrepreneurs (one example is the entrepreneur incubator Entrepreneurs First). An important question for large companies is how to think about this array of innovation, how to gain exposure to it and relatedly how to defend business models against its disruptive effects.
One interesting schematic on disruption was recently published in the Harvard Business Review by three management consultants and looks at the vulnerability of different industries to ‘disruption’. More traditional industries like ‘plastics’ (diversified chemicals and rubber) are less prone to disruption, and in many cases tend to buy up brand innovators before they become disruptive (the beer industry is a case in point).
According the HBR schema, industries that are vulnerable to disruption are utilities, energy trading, consumer technologies and banking (investment and asset management). My personal view is that incumbent European banks have, with a few exceptions, failed to innovate and continue to be hampered by poor corporate governance and incentive structures, and unambitious governments and regulators. In some respects the best that can happen is that government and regulators aid the rise of digital banking, though again I am not optimistic that this will happen.
The case of fintech and the rise of digital money, banking and asset management illustrates the nexus between states, corporations and regulators, and helps to show why large corporations need to pay great attention to not only new trends in technology, but also new frameworks and ecosystems (see my May note).
The task of looking into and plotting the future, may be just a little too much for many CEO’s. In recent years the debate on the role of the corporation in socio-economic life has been re-ignited, and there is a consensus that corporations need to play a greater socially responsible role.
A good number are true to this – in the US social causes have been pioneered by progressive corporate leaders, though in Europe company heads are far more shy. While there is a very strong case to be made for corporates that have a more balanced contribution to their social, physical and financial environments there is also a sense that CEO’s now have multiple demands on their attention.
Still, apart from avoiding disruption there are good reasons for corporations to become ‘more involved’ in the future, if I can put it like that.
One is that the institutions, laws and frameworks that will marshall new areas like cyber security, climate damage and digital money will not only involve governments in their construction but other players from corporations, large cities, citizens assemblies and universities. Notably, some of the most interesting thinking I have seen on how to best police cyber security comes from corporates like Microsoft.
Another reason is that, as emphasized here, many of the new technologies that are mentioned in reports like that of McKinsey, have acquired a strategic value and in reality will be developed by tandem relationships of states and corporates – this will be the case with digital currencies, cyber security and artificial intelligence. Plastics never had this problem.
A third and perhaps yet underappreciated reason for corporates to think very hard about issues like the future of democracy, institutions and society is that changes in trust and how we capture identity are undergoing huge shifts. First of all, trust in democracy, politics and institutions in the Western world is falling and to a certain extent is being replaced by new forms of money, corporate brands and radical. This trend places a premium on companies that can build trust with consumers, and on the responsiveness of companies to events that threaten this trust.
The second element here is identity, specifically digital identity. Soon, a combination of cyber security, digital money and data protection will usher in the arrival of secure digital identities or passports. Theoretically this should contribute to more secure e-commerce and banking and potentially better online behaviour through reduced anonymity, but it also means that the channels through which companies interact with consumers will be more formalized and potentially better policed.
Few companies are ready for this.
Have a great week ahead,