Summary: No Ordinary Disruption: The Four Global Forces Breaking All the Trends by James Manyika, Jonathan Woetzel, and Richard Dobbs

• No Ordinary Disruption is a book by James Manyika, Jonathan Woetzel, and Richard Dobbs that analyzes how four major forces are transforming the global economy and challenging our conventional wisdom and intuition. The four forces are: the rise of emerging markets, the accelerating impact of technology, an aging world population, and increasing flows of trade, capital, people, and data. The book offers practical advice and tools to help readers adapt and thrive in this new era.
• If you want to learn more about the four forces that are breaking all the trends and how to prepare for the future, read No Ordinary Disruption by James Manyika, Jonathan Woetzel, and Richard Dobbs. You will discover how the world is changing and how you can change with it.

People often compare the technology-driven disruption of today’s global economy to the Industrial Revolution, but really, the Industrial Revolution pales in comparison to what is happening today. Today’s far-reaching disruption is driven by four forces that are moving quickly to transform markets on a massive scale. In No Ordinary Disruption, three directors of the McKinsey Global Institute analyze these forces and offer advice on how to survive and thrive in an age of constant disruption.

An experts’ approach to predicting and adapting to the key changes of the next two decades.

READ THIS BOOK SUMMARY IF YOU:

• Are interested in trends in globalization, innovation, or organizational strategy
• Want to prepare for upcoming changes in the global economy
• Want to work or do business overseas but don’t know where to direct your focus

The futurist Ray Kurzweil has suggested that the first human being who will live to 1,000 has already been born. Even if this prediction is still a longshot, advances in medical technology and better living standards are making it easier for people all over the world to live longer.

Needless to say, this growing demographic poses serious challenges to the world economy, such as how exactly countries and markets will be able to support a new generation of centenarians.

This dilemma is just one of four major global trends – or disruptions – that are transforming the world today. What are the others? This book summary will show you.

In this summary of No Ordinary Disruption by Richard Dobbs, James Manyika and Jonathan Woetzel, you’ll also learn

• why money is getting more and more expensive;
• why you might not find your favorite gum in China; and
• how Netflix is blurring the boundaries of the media business.

Recommendation

In this insightful, informative report, directors of the McKinsey Global Institute Richard Dobbs, James Manyika and Jonathan Woetzel identify four disruptive trends that business leaders must contend with: the rise of cities in the developing world; the pace of technological change; the aging of the world’s population; and new patterns of global trade and information flow. Dobbs, Manyika and Woetzel show how these trends send ripples through the world economy, bringing both risk and opportunity. Their vision for the future conveys optimism – though they sometimes seem to understate the potential effects of environmental disruptions and political instability. They make it clear that business leaders must rethink the obsolete assumptions driving their decisions. We recommend this perceptive overview to senior executives in the public and private sectors, and to anyone seeking to understand the forces shaping today’s world.

Take-Aways

• Four epic trends are disrupting the global economy, bringing both risk and opportunity.
• The first is urban growth in developing countries, where cities are expanding rapidly as economic dynamism moves east and south.
• The second is technological innovation, which is moving faster than ever.
• The third is the aging of the world’s population of workers and consumers.
• The fourth is the globe’s increasing interconnectedness, which is generating new patterns of trade and information flow.
• The significant “ripple effects” of these trends mean that companies need to adapt quickly to serve new markets and to manage uncertainty in resources and capital costs.
• As technology changes the nature of work, companies must constantly address imbalances between labor supply and demand.
• Big, established companies face increasing threats from small, nimble start-ups.
• Governments may be big or small, but they must be agile.
• For their organization to succeed, leaders should regard these trends as opportunities.

Introduction

Humans are bad at preparing for change. During the 25 years leading up to the 2008 financial crisis, consumers, business leaders, and investors felt that the financial markets around the world were going to remain benign, and the value of assets would keep going up indefinitely with only minor, temporary disruptions. They followed their intuition, made a lot of risky investments, and as a result, lost a lot of money when the Great Recession hit.

Although the global economy has mostly recovered from that period of downturn, it is constantly changing in ways that threaten people and businesses that don’t evolve adequately. Whether you’re a business owner, a policymaker, or just an ordinary person trying to get by, the rules you’ve lived by and the intuition you’ve developed throughout your life could make you blind to big changes on the horizon, which may cause you to miss out on life-changing opportunities or suffer financial consequences when the next wave of economic disruption hits.

In this summary, you’ll hear insights that the authors have gathered through their decades of work at the McKinsey Global Institute on four major forces that will transform the global economy over the next two decades. You’ll learn about:

• A shift in the global center of gravity.
• Technological acceleration.
• Massive demographic shifts.
• New flows of information, people, and capital.

By listening to these insights, you’ll understand that, in the next two decades, the world will become completely different from the one that you’re used to. By preparing for the transformation ahead, you can not only protect your financial wellbeing and the health of your organization but also seize unprecedented opportunity to grow, innovate, and accomplish other feats that were previously thought impossible.

A Shift in the Global Center of Gravity

Since World War II, the global economy has largely revolved around the United States and, to a lesser extent, Europe. As recently as 2000, 95% of Fortune Global 500 companies had their headquarters in developed economies, and the majority of global gross domestic product growth came from these economies. But by 2025, it’s expected that China will be home to more large companies than either the United States or Europe, and nearly half of the world’s companies with revenues of one billion dollars or more will come from emerging markets.

The center of economic gravity isn’t just shifting between countries — it’s shifting within them. It’s estimated that at least half of global GDP growth between 2010 and 2025 will come from 440 cities that you may not be able to find on a map, such as Tianjin, China; Santa Catarina, Brazil; and Hsinchu, Taiwan.

There are three things that companies can do to prepare for this impending shift in the global economic center of gravity.

First, they should think of opportunities in terms of cities and urban clusters rather than regions or countries. The consumer landscape in the fastest growing cities is incredibly diverse, and country-level analysis is too broad to be useful. Within high-growth countries and regions, even cities that are close to each other can be vastly different in terms of language, culture, and consumer markets.

For instance, in the Chinese cities of Hangzhou and Wenzhou, consumers like to enhance their social status by buying cars made by international brands. Meanwhile, in cities like Taiyuan and Xi’an, consumers rely on word-of-mouth and instore experience when deciding which cars to buy. India has 20 official languages and four major religious traditions, and the inhabitants of Africa’s 53 countries speak an estimated 2,000 languages. Suffice it to say that what works in one city might fail in a neighboring city.

Second, leaders should customize and price products according to local tastes and needs. This also means building faster, lower-cost supply chains so that they can scale up, scale down, or adjust their products many times until they find their place in the local market.

Frito-Lay has captured more than 40% of India’s branded snacks market since entering the market in the 1990s because, rather than selling American-heritage brands like Lay’s potato chips, the company created Kurkure, a snack inspired by traditional, Indian-style street food and Western-style potato chips. By creating a customized product that relied on simple, authentic ingredients that are used in any Indian kitchen, Frito-Lay was able to offer something that consumers liked immediately.

Third, leaders should adapt their organizational and talent strategy as they expand into new markets. Centralized organization models — with a central hub in a developed economy and many “nodes” in emerging economies — can lead companies to turn into a collection of international fiefdoms that don’t collaborate well with one another. This model often leaves executives at headquarters too detached from their different country divisions to understand the speed of change and scale of opportunity in emerging markets, which in turn leads to errors and missed opportunities.

Organizations must find a way to foster a shared vision among employees spread across different continents, encourage innovation, and build collaborative relations within and among their different hubs. For instance, in India, Unilever has encouraged collaboration and attracted top talent by creating a global leadership program that includes rotating and permanent placement programs in different countries of operation.

Technological Acceleration

Thanks to the exponential growth in processing power, connectivity, and effectiveness of data gathering tools, businesses and customers today have access to unprecedented amounts of data. This technological acceleration has enabled businesses like Facebook, Uber, and Airbnb to grow with astonishing speed while using very little capital. Corporate giants are in danger of stagnation — or even extinction — if they do not continuously improve their ability to take advantage of innovation.

In 1950, the average company on the S&P 500 list of top global companies could expect to stay there for 60 years or more. But in 2011, that average was down to just 18 years, and it continues to shrink today. To thrive in an age of digital acceleration, companies must do two things: make the most of their digital capital and invest in emerging technology.

Make the most of digital capital

Companies can and must figure out how to use the massive amounts of data at their fingertips to hone existing processes and develop future business strategies. Consumer-facing companies are learning to use big data to price products and services dynamically, forecast demand, and generate recommendations. For instance, Uber uses algorithms to determine “surge” prices for rides in times of peak demand, while Lyft uses a “happy hour” pricing model that lowers rates in times of low demand.

Meanwhile, manufacturers are using big data to optimize their supply chains. For example, Walmart decreased food waste and optimized its supply chains in Mexico by enhancing its data-driven forecasting ability and providing financing options for small suppliers in Mexico, so they could invest in the creation of coldstorage facilities.

Invest in emerging technology

Tech giants like Google and Facebook are well-known for investing in transformative technologies, so they can get ahead of their competitors. For instance, in 2006, when the online video advertising industry was in its infancy, Google paid $1.6 billion for YouTube and quickly grew its advertising revenue as the industry took off. Similarly, in the first quarter of 2014, Facebook acquired the five-year-old instant messaging startup WhatsApp for a staggering $19 billion. As a result, Facebook grew its mobile advertising revenue from virtually zero to nearly 66% of its total advertising revenue by the third quarter of 2014.

Companies outside the tech industry are largely being left behind by technological acceleration, which causes serious problems when an innovative disruptor comes along. In the auto insurance industry, for instance, market leaders are hesitant to make investments in telematics and behavioral data that could enable them to better monitor customers’ actions and weigh risks. As a result, they’re at risk of losing their status as market leaders when newcomers start using this technology to set smarter prices and become more profitable than traditional insurance companies.

Investing in emerging technology does not require a multibillion dollar investment. By partnering with innovative startups, established companies can have the best of both worlds: getting access to cutting edge technology while remaining focused on their core operations. For instance, in 2012, General Electric launched GE Garages, a lab incubator focused on advanced manufacturing innovation. This program set up workshops around the world to give startups access to equipment like 3D printers, laser cutters, and expert advice.

Massive Demographic Shifts

Thirty years ago, there were few countries with fertility rates substantially below what was needed to replace each generation — that is, 2.1 children per woman. But in 2013, a whopping 60% of the world’s population lived in countries with fertility rates below that threshold. Over the next two decades, the global number of retirees is expected to reach 360 million, and 40% will be in developed economies and China. This means that the governments of these countries will be saddled with more debt as they’re faced with the need to take care of their growing pool of retirees and pensioners.

Although people are expected to work much longer than they previously did, companies will eventually lose increasing numbers of skilled, experienced workers while needing to market to an increasingly older consumer base. To adjust for these changes, companies must do two things: better engage with an aging consumer base and better integrate aging employees into the workforce.

Retirees tend to reduce their spending on housing, food away from home, and apparel but spend more on food at home, medical services, and — believe it or not — electronics. In particular, retirees are attracted to products that help them remain mobile and independent by supporting their health and wellness.

Companies can make minor tweaks in their existing products to capture this fast-growing market. For instance, the yogurt company Danone recently launched Densia, a product that strengthens bone density. Additionally, in 2013, Amazon launched the 50+ Active and Healthy Living Store, which offered nutrition, fitness, medical, and other targeted products for aging customers looking for ways to live actively and healthily.

Additionally, because of the breakdown of family structures, a lot of elderly people feel lonely and isolated and will pay a lot for services that help them meet others and feel part of a community. Thomas Cook launched Silver Breaks tourism packages, which appeal to affluent retirees with features such as easily accessible transportation, relaxed itineraries, and special food.

Companies should help their aging workforce build on their valuable experience with new skills, so they don’t lose motivation or become redundant as technology transforms their companies’ workforce needs. For example, the French company Axa offers staffers a job guarantee and vocational training if they decide to switch roles within the company. In the first few years of this program, 30% of its staff, including a large proportion of senior workers, switched jobs and got their “second wind” by embracing something new.

New Flows of Information, People, and Capital

For most of history, trade has flowed in two directions between major trading hubs, such as the trade routes between London and New York or Beijing and Los Angeles. Today, technology has decentralized international trade and commerce and caused it to grow exponentially. Global capital flows in 2007 were 25 times greater than they were in 1970, and people crossed borders more than a billion times in 2009, which is five times as many as in 1980.

People around the world work for multinationals — not at their regional headquarters, but from the comfort of their homes as remote workers or freelancers. Contracts, joint ventures, and other business deals are quickly developed and negotiated using low-cost communication solutions such as Skype. Further, RFID technology allows multinational corporations to track individual parts and components to optimize and coordinate research, development, and manufacturing processes between entities around the world.

In an interconnected world, companies must constantly improve their strategies based on the risks and possibilities associated with the increasingly complex and rapid flows of information, people, and capital. Leaders must understand that, although being able to source components, expertise, and logistical support from anywhere in the world can help companies lower their costs, it can also lead to very long, fragile supply chains. For instance, a 2008 earthquake in Japan made the semiconductor manufacturer Fujitsu unable to hit its production targets, which impacted tech companies around the world. But Fujitsu studied what happened and created greater redundancy across its manufacturing hubs. As a result, after another earthquake in 2011, Fujitsu was able to recover its production numbers in less than a month, and the tech manufacturing industry was less severely impacted.

Similarly, companies must look for international opportunities to put assets to their most productive uses. General Electric is partnering with the Millennium Challenge Corporation to provide $500 million in financing for the construction of a one-gigawatt power plant company in Western Ghana. Although the investment might be riskier than a comparable investment they could make in a more developed country, the return on investment could also be far greater.

Beyond putting tangible assets to good use, multinational corporations can use intangible assets, like knowledge and data, to participate in the flow of products and services outside of their core industries. Some companies do this for a profit, while others do it for philanthropic reasons. For example, Coca-Cola is using its market distribution expertise in sub-Saharan Africa to help nongovernmental organizations manage the storage and delivery of AIDS drugs in countries such as Tanzania.

A series of globally disruptive forces are fundamentally changing the economic landscape.

The quarter-century before the crash of 2008 was a time of unparalleled economic development. Interest rates were low; natural resources cheap; jobs plentiful and workers adequately employed.

But that phase is now over. Today, we’re entering a new phase, marked by four globally disruptive trends.

These trends are: a shifting focal point of economic activity and dynamism; an acceleration in technology’s scope, scale and economic impact; an aging global population; and a greater degree of connection through trade, capital information and people.

While these trends certainly present major challenges, they’ve also been the driving force behind pulling some one billion people worldwide out of poverty since 1990.

In short, increased connectivity and advances in technology have spurred economic growth. The shifting locus of economic activity as a result has meant more development in ever more remote regions, further ameliorating the burden of poverty in these areas.

This new world is thus going to be wealthier and more urban, with higher skill levels and better health than previous generations.

These four global trends interact in complicated ways, however, which makes predicting future conditions increasingly difficult. Not just that, but such forecasts are often based on past experiences and outmoded ways of thinking.

To succeed in this new world, we need to reformulate our prior notions about how the economy works.

For instance, supply and demand traditionally says that when demand for financing is high, capital becomes more expensive; and then, demand will abate. But now the opposite is true. Emerging markets the world over are rapidly building capital-intensive infrastructure and spurring demand, even though the cost of financing continues to rise.

But this is just one example of how old ways of thinking aren’t keeping up with changing conditions. Let’s take a closer look at today’s four disruptive forces.

Increasing urbanization across the globe will transform the world’s economic landscape.

Have you ever heard of Hsinchu? Few people have, yet this northern Taiwanese city is home to many of the world’s largest and most advanced electronics companies.

In fact, about half of global growth leading up to 2025 will originate in some 440 medium-sized cities in emerging markets – many largely unknown.

In the years between 1990 and 2010, the world’s economic center experienced a rapid shift, more extreme than in any other point in history, and this shift was directed east, toward Asia.

One reason for this shift was the crisis of 2008 and the subsequent global recession, which had a greater impact on Western countries. The shift also occurred astoundingly quickly.

While Britain, with a population of less than 10 million, took 154 years to double its economic output per capita, China took just 12 years to do the same, with a population of more than a billion.

Urbanization is one reason for this stratospheric growth. In just over a decade from now, China will have three times the number of urban dwellers as does the United States today.

The bottom line is that cities are powerful economic engines. At its core, a city is a productivity center that facilitates the rapid spread of knowledge and trends. A dense population means more exchange, but also often better infrastructure and stronger educational systems. Today’s cities are also attracting droves of talented, well-educated young people.

These elements taken together make cities ready-made creative laboratories for innovative companies looking to test new technologies, products and business strategies.

In fact, three-quarters of the gross domestic product gap between the United States and Europe can be explained by the fact that Americans are more likely to live in major metropolitan areas.

Yet urban areas also have their share of troubles, such as congestion, public services shortages and supply problems that can mean high costs for local operations. It’s factors such as these that make the port city of Luanda in Angola the most expensive city in the world.

Technology continues to evolve at a rapid pace, and companies need to keep up – or fail.

Technology is evolving faster and faster. In the 1990s, it took a team of scientists 13 years and $3 billion to sequence the human genome; today, one machine and $1,000 can do the job in a few hours.

It’s a fact that digitization and mobile internet access is fueling today’s technological revolution.

Digitization, or the conversion of information into 1s and 0s, has indeed made it easier to store, process and share data. Physical products such as books can now be converted into digital formats.

But digitization also reduces entry costs and in general lowers barriers to market participation, which allows more entrepreneurs and small companies to experiment and innovate.

The growth and ubiquity of the internet is changing the game, too.

Just consider the fact that 20 years ago, less than three percent of people in the world had a cellphone, and less than 1 percent had reliable access to the internet. Today, some two-thirds of all people own a mobile phone, and one-third can access the internet!

The revolution in technology has also meant that consumers are adapting to market changes faster than ever. Once Alexander Graham Bell invented the telephone, for example, it took some 50 years before even half of American households owned a phone. Yet a mere five years after the first iPhone was introduced, half of all Americans owned a smartphone.

In fact, technological revolutions are happening so quickly that companies which can’t keep up will struggle and potentially fail. One poignant example is the technology company BlackBerry, which failed to anticipate the smartphone revolution. So while a company’s first instinct when faced with rapid change might be to play it safe and let the dust settle, companies need to realize that they’re in a race against time – and the technology of today will be old news tomorrow!

The world is getting older while the workforce is shrinking, forcing the need for large-scale changes.

Would you want to live to be 100 years old? Given the rapid pace of technological development, you just might. Yet a world with a large elderly demographic will present many new challenges.

In 2013, approximately 60 percent of the global population lived in countries with fertility rates that were below the replacement rate – the rate that maintains a stable population, about 2.1 births per woman in developed nations, and 2.5 births in developing countries.

This trend means that a smaller global workforce will be reliant on increased productivity to keep driving growth to support a growing elderly population.

But a world with fewer workers and caregivers also makes elder care a question of technology. In Japan, for instance, robots now help elderly citizens dress themselves and go grocery shopping.

Over the next few decades, populations everywhere excepting certain African countries will reach peak population for the first time in the modern age.

Some nations may be able to support a declining workforce with an increase in immigration, like Germany is trying to do, but the elderly population will still grow as life-expectancy rates rise.

Even though this trend has been obvious for some time, governments, communities and even corporations have been slow to come up with ways to adapt.

Pension systems, as just one example, need to change to meet rising life expectancies, such as increasing the age of retirement – or many people will simply struggle to survive.

Employers for too long have focused on maintaining a younger workforce. Instead of seeing older workers as valuable experts, they’re viewed as a costly legacy. The elderly have been ignored as consumers, too.

So while senior citizens spend less on entertainment and eating out, they do spend more on home furnishings, medication and household electronics. Some companies however have rethought their strategy in tapping this market, like Fujitsu, which is developing a walking cane with a built-in navigation system.

Global interconnectivity is rewiring the world economy, giving small companies a global reach.

You might have studied abroad, or perhaps have close friends who live in another country. At the very least, you certainly have purchased a product that was made abroad. All these things are solid proof that the world is growing more connected every day.

In fact, trade between countries and continents is rising. For instance, while China and Africa booked $9 billion in trade activity in 2000, by 2012 this number had risen to $211 billion. But it’s not just trade that’s become more global; people, finance and data, too, are crossing borders.

Yet this increasingly interconnected world also means increased vulnerability. Shocks in seemingly remote areas, which decades ago would have caused less than a ripple in the global market, now have global repercussions. Unrest in the Ukraine or financial strife in Greece are just two examples of events that affect everyone, not just local citizens.

This is a result of trade and interconnectivity not simply growing but broadening and branching out to form a truly global web.

Money in particular is flowing across the globe; despite the 2008 financial crisis, global money transfers are still on an upward trend. Not just that, but people too are more connected globally. In fact, migration numbers in the 1990s doubled during the first decade of the twenty-first century, especially growing between developing regions.

And of course, the labor market is almost entirely globalized. But the most dramatic change of recent years is likely the speed at which information travels around the world.

For business, increased connectivity holds huge potential. That’s because global interconnectivity is opening up the market to greater competition.

One of the many examples of companies that have benefited from this new climate is German micro-multinational company Solar Brush, a Berlin-based start-up that designs lightweight robots to clean solar panels. Today the company has an office in Chile, and supports customers across America and the Middle East.

Without the connections and affordability of modern technology, such a nimble company could never have existed!

Success in the new economy means finding a way to attract a broadening consumer class.

It’s clear the world is changing. Thriving in the new global economy means living in reality, not the faded glory of the past. One thing that needs to be accounted for is the heterogeneity of the new global consumer class, which makes segmentation and localization more essential than ever.

In 1990, for instance, 43 percent of the developing world’s population lived in extreme poverty. Today 700 million fewer people live in poverty, and the consumer class has grown by 1.2 billion. These people are now online and purchasing items – yet don’t get distracted by the group’s sheer size.

While new markets are growing, they’re also fragmenting. That’s because there’s no quintessential global consumer – companies need to understand local markets. For example, the instant coffee Nestlé sells in China is sweeter than it is in the West; and while chewing gum company Wrigley holds a 40 percent market share in China, it didn’t earn it with its best-selling spearmint but with locally specific flavors.

An understanding of a local market is essential, but so is securing local channels of distribution. For instance, Coca-Cola makes sure to analyze and segment its range of retail outlets, from the biggest stores to bicycle-powered micro-distributors in Africa.

Companies also need to prepare for unexpected competition. In fact, with barriers to entry lowered due to technological advances, small companies everywhere have the chance to take on and beat world leaders. That’s exactly what happened to eBay when it fell second to Chinese-based Alibaba, which a mere decade ago was just a minor player in the Chinese online market.

Technology is also blurring business lines, fostering new competition. For instance, Netflix got its start using the internet to distribute content, acting like a video rental store. But as the company grew, it began to dabble in content production, an activity generally kept separate from distribution.

The result? Netflix today is a formidable content producer, competing with major studios for consumer attention.

Companies as well as governments have to see clearly to take advantage of new opportunities.

So you’ve seen how world markets are being shaken up, and that as a result, global businesses can run into trouble. But this shouldn’t scare you out of the game.

However, to stay on track and succeed it’s important to be clear about the risks and opportunities.

Many commodity prices are climbing as demand grows worldwide. At the same time, the global market for resources is growing more connected. Yet there are still other factors contributing to a steady rise in global prices.

Environmental costs are becoming increasingly an issue, as extreme weather due to climate change causes market disruptions and a subsequent rise in prices. According to the Brookings Institute, if the health and environmental costs linked to coal were taken into account, the price of the commodity would increase 170 percent!

So is there a way to manage these spiraling costs? By producing less waste, building better logistics networks and recycling used products, we can find new opportunities amid scarcity.

But governments will also have to remain vigilant and flexible in policy, as these issues too will affect labor markets, regulations and education. Only by being open and adaptive to change will governments find the right method to tackling the new world’s challenges.

In the future, governments should employ incentives to accelerate change, such as with the pressing need to address aging populations. Fair regulations should be crafted in direct response to these needs, to ensure that information flows easily and businesses are allowed to run smoothly.

Naturally, every country will need to find the right mix of strategies for its particular situation.

Estonia is a great example of a country that has harnessed information to increase productivity. The country’s 1.3 million citizens use electronic ID cards to vote, pay taxes and gain access to over 160 semi-private services, such as property registration.

Access to cash continues to be a challenge, so businesses need to get creative about financing.

Before 2008 when world markets were more stable, it was possible to make longer-term predictions. Unfortunately that’s no longer an option.

The demand for cash today is on the rise. By 2030, the world will need to spend some $57 trillion to $67 trillion on improving infrastructure such as roads, buildings, telecommunications networks, ports and water systems. However, it’s still unclear whether this money will even be available.

How can that be? Before 2008, cash was cheaper to acquire, yet today things have changed. Capital now is more expensive, which makes investing a challenge; and market systems in general are more volatile.

Yet since we can’t say whether we’re entering a period in which expansive monetary policies and the monetization of debt – tactics that have long been viewed as taboo – are going to become common practice, we have to prepare for both scenarios.

So thriving in this new environment means tapping new capital sources, including sovereign wealth funds such as the Abu Dhabi Investment Authority or the Korea Investment Authority, and dealing with market risks in a more flexible manner.

Another uncertainty is how jobs will develop. While many regions recovered from the recession, an increase in jobs didn’t follow. At the same time, higher-skilled workers are being replaced by technology.

As a result, our very definition of work is transforming, becoming more about what people do wherever they are and less about a fixed location.

But this changing definition brings with it a paradox: while we’re seeing a shortage of highly-skilled labor, we’re also witnessing at the same time a situation in which it’s harder for college graduates to find jobs.

Overcoming this will require companies to adapt creatively. That doesn’t just mean seeking out talent from overseas but also investing in education.

The automotive industry in the United States, as one example, has taken the initiative to train its own workers. The Automotive Manufacturing Training and Education Collective partners with car companies and community colleges to create courses designed with employers’ needs in mind.

Summary

Four Disruptive Forces

In the 21st century, four major trends are shaping the world’s economy and disrupting traditional business. To adapt, leaders must rethink decades-old assumptions about “consumption, resources, labor, capital and competition.”

The first trend is growing urbanization in developing nations, which helps shift the locus of economic power to the east and south. The second is the unprecedented speed of technological innovation and the way consumers are adopting it. The third is the aging of the world’s population, as businesses face older workers and consumers. The fourth is the reshaping of the world’s trade and information flow from hub-to-hub lines into a sprawling “web.” A lot of executive thinking on these subjects stems from “intuition.” Leaders must “reset” their intuition in light of these new realities.

Opportunities

Forward-looking leaders should view these transformative trends as opportunities, not threats:

1. New Urban Centers

Across the world, people are moving at an unprecedented rate from rural areas to cities in search of opportunity and the prospect of a better life. In China, where 400 million people eke out a living as subsistence farmers, the government engineers mass migration to urban areas. This rapid movement to cities is unfolding as China, Brazil, India, Indonesia and Russia are becoming major manufacturing centers. The world’s “economic center of gravity” is shifting east and south, reversing centuries of history. Until about 1500, the economic center straddled China and India. The Industrial Revolution moved that center to Europe, and then to Britain and North America. Economic reforms in the populous nations of Asia have triggered a new eastward shift – and by 2025, the center of gravity will be in Central Asia.

“The operating system of the world’s economy is being rewritten as we speak. It doesn’t come out in a splashy new release. It evolves, unfolds and often explodes.”

By 2025, nearly half of the world’s economic growth will come from emerging market cities that many Western executives may not yet be able to find on a map, such as Tianjin, southeast of Beijing. By 2025, Surat, India; Foshan, China; and Porto Alegre, Brazil will contribute more to global growth than Madrid, Milan or Zurich. Movement to cities raises living standards: Between 1990 and 2025, the world’s “consuming class” – those with disposable income exceeding $10 a day – will grow by roughly three billion people.

“Regardless of the course governments pursue…climate change is likely to make the supply and pricing of resources more volatile.”

Corporations need “city-level market intelligence” to understand the costs, demographics and consumption patterns of these burgeoning urban centers. Appliance maker LG, for example, sells refrigerators with larger vegetable compartments in India, but larger freezer compartments in Brazil. Nestlé makes its instant coffee sweeter in China.

2. The Increasing Speed of Technological Change

The computer printer appeared 500 years after Gutenberg invented the printing press. But 3D printers appeared only 30 years after the advent of the computer printer. Technological innovation accelerates, as does consumer adoption. Innovative technology changes the world in four broad ways:

1. “Changing the building blocks of things” – Human gene sequencing gets faster and less costly, leading to potential innovations in food and medicine. “Materials science” advances, transforming ordinary materials into “nanomaterials” with extraordinary properties of strength or elasticity.
2. “Rethinking energy” – Technologies such as fracking “unleashed a shale energy boom.” Renewable power, like solar, grows cheaper every day. Advances in energy storage could boost “battery-powered vehicles” and bring electricity to remote regions.
3. Putting machines to work for people – Robotics transform manufacturing, services and even surgery. Driverless vehicles revolutionize air and ground transportation. Today, 3D printers manufacture new medical and dental products and even artificial human organs.
4. Serving people’s needs with IT – More than a billion people use the Internet on mobile devices. “The Internet of Things” will continue to grow as manufacturers embed more data-collecting sensors in everything from machines to consumer goods.

“Technology is shifting the balance of power between large, established companies and smaller, nimbler start-ups.”

Companies can reap the benefits of these changes by strategically using their data to predict demand and manage inventory.

Monetize your digital content with new strategies such as “freemium” pricing, offering basic services for free and charging for premium options. Take advantage of the digital world’s “lower marginal costs” – low barriers to entry that make it possible to scale up quickly, as Snapchat did when it reached 400 million users within two years of launch.

“The balance of power of the world economy is shifting east and south at a speed never before witnessed.”

Look for technological innovators when hiring new talent, and don’t wait to bet on new technology. Google acquired Android in 2005 and YouTube in 2006, well before the benefits of those acquisitions became clear.

3. “The Aging World”

Countries around the world saw their populations rise dramatically after World War II, thanks to advancements in public health, such as vaccinations and lower infant mortality. The population of working-age adults grew quickly, as did their demand for homes, products and services.

“Business leaders need to start seeing these new urban markets as opportunities rather than risks…It’s the difference between playing offense and defense.”

As countries grow wealthier, their fertility rates decline. As living standards rise, people are more likely to use birth control and less likely to regard large families as an “economic necessity.” Nearly two-thirds of the world’s population lives in countries with fertility rates not high enough to make up for dying generations. Japan has the world’s oldest population; nearly a quarter of its people are older than 65. Germany could see its population drop 19% by 2060. Chinese citizens 55 and older will exceed 43% of the population by 2030, compared with 26% now.

“Companies will need to revisit their mind-set for making investment decisions so they can create more value over the long run.”

Between 2015 and 2030, the global working-age population will increase only half as fast as it did from 2001 to 2015. Growth in retiree populations will strain savings, stress pension funds and pressure government budgets. However, the world’s graying population also presents opportunities. Older workers offer companies a wealth of talent and experience. Some companies have created programs to allow retirees to return to work on a part-time basis; others threw out the age restrictions on their apprenticeships and training programs. Older consumers represent tremendous marketing opportunities, from tourism packages to refurbished iPhones that feature apps for seniors.

4. New Trade Pathways

In the 20th century, most global trade revolved around “hubs” in North America and Western Europe. Today trade travels through an intricate, interconnected global “web” through Asia, Africa, Latin America, Europe and the US. The spread of technology and growth of economies in the developing world spur this change.

“The number of likely retirees will grow more than twice as fast as the labor pool, leaving fewer workers to pay for the elderly.”

As recently as 1990, “the typical transaction might have been a Toyota Celica shipped from Japan to the United States.” Today a growing share of trade occurs among developing nations: soybeans travel from Brazil to Malaysia, or oil flows from the Congo to China. Capital also runs through this increasingly complex web. For example, a Chinese dairy company acquired a majority stake in an Israeli dairy cooperative, and Angola invested in Portugal’s banking and telecommunications systems.

“By 2040, China could have more dementia patients than the rest of the developed world combined. The world’s workshop…will in time become the world’s nursing home.”

As more of the world goes online, data travel through new global pathways. More than two-thirds of the world’s population has a mobile phone. By 2025, Africa could see its Internet users quadruple to 600 million, and its number of smartphones could increase fivefold – representing an enormous economic opportunity.

“The first step for all leaders is self-awareness. Understanding their own tendencies and biases…is fundamental if they are to effectively respond to change.”

Businesses must be alert for new markets and new competitors. Even start-ups can tap into online platforms for access to talent, funding and suppliers. Solar Brush, a start-up that developed robots to clean solar panels, has headquarters in Berlin, but keeps an office in Chile and also targets customers in the US and the Middle East. Even in the digital era, locate your physical operations where you can take advantage of the flow of “goods, services and finance.” For example, P&G and Rolls-Royce relocated major lines of business to Singapore.

“The transformation we’re living through has sometimes been likened to the Industrial Revolution. In fact, the Industrial Revolution pales in comparison to today’s convulsions.”

This new interconnectedness makes companies more vulnerable to sudden shocks from natural disasters to fiscal crises around the world. Companies should devise strategies to anticipate such crises so they can respond rapidly when necessary.

The “Ripple Effects”

As these four trends transform the world economy, businesses must be sufficiently nimble to anticipate and respond to:

• “Volatile resource prices” – Prices of energy, metals, food and water fell through most of the 20th century, owing to production progress. The growing, interconnected world reverses this trend, bringing rising demand and strains on supply. Environmental damage and changes come with significant economic costs: Floods and drought devastate agricultural harvests and drive up food prices. Governments may impose carbon taxes or controls on water usage, thus raising production costs. To navigate this uncertainty, companies should increase their energy efficiency, conserve water and take advantage of energy innovations such as “advanced battery technology.”
• Uncertain capital costs – The world’s aging population pushes savings rates down, and the developing world’s need for bricks and mortar drives up the demand for capital. This could lead to one of two scenarios: Capital costs will rise, or central banks may continue to intervene to keep interest rates extraordinarily low. In this uncertain environment, companies should pay close attention to “capital productivity,” through such tactics as “just-in-time delivery processes.” They should consider new sources of capital, such as “sovereign wealth funds” or pension funds.
• Labor market disruptions – As computers grow more sophisticated, they replace not only “clerical workers” but “knowledge workers” as well. By 2025, computers and robots could be doing the work of 215 million more people. At the same time, businesses are reporting talent shortages in IT, finance and engineering. Businesses must consider local talent pools when deciding on corporate locations. They should explore breaking up complex jobs, and peeling off less-technical tasks into new “middle-skill” specialties. And they should take an active role in education, such as forming partnerships with community colleges.
• The rise of new competitors – For decades, corporate giants competed in a “steady, slow-moving game”: Ford versus General Motors; Coca-Cola versus Pepsi; Burger King versus McDonald’s. Now, new competitive threats appear with little warning. TransferWise, a money-transfer start-up in the UK, took just four years to reach $1 billion in transactions, and it offers serious competition to traditional currency exchanges. Companies should monitor the competitive landscape, form “smart partnerships,” enhance their distinctive strengths and innovate. Technology should be at the core of corporate strategy.

The Public Sector Has a Role to Play

Given the shortage of high-skilled workers and the surplus of low-skilled workers, countries around the world must invest in secondary education. They should combat rising inequality through “widely distributed productivity growth” – investing in infrastructure and adopting regulations that support innovation. Nations have chosen different approaches to the size, structure and role of governments. What matters is that all governments become agile enough to respond to change.

“Much of what we thought we knew about how the world works is wrong.”

Focusing on the associated risks is part of the magnitude of current and upcoming changes, but those who understand these trends and “reset their intuitions accordingly” can shape the future and seize opportunities.

Conclusion

In this summary, you’ve learned about four forces that are transforming the global economy. These forces are linked to one another, and they amplify one another in ways that are hard to plan for. For instance, the changing center of gravity combined with technological acceleration made mobile phones more affordable to the growing middle classes in emerging cities in Brazil, China, and India. As a result, Brazil has become the second most frequently tweeting nation after the United States, and Facebook has acquired 100 million users in India. However, because Yahoo and Amazon didn’t manage to combine their understanding of economic forces with political and economic realities in China, both companies had to fold their expensive endeavors to engage with the growing middle classes there.

The shifts these forces are causing have never taken place before, so it’s impossible to know exactly which actions you and your organization should take to thrive in the next 20 years. But uncertainty is no excuse for pessimism or inaction. If you stay alert to what’s happening around you and continuously try new strategies, you and your organization might not only survive upcoming disruptions but create a world that’s better than the one you live in today.

The key message in this book:

The world economy is in transition. Poverty is decreasing and consumption is on the rise. These changes are throwing into question long-held assumptions about world markets and how they work. To adapt productively, companies, governments and individuals need to be open-minded and flexible.

Actionable advice:

Do your research before entering a new market.

Cities are rising centers of consumption, which means local research is more important than ever. So while consumption patterns in large metropolitan regions like New York or Mexico City are relatively similar, that doesn’t mean consumption in all American cities is comparable to all Mexican cities. Thus you need to do research as close as possible to the regional market you want to tap.

About the author

The authors are directors of the McKinsey Global Institute. Former Oxford professor Richard Dobbs co-wrote Value: The Four Cornerstones of Corporate Finance. James Manyika is a Brookings Institution senior fellow. Jonathan Woetzel teaches at the China-European International Business School and has written four books on China.

Richard Dobbs is a director of the McKinsey Global Institute (MGI). He has served clients around the world in a variety of industries, from high tech and financial services to petroleum, utilities, and the public sector. At MGI, Dobbs leads research on global economic trends, including urbanization, resource markets, capital markets, and productivity and growth, with a focus on Asia.

Jonathan Woetzel is a director of the McKinsey Global Institute. Based in China since 1985, Woetzel has been instrumental in the growth of McKinsey’s China office. He is a co-chair of the Urban China Initiative, a joint venture between MGI, Columbia University, and Tsinghua University that aims to develop solutions to China’s urbanization challenges.

James Manyika is the chairman and director of MGI and a member of McKinsey’s Board of Directors. At MGI, James has led research on technology, the digital economy, the future of work, and related global economic trends. James was also the vice chair of the Global Development Council at the White House during President Barack Obama’s second term and served on the Commerce Department’s Digital Economy Board of Advisors in 2016 and 2017.

Genres

Motivational, Entrepreneurship, Economics, Business, Technology, Sociology, Society, Management, Naval History, Science, Globalization, Strategic planning,

Table of Contents

An Intuition Reset 1
Part I The Four Disruptive Forces
1 Beyond Shanghai: The Age Op Urbanization 15
2 The Tip Of The Iceberg: Accelerating Technological Change 31
3 Getting Old Isn’t What It Used to Be: Responding to the Challenges of an Aging World 53
4 Trade, People, Finance, and Data: Greater Global Connections 71
Part II Intuition Resets
5 The Next Three Billion: Tapping the Power of the New Consuming Class 93
6 Reversing the Cycle: Resource Opportunity 111
7 End of an Era: Farewell to Increasingly Cheaper Capital? 131
8 The Jobs Gap: Overcoming Dislocation in the Labor Market 149
9 From Minnows to Sharks: Rise of New Competitors and a Changing Basis of Competition 165
10 Policy Matters: Challenges for Society and Governance 181
Concluding Thoughts 201
Acknowledgments 209
Notes 213
Selected Bibliography and Further Reading 253
Index 259

Review

No Ordinary Disruption is a book that analyzes how four major forces are transforming the global economy and challenging our conventional wisdom and intuition. The four forces are: the rise of emerging markets, the accelerating impact of technology, an aging world population, and increasing flows of trade, capital, people, and data. The authors, who are directors of the McKinsey Global Institute, use data, research, and case studies to illustrate how these forces are reshaping the world and creating new opportunities and risks for businesses, governments, and individuals. They also offer practical advice and tools to help readers adapt and thrive in this new era.

The book is divided into three parts. The first part, titled “The Four Forces”, explains each of the four forces in detail and how they interact and amplify each other. The second part, titled “The New Intuition”, explores how these forces are challenging our assumptions and mental models, and how we can develop a new intuition that is more aligned with the changing reality. The third part, titled “The New Agenda”, provides a framework and a set of questions to help readers assess the implications of the four forces for their organizations, industries, and countries, and to identify the actions and capabilities they need to succeed in the future.

The book is written in a clear and engaging style, with a lot of examples and anecdotes that make the concepts and trends easy to understand and relate to. The book is also well-researched and evidence-based, with a lot of data and graphs that support the arguments and claims. The book is not only informative, but also provocative and inspiring, as it challenges readers to rethink their strategies and assumptions, and to embrace the opportunities and possibilities that the four forces create.