10 innovations that will reshape business
By FT writers
Published: February 26 2010 16:26 | Last updated: February 26 2010 16:26
1. Blue-sky computing
The hot topic in technology in the past few years has been the emergence of “cloud computing”. But what
exactly is this new development and how will it transform our lives?
There are two parts to understanding the platform. The first is to do with processing power and data storage, which have been moving away from individual computers into massive, centralised datacentres. This is bringing industrial scale to number-crunching – and is making it possible to unleash supercomputing power
on everyday tasks: analysing a city‟s traffic patterns, for example, to predict where jams will crop up.
The second part lies in the billions of intelligent personal devices – think smart phones and netbooks –
capable of plugging into this centralised computing resource via the internet. That means individuals (and not just companies or governments) will be able to take advantage of these information “clouds”.
So where does this lead us? Two broad predictions spring to mind. One is that making so much information and processing power available at very low cost will produce new breakthroughs. Science, for instance, could be revolutionised, as researchers gain access to previously unimaginable amounts of data and develop ways to cross-refer between disciplines.
The second prediction is that personal computing devices will become super smart as they are able to draw on the intelligence of the “cloud”. Already, Google is talking about adding instantaneous voice translation to its phones.
The big changes represented by these computing shifts may not be complete by the end of this decade – but
they will be well under way.
Richard Waters, San Francisco bureau chief
2. Work longer, work older
This decade will see older people working longer. That‟s not surprising. In addition to governments from Britain to Greece raising the retirement age, low interest rates and the death of defined benefit pensions mean many people will not have enough money at age 65 to enjoy their sunset years. They will be forced to work to make ends meet.
What I find interesting – and what could change the face of business – is that they may prefer to do that
working for themselves. A recent study from Standard Life suggests that one in six Britons aged 46-65 hopes to embark on a new business venture rather than retire. This is seven times the number of possible start-ups from their parents‟ generation – and could amount to a million new businesses in the UK.
Their experience, wisdom and connections will be their secret weapons. But they‟re also likely to have more time and money to spare than current entrepreneurs. The typical age today for someone to start his own business is between 30 and 45. Inconveniently, this is also when you‟re likely to have young children and a mortgage. “Olderpreneurs”, meanwhile, will often be close to seeing off these responsibilities – as
well as eager for ways to stay in touch with people from all generations, as customers, partners, suppliers or perhaps staff.
I predict many great companies will be started in the next few years. The 50-plus generation could well kick-start the recovery.
Luke Johnson writes an FT column about entrepreneurs, and runs Risk Capital Partners, a private equity firm
3. Information does have a value
If there is one orthodoxy of the past decade that the media industry has reason to curse, it was born when Stewart Brand told the 1984 Hackers‟ Conference that “information wants to be free”.
People still disagree about what Brand actually meant – and many of those credited with promoting the
“free information” idea have since disavowed it – but the phrase has given intellectual cover to everything
from music piracy to the notion that not paying for news is an immutable culture of the internet.
Back when people still talked about the “information superhighway”, they scoffed at the idea of it being impeded by toll booths. Online advertising – new and improved – was supposed to cover information
owners‟ bills. But just as the gleaming freeways of the US‟s postwar heyday are now potholed and crumbling, the content free-for-all has eroded media companies‟ business models and risks overloading
Now content owners from magazine publishers to pay-television broadcasters are wondering why they put all their trust in a single advertising revenue stream.
It is time to revisit Brand‟s full quote: “On the one hand, information wants to be expensive, because it‟s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.”
Too often in the century‟s first digital decade there was no fight at all, but now the information-wants-to-be-expensive mantra is gaining the upper hand. Publishers have pushed Amazon.com to raise prices on eBooks, Apple‟s “app economy” is allowing even those with free websites to charge for
applications for iPods and iPads, and The New York Times is following specialist titles such as the FT and The Wall Street Journal in charging for news online.
To consumers used to enjoying a free ride, this sounds ominous. On the other hand, we‟ve just spent a
decade gorging ourselves on too much content of little nutritional value. Expensive content may prove higher-fibre. Indeed, the free-content movement distracted an industry from considering which content is worth paying for. Focus more on the latter, and there is a chance to improve on a dire decade.
To Brand‟s maxim, let‟s try a new one for the coming decade: content wants to be valuable.
Andrew Edgecliffe-Johnson, US media editor
4. Greed isn‟t as good as we thought
Back in the 1980s, the economist Al Rappaport captured the spirit of the times by devising a new goal for the corporation: the maximisation of shareholder value. The measure of a CEO‟s achievement was the total return achieved for shareholders during his tenure.
Bill Allen, Boeing‟s legendary leader from 1945 to 1968, once described his company‟s ethos like this: “To eat, breathe and sleep the world of aeronautics.” By 1998, the CEO there saw it differently: “We are going into a value based environment where unit cost, return on investment, shareholder return are the measures by which you‟ll be judged,” said Phil Condit.
This was happening across industries. Britain‟s ICI offered a lofty description of its ideals in 1987: “ICI aims to be the world‟s leading chemical company … [enhancing] the wealth and well-being of our
shareholders, our employees, our customers and the communities which we serve and in which we operate.” But, by 1995, the threat of a hostile bid galvanised the management, and the company declared:
“Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world competitive cost base.”
And it happened across borders, too. When John Reed and Sandy Weill, Citigroup‟s joint chief executives
in the late 1990s, described the purposes of the newly merged conglomerate‟s objectives to a journalist, Reed, the cerebral traditionalist banker, said: „The model I have is of a global consumer company that
really helps the middle-class with something they haven‟t been served well by historically. That‟s my vision. That‟s my dream.” Weill, more attuned to the spirit of the times, interrupted Reed. “My goal,” he said, “is to increase shareholder value.”
It would all end in tears. Under Allen, Boeing came to dominate the aircraft business; under Condit, the company not only lost its market leadership to Airbus but was mired in scandal. The new value-maximising ICI attempted to rearrange its portfolio of businesses, but failed: its share price went into steady decline and a decade later the company was no longer an independent entity. Weill pushed out Reed, only to become the victim of a series of reputational problems that later hit the company. By 2008, almost all the shareholder value in Citigroup had been destroyed.
Enron, the paradigm of the new corporate model, went spectacularly bust in 2001. In 2008, the collapse of Lehman Bros, a company intensely focused on profit, nearly brought down the global financial system. These failures that bracketed the past decade have a lesson for leaders in the next one: to focus single-mindedly on profit is to risk losing the opportunity to make any profit at all.
John Kay, columnist
5. Energy sources get smarter
We‟re already seeing some of the ways energy sources will change in the next decade. Smart meters, for example, which give consumers and utilities alike detailed information about energy usage, are not only being backed by Barack Obama, but are due to replace existing “dumb” meters in the UK and Australia in
the next few years.
That means you‟ll soon be able to see how much energy is being used in your home, and how much money being spent, via a detailed, appliance-by-appliance break-down – letting you adjust heating and lighting
Smart appliances, meanwhile, will communicate with the grid; so a clothes dryer might shut off during peak, high-tariff hours, and on again when energy gets cheaper. Utility companies themselves could chip in by automatically turning down air conditioning a notch during times of peak demand.
We‟re also seeing the advantages of light-emitting diodes as replacements for the old Edison-stlye
incandescent bulbs (and the newer energy-saving fluorescents). While incandescents generate heat to produce light, LEDs create it from the movements of electrons on silicon chips. The light is more natural, can change colour, can be more precise and is instantly dimmable.
This decade will see cities replace street lighting with LEDs that last longer (by years) and can intelligently dim themselves when there is no traffic, reducing energy use and light pollution. With 20 per cent of the world‟s electricity demand coming from lighting, LEDs‟ ability to cut energy use by 75 per cent could have
a dramatic effect on CO2 emissions.
Energy sources could also change, especially when it comes to small devices. Free energy can be harvested from sources such as body heat or radio waves from mobile-phone towers and wi-fi. Just rolling the trackball on a BlackBerry-type device to scroll through e-mail will be enough to generate power and boost battery life in the future.
Chris Nuttall, technology correspondent
6. Generation Xers come into their own
In the late 1990s and early 2000s, the usual rules of workplace seniority did not seem to apply to workers in their twenties and early thirties. The dotcom boom was empowering this cohort of youngsters – sometimes
known as Generation X – to seize status and wealth with astounding precocity. The dotcom bust exposed that trend as an illusion, forcing the upstarts to serve their time in junior roles. An end to the punishment is in sight, however. Now in their thirties and early forties, many Xers should reach the apex of their power between 2010 and 2020, according to conventional wisdom that suggests white-collar workers peak in their late forties and early fifties (the average FTSE 100 chief executive is 52).
What will this mean for corporate life? Often viewed as ironic and detached, Gen X workers are not the most obvious leaders. But according to Tamara Erickson, author of What‟s Next, Gen X?, this lack of ideology might be an asset in solving modern challenges (it helps, she says, that they understand gender and racial equality better than their elders). Will their relaxed attitude also help them cope with workplace disappointment? It‟s possible, after all, that the baby boomers will hang on to power, keeping Gen X in a Prince Charles-like holding pattern.
And then there are the people nipping at Gen X‟s heels. Enviably at ease with digital technologies,
members of Gen Y have little love for hierarchy. The downturn has left many of these whippersnappers more whipped than snappy. When – or if – they bounce back, their needs will complicate life for Gen X
during its final push up the greasy pole.
Adam Jones, senior companies reporter
7. Gain from the pain of failure
Failure has always been a fundamental part of a market economy. When markets work, they do so because new ideas are constantly being tried out. Most fail. Those that succeed cause older ideas to fail instead. In the US, about 10 per cent of businesses disappears each year. This is an awkward insight – but trial and
error could be starting to take its rightful place as a business technique, rather than the dirty little secret of capitalism.
There are some hopeful signs. Stefan Thomke of Harvard Business School has argued that advances in computation have made it possible to experiment on new products as a matter of course, trying many things and expecting many failures. It is now easy, for example, to experiment with changes in the layout of a website, showing different configurations to different visitors and tracking results in real time. Google, meanwhile, routinely launches new products with a “beta” label on them. And academic superstars such as
Steven Levitt, co-author of Freakonomics, have been teaching executive courses in business experimentation.
We are also starting to learn more about the psychology of learning from mistakes. Richard Thaler, the behavioural economist behind Nudge, coined the phrase “hedonic editing” to describe our habit of lumping small losses together with larger gains in order to mask the pain of the loss. Sugar-coating is human, but it‟s
also a recipe for failing to learn from failure. Thaler, with colleagues, even studied the behaviour of contestants on Deal or No Deal. He discovered that people who had made unlucky choices then started to take reckless risks, which often compounded the error.
It‟s hard to learn from failure if it briefly robs us of our judgment. As we start to understand why trial and error is so painful a process, we may be able to use it more constructively. The financial crisis has made us aware that a system that cannot tolerate a bit of failure is a dangerous one. The idea that an institution was “too big to fail” used to sound reassuring. Not any more.
Tim Harford, Undercover Economist
8. Do more with less
The inevitable triumph of the Bric countries – Brazil, Russia, India and China – has become almost a
commonplace observation in business. Even if a few too many exotic chickens are being counted before they have hatched, the threat represented by these and other emerging countries is changing the way established businesses in mature markets think. There‟s a wave of powerful new competitors on the horizon who can price their goods and services at startlingly low levels. Incumbents are going to have to get more efficient and increase their productivity. That‟s why you can expect to hear incantations of this management
mantra over the coming years: do more with less.
Nor is it just competition from developing countries that has sparked the idea. In the context of the debate over environmental sustainability, companies will have quite literally to produce more while using less of the planet‟s finite resources.
And it is not just a private sector story. Deeply indebted governments will also be seeking to squeeze public sector workers. Politically, it is vital that essential public services are maintained and even improved. And yet it is equally clear that budgets are going to be cut. Serious attempts will be made to square that circle.Is doing more with less an impossible task long term? Not necessarily. Usually a better way of doing things can be found. New technology usually makes new approaches possible. And human beings can be very adaptable.
And yet it is clear, too, that an endless demand that we produce more with less could prove damaging. It might lead to a world of “permawork”, where our mobile gadgetry is not only always on, but always being
used. The quality of work produced under these circumstances is unlikely to be uniformly high. The drive to achieve more may prove self-defeating.
Stefan Stern, management writer
9. Jump on the hedge
Financial innovation has become a dirty phrase lately because of the role of complex securities – packages
of mortgages and other liabilities – in the credit crunch and ensuing financial crisis. But the dirty secret is that if western economies are to recover properly, the funding will have to come from the markets. And such will be the competition for cash that some projects are likely to create fresh innovations to attract lenders.
One of those innovations is the risk transfer. A hot trade before the crisis, it is already returning. Robert Schiller, professor of economics at Yale, published a book in 2003 that proposed new financial instruments for individuals that would enable them to lay off, or “hedge”, the risks they run by trading contracts – a bit
like how banks, companies and fund managers traded credit derivatives in the past decade. Worried, for example, that your chosen job track might not yield the sort of mid-career salary you‟d like in 10 years?
Create a contract in which you‟re paid a certain sum if your income falls below a set level.
Investors, Schiller promises, will be interested in making bets on this sort of thing. Indeed, these markets are being created for big organisations today. Take snowfall futures, designed so that cities or companies get a pay-out if winter snowfall turns out to be worse than expected. And just last month, a group of banks, pension funds and insurers announced they were developing a new market for longevity products – the risk
that people live longer than expected.
Doesn‟t this seem a terrible idea, given where the trading of risk landed banks in recent years? Schiller argues the credit crisis merely shows that “much more work needs to be done to democratise finance. The crisis occurred because the principles of financial risk management were not being applied to the widest possible population.” Come one, come all – companies, governments, citizens: roll up for some risky
Jennifer Hughes, senior markets correspondent
10. Deliver us from shopping
Just as the arrival of self-service shelving transformed the physical layout of shops in the past century, online shopping will do so in this one. Already we‟ve seen internet shopping become a competitor to bricks-and-mortar stores. Now it will reshape them.
At Wal-Mart, for instance, more than 40 per cent of the online orders on the retailer‟s website are sent for pick-up at a local store, as customers seek to avoid the costs and timing uncertainties of home delivery. In response, the retailer is testing drive-through pick-up options and redesigning stores to include pick-up counters at the front. In the UK, Tesco has similar arrangements (though no drive-throughs yet).
Sears Holdings has taken things even further at a pilot store outside Chicago called MyGofer, where four-fifths of the floor space is backroom storage, and one-fifth open to customers who can pick up pre-ordered items, or use computer terminals to order what they want in store. Sound a lot like Argos? Here‟s the twist: Kmart is also trying to persuade other retailers to use its stores as a central pick-up location for goods ordered online. Retail industry analysts speculate that even the purely online Amazon might eventually want to set up pick-up locations.
The web will also change what‟s on the shelves. A customer standing in a store and armed with a smart phone can call up comparative prices from rivals – unless the item in question is only available at that
particular store. So there will be more pressure on retailers to get selective deals with leading brands – or to
develop their own-label versions of everything.
Jonathan Birchall, US retail correspondent