The digital revolution is accelerating at an unprecedented pace – there will be more change in the next 20 years than in the last few hundred. And companies that are inwardly focused on their financial performance will find themselves out of business.
That’s the stark warning from Tata Consultancy Services (TCS) Futurist Goran Karlsson who says that companies who fail to keep up risk facing extinction. But the opportunities for those who embrace change are enormous.
“The biggest challenge businesses have is those who promote the status quo,” he says. “If you go through each great company that has fallen out of the Fortune 500 in the last 20 years, they have all been out-competed by someone that sort of disrupted the way they were doing business.”
Faster and faster
To give some idea of the pace of change, consider this: it’s projected that 40% of today’s Fortune 500 companies will cease to exist within 10 years. At the current turnover rate, 75% of the companies in the S&P 500 in 2027 will be companies that are not in the index today.
In the past 55 years, the average tenure of a company on the S&P 500 shrank to 18 years from more than sixty. During that same period, the rate at which companies lost their leadership position within an industry rose 39%.
Even so, digital innovation is forecast to spawn 7,000 companies valued at more than $1 billion and 45% of Fortune 500 companies will come from emerging economies by the middle of the next decade.
Karlsson argues that some of the most vulnerable are those who have innovated in the past and whose products then came to dominate markets. It’s what he calls “the innovator’s dilemma.” Do they defend their invention or recognize that its time is past and innovate again?
At the same time, the world is opening up, it’s becoming more global, says Karlsson. Businesses now have opportunities in markets they could not previously serve. The flipside is that they also face new competitors who have access to their traditional markets, and the falling cost of technology allows those entrants to create solutions at speed.
A spur to innovation
These challenges are driving innovation as companies realize they need to create ecosystems with partners and even one-time competitors to leverage new opportunities. Here, Karlsson says, Amazon sets a good example. By building customer knowledge from the data it gathers, the online retail giant offers unique insights to the partners who use its platform.
By sharing this knowledge, Amazon creates an experience that matches customer needs with providers, while at the same time generating significant revenues for itself as well as the members of its ecosystem.
Looking back over the history of human progress, Karlsson says the key accelerator of change is access to information.
“Knowledge was not democratised or liberated before 300 years ago,” he says. “It was something that only a few people had access to – a monopoly that prevented humans from developing. It’s good that we now can distribute knowledge because knowledge is everything that keeps humans in shape.”
What the printing press started, the internet has accelerated massively by creating a connected society and ushering in an age of shared knowledge and the dispersal of power. Karlsson says even our systems of government will need to change to keep pace with the rate at which technology is advancing.
The threat of analysis paralysis
The biggest risk to companies is inertia, he says. Business leaders are so focused on hitting their financial targets that they avoid investments which might secure their future.
“Typically, they are only focused on their balance sheet and they’re focused on meeting the next quarter and the quarters thereafter,” Karlsson says. “Most of them would say no to an investment that could fuel a decade’s worth of growth if that meant that they will miss the next quarter.”
His message is simple: Companies must embrace risk if they want to create exponential value. Some of the world’s most famous companies have failed to innovate and are no longer around. As Karlsson puts it, even the safest houses will fall unless they embrace change.
Göran Karlsson is a Futurist with TCS helping leaders to understand the opportunity landscape and best practices around adoption of AI and the “future of work”.