Blog: You, us, everyone

Until recently, the economy was consumer product driven. Yet, ever since the beginning of the year 2000, technology, media, and telecoms (TMT) related spending has increased from 0.4% to 4.5% of total overall household income. Today, TMT related consumer spending (e.g. phones, TVs, mobile phones, Internet, PCs, and tablets) accounts for about 15%, while spending on basic goods (food, clothing, tobacco, etc.) accounts for around 11% of household expenditure.

The increased digital engagement of consumers will not only give the economy a new burst of momentum, but it also changes the nature of growth and the distribution of wealth. The coming IOT wave will change the nature of competition, allowing the most efficient companies to grow rapidly. Companies that can build their service offerings around maximizing the full potential of the Internet economy, (e.g. cloud computing, wireless communication, digital platforms, and big data analytics), will most likely tread a winning path.

Future growth opportunities will occur in the less capital and labor intensive business models. Google is one such example. It currently creates more profit than General Electric, and with fewer employees. Tomorrow’s business models will create less employment, will polarize labor forces between skilled and unskilled, and will consequently change the expenditure patterns of consumers.  The simple comparison between Google and General Electric in Table 1 is a good example.

A recent analysis shows that Western companies are well placed in the cloud-adoption race. About 55% of the enterprises studied have some kind of cloud-exposure, this figure increases to over 80% in the case of small-to-mid-sized enterprises.

New technologies will cascade through all markets and improve efficiency. Examples of how this might occur are shown in Table 2:

Table 2: The influence of new technologies in various sectors.

Given the list of activities affected in Table 2, consumers and businesses alike will benefit from lower transaction costs, lower purchasing costs, better visibility, and improved transparency for end-users. The benefits are particularly attention-grabbing for smaller operations which were so far geographically handicapped; they too can now compete and scale up their services to produce a worldwide offering.  

Wherever you look and whatever statistics you analyze, tomorrow’s customer requirements will be much more fragmented. Ultimately, more complex and more tailor-made portfolios of products will be targeted to meet the customer’s needs. Compared with smaller organizations, who are by definition, more specialized and able to act on an ad hoc basis, bigger organizations face much more of a challenge here, as they will be required to widen their product portfolios to adapt to the new individualized demands of their markets.

A key example is the financial sector; with. the most notable illustration currently occurring in the asset management industry. Up to now, most institutions have offered some kind of asset management service. This is usually marketed as a variety of products (available in the different reference currencies and with various layers of restrictions). Yet, in essence, products are generally centered around 5 categories, from very conservative to very dynamic. The digital transformation will allow the industry to offer each individual their own tailor-made strategy. What was in the past prohibitive from a cost point of view, is now possible.

Committing resources to build such infrastructure is obviously important and can, especially for smaller IAMs, cause some budget constraints. However while the initial cost may be significant, committing to this path opens up a path for long-term benefits to flow, as Internet and big-data driven asset management functions will play in sync with administrative, sales, and marketing tasks and enable organizations to achieve new levels of efficiency. We believe that the growing number of smaller online-based asset managers is a positive indication that these units will at some point become micro-multinationals. Going digital neutralizes the disadvantage smaller IAMs had in the past as they will be able to manage their value chain more efficiently, increase customer loyalty through tailor-made strategies, cover a wider geographical area, and finally, offer better service at the same prices as elsewhere without compromising their own profitability.

Today, the traditional asset management industry is strongly tethered to a highly work intensive sales process that seems unshakable. Productivity and profitability are more often dependent on the nature of the personal relationships between the institution and its clients. The relationship managers tending the relationship are the physical facilitators and a lot currently comes down to their dispositions, yet in the future this part is most likely going to be automated. The open-ended business model now available through the IOT-technology challenges models that keep value-chain activities in-house. Questioning their own value-chain activity and how it’s delivered to the client is probably the first step firms should take to avoid total disruption.  

The past 30 years, or so, has been a time of extraordinary economic expansion and tremendous wealth creation. This was achieved thanks to the computerization of existing business processes and mass-standardization of products. During the same period, the world’s population grew and people’s average life expectations extended well beyond the historic figures. This coupled with the provision of social welfare in the developed markets has meant that a larger number of people have been lifted out of poverty.  

One problem with this lies in the fact that world population growth is limited and combined with longer life expectancy, it is limiting growth in the working-age population (more and more of present cash flows are engaged to cover future liabilities). Furthermore, recent advances have considerably improved the comfort of living, yet without substantially changing the way resources are consumed. According to an analysis conducted by the MGI overall worldwide GDP growth for the decades ahead is expected to decline by 40% from its present 3.8% to 2.1% due to negative demographic tailwinds and lacking innovation.

This process comes at the cost of the middle class. Only the countries in which companies are constantly innovating and delivering high value-added products, will have the capacity to maintain their standards of living and a fair distribution of wealth.

Without significantly rethinking and boosting innovation in everything we make, mobilizing labor forces worldwide, and using the few limited resources we have on Earth to create a virtuous circle, the growth story will come to an abrupt end. The IOT will allow us to keep the world’s growth story intact, but will it also allow for fair wealth distribution?