First came steam and water power; then electricity and assembly lines; then computerisation… So what comes next?
Technologies are emerging and affecting our lives in ways that indicate we are at the beginning of a Fourth Industrial Revolution, a new era that builds and extends the impact of digitisation in new and unanticipated ways.
The Fourth Industrial Revolution is the combination of digital technologies including analytics, artificial intelligence and the internet of things and will affect most aspects of life today, with the potential to disrupt every industry in every country.
As the combination of these digital technologies becomes widely adopted, we stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation could be unprecedented.
Every past technology wave ultimately produced more jobs than it destroyed and delivered important gains, from higher living standards and life expectancy to productivity and economic growth.
During both the First Industrial Revolution and the Second productivity boomed. Starting around 1870, these two revolutions sustained a Golden Century of progress.
The Third Industrial Revolution arrived, ushering in the Information Age. World-changing innovations emerged in computing, the internet, mobile communications, and much more. However, the productivity engine stuttered. In fact, since 1970, productivity growth has fallen to roughly one-third the rate of the previous 100 years. It is believed that the Fourth Industrial Revolution could bring a productivity boom.
During the Golden Century of 1870 to 1970 four physical infrastructure technologies provided the underlying foundation for growth: energy, transportation, health and communication.
Now emerging digital equivalents align the four technology foundations of the Golden Century:
– Digital energy: combining smart power grids and smart meters into platforms that dynamically match energy generation and demand from both new and traditional sources.
– Digital transport: moving people and goods across oceans, skies, and land autonomously.
– Digital health: remotely enabling connected healthcare from anywhere.
– Digital communication: connecting billions of people and devices, allowing them to interact in new ways.
Mass adoption of these digital foundations will lead to digitalised production; where cloud computing and 3D printing enable almost real time production anywhere.
5G and cloud technologies will underpin and accelerate the digitalisation of industries.
Wide 5G trials are taking place this year that could lead to full commercial deployments in 2019. The U.S., China, Korea, and Japan are at the forefront of these efforts.
The speed of current breakthroughs has not been seen before. With billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, the possibilities are unlimited. And this will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.
Already, artificial intelligence is all around us (see Artificial Intelligence – the Most Transformative Technology of the Century).
Computing power combined with the collection of vast amounts of data is already being used to discover new drugs and to develop algorithms to predict future events and interests.
As with the revolutions that preceded it, will the Fourth Industrial Revolution raise global income levels and improve the quality of life for populations around the world?
Technology has made possible new products and services that increase the efficiency and pleasure of our personal lives. Ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film, or playing a game—any of these can now be done remotely.
In the future, transportation and communication costs will drop, logistics and global supply chains will become more effective, and the cost of trade will diminish, all of which will open new markets and drive economic growth.
At this time there is much debate regarding the net effect on jobs. As automation substitutes for labour across the entire economy, will the net displacement of workers by machines cause major disruption of the global labour markets or will it result in a net increase in safe and rewarding jobs.
History suggests that the outcome is likely to be a combination of the two, and in the future, talent will represent the critical factor of production. There are many predictions and estimates on how this will affect labour markets, but one thing is certain – the jobs we do, and the skills we need to perform them, will change rapidly.
A recent McKinsey report estimated that by 2030 at least one-third of the activities of 60% of occupations could be automated. This means that globally up to 375 million people may need to change jobs or learn new skills
This will give rise to a job market increasingly segregated into “low-skill/low-pay” and “high-skill/high-pay” segments, which in turn will lead to an increase in social tensions. The result is a job market with a strong demand at the high and low ends, but a hollowing out of the middle. Inequality has led to political upheaval in recent years from Brexit to Trump, increased division cannot be a good thing.
Discontent can also be fueled by the pervasiveness of digital technologies and information sharing typified by social media. More than 30 percent of the global population now uses social media platforms to connect, learn, and share information. This can also create and propagate unrealistic expectations as to what constitutes success as well as enable the dissemination of extreme ideas and ideologies.
That said, new technologies are generally seen as powerful agents for good. Current innovations can create a true global village, bringing billions more people into the global economy. Technology can bring access to products and services to entirely new markets. It can give people opportunities to learn and earn in completely new ways as they see potential for themselves that wasn’t previously there.
The impact on business
Businesses will need to develop a strategic plan to improve processes, drive down costs and make the most of data.
Across all industries, there is clear evidence that the technologies that underpin the Fourth Industrial Revolution are having a major impact on businesses.
Disruption from agile, innovative competitors who, thanks to access to global digital platforms for research, development, marketing, sales, and distribution, can compete against well-established incumbents faster than ever.
New patterns of consumer behaviour (increasingly built upon access to mobile networks and data) are examined by companies so they can adapt the way they design, market, and deliver products and services.
Technology platforms lower the barriers for businesses and individuals to interact and transact.
The Fourth Industrial Revolution will raise customer expectations, product development, collaborative innovation, and the flexibility of companies. New technologies make assets more durable and resilient, while data and analytics are transforming how they are maintained.
The Fourth Industrial Revolution will also profoundly impact the nature of national and international security. The distinction between war and peace (think cyberwarfare) is becoming uncomfortably blurry.
The impact on people
We should remember that all industrial revolutions are ultimately driven by the individual and collective choices of people.
The Fourth Industrial Revolution will change our sense of privacy, our notions of ownership, our consumption patterns, the time we devote to work and leisure, and how we develop our careers, cultivate our skills, meet people.
On privacy, the use of data to make our lives easier is generally accepted. However, as the recent Cambridge Analytica scandal has shown us, there is a line that cannot be crossed if the data relates to sensitive areas – how we vote, health issues, sexual orientation etc.
So how can investors make money from the 4th Industrial Revolution?
The largest beneficiaries of innovation tend to be the providers of intellectual value and capital—the innovators, shareholders, and investors.
Markey leading companies don’t last as long as they used to, and the survival rate is decreasing over time.
According to research by Oxford Leadership: “in the last 60 years, the average lifespan of a large organisation has dropped from 60 to just 18 years”. The Harvard Business Review reports that: “the percentage of companies falling out of the top three rankings in their industry increased from two per cent in 1960 to 14 per cent in 2008”.
As with past Industrial Revolutions, there will be major beneficiaries. Although the winners will all claim to own highly disruptive technology; that alone is not enough. In any fast changing and developing market, companies still need a strong management team that can demonstrate the adaptability the market will demand, be aware of competing technologies, embrace continual development of their products and most of all have a highly scalable business model. See 7 Keys to Success for Growth Companies
CSS Partners, like many other VC firms, will be hoping to identify and back companies that have the potential to become integral in the fourth industrial revolution and ride the wave of change that is coming.
CSS Partners has raised over £165m for entrepreneurial companies since 2001. To learn more about how we enable private investors seeking higher capital growth to invest with confidence in smaller companies click HERE.
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Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.