The next industrial revolution
has, in fact, already begun, and it will dwarf the previous industrial
revolutions in both size and speed. Managing businesses in this revolution will
be hard. Managers who can adopt the necessary new methods will achieve
breakthroughs in efficient use of resources, seize tomorrow’s biggest growth
opportunities, and create the companies that lead the global economy for the
next century.
Combining information
technology, nanoscale materials science, and detailed understanding of biology
with industrial technology and infrastructure yields substantial productivity
increases. Embedding high-productivity economic growth in the developing world
to support the 2.5 billion new members of the middle class presents the largest
wealth creation opportunity in a century. Capturing these opportunities
requires a new approach to management. We recognize the challenges ahead. On
its current course, the world sees stagnating economic growth, accelerating
commodity price inflation, increasing pollution, political gridlock, and the
return of the frictions among powerful nations like the United States, China,
Russia, India, and Germany.
Many people, companies, and
even nations will try to resist the new industrial revolution. The resource
revolution required a new approach to management : rather than labor and capital productivity now
resource productivity comes first
Economically, geologically,
and environmentally, unconventional oil and gas resources proved much less
risky than other oil and gas production technologies. Adam Smith’s classical
work on economics, Wealth of Nations (1776), defined three major inputs for
business: labor, capital, and land. But neither of the first two revolutions
focused on Smith’s third input: land and natural resources.
Zero-waste manufacturing is
becoming the norm among major U.S. automakers. Already, with Zipcar, drivers
can rent cars on a cheap, subscription basis rather than buy a
capital-intensive asset that is parked the vast majority of the time.
In the first industrial
revolution, which began with the steam engine and ran from the late 1700s
through the mid-1800s, 13 percent of the world’s population industrialized
(Western Europe).
In the second industrial
revolution, 16 percent of the world industrialized for the first time (the
United States, Canada, Australia, Russia, and Japan). This time, 37 percent of
the world’s population will industrialize for the first time (mostly China and
India and other parts of Asia and South America).
Roughly 130 million people
benefited from the first industrial revolution. This time, the number will be
2.5 billion. That’s almost twenty times as many people—meaning twenty times the
stress on resources. Before the first industrial revolution, the daily energy
usage of someone in the middle class pretty much consisted of the food he
consumed, or some 2,000 kcalories. Today, a member of the middle class uses
more than 200,000 kcalories of energy a day, including gasoline for cars, electricity
for lighting, natural gas for heating, and so on. Do the math: With twenty
times as many people demanding one hundred times as much energy and resources,
a smart manager can argue that the new demands about to be placed on the
world’s resources dwarf those from the first industrial revolution by a factor
of 2,000.
Change is happening far
faster, too. The U.K. needed 150 years for its GDP per capita to double in the
first industrial revolution. The United States needed fifty years in the second
industrial revolution. China’s GDP per capita has doubled in less than fifteen
years.
Agriculture will require more
water, land, and energy. A calorie of beef requires 160 times more energy to
produce than a calorie of corn. So, meeting the rising expectations of the new
middle class for protein will require either a major increase in land, water,
and energy productivity or a sharp dietary shift away from animal proteins that
we have not seen with previous increases in income. Reserves are getting more
expensive to extract. Businesses need to focus on increasing productivity as a
core element in reducing pollution.
Malthus argued that the
growing population would overwhelm the world, leading to widespread famine.
Smith argued that businessmen could adapt and innovate rapidly enough that
productivity could increase faster than consumption. Where Malthus saw
disaster, Smith saw opportunity.
The first industrial
revolution radically improved labor productivity, as workers moved from the
fields to the factories and as the steam engine allowed a factory worker to
perform the work of many men. Emphasis on increasing labor productivity has
continued ever since.
In the second industrial
revolution, massive amounts of capital were invested in manufacturing facilities,
skyscrapers, mechanized machinery, railroads and bridges, and so on.
We are
encouraged that the next round of innovations, from 3-D printing to distributed
solar, building controls via iPhones, and shale oil and gas innovations, have
much lower capital costs per unit and are significantly more accessible to many
more individuals, enabling individual productivity growth to accelerate over
time. We are moving away from the era where large corporate or government
balance sheets are required to fund power generation, manufacturing, and
transportation. Increasingly, specialized companies and even individual
entrepreneurs can combine information technology with industrial technology and
insight to invent new business models like Airbnb or Zipcar. Indeed, many of
these innovations are being pioneered in parts of the world where the classical
centralized power grid or transportation infrastructure have not yet been
established.
THE FIRST INDUSTRIAL REVOLUTION: STEAM SUPPLANTS SWEAT
Commonly known as the Industrial
Revolution, that revolution, which would move from Britain to the United States
and continental Europe, generated a tenfold increase in productivity that
reshaped the global economy, created untold wealth, and redefined the basics of
business. Watt’s steam engine also led to a new model for business: the limited
liability corporation, which was developed specifically to support the capital
formation necessary to deploy the steam engine and its progeny. A single
technology like carding made relatively incremental difference in output. But
combine it with spinning, a governor, and direct-drive steam power and the
market enjoys a “step change.” Adding standardized piecework, multiple shifts,
and large factories with multiple machines began to produce order-of-magnitude
changes in output and productivity. In the days of a guild, the limiting factor
was availability of skilled labor: Apprenticeships ran five to seven years. But
a factory could be set up in less than a year and new workers trained in weeks,
not years.
THE SECOND INDUSTRIAL REVOLUTION: URBAN GRIDS
Additional population growth
is only one part of the massive change in infrastructure that overtook cities.
Building materials changed from wood, which had caused massive fires in 1835
and 1845, to low-cost, high-strength steel by the end of the century. Steel
also allowed the development of low-friction bearings for machinery and enabled
lower rolling resistance for trains running on steel rails, compared with
wooden cart wheels running over bumpy roads. Sewage was captured and sewers
were put underground. All buildings got access to running water, and dangerous
cesspools were filled in. Lighting changed from wood, kerosene, and candles to
electric lights, making homes safer and extending productive time for everyone
by hours. Electricity also enabled the development of the assembly line, as
Henry Ford took his experience at Detroit Edison, where he had worked for
Thomas Edison, and applied it to making a production line move.
Second industrial revolution
also brought significant changes to management principles, corporate entities,
and capital formation, irrevocably changing the balance of power between
people, governments, and corporations. The second industrial revolution created
trusts, the first national corporations and then multinational ones, and
corporate banks. As companies grew larger, they needed to adopt formal,
scientific approaches to management. Accounting standards were developed. Frederick
Taylor conducted his famous time-and-motion studies to optimize manufacturing
processes. Alfred Sloan laid down the principles of managing a large
multibusiness corporation to make it possible to run a company the size of
General Motors. Corporate R&D became a focus for the first time, because
companies could now surpass what individuals could do on their own. In broad
terms, the second industrial revolution and the massive, capital-intensive
businesses it produced led to the command-and-control structure that defines
the modern corporation. The second industrial revolution gave us the modern
world.
The urbanization crisis was
largely solved, doubling life expectancy while allowing for huge improvements
in levels of education and raising the standard of living to heights that would
have been unimaginable to even the wealthiest people in the 1870s. Some current
projections are for population growth to stop altogether by 2050 at around 9.6
billion. Battles over oil, water, and food are the inevitable consequences. Rapid
commodity price inflation acts as a regressive tax, increasing income disparity
and slowing economic growth. The future is here, it’s just not evenly
distributed.
Those that win will be the
companies that not only take advantage of emerging technologies but that
combine them with managerial innovations that follow in the tradition of the
factory, the assembly line, and other breakthroughs from the first two
revolutions.
THE INDUSTRIAL
REVOLUTION TRIGGERED BY THE STEAM ENGINE offered enormous business
opportunities and potential for wealth creation, while also killing off
companies and industries that could not keep up.
THE DRAMATIC
IMPROVEMENT IN LABOR PRODUCTIVITY also brought increased power to capital
owners and established the limited liability corporation. THE WAVE OF URBANIZATION AND ELECTRIFICATION at the turn of the twentieth century created equally large productivity opportunities.
THESE INNOVATIONS HELPED CREATE GLOBAL CORPORATIONS that have prospered for a century and banks to support and fund them, making capital deployment substantially more productive.
BOTH REVOLUTIONS UNFOLDED OVER SEVERAL DECADES and required many additional innovations in manufacturing, metallurgy, management systems, and selling approaches to ensure a business could scale.
BOTH REVOLUTIONS ALSO INITIALLY CAUSED A COMMODITY price spike, as demand for steel, copper, food, etc., outgrew traditional production methodologies, but eventually increased welfare as newer, higher-productivity automated methods took hold.
WE ARE NOW FACING A THIRD such commodity spike driven by the rise of cities and the number of middle-class citizens in emerging markets.
WE ARE CONFIDENT A STEP CHANGE in resource productivity will not only allow the economy to work its way through the resource challenges but deliver new opportunities for creating wealth and cementing the position of leading companies for the coming decades.
The United States is on a path
potentially to pass Saudi Arabia as the world’s largest oil producer within a
decade and is now exporting refined petroleum products for the first time since
World War II. On current course, the United States will not need to import
crude oil after 2020 from outside North America. This unconventional oil growth
will reshape global trade patterns, almost eliminating energy trade across the
Atlantic. Because 60 percent of the U.S. trade deficit is oil imports, the
United States is on a path to dramatically improve the national trade balance
and energy security. Energy-intensive manufacturing of steel, glass, aluminum,
etc., which had been fleeing the United States because of cheap inputs and
cheap labor overseas, may start to move back to North America to take advantage
of inexpensive gas and power. Additionally, expertise must be developed in
other countries before they can begin fracking their own sources.
Improper drilling and water
disposal practices can cause earthquakes, though companies that adjust their
drilling patterns to avoid local seismic faults should make the phenomenon
rare. Mitchell and his team integrated software and other information
technology with traditional tools, producing an enormous increase in
productivity. Crucial technologies are already out there—fracking had been
around for decades before Mitchell figured out how to make it work for shale—if
only we can learn how to see them. In the third industrial revolution, rapid
change is a constant; upheavals happen quickly and frequently.
Companies that make continuous
reinvention into a core mission will stay ahead of the curve. Some research
from a professor at Arizona State University that looked into how to motivate
people to use less electricity. He had hung flyers on people’s doors in San
Diego encouraging them to use a fan rather than air-conditioning at night. None
of the messages worked—except for this one: “Did you know that most of your
neighbors choose to use a fan at night?” Opower finds that it can get consumers
to cut electricity consumption by more than 2 percent just by giving them
feedback using available data and providing a few suggestions on how to make
saving energy easy. This may sound less consequential than the shale gas
revolution, but a 2 percent reduction nationwide would eliminate the need for
some 130 power plants. The rise sent the price of power up around the country
and sent utilities (and their regulators) on the hunt for new approaches to
save energy.
Casting as wide a net as
possible, Laskey used some political connections to get a hearing with state
officials in Texas, Opower now reports on electricity usage to more than 10
million households, just in the United States. They say they have motivated
people to save some 2 billion kilowatt hours of electricity, or about $250
millions’ worth. Rather than creating
and marketing hardware to consumers of energy, Opower’s business model focuses
instead on marketing software to utility companies, the producers of energy.
Opower has been able to scale quickly through a lean-operations approach by
avoiding expensive hardware, instead utilizing less-capital-intensive software.
Opower describes its ability to reduce energy consumption and generate revenues
as a “double bottom line”—making money while helping the environment. Opower
exemplifies three of the fundamental principles of resource productivity:
virtualization, optimization, and waste reduction.
MITCHELL ENERGY
SHOWS THE GREAT OPPORTUNITY TO EXPAND SUPPLY.
OPOWER
DEMONSTRATES THE ECONOMIC ATTRACTIVENESS OF DEMAND REDUCTION. The consumer
benefits from both expanded supplies and reduced demand.TODAY, INNOVATIONS OFTEN INVOLVE COMBINING traditional industrial technologies with new software tools that can scale rapidly.
THESE INNOVATIONS OFTEN REQUIRE NEW BUSINESS MODELS to work at scale.
THE RESTRUCTURING COSTS ARE HIGH when the market gets surprised by a major innovation that changes the economics of a process by a factor of five to ten—those who don’t see the new wave coming can go bankrupt quickly.
Five principles are the first
areas a company should look at when thinking through how to win the resource
revolution. Those five principles are:
Finding opportunities to
substitute away from scarce resources.
Eliminating waste throughout
the system, from production through end use. Increasing “circularity”—upgrading, reusing, or recycling products.
Optimizing efficiency, convenience, safety, and reliability.
Moving products, services, and the processes that develop or deliver them out of the physical world and into the virtual realm.
As physicist and
environmentalist Amory Lovins has pointed out, less than 1 percent of the
energy in a tank of gas really goes toward moving the passenger from point A to
point B; the rest is lost in heat, tire wear, and moving hunks of metal and
air. Most of us own a car mainly to park it 96 percent of the time. Cars are
typically the second biggest capital expenditure we make—the first is buying a
house—yet they spend almost their entire lives sitting at home or in parking
lots. Roads are likewise extremely inefficient. A freeway operating at peak
throughput of 2,000 cars per lane per hour is less than 10 percent covered by
cars. This translates to 4 to 5 percent of the time that roads reach peak
throughput if there are no traffic jams. These problems aren’t the kind that
can be solved by investing in new equipment or making workers more productive. BMW
and Daimler have started car-sharing programs and publicly said they are
transportation companies, not car manufacturers.
A start-up, Sensity, says it
will take advantage of the upgrade of incandescent streetlights to more
efficient and longer-lasting LED, and will offer municipalities the opportunity
to include sensors in the new streetlights that will monitor and report on the
availability of parking spots on streets. Carbon fiber will be used instead of
steel because it is far stronger and lighter, allowing longer driving range and
better acceleration. Electric motors may substitute for the internal combustion
engine in massive quantities.
Unlike humans, who learn
primarily from their own experiences, the artificial intelligence software in
the Google car learns from every experience of every car. Through
virtualization, the driverless car could increase productivity in all facets of
car use. Far fewer cars would be needed, because they would stay in constant
use rather than being parked 96 percent of the time. If the cars demonstrate
that they can greatly reduce crashes—Google predicts that accidents will drop
90 percent—then many of the safety systems and much of the weight can be taken
out of cars.
Most trips are one- or
two-person journeys, so far fewer large cars would be needed. If Google is
right that its car can reduce accidents by 90 percent, that would mean more
than 30,000 lives would be saved in the United States every year. More than 2
million people, just in the United States, wouldn’t have to go to emergency
rooms because of traffic accidents; and $260 billion would be saved, according
to an American Automobile Association study. People would also gain ten
additional “days” per year—the time we now waste in traffic jams. Fewer roads
would need to be built, because cars would travel more closely together. Many
self-driving cars would just head off to pick up another passenger.
There would, of course, be
losers, too. Companies that build cars and build and service roads would see
business plunge. Many car insurance companies would go out of business. Who
needs liability insurance if there aren’t any accidents? And how do you steal a
self-driving car? Similarly, many body shops would go out of business; the
primary repairs would be for things like hailstorms and foul balls from
baseball games. Governments, which are already losing revenue as vehicle miles
traveled decline and reduce the taxes paid on gasoline, would lose more
revenue, because traffic fines would disappear—all cars would obey all laws; at
the same time, governments would also need fewer police officers on the road
and would need less jail space, if only because drunk drivers would no longer
be an issue.
SolarCity’s market cap of more
than $3 billion makes it one of the most successful solar energy companies to
date.
The company’s innovation:
Rather than ask customers to front the money for solar panel installations,
SolarCity handled the financing. It charged an electric rate that was well
below what customers had been paying but that covered the cost of the panels,
installation, and financing, while providing a healthy profit.
Tesla began with the idea that
inexpensive electricity could substitute for gasoline as the primary fuel for
cars. Electric motors reach full torque almost instantly and don’t need to warm
up, so Musk could provide sports-car-like acceleration even in his family
sedan. Electric motors are 95 percent efficient (compared with 40 percent for
the most advanced internal combustion engine). Electric motors are far quieter
than internal combustion engines, and Musk designed a nearly silent ride. Musk
provided an entertainment system with an exceptionally bright and clear 17-inch
touch screen. It’s rarely possible to get the full benefit of a substitution
just by taking out one piece of the puzzle and plunking in another, He put the
batteries down low to get the center of gravity closer to the ground, improving
handling and safety. Rethinking the design from the ground up enabled Musk to
take advantage of the next principle on our list: waste reduction. Replacing an
internal combustion engine with electric motors can give the manufacturer a car
without engine cooling, transmission, and most of what’s under the hood, but
with better acceleration, better handling, and better safety. Tesla is the
first car that doesn’t require maintenance to keep its warranty. He developed
sophisticated software to control charging and discharging, battery pack
temperatures, and charge levels to optimize efficiency and significantly extend
the lifetime of the battery. Tesla is also building a network of Supercharger
stations around the country—using solar power whenever possible—that are free
for Tesla owners. Musk created a recycling program for Tesla’s battery
packages, allowing for much higher reuse. Tesla’s biggest innovations may be in
its system and network optimization, whose effect on performance and waste
reduction we’ve already described. While cars that just add a battery to an
existing design find the new feature can degrade performance, Tesla’s focus on
optimizing the whole system has translated every element into an advantage that
increases performance. Tesla increased virtualization with a live cellular
connection to each car that means Tesla can upgrade key software systems
remotely. The maintenance network also receives data from the cars. Batteries
take far longer to recharge than the time it takes to fill up a gas tank—four
to twelve hours on an AC charger or thirty minutes to two hours on a DC
charger. Since the first Roadster came off the production line in 2010, more
than 10,000 Teslas have been sold, and the cars have become status symbols in
Silicon Valley and other wealthy precincts.
SUBSTITUTION
The guiding principle for
substitution: Look at every single resource a company uses in its core products
and every single resource that customers use or consume, then look for
higher-performing, less expensive, or less-scarce materials that might work as
substitutes. Dermal denticles that mimic shark skin have produced quieter
submarines and faster swimsuits. Natural processes are also typically
reversible, meaning materials can be recovered or reused.
ELIMINATE WASTE
While labor productivity has
improved almost 100 percent over the last two decades, resource productivity
has increased only 5 to 10 percent—and it’s not because there isn’t room for
improvement. One surfactant manufacturer we worked with found that only 10
percent of the energy it used actually went into making its products. The rest
was wasted in heating, cooling, and reheating the same equipment. The reduction
in energy usage cuts costs considerably, because energy is the second-largest
cost component in steel, after raw materials. In our experience, manufacturers
have the opportunity to reduce energy usage by 30 percent and materials used by
a further 30 percent, greatly improving economics. In eliminating energy or water
waste in production, the best approach involves assessing how much energy or
water is used throughout the entire process versus the amount actually required
at each step—often, the amount of energy used is more than twice what is
technically required. It’s also important to think beyond production when
coming up with ways to reduce waste. Products can be redesigned, sometimes at
fundamental levels, to cut waste.
Kaiima is going even further
and trying to reengineer the very biology of food crops. One challenge is that,
given current climate conditions, the world grows corn better than most grains.
If Kaiima succeeds, grains will require less water, land, and energy, while
providing more variety and nutrition, all of which will be vital in a world
with so many more people consuming at middle-class rates.
Kaiima, an Israeli company
whose name means “sustainability” in Aramaic, has already produced varieties of
castor beans that increase the yield of feedstock per acre for biofuels by a
factor of three to four. The company is aiming for a tenfold improvement.
In 3-D printing, there is zero
waste: While 3-D printers initially only worked with plastics, they can now
“print” in steel, titanium, gold, and other metals. Measuring input materials
and energy and water, comparing them to the delivered product, and
understanding all the waste factors in between: scrap, idle machines,
changeover time or other interruptions, and so on.
INCREASE CIRCULARITY
Aluminum shows how powerful
recycling can be—and how disruptive for those who aren’t prepared. Reuse and
recycling can create enormous profits. Recyclers can purchase scrap input at a
fraction of the cost of new materials. Shipping costs also fall
because scrap contains so much less waste than ore.
OPTIMIZATION
There are inefficiencies
everywhere in the use of resources, which are just waiting to be solved. Many
airlines now pool resources at hubs and provide each other spare parts. UPS
reduced fuel consumption and improved safety and speed by rerouting its trucks
to avoid left turns. The U.S. Air Force has found new ways to have planes fly
in convoys, like geese flying in a V. Pilots also needed some training not to
override the autopilot manually.
INCREASE VIRTUALIZATION
Sure, a company is happy to
interact with clients and customers via e-mail and video conference to make
interactions more efficient, and a company is happy to automate the mechanical
aspects of interactions. But companies generally don’t like to see core
activities move into the virtual realm, because revenue always seems to drop
more than costs do. Teenagers have shown a declining interest in driving,
according to statistics on the age at which Americans get their first license,
and the speculation is that the ability to connect via Facebook, Google+, and
other social media is one reason. Skype and other video-chat software further
reduce the need to drive somewhere to see someone. Work is gradually becoming
more virtual as people telecommute more often.
Blue, the CEO of General
Atomics, had a thought: What would happen if military aviation could become
virtual? What if he could take the pilot out of the plane? Not only would the
pilot’s weight be taken out of military planes, but so would everything needed
to support him—the oxygen system; the instrumentation; everything needed to
provide the space for him to operate; safety and escape systems; and even some
of the defense mechanisms, given that a less-expensive, pilotless plane
wouldn’t need to be protected in the same way as a plane with a pilot. Taking
out so much weight and eliminating so much space wouldn’t just make the plane
lighter; the changes would mean that the pilotless plane could stay aloft far
longer, carry more fuel or weapons for a given airframe and engine, or have a
much smaller radar cross section. Conventional wisdom was that a drone would
take five years and $1 billion to build, but General Atomics spent just $20
million and six months to develop a prototype using a lawnmower engine. Drones
have changed the nature of warfare. The U.S. military uses inexpensive drones
to attack targets inside Afghanistan and Pakistan. A drone could easily perform
maneuvers that no manned plane could make. Today, with pilots controlling
drones remotely from bases in the United States, the air force is reluctant to
expand the use of drones because of the vulnerability of communications links
to jamming or manipulation.
American Airlines pilots are
now carrying flight records, navigation maps, and manuals on an iPad,
eliminating a 35-pound bag, saving cockpit space, and reducing fuel use by $1.2
million. E-filing tax returns has reduced the costs of processing and record
storage while improving the accuracy and speed of refunds. Interchangeable
parts revolutionized manufacturing at the end of the nineteenth century,
allowing mass production. Similarly, software has demonstrated accelerating
rates of innovation because each new software developer can use and reuse
modules of code developed previously.
THERE ARE HUGE
OPPORTUNITIES TO SUBSTITUTE away from scarce resources. Companies can ask
themselves, for example, how to take 80 percent of the weight and cost out of
an existing product.
WASTE CAN BE
ELIMINATED throughout the system. What will it take to reduce energy use in a
company’s manufacturing processes by 30 to 40 percent? Where are there
opportunities to cut water use by 80 percent or more?CIRCULARITY CAN BE INCREASED. Where is the next opportunity to mine gold from waste? Where can companies convert equipment sales to services?
VIRTUALIZATION CAN EXPAND SIGNIFICANTLY. What is the next opportunity to take drivers out of machines to increase safety, reliability, and productivity? What else can be done faster remotely and with more expertise?
NETWORK OPTIMIZATION applied to industrial equipment offers significant savings.
The notion of
interchangeability can be applied not just to cars and appliances but to entire
buildings, factories, work processes, and even infrastructure systems, through
the use of modules and standard interfaces that allow both physical objects and
processes to be, in essence, snapped together. It is this idea that forms the
core of Java, known as “object-oriented programming.” Each “object” is a module
that communicates what its job is. Other objects don’t need to know how that
module does its job. This idea has an enormous effect on productivity. First, a
programmer writing a new app for the iPhone doesn’t need to reinvent any of the
functions that already exist, such as displaying on the screen, locating via
GPS, or sending a text message. Instead, the programmer can draw on all the
other objects that already exist. Second, if, say, someone comes up with an
object that performs calculus faster, that new object can replace the old one
without requiring any other change on the iPhone app or any other device. The
interface is standardized.
In the physical world of tools
and construction, a benefit of standard interfaces is that, when one part or
module breaks, it can simply be replaced or repaired without affecting anything
else. In China, Zhang Yue is using aspects of the DIRTT approach for its
boldest application yet and could set a major precedent for China, which has
the world’s largest urbanizing population and faces immense pressure to
construct large numbers of buildings quickly. Zhang, the founder and CEO of
Broad Sustainable Building, came to buildings as an engineer, not an architect.
In 2008, he began experimenting with prefab construction that makes buildings
faster and cheaper to design and build, while saving enormous amounts of water
and concrete. Now, BSB has a large factory for Lego-like steel and concrete
modular blocks. They come with ducts and wiring built in and are hoisted into
position on site, where they are connected with standard fasteners. In 2011,
BSB built a fifteen-story tower in Zhang’s hometown, Changsha, in thirty days. Sky
City will be the tallest building in the world, at 838 meters (more than twice
the height of the Empire State Building). Sky City will house 30,000 people and have 104
elevators, a hotel, a school, and a massive entertainment and sports complex,
plus stores and restaurants. Similar to DIRTT, which figured out a way to mount
irrigation systems and plants onto a wall panel, the exterior walls of Sky City
will act as farmland and grow plants and food. Zhang intends to
earthquake-proof Sky City for a 9.0 earthquake.
In the Middle Ages, the
Venetians built their naval power on interchangeable parts. They not only had
the largest fleet of their time but could rapidly build, repair, and train
crews for ships built of standardized parts, using a standard frame that saved
both wood and time in construction.
Companies that failed to meet
expectations were said to be Amazoned because Amazon made it so easy to buy
books, so easy to provide feedback, and so easy to get recommendations on other
books to buy that the company raised the standards for everybody. We now live
in an iPhone world, and every company needs to live up to the expectations that
Steve Jobs created: a world of intuitive interfaces and robust capabilities.
Every good manager needs to ensure that all the software on the system is the
absolute best. As companies add software capabilities to their core products,
they will find that they can—and must—make products as upgradeable as possible.
The progression from hardware to software to remote upgrades is available to
far more companies today. In this environment, managers must:
INCREASE
STANDARDIZATION AND MODULARIZATION, making interchangeable parts for the
twenty-first century.
FIND NEW WAYS TO
DELIVER improved capabilities to customers without relying on the old product
architecture.USE NEW MATERIALS, design techniques, and software analysis.
APPLY SOFTWARE AND ALGORITHMS AND AUTOMATION both “inside” the product and also to the value chain of making, delivering, and servicing—improving product performance and reducing weight and cost.
ALLOW THE PRODUCT TO BE UPGRADED consistently over time, opening up the potential for more software-as-a-service delivery models.
Internet of Things. To this
point, the Internet has mostly allowed people to communicate with each other
and to interact with other devices by, for instance, visiting websites. Increasingly,
though, devices are going to talk to each other without the need for any human
involvement. Because of the Internet of Things, machines will all be able to
talk to one another, and there will be billions of sensors and cameras joining
the conversation. The possibilities for efficiencies and for new products and
services are exceptional.
Putting new dongles on old
systems can actually make performance worse. Done right, system integration can
mean that 1 and 1 equal 11. Done wrong, integration can turn 1 and 1 into zero.
Although system integration is hard, there are three things each company can do
to greatly increase the odds of success:
Recognize the scope of the
problem.
Bring in people with
experience. Model whenever possible, then test.
Engineering marvel of the
twentieth century, but the basic technology of the grid has changed little
since the time of Edison and Westinghouse. The average circuit is forty years
old, and some are more than a century old. The grid is showing its age. New
air-conditioning systems can similarly use evaporation to cool buildings
instead of the compressors that make current air conditioners so noisy. Such
compressionless air-conditioning systems may reduce the use of electricity by
50 percent or more, The grid will need almost to be redesigned from scratch to
get the full benefit of the new types of transformers, the capability to sense
problems and solve them automatically, the ability to essentially have little
power plants on millions of rooftops as solar prices keep coming down, and so
on. Regulators will need to be partners on this journey with the utilities. To
integrate all the aspects of the grid, utilities will need to invest heavily in
software and control systems, or they’ll be swamped. Utilities and their
suppliers will need to collaborate much more than they do now. The magic of
Wi-Fi is that standards were established early on so that every person and
device can talk to every other person and device.
Retailers will need to do a
better job of keeping the right sizes, styles, and colors on their shelves to
boost sales and eliminate waste. Hospitals must become much more efficient at
handling patients with different symptoms, different conditions, and different
doctors.
As more solar power is
generated from the rooftops of homes and offices, utilities will need to be
both big buyers and big sellers of power. Utilities will need to charge for
backup capacity rather than kilowatts. The bar-code scanner readings enabled
retailers to more accurately gauge customer demand and forecast and react to
changes. The ability to replace meter readers with automated systems pays for
the installation of the new equipment, but the major impact is increasing grid
reliability while decreasing the operating costs and capital requirements for
the grid.
Companies can fail when
consumers or governments aren’t ready for a particular resource innovation. To
get the most out of resource innovation, companies must focus relentlessly on
system integration. That means:
INTEGRATING
INDUSTRIAL EQUIPMENT into digital networks boosts throughput, yield, and
efficiency.
STANDARDS FOR
INTEGRATION ARE ESSENTIAL for ensuring network stability and increasing
economic returns.OPTIMIZING NETWORK PERFORMANCE. By understanding how the pieces in a network work together, efficiencies can be maximized.
MODELING OVERALL SYSTEM PERFORMANCE as much as possible, and coordinating with other participants in the system.
TESTING, TESTING, AND TESTING—nothing gets in the network unless it makes the other pieces better.
LOOKING AT NEW BUSINESS MODELS, integrating software and services with traditional equipment businesses.
Enter the market too soon, and
it won’t know what to do with the innovation. Too late, and others will have
locked up the market. The classic large company response of “buying the way in
later” won’t work when transitions are fast. The new entrant’s valuation and
multiples may make them too expensive to acquire. That science consists of
three parts. First, when thinking about timing, it’s crucial to be thinking about
products that mark a breakthrough, not just incremental progress. Second, it’s
important to understand that change in demand will almost certainly come in a
burst once a threshold is crossed. Third, it’s crucial to start investing well
before that threshold is likely to be hit, both to be prepared and to provide a
margin for error in case the market shifts sooner than expected.
The iPod actually cost more
than the Walkman it was replacing, but it was more portable, more reliable, and
more flexible and had dramatically more content easily available for play. Falling
prices can actually slow adoption.
Why buy today when the product
will be much cheaper in six months? When consumers consider adopting a new
technology, they won’t necessarily do so even if it’s clearly better. They want
to see multiple options, to increase their comfort, and be sure they can find
the version of a product that is just right for them.
Generally, if a payback can’t
be provided in less than two years, consumers and many companies won’t be
interested. Beyond understanding the customer’s desires and behavior, it’s
important to look across the board—at the supply chain, at the retail channel,
and at any government regulations. Energy efficiency products show what can
happen when a technology is mature but the supply chain and regulations don’t
line up.
The problem to be solved is
still in the basic-science stage; it hasn’t reached the engineering world. Green
Revolution produced major gains, with the fertilizer revolution at the
beginning of the twentieth century and then, starting in the 1960s, better seed
technologies and improvements in irrigation. But those gains have now run their
course, and far more is needed to feed the billions who will enter the middle
class by 2030 and who will want not only more food, but better food. The
prospect of widespread water scarcity compounds the pressure on agriculture to
produce productivity breakthroughs.
Because of the uncertainty, a
rule of thumb is to start investing two product cycles before a product will
likely hit the mass-market threshold by providing that 50 to 80 percent
improvement, achieving customer readiness, etc. Product cycles vary: Phones are
on about a six-month product cycle, while cars are still on a seven-year cycle.
The incandescent lightbulb is,
in fact, a very inefficient technology. Roughly 95 percent of the electricity
that goes into a bulb is emitted as heat, not light. In addition to the heat
problem, lightbulbs don’t last very long. The answer, as has been clear for
some years now, is the light-emitting diode, or LED. LEDs require only 10
percent as much electricity as incandescents to produce the same amount of
light. LEDs generate almost no heat. LEDs can deliver much better color quality
than both incandescents and compact fluorescents. They can last twenty to
thirty years—in fact, they don’t burn out; they just eventually dim.
SUCCESS IN A
RAPIDLY CHANGING MARKET requires getting the timing right.
UNDERSTANDING
LEARNING CURVES is essential in order to predict the disruptive potential of
new technologies. By quantifying learning curves, managers can identify the
threshold where a product goes from being an incremental luxury good to
something every customer wants.THIS USUALLY REQUIRES A 50 TO 80 PERCENT IMPROVEMENT in cost and performance in comparison with incumbent technologies—just getting a little ahead is not enough to drive substitution.
MANAGERS SHOULD SCALE THEIR PRODUCT when economics allow something like a two-year payback period—if the period is longer, the market will spend time on other products.
INVESTMENT SHOULD BEGIN TWO PRODUCT CYCLES before the mass-market threshold is expected to be reached.
THE MAJOR SUCCESS OCCURS when the new attributes for the product become apparent, moving beyond just substitution.
To get innovation to scale,
companies have to think explicitly about the problem. That may sound obvious,
but many people miss this part. They focus so much on figuring out technology
that they don’t pay enough attention to whether it can operate at scale. Lots
of things work on the lab bench but not in the factory or in the market. Even
if something is truly cool, it doesn’t count unless it can be done at the scale
of billions and trillions. Once they identify the issue, companies have to do
three things to succeed:
Make it easy for customers to
switch. The personal energy required has to be low, and the benefit has to be
obvious. Focus on the whole ecosystem.
This includes a hard look at manufacturing, which can be a thorny problem. It’s
not enough just to focus on a product; it’s crucial to understand whether the
supply chain can provide the necessary commodities, parts, or services. It’s
necessary to figure out ahead of time how to sell and service a product.
Provide
a committed champion, the kind of leader who will stick with problems and carry
an innovation all the way to market. “Customers are used to buying power, not a
power plant,” says Edward Fenster, one of the two CEOs at SunRun, a solar
company based in San Francisco. These companies have gone from being makers of
products to being providers of services. The breakthrough was to relieve the
individual homeowner of the burden of ownership of expensive machinery. Just
because our homeowner has a solar unit on the roof of his property doesn’t mean
he needs to own it. Instead, he’s buying a service, sort of like leasing a car,
except he’s paying for electricity. Getting to market with an innovation,
already difficult in traditional technology, is that much more difficult for
resource technology. Customers shouldn’t have to change anything about their
behavior to use the new product or service, even if the underlying technology
has changed radically.
A Tesla isn’t mainly an electric
car; it’s a sexy car that happens to be electric. Likewise, LEDs don’t just
save money because they use less electricity than incandescents. LEDs also need
replacement far less frequently and can be easily managed individually and
remotely. Solar companies backed by recent venture capital have focused on new
cell structures and materials they could patent.
The best predictor of success
is not actually the performance of the best cell, which tends to be the focus
in the lab but says little about what performance can be reliably generated at
scale. The best indicator is the variability of output—that is, the ratio
between good and bad cells and the difference in power output between the best
and the worst. To win the race for scaling, companies must begin with rapid prototyping.
Lab scale to pilot scale, pilot scale to commercial scale, commercial scale to
world scale. Companies also must design for manufacturability. Simple designs
that are easy to repeat are much more sustainable—cheaper to manufacture,
easier to maintain, simpler to recycle at the end of life.
In addition, supply chain
management must be integrated. The ability to get the materials required to
make and deliver a product without interruption in a highly distributed market
represents one of the biggest challenges for most companies today. The ability
to build supply chains with the resilience to respond to major disruptions can
differentiate companies quickly.
Companies should also focus on
developing an operating process. Standard, repeatable operating processes are
the backbone for scaling companies. The Lean and Six Sigma tools developed by
Toyota, Motorola, GE, and others provide a useful starting point for
eliminating waste and variability in production. The best companies, however,
are integrating these capabilities into a package that everyone can
execute—both employees and contractors know the standard operating procedures
at Alcoa, Honeywell, Boeing, and GE. Companies that know how to develop
integrated operating systems across their whole ecosystem, and not just their
employees, can change faster than those that don’t.
Finally, companies must focus
on the adaptation and integration of technology. But not all supply chain
constraints are upstream. Sometimes, the deployment or service infrastructure
present obstacles. For instance, one of the major barriers facing
electric vehicles is not a shortage of lithium mining but a shortage of
battery-charging and -swapping stations. The best companies will understand
early where bottlenecks may occur in the value chain and either design around
the potential problem or build supply chains that are resilient enough to
deliver at scale. Success requires having a strong supply chain to deliver a
product to market at scale—as well as a Plan B for when the infrastructure
comes late to the party.
In Search of Excellence,
defined champions in organizations as people who are not only determined and
personally passionate but able to excite others in the cause and enlist them. For
many companies, resource revolutions will take them into new territory. This
could mean having to learn new skills such as software or electronics, to use
unfamiliar materials, or to switch to an asset-light business model.
The speech has become legend
within Samsung—one line, “Change everything except for your wife and children,”
has become to Samsung employees what John F. Kennedy’s “Ask not what your
country can do for you” is to Americans. In 1995, Lee sent out Samsung products
as Christmas gifts and heard that many of them didn’t work. He went to the main
factory, in Gumi, and called all two thousand employees to a meeting in a
courtyard. As they donned headbands labeled “Quality First,” Lee had all the
plant’s inventory, valued at roughly $50 million, dumped in a pile. Lee sat
below a banner that read, “Quality Is My Pride,” as he had workers smash every
television, every phone, every fax machine, and every other piece of inventory,
then throw them on a bonfire. Lee told the shocked employees that he would no
longer accept poor-quality products. If the factory kept churning out inferior
products, he’d come back to destroy the factory’s output again. Lee reinforced
the message later when someone noticed that covers for a cell phone didn’t look
quite like the covers that had been on the prototypes. Lee ordered that all the
covers be replaced with ones that matched the original quality, even though it
meant trashing more than a hundred thousand covers. Samsung would not survive
by being simply the best Korean company. As a vertically integrated, globally
networked manufacturer, Samsung can produce low-cost gadgets at blistering
speed.
Success requires senior
commitment for bold actions from the CEO and the board: Big investments must be
made, and legacy barriers within an organization need to be broken down. Success
requires public, measurable goals that will be a stretch for the organization
and will motivate it to break new ground and look for new ways to succeed,
rather than only refine what worked in the past. Finding or developing a great
champion requires overcoming six common barriers: Many companies have truly
visionary leaders inside their organizations, but these visionaries often come
from a technical background or the R&D labs and lack the business
credibility or experience to make an investment case to the company. The
visionary leaders may be sitting in emerging markets or otherwise be in a
position that is more on the periphery of the company, with limited access to
headquarters or key investment decisions. Many people who hold significant
authority are consumed by just running the current business. This weakness can
be resolved by ensuring that a few times a year the CEO and executive team have
an opportunity to step back from the quarterly cycle and have a deep
conversation about what assumptions, technologies, and industry conditions
might change. Many companies make it too simple to say no. A combination of the
classic “not invented here” and “we’ve got enough on our plate” means that even
entrepreneurial leaders who are good at spotting opportunities and recruiting
allies and resources may be slowed by a single person they cannot convince. One
way around the problem is to give some emerging opportunities clear leeway to
get attention and resources, perhaps through an approach like that at Google,
which tells engineers to work on whatever they want for a certain percentage of
their time. Most companies do not redeploy talent, capital spending, and
R&D resources dynamically.
The answer to this problem can
involve tough new approaches to budgeting, including challenging existing businesses
as rigorously as new ones when it comes to capital plans and deployment of
talent. Most companies attribute failures to the champion of an idea, rather
than judging carefully what led to the failure of a new initiative.
GETTING TO SCALE
MAY BE THE HARDEST PART of the whole resource revolution process. Success may
require:
EXPERIMENTING
FOR YEARS with different technologies and following a careful, disciplined
process to move from pilot scale toward mass production.SELECTING AND NURTURING THE CUSTOMERS who will let the company start to scale.
BUILDING COMMITTED CHAMPIONS who are not afraid to boldly try new approaches, learn from other industries, and toss out the old ways of doing things.
BACKWARD-COMPATIBILITY often makes customer adoption easier.
The first industrial
revolution took us away from a world of guild craftsmen and gave us the limited
liability corporation and the factory.
Likewise, the second
industrial revolution gave us the assembly line and the publicly traded
corporation, leading to a command-and-control, quarterly-numbers-driven
approach to management that defined the “organization man” of the twentieth
century.
In the resource revolution,
many functions—such as the analysis of data aggregated in near real time—will
need to be even more centralized, but decision making will have to happen on
the front lines so that it can be fast and can fit with local conditions.
Zara, the Spanish clothing
retailer, shows the power of this centralized/decentralized approach, which we’ll
call a network organization. Historically, retailers attended fashion shows,
made their best guesses about trends, ordered all the clothes for a season,
and, six months later, put those clothes on sale. Items sold out, there was no
way to reorder in time. When items sat on shelves, the retailer marked them
down heavily, then shipped anything that remained to cut-price chains that
marked the items down even further. The cost of a bad guess was huge, and there
were plenty of bad guesses. He needed more control over the whole process—from
design through manufacturing through sales and then back through design and
manufacturing. Ortega could also develop systems for manufacturing and shipping
that emphasized speed to market. Initially, Ortega had sales clerks watch what
people considered buying but put back. Clerks would approach the customers, ask
questions, and report to the store manager, who would provide reports that
would help designers tweak items and turn them into successes, even though relying
solely on sales data would have meant dismissing them. As far back as 1991, Ortega outfitted clerks
with custom-made mobile devices to use in interviewing and observing customers.
Zara has also made its operations so efficient that, while goods pass through a
distribution center on their way to market, they rarely spend more than a few
hours there and never stay put for more than three days. As Zara has spread
internationally, it has decentralized decision making—after all, a customer in
Mexico may not have the same view on fashion as a customer in Greece or
Belgium. So, what began as an exercise in reducing waste became a vertically
integrated company with a centralized/decentralized network organization and,
not coincidentally, a market capitalization of more than $75 billion.
In a one-size-fits-all world,
a central manufacturing plant delivers a standard product at low cost. Now,
flexible manufacturing enables more tailored products and can provide huge
benefits that customers are coming to expect and that companies must provide. Now,
technology is allowing the best information to flow back to the front line.
The front-line employee can
get great data and access to the best functional expert in the company quickly,
cheaply, and easily and combine that with his local knowledge. A standard
operating system for a corporation allows for accelerating innovation; instead
of reinventing the basics, each manager can focus on innovations that matter.
The companies that have a
standard operating system and can integrate innovations into that system
globally, quickly, and cheaply will win. The standard work also allows companies to
move people around the system, confident that they will know how to do the job
in the new business unit when they arrive, because their tasks follow the
standard model. Standardizing work eliminates waste and helps front-line
employees deliver great results consistently. These companies also have a
simple management system that keeps everyone focused on cost, safety,
reliability, margins, and growth in a consistent fashion. The standard
operating systems need to be widely deployed and accessible, not just to a
company’s direct employees but also to the supplier community, innovation
partners, and customers. Each group needs to be invited to contribute to
upgrading the system. These systems need to be easy to upgrade as better
practices emerge and must put the power to support decisions in the hands of
front-line employees.
All companies will need more
software talent, because software increasingly provides the operating
instructions for our world. IT no longer is solely the business of managing
company desktops and networks; information technology is merging with
traditional engineering to create the lifeblood of the modern corporation. Many
companies will need more systems-integration skills, because, as we noted in
chapter five, much of the power of the resource revolution will come from
combining bits and pieces of disparate ideas, and most companies simply aren’t
very good at system integration at the moment. Beyond the ability to integrate
various functions, new specialty skills will come into play for the first time.
Many companies will need
skills at super-low-cost manufacturing, too. The new talent needs to be found
in new places. One place to start is in neighboring industries that haven’t
traditionally overlapped but that have been identified as having capabilities
worth borrowing. In some cases, it will make more sense to form partnerships
with businesses in those industries that provide access to specialized
expertise. To differentiate its products from competitors with similar
inventions, Apple has signed extensive agreements that guarantee exclusivity
and supply from its partners. Beyond looking at new industries for talent, it
will be important to look in new countries, too. Less-developed countries will
be important sources of talent for low-cost manufacturing because “low cost”
has a very different meaning to a street vendor in Delhi than it does to
citizens of the EU. Companies will have to develop their own talent.
Much of the need will occur at
the top of organizations, among the leaders. The leadership skills required to
deliver 10 to 15 percent annual productivity gains for a decade or more are a
far cry from the incremental-improvement skills that marked the generation of
leaders after World War II. Leaders’ technology management skills will also
have to improve radically. When technology is changing at a rapid pace, the
ability to identify and integrate new tools to improve performance is critical.
The world of resource revolutions is too cross-functional to be that simple and
requires different departments, multiple suppliers, and often a customer
willing to try something new.
Workers will need to be
developed, too, whether by schools, by the government, or by employers. The
reason is that the nature of work is changing and, in many cases, becoming much
more technical.
Quality-control supervisors in
manufacturing will have to be able to understand advanced statistical
techniques and need to be able to make adjustments to process-control
technology to deliver extremely tight tolerances.
Developing new talent requires
a new education model, much more technically focused than the one the developed
world built around German liberal education principles at the end of the
nineteenth century to help people move from the farm to the city and be able to
read, vote, and conduct business. The focus has been driving 90 percent of the
population to have at least a high school degree. The challenge now is that a
high school degree is not enough. Learning will need to continue post-college,
too, largely through online course work—basically, higher education will
undergo its own resource revolution, delivering learning virtually rather than
in classrooms and lecture halls, even though the face-to-face model has worked
well for millennia. There also needs to be a stronger alignment between
business and education, setting ever-increasing technical standards for each
graduate. Students will need at least four years of mathematics plus specific
technical training in statistics and data management to remain competitive
during the resource revolution.
Businesses will need to do
even more of their own training, too. There will need to be hands-on learning
combined with simulations, often using the best graphics to allow hundreds of
repeats on major tasks and key decisions.
To attract the right talent
and organize it effectively in a resource revolution, it is necessary to:
BECOME A NETWORK
ORGANIZATION.
DEVELOP A
STANDARD “OPERATING SYSTEM” to speed decisions and innovation.LOOK FOR TALENT FAR AFIELD, in other industries and developing markets.
DEVELOP THAT TALENT starting on day one.
FREELANCE INNOVATION, leveraging broad external networks to accelerate success.
It’s time to define your
destiny. It is demonstrated thoroughly by now, we are standing before the
biggest opportunity in a century. Just as during prior industrial revolutions,
this is a time for extraordinary wealth creation as dominant new positions and
new business models are established.
But this is also a time of
creative destruction as old paradigms are supplanted. The integration of 2.5
billion more people into the urban middle class represents a historic economic
and social opportunity.
However, building the cities
to house those 2.5 billion, constructing the transportation networks to connect
home and work, and providing the energy, water, and food to support a
middle-class lifestyle in the next two decades also represents one of the
greatest challenges ever. The global economy is trying to do in two decades for
emerging markets what it took the whole twentieth century to accomplish for the
OECD countries.
Success depends on changing
the fundamental rules of business, focusing managerial innovation on improving
resource productivity at 3 percent–plus a year. Improvements in labor and
capital productivity won’t be enough anymore. Nor will incremental improvement
in resource productivity. After raising the initial questions about
opportunities to save resources, companies must focus on integrating seamlessly
all the capabilities of new offerings, while adding software and other
information-technology capabilities.
Naively adding something new
to existing systems often reduces system performance. To succeed in the long
term, companies have to understand the workings of the whole system into which
an offering fits. A result will be that companies will sell more services and
integrated solutions, not just equipment. Once a company has decided what to
bring to market, it needs to carefully consider when the timing will be right,
both for the technology and for the customer. Then come the tough issues
involved with getting production to full scale and with preparing the market. Finally,
companies will have to change their organizational structures and rethink their
operating processes while training workers to do very different tasks and
finding new types of workers for the skills needed in the transformation from
leathernecks to automation and optimization.
We have focused primarily on the management toolkit and principles that allow companies to not only survive resource revolutions but to capture the business opportunities they create. Clearly, the dynamics we have described will also unleash structural transformations of entire industries, even countries and continents.
This resource revolution
represents an enormous challenge for governments. Governments have a large role
to play, including funding basic research on materials, biology, and systems
performance as well as on new energy, transport, and agricultural technologies.
Governments also need to recognize that technologies have vastly different
learning curves that drive cost reduction and different scaling potential. If a
technology’s potential is large and transformative, and the cost reduction
rapid, it deserves a much more aggressive adoption than technologies that are
improving slowly and incrementally and have no foreseeable way to get to
commercial viability, or have only limited deployment potential. As knowledge
workers, software skills, and techonology-enabled services become more
important, governments will need to ensure that workforces have the proper
skills and education to participate in new business models and evolving
sectors. Over time, governments may want to shift tax bases from labor and
residency to value creation, intellectual property, and resource consumption. Government
has a substantial role to play in broader macroeconomic measurements, too—those
that drive behavior, policies, and investment flows.
It’s important to recognize
that our most common measurements still focus predominantly on capital flows
(capital accounts, market cap, trade flows, foreign direct investments, and the
like) and on labor productivity (unemployment and GDP per capita). We do not
have an equivalent set of national accounting standards for how efficient we
are in our use of land, water, metals, and other natural resources.
The disruptive nature of the
changes underway in resource revolutions will also change the work of NGOs. Historically,
many NGOs have focused on a primary issue: preserving land, fighting air
pollution, ensuring clean water, and so forth. Given the tighter connection
between resources, and the substitution dynamics and introduction of disruptive
technologies, many NGOs will have to broaden their scope of issues.
Resource revolutions combine
commodity price volatility, creative destruction of companies, and industries
and new business models and technologies interacting to create disproportionate
wealth. Smart investors such as Harvard’s endowment and Singapore’s sovereign
wealth funds have made long-term bets on rising resource prices and on shifts
between asset types.
The world we live in today
will be as different from the one our children will inherit as the Victorian
era of mansions, servants, and tenements in the 1880s was different from the
Golden Age in the 1920s, with electric appliances and lighting, motor cars,
skyscrapers, radio, indoor plumbing, multinationals, stock markets, public
libraries, and concert halls funded by the wealth the age created.
We need to ensure our
government shapes this transformation, and use our votes to counteract the
influence of incumbents vested in locking in an unsustainable status quo.
We can make informed choices
in the products we select, beginning with our own measurement of resource
productivity in the food, cars, and homes we buy, even before governments
change GDP metrics.
We can educate our children to
be ready for a world where understanding software, having the ability to work
in a networked global organization, and being able to integrate systems across
disciplines matter more than ever before.
Then our children will enjoy
the fruits of our labor, our capital, and our resources.
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