Charting A Course Through The Fourth Industrial Revolution

The Forum was established to engage with leaders and stakeholders from all sectors of the industry be it in politics, business, or social, to shape agendas which would benefit the future of humankind.

The Fourth Industrial Revolution is slowly but surely being felt across all sectors of the industry, and is changing the landscape in which people live their lives, governments run their nations and companies operate their businesses. Malaysia has started embarking on a journey of transformation, with the launch of National Policy on Industry 4.0 marking the country’s commitment to embracing the Fourth Industrial Revolution. Nicholas Davis, Head of Society and Innovation and a Member of the Executive Committee of the World Economic Forum, shares valuable insights into the impact of the Fourth Industrial Revolution, Malaysia’s foray into digital transformation and how companies can stay competitive in a new emerging age of technology and innovation.

Change is never easy, but it is necessary to survive

As technology advances further, and with the world having evolved across three significant industrial revolutions, the Fourth Industrial Revolution (4th IR) is shaping up to be a whole new ballgame altogether. In the words of Professor Klaus Schwab, Founder and Chairman of the World Economic Forum (WEF) who coined the term, he describes the world as being “at the beginning of a revolution that is fundamentally changing the way we live, work, and relate to one another”. The magnitude and complexity of this industrial revolution is set to be on a level never before seen in history.

BUILDING THE MOMENTUM

At the forefront of this change, the Forum was established to engage with leaders and stakeholders from all industries be it in politics, business, or social, to shape agendas which would benefit the future of humankind. “Since our inception five decades ago, the Forum has undergone four main stages in its development – the convening of various stakeholders from various sectors; formation of communities of stakeholders who were bound together by similar needs, desires and incentives; a shift towards insights and strategic foresight; and finally a focus on action and impacts,” explained Nicholas.

He believes that the idea of the Fourth Industrial Revolution comes at a time when it’s not so much about merely generating new ideas about the world, but more on motivating people to change the world directly. However, the question on most people’s mind is how do emerging technologies fit into this idea?

“In 2015, Professor Schwab and I started work together directly on this concept of the Fourth Industrial Revolution. While technology is always important and impactful, and we are always creating new technologies as human beings, there are few instances in history where these technologies fused and interacted to create entirely new ways and systems to create value. This is exactly what is happening now as a result of investments, crossover of ideas and diversity, and we are seeing something special with these emerging technologies – this fusion of digital, physical and biological spheres,” said the Forum’s Head of Society and Innovation.

Recently, Professor Schwab and Nicholas co-authored a book titled “Shaping the Future of the Fourth Industrial Revolution” which serves as a detailed companion and practical field guide to the “The Fourth Industrial Revolution” which was published in 2016. It delves deeply into the technology revolution that is currently in play, focuses on key stakeholders who might be overlooked in the age of scientific breakthroughs, and zones in on a dozen technology areas which would shape the future of humanity.

Strategise for success...Being proactive with emerging technologies means understanding strategically why they are important and how they are changing the value chain.

NOT REACTIVE, BUT PROACTIVE

Digital disruption in the industry puts everybody on edge, and the lessons learnt from disasters the likes of Kodak and Blockbuster Inc serve as a reminder of the pitfalls of not adapting and changing strategies to keep up with emerging technologies and consumer behaviours.

However, rather than reacting to this changing ecosystem, Nicholas believes that corporations should be proactive in their actions. Firstly, their leaders should cultivate a mindset of being highly sensitive to the impact of technologies on their businesses, angling their business models towards the way their customers behave and finding new ways of creating value.

Being proactive with emerging technologies means understanding strategically why they are important and how they are changing the value chain. This requires an in-depth understanding of how such technologies may solve problems for their customers and stakeholders.

“A company should not invest in blockchain just because of its hype, but only if they know how it can improve efficiency of processes.” The truth of the matter is that many organisations haven’t the infrastructure nor digital capabilities to fully navigate the Third Industrial Revolution, and are still struggling to manage the transition of incorporating digital into the heart of their business models.”

The recently released September 2018 publication by the Forum in collaboration with Bain & Company titled ‘The Digital Enterprise: moving from experimentation to transformation’, estimated that companies worldwide would have spent over $1.2 trillion on their digital transformation ventures, yet suggested analysis show only 1% of these ventures would bear fruit.

“For me, part of the problem is that companies spend too much time thinking about strategy yet not enough on the shifting leadership roles – which is core to changing the organisation.” Nicholas goes on to cite a study conducted last year on transformation. In the study, when organisations looked to change core parts of their strategy, their success rate amounted to around 12%, and shockingly fell to 5% when talking about digital transformation.

“Looking at this statistic, this is a very low success rate. Relating back to my earlier point about companies needing to be proactive in their adopting of emerging technologies, it would seem that companies are failing to fully grasp the benefits of transformation. It’s apparent that this is a barrier that organisations need to overcome.

They need to start thinking holistically – the infrastructure needs, talent, governance, how to speak to the market, and changing leadership strategies. If you’re a senior executive paying attention to those aspects, it’ll help you understand why, where and how you can successfully transform,” said Nicholas.

Just like Netflix, businesses have to focus on being relationship-centric and adopt emerging technology for a purpose – to create value for the customers.

THE NETFLIX SUCCESS STORY

In order to grasp the prerequisite to the adoption of the 4th IR, Nicholas cited Netflix as an example.n the past two decades, Netflix has reinvented itself four times; starting as a CD and DVD rental company, then changing into a monthly subscription model, and later offering unlimited streaming services. In recent years, it has once more transformed its business operations towards becoming a content producer – one that is generating, purchasing, and releasing its own content through the internet.

Netflix’s goal was always to allow customers ease of access to their favourite television shows and movies, and that hasn’t changed. What changed was how they delivered and met that need throughout their operations as the technological world shifted around them. When the 4th IR came about, they were able to make the shift by leveraging on the power of data.

With their streaming service, Netflix was able to predict what content would appeal to their respective customers thanks to a highly accurate recommendation engine. By focusing on data and making decisions based on it throughout their operations, this meant that they were able to continually shift their business model and services to what their customers needed and wanted.

This even played out in their success rate of second season renewals of their television shows that they currently release. The entertainment industry is fraught with risk and highly dependent on ratings, whereby a dip may get the show axed. Netflix currently has a second season renewal rate that is double that of the industry at large.

“The way I see it, it’s all about shifting the focus to being customer- centric or relationship-centric depending on your customer base, be it B2B or B2C. What value are you creating for the people in your business ecosystem by using data, and which technologies would fit into this equation? Data would play a pivotal role in determining if your organisation has the know-how to shift the business model, infrastructure, strategy and leadership to construct new models and innovate,” said Nicholas.

BEYOND THE HORIZON

With 2019 just around the corner, Nicholas also shared his views on the significant disruptions that will impact the industries. In this year alone, trust has become a major disruptor partly due to data breaches. The crisis of trust is expected to continue as the general public are still trying to understand how businesses, governments and social groups are using their personal data.

“Some of these companies have revenues larger than GDPs of countries, which leads to greater scrutiny of their operations and data management. I think that one of the biggest disruptors of 2019 would be managing the trust in emerging technologies and the trust put into companies that are leading the advancements of technology.”

The second disruptor may be cybersecurity. The Forum’s Centre for Cybersecurity in Geneva was set up for this very reason, as they believe that there is a lack in crossindustry, cross-government and multi-stakeholder coordination on reducing global cyber attacks, responding quickly and efficiency, and reducing the incentives for such attacks to take place. This is particularly troubling at a time when IT is expanding, and there are many potential entry points for hackers and cyber-terrorists to infiltrate digital systems.

Challenges aside, there are some positive outlooks for 2019 as well. Nicholas believes that 2019 will bring about a great number of breakthroughs, especially in artificial intelligence.

Companies need to be efficient and quick to respond to cyber-attacks as businesses shift toward becoming more data-centric.

TWO SIDES OF THE COIN

Many see the advancements in AI and RPA as being a major threat to the global job market and has sparked debates throughout the year. Nicholas, however, believes that there is definitely a win-win scenario that can be achieved, granted it’s not a foregone conclusion and much work is needed for it to happen.

In the book ‘Human + Machine’ by Paul Daugherty, Chief Technology Officer at Accenture, he wrote that when you create an environment that invests in machines and smart technologies to enhance the productivity of the people by looking at the conditions that can occur, you will get much better gains than if you simply look to replace people.

Taking a look at The Future of Jobs Report 2018, released by the Forum, it also highlights the same philosophy and follows the same underlying principle. One finding stated 38% of businesses surveyed expect to extend their workforce to new productivity-enhancing roles, and more than a quarter of those businesses expect automation to lead to the creation of new roles in their enterprise .

What’s more, the report also puts forth the idea of an ‘augmentation strategy’, whereby businesses ensure that implementation of automation enhances the strengths of their human workforces. Focusing on a broader spectrum of value-creation as opposed to the sole notion of cost savings via automation-based labour, this approach uses emerging technologies to expand our potential by leaving repetitive tasks to automation. However, from a global perspective, it’s not a massive net of job loss at all. A large number of tasks that humans will be doing in five years’ time would differ from those we are currently doing due to automation, but its core aspects would remain the same. Our primary woe would be the fact that entire job categories would disappear just as new ones emerge.

“Helping people understand what skills they need to change to be relevant in the market is one big challenge we need to overcome.

Having said that, there’s clearly some jobs that would be under severe threat because most of their tasks are fully automatable. This is particularly so for those working in call centres. There are probably about six million call centre jobs around the world, and it’s possible

that with AI, a third of those will be automated in the next five years. “

A majority of these jobs are located in emerging economies in Southeast Asia, the Caribbean and Central America – with a workforce comprising of mainly women. If two million jobs are in jeopardy, retention is a cause of concern. “Hence, the key question when you do have an entire category of jobs disappearing – be it call centres or traditional manufacturing – is, what are the plans that industries and government have in order to help those people reskill, particularly in vulnerable populations such as young women, who would be beneficial to the economy?

The way reskilling of employees takes place is of utmost importance. Bringing young women into the labour market has also shown to have a positive effect on economic growth and competitiveness,” revealed Nicholas. Changes would even be felt by decision makers themselves, and although C-level positions won’t disappear entirely, they would need to understand and strategically work with digital technologies to transform their organisations. Due to the rapidly increasing speed of change, it’s not just that new techniques need to be integrated, but a follow-up plan needs to be implemented quickly as the industry moves to new avenues of creating value. These decision makers would have to continuously adapt and learn new sets of tools to become drivers of change in their respective organisations.

Reskilling is crucial to ensure a robust workforce; it improves retention and keeps morale high, as employees know that their career development is not being disregarded.

ON THE RIGHT TRACK

Nicholas also expressed his view on the Industry4WRD National Policy on Industry 4.0, launched by Prime Minister Tun Dr Mahathir Mohamad: “I think it’s fantastic that the policy refers upfront to the sustainable development goals. It’s essential that we always link advances in technology, manufacturing, and economics to the notion that we are part of a globally interconnected world.

“The [Sustainable Development] Goals are clearly supported by the advances of the manufacturing industry which are really what Industry 4.0 is all about,” he said, referring to Goal #9: Industry, Innovation and Infrastructure; and Goal #12: Responsible Consumption and Production.

The policy extensively links the technology, science and globalisation aspects in the framework and focuses on enablers as well as SMEs in Malaysia, and not just larger, more established companies. Furthermore, the understanding that innovation has to affect the entire supply chain of 49,101 key manufacturing establishments in the sector is one aspect that Nicholas finds agreeable.

“My third observation is that the policy’s objective to attract stakeholders, cultivate the right ecosystem and accelerate transformation, will put the nation on the right track,” he states. “I am very hopeful for the country because it has all the right elements and rightly focuses on upskilling existing future talent.” With a clear goal, Malaysia, with its strategic investments and attractive incentives, will galvanise the industry and take itself to a higher level.

On a side note, Nicholas pointed out that the Industry 4.0 is solely the manufacturing aspect of the broader 4th IR, which encompasses all other industries.

NOTE OF CAUTION

However, Nicholas asserts that in order for the policy to remain in effect for years to come, this initiative must not be clouded by politics. “It should be a massive impetus of development, regardless of who’s in the seat of power.” He reiterates that the Fourth Industrial Revolution is a “technological reality”, one that is more than one single government’s decision. Malaysia’s vision for the future – its prosperity and the cultivation of tech-savvy nationals – should be unblemished by political agendas.

Furthermore, the biggest challenge that a developing nation would face in this 4th IR wave, is the digital divide. “Malaysia would have to ensure that the majority of the population are able to grasp the benefits of this transformation. This means that everyone should have access to the digital network,” he shared.

“Accessibility, in this case, does not just mean a 4G coverage, but whether the population has the economic ability to access data – whether their salary rates are high enough that they can tap into the digital network wherever they are, in whatever situation they are in, across the country."

“Evaluation is needed to determine whether the contact is relevant; whether it is in the language they understand, or do they have the required skills to navigate the network and add value to their lives.” Undoubtedly, bridging that divide in a meaningful sense will proffer huge opportunities for people to launch their own businesses; to be productive employees, or to receive government interaction in a digital format without being dis-communicated or left behind.

He reasoned that one must initiate community groups and individual leaders into those areas within communities that are disconnected from the digital system. This Matrix-sounding solution is perhaps the only way to bridge the divide and bring us one step closer to our vision.

“It’s not enough to say ‘everyone can watch TV or use WhatsApp to communicate’ – useful as it may be. Raising the efficiency of consumption is not as powerful for the economy as increasing the efficiency of production and that’s where you want people to feel empowered – that they are able to use these technologies to do better at their jobs.”