Corporate-titans-and-the-fourth-industrial-revolution

The fourth industrial revolution will see good jobs shredded like never before. Business needs to rethink the economic environment if it is to be sustainable, says Mike Tuffrey

Corporate titans from around the world gathered last week for their annual love-in at Davos. Joining them to provide a scattering of stardust was actor Leonardo DiCaprio.

Fresh off the set of his Oscar-nominated film, The Revenant, DiCaprio was praised for the award-winning work of his eponymous foundation in protecting vulnerable wildlife from extinction.

The corporate leaders could be forgiven for worrying more about the threat of their own extinction – from the Fourth Industrial Revolution, the official topic of discussion at the 48th annual World Economic (WEF).

Like all such gatherings, Davos generated much hot air and back-slapping. But arising out of debate were three profound implications for the future of business – or at least those businesses that want to be sustainable long term, with loyal customers and trusting partners.

The original industrial revolution, which began in 18th-century Britain, was all about harnessing water, coal and, above all, steam to boost productivity. The second, from the late 19th century, was driven by electricity and innovation, freeing industry to locate anywhere. The third, from the 1970s, was built around digital technology and, latterly, the internet. One by-product is a high level of automation, resulting in huge job losses for blue-collar workers in manufacturing.

Opinions differ as to what the fourth revolution actually entails – the Internet of Things, driverless cars, even artificial intelligence. Widely expected is the coming automation of service industries, with job losses for white-collar workers. That’s lawyers, accountants, bankers, investment analysts, perhaps even journalists and commentators. Ouch.

To shed light on these debates, PwC surveyed global CEOs ahead of Davos, asking about their hopes and fears. Truth to tell, wildlife extinction didn’t feature much; instead, over-regulation was deemed the biggest threat to business (by 79 per cent of chief executives), followed by geopolitical uncertainty (74 per cent). So far, so old-school thinking.

Lack of trust in business (55 per cent) and climate change and environmental damage (50 per cent) just scraped onto the leader board. Asked to think ahead, 71 per cent agreed business success in the 21st century would be defined by more than just profit. So maybe some do sense the world is changing.

What then will be different about the fourth industrial revolution? Three things stand out.

The first is the very real limit to resource availability, including fresh water, exacerbated by inevitable restrictions on burning fossil fuels. Back in 1700, we could happily dig stuff out of the ground and burn it, or use it once and throw it away, without worrying.

Then, the world’s population numbered some 600 million; today we are more than ten times as many, and rising.

Simply put, businesses that succeed in the fourth industrial revolution will need profoundly different production systems and value-creation models, built on high value added and extreme resource efficiency.

Second is the real risk of widespread social backlash as secure well-paid jobs fragment and employment becomes increasingly fragile. As a guide, look at the stresses caused by current migration into Europe or across the Mexican border, and the swings to maverick politicians of left and right.

Klaus Schwab, who founded WEF in 1971, has illustrated this shift by comparing Detroit in the 1990s with Silicon Valley today. The three biggest motor companies back then employed 1.2 million people and earned revenues of $250bn. Revenues at the three biggest tech companies today are about the same ($247bn), but they employ one-tenth as many people. The difference shows up in their market cap – with Valley firms 30 times larger than the old motorcity was.

Simply put, an economy of a few affluent owners but many poor customers cannot thrive in the long term; such societies are unstable and unproductive.

The third factor – and the possible solution – lies in the changing context in which companies do business, namely with governments who set the rules of the game. Of course many corporate leaders remain loud in their desire to get governments off their backs – as the PwC survey found.

But the visionary leaders – such as Sheryl Sandberg of Facebook, Paul Polman of Unilever or Microsoft’s Satya Nadella – know that business-as-usual isn’t possible. They talk of sustainable, equitable and profitable firms. And they are seeking out allies in other sectors, both public and not-for-profit, to make it possible.

The true titans of Davos know they are not all-powerful gods, that they need a new settlement with society. The fourth industrial revolution is not just for business, but for all of us.