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Nicholas Davis

Head of Society and Innovation, World Economic Forum

The Fourth Industrial Revolution

Augmented Reality

12+key technologies

recombinant innovation

Neurotechnologies, Biotechnologies, Distributed Ledger Technologies, IoT, Advanced Computing, Cybersecurity, Geoengineering, Space, Breakthrough Energy Technologies, Advanced Materials…

Artificial Intelligence

Robotics

3D Printing

Autonomy

4IR

First Industrial

Revolution

Second Industrial

Revolution

ThirdIndustrial

Revolution

Fourth Industrial

Revolution

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4IR Dynamics

Crossing traditional boundaries Compressing timescales Becoming more accessible Demanding different skills Creating new inequalities

The opportunity and challenge of transformation

The rise of technological risks

Source: World Economic Forum Global Risks Report 2019

…which are driving geopoliticaland social risks

0

1

2

3

4

$5T

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

YoY Market Cap Growth Among Top 25 Largest Public Firms

Other

Digital Companies

Seven digital companies are responsible for ~80% of value

creation in last 10 years.

Note: Data set includes Top 25 companies in the world by market capitalization; Each year was categorized by digital and non-digital; Net value creation measured for each year§Source: Capital IQ Database; Bain Analysis

In the transition to the Fourth Industrial Revolution, firms building on digital foundations appear to be winning

Leaders are asking challenging questions along the way….

“What will interaction with citizens, employees and customers look like in the future?”

“How can we anticipate the next dominant organizational model of our sector?”

WHAT WILL MY SECTOR LOOK LIKE?

“Should we forget our history? How much attention should we give to historical capabilities vs.

groundbreaking innovations?”

“How do I think about my sector’s digital direction when it is part of a broader ecosystem… how will

boundaries change?”

HOW MUCH SHOULD I DISRUPT MYSELF?

“How do leaders simultaneously make sure there is clarity of execution, while also building in agile

processes which give more decision making to teams on the ground? Are traditional methods of

governance fit for purpose?”

“Digital natives tend to run future-oriented business models at a loss and worry about

profitability later… how do I compete?”

“Overformal product development roadmaps deliver scale but lack speed & flexibility.

A more agile approach delivers speed but lacks scale. How do you balance this?”

HOW DO I BALANCE CLEAR DIRECTION WITH AGILE INNOVATION?

Source: Digital Enterprise, World Economic Forum in collaboration with Bain & Company, 2018

Chess: 1997 (Deep Blue v Garry Kasparov)

Go: 2016(AlphaGo v Lee Sedol)

2018(OpenAI Five v non-pro players)

Starcraft II: 2019(AlphaZero v top-ranked players)

To win at a new game, you need to become a new player

Some organizations are adept at change: Netflix has repeatedly transformed the underlying economics of its business

Content acquisitionspend

100%

0%

100%

0%

Revenues

Onlinesubscription

(1999)

Payper rental

(1998)

Streaming + original content

(2017)

Streamingplatform(2013)

DVDrentals(& sales)

DVDpurchases

Streamingsubscriptions

Originalcontent

Contentlicenses

DVDsubscriptions

Source: Digital Enterprise, World Economic Forum in collaboration with Bain & Company, 2018

…but most transformation efforts fail to deliver

12%

50%

38%

Achieved or exceeded the expectations that were set

Settled for dilution of value and mediocre performance

Failed to deliver, producing less than 50% of the expected results

In a study of hundreds of companies executing major changes… Based on Digital Barometer 2017 (n=1,012)*…

5%

71%

19%

Achieved or exceeded the expectations that were set

Settled for dilution of value and mediocre performance

Failed to deliver, producing less than 50% of the expected results

TRADITIONAL TRANSFORMATION DIGITAL TRANSFORMATION

Source: Bain Digital 360 Barometer survey 2017, cited in Digital Enterprise, World Economic Forum in collaboration with Bain & Company, 2018

The challenge: Moving from strategy to operational excellence

Digital Strategy

Digital departure

Enablers

Business Model

Systems and technology

Operating model

Talent and culture

Data and analytics

Orchestration

Leadership and engagement

Regulatory andcommunity engagement

Scaling

Governance, metricsand risk management

Funding and investor management

Products & services

Economic model

Operations

Customer and channel engagement

Industry direction

Organizational vision

Stepping stones

Source: Digital Enterprise, World Economic Forum in collaboration with Bain & Company, 2018

The need for innovation-focused partnerships

No matter who you are, most of the smartest people work for someone else.”

– Bill Joy, Co-founder Sun Microsystems

In any given sphere of activity most of the pertinent knowledge will reside outside of the boundaries of any one organization. The central challenge is to find ways to access that knowledge.”

– Karim Lakhani and Jill Panetta, Harvard Business School and Innocentive

Other sectors dominate R&D spending related to emerging tech

Source: Collaborative Innovation, World Economic Forum in collaboration with AT Kearney, 2015

Jan 2016

Mar 2016

Apr 2017

Investment in Lyft to develop “autonomous,

on-demand network of cars”

Acquired Cruise to lead self-

driving division

Announced new hiring program for

autonomous division

Announced investment in two

autonomous facilities in Michigan

$500M ~$800B 1,110 Employees

$100M

Oct 2017

Acquired Strobe to enhance car communication

technology

N/A

20%of 2016 income

25% of 2017 CAPEX

or

GM had to fund a range of ‘big-bet’ investments in smaller firms to accelerate its AV strategy

$2B+big-bet

investments

Mar 2018

May 2018

$1.1bn

GM co-invests alongside a $2.25bn

from Softbank Vision Fund, which takes a 20% stake in Cruise

Source: Collaborative Innovation, World Economic Forum in collaboration with AT Kearney, 2015

- Collaborative contracting

Misconstrued

MisalignedMismanaged

Misfed

Missed

Lost potential

More likely to occur with traditional partners

Learning from common partnering failures

Wasted resources

More likely to occur with new, non-traditional partners

The importance of talent and culture

Culture eats strategy for breakfast.”

– Peter Drucker, author and consultant

A company’s culture is the foundation for future innovation. An entrepreneur's job is to build the foundation.”

– Brian Chesky, Co-Founder and CEO of Airbnb

by 2022, the core skills required to perform most roles will

change by

42%

Challenge: An increase in skills instability

in demand

Challenge: The rise of employee activism

People are talking to governments on 21st century technology, the government hears them on 20th century technology, and responds with 19th century ideas”

– Madeleine Albright , Former United States Secretary of State

Opportunity: Engaging people effectively in a digital world

Opportunity: Focusing on orchestrating success, creating partnerships and building culture, not refining strategyDigital Strategy

Digital departure

Enablers

Business Model

Systems and technology

Operating model and partnerships

Talent and culture

Data and analytics

Orchestration

Leadership and engagement

Regulatory andcommunity engagement

Scaling

Governance, metricsand risk management

Funding and investor management

Products & services

Economic model

Operations

Customer and channel engagement

Industry direction

Company vision

Stepping stones

Source: Digital Enterprise, World Economic Forum in collaboration with Bain & Company, 2018

systems, not technologiesempowering, not determining

by design, not defaultvalues as a feature, not a bug

28

Opportunity: Building a human-centered future

Committed to Improvingthe State of the World