The Way We Do Things around Here
The Will to Manage
I have an abstract painting in my office that I bought
in London off the Piccadilly fence. In that open-air mart,
which operates on weekends, the artists sell their own works.
Judged by the $43 price, my painting is not great art.
But it has delightful swirls, angles, and other abstract
forms, all in bright colors. And when Mr. Eves, the artist,
told me the title - "Forces at Work" - I bought it immediately.
With a little metal plate bearing the title and the artist's
name, the painting is a constant reminder to me that any
successful organization must give continuing attention
to keeping adjusted to the forces affecting it - that is,
to the forces-at-work element of its philosophy. But before
discussing that element, let us examine the whole concept of
company philosophy as a system component and identify other
important elements of a successful philosophy.
Meaning and Elements of Company Philosophy
Over the years, I have noticed that some executives -
particularly top-management executives in the most successful
companies - frequently refer to "our philosophy." They may speak
of something that "our philosophy calls for," or of some action
taken in the business that is "not in accordance with our
philosophy." In mentioning "our philosophy," they assume that
everyone knows what "our philosophy" is.
As the term is most commonly used, it seems to stand for
the basic beliefs that people in the business are expected
to hold and be guided by - informal, unwritten guidelines'
on how people should perform and conduct themselves. Once such
a philosophy crystallizes, it becomes a powerful force indeed.
When one person tells another, "That's not the way we do things
around here," the advice had better be heeded. And when
a superior says that to a subordinate, it had better be taken
as an order.
In dealing with the concept as I find it used in practice
by leading executives, the literature on company philosophy is
neither very extensive nor very satisfactory. But one dictionary
definition of philosophy does apply: "general laws that furnish
the rational explanation of anything." In this sense, a company
philosophy evolves as a set of laws or guidelines that gradually
become established, through trial and error or through
leadership, as expected patterns of behavior.
In discussing the philosophy of International Business
Machines Corporation, Thomas J. Watson, Jr., the chairman,
I firmly believe that any organization, in order to survive
and achieve success, must have a sound set of beliefs
on which it premises all its policies and actions.
Next, I believe that the most important single factor in
corporate success is faithful adherence to those beliefs... .
In other words, the basic philosophy, spirit and drive of an
organization have far more to do with its relative achievements
than do technological or economic resources, organizational
structure, innovation and timing. All these things weigh heavily
on success. But they are, I think, transcended by how strongly
the people in the organization believe in its basic precepts and
how faithfully they carry them out.'
Some typical examples of basic beliefs that serve as guidelines
to action will clarify the concept. Although such basic beliefs
inevitably vary from company to company, here are five that I find
recurring frequently in the most successful corporations:
1. Maintenance of high ethical standards in external and
internal relationships is essential to maximum success.
2. Decisions should be based on facts, objectively considered
- that I call the fact-founded, thought-through approach to
3. The business should be kept in adjustment with the forces
at work in its environment.
4. People should be judged on the basis of their performance,
not on nationality, personality, education, or personal traits
5. The business should be administered with a sense of com-
These five common-denominator elements - combined with
other beliefs - are informal supplements to the more formal
processes of management. A brief discussion of each will show
how useful and how powerful a company philosophy can be,
once it provides effective guidelines for "the way we do things
High Ethical Standards
In dealing with the value of high ethical standards in a
business, I don't want to belabor the obvious. But I do want to
point up a few nuances that sometimes escape even executives
of high principle.
Since the whole purpose of a system of management is to
inspire and require people to carry out company strategy by
following policies, procedures, and programs, no management
should overlook the set of built-in guidelines that every employee
with a good family background brings to the job. Since anyone
who has been well trained in Judaic-Christian ethics instinctively
acts in accordance with those principles, it is sheer
shortsightedness for any management to overlook the great practical
value of these powerful guidelines of conduct.
The business with high ethical standards has three primary
advantages over competitors whose standards are lower:
A business of high principle generates greater drive and
effectiveness because people know that they can do the right
thing decisively and with confidence. When there is any doubt
about what action to take, they can rely on the guidance of
ethical principles. I can think of three companies - the leaders
in their respective industries - whose inner administrative drive
emanates largely from the fact that everyone feels confident that
he can safely do the right thing immediately. And he also knows
that any action which is even slightly unprincipled will be
A business of high principle attracts high-caliber people
more easily, thereby gaining a basic competitive and profit
edge. A high-caliber person, because he prefers to associate with
people he can trust, favors the business of principle; and he
avoids the employer whose practices are questionable. So, in taking
his first job or in changing jobs, he takes the trouble to find out.
For this reason, companies that do not adhere to high ethical
standards must actually maintain a higher level of compensation
to attract and hold people of ability. A few large companies have
to "reach" for able people with higher compensation simply
because low standards of relationships among people produce
a "jungle" atmosphere in which it is less agreeable to work.
A business of high principle develops better and more profitable
relations with customers, competitors, and the general public,
because it can be counted on to do the right thing at all times.
By the consistently ethical character of its actions, it builds
a favorable image. In choosing among suppliers, customers resolve
their doubts in favor of such a company. Competitors are
less likely to comment unfavorably on it. And the general public
is more likely to be open-minded toward its actions and receptive
to its advertising and other communications.
Consider the example of Avon Products, Inc., the house-to-house
cosmetics business. Since 1954 Avon's net profit has been
increasing at an average of over 19 percent a year, compounded,
and in 1963 its return on investment reached 34 percent. According
to an article in the December 1964 issue of Fortune, Avon's founder,
David H. McConnell, "was resolved to be different from the swarms
of itinerant peddlers who were at that time selling goods of
indifferent quality to housewives, and then moving on, rarely
to be seen again." The founder's son carried on his father's belief
in high principle. Citing comments by competitors and suppliers
on the company's high ethical standards, the article notes that
Avon's present chairman, John A.Ewald, its president, Wayne Hicklin,
and a top-management executive now deceased "did a great deal
to ensure that the McConnells' high ethical standards would
continue to be diffused throughout the organization as it expanded."
There should be no need to dwell on these well-recognized
values. But too often, I find, they tend to be taken for granted.
My point in mentioning them is to urge executives to actively
seek ways of making high principle a more explicit element in
their company philosophy. No one likes to declaim about his
honesty and trustworthiness; but the leaders of a company can
profitably articulate, within the organization, their determination
that everyone shall adhere to high standards of ethics. That is
the best foundation for a profit-making company philosophy and
a profitable system of management.
Sense of Competitive Urgency and
Developing a Company Philosophy
The Will to Manage
Sense of Competitive Urgency
Based on my own comparisons of the administration of leading
American and British companies, I believe that the greater
management effectiveness achieved by leading American companies
is due chiefly to the greater sense of competitive urgency
that pervades our most successful businesses. Addressing
the Industrial Copartnership Association in London, in 1961, H.R.H.
The Duke of Edinburgh put it this way: "Foreign competition is real;
it is going to get tougher, so that if we want to be prosperous
we have simply got to get down to it and work for it.
The rest of the world most certainly does not owe us a living."
Certainly management technique is less important than
competitive urgency. Even the most advanced management methods
will not be fully effective unless these techniques are adopted
and administered with a sense of competitive urgency.
Talking to an international management congress,
the late Charles E. Wilson, then president of GM, put it this way:
Too frequently visitors to America are overly impressed by
our assembly lines and our progressive mass-production
manufacturing methods and are inclined to think that the physical
organization of the work is the essence of our American production
system. They will be confusing the form with the substance
if they believe that simply by installing assembly lines
and progressive manufacturing they will automatically get the
same efficient production and low cost that American industry
achieves. If they do not understand and apply the other
fundamentals of our system at the same time, they will be
greatly disappointed with the results they get... .
The first essential of our American industrial system is
the acceptance by Americans of competition. The responsibility
for individual competition as well as competition between
companies and business organizations stimulates the millions of
Americans to contribute to better ways of doing things and to
accomplish more with the same amount of human effort.*
What can the leaders of a business do to develop a sense of
competitive urgency? In addition to their alertness to external
forces at work, here are the chief characteristics of competitive
top-management executives as I have observed them in action:
The competitive executive gets on with it. He treats time
as his most valuable commodity and paces himself accordingly.
He does not "fiddle around." At the same time, he works with
calm purposefulness, rather than frantic haste.
The competitive executive works with zest. Typically, he works
harder and more effectively than his subordinates. He sets
a good example in work habits, not for the sake of setting
an example but because he has a real zest for his job.
The competitive executive is decisive. After getting the facts
and thinking the problem or decision through, he makes
a considered decision. He recognizes that he will make mistakes,
but he knows that his competitors will, too; and he prefers risk
of error to unnecessary delay. He knows he can safely be wrong
part of the time, provided he keeps alert to opportunities
for correcting errors.
I recall an executive who habitually made instant decisions
that were not always sound. In talking with him, I discovered
that just after graduating from college, he had spent a year
as a minor-league baseball umpire. So he fell into the habit of
making business decisions with nearly the same speed.
Once aware of this, he realized that an executive - unlike
an umpire - has an opportunity to gather and consider facts,
to change his mind, and to correct his mistakes. So he began
taking a little longer to think decisions through - and raised
his batting average considerably.
The competitive executive seizes and exploits opportunities.
He is more interested in building on strength than in shoring
up weaknesses. He devotes more time to building his own
company's position than to countering competitive moves.
Therefore, a system for managing appeals to him.
The competitive executive seeks out and faces up to problems.
He knows that the passage of time usually makes a tough
problem even harder to solve. But when it cannot be solved
immediately, he turns to developing company strengths and works
around the problem while waiting for a better time to solve it.
The competitive executive does not shrink from difficult
personnel decisions. He knows that unless poor performance can
be overcome (as it often can), it is fairer to the company and
the individual to remove him sooner rather than later.
But the competitive executive is fair and not ruthless.
He knows a management system will not be effective unless
it facilitates fair and sound decisions affecting people.
Fair decisions concerning people are often received
surprisingly well even by the person who is adversely affected.
I recall the case of the leading salesman of a large industrial
products company who spent much of his time at race tracks.
Because of the large orders the marketing director thought
the salesman controlled, for many years no action was taken
to replace him. When a new marketing executive finally dismissed
him, the salesman said he wondered why the action had not been
taken long before. Of course, customer respect for the company
increased, and no orders were lost.
The competitive executive focuses on increasing the company's
share-of-market at a profit. His every action is directed
toward building a stronger competitive position for the long term;
but he takes the action now.
These are some of the characteristics of the executive who
possesses a sense of competitive urgency. This incessant drive
"to get on with it now" is necessary to succeed in our competitive
profit-and-loss economy. More than management techniques,
it makes our system the best means yet discovered for fulfilling
people's material wants and needs profitably and for providing
the psychic benefits of work itself. But that drive can be made
more purposeful and effective by a management system. In turn,
a management system helps develop a sense of competitive urgency.
The interaction increases the likelihood of success for any enterprise.
Developing a Company Philosophy
In discussing the need for developing a company philosophy,
rather than just letting it happen, I have selected from successful
company experience just five common elements that make a good
philosophical foundation for any business. To them, the management
of any company or division can add other beliefs that should guide
the organization. If they are to be a real part of the philosophy,
however, these beliefs should be basic enough to become overriding
guidelines to action.
Even without planning or specific effort, any company will gradually
develop a philosophy as people observe and learn through trial and
error "the way we do things around here." However, it is my conviction
that a positive program by top management to build or reshape a sound
fundamental philosophy should be the underlying and overriding
component of the company's system of management.
Whatever beliefs top management wants to build into its philosophy
must, of course, be demonstrated in practice if they are to take firm
root in the minds of people throughout the organization. But to make
the guidelines really operative, something more is needed than
the power of example. Executives and supervisors at all levels
should articulate the company philosophy, relate it to actual situations
and problems at hand, and point out to subordinates where their actions
square, or fail to square, with the beliefs of the organization.
It is through this kind of leadership that a company philosophy
for success can be most soundly and securely built.
Deeply and widely held beliefs in "the way we do things around here"
provide a solid foundation on which to erect a programmed management
system. And these beliefs interact with other system components
to give them strength and to gain strength from them. This is especially
true of the next component I discuss: strategic planning.
The Resolution to achieve
from the book written by Kazuo Inamori
The Purpose of Business
One year after I founded Kyocera, I realized that I had started
Eight of us started the company to prove that the technology
we developed could be accepted by society.
But before long, several young people we had hired demanded
that we guarantee their future income!
I had to seriously ponder the question, "What is an enterprise?"
I was in no position to guarantee anybody's future livelihood,
not even my own family's.
Still, these employees were entrusting their future to our company.
There was no way that we could betray the expectations of
our employees, who were basing their lives on their jobs with us.
Three days and nights of impassioned discussions made me change
Kyocera's corporate mission.
We shifted our priority from technology to employees.
Kyocera's management rationale is to provide opportunities
for the material and intellectual growth of all our employees, and,
through our joint effort, contribute to the advancement of society
Our business shall strive first to provide opportunities
for our employees. Building upon this, we shall jointly contribute to
the progress of technology, society, and humankind.
I believe these are the only worthwhile objectives of our business.
Make Customers Happy
It's a cliche to say that the way to a profitable business is to
"make customers happy."
Still, some companies misunderstand the real meaning of "profit"
and run their business solely for their own benefit.
Such an attitude should never exist.
The principle of business is to please people.
We must certainly make our outside customers happy.
And we must please our internal customers, too - the other employees
and departments who depend on us.
The reason we work hard to meet a deadline is to deliver our products
when our customers need them. We make state-of-the-art products
to meet and exceed our customers' expectations.
We continually develop new products to help our customers
make more profit themselves.
Everything we do in business derives from our principle of pleasing
Too many people think only of their own profit. But business opportunity
seldom knocks on the door of self-centered people. No customer ever
goes to a store merely to please the storekeeper.
Persons who can successfully manage a great business are
those who can make their customers more profitable.
This attitude will invite more business opportunities and bring profit
to their own company.
The Essence of Business
As society develops, age-old truths get lost among complex circumstances.
In managing a business, we should never forget what the essence of
our business is.
Right before the first OPEC oil crisis, a land boom started inJapan.
Many companies vied with one another to purchase land, expecting prices
to skyrocket. Our banker, in fact, came to plead with us. He said he was
delighted that we were depositing our profits with him - yet as our banker,
he felt compelled to advise us that we could be making a fortune by investing
in real estate!
I politely replied that our business was to make profit in the traditional way
by manufacturing products and adding value, not by speculating on land prices.
Then the old crisis came, and most companies had their money tied up in land.
Kyocera, however, was able to use its liquid assets to invest in plants and
equipment. I was praised for our excellent balance sheets and my "clairvoyance."
Of course, no one can foresee the future. But while others looked
at the facade, I held on to basic truths and principles and adhered
to what I believed was the essence of our business.
Follow Profit & Loss Daily
You cannot successfully manage a business like a guru(religious leader)
in seclusion, looking down on others at a gret distance and occasionally
bestowing a few words of wisdom. Instead, think of it as a slow
accumulation of daily routine activities.
Managing a business, whether it is a large corporation or a small shop,
is a daily accumulation of numbers. We can't manage without analyzing
expenses and sales on a regular basis.
But looking at a monthly income statement to run your business is still
not enough. Your monthly profit is based on the daily accumulation of
Therefore, you must behave as if your profit and loss statement is being
produced every day, and manage your operation accordingly.
Operating our business without paying attention to the daily figures
would be like flying an airplane without looking at theinstrument panel.
We would lose track of where we were flying and where we were
supposed to land. The same can be said of operating a business.
If we don't keep an eye on daily business operations,
we will never reach our goal.
An income statement is a portrait of how the manager has behaved daily.
Passion Leads to Success
When I evaluate anyone, I consider that person's talent and ability.
But I believe it is equally important to consider the passion that person
That's because if you have passion, you can accomplish almost anything.
If you don't have ability, but have passion, you can arrange to have
capable people around you. Even if you don't have funds or facilities,
people will respond to your dreams if you allow your passion to persuade
Your passion is the source of success and accomplishment;
the stronger your will, enthusiasm, and passion for success, the
better your chance to succeed.
Passion is a state in which you think of something 24 hours a day,
even as you sleep.
In reality, it is impossible to keep thinking consciously 24 hours a day.
However, it is important to maintain such an intention.
In so doing, your desire will reach your subconscious mind - which can
indeed remain focused asleep or awake.
The key to success is your passion.
The Drama Called "Enterprise"
I regard a company as a theatrical troupe of sorts which performs a drama
Many different roles are needed to stage a drama.
A famous actor and actress may play starring roles.
And there are protagonists, heroes, villains, and enemies.
The backstage crew, musicians, and electricians all work together
to produce the play.
All human beings are equal;
these actors merely have different roles.
If the stars wore stagehands' work clothes, the drama probably
wouldn't make sense. Actors and actresses have to dress and
act their part.
And, so it is with a company. Being the president is just a role.
If the chief executive officer is shabbily dressed, the company's
image may suffer.
Officers also receive certain privileges that are commensurate
with their responsibilities, because it is their role.
However, this does not permit them to be opportunistic or take
advantage of others - that would constitute an abuse of authority.
The quality of a company reflects the passion for excellence that
each member of the cast displays.
While the roles may differ, each actor or actress is a professional
in his or her own right.
Passion with a Pure Mind
True passion can bring you success.
But if the passion arises from your own greed or self-interest,
the success will be short-lived.
If you become insensitive to what is right for society, and start
pushing ahead thinking only about yourself, the same passion
which brought you success initially will cause you to fail in the end.
Ultimately, success depends on the purity of the desire that reaches
our subconscious minds.
It would be ideal if we could rid ourselves of our selfishness and
have completely altruistic and pure desires for humanity and society.
But it is almost impossible for us, as human beings,to fully eradicate
our self-interest and greed. And we should not feel ashamed of this.
We need some egotistic desires as part of the self-preservation
mechanism that keeps us alive.
But we also need to make an effort to control them.
We should at least shift our work objective from working just
for ourselves to doing so for our group.
By shifting our objective away from ourselves to others,
the purity of our desire will increase.
Eventually, the strong desire of a pure mind will prevail.
It has often been my experience, when I am agonizing and worrying
over a purely selfless desire, to suddenly see a solutionto the problem.
I like to think of this as a Higher Power granting me an insight
by letting my desperate but pure desire reach my subconscious mind.
Pursue Profit Fairly
Employees have to achieve profitability for the sake of their enterprise
and their people.
This is nothing to be ashamed of. In the free market where
the principle of free competition functions, the profit we gain is
a just reward for doing business in a rightful manner.
We streamline our operations to deliver high-valued products
to our customers at minimal cost.
Managers and workers earn profit byworking hard.
We should be proud of it.
However, we should not let the pursuit of profit overwhelm us.
We should never succumb to the temptation to seek profit shamelessly.
We must remain on the path of righteousness.
We gain profit fairly through hard work to provide the quality
products our customers demand.
We should never dream of making a fortune at a single stroke
through underhanded means.
For example, at the height of the oil crisis, some executives directed
their companies to hold back their merchandise deliberately and
I wonder how many of these unscrupulous managers are still
in executive offices today.
In a free market, profit is society's reward for those who serve its interests.
"To drive a car, you need to turn your starter to get your engine going,"
I have been telling my executives.
Likewise, to start a major project, you need managers who share your
passion and use it to motivate their employees.
When Kyocera was building its second plant, I became concerned.
We were a young company, growing rapidly because of our entrepreneurial
passion. But I worried that we might eventually become like any other
large corporation - a bureaucracy without any pioneering passion.
I wanted to raise entrepreneurs in Kyocera.
I thus divided our company into small profit centers called amebas.
Each is a small venture business with one person acting as the leader,
or nucleus. A typical ameba buys everything it needs from outside
the company or from other amebas.
It profits by selling its products and services to others or to outside
customers. Each ameba shares in the passion of the ameba leader,
and is evaluated by its hourly efficiency - the average added value
per work-hour of its members.
Several small amebas make up larger amebas which, in turn,
are grouped into even larger amebas.
Kyocera itself is a gigantic ameba, composed of thousands of amebas
all over the world.
Ignite your managers with your passion, so they may ignite passion
in their subordinates.
Pricing is Management
I tell my staff that pricing is management.
It is commonly believed that your price should be slightly
below the market price to compete in the marketplace.
You may lower your profit and sell as much as you can;
or you can price your goods near the market price,
maximize your margin, and expect to sell a lower quantity.
There is an infinite choice of pricing.
In other words, we try to maximize the mathematical product
of the quantity sold times the average selling price.
But many factors influence sales.
No simple answer is found.
It is very difficult to estimate the volume of sales
at any given profit margin.
But, because this pricing will have such an important influence
on business performance.
I believe that only the top management should ultimately set prices.
In pricing, the goal is to find the maximum price customers
will be happy to pay for your product. If it is too high,
customers will not buy.
If it is too low, customers may be happy but gross margin may be
inadequate to maintain your operation no matter how much you sell.
The philosophy at the top will decide the pricing.
An aggressive manager will set an aggressive price
while a cautious manager will price conservatively.
Pricing affects business performance.
It is a reflection of management's capability and philosophy.
In pricing, I don't start from the cost accounting concept.
That is, I don't establish a price by using a preset profit margin
in this common formula:
Price =Cost of Goods + Overhead Costs + Profit
Generally, price is decided by the free-market mechanism.
In short, the customers decide the price.
Since the price is decided by the market, we must continually
minimize our manufacturing costs. The difference between our cost
of goods and our price is the base for our gross profit.
That means our effort to minimize manufacturing costs is, in fact,
an effort to maximize our profit.
To minimize manufacturing costs, we should eliminate all preconceptions
and common knowledge, such as worrying about the ideal percentages of
material cost, labor cost, overhead expenses, and so on.
We should scrutinize all areas and eliminate any unnecessary expenses.
We have to come up with the least costly method of manufacturing
our product with the quality and price the market demands.
In this sense, a penny saved is, indeed, a penny earned.
Maximizing profit while fully satisfying our customers' needs and desires
- this is the essence of business!
Think of taxes as necessary business expenses paid
to support the communities in which we operate.
For business executives, paying taxes is as painful as cutting our
own flesh. Each year, we have to surrender more than half of
the profit we worked so hard to earn.
And even though some of our profits are in receivables and other
noncash forms, we still have to pay our tax in cash.
Taxation is merciless!
Perhaps only executives can appreciate this feeling.
Employees may think it's just the company's money.
But for us, it almost feels like someone is stealing our savings.
That's why some executives will resort to any cheap trick to avoid
This, of course, is wrong.
A company's profit does not belong to the executives.
Further, the taxes we pay are used to benefit society.
We should not selfishly hide our profit from taxation.
To avoid "tax resentment," we must look at our profit objectively
for what it is. Profit is a grade or a score, like in a game, of the credit
that society gives us in return for our contribution.
When I look at profit that way, I can be more objective and not so
possessive. In other words, only after-tax net profit is the true profit.
Taxes are business expenses which we must incur.
After-tax profit is the only profit given to us for our business efforts.
Taxes are our necessary business expenses
Some owners of very profitable businesses deliberately take measures
to keep their profit low. In other words, they splurge on lavish
entertainment, boondoggle trips, and unnecessary expenses to reduce
It is true that more than half our profit is taken away each year
Still, the rest is left to the company. The true spirit of business
management should be to cherish the after-tax profit.
It is said that the equity ratios of most Japanese companies are
very low because of Japan's tax system. I rather think it is
a matter of the philosophy of business executives.
No matter how much we have to pay in taxes, we must never stop
our efforts to raise our profitability.
I now treat taxes as a part of our necessary business expenses, and
assiduously accumulate after-tax profits within our company.
Today, we have hefty internal reserves which provide stability
and flexibility to our company and work opportunities for our employees.
This strength also enables us to tackle challenging new ventures.
Set a Visible Goall
When we set our annual master plan, I challenge myself and others
against setting low, easily attainable targets.
Rather, I want each ameba to have ambitious goals based upon our
strong desire to achieve.
I say, "Boast and then make it come true."
Even though someone may fail to achieve his or her plan,
I do not necessarily go after the results only. But this does not
mean it is all right to let our plans go unachieved;
if the plan continues to be unachieved year after year,
our employees will lose their confidence and ability to attain goals.
It is important to meet our targets.
Everyone has to share the same goal to achieve a target.
If the only people interested in attaining the goal were top executives,
the goal would never be achieved.
Structure your company so that even the smallest units of
the organization have their own plans.
Persuade each person to work hard to pursue his or her part of the plan
and to help the division meet its plan.
Then, as each ameba's plan is met, the overall plan for the organization
will be accomplished as a matter of course.
Set plans every month to translate the annual plan intoa more tangible
and motivating target.
A master plan must be shared with all employees and translated into goals
that are ardently desired by all.
Any Economy has been operatng on a cycle
When a recession hits, many business owners look to government
for a solution. They ask for additional spending, tax cuts, or
lower interest rates to stimulate growth.
Everyone seems to have his or her own opinion.
In truth, any economy has good and bad periods - and no single cycle
has ever lasted forever. Japan, for example, has experienced many
recessions of varying degree and used each one as a stepping stone
to the next phase of growth.
On the whole, Japan's economy has progressed continually upward.
But because of this historic background, many Japanese managers
erroneously believe that their economy will keep growing forever.
The most fundamental fact is that any economy has been operating
on a cycle. The bull and the bear are facts of life, and preparing
for bad times during the good is the most basic rule of management.
Unfortunately, many of today's managers have forgotten this rule
and have become weak-kneed - dependent on government or
some divine intervention for a recovery.
In my opinion, the term "management" should refer to managing
- building a reserve during good times so a recession won't leave
us crying for help.The cycle of good and bad times is a matter of
course in business.
In fact, a painful recession teaches managers something precious:
it instills within their hearts the desire to manage conservatively
during the "boom," and to build a reserve that can outlast
the inevitable "bust."
During Japan's so-called "bubble economy," however, anyone could
get rich by simply buying land or stock. Debts of millions of dollars
were nothing to worry about. Money came easily in vast amounts
as if it simply bubbled up from nowhere.
Yet nobody ever sounded a warning, and hardly anyone exercised
restraint. Instead, an entire generation kept silent as the profits rolled
in - and then, at the sight of the first loss, we panicked.
This mentality also led the stock market into a "loss-compensation"
scandal. At that time, people were getting rich in stocks by simply
entrusting large sums of money with securities firms.
Once these people began to lose money, they had the nerve to demand
compensation - and they got it!
Bulls and bears are the basic tenets of trading.
Corporate financiers have attempted to defy this rule, almost
as if they could defy gravity - and had they succeeded,
they might have destroyed the entire stock market.
Be the Center of possitive achieving action
- Vortex Center
There are three basic types of materials．
They are combustible material, noncombustible material, and
very slowly combustible material.
Combustible material begins to burn when it comes near a fire.
Noncombustible material does not burn, even when it is in the fire.
Very slowlycombustible material begins to burn when it become
too hot from inside.
I classify human beings in the same way.
The most productive person is a very slowly combustible man and
woman when they become a selfstarter. Because enthusiasm and
passion in their minds are the basic factors necessary for achieving
A noncombustible person is one who may be talented, but is nihilistic
and insensitive, and are usually unable to feel emotion and passion.
Noncombustible people are usually unable to accomplishanything
difficult in spite of their abilities with no enthusiasm and no passion .
Combustible people can at least become motivated when surrounded
by motivated people. They can at least start burning when they come
near motivated people.
We really need motivated people who have become fired up with
their own energy. Such people can burn and give energy to others
around them. You must engulf others in your enthusiasm and passion.
There is a limit to what one person alone can achieve. In your work,
you have to cooperate with people around you - your supervisors,
subordinates, and colleagues.
However, you should aggressively pursue your work so the people
around you will be spontaneously cooperate with you.
This is what I call "working in the center of the possitive achieving action."
You might end up being outside the possitive achieving action
with someone else in the center of it. In a company there are many
business , the possitive achieving actions like currents eddying everywhere.
If you are just floating around them, you will be engulfed in them.
To experience the real joy and zest of work, you have to be in the center
of the possitive achieving actions - vortexes, and tackle your job as
aggressively as if you were engulfing the other people around you.
Whether or not your way of thinking is independent aggressive enough
to create your own possitive achieving action will decide only the result
of your work, but also the result of your life.
the Fourth Industrial
from World Economic Forum in 2016
Of the many diverse and fascinating challenges we face today,
the most intense and important is how to understand and shape
the new technology revolution, which entails nothing less than
a transformation of humankind.
We are at the beginning of a revolution that is fundamentally
changing the way we live, work, and relate to one another.
In its scale, scope and complexity, what I consider to be the fourth
industrial revolution is unlike anything humankind has experienced
We have yet to grasp fully the speed and breadth of this new revolution.
Consider the unlimited possibilities of having billions of people connected
by mobile devices, giving rise to unprecedented processing power,
storage capabilities and knowledge access.
Or think about the staggering confluence of emerging technology
breakthroughs, covering wide-ranging fields such as artificial intelligence
(AI), robotics, the internet of things (IoT), autonomous vehicles,
3D printing, nanotechnology, biotechnology, materials science,
energy storage and quantum computing, to name a few.
Many of these innovations are in their infancy, but they are already
reaching an inflection point in their development as they build on
and amplify each other in a fusion of technologies across the physical,
digital and biological worlds.
We are witnessing profound shifts across all industries, marked
by the emergence of new business models, the disruption' of
incumbents and the reshaping of production, consumption, transportation
and delivery systems.
On the societal front, a paradigm shift is underway in how we work
and communicate, as well as how we express, inform and entertain
Equally, governments and institutions are being reshaped, as are systems
of education, healthcare and transportation, among many others.
New ways of using technology to change behavior and our systems
of production and consumption also offer the potential for supporting
the regeneration and preservation of natural environments, rather than
creating hidden costs in the form of externalities.
The changes are historic in terms of their size, speed and scope.
While the profound uncertainty surrounding the development and
adoption of emerging technologies means that we do not yet know
how the transformations driven by this industrial revolution will unfold,
their 'complexity and interconnectedness across sectors imply that
all stakeholders of global society --governments, business, academia,
and civil society --have a responsibility to work together to better
understand the emerging trends.
Shared understanding is particularly critical if we are to shape
a collective future that reflects common objectives and values.
We must have a comprehensive and globally shared view of
how technology is changing our lives and those of future generations,
and how it is reshaping the economic, social, cultural and human
context in which we live.
The changes are so profound that, from the perspective of human history,
there has never been a time of greater promise or potential peril.
My concern, however, is that decision makers are too often caught
in traditional, linear (and nondisruptive) thinking or too absorbed
by immediate concerns to think strategically about the forces of
disruption and innovation shaping our future.
I am well aware that some academics and professionals consider
the developments that I am looking at as simply a part of
the third industrial revolution.
Three reasons, however, underpin my conviction that a fourth and
distinct revolution is under way:
Contrary to the previous industrial revolutions, this one is evolving
at an exponential rather than linear pace. This is the result of
the multifaceted, deeply interconnected world we live in and
the fact that new technology begets newer and ever more capable
Breadth and Depth:
It builds on the digital revolution and combines multiple technologies
that are leading to unprecedented paradigm shifts in the economy,
business, society, and individually. It is not only changing the "what"
and the "how" of doing things but also "who" we are.
It involves the transformation of entire systems, across (and within)
countries, companies, industries and society as a whole.
In writing this book, my intention is to provide a primer
on the fourth industrial revolution
- what it is, what it will bring, how it will impact us, and
what can be done to harness it for the common good.
This volume is intended for all those with an interest
in our future who are committed to using the opportunities of
this revolutionary change to make the world a better place.
I have three main goals:
--to increase awareness of the comprehensiveness and
speed of the technological revolution and its multifaceted
--to create a framework for thinking about the technological
revolution that outlines the core issues and highlights
possible responses, and
--to provide a platform from which to inspire public-private
cooperation and partnerships on issues related to
the technological revolution.
Above all, this book aims to emphasize the ways in which
technology and society coexist.
Technology is not an exogenous force over which we have
We are not constrained by a binary choice between
"accept and live with it" and "reject and live without it."
Instead, take dramatic technological change as an invitation
to reflect about who we are and how we see the world.
The more we think about how to harness the technology
revolution, the more we will examine ourselves and
the underlying social models that these technologies embody
and enable, and the more we will have an opportunity to shape
the revolution in a manner that improves the state of the world.
Shaping the fourth industrial revolution to ensure that it is
empowering and human-centered, rather than divisive and
dehumanizing, is not a task for any single stakeholder
or sector or for any one region, industry or culture.
The fundamental and global nature of this revolution means
it will affect and be influenced by all countries, economies,
sectors and people.
It is, therefore, critical that we invest attention and energy
in multistakeholder cooperation across academic, social, political,
national and industry boundaries.
These interactions and collaborations are needed to create
positive, common and hope-filled narratives, enabling individuals
and groups from all parts of the world to participate in, and
benefit from, the ongoing transformations.
Much of the information and my own analysis in this book
are based on ongoing projects and initiatives of the World
Economic Forum and have been developed, discussed
and challenged at recent Forum gatherings.
Thus, this book also provides a framework for shaping the future
activities of the World Economic Forum.
I have also drawn from numerous conversations I have had
with business, government and civil society leaders, as well as
technology pioneers and young people.
It is, in that sense, a crowd-sourced book, the product of
the collective enlightened wisdom of the Forum's communities.
This book is organized in three chapters.
The first is an overview of the fourth industrial revolution.
The second presents the main transformative technologies.
The third provides a deep dive into the impact of the revolution
and some of the policy challenges it poses. I conclude
by suggesting practical ideas and solutions on how best to adapt,
shape and harness the potential of this great transformation.
1. The Fourth Industrial Revolution
1.1 Historical Context
The word "revolution" denotes abrupt and radical change..
Revolutions have occurred throughout history when new technologies
and novel ways of perceiving the world trigger a profound change
in economic systems and social structures.
Given that history is used as a frame of reference,
the abruptness of these changes may take years to unfold.
The first profound shift in our way of living --the transition
from foraging to farming--happened around 10,000 years ago
and was made possible by the domestication of animals.
The agrarian revolution combined the efforts of animals with those
of humans for the purpose of production, transportation and
Little by little, food production improved, spurring population
growth and enabling larger human settlements. This eventually
led to urbanization and the rise of cities.
The agrarian revolution was followed by a series of industrial
revolutions that began in the second half of the 18th century.
These marked the transition from muscle power to mechanical
power, evolving to where today, with the fourth industrial revolution,
enhanced cognitive power is augmenting human production.
The first industrial revolution spanned from about 1760 to around 1840.
Triggered by the construction of railroads and the invention of the steam
engine, it ushered in mechanical production.
The second industrial revolution, which started in the late 19th century
and into the early 20th century, made mass production possible,
fostered by the advent of electricity and the assembly line.
The third industrial revolution began in the 1960s.
It is usually called the computer or digital revolution because it was
catalyzed by the development of semiconductors, mainframe
computing (1960s), personal computing (1970s and '80s) and
the internet (1990s).
Mindful of the various definitions and academic arguments used
to describe the first three industrial revolutions, I believe that
today we are at the beginning of a fourth industrial revolution.
It began at the turn of this century and builds on the digital revolution.
It is characterized by a much more ubiquitous and mobile internet,
by smaller and more powerful sensors that have become cheaper,
and by artificial intelligence and machine learning.
Digital technologies that have computer hardware, software and
networks at their core are not new, but in a break with the third
industrial revolution, they are becoming more sophisticated and
integrated and are, as a result, transforming societies and
the global economy.
This is the reason why Massachusetts Institute of Technology (MIT)
professors Erik Brynjolfsson and Andrew McAfee have famously
referred to this period as "the second machine age,"
the title of their 2014 book, stating that the world is at an inflection
point where the effect of these digital technologies will manifest with
"full force" through automation and and the making of
The first industrial revolution spanned from about 1760
to around 1840. Triggered by the construction of railroads
and the invention of the steam engine, it ushered in
The second industrial revolution, which started in the late
19th century and into the early 20th century, made
mass production possible, fostered by the advent of electricity
and the assembly line.
The third industrial revolution began in the 1960s. It is usually
called the computer or digital revolution because it was catalyzed
by the development of semiconductors, mainframe computing (1960s),
personal computing (1970s and '80s) and the internet (1990s).
Mindful of the various definitions and academic arguments
used to describe the first three industrial revolutions, I
believe that today we are at the beginning of a fourth
industrial revolution. It began at the turn of this century
and builds on the digital revolution.
It is characterized by a much more ubiquitous and mobile internet,
by smaller and more powerful sensors that have become cheaper,
and by artificial intelligence and machine learning.
Digital technologies that have computer hardware, software
and networks at their core are not new, but in a break
with the third industrial revolution, they are becoming
more sophisticated and integrated and are, as a result,
transforming societies and the global economy.
This is'the reason why Massachusetts Institute of Technology (MIT)
professors Erik Brynjolfsson and Andrew McAfee have
famously referred to this period as "the second machine
age," the title of their 2014 book, stating that the world
is at an inflection point where the effect of these digital
technologies will manifest with "full force" through
automation and and the making of "unprecedented things."
In Germany, there are discussions about "Industry 4.0,"
a term coined at the Hannover Fair in 2011 to describe
how this will revolutionize the organization of global
value chains. By enabling "smart factories," the fourth
industrial revolution creates a world in which virtual and
physical systems of manufacturing globally cooperate
with each other in a flexible way. This enables the absolute
customization of products and the creation of new
The fourth industrial revolution, however, is not only about
smart and connected machines and systems. Its scope is
much wider. Occurring simultaneously are waves of further
breakthroughs in areas ranging from gene sequencing to
nanotechnology, from renewables to quantum computing.
It is the fusion of these technologies and their interaction
across the physical, digital and biological domains that make
the fourth industrial revolution fundamentally different
from previous revolutions.
In this revolution, emerging technologies and broad-based
innovation are diffusing much faster and more widely than
in previous ones, which continue to unfold in some parts
of the world. This second industrial revolution has yet to
be fully experienced by 17% of world, as nearly 1.3 billion
people still lack access to electricity.
This is also true for the third industrial revolution,
with more than half of the world's population,
4 billion people, most of whom live in the developing world,
lacking internet access. The spindle
(the hallmark of the first industrial revolution) took almost
120 years to spread outside of Europe.
By contrast, the internet permeated across the globe
in less than a decade.
Still valid today is the lesson from the first industrial
revolution--that the extent to which society embraces
technological innovation is a major determinant of
The government and public institutions, as well as
the private sector, need to do their part, but it is also
essential that citizens see the long-term benefits.
I am convinced that the fourth industrial revolution will be
every bit as powerful, impactful and historically important
as the previous three.
However, I have two primary concerns about factors
that may limit the potential of the fourth industrial revolution
to be effectively and cohesively realized.
First, I feel that the required levels of leadership and
understanding of the changes under way, across all sectors,
are low when contrasted with the need to rethink our
economic, social and political systems to respond to the
fourth industrial revolution. As a result, both at the national
and global levels, the requisite institutional framework
to govern the diffusion of innovation and mitigate the
disruption is inadequate at best and, at worst, absent
Second, the world lacks a consistent, positive and common
narrative that outlines the opportunities and challenges
of the fourth industrial revolution, a narrative that is
essential if we are to empower a diverse set of individuals
and communities and avoid a popular backlash against the
fundamental changes under way.
1.2 Profound and Systemic Change
The premise of this book is that technology and digitization will
revolutionize everything, making the overused and often ill-used
adage "this time is different" apt.
Simply put, major technological innovations are on the brink of
fueling momentous change throughout the world--inevitably so.
The scale and scope of change explain why disruption and innovation
feel so acute today. The speed of innovation in terms of both
its development and diffusion is faster than ever.
Today's disruptors (Airbnb, Uber, Alibaba and the like--now household
names) were relatively unknown just a few years ago. The ubiquitous
iPhone was first launched in 2007. Yet there will be as many as 2 billion
smartphones by the end of 2015. In 2010 Google announced its first
fully autonomous car. Such vehicles could soon become a widespread
reality on the road.
One could go on. But it is not only speed; returns to scale
are equally staggering.
Digitization means automation, which in turn means that
companies do not incur diminishing returns to scale
(or less of them, at least).
To give a sense of what this means at the aggregate level,
compare Detroit in 1990 (then a major center of traditional
industries) with Silicon Valley in 2014. In 1990, the three
biggest companies in Detroit had a combined market
capitalization of $36 billion, revenues of $250 billion,
and 1.2 million employees. In 2014, the three biggest
companies in Silicon Valley had a considerably higher
market capitalization ($1.09 trillion), generated roughly
the same revenues ($247 billion), but with about 10 times
fewer employees (137,000).
The fact that a unit of wealth is created today with much
fewer workers compared with 10 or 15 years ago is possible
because digital businesses have marginal costs that tend
Additionally, the reality of the digital age is that many new
businesses provide "information goods" with storage, transportation
and replication costs that are virtually nil.
Some disruptive tech companies seem to require little capital
to prosper. Businesses such as Instagram or WhatsApp, for example,
did not require much funding to start up, changing the role of capital
and scaling business in the context of the fourth industrial revolution.
Overall, this shows how returns to scale further encourage scale and
influence change across entire systems.
Aside from speed and breadth, the fourth industrial revolution is unique
because of the growing harmonization and integration of so many
different disciplines and discoveries.
Tangible innovations that result from interdependencies among different
technologies are no longer science fiction. Today, for example, digital
fabrication technologies can interact with the biological world.
Some designers and architects are already mixing computational design,
additive manufacturing, materials engineering and synthetic biology
to pioneer systems that involve the interaction among micro-organisms,
our bodies, the products we consume, and even the buildings weinhabit.
In doing so, they are making and even "growing" objects that are
continuously mutable and adaptable hallmarks of the plant and animal kingdoms;
In The Second Machine Age, Brynjolfsson and McAfee argue that computers
are so dexterous that it is virtually impossible to predict what applications they
may be used for in just a few years. Artificial intelligence(AI) is all around us,
from self-driving cars and drones to virtual assistants and translation software.
This is transforming our lives.
AI has made impressive progress, driven by exponential increases in computing
power and by the availability of vast amounts of data, from software
used to discover new drugs to algorithms that predict our cultural interests.
Many of these algorithms learn from the "bread crumb" trails of data
that we leave in the digital world. This results in new types of "machine
learning" and automated discovery that enable "intelligent" robots and
computers to self-program and find optimal solutions from first principles.
Applications such as Apple's Siri provide a glimpse of the power of one
subset of the rapidly advancing AI field -- so-called intelligent assistants
Only two years ago,intelligent personal assistants were starting toemerge
Today, voice recognition and artificial intelligence are progressing so
quickly that talking to computers will soonbecome the norm, creating
what some technologists call ambient computing, in which robotic
personal assistants are constantly available to take notes and respond
to user queries.
Our devices will become an increasing part of our personal ecosystem,
listening to us,anticipating our needs, and helping us when required
-- even if not asked.
Inequality as a systemic challenge
The fourth industrial revolution will generate great benefits and big
challenges in equal measure. A particular concern is exacerbated
inequality. The challenges posed by rising inequality are hard
to quantify as a great majority of us are consumers and producers,
so innovation and disruption will both positively and negatively affect
our living standards and welfare. The consumer seems to be gaining
The fourth industrial revolution has made possible new products and
services that increase at virtually no cost the efficiency of our personal
lives as consumers.
Ordering a cab, finding a flight, buying a product, making a payment
listening to music or watching a film--any of these tasks can now
be done remotely.
The benefits of technology for all of us who consume are
The internet, the smartphone and the thousands of apps are making
our lives easier, and--on the whole--more productive.
A simple device such as a tablet, which we use for reading, browsing
and communicating, possesses the equivalent processing power of
5,000 desktop computers from 30 years ago, while the cost of storing
information is approaching zero (storing 1GB costs an average of less
than $0.03 a year today, compared with more than $10,000, 20 years
The challenges created by the fourth industrial revolution appear to be
mostly on the supply side--in the world of work and production.
Over the past few years, an overwhelming majority of the most
developed countries and also some fast-growing economies such as
China have experienced a significant decline in the share of labor as
a percentage of GDP.
Half of this drop is due to the fall in the relative price of investment
goods,' itself driven bythe progress of innovation (which compels
companies to substitute labor for capital).
As a result, the great beneficiaries of the fourth industrial
revolutionarethe providers of intellectual or physical capital
--the innovators, the investors, and the shareholders, which
explains the rising gap in wealth between those who depend
on their labor and those who own capital.
It also accounts for the disillusionment among so many workers,
convinced that their real income may not increase over their lifetime
and that their children may not have a better life than theirs.
Rising inequality and growing concerns about unfairness present such
a significant challenge that I will devote a section to this in Chapter
The concentration of benefits and value in just a small percentage of
people is also exacerbated by the so-called platform effect, in which
digitally driven organizations create networks that match buyers and
sellers of a wide variety of products and services and thereby enjoy
increasing returns to scale.
The consequence of the platform effect is a concentration of few but
powerful platforms that dominate their markets.
The benefits are obvious, particularly to consumers:
higher value, more convenience and lower costs.
Yet so too are the societal risks.
To prevent the concentration of value and power in just a few hands,
we have to find ways to balance the benefits and risks of digital
platforms (including industry platforms) by ensuring openness and
opportunities for collaborative innovation.
These are all fundamental changes affecting our economic, social and
political systems that are difficult to undo, even if the process of
globalization itself were to somehow be reversed.
The question for all industries and companies, without exception,
is no longer "Am I going to be disrupted?" but "When is disruption
coming, what form will it take and how will it affect me and my
The reality of disruption and the inevitability of the impact it will
have on us does not mean that we are powerless in the face of it.
It is our responsibility to ensure that we establish a set of common
values to drive policy choices and to enact the changes that will make
the fourth industrial revolution an opportunity for all.
Countless organizations have produced lists ranking the various
technologies that will drive the fourth industrial revolution.
The scientific breakthroughs and the new technologies they
generate seem limitless, unfolding on so many different fronts and
in so many different places.
My selection of the key technologies to watch is based on research
done by the World Economic Forum and the work of several of
the Forum's Global Agenda Councils.
All new developments and technologies have one key feature
in common: they leverage the pervasive power of digitization and
All of the innovations described in this chapter are made possible
and are enhanced through digital power.
Gene sequencing, for example, could not happen without progress
in computing power and data analytics.
Similarly, advanced robots would not exist without artificial intelligence,
which itself largely depends on computing power.
To identify the megatrends and convey the broad landscape of
technological drivers of the fourth industrial revolution,
I have organized the list into three clusters: physical, digital and
All three are deeply interrelated and the various technologies
benefit from one another based on the discoveries and progress
There are four main physical manifestations of
the technological megatrends, which are the easiest
to see because of their tangible nature:
The driverless car dominates the news but there are now
many other autonomous vehicles including trucks, drones,
aircrafts and boats.
As technologies such as sensors and artificial intelligence
progress, the capabilities of all these autonomous machines
improve at a rapid pace.
It is only a question of a few years before low-cost,
commercially available drones, together with submersibles,
are used in different applications.
As drones become capable of sensing and responding
to their environment (altering their flight path to avoid
collisions), they will be able to do tasks such as checking
electric power lines or delivering medical supplies in war zones.
In agriculture, the use of drones幼ombined with data
analytics--will enable more precise and efficient use
of fertilizer and water, for example.
Also called additive manufacturing, 3D printing consists
of creating a physical object by printing layer upon layer
from a digital 3D drawing or model.
This is the opposite of subtractive manufacturing, which is
how things have been made until now, with layers being
removed from a piece of material until the desired shape is
By contrast, 3D printing starts with loose material and
then builds an object into a three-dimensional shape using
a digital template.
The technology is being used in a broad range of applications,
from large (wind turbines) to small (medical implants).
For the moment, it is primarily limited to applications
in the automotive, aerospace and medical industries.
Unlike mass-produced manufactured goods, 3D-printed
products can be easily customized.
As current size, cost and speed constraints are progressively
overcome, 3D printing will become more pervasive to include
integrated electronic components such as circuit boards
and even human cells and organs.
Researchers are already working on 4D, a process that would
create a new generation of self-altering products capable of
responding to environmental changes such as heat and humidity.
This technology could be used in clothing or footwear,
as well as in health-related products such as implants designed
to adapt to the human body.
Until recently, the use of robots was confined to tightly
controlled tasks in specific industries such as automotive.
Today, however, robots are increasingly used across all
sectors and for a wide range of tasks from precision
agriculture to nursing.
Rapid progress in robotics will soon make collaboration
between humans and machines an everyday reality.
Moreover, because of other technological advances,
robots are becoming more adaptive and flexible,
with their structural and functional design inspired
by complex biological structures (an extension of a process
called biomimicry, whereby nature's patterns and strategies
Advances in sensors are enabling robots to understand and
respond better to their environment and to engage
in a broader variety of tasks such as household chores.
Contrary to the past when they had to be programmed through
an autonomous unit, robots can now access information
remotely via the cloud and thus connect with a network of
other robots. When the next generation of robots emerges,
they will likely reflect an increasing emphasis on human・
machine collaboration. In Chapter Three, I will explore
the ethical and psychological questions raised by human・
With attributes that seemed unimaginable a few years ago,
new materials are coming to market.
On the whole, they are lighter, stronger, recyclable and adaptive.
There are now applications for smart materials that are self-healing
or self-cleaning, metals with memory that revert to their original
shapes, ceramics and crystals that turn pressure into energy, and so on.
Like many innovations of the fourth industrial revolution,
it is hard to know where developments in new materials will lead.
Take advanced nanomaterials such as graphene, which is about
200 times stronger than steel, a million-times thinner than
a human hair, and an efficient conductor of heat and electricity.
When graphene becomes price competitive (gram for gram,
it is one of the most expensive materials on earth,
with a micrometer-sized flake costing more than $1,000),
it could significantly disrupt the manufacturing and infrastructure
It could also profoundly affect countries that are heavily reliant
on a particular commodity.
Other new materials could play a major role in mitigating
the global risks we face. New innovations in thermoset
plastics, for example, could make reusable materials that
have been considered nearly impossible to recycle but
are used in everything from mobile phones and circuit
boards to aerospace industry parts.
The recent discovery of new classes of recyclable
thermosetting polymers called polyhexahydrotriazines (PHTs)
is a major step toward the circular economy, which is
regenerative by design and works by decoupling growth
and resource needs.'
One of the main bridges between the physical and digital
applications enabled by the fourth industrial revolution
is the internet of things (IoT)--sometimes called
the "internet of all things."
In its simplest form, it can be described as a relationship
between things (products, services, places, etc.) and people
that is made possible by connected technologies and various
Sensors and numerous other means of connecting things
in the physical world to virtual networks are proliferating
at an astounding pace. Smaller, cheaper and smarter sensors
are being installed in homes, clothes and accessories, cities,
transport and energy networks, as well as manufacturing
Today, there are billions of devices around the world such as
smartphones, tablets and computers that are connected to
Their numbers are expected to increase dramatically
over the next few years, with estimates ranging
from several billions to more than a trillion.
This will radically alter the way in which we manage supply
chains by enabling us to monitor and optimize assets and
activities to a very granular level.
In the process, it will have transformative impact across all
industries, from manufacturing to infrastructure to healthcare.
Consider remote monitoring--a widespread application
of the IoT.
Any package, pallet or container can now be equipped
with a sensor, transmitter or radio frequency identification (RFID)
tag that allows a company to track where it is as it moves
through the supply chain--how it is performing,
how it is being used, and so on.
Similarly, customers can continuously track (practically
in real time) the progress of the package or document
they are expecting. For companies that are in the business
of operating long and complex supply chains, this is
transformative. In the near future, similar monitoring
systems will also be applied to the movement and tracking
The digital revolution is creating radically new approaches
that revolutionize the way in which individuals and
institutions engage and collaborate.
For example, the blockchain, often described as a "distributed
ledger," is a secure protocol where a network of computers
collectively verifies a transaction before it can be recorded and
The technology that underpins the blockchain creates trust
by enabling people who do not know each other (and thus have
no underlying basis for trust) to collaborate without having to go
through a neutral central authority--ie., a custodian or central
In essence, the blockchain is a shared, programmable,
cryptographically secure and therefore trusted ledger which
no single user controls and which can be inspected by everyone.
Bitcoin is so far the best known blockchain application,
but the technology will soon give rise to countless others.
If, at the moment, blockchain technology records financial
transactions made with digital currencies such as Bitcoin,
it will in the future serve as a registrar for things as
different as birth and death certificates, titles of ownership,
marriage licenses, educational degrees, insurance claims,
medical procedures and votes--essentially any kind of
transaction that can be expressed in code.
Some countries or institutions are already investigating
the blockchain's potential.
The government of Honduras, for example, is using
the technology to handle land titles, while the Isle of Man
is testing its use in company registration.
On a broader scale, technology-enabled platforms make
possible what is now called the on-demand economy
(referred to by some as the sharing economy). These
platforms, which are easy to use on a smartphone,
convene people, assets and data, creating entirely
new ways of consuming goods and services.
They lower barriers for businesses and individuals
to create wealth, altering personal and professional
The Uber model epitomizes the disruptive power of
these technology platforms. These platform businesses
are rapidly multiplying to offer new services ranging
from laundry to shopping,
from chores to parking,
from home-stays to sharing long-distance rides.
They have one thing in common:
by matching supply and demand in a very accessible (low cost) way,
by providing consumers with diverse goods, and
by allowing both parties to interact and give feedback,
these platforms therefore seed trust.
This enables the effective use of underutilized assets・
namely those belonging to people who had previously
never thought of themselves as suppliers (i.e., of a seat
in their car, a spare bedroom in their home, a commercial
link between a retailer and manufacturer, or the time and
skill to provide a service like delivery, home repair or
The on-demand economy raises the fundamental question:
What is worth owning--the platform or the underlying asset?
As media strategist Tom Goodwin wrote in a TechCrunch article
in March 2015:
"Uber, the world's largest taxi company, owns no vehicles.
Facebook, the world's most popular media owner, creates no content.
Alibaba, the most valuable retailer, has no inventory.
And Airbnb, the world's largest accommodation provider,
owns no real estate."
Digital platforms have dramatically reduced the transaction
and friction costs incurred when individuals or organizations
share the use of an asset or provide a service.
Each transaction can now be divided into very fine increments,
with economic gains for all parties involved. In addition,
when using digital platforms, the marginal cost of
producing each additional product, good or service tends
This has dramatic implications for business and society that
I will explore in Chapter Three.
Innovations in the biological realm--and genetics in particular
--are nothing less than breathtaking.
In recent years, considerable progress has been achieved
in reducing the cost and increasing the ease of genetic sequencing
and, lately, in activating or editing genes.
It took more than 10 years, at a cost of $2.7 billion, to complete
the Human Genome Project.
Today, a genome can be sequenced in a few hours and for less than
a thousand dollars.'" With advances in computing power, scientists
no longer go by trial and error; rather, they test the way in which
specific genetic variations generate particular traits and diseases.
Synthetic biology is the next step.
It will provide us with the ability to customize organisms by writing DNA.
Setting aside the profound ethical issues this raises, these advances
will not only have a profound and immediate impact on medicine
but also on agriculture and the production of biofuels.
Many of our intractable health challenges, from heart disease to cancer,
have a genetic component.
Because of this, the ability to determine our individual genetic
make-up in an efficient and cost-effective manner
(through sequencing machines used in routine diagnostics) will
revolutionize personalized and effective healthcare.
Informed by a tumor's genetic makeup, doctors will be able
to make decisions about a patient's cancer treatment.
While our understanding of the links between genetic
markers and disease is still poor, increasing amounts of data will make
precision medicine possible, enabling the development of highly targeted
therapies to improve treatment outcomes.
Already, IBM's Watson supercomputer system can help recommend,
in just a few minutes, personalized treatments for cancer patients
by comparing the histories of disease and treatment, scans and
genetic data against the (almost) complete universe of up-to-date
The ability to edit biology can be applied to practically
any cell type, enabling the creation of genetically modified
plants or animals, as well as modifying the cells of adult
organisms including humans.
This differs from genetic engineering practiced in the 1980s
in that it is much more precise, efficient and easier to use
than previous methods.
In fact, the science is progressing so fast that the limitations
are now less technical than they are legal, regulatory and
The list of potential applications is virtually endless・
ranging from the ability to modify animals so that
they can be raised on a diet that is more economical or
better suited to local conditions, to creating food crops
that are capable of withstanding extreme temperatures or
As research into genetic engineering progresses (for example,
the development of the CRISPR/Cas9 method in gene editing
and therapy), the constraints of effective delivery and specificity
will be overcome, leaving us with one immediate and most
challenging question, particularly from an ethical viewpoint:
How will genetic editing revolutionize medical research and
In principle, both plants and animals could potentially be
engineered to produce pharmaceuticals and other forms of
The day when cows are engineered to produce in its milk
a blood-clotting element, which hemophiliacs lack, is not far off.
Researchers have already started to engineer the genomes of
pigs with the goal of growing organs suitable for human
transplantation (a process called xenotransplantation,
which could not be envisaged until now because of the risk of
immune rejection by the human body and of disease transmission
from animals to humans).
In line with the point made earlier about how different technologies
fuse and enrich each other, 3D manufacturing will be combined
with gene editing to produce living tissues for the purpose of
tissue repair and regeneration--a process called bioprinting.
This has already been used to generate skin, bone, heart and
vascular tissue. Eventually, printed liver-cell layers will be used
to create transplant organs.
We are developing new ways to embed and employ devices
that monitor our activity levels and blood chemistry,
and how all of this links to well-being, mental health
and productivity at home and at work.
We are also learning far more about how the human brain
functions and we are seeing exciting developments in the field
of neurotechnology. This is underscored by the fact that-
over the past few years - two of the most funded research
programs in the world are in brain sciences.
It is in the biological domain where I see the greatest challenges
for the development of both social norms and appropriate regulation.
We are confronted with new questions around what it means
to be human, what data and information about our bodies and
health can or should be shared with others, and what rights and
responsibilities we have when it comes to changing the very
genetic code of future generations.
To return to the issue of genetic editing, that it is now far easier
to manipulate with precision the human genome within viable
embryos means that we are likely to see the advent of designer
babies in the future who possess particular traits or who are
resistant to a specific disease.
Needless to say, discussions about the opportunities and
challenges of these capabilities are under way.
Notably, in December 2015, the National Academy of Sciences
and National Academy of Medicine of the US, the Chinese
Academy of Sciences and the Royal Society of the UK
convened an International Summit on Human Gene Editing.
Despite such deliberations, we are not yet prepared to confront
the realities and consequences of the latest genetic techniques
even though they are coming.
The social, medical, ethical and psychological challenges that
they pose are considerable and need to be resolved or,
at the very least, properly addressed.
The dynamics of discovery
Innovation is a complex, social process, and not one we should
take for granted. Therefore, even though this section has highlighted
a wide array of technological advances with the power
to change the world, it is important that we pay attention
to how we can ensure such advances continue to be made and
directed toward the best possible outcomes.
Academic institutions are often regarded as one of the foremost
places to pursue forward-thinking ideas.
New evidence, however, indicates that the career incentives and
funding conditions in universities today favor incremental,
conservative research over bold and innovative programs.
One antidote to research conservatism in academia is
to encourage more commercial forms of research.
This too, however, has its challenges.
In 2015, Uber Technologies Inc. hired 40 researchers and
scientists in robotics from Carnegie Mellon University,
a significant proportion of the human capital of a lab,
impacting its research capabilities and putting stress
on the universities contracts with the US Department of
Defense and other organizations.
To foster both groundbreaking fundamental research and
innovative technical adaptations across academia and
business alike, governments should allocate more aggressive
funding for ambitious research programs.
Equally, public-private research collaborations should
increasingly be structured toward building knowledge and
human capital to the benefit for all.
2.2 Tipping Points
When these megatrends are discussed in general terms,
they seem rather abstract. They are, however, giving rise
to very practical applications and developments.
A World Economic Forum report published in September
2015 identified 21 tipping points--moments when specific
technological shifts hit mainstream society--that will shape
our future digital and hyper-connected world."
They are all expected to occur in the next 10 years and
therefore vividly capture the deep shifts triggered
by the fourth industrial revolution.
The tipping points were identified through a survey
conducted by the World Economic Forum's Global Agenda
Council on the Future of Software and Society, in which
over 800 executives and experts from the information and
communications technology sector participated.
Table (in 2.1 Megatrendson) presents the percentage of
respondents who expect that the specific tipping point will
have occurred by 2025. In the Appendix, each tipping point
and its positive and negative impacts are presented
in more detail.
Two tipping points that were not part of the original survey
--designer beings and neurotechnologies--are also included
but do not appear on Table.
These tipping points provide important context, as they
signal the substantive changes that lie ahead--amplified
by their systemic nature--and how best to prepare and
As I explore in the next chapter, navigating this transition
begins with awareness of the shifts that are going on,
as well as those to come, and their impact on all levels
of global society.
The scale and breadth of the unfolding technological
revolution will usher in economic, social and cultural
changes of such phenomenal proportions that they
are almost impossible to envisage.
Nevertheless, this chapter describes and analyzes
the potential impact of the fourth industrial revolution
on the economy, business, governments and countries,
society and individuals.
In all these areas, one of the biggest impacts will likely result
from a single force:
empowerment--how governments relate to their citizens;
how enterprises relate to their employees,
shareholders and customers;
or how superpowers relate to smaller countries.
The disruption that the fourth industrial revolution will have
on existing political, economic and social models will therefore
require that empowered actors recognize that they are part
of a distributed power system that requires more collaborative
forms of interaction to succeed.
The fourth industrial revolution will have a monumental impact
on the global economy, so vast and multifaceted that it makes
it hard to disentangle one particular effect from the next.
Indeed, all the big macro variables one can think of--GDP,
investment, consumption, employment, trade, inflation and
so on--will be affected.
I have decided to focus only on the two most critical dimensions:
growth (in large part through the lens of its long-term determinant,
productivity) and employment.
The impact that the fourth industrial revolution will have
on economic growth is an issue that divides economists.
On one side, the techno-pessimists argue that the critical
contributions of the digital revolution have already been
made and that their impact on productivity is almost
In the opposite camp, techno-optimists claim that
technology and innovation are at an inflection point
and will soon unleash a surge in productivity and higher
While I acknowledge aspects of both sides of the argument,
I remain a pragmatic optimist. I am well aware of the potential
deflationary impact of technology (even when defined
as "good deflation") and how some of its distributional effects
can favor capital over labor and also squeeze wages
(and therefore consumption).
I also see how the fourth industrial revolution enables many
people to consume more at a lower price and in a way that
often makes consumption more sustainable and therefore
It is important to contextualize the potential impacts of
the fourth industrial revolution on growth with reference to
recent economic trends and other factors that contribute
In the few years before the economic and financial crisis
that began in 2008, the global economy was growing
by about 5% a year. If this rate had continued, it would have
allowed global GDP to double every 14-15 years, with billions
of people lifted out of poverty.
In the immediate aftermath of the Great Recession,
the expectation that the global economy would return
to its previous high-growth pattern was widespread.
But this has not happened. The global economy seems
to be stuck at a growth rate lower than the postwar average
--about 3-3.5% a year.
Some economists have raised the possibility of
a "centennial slump" and talk about "secular stagnation,"
a term coined during the Great Depression by Alvin Hansen,
and recently brought back in vogue by economists
Larry Summers and Paul Krugman.
"Secular stagnation" describes a situation of persistent
shortfalls of demand, which cannot be overcome even with
near-zero interest rates.
Although this idea is disputed among academics, it has
If true, it suggests that global GDP growth could decline
even further. We can imagine an extreme scenario in which
annual global GDP growth falls to 2%, which would mean
that it would take 36 years for global GDP to double.
There are many explanations for slower global growth today,
ranging from capital misallocation to over-indebtedness
to shifting demographics and so on.
I will address two of them, aging and productivity,
as both are particularly interwoven with technological progress.
The world's population is forecast to expand from 7.2 billion today
to 8 billion by 2030 and 9 billion by 2050.
This should lead to an increase in aggregate demand.
But there is another powerful demographic trend: aging.
The conventional wisdom is that aging primarily affects
rich countries in the West. This is not the case, however.
Birthrates are falling below replacement levels in many
regions of the world--not only in Europe, where the decline
began, but also in most of South America and the Caribbean,
much of Asia including China and southern India,
and even some countries in the Middle East and North Africa
such as Lebanon, Morocco and Iran.
Aging is an economic challenge because unless retirement
ages are drastically increased so that older members of
society can continue to contribute to the workforce
(an economic imperative that has many economic benefits),
the working-age population falls at the same time
as the percentage of dependent elders increases.
As the population ages and there are fewer young adults,
purchases of big-ticket items such as homes, furniture, cars
and appliances decrease.
In addition, fewer people are likely to take entrepreneurial risks
because aging workers tend to preserve the assets they need
to retire comfortably rather than set up new businesses.
This is somewhat balanced by people retiring and drawing down
their accumulated savings, which in the aggregate lowers savings
and investment rates.
These habits and patterns may change, of course, as aging
societies adapt, but the general trend is that an aging world
is destined to grow more slowly unless the technology
revolution triggers major growth in productivity, defined
simply as the ability to work smarter rather than harder.
The fourth industrial revolution provides us with the ability
to live longer, healthier and more active lives.
As we live in a society where more than a quarter of the children
born today in advanced economies are expected to live to100,
we will have to rethink issues such the working age
population, retirement and individual life-planning.
The difficulty that many countries are showing in attempting
to discuss these issues is just a further sign of how we are not
prepared to adequately and proactively recognize the forces
Over the past decade, productivity around the world
(whether measured as labor productivity or total-factor
productivity [TFP]) has remained sluggish, despite
the exponential growth in technological progress and
investments in innovation.
This most recent incarnation of the productivity paradox
--the perceived failure of technological innovation to result in
higher levels of productivity--is one of today's great
economic enigmas that predates the onset of the Great
Recession, and for which there is no satisfactory explanation.
Consider the US, where labor productivity grew on average
2.8 percent between 1947 and 1983, and 2.6 percent
between 2000 and 2007, compared with 1.3 percent
between 2007 and 2014.18 Much of this drop is due to lower
levels of TFP, the measure most commonly associated with
the contribution to efficiency stemming from technology
The US Bureau of Labor Statistics indicates that TFP
growth between 2007 and 2014 was only 0.5%, a significant
drop when compared to the 1.4% annual growth in the period
1995 to 2007.
This drop in measured productivity is particularly
concerning given that it has occurred as the 50 largest
US companies have amassed cash assets of more than
$1 trillion, despite real interest rates hovering around zero
for almost five years.
Productivity is the most important determinant of long-
term growth and rising living standards, so its absence,
if maintained throughout the fourth industrial revolution,
means that we will have less of each.
Yet how can we reconcile the data indicating declining
productivity with the expectations of higher productivity
that tend to be associated with the exponential progress
of technology and innovation?
One primary argument focuses on the challenge of
measuring inputs and outputs and hence discerning
productivity. Innovative goods and services created
in the fourth industrial revolution are of significantly higher
functionality and quality, yet are delivered in markets that
are fundamentally different from those which we are
traditionally used to measuring.
Many new goods and services are "non-rival," have zero
marginal costs and/or harness highly competitive markets
via digital platforms, all of which result in lower prices.
Under these conditions, our traditional statistics may well
fail to capture real increases in value as consumer surplus
is not yet reflected in overall sales or higher profits.
Hal Varian, Google's chief economist, points to various
examples such as the increased efficiency of hailing a taxi
through a mobile app or renting a car through the power
of the on-demand economy.
There are many other similar services whose use tends
to increase efficiency and hence productivity.
Yet because they are essentially free, they therefore
providing uncounted value at home and at work.
This creates a discrepancy between the value delivered
via a given service versus growth as measured in national
statistics. It also suggests that we are actually producing and
consuming more efficiently than our economic indicators
Another argument is that, while the productivity gains
from the third industrial revolution may well be waning,
the world has yet to experience the productivity explosion
created by the wave of new technologies being produced
at the heart of the fourth industrial revolution.
Indeed, as a pragmatic optimist, I feel strongly that we are
only just beginning to feel the positive impact on the world
that the fourth industrial revolution can have. My optimism
stems from three main sources.
First, the fourth industrial revolution offers the opportunity
to integrate the unmet needs of two billion people into the
global economy, driving additional demands for existing
products and services by empowering and connecting
individuals and communities all over the world to one
Second, the fourth industrial revolution will greatly
increase our ability to address negative externalities and,
in the process, to boost potential economic growth.
Take carbon emissions, a major negative externality,
as an example. Until recently, green investing was
only attractive when heavily subsidized by governments.
This is less and less the case. Rapid technological advances
in renewable energy, fuel efficiency and energy storage
not only make investments in these fields increasingly
profitable, boosting GDP growth, but they also contribute
to mitigating climate change, one of the major global
challenges of our time.
Third, as I discuss in the next section, businesses,
governments and civil society leaders with whom
I interact all tell me that they are struggling to transform
their organizations to realize fully the efficiencies that
digital capabilities deliver.
We are still at the beginning of the fourth industrial
revolution, and it will require entirely new economic and
organizational structures to grasp its full value.
Indeed, my view is that the competitiveness rules of
the fourth industrial revolution economy are different
from previous periods.
To remain competitive, both companies and countries
must be at the frontier of innovation in all its forms,
which means that strategies which primarily focus
on reducing costs will be less effective than those
which are based on offering products and services
in more innovative ways.
As we see today, established companies are being put
under extreme pressure by emerging disruptors and
innovators from other industries and countries.
The same could be said for countries that do not
recognize the need to focus on building their innovation
To sum up, I believe that the combination of structural
factors (over-indebtedness and aging societies) and
systemic ones (the introduction of the platform and
on-demand economies, the increasing relevance of
decreasing marginal costs, etc.) will force us to rewrite
our economic textbooks.
The fourth industrial revolution has the potential both
to increase economic growth and to alleviate some of
the major global challenges we collectively face.
We need, however, to also recognize and manage
the negative impacts it can have, particularly
with regard to inequality, employment and labor markets.
Despite the potential positive impact of technology
on economicsrowth, it is nonetheless essential to address
its possible negative impact, at least in the short term,
on the labor market.
Fears about the impact of technology on jobs are not new
In 1931, the economist John Maynard Keynes famously
warned about widespread technological unemployment
"due to our discovery of means of economizing the use of
labor outrunning the pace at which we can find new uses
This proved to be wrong, but what if this time it were true?
Over the past few years, the debate has been reignited
by evidence of computers substituting for a number of jobs,
most notably bookkeepers, cashiers and telephone operators.
The reasons why the new technology revolution will
provoke more upheaval than the previous industrial
revolutions are those already mentioned in the introduction:
speed (everything is happening at a much faster pace
than ever before), breadth and depth (so many radical
changes are occurring simultaneously), and the complete
transformation of entire systems.
In light of these driving factors, there is one certainty:
New technologies will dramatically change the nature of work
across all industries and occupations.
The fundamental uncertainty has to do with the extent
to which automation will substitute for labor.
How long will this take and how far will it go?
To get a grasp on this, we have to understand
the two competing effects that technology exercises
First, there is a destruction effect as technology-fueled
disruption and automation substitute capital for labor,
forcing workers to become unemployed or to reallocate
their skills elsewhere.
Second, this destruction effect is accompanied
by a capitalization effect in which the demand for new
goods and services increases and leads to the creation
of new occupations, businesses and even industries.
As human beings, we have an amazing ability for adaptation
and ingenuity. But the key here is the timing and extent to
which the capitalization effect supersedes the destruction
effect, and how quickly the substitution will take.
There are roughly two opposing camps when it comes to
the impact of emerging technologies on the labor market:
those who believe in a happy ending--in which workers
displaced by technology will find new jobs, and where
technology will unleash a new era of prosperity;
and those who believe it will lead to a progressive social
and political Armageddon by creating technological
unemployment on a massive scale.
History shows that the outcome is likely to be somewhere
in the middle.
The question is:
What should we do to foster more positive outcomes and
help those caught in the transition?
It has always been the case that technological innovation
destroys some jobs, which it replaces in turn with new ones
in a different activity and possibly in another place.
Take agriculture as an example.
In the US, people working on the land consisted of 90% of
the workforce at the beginning of the 19th century,
but today, this accounts for less than 2%.
This dramatic downsizing took place relatively smoothly,
with minimal social disruption or endemic unemployment.
The app economy provides an example of a new job
ecosystem. It only began in 2008 when Steve Jobs,
the founder of Apple, let outside developers create applications
for the iPhone. By mid-2015, the global app economy was
expected to generate over $100 billion in revenues,
surpassing the film industry, which has been in existence
for over a century.
The techno-optimists ask:
If we extrapolate from the past, why should it be different
They acknowledge that technology can be disruptive
but claim that it always ends up improving productivity and
increasing wealth, leading in turn to greater demand
for goods and services and new types of jobs to satisfy it.
The substance of the argument goes as follows:
Human needs and desires are infinite, so the process of
supplying them should also be infinite.
Barring the normal recessions and occasional depressions,
there will always be work for everybody.
What evidence supports this and what does it tell us about
what lies ahead?
The early signs point to a wave of labor-substitutive
innovation across multiple industries and job categories
which will likely happen in the coming decades.
Many different categories of work, particularly those that
involve mechanically repetitive and precise manual labor,
have already been automated.
Many others will follow, -,
as computing power continues to grow exponentially.
Sooner than most anticipate, the work of professions
as different as lawyers, financial analysts, doctors,
journalists, accountants, insurance underwriters or
librarians may be partly or completely automated.
So far, the evidence is this:
The fourth industrial revolution seems to be creating
fewer jobs in new industries than previous revolutions.
According to an estimate
from the Oxford Martin Programme on Technology and
Employment, only 0.5% of the US workforce is employed
in industries that did not exist at the turn of the century,
a far lower percentage than the approximately 8% of
new jobs created in new industries during the 1980s and
the 4.5% of new jobs created during the 1990s.
This is corroborated by a recent US Economic Census,
which sheds some interesting light on the relationship
between technology and unemployment.
It shows that innovations in information and other disruptive
technologies tend to raise productivity by replacing existing
workers, rather than creating new products needing more
labor to produce them.
Two researchers from the Oxford Martin School,
economist Carl Benedikt Frey and machine learning expert
Michael Osborne, have quantified the potential effect of
technological innovation on unemployment by ranking
702 different professions according to their probability of
being automated, from the least susceptible to the risk of
automation ("0" corresponding to no risk at all) to those
that are the most susceptible to the risk ("1" corresponding
to a certain risk of the job being replaced by a computer
of some sort).
In Table 2, opposite, I highlight certain professions that are
most likely to be automated, and those least likely.
This research concludes that about 47% of total employment
in the US is at risk, perhaps over the next decade or two,
characterized by a much broader scope of job destruction
at a much faster pace than labor market shifts experienced
in previous industrial revolutions.
In addition, the trend is toward greater polarization
in the labor market.
Employment will grow in high-income cognitive and creative
jobs and low-income manual occupations, but it will greatly
diminish for middle-income routine and repetitive jobs.
It is interesting to note that it is not only the increasing
abilities of algorithms, robots and other forms of non-human
assets that are driving this substitution.
Michael Osborne observes that a critical enabling factor
for automation is the fact that companies have worked hard
to better define and simplify jobs in recent years as part
of their efforts to outsource, offshore and allow them
to be performed as "digital work" (such as via Amazon's
Mechanical Turk, or MTurk, service, a crowdsourcing
This job simplification means that algorithms are better able
to replace humans as discrete, well-defined tasks lead
to better monitoring, and more higher-quality data around
the task, therefore creating a better base from which
algorithms can be designed to do the work.
In thinking about the automation and the phenomenon
of substitution, we should resist the temptation to engage
in polarized thinking about the impact of technology
on employment and the future of work.
As Frey and Osborne's work shows, it is almost inevitable
that the fourth industrial revolution will have a major impact
on labor markets and workplaces around the world.
But this does not mean that we face a man-versus-machine
dilemma. In fact, in the vast majority of cases, the fusion
of digital, physical and biological technologies driving
the current changes will serve to enhance human labor and
cognition, meaning that leaders need to prepare workforces
and develop education models to work with, and alongside,
increasingly capable, connected and intelligent machines.
Impact on skills
In the foreseeable future, low-risk jobs in terms of automation
will be those that require social and creative skills; in particular,
decision making under uncertainty and
the development of novel ideas.
This, however, may not last. Consider one of the most creative
professions--writing--and the advent of automated narrative
generation. Sophisticated algorithms can create narratives
in any style appropriate to a particular audience.
The content is so human-sounding that a recent quiz
by the New York Times showed that when reading two
similar pieces, it is impossible to tell which one has been
written by a human and which one is the product of a robot.
The technology is progressing so fast that Kristian Hammond,
cofounder of Narrative Science, a company specializing
in automated narrative generation, forecasts that
by the mid-2020s, 90% of news could be generated
by an algorithm, most of it without any kind of human intervention
(apart from the design of the algorithm, of course).
In such a rapidly evolving working environment, the ability
to anticipate future employment trends and needs in terms
of the knowledge and skills required to adapt becomes
even more critical for all stakeholders.
These trends vary by industry and geography, and so it is
important to understand the industry- and country-specific
outcomes of the fourth industrial revolution.
In the Forum's Future of Jobs report, we asked the chief
human resources officers of today's largest employers
in 10 industries and 15 economies to imagine the impact
on employment, jobs and skills up to the year 2020.
As Figure 1 shows, survey respondents believe that complex
problem solving, social and systems skills will be far more
in demand in 2020 when compared to physical abilities
or content skills.
The report finds that next five years are a critical period of
transition: the overall employment outlook is flat but there is
significant job churn within industries and skills within most
While wages and work-life balance are expected to improve
slightly for most occupations, job security is expected
to worsen in half of the industries surveyed.
It is also clear that women and men will be affected differently,
potentially exacerbating gender inequality
(see Box A: Gender Gaps and the Fourth Industrial Revolution).
Box A: Gender Gaps and the Fourth Industrial Revolution
The 10th edition of the World Economic Forum's Global Gender Gap
Report 2015 revealed two worrying trends.
at the current pace of progress, it will take another 118 years
before economic gender parity is achieved around the world.
progress toward parity is remarkably slow, and possibly stalling.
In light of this, it is critical to consider the impact of the fourth
industrial revolution on the gender gap.
How will the accelerating pace of change in technologies that span
the physical, digital and biological worlds affect the role that
women are able to play in the economy, politics and society?
An important question to consider is whether female-dominated
or male-dominated professions are more susceptible to automation.
The Forum's Future of Jobs report indicates that significant
job losses are likely to span both types. While there has tended
to be more unemployment due to automation in sectors in which
men dominate such as manufacturing, construction and installation,
the increasing capabilities of artificial intelligence and the ability
to digitize tasks in service industries indicate that a wide range
of jobs, from positions at call centers in emerging markets
(the source of livelihoods for large numbers of young female workers
who are the first in their families to work) to retail and
administrative roles in developed economies (a key employer
for lower-middle-class women), are at risk.
Losing a job has negative effects in many circumstances,
but the cumulative effect of significant losses across whole
job categories that have traditionally given women access
to the labor market is a critical concern.
Specifically, it will put at risk single-income households headed
by low-skilled women, depress total earnings in two-income families,
and widen the already troubling gender gap around the world.
But what about new roles and job categories?
What new opportunities could exist for women in a labor market
transformed by the fourth industrial revolution?
While it is difficult to map the competencies and skills expected
in industries not yet created, we can reasonably assume
that demand will increase for skills that enable workers
to design, build and work alongside technological systems,
or in areas that fill the gaps left by these technological
Because men still tend to dominate computer science,
mathematical and engineering professions, increased
demand for specialized technical skills may exacerbate
Yet demand may grow for roles that machines cannot fulfill
and which rely on intrinsically human traits and capabilities
such as empathy and compassion.
Women are prevalent in many such occupations, including
psychologists, therapists, coaches, event planners, nurses
and other providers of healthcare.
A key issue here is the relative return on time and effort
for roles requiring different technical capabilities, as there
is a risk that personal services and other currently female-
dominated job categories will remain undervalued.
If so, the fourth industrial revolution may lead to further
divergence between men's roles and women's.
This would be a negative outcome of the fourth industrial
revolution, as it would increase both inequality overall and
the gender gap, making it more difficult for women to leverage
their talents in the workforce of the future.
It would also put at risk the value created by increased diversity
and the gains that we know organizations can make from
the enhanced creativity and efficiency of having gender-balanced
teams at all levels.
Many of the traits and capabilities traditionally associated
with women and female professions will be much more needed
in the era of the fourth industrial revolution.
While we cannot predict the different impact on men and women
that the fourth industrial revolution will have, we should take
the opportunity of a transforming economy to redesign labor
policies and business practices to ensure that both men and
women are empowered to their full extent.
In tomorrow's world, many new positions and professions
will emerge, driven not only by the fourth industrial
revolution, but also by nontechnological factors such as
demographic pressures, geopolitical shifts and new social
and cultural norms.
Today, we cannot foresee exactly what these will be
but I am convinced that talent, more than capital,
will represent the critical production factor.
For this reason, scarcity of a skilled workforce rather than
the availability of capital is more likely to be the crippling limit
to innovation, competiveness and growth.
This may give rise to a job market increasingly segregated
into low-skill/low-pay and high-skill/high-pay segments, or
as author and Silicon Valley software entrepreneur
Martin Ford predicts, a hollowing out of the entire base of
the job skills pyramid, leading in turn to growing inequality and
an increase in social tensions unless we prepare for these
Such pressures will also force us to reconsider what we mean
by "high skill" in the context of the fourth industrial revolution.
Traditional definitions of skilled labor rely on the presence of
advanced or specialized education and a set of defined capabilities
within a profession or domain of expertise.
Given the increasing rate of change of technologies, the fourth
industrial revolution will demand and place more emphasis
on the ability of workers to adapt continuously and learn new skills
and approaches within a variety of contexts.
The Forum's Future of Jobs study also showed that less than 50%
of chief human resources officers are at least reasonably confident
in their organization's workforce strategy to prepare for these shifts.
The main barriers to a more decisive approach include
companies' lack of understanding of the nature of disruptive
changes, little or no alignment between workforce strategies
and firms' innovation strategies, resource constraints and
short-term profitability pressures.
As a consequence, there is a mismatch between the magnitude
of the upcoming changes and the relatively marginal actions
being taken by companies to address these challenges.
Organizations require a new mindset to meet their own talent
needs and to mitigate undesirable societal outcomes.
Impact on developing economies
It is important to reflect upon what this might mean
for developing countries.
Past phases of the industrial revolution have not yet reached
many of the world's citizens, who still do not have access
to electricity, clean water, sanitation and many types of capital
equipment taken for granted in advanced economies.
Despite this, the fourth industrial revolution will inevitably
impact developing economies.
As yet, the precise impact of fourth industrial revolution
remains to be seen. In recent decades, although there has
been a rise in inequality within countries, the disparity
across countries has decreased significantly.
Does the fourth industrial revolution risk reversing
the narrowing of the gaps between economies that we have
seen to date in terms of income, skills, infrastructure, finance
and other areas?
Or will technologies and rapid changes be harnessed
for development and hasten leapfrogging?
These difficult questions must be given the attention
they require, even at a time when the most advanced
economies are preoccupied with their own challenges.
Ensuring that swaths of the globe are not left behind is not
a moral imperative; it is a critical goal that would mitigate
the risk of global instability due to geopolitical and security
challenges such as migration flows.
One challenging scenario for low-income countries is
if the fourth industrial revolution leads to significant "re-shoring"
of global manufacturing to advanced economies, something
very possible if access to low-cost labor no longer drives
the competitiveness of firms.
The ability to develop strong manufacturing sectors serving
the global economy based on cost advantages is a well-worn
development pathway, allowing countries to accumulate capital,
transfer technology and raise incomes.
If this pathway closes, many countries will have to rethink
their models and strategies of industrialization.
Whether and how developing economies can leverage
the opportunities of the fourth industrial revolution is
a matter of profound importance to the world; it is essential
that further research and thinking be undertaken to understand,
develop and adapt the strategies required.
The danger is that the fourth industrial revolution would mean
that a winner-takes-all dynamic plays out between countries
as well as within them.
This would further increase social tensions and conflicts, and
create a less cohesive, more volatile world, particularly given
that people are today much more aware of and sensitive to social
injustices and the discrepancies in living conditions between
Unless public- and private-sector leaders assure citizens that
they are executing credible strategies to improve peoples' lives,
social unrest, mass migration, and violent extremism could intensify,
thus creating risks for countries at all stages of development.
It is crucial that people be secure in the belief that they can
engage in meaningful work to support themselves and their families,
but what happens if there is insufficient demand for labor, .
or if the skills available no longer match the demand?
3.1.3 The Nature of Work
The emergence of a world where the dominant work paradigm is
a series of transactions between a worker and a company
more than an enduring relationship was described by Daniel Pink
15 years ago in his book Free Agent Nation.
This trend has been greatly accelerated by technological
Today, the on-demand economy is fundamentally altering
our relationship with work and the social fabric in which it is
More employers are using the "human cloud" to get things done.
Professional activities are dissected into precise assignments
and discrete projects and then thrown into a virtual cloud of
aspiring workers located anywhere in the world.
This is the new on-demand economy, where providers of labor are
no longer employees in the traditional sense but rather independent
workers who perform specific tasks. As Arun Sundararajan, professor
at the Stern School of Business at New York University (NYU),
put it in a New York Timer column by journalist Farhad Nlanjoo:
"We may end up with a future in which a fraction of the workforce
will do a portfolio of things to generate an income--you could be
an Uber driver, an Instacart shopper, an Airbnb host and a TaskRabbit."
The advantages for companies and particularly fast-growing start-ups
in the digital economy are clear. As human cloud platforms classify
workers as self-employed, they are--for the moment--free of
the requirement to pay minimum wages, employer taxes and social
As explained by Daniel Callaghan, chief execudve of MBA & Company
in the UK, in a Firtandal Times article:
"You can now get whoever you want, whenever you want, exactly
how you want it.
And because they're not employees you don't have to deal with
employment hassles and regulations."
For the people who are in the cloud, the main advantages reside
in the freedom (to work or nor) and the unrivaled mobility that
they enjoy by belonging to a global virtual network.
Some independent workers see this as offering the ideal combination
of a lot of freedom, less stress and greater job satisfaction.
Although the human cloud is in its infancy, there is already substantial
anecdotal evidence that it entails silent offshoring (silent because human
cloud platforms are not listed and do not have to disclose their data.)
Is this the beginning of a new and flexible work revolution that will
empower any individual who has an internet connection and that will
eliminate the shortage of skills?
Or will it trigger the onset of an inexorable race to the bottom
in a world of unregulated virtual sweatshops ?
If the result is the latter-- a world of the precariat a social class of
workers who move from task to task to make ends meet while suffering
a loss of labor rights, bargaining rights and job security-- would this
create a potent source of social unrest and political instability ?
Finally, could the development of the human cloud merely accelerate
the automaton of human jobs ?
The challenge we face is to come up with new forms of social and
emplmment contracts that suit the changing workforce and the evolving
nature of work.
We must limit the downside of the human cloud in terms of possible
exploitation, while neither curtailing the growth of the labor market nor
preventing people from working in the manner they choose.
If we are unable to do this, the fourth industrial revolution could lead
to the dark side of the future of work, which Lynda Gratton, a professor
of management practice at London Business School, describes
in her book " The Shift : The Future of Work Is Already Here "
-- increasing levels of fragmentation, isolation and exclusion across
As I state throughout this book, the choice is ours. It entirely
depends on the policy and institutional decisions we make.
One has to be aware, however, that a regulatory backlash
could happen, thereby reasserting the power of policymakers
in the process and straining the adaptive forces of a complex system.
The importance of purpose
We must also keep in mind that it is not only about talent and skills.
Technology enables greater efficiency, which mostpeople want.
Yet they also wish to feel that they are not merely part of a process
but of something bigger than themselves.
Karl Marx expressed his concern that the process of specialization
would reduce the sense of purpose that we all seek from work, while
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