Glimpses of the Fifth Era: How Disruptive Innovation will Change Everything.
Change is the law of life. And those who look only to the past or present are certain to miss the future.
— John F. Kennedy
Humankind has lived through four eras: the Hunter/Gatherer, Agrarian, Mercantile and Industrial eras. Today we are in the time of transition into a new, Fifth Era. Driven by a time of unprecedented innovation, everything humans do is beginning to change. Let’s explore how different the future might be and the magnitude of the disruption and wealth creation that is likely to occur.
Human Activities Built upon Underlying Assumptions
In each era, humans conduct their activities within the modus operandi of the era. They live and work and play within an “era mindset,” a set of underlying assumptions, methods, and beliefs that are so established that it shapes their view as to what is possible and, as a result, what can be. But, when disruptive innovations attack that mindset and those underlying assumptions, we tend to see inertia continue the old ways of being longer than is strictly necessary. It takes a while for disruptive innovations to enable new ways of being and for the old order to be displaced. This is why transitions between eras are not clean and linear, but rather messy, overlapping, and chaotic, and it is only when old ways of being have been displaced that we move into the next era.
Let’s look at three central aspects of our lives in the Industrial Era and see if they are still likely to be the way that they have been. Are the underlying assumptions on which they were designed still valid? Or, have disruptive innovations knocked out the Industrial Era rationale for their design, providing the preconditions for new approaches?
Generation C
In order to examine areas of our lives, we should first introduce the notion of Generation C. This is the portion of the world’s population that was born after 1990 and has only known a connected existence. They are unaware of a time before the Internet and don’t understand many of the assumptions that shape the mindsets of older people and rule their decisions and actions. Yes, we have heard of Generations X, Y, and Z, but we see them all as vertical slices through a more fundamental transition — from our generation, generally born before 1990, and which grew up in an unconnected world — to a new generation, Generation C, that is growing up always connected into the whole.
In 2010, we were part of a team at Booz & Company, the consulting firm (now a part of PWC) that surveyed this “connected generation” around the world. We found that this Generation C simply does not think in the same way as prior generations. They are ready for new approaches that the next era is ready to unleash.
What Is Generation C?
By the year 2020, an entire generation will have grown up in a primarily digital world. Computers, the Internet, mobile phones, texting, social networking — all are second nature to them. And their familiarity with technology, reliance on mobile communications, and desire to remain in contact with large networks of family members, friends, business contacts, and others will transform how we work and how we consume. This is the demographic group we call Generation C — the C stands for connect, communicate, change.
What is Generation C? They are realists, they are materialists. They are culturally liberal, if not politically progressive. They are upwardly mobile, yet they live with their parents longer than others ever did. Many of their social interactions take place on the Internet, where they feel free to express their opinions and attitudes. They’ve grown up under the influence of Harry Potter, Barack Obama, and iEverything — iPods, iTunes, iPhones. Technology is so intimately woven into their lives that the concept of “early adopter” is essentially meaningless.
They are Generation C — connected, communicating, content-centric, computerized, community-oriented, always clicking. As a rule, they were born after 1990 and lived their adolescent years after 2000. In the developed world, Generation C encompasses everyone in this age group; in the BRIC countries, they are primarily urban and suburban. By 2020, they will make up 40 percent of the population in the US, Europe, and the BRIC countries, and 10 percent in the rest of the world — and by then, they will constitute the largest group of consumers worldwide.
Having owned digital devices all their lives, they are intimately familiar with them and use them as much as six hours a day. They all have mobile phones and constantly send text messages. More than 95 percent of them have computers, and more than half use instant messaging to communicate, have Facebook pages, and watch videos on YouTube.
We will now look at aspects of how we make friends, how we learn, and how we work, as three examples to make the general case that all human activities are being impacted by the innovations that surround us today.
How We Make Friends
Making friends is one of the most important human activities in that it is a foundation for all social endeavors.
How Many Friends Do You Have?
We asked members of our generation and members of Generation C a handful of questions. First, we asked, “How many friends do you have?” Members of our generation, generally born before 1990, typically say 100, more or less. Generation C typically says more — maybe 250 or 300.
How Many Have You Met?
We then asked both groups, “How many of your friends have you met in person?” Our generation laughs, replying, “All of them, of course.” Generation C responds with a perfectly straight face, “Most of them I haven’t met.” They don’t see this as an odd question at all. Why do you need to physically meet people to be friends with them? “What a strange concept,” they seem to say.
How Do You Define a Friend?
Then we asked both groups, “What makes a friend a friend?” Both generations answer very similarly: a friend is someone you know, trust, share confidences with in both directions, use as a sounding board, appreciate having the support of, etc. Both our generation and Generation C have the same definition of what a friend is.
What Do You Do With Your Friends?
Next, we explored with both groups what they do with their friends. How often do they interact? When was the last interaction? What confidences have they shared recently? What confidences have their friends shared? And so on.
And we find, consistently, that Generation C is living up to the definition of friendship with their friends while our generation is not. Indeed, by the very definition of friendship given by those in our generation, our generation has even fewer friends than they declared at the outset while in many cases Generation C has more.
Whose Friends Are More Real?
So, who has more friends and whose friends are more real? The answer is Generation C. Why? Because they have released themselves from the Industrial Era mindset that friendships need to be physically based and because they have embraced digital innovations that allow them to build virtual friendships with people they have not yet met in person.
Why is this such a dramatic example? Because, if society can build deep and enduring, trust-based relationships so easily with people that have never been met in person and if those friendships can be made to endure and can be multiplied and maintained in ever-larger numbers, this in turn greatly expands the scope and scale of so many other human activities in connected, real-time, and continuous ways. This impacts learning, socializing, entertaining, working, and every other human activity.
How We Learn
Let’s consider a second part of our lives that has similarly been transformed by the Digital Revolution. Learning is the work of a lifetime, and humans learn all the time. However, to illustrate the most important themes of this chapter, let’s focus on one particular component of learning — higher education and the role of universities and colleges of higher learning. We’ve made this the focus because it is the pinnacle of our organized learning process today. We can expect insights we derive from this focus to ripple back down into the school system towards our earliest days, as well as forward into corporate and continuing learning systems.
The University in the Industrial Era
The university, including colleges of higher education, is a globally accepted element of how we are educated within the Industrial Era. While some early universities began to appear in the Agrarian Era and many more were formed in the Mercantile Era, the university became universally accepted as the principal approach to higher education during the Industrial Era, displacing private tutoring, the apprentice system, and self-learning.
In the fall of 2016, some 20.5 million students were in attendance at American colleges and universities, constituting an increase of about 5.2 million since fall 2000. About 7.2 million students will attend two-year institutions, and 13.3 million will attend four-year institutions. Some 17.5 million students enrolled in undergraduate programs, and about 3.0 million enrolled in post-baccalaureate programs (National Center for Education Statistics, 2016).
Why?
University: The Underlying Assumptions
During the Agrarian Era, knowledge was in short supply. Those who had it were rare. Most people did not read or write, and most people were not formally educated. A few people were exceptions to that rule. They sought out knowledge, wrote it down — by hand — and were willing to share it with like-minded people.
Because they were so few, they clustered together, around libraries that hosted the carefully hand-written scrolls and early books that documented their knowledge, or they met around a tree, in a courtyard, or in a chamber and talked to each other.
If you wanted to learn, you had no choice but to travel to these few locations. Most people were not wealthy enough to be able to afford the trip or the time off from farming the land. Those few that did, arrived in the place of knowledge, and listened and learned. Perhaps they stayed or perhaps they returned home.
After the invention of the printing press, more knowledge could be captured and shared, but even then the learned teachers were few in number. And they still preferred to cluster. They remained in centers of knowledge and agreed to teach in those places.
Over time these locations became more established, more formalized, more populated. And the role of teacher and student became more accepted and established.
Over time the university was born.
The University: Disrupting the Underlying Assumptions
Now let’s look again at each of those underlying assumptions through the most recent lens of this time of transition. As we look, we’ll pose the question, “Is this underlying assumption still true?”
Knowledge is in short supply — is this assumption still true? No. Today most knowledge is captured and instantly available to anyone anywhere. This is one of the great benefits of the Internet and those who have made the world’s knowledge available to everyone.
Those who have this knowledge are rare — is this assumption still true? No. Today indexes and searches allow anyone to explore the available knowledge and find what they are seeking. Additionally, most knowledge has been captured and stored online.
Most people do not read or write — is this assumption still true? No. Over the last part of the Industrial Era, almost everyone around the world has become literate: the World Factbook estimates 82% of the world’s population is now in this group (Central Intelligence Agency, 2016).
Knowledge has to be concentrated into libraries — is this assumption still true? No. Knowledge can be everywhere in the cloud and accessible everywhere through the Internet.
People need to meet physically to learn — is this assumption still true? Maybe. While remote electronic learning can be effective, especially for the connected generation that views this as their preferred learning mode, for many, and especially for the teachers who were brought up in the old model, physical teaching and tutoring still has its merits.
Most people are not wealthy enough to attend university — is this assumption still true? No. Once the costs of the physical university and attending it in person are removed from the equation, the cost of accessing the knowledge, having it taught, and learning it becomes trivial. It is the physical model of the university, with the need for unleveraged teachers and expensive buildings and grounds, that drives the cost of that model.
In short, the Digital Revolution has undermined every underlying assumption for why we have universities as centers of learning. Of course, exceptions still exist. For example, certain laboratory or research activities still need to be performed in physical locations. Even here we are creating virtual simulations that may undermine these exceptions.
So, why do we still have universities?
Because teachers and parents were themselves taught in the Industrial Era model and have not become comfortable with the Fifth Era innovations and because of inertia and the sizable legacy infrastructure of buildings, classrooms, libraries, residence halls, athletic facilities, and so on.
Does this inertia mean that we will never see virtual learning of high education knowledge?
We don’t think so. The disruptive innovations of the Digital Revolution have already enabled a transition of higher education from the Industrial Era model to a new Fifth Era model of virtual learning. But, it will take time for new ways to displace old ways. Maybe decades, maybe centuries. Maybe faster. Notwithstanding this uncertainty over the transition timing, there is sure to be a significant wealth-creation opportunity for those who lead in the creation and deployment of the new Fifth Era learning models.
How Fast Could This Change?
In parts of the world where physical institutions of higher learning have already been built, there is more resistance to changing the underlying model. In parts of the world where physical institutions of higher learning have not been built, the case for change gets more notice and support.
Consider China. China’s population was more than 1.35 billion in 2016. An increasing proportion of the Chinese population is “middle class” and expect access to good education for their children. By 2022 McKinsey and Company expects 75% of Chinese to be middle class (Barton, Chen, & Jin, 2013). With a large and growing inland Chinese middle class (McKinsey estimates they will represent 39% of the total Chinese middle class by 2022) located in the inland cities where there is limited access to the best learning, what should the Chinese do? Build vast numbers of physical universities across the country? Allow their students to travel to the coastal cities? Ship them to American universities? Perhaps, all of the above?
Given the disruptive innovations of recent years, why not promote virtual learning and allow students to remain where they are, join virtual classrooms, and get educated according to a new model? This is the thrust of the very significant rise in remote technology-enabled learning across China. We have recently joint ventured with Talkweb, one of China’s leading technology-enabled learning platforms and their growth is quite remarkable.
Who Will Capture the Opportunity?
Who will win? Again, it is not clear. A priori there is value in the existing university brands and teaching excellence. If branded institutions, like our alma maters Cambridge, Harvard, Oxford, and Stanford, embrace the new world and work hard to solve the remaining challenges, then surely they have an advantage since they have brands, reputations, and a great number of other assets developed over hundreds of years and not shared by start-ups. Why would upstarts and start-ups be better positioned?
Why do we highlight higher education and learning? Because, if we can move to approaches in which all of the world’s 7.5 billion people (and one day many more) can gain the full benefits of human knowledge through scalable, inexpensive, and universally available learning platforms, then surely we have an opportunity to unleash the full capability of so many more billions of people than we are able to today.
Imagine what humankind could achieve if 10 or 100 or 1,000 times as many people were able to bring their full potentials to bear on our most pressing issues through the power of virtual learning, collaboration, and problem-solving platforms.
How We Work
Here is one last example to illustrate our thesis: that the Industrial Era’s underlying assumptions have been undermined by new disruptive technologies, which, in turn, are opening up enormous new opportunities for entrepreneurs and the people that back them.
Work — Our Invention
Work is the greatest invention of the Industrial Era. In the Hunter-Gatherer Era, it was not even a notion. You did what you needed to do to sustain yourself, and the rest of your time was for you. But, in the Industrial Era the rise of the corporate model of business and everything that went with it established almost universal beliefs and expectations about “work,” assumptions that we live with today, that rule our lives and shape many of our notions of what a life even looks like.
How Does Our Generation Define Work?
When asked, our generation (people generally born before 1990) defers to a definition of work that is the result of how things were done in the Industrial Era. We talk about work needing a workplace. Work is something that has defined hours — typically Monday to Friday from 9 am until 5 pm. There are employers who are mostly large corporations, and there are bosses in a hierarchical pyramid who direct our work and whom we report to. We expect to work in the same job for many years — sometimes for a lifetime. And when we eventually retire, we expect to be supported either by the companies we worked a lifetime for or by government-created support programs funded by those companies and by taxes.
How Does Generation C Define It?
Then ask Generation C how they define work. They have very different answers. Work is something you do to make the money to pursue your other interests. It is something you do when you want to. Sometimes you may have one employer, sometimes you have several, and sometimes you do work on your own. You expect not only to have many jobs over your lifetime, but also at any given time. It is not “moonlighting,” it is your choice to do as many jobs as you want. Maybe you take time off from one job to do another. Maybe you do a second job at lunchtime or on your computer during downtime in your first job. Employers, bosses, defined hours, and defined places of work are notions recognized by Generation C, but the logic for them is often not understood. “Why should we go to an office if we can do work more effectively remotely?” “We get much more done on our computer, so why do our older work colleagues insist on burning up most of the day in conference room meetings?” “Let’s just agree on the work that needs doing on a shared online document and get it done.” “I am at my best when I do what I need to do in the order that makes sense to me.” “I don’t understand why others prescribe my work style to me when they don’t understand how my generation and I work?”
Who Is right?
Of course, both are right. Because they are each adhering to the respective beliefs of their times. But, Generation C is right for the future. Because the future is theirs and work will change to fit the preferences and expectations of the future generation, we should expect that they will change the working approaches and practices that no longer make sense in a digitally enabled world. But, the transition time may be long. Concepts, like “the sharing economy,” “services on-demand,” “virtual workplaces,” and so on, are fundamentally important because they are the first experiments in creating new working practices that better fit people’s future new realities. While any one of these experiments may fail, they are still evidence of a growing gap between how we work in the final stages of the Industrial Era and how we will work in the Fifth Era. They are glimpses into the future of work and the workplace.
Breaking from Assumptions Creates Opportunities
By now, some readers may be saying to themselves that we, the authors of this book, don’t understand the importance of physical interactions and in-person relationships and that we are wrong and overstating the prospects of the virtual. Perhaps that is true to some extent. But do be open to challenging your own mindset. What underlying assumptions are you believing? What assumptions are you finding hard to let go? What makes these underlying assumptions “unbreakable” for you? Are the stories you tell yourself really true? Are you sure that Generation C will believe in those assumptions and will share your mindset?
At this juncture let us state an important belief: the people who best capture the opportunity of new and disruptive innovations are those who are best able to disengage from the underlying assumptions of the past, imagine how human activity can be disrupted in the future, and then build the new approaches and companies to bring those to the world.
Disruptive innovators are very good at letting go of the mindsets of the past. They are very good at breaking from assumptions that most of us hold as inviolable.
Take a look at one example of a disrupter who has made a fortune by unlocking a new business model that resulted from his refusal to accept conventional wisdom: Adam Neuman, who founded WeWork in 2010 in New York, recently visited California to discuss further expansion of the company.
To understand WeWork, first let’s consider the world of office space. In the world of office space, most people have no choice but to sign multi-year leases on small office spaces, frequently in isolated corridors in large office buildings. In the past, when we accumulated a lot of equipment, filing cabinets, and bookcases, and did most of our work at desks and on the office telephone, a physical office space was typically necessary. This was true both for small firms and new companies starting out.
Adam noticed that the arrival of the digital economy had created a number of new realities that were challenging this old model of office work. For example, today most of us keep most of our information virtually and don’t need files, bookcases, and so forth. We transact our business more often than not electronically on mobile devices, not fixed landlines. We don’t need large conference rooms, reception areas, and receptionists very often anymore. We just don’t need to “own” all of that space all of the time.
Meanwhile, the costs of forming new businesses have fallen, and the next generation of entrepreneurs is more comfortable creating new businesses in serial fashion, starting one after another until something gets traction. They can’t be sure how long one entrepreneurial venture will last, so it does not make sense to make long-term commitments for potentially short-lived ventures.
Why should they have to sign a multi-year lease on a space larger than they need? And why should they have to hire dedicated support personnel when the office landlord can provide those people and spread them in support of a host of tenants, thus gaining cost synergies in the process?
Adam saw that the dominant form of office space in the city was ripe for disruption — at least on behalf of a new generation of young entrepreneurial tenants, even if big companies preferred to maintain the multi-year lease model.
So, WeWork was launched as a new flexible office format with pay-as-you-go arrangements and services available on demand. Any individual or company can base itself at a WeWork office location taking as small an amount of space as they need — from a private office, to a dedicated desk, to a “hot desk” shared with others on a first-come, first-served basis each day. This space is taken on a monthly basis, so multi-year contracts are not required. Meanwhile, WeWork provides additional services, such as: Super fast Internet, Access to business printers, Onsite business support staff, Free refreshments, Networking events and Meetings with experts and investors.
Today WeWork has dozens of locations on several continents and a valuation in excess of $16 billion. WeWork is only seven years old as we write. Many believe that flexible workspace is the future and in only a few decades it will replace the old model around the world — at least for those tenants that prefer this new model.
Characteristics of the Fifth Era
These examples, in which long-held human activities built upon underlying assumptions are now being rethought because of the disruptive innovations of our time, are only a few of many. Indeed, every aspect of human existence is being impacted. Some years ago we co-authored a paper on “The Next Wave of Digitization” intended for corporate executives. In it, we summarized the three driving forces that are making this digitization phenomenon possible. The outlines of the fully digitized world have long been sketched. So, why are we reaching this critical inflection point now? The reason is that three driving forces, acting in concert, are powerfully reinforcing one another.
Consumer Pull
Consumers, and particularly Generation C, are already fully adapted to the digital environment. They expect to be connected every moment of their lives, through virtually every device, whether they are consuming news and entertainment, reaching out to their friends through social media, such as Facebook and Twitter, or mixing work with play as they go through the working day. Their insistence on the right to stay connected is transforming their personal lives, and their willingness to share everything is changing long-held attitudes about privacy. Their trust is shifting from well-known brands to referrals from their closest friends. They are advocates of many causes and at the same time deeply embedded in their social environments. In their world, knowledge isn’t just power. It’s social and commercial currency — and access to it is vital. These changes are forcing companies to rethink how to manage their employees, who are already becoming less emotionally attached to their company’s wider purpose and goals and who expect to be able to live their digital lives at work as well as at home. These trends are spreading outward from the developed world, as new middle-class populations in every emerging market are being connected to the global information flow. The typical Generation C consumer now spends a large portion of their day online, always connected, always communicating.
Technology Push
Digital technology continues to make inroads into every aspect of our lives. The infrastructure backbone of the digital world is expanding into every corner of the globe, bringing affordable wired and wireless broadband to billions of consumers in developed and developing markets alike. Three-quarters of the world’s population are now connected through mobile phones while digital cloud-based services gather more and more data on consumers in every segment. In parallel with the “Internet of People,” low-cost connected sensors and devices are being deployed in every industry. The development of cloud computing, and the vast information processing machinery it requires is well under way. As a result, the demand for powerful real-time analytics engines to allow companies to gather and make sense of hitherto “undigested” information flows is rising fast, and companies around the world are responding with new technologies, such as in-memory analytics devices, to meet that need.
Economic Benefits
The third force driving the digitization phenomenon is the realization on the part of executives in every industry that the economic benefits to be captured are real. Though it is too early to quantify those benefits, a wave of capital has poured into the new digitization technologies and companies, and the public markets are beginning to reward early movers with valuations reminiscent of the years leading up to the dot-com bubble. An increasing portion of the $22 billion and the $20 billion that US venture capital firms and US angel investors, respectively, invest each year appears to be going into these digitization technologies. Recent transactions in the secondary financial markets have suggested that Facebook is worth more than $80 billion while LinkedIn recently went public at a valuation of more than $3.3 billion, a high multiple over its 2010 revenues of $243 million. On a national scale, the benefits of digitization created through investments in broadband infrastructure have been amply demonstrated.
Meanwhile, the economic cycle and globalization have exposed the weaknesses of large enterprises that have so far failed to embrace digitization. They have also sharpened the minds of CEOs regarding the need to further cut costs and monetize existing capabilities more effectively. Finally, increased competition from around the world is forcing companies in every industry to contend with increased cost pressures, transforming their traditional value chains, spawning new formats and new business models, blurring industry boundaries, and even creating entirely new industries. In response, companies are turning to digitization to provide a competitive advantage and to generate growth.
At the sovereign level, too, countries and regions are acting to accelerate the digitization phenomenon. China has written cloud, connectivity, and digitization goals into its twelfth five-year plan, which will include stimulus measures estimated at more than $1.7 trillion. The European Union has agreed on an energy upgrade plan of more than $200 billion, and the UK’s national infrastructure plan earmarks more than $200 billion.
The purpose of this chapter is not to detail all of the characteristics of the Fifth Era, but we would like to share our list of the top fifteen characteristics of the Fifth Era that we see as particularly important to watch and track. They are:
Top 15 Characteristics of the Fifth Era
1. The development of an entirely digital world in which information, communication, and collaboration are comprehensive and instantaneous.
2. The invention of new and unimaginable innovations at the intersection of the Digital Revolution and the Biotechnology Revolution and a constant flow of a host of other disruptive innovations feeding off the global availability of knowledge and new collaborative innovation approaches.
3. Addressable target markets rapidly becoming global, allowing disruptive innovations to quickly be adopted by billions of people.
4. Consumers gaining enormously as the choices they have will be multiplied by a host of competing solutions and providers, and prices will fall given the economies of scale provided by serving global markets.
5. There will be a reevaluation of what humans value and what makes us happy, with significant implications for markets for consumer goods and services. The next generations may value simplicity/less over clutter/excess and experiences over material goods.
6. A dramatic increase in productivity. But, this time it will not just be increases in labor productivity. Instead, physical asset productivity will also be greatly enhanced, and formerly unproductive assets will be made available for others to use on demand.
7. The Industrial Era large corporate model of organization will be challenged, with the largest companies increasingly extending their enterprises beyond their four walls and looking more like virtual entities.
8. Public markets will need to evolve to address their shortcomings, for example, short termism.
9. Private capital will drive the initial stages of development for most emerging innovations capturing much of the value of new disruptive innovations.
10. Sustainability will become an essential part of doing business with a clear focus on the broader societal impacts of company strategies including the quality of jobs, the full impact of products and services on society and other external considerations.
11. People will have much more freedom to spend their time according to their desires. Multi-tasking, parallel working, and short-lived organizations and workgroups will be the norm, and the very notion of work will change.
12. Distributed innovation will be everywhere, with no monopoly on innovation by any one company, country, or region. Most innovation will come from small, emerging players, with large corporations being the “go-to-market” partners for innovators.
13. There will be a global war for talent as every digital innovation hub and every region and country try to keep their own technology innovators home and attract those of neighboring regions in order to further strengthen their innovation economies.
14. The power of diversity will be increasingly understood and leveraged.
15. Traditional philanthropy and the for-profit model will come closer together as non-profits look at becoming more sustainable in social entrepreneurship models, and as for-profit corporations aim for double and triple bottom line outcomes.
Because of these changes, every industry, every profit pool, in every country, will be fundamentally challenged as we move into the Fifth Era. We believe that it is possible to already see significant new areas of economic opportunity and wealth creation by divining carefully through these glimpses of the future and making a few bets.
At this point, we expect that many of our readers will be asking, “Why aren’t the authors naming the new era? If the second era was called the Agrarian, and the fourth the Industrial, what should be the name of the Fifth Era?” For our part, we think it is too early to say. We know some of the outlines of the future, and we are sure it will be very different from today and driven by the disruptive innovations that we are experiencing today and expect to surface tomorrow — impelled by the twin forces of the Digital and Biotechnology Revolutions. But, there are a lot of plausible futures for how the Fifth Era manifests. We recommend that we simply call it the “Fifth Era” for another twenty or thirty years by which time we expect that the essence of this future era will be coming into clearer focus.
