The first industrial revolution was the transition to new manufacturing processes in the period from about 1760 to 1840. The second industrial revolution came in the early 20th century, when Henry Ford mastered the moving assembly line and ushered in the age of mass production. The third industrial revolution was the change from analog, mechanical, and electronic technology to digital technology which began in the last 50 years. We are now at the dawn of the Fourth Industrial Revolution.
This Fourth Industrial Revolution, a period of digital transformation, will have a profound effect on Consumer Industry businesses for the following reasons:
- These businesses are often highly global and have strong local networks
- They cover many sub-industries (consumer packaged goods, consumer durables, fashion and lifestyle, and retail) which means their insights and impacts are vast and diverse
- They have a current perspective on the evolving needs of their customer segments (e.g. baby boomers, millennials)
The World Economic Forum’s Global Agenda Council on the Future of Consumer Industries has been exploring this question:
“As the world prepares for the Fourth Industrial Revolution, what shift must the Consumer Industries make so their businesses are both economically sustainable and socially inclusive, while keeping the needs and aspirations of the 21st century consumer at heart?”
To meet consumers’ expectations, new business models shifting from primarily mass products to more personalized solutions are seen as essential for future success. This “big shift” is expected to move businesses from traditional centralized organizations – which drove scale and efficiency to reach a mass audience – to technology-enabled flexible, modular corporate entities. Three major and interdependent opportunity areas have been identified that require collaboration:
1. Asset Sharing
The world is in the midst of a transition to an access-versus-ownership economy. As assets are used differently (more efficiently), ownership is not the competitive differentiator it once was. The Consumer Industries companies could consider sharing three classes of assets: tangible (e.g. plants and real estate property such as retail space), intangible (e.g. brand values, human capital) and intellectual property (e.g. patents, formulas). For instance, companies are already sharing production-side physical infrastructure assets such warehouses and cold storages, so that capacity is well-utilized and there is less waste.
2. Modular operating models
Secondly, the ability to digitally coordinate across the supply chain is enabling businesses to be more modular than ever before. Modularization is expected to be more deeply integrated in businesses in both new areas (e.g. production processes to meet regional and local needs) and existing areas (e.g. more innovative distribution processes to get product to market in emerging economies). For instance, Nike Inc. has contracts with 785 factories which involve more than 1 million factory workers and more than 500,000 different products.
3. New organizational structures and employment models
With the big shift in business models from being a centralized asset-heavy organization to modular and asset-lean entities, new organization structures will be needed to support the models. New business value will certainly be created. For instance, there will be consequences for low- and semiskilled jobs (e.g. truck drivers, shop-floor workers, retail cashiers). Massive changes will also occur in terms of skills needed for white-collar jobs (e.g. middle managers, data analysts).
Although there are challenges ahead for the Consumer Industry, this journey can lead to inclusive and sustainable economic growth for businesses in the context of the Fourth Industrial Revolution. Please continue to follow the work of the World Economic Forum's Global Agenda Council on the Future of Consumer Industries as we seek to provide direction on how the community can build momentum with the Forum’s Partner companies and make 2016 a year of action and tangible results.