From the irrigation techniques of the Incas to Roman aqueducts and Egyptian hieroglyphics, ancient civilizations have innovated to improve the welfare of their citizens. Fast forward to modern times, and innovations continue to transform the everyday lives of people, with the most significant changes often seen as a series of 4 industrial revolutions.
The first industrial revolution was powered by steam after it was discovered that the pressure from boiling water could drive a piston back and forth. Steam ruled the world for more than 200 years, powering the engines that allowed for the mechanization of both machines and transport. By the late 19th century, however, steam was being overtaken by the invention of electricity – an era sometimes dubbed the second industrial revolution. Power was a key driver of urbanization, with the resulting cities then becoming centers of rapid growth and trade. The third revolution was ushered in by the foundations of the modern computer, around the middle of the 20th century. Machines could now run tasks, while the invention of the microchip allowed for faster processing and the eventual creation of the internet. Now, the Fourth Industrial Revolution has arrived – and it is an era of digital transformation, increased automation, and artificial intelligence (AI). It will change the way we work forever, and the way organizations operate. This is something that Tata Consultancy Services (TCS) calls ‘Business 4.0’.
Software and computer engineering are creating a groundswell for what many have deemed the fourth industrial revolution. This next wave in the way companies, technologies, and people interact, work, and live relative to one another is likely to be more transformative than any previous industrial revolution we have yet seen. The breadth and depth of the impact of this 4th revolution will quickly penetrate nearly every industry. Perhaps one of the most impacted will be the financial services world where antiquated tech has remained the status quo for many years. To fully appreciate the overall impact of the 4th “wave,” it will be necessary to first understand the history and origin of the other three industrial revolutions. It will also be illuminating to track some of the drivers of today’s industrial revolution as well as the general hallmarks and impacts on the financial services world. Central to today’s industrial revolution is the idea that engineering—namely computer and software engineering—will drive its current rate of expansion. One of the biggest trends of the digital revolution that will be different than all previous directions is the speed with which it will unfold. Previous revolutions evolved linearly. Most expect the 4th wave of industrial engineering to take an exponential growth path. New technology will help drive the revolution, but the interconnectedness of systems, processes, and technology will drive impactful changes in nearly every sector at break-neck speed. The impacts will be system and industry-wide. There will be few that will be left unaffected. Here are some other detailed hallmarks we might expect to see from this digital wave.
Technology will begin to substitute, not just complement the work of other services, including some of the most technically-driven services on the market. Engineers (including financial engineers) will not be able to pass the fray unaffected. The impact on jobs may be more significant than we might have expected.
The delivery of products and services to fit the needs of demanding clients will accelerate. Supply chain and engineering will work together to supply the needs of clients across industries quickly. You thought Google and Amazon were spurring on the “on-demand” mentality for information and products? The Fourth Revolution will encourage a further requirement in products and services at both the consumer and commercial levels to like never before seen.
Competition for products and services will skyrocket. Delineation of tasks within organizations will become more focused, but expectations for understanding and being able to work across functions will increase. Traditional firms will look antiquated as many newer firms with much different models crop-up. Supply-side competitive dynamics are likely to look more like a mess of spaghetti.
As engineering solves many of the issues that require regulation, including automating human processes needed to keep people and programs in check and running smoothly, a provision will progressively be reduced, thereby loosening the current level of restrictions.
Existing incumbents will not only be slow to react in the rapidly-changing environment, but there will be struggles to remain profitable with antiquated business models. For the larger incumbents, the technology and intellectual property will create a hot-bed for FinTech M&A.
Mega-trends are brewing from this perfect storm of activity. The supply-side transformation will continue to manifest itself across the financial marketplace. The revolution involves more than only efficiency and productivity gains. The disjointed disruption has yet to hit financial services at the same scale as Uber or Airbnb, but the wheels are in motion. Out-of-the-box solutions for technology-enabled finance will occur as boundaries drop. It is exciting to be in the middle.
Defined as "a significant cultural, political, or social change arising from the actions or influence of young people," today's "youthquake" reflects the impact of Millennials on the economy and every industry. Even as Gen Z's turn on center stage looms, Millennials still challenge marketers. How well does your organization understand this generation's impact? We are living in the age of accelerated transformation. While not necessarily new to us, the frequency, pace, and impact of change are. There has never been a more critical time to stop and consider the question of: How will we increase our capacity to adapt to a world of accelerated change?
To answer this question, we need to explore the relationship between demographic change in the context of the environment that we can anticipate it will be exposed to. As President John F. Kennedy said, “The present prospects of its youth can directly measure the future promise of any nation.” “Youthquake,” The Oxford Dictionaries’ 2017 Word of the Year, is defined as a “significant cultural, political, or social change arising from the actions or influence of young people.” Surprisingly, this is not a new term. Youthquake was first coined by Diana Vreeland, Vogue magazine’s Editor-in-Chief, in 1965 to describe the cultural movement on the streets of London by a new generation of young people we now know as Baby Boomers. “Youth is surprising countries east and west with a sense of assurance serene beyond all years,” Vreeland wrote. Ironically the term “renaissance” five decades later has been used to describe Baby Boomers’ children – the Millennials. We shouldn’t be surprised that the first and most powerful influence on Millennials was their parents. Youthquake for Baby Boomers was so well captured in the lyrics “There’s a whole generation, With a new explanation, People in motion” in Scott McKenzie’s 1967 hit single song and the generational anthem “San Francisco (Be Sure to Wear Flowers in Your Hair)” The song reached number one encapsulating the spirit of a generation during the 60s craving significant cultural, political and social change.
Each generation of consumers brings new hurdles and challenges that each sector needs to consider when undergoing structural transformations. To date, these changes have been, for the most part, gradual. For example, millennials somewhat straddled the line between full digital and legacy services, making innovative transformation a much less daunting task. That being said, the next generation of consumers are primed to cause much more disruption than generations prior. It’s essential to understand the demands of Gen Z consumers and plan to provide the services and capabilities that this next wave of consumers have already come to expect.
According to a recent report by Bloomberg, Generation Z will outnumber millennials within a year. Roughly defined as those born after 1995, Gen Z is the next consumer powerhouse, and by 2020, it is expected that they will command 40% of all spending. Getting to grips with their habits and preferences will be critical in the future success of most businesses. But what are the next generation looking for as consumers? Studies have shown that Gen Z consumers are twice as likely to use online-only storefronts and websites than any preceding generation. These shopping habits are integral for banks to take into consideration, as well.
Furthermore, an overwhelming majority of Gen Z consumers are consistently active on social media and even prefer alternative methods of peer-to-peer payment (e.g., Venmo, Cash App, etc.). Banks need to adopt new, interactive digital services to accommodate this digital preference. Through the use of next-gen technology (e.g., AI, 5G, cloud computing, IoT, etc.), banks already have the tools to do so at their disposal. For example, by integrating AI and ML-driven chatbot services online, banks will be able to interact with prospective and existing Gen Z clients — providing them with individualized customer services based on each customer’s self-identified needs. Consumers will be able to open, manage, and maintain accounts with more ease than ever before. Through the integration of 5G and machine learning capabilities, these services will become increasingly real-time, streamlined, and personalized.
It’s hard to remember that the iPhone has only been with us for little over a decade, that the first of this new generation of smartphones was first shipped to customers in 2007, or that the internet only really took off in the last 20 years. AI, the technology that today powers data science and advanced analytics, has been around for decades. Still, it’s only since the advent of smarter computers powered by faster chips, that it has become mainstream. Similarly, sensor technology has propelled the Internet of Things – where every material thing is connected and communicates, revolutionizing supply chains. These are only some of the techniques that have laid the foundations of Business 4.0, a marrying of the digital, biological, and physical world. In Business 4.0, automation, robotics, and artificial intelligence are changing the way we conduct business. Man and machine are working more closely together than ever, and technology powered by machine learning will seek to emulate the workings of the human brain. Smart robots will work alongside humans not to replace but to augment their capabilities.
Business 4.0 is happening alongside more comprehensive globalization – termed Globalization 4.0 by the World Economic Forum. Like the revolutions that have gone before, companies can use Business 4.0 to power their continued success and growth. Business 4.0 is agile, automated, intelligent, and it’s on the cloud. Companies that are agile and innovative will thrive – if they follow four critical behaviors.
Data and AI analysis give businesses insight into their customers like never before. At the same time, new technology has altered what the consumer expects to experience. Using these insights will allow businesses to reimagine services and help their customers get their job done in new and better ways beyond simply improving current processes.
Business 4.0 is as much about mindset as it is about behaviors. There is a whole world of answers and solutions beyond the walls of a company. Delivering the best results for customers will mean collaborating with others. It’s a world away from the proprietary mindset we know today.
Whether a business is involved in software development or heavy machinery, every part of it must be digitally connected to tap into the abundance of the digital age truly. The use of the cloud to store data means that equipment and operations can be optimized by leveraging the insights of others using the same material. It also allows smaller enterprises to access technology they wouldn’t otherwise be able to. Data focused on operations can help businesses work faster, smarter, and more efficiently.
Business 4.0 also brings many challenges. For instance, we’re facing a global skills gap. There aren’t enough skilled people to step into jobs that can help businesses embrace Business 4.0. There’s the threat that automation might dislocate jobs and alter the societal fabric. But it’s also a time of limitless opportunity, where more customers can be reached, better and more personalized service can be given, and a more holistic, environmental approach to business can flourish.
Technology will allow us to control our energy and utility use like never before, altering consumption, while auto technology is set to make our roads safer and our journeys more enjoyable. Doctors will diagnose the disease at an earlier stage and be able to offer life-saving treatment. Besides, the very technology powering Business 4.0 can also be used to mitigate risks.
While some believe that the deployment of technology creates a barrier to establishing efficient tech-enabled financial services because finance remains a foreign industry for most people – and technology is not helping citizens become literate - the potential of digital transformation must be considered. The financial sector is still a foreign space because some countries are yet to put the right infrastructure in place to nurture and grow the startup community. For FinTech specifically, this means consumers have had limited access to the latest innovation in financial services, and consumer uptake is deficient as a result. More significant investment is being made to create the right infrastructure and mechanisms for success. Examples include open-banking initiatives and the creation of regulatory sandboxes. Encouragingly, however, we seem to be on the cusp of this change. The process of sparking the Fourth Industrial Revolution for industries involves familiarity, then commoditization, followed by developing best practices. Fortunately, we are in the familiarity phase. Almost half of the population around the globe uses mobile technology for some banking. That figure is increasing each year dramatically, but what is more encouraging is that it is growing in developing countries as well, which has relied on communications technology to create new banking systems. This will hopefully spark companies and entrepreneurs to develop new tools that give greater access to financial systems and appliances. And as more users adopt these tools, this should generate greater efficiencies in this market.
Innovate Finance will also focus on how embracing technology in financial services may force banks to reimagine work, workforce, and the workplace. This is driving a changing workforce as new roles, such as robot configuring and chatbot enabling, are created. This is a positive story for employees, as they take the opportunity to upskill and migrate from more manual work to higher-value activities such as analysis, investigations, problem-solving, and developing and managing robots. For example, HSBC has developed an in-house automation capability, and allow existing employees to get involved and build their skillsets. The result, around 120 trained Robotic Process Automation (RPA) configures and four Digital Operations Centres around the world at HSBC.
In the mission to ensure that all customers are financially literate and keeping with mainstream technology trends such as the use of mobile phones, the talk of the FinTech town today is that partnerships between banks and FinTech firms are the best way to do this. However, mobile banking is an important entry point, and it is not the only one. The financial services sector has been quick to recognize both the rapid pace of growth in mobile technology usage and consumer expectation for more initiative and seamless interaction with their bank or insurer, for example. For financial institutions themselves, launching a FinTech solution that addresses consumer problems, is often far quicker and a more cost-effective alternative to the traditional product launch.
According to the World Economic Forum, we are now entering Globalization 4.0, an era when the forces that propel Business 4.0 are ushering in a new economy and a new form of globalization. Richard Baldwin, Professor of International Economics, Graduate Institute, Geneva, writing for the Forum, believes that: “Future globalization will be very different from the globalization we know today and the globalization we have known in the past. Moreover, it is coming incredibly fast – and in ways, few people expect.” Indeed, when the first steam engine was invented, no one could have predicted the impact it would have, nor the radical transformation that electricity and then computing would have on the world. Companies who decide to wholeheartedly embrace the risk of an uncertain and continually changing future will surely reap the most significant rewards. But one thing is sure; most of us can’t even begin to imagine the type of innovations that may one day become known as the fifth industrial revolution.