From effect to cause
On October 14, 2015, meteorologists detected a low-pressure area forming near the Gulf of Tehuanteptec in the eastern Pacific. There was nothing in what they observed to suggest anything unusual. In fact, it took six days for the weather front to reach even the modest status of a tropical depression. Then, over the course of a single day, and due to a rare confluence of surrounding climactic conditions, the system explosively surged, growing at an almost unprecedented pace into a Category 5 hurricane.
This is the story of Hurricane Patricia, one of the most powerful climactic events ever observed.
Megatrends are the hurricanes of the global operating environment
Anticipating changes in the world we live in – be they demographic, technological, social, environmental or geopolitical – has much in common with weather forecasting despite the wide differences in relevant timescales.
Both disciplines must scan the vast array of micro-level forces continuously shaping the environment. Both must seek to identify which weak signals may prove significant later. And within both domains, there are some recurring macro-level patterns (e.g., seasons or economic cycles) and some relatively predictable phenomena that can be derived fairly reliably from historical data and surrounding conditions (e.g., droughts and industry consolidations). Finally, and most importantly, both feature large-scale disruptors: emergent, highly structured and powerfully transformative forces of change.
The unpredictability of the human world
What distinguishes megatrends from phenomena such as weather change, however, is the same fundamental reality that makes social systems so wickedly complex and difficult to predict: human choice. While game theory and behavioural economics have provided powerful frameworks for understanding how people make decisions, they cannot make sense of the reflexive chaos of human incentives, biases and passions. These models can foresee neither stock market panics nor tulip mania, geostrategic miscalculation or the violence of the suicide bomber.
Consequently, to anticipate significant strategic changes in our environment, we must consider both the underlying facts of a given domain (testable, objective facts beyond our default intuitions) and the dynamic, reflexive flux of human perceptions, incentives, biases and choices – individual and institutional. This is the work of strategic foresight and its component disciplines of scenario planning, horizon scanning, strategic/interactive modelling and the detection and analysis of the forces of transformative, long-term change – or megatrends.
Rudolph Lohmeyer and Leo Johnson
Engines of structural change
What then is a megatrend? It is a dynamic system of change that has emerged from the interaction of multiple, discrete micro-level trends, events and conditions – a force of change that has gathered its own self-sustaining momentum.
Megatrends can vary in scale from the historic (e.g., the Industrial Revolution, Protestant Reformation) to the strategic (e.g., e-commerce, financial securitisation) to the pervasive (e.g., the app economy, social media). Across these economic and temporal scales, megatrends have key common characteristics. They are human phenomena that integrate incentives, resources and innovations. Megatrends are engines of change, not simply indications of it; they are sources of disruption, not merely symptoms of it.
Megatrends have direction momentum and causal effect.
Technology-driven labour polarisation, by which automated and intelligent systems are irretrievably eliminating large swaths of traditional middle class jobs, is a clear example of a megatrend.
Although the underlying process has been with us for millennia, the speed with which innovations disseminate globally, the intense competitive pressures of a global economic system, and the acceleration of technical sophistication have created a dynamic of change with profound social, economic and political consequences.
Like many megatrends, this one has a fractal logic. Its influence exists both within communities and countries and between them. For example, the standard model of economic development based on the movement of agricultural workers into labour-intensive manufacturing industries fuelled by export-driven growth delivered stunning results for Japan, South Korea and China.
For India, the Middle East and Africa, however, in the context of proliferating automation and hyper-competition, this well-trodden path is no longer viable. As a result, youth unemployment and the future of work are now central strategic challenges for countries around the world.
Geopolitical entropy, the breakdown of the established world order, is another megatrend. The steady rise of new global powers has diminished the relative influence of the US – ending its “unipolar moment”.
Overextended and less able to secure historic strategic and political returns on national security investments, the US has retrenched. In almost every region of the world, this has caused nations to re-evaluate their interests, strategies and alliances. This deep disruption of nation-state incentives has created strategic uncertainty that activates the “security dilemma” in which states make investments in defence that drive their competitors to do the same. Such behaviour is fuelling regional arms races, destabilising longstanding security architectures and making isolationism more seductive – and so the spiral intensifies.
Detecting the early signs of large-scale change
From a macro-economic and micro-economic standpoint, megatrends are of fundamental importance because they transform markets, accelerate natural selection among firms and most often generate arbitrage of one kind or another.
So, for companies, governments and individuals, it is the early detection of megatrends that is the most important – and difficult task. This involves scanning for the early signals of change and assessing whether these point to phenomena that have some kind of transformative power. Such an undertaking has never been more challenging or more potentially fruitful, as we are living through an explosion of global change.
Some megatrends promise to be more powerful than others. Take the changes unfolding in the make-up of the global population, for instance.
By 2020, the world will add 475 million people – 83 per cent of them in Africa and Asia. While the European workforce will shrink, the African workforce will grow by 30 per cent – but the new sources of large scale employment remain to be found. Hyper-urbanisation, meanwhile, will continue at such a pace that by 2050, 70 per cent of humanity will live in cities – some of them sophisticated smart cities and others sprawling slums. By 2030, demand for energy will increase by more than 30 per cent, food by 50 per cent. Water scarcity will affect 1.4 billion people if current trends continue.
Dive deeply into all that follows.
But will they? Investment in resource innovation will continue to intensify to capitalise on these fundamental demand patterns with potentially transformative results. Nowhere is the scale of change more radical than in technology. The number of devices connected to the Internet is expected to grow by more than 25 per cent annually for the foreseeable future. This, in tandem with the stunning growth in social data, predictive analytic capabilities and super-computing will fundamentally alter supply chains, business models and the very structure of the firm as the transaction costs of coordination evaporate.
These are, of course, only some of the examples of the massive changes we will witness over the coming decade. To anticipate transformative change early in its evolution, one must consult the domain experts. Mega has assembled a remarkable group of them here. I encourage you to dive deeply into all that follows with an eye on how each of these trends could be the seed of the next, still invisible transformation.