Futuring Paper – The Future of Business

Co-Convenors: Suraj Commuri (Marketing) and Michael Sattinger (Economics)

Forces shaping and those that will shape changes in the discipline

Today we are at the cusp of dramatic changes and disruption in the world of business.

  1. The role of the machine: The machine, a broad term to represent anything non-human, has been adopted in the world of business to improve efficiency. Technological change continues to be dominated by the extension of machine capabilities into worker skills in language, vision and movement, with less progress in reasoning. These capabilities will affect the products consumed by households, which skills will be required of future workers, whether machines, including advanced manufacturing robots, will be complements or substitutes for workers, and how businesses will be organized and run.

  2. Diffusion of innovation: Whereas in the past innovations diffused only gradually from the early adapters to the laggards, today adoption of innovation represents a mass migration. Diffusion of technology occurs across international boundaries, generating forces towards convergence in methods and wages.

  3. Unbundling of the long-term: Attention around the world of consumption has been shifting away from investing in depth to chasing a burst. The long-term is being envisioned only as several short-terms. A fall in the long-term real interest rate could reorient business activity towards long-term goals, depending on investor evaluation and executive compensation. This connection underscores the interaction between corporate activity and unknown macroeconomic conditions ten years from now.

  4.  Business function: Business models have shifted away from creation to aggregation. The biggest prizes are not going to models that aim to create, but to those that are pioneering aggregation.

  5. Manufacturing: In manufacturing, long-lasting trends include moving away from methods of mass production by using programmable, multi-task production equipment and flexible machine tools to replace specialized, single-purpose equipment. These methods allow smaller production cycles with a much wider product line, leading to a greater orientation towards changes in customer requirements and demand fluctuations. These changes in capital equipment induce a team approach to design and marketing and an extension of worker responsibilities (for example, including quality inspection with production).

  6. Globalization: Globalization of trade and production of mass-produced goods has been based on seeking the lowest wage for production and seeking the highest rate of return for capital, generating imbalances with economic consequences for workers and political consequences for trading democracies. This pattern is generating its own reversal through increasing wages and productivity in low-wage countries and cannot continue. In addition to smaller production cycles with wider product lines, developments that move us closer to bespoken goods include advanced manufacturing robots, additive manufacturing (3D printing) and scale customization. Firms would seek to establish long-term relationships with customers by providing value over the life of the product, and through successive products, with all aspects of product use (including where appropriate hardware, software and service). In generating these long-term relationships with customers, firms would move further from spot and auction markets, paralleling developments in labor markets. The significance of these developments for globalization is that production would shift to smaller factories closer to customers, within the country, and producing with smaller impacts on the environment. With this model, trade would revert to traditional exchange based on comparative advantage providing mutual advantage to trading partners. The empirical question in considering the future of business is the extent to which customer-specific goods and services characterize the demand for goods and the degree to which firm capabilities characterize the supply of those goods and services, and how these levels are changing.

  7. Offshoring: Offshoring, a more recent phenomenon, concerns trade in services that occurs when firms shift jobs outside the country where the firm operates. This is possible when the service is not severely degraded by being provided at a distance. Tech service provides a classic example. Offshoring is facilitated by declines in communication and information transmission costs brought about by computers. There is substantial uncertainty about the rate at which offshoring will proceed and its effects on the operation of business.

What new opportunities will be created?

We have identified several opportunities and have requested academics from economics and business to sort them in the order of importance. Thirty-four have responded and the following is the sorted list of top opportunities.

  1. New ways of working: The future of work will not just be characterized by a workforce that was born and raised in the digital world, but also one that has taken for granted the sharing economy. Skills and assets can all be shared and bartered on-demand and therefore entry barriers to any task will drop to insignificance. The shift towards greater worker responsibility as a result of increasing flexibility of productive assets reduces the marginal value of governance activities so that manufacturing organizations can have fewer hierarchical layers. Unlike traditional hierarchies with mass production, managerial activity occurs in teams that report directly to central management without going through intervening levels. Computer systems are central to these organizational changes by allowing more individualized treatment of employees and customers, better transfer and tracking of information, more decentralization of decision-making, and exploitation of complementarities among individual tasks.

  2. Niche specializations: Consistent with the rise of the sharing economy, an emphasis on niche specializations that will be called on-demand will become mainstream, spreading far beyond the confines of domains such as medicine or rocket science, where it is already common.

  3. New industries: The current classifications of agriculture, manufacturing, or service sectors will be deemed inadequate as opportunities emerge for new business models to create altogether new industries. Aggregators will be hard to classify into conventional models. For example, information has emerged and will remain an important industry. Another example is the advanced manufacture of chemicals through biological synthesis and engineering to provide solutions to problems in energy, climate change and environmental sustainability.

  4. Managing digital trust: Today’s emphasis on cybersecurity will emerge into an opportunity to manage digital trust. In the labor market, absence of credibility is a barrier to efficient use of the internet for matching workers to jobs, providing an additional opportunity for digital trust.

  5. Analytics of digital footprints: Intelligent analysis (not mining) of persistent data that will emerge before questions will open opportunities for first mover insights.

  6. Artificial intelligence: As algorithmic machines will race to be more effective than humans, opportunities in the domain of virtual and artificial intelligence will continue to rise.

  7. New regulations: As boundaries between creation and consumption, human and machine, owner and user, and so on change, there are bound to be corresponding new regulations and tax structures. Designing, deciphering, implementing, and enforcing the new regulations will also emerge as significant opportunities. While continuing developments and problems in financial regulation must be anticipated, changes can also occur in the anti-trust and merger environment as well as in consumer and worker protection.

How will the developments affect higher education?

  1. Interdisciplinary curriculum: Colleges will not be able to train graduates for all the niche specializations that will emerge in the world of business. Graduates will self-select into the specializations based on demand and supply. Further, as such niche specializations will wax and wane, no college can reliably cater appropriately. Therefore, interdisciplinary curriculum will emerge as a matter of distinction. However, it will not be because of the forces that dictate it today – business decisions are essentially interdisciplinary in nature – but because of the emerging norm that graduates may be specializing in more than one function over time.

  2. Installment education: Models of education may shift away from having to retain students for the entire duration of four years, so serving students for four years’ worth. Not only will taboos on dropping out lifted, but colleges will accommodate students testing out in field over time theories learned in the classroom and subsequently returning to classroom for refinement and eventually receiving a degree. One may even call it a three-year internship. But not dropping out of college. Because of changing management activity, life-long learning will increase in importance.

  3. Emphasis on decisions and communication: It would be useful to know the occupations that would be performed by graduates of the School of Business or by workers they manage, and many analysts have obliged with varied forecasts. However, it has been noted that requirements for skills will inevitably change faster than the skills of workers themselves, so matching requirements with skills would be hopeless. Nevertheless, it is possible to identify the nature of skills by considering what activities would not be taken over by algorithmic machines. A reliable conclusion is that future management skill needs will include advanced problem-solving skills (perhaps involving expert thinking), advanced complex communication skills, and ability to work in teams. Expert thinking concerns using experiences and solutions from past problems to address new problems. Complex communication skills refer to statements where context needs to be provided in order to be understood, in contrast to exchange of data.

  4. Recruitment: Corresponding to the changes in work, there will also be changes in recruitment as firms move away from the psychometric approach of comparing worker characteristics with job requirements. With the social process approach, firm recruitment occurs through social interaction between the applicant and the recruiting organization. The emphasis on teams suggests that firms will move towards a third approach based on the fit between the person and the organization. The last two approaches raise the problem of providing fair recruitment practices at a time when firms cannot afford to avoid the opportunities generated by increasing participation of women and minorities.

  5. Accounting: By lowering the costs of observing, collecting and aggregating data, computerization has generated a wealth of empirical information on individuals, businesses and institutions. Businesses need to be able to analyze this Big Data to operate efficiently and competitively. In addition to developing new methods of analyzing this data, accountancy will need to prepare students in these new practices. These new procedures are likely to be incorporated into firm audit requirements, and would then be reflected in professional requirements.