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Published: January 30, 2007

 
 

Seven Counterintuitive Trends

Everyone expects turbulence, but few people are watching the most significant pressures that will confront industry this year.

To anticipate the future, pay close attention to the present. Every trend in the current business environment represents a clue to what is going to happen next. And rarely have clues been more needed — or more open to contradictory interpretations: increasing globalization versus increasing international hostility; burgeoning economies versus depressed consumer markets; liquid capital versus uncertain investments; and technological promise that has yet to be delivered in such fields as energy, biotechnology, transportation, and even telecommunications. In such times, the best indicators of significant change are the counterintuitive trends — the trends that don’t quite fit conventional wisdom, but that are so intertwined with the critical dynamics of the time that they cannot be ignored.

At the end of each year, teams of industry specialists at Booz Allen Hamilton get together and consider the trends they have observed, and what those trends spell out for the year ahead. This year, we found seven counterintuitive trends. They don’t fit many people’s expectations, but now that we have examined them, we don’t think about the world in the same way.

1. Oil, gas, and electricity: talent shortages. No matter how the price of oil fluctuates on a month-by-month basis, energy will generally be less cheap and plentiful a commodity during the next five years. There are three well-known reasons for this: first, the political tensions rife in the Middle East (and in such oil-producing nations as Venezuela, Russia, and Nigeria); second, the growing demand in emerging economies such as China and India; and third, the dwindling supply of “cheap and easy” oil and natural gas. Likewise, electric power producers will feel pressure to move away from coal, which is plentiful and relatively inexpensive, because countries around the world — even the coal-prolific United States and China — are increasingly likely to regulate greenhouse gas emissions.

But even if those factors did not exist, the industry would still be facing shortages because of an often-overlooked factor: a knowledge gap in energy companies caused by the retirement of the baby boom generation. In the oil industry, for example, the average age of employees is 46 to 49; with 55 as a typical retirement age, more than half of the employee base is expected to leave the workforce within the next five years. The resulting talent shortage affects all positions, from rig workers to senior scientists and engineers. Similar demographic shortfalls are coming in the electric power generation industry.

At the same time, the skills demanded by these industries are growing more involved. Oil exploration and production is now the domain of “megaprojects,” including immense offshore sites managed by multiple organizations and requiring complex maintenance. The prospective shift in energy fuels to alternatives like biofuels, wind, nuclear, and solar also adds complexity. Because it’s still unclear which fuels will be most effective at replacing carbon-based fuels, both in electric power generation and in transportation, there are years of experimentation ahead of us. All of this puts an additional strain on already scarce human resources.

The dearth of talent is a strategic business challenge, and several companies, including Shell and ExxonMobil, are investing heavily in training new staff. Others may take on retired staff as consultants. Still others will turn to suppliers, which have a better bargaining position than they’ve had in years. And to leverage their talent, some companies will pursue information technology–based (“digital oil field”) solutions, such as “Fields of the Future” at BP and “Smart Fields” at Royal Dutch Shell.

2. A shift in supply chain practices. Less visible than the well-publicized pressures faced by the Detroit “big three” — General Motors, Ford, and DaimlerChrysler — is a more pervasive and widespread trend that could affect the structure of the automotive industry more dramatically. Suppliers, which produce the components of the cars sold by mainstream manufacturers, are also in trouble. Delphi, Dana, Dura, Tower Automotive, and Collins & Aikman have all filed for bankruptcy. Even suppliers with a long track record of success have been squeezed, with profit margins often below the cost of capital.

 
 
 
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Resources

  1. Olaf Acker, Niklas Dieterich, and Christopher Schmitz, “Dueling Technologies at the Point of Sale,” s+b, Spring 2006: Mobile payments could transform the purchasing experience, but these systems have so far failed to spark much interest in the United States and Europe. The reasons reveal a great deal about the prospects for innovative financial services, and about the underlying nature of infrastructure change. Click here.
  2. Nikhil Bahadur, Edward Landry, and Steven Treppo, “How to Slim Down a Brand Portfolio,” s+b, Autumn 2006: Consumer packaged-goods companies have awakened to the risks of an overextended brand portfolio and begun to cut the fat with a vengeance. Click here.
  3. Doug Bartholomew, “A House Divided: Manufacturing in Crisis,” IndustryWeek, November 1, 2005: Overview of the “civil war” between large and small manufacturers as they battle in a landscape marked by expensive raw materials and competition from low-cost countries. Click here.
  4. Stewart Brand, “City Planet,” s+b, Spring 2006: Get ready for cosmopolitan slums with thriving markets, aging residents, and the most creative economies in history. Click here.
  5. Vinay Couto and Ashok Divakaran, “How to Be an Outsourcing Virtuoso,” s+b, Autumn 2006: As the turbulent global services industry matures, a highly skilled cadre of master providers and customers is emerging. Click here.
  6. Kevin Dehoff and Vikas Sehgal, “Innovators without Borders,” s+b, Autumn 2006: For companies that want to build a global growth engine, offshoring innovation is both a challenge and a necessity. Click here.
  7. Frank Galioto, Jason Kerins, Steffen Lauster, and Deanna Mitchell, “The Matrix Reloaded: The Multi-Axis Organization as Key to Competitive Advantage,” Booz Allen Hamilton white paper, January 2007: Consumer packaged-goods companies that master the matrix organization enjoy a competitive advantage that is powerful, sustainable, and highly adaptable as market and company priorities change over time. PDF download.
  8. Thomas Goldbrunner, Yves Doz, Keeley Wilson, and Steven Veldhoen, “The Well-Designed Global R&D Network,” s+b Resilience Report, May 15, 2006: A new study by Booz Allen Hamilton and INSEAD finds that organizations benefit when they configure their innovation networks for cost and manage them for value. Click here.
  9. Ronald Haddock, Christian Koehler, and Edward Tse, “A New Era for Chinese Vehicle Manufacturers: Opportunities and Challenges for Chinese Automakers as They Expand Overseas,” Booz Allen Hamilton white paper, January 2007: Strategies for Chinese automakers to grow in their home market and expand globally. PDF download.
  10. Steve Hedlund and Tom Pernsteiner, “Why Systems Haven’t Been the Solution for Suppliers,” Booz Allen Hamilton white paper, March 2001: Why automotive systems suppliers have been unable to generate adequate returns on their investments. PDF download.
  11. Barry Jaruzelski, Michael Busch, and Jay Kumar, “The Stealth Software Challenge,” s+b Leading Idea, December 12, 2006: Just about every product on the market, from planes to toasters to Legos, relies on microprocessors to work, but manufacturers usually treat software development for their products as an afterthought. Therein lies the problem. Click here.
  12. Edward Landry, Andrew Tipping, and Jay Kumar, “Growth Champions,” s+b, Summer 2006: How marketers can drive the only metric that matters. Click here.
  13. Matthew G. McKenna, Herve Wilczynski, and David VanderSchee, “Capital Project Execution in the Oil and Gas Industry: Increased Challenges, Increased Opportunities,” Booz Allen Hamilton white paper, March 2006: A Booz Allen survey of oil majors and suppliers revealed the pain points in supplier relationships. PDF download.
  14. Peter Parry, Varya Davidson, and Andrew Clark, “Crisis in the Oil and Gas Industry,” s+b Leading Idea, November 21, 2006: A skilled labor shortage threatens to stall the boom in investment and exploration. Click here.
  15. Jeremy W. Peters, “Auto Supplier Dana Files for Bankruptcy Protection,” New York Times, March 3, 2006: Overview of supplier bankruptcies in the automotive industry, including Delphi, Dana, Collins & Aikman, and Tower Automotive. Click here.
  16. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: To create an impossibly low-cost, high-quality new business model, start by cultivating constraints. Click here.
  17. John W. Schoen, “Auto Industry Rocked by Delphi Bankruptcy,” MSNBC.com, October 10, 2005: An analysis of how Delphi reached this point, and the bankruptcy’s effect on the automotive industry. Click here.
  18. Lord Andrew Turnbull, “Toward a Flexible Energy Future,” s+b, Winter 2006: When the price of fuel reflects all the costs, government and industry will know where to invest. Click here. 
  19. Herve Wilczynski, Matthew McKenna, and David VanderSchee, “Unprecedented and Unseen: The Next Great Energy Challenge,” s+b Leading Idea, November 9, 2006: As the oil and gas industries ramp up “megaprojects” to meet demand, few companies really know how to manage them effectively. Click here.
 
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