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Why megatrends matter

From Futureorientation 5/2006

Megatrends are the great forces in societal development that will very likely affect the future in all areas the next 10-15 years. Many companies and organizations use megatrends in their strategic work. Below, you can gain an overview over the 10 most important megatrends as we head toward 2020.

Af Gitte Larsen

Megatrends are great forces in societal development that will affect all areas - state, market and civil society - for many years to come. In megatrends such as, for example, prosperity and aging, lies a great deal of the knowledge we have about the future. We know that wealth will probably continue to increase by about 2% a year in the western world. We also know that there will be more elderly people and fewer youths in the near future.

In other words, megatrends are our knowledge about the probable future. Megatrends are the forces that define our present and future worlds, and the interaction between them is as important as each individual megatrend. That is why futures researchers, companies and others use megatrends when they develop and work with scenarios. Megatrends can be a starting point for analyzing our world.

Even though megatrends say something about what we know about the future, it is not certain how society, companies or any of us will react to these forces. In other words, it is not enough to draw on the probable future when working with futures research. The future is never a given, and any one of us can affect or create the future. Megatrends have different meanings for different companies, organizations and individuals, because we react, consciously or not, differently to trends such as globalization (vs. anti-globalization movements), individualization (vs. new communities) and the increasing pace of change (vs. the slow movement).

The three Ps

Futures researchers always work with three types of futures: the predictable, the possible, and the preferred. The two last - the possible and the preferred - are also worth considering when we use megatrends in our strategic work with the future.

Megatrends say something about the probable future, but there are other possible futures. Every megatrend can be set aside or can suddenly and fundamentally change direction. Wildcards - events that are unlikely, but that would have enormous consequences - can slow a megatrend's development or create counter-forces. For example, the events of September 11, 2001 temporarily stopped growth and slowed some aspects of globalization.

Certainties, uncertainties and paradoxes

Megatrends are the probable future - or express what we know with great confidence about the future. Megatrends are certainties. Nevertheless, they always contain elements of uncertainty - through the effects on and reactions of companies, organizations and individuals, or through wildcards. Moreover, they can contain elements of paradoxes/counter-forces, such as the anti-globalization movement, anti-consumer movement or the slow movement.

Megatrends can be used as a methodology when you or your company works strategically with the future. You can, for example, use them as a base in development and innovation processes, and use them in combination with other trends in a more specific area. You can also use them if you create scenarios or need an Early Warning System.

In the box, we give you three examples of ways companies have used - or failed to use - megatrends. Another example is found in the interview with Danish Crown, which recently, in cooperation with the Copenhagen Institute for Futures Studies, has focused on the future of meat production in Denmark. We show how they have chosen to communicate the message to workers in the meatpacking industry about two different futures/scenarios based on a number of megatrends.

How your company/organization can use megatrends

Many companies and organizations use megatrends in their strategic work with the future within all the central business areas, such as corporate strategy, market innovation, and business development, product development, marketing and HR.

Example #1: Jyske Bank's new business concept

Jyske Bank recently fundamentally changed its business concept, so the customer can put together his own banking solution. The bank has focused on the product experience, both "virtually" and in the branch. The bank calls the initiative "Jyske Difference" and their slogan is "Jyske is the bank that makes a difference." In the short process (four months) during which the new business concept has been developed and partially implemented, the bank has been especially inspired by the Copenhagen Institute for Futures Studies' thoughts on Creative Man and the individualization megatrend. As they write to FO/futureorientation: "Many consumers see banks and bank products as uniform - and a little boring. At the same time, we see that customers are changing behavior. They want more influence; they are more self-reliant while demanding personal service. The creative consumer, who wishes to create his or her own solution, is the coming thing. Consumers want to tailor their own charter vacations, car, and bank product. With the new initiative, the bank can better meet the modern consumer types of the present. With Jyske Difference, Jyske Bank signals that we are more than a bank. Jyske Bank is a bank, a store, and a modern library. Jyske Bank is the place where customers become smarter, inspired, and experience a straightforward atmosphere."

Example #2: Bratz beats Barbie

Individualization has - in addition to the need to be able to choose everything individually - meant that childhood now has more phases. Today, we have very young children, the middle group, the relatively new group "tweens" and teenagers. The Barbie doll was market leader, but, because they were slow to note the trend that children more quickly become "small adult consumers," the Bratz do quickly took a disproportionately large share of the market leader position. Megatrends can, in other words, be used as an Early Warning System (read more about EWS and megatrends in the theme article elsewhere in this FO). It can go terribly wrong when companies fail to pay attention to the development of megatrends. For example, traditional camera and film companies, such as Kodak, are suffering from the rapid rise of digitalization. They saw it coming, but underestimated the speed, with the result that they have had to make massive layoffs in the last couple of years.

Example #3: What comes after coaching?

How will the market for coaching develop, and what will be the next? DIEU, one of Denmark's biggest and most successful providers of courses in coaching, set out to answer that question. More individualization, plus several of the other megatrends, indicates a growing market. Globalization constantly brings new and unexpected challenges. The aging of the population means that we run into completely new life situations several times in our life. Coaching is relatively expensive, but wealth lets more people afford to seek professional support both within and without the professional sphere. Commercialization means that we are ready to pay for sparring on questions we would have handled privately with friends and family in the past. The conclusion, after a dialogue between DIEU and a futures researcher from the Copenhagen Institute for Futures Studies, was that demand for individual professional support is growing, that coaching as a buzz-word will probably be replaced by a new expression, and that DIEU as market leader decided to create the future that comes after coaching.

10 megatrends toward 2020

The 10 megatrends that are republished here in a shortened, edited form, were developed by Kaare Stamer Andresen, Martin Kruse, Henrik Persson, Klaus Æ. Mogensen and Troels Theill Eriksen, all from Copenhagen Institute for Futures Studies. The Institute also works with other megatrends, such as climate change, the knowledge society, and immaterialization. In this summary article, information technology, communication technology, biotechnology, nanotechnology, and energy have been grouped under "technological development."

#1 Ageing

The world's population is ageing. It is happening because we live longer, and because there will be relatively more elderly than youths the next decades. This is especially because the world's women have had fewer children the last 55 years. The trend toward falling fertility on a global basis is so clear that it will almost certainly continue the next decades, and that means the world's population will not increase.

The ageing megatrend applies to all regions of the world, and has great significance for society, economics, corporations, and individuals. Social dynamism may be reduced because older people are often less open to change than the young. Most OECD countries have the issue of an ageing population at the top of their political agendas, and health care, pension systems and care for the elderly have been prioritized in many countries in recent years. More elderly outside the labor market means reduced tax revenues and higher (public) expenses.

The elderly of the future are expected to get a great deal of attention because many of them are financially well off. Today's elderly are in better health and more affluent than the elderly of the past. As a result, age has taken on a different meaning, and many elderly have a completely different self-image than earlier generations. The elderly in the western world want an active retirement with travel, experiences or other forms of self-realization.

The greatest consequences of ageing will be felt on the labor market after 2010, when the number of people of working age will fall. The labor market will be a seller's market, and youth will be in great demand. This may prompt bottle-neck problems, upward pressure on salaries, greater international competition and, in the end, poorer competitiveness for OECD countries. The reaction can be more off-shoring and outsourcing and a different perception of immigration. In the immaterial and creative economy of the future, more of the especially well-educated elderly may remain active in business life longer, but that requires companies and organizations to start considering now new forms of employment to create the optimal conditions for this group.

#2 Globalization

Globalization is the fast growing global interconnectedness reflected in the expanded flows of people, capital, goods, ser-vices, information, technologies, and culture. Globalization is not a new phenomenon, but it will mean something different in the future.

Companies and money markets are the most global things today, and we see a growing international division of labor. We increasingly experience common production and consumption values. Globalization makes us more alike across the world, but it also makes us more aware of local differences. When we look at what is most globalized today - markets and companies - the trend is towards regionalization. However, in the near future we will far more clearly than today see and experience what makes us alike - more globally oriented - and what makes us more different or locally anchored.

The global development leads to increased liberalization and expanded trade in most countries and regions. However, it does not seem likely, that the world will be dominated by common political and ethical values in the near future. A probable future can therefore be "A World of Nations and Regions," with global free trade but only deeper integration at regional levels. Citizens and consumers also seem to be cross-culturally different in their behavior and their preferences for products. A growing number of multinational companies have therefore begun to adapt their products and marketing to the individual markets.

#3 Technological development

Our use of technology is what differentiates us from other animals. We are the only creatures who construct and develop tools that make life more pleasant for us. Since the start of the industrial age, technological development has accelerated, so changes come faster and in more areas. The most important technological development areas in the next decades are information technology, biotechnology, nano-technology and energy.

Information technology has created enormous changes in recent decades: personal computers, the Internet, mobile telephones, industrial robots, iPods, and much more. In 2020, computers will be about 200 times faster than today's computers, and will have memories 1000 times as large. Computers and robots will take on increasingly complex assignments, and the Internet will be a breeding ground for completely new, virtual industries.

In recent years, we have seen great progress in biotechnology with the mapping of the human genome, cloning of mammals, and genetic modification of plants and animals. Research in biotechnology opens the door to new, future treatments in the form of gene therapy and transplantation of cloned organs. Genetically modified plants and animals (GMO) may potentially relieve world hunger. However, at the same time, biotechnology opens a Pandora's box of ethical questions: Is it acceptable to manipulate life? Is GMO just another way for the West to exploit the Third World? Will biotechnology prompt unforeseen biological catastrophes?

Nanotechnology is a general term for technology with structures on a nanometer scale (one billionth of a meter). Researchers develop nanomaterials with many fantastic charac-teristics such as extreme strength, special electric properties and extremely low friction. Nanoelectronics may, in a few years, replace microelectronics. At little further into the future are nanomachines: microscopic robots that, for example, swim around in our veins removing cancer and plaque.

One of the great challenges of the 21st century will still be finding energy for both the new and the old industrial countries. Oil will run out eventually, so we must find alternatives. There is much research in sustainable energy from wind, the sun, and the earth's warmth and in alternative fuels such as hydrogen and biofuel. The following decades will also offer progress in atomic energy, both the traditional fission energy and the controversial fusion power that creates energy the same way the sun does.

#4 Prosperity

Prosperity is a megatrend because the majority of the population of OECD countries and large groups in formerly developing countries are now growing more prosperous. Between 2% and 4% growth is assumed in the western world in coming years, and in some regions - especially North America, Latin America, and Asia - the growth rate will likely reach 10%-15%. It is doubtful that Africa and the Middle East will enjoy such growth and increase in prosperity because fertility rates are expected to remain high in these regions, among other factors. Moreover, prognoses indicate the Russian middle class will grow from 50% to 85% in the next 10 years, the Chinese from 5% to 40% and the Brazilian from 25% to 50%.

Gross National Product (GNP) is usually used to measure and compare the wealth of nations. The US and EU are, measured by GNP, far richer than other parts of the world, but that can change in step with the high economic growth rates and increasing employment in many developing countries.

The economic growth will cause a change in the demand for new types of products, with a new business structure as a result. In short, most countries are going through a structural social and economic change in the transition from agricultural and/or industrial society to a knowledge society. When we grow richer, new needs arise and we consume more in the form of intangible products such as entertainment, experien-ces, services, savings and investment. More prosperity changes our consumption of traditional tangible products such as food, because affluent consumers focus on health, quality, trust, origin, animal welfare, etc.

More prosperity and more consumption will change the relationships between costs, prices and profit. The relationship that formerly existed between consumer prices and production costs, based on resource contributions such as labor and capital, is no longer present. Much of the value of the tangible products of the future is not in production costs but in the knowledge behind the product: product development, marketing, distribution, etc. That also means that there will be much greater pressure on companies and individuals to be change oriented, creative and innovative.

#5 Individualization

Individualization is the shift from more collectivist societal norms to more individualism. In the Middle Ages, a person was defined by his relationship to God. He was placed in a framework where God penetrated every aspect of society, thus making man's fate preordained. The Renaissance and the advent of modern industrialization freed man in this respect. Suddenly the son of a farmer did not necessarily have to become a farmer. Man's fate was now more a question of interest and skill rather then obligation and tradition.

Historically, individualization is closely related to cultural norms and change of social structure. The 20th century may be said to be the century of individualism in Western culture. A central aim for modern man is to distinguish himself from his fellows, and thereby obtaining a higher position in a social hierarchy based on shared norms and values. Today the question must be raised in Western society whether these norms and values exist or if they just relate to the scarce commodity rule of socially distinctive action, thus generating an oppositional tendency to focus on individualized value-based distinction. In any case, the individualistic approach has made branding one of the key figures in modern sales and marketing.

Individualization will be significant for the lives of the individual - and in private relations between people. But individualization will in the coming years also greatly influence companies. First, individualization can be read in the gradual dissolution of traditional segments. Even today, the segment models are in the process of having to give up because customers no longer can be divided into internally consistent groups. As customers, people are increasingly going to expect individual and unique products. Secondly, companies are going to feel the increasing employee turnover more. The labor force of the future can handle more changes than that of the present. Thirdly, individualization will be felt as an employee demand for individual attention.

Read more about individualization in the next issue of FO/futureorientation.

#6 Commercialization

Commercialization is the meeting of increasingly more human needs on the private market through trade that can be both supply and demand driven. Commercialization is closely linked to other megatrends such as globalization, prosperity, individualization and digitalization. Digitalization has made it much easier to reach consumers globally, and the Internet promotes commercialization by making it both cheaper and faster for companies to market to the global market. Globalization has great influence on commercialization because of increased international trade, greater investment and more travel. Prosperity and individualization also accele-rate commercialization because consumers have more money and at the same time demand individually tailored products and services.

Commercialization will probably increase in the future, and the consequences will range from even more prosperity to specialization in business and the labor market. Specialization means that companies deliver more differentiated products and services while employees work more with product development, innovation, marketing and sales. This will in turn speed up the transition to the creative knowledge economy.

Commercialization gives the individual more choices, increases competitive pressure on many companies and organizations, and thereby creates a growing market for new products. More competition forces businesses to further specialization and effectiveness. Some companies will concentrate on large-scale operations, centralization and standardization. Others will do the opposite, concentrating on decentralization, flexibility, niche production, immaterialization, marketing and customer service.

#7 Health and environment

In 1962, when the American marine biologist Rachel Carson published

Silent Spring, she painted a picture of mankind's lack of feeling of responsibility for the earth. Professionals ridiculed Carson's gloomy predictions, but when, in 1972, the same professionals raised the alarm with the report Limits to Growth, few shook their heads. The oil crisis had created a new awareness of the resource problem that grew in light of the growing prosperity and a menacing population explosion. The green wave of the 1980s put focus on ecology and sustainability, and fitness centers appeared everywhere. With the political consumer's boycott of Shell because of Brent Spar and French wine because of nuclear tests in the middle of the 1990s, consumer power was manifested. Since then, the triple bottom line has been a part of many companies' accounts, and the development continues with renewed focus on corporate social responsibility (CSR) and the new corporate social innovation (CSI).

Today, fitness has become wellness, and so has gained a more spiritual and personality-optimizing character. New spa baths, treatment resorts, and other offerings are constantly appearing on the market, and the American wellness industry expects record-breaking sales of US$73 billion in 2006.

The health and environment megatrend will have even greater significance in the coming years. There will come more age related illnesses, more lifestyle illnesses such as obesity and stress, and more mental illness. Men's sperm quality has fallen greatly over the last 10 years, more children suffer from allergy, and smoking is banned in more and more places. There will be focus on clean drinking water - even in the countries that until now have not had problems drinking water from the tap. The World Bank calculates that the spread of avian influenza cold cost US$800 million a year and prompt a significant drop in GNP in the affected countries. The Asian Development Bank calculates, moreover, that a pandemic could create a period with low growth in which global trade would fall by 14%. The health megatrend is, therefore, of great significance for the world economy.

The individual household uses more and more money on environment and health, and the number of new companies in healthcare has quadrupled in Denmark in just five years. The modern person buys vitamins, practices yoga and eats healthfully. In step with the individualization trend, more are interested in the body, beauty care and wellness, and more are aware of the connection between health and environment.

For companies, it will also be more important to take into account employee health. Many already work to improve employee morale, loyalty and productivity through meal programs, fitness centers, etc. We will probably also see more countertrends to this in coming years.

#8 Acceleration

The industrial revolution was the starting signal for increased acceleration, which has only grown since then. Today, for example, there is more knowledge for the individual to consider, more to produce and consume, more to throw out, more to communicate, more to transport, and many more people to interact with. The pace of change is the number of changes in society per unit of time, and there are no absolute numbers for it. But that many people say there are more and more changes is sign enough of it.

Changes touch us on many levels, and we change job, partners, friends, interests, home, knowledge, news and ideas faster than before. Information is not just more accessible today - the entry of new products on the market goes faster and faster. A single example is that it took 13 years before 30 million video cassettes were on the market, but just eight years for the same number of CDs and only five years for 30 million DVDs. Modern people much make far more daily choices than ever before, and our curiosity and our aspirations for development, new knowledge and improvements will be forces that will increase the pace of change in the future. So will new technologies such as nanotechnology and biotechnology.

The pace of change already makes great demands on the ability of companies and organizations to reorganize. And that is not all: if you want to protect your competitive power, it is not enough to be change ready - you must be change-oriented so that you do not make do with subsequently and passively adjusting to the changes that happen in your world. According to a study by McKinsey, it is probable that a market leader will lose its position at the top in five years, twice as fast as 20 years ago. Speed and flexibility are other demands on companies and organizations in an accelerating development.

#9 Network organizing

To enter a network is a natural part of being human. Central to all networks is communication, because communication is the reason we have a society, a culture, an identity and an economy. Network organizing is a megatrend because network has become a central term that permeates our way of thinking. Cheaper transport, better infrastructures, the Internet, mobile telephony and increasing prosperity have revolutionized the opportunities for communication and network organizing. This megatrend is, in other words, closely connected to the development in several other megatrends, not least digitalization, globalization, and individualization, but also prosperity, immaterialization, and commercialization.

A network's value increases exponentially with the number of members who are in it. Changes in a network society do not happen linearly as they do in an industrial society. That means that many changes that took decades in the past now happen significantly faster. An example: just two years after the World Wide Web was launched in 1992, 10 million users were on it, while it took the telephone four decades to attract the same number of users. Network organizing greatly affects technological, societal, and economic development, and we have probably seen only the beginning. The rapid development potential in the network society means, on the one hand, that companies can expand incredibly fast, as happened with Microsoft, but, on the other hand, companies in all industries can risk outcompeting each other in a very short time. This applies even to Microsoft, which, even though 90% of computers use its programs, is losing share to the free operating system Linux.

Networks drive out hierarchies and create many new open and decentral social structures. This applies to private life, especially for the younger generation, to the labor market, and business life. Medicon Valley in the Øresundregion is an example of one of Europe's largest clusters of biotechnology companies. Network organizes also promotes urbanization, because urban regions with good infrastructure, good development possibilities, and a rich research environment attract the creative class. Network organizing challenges our entire way of thinking and traditional institutions such as the nation-state, the church, culture and language because people enter other and new networks than before.

Google is an example of a company where the network principle has shown itself to be a good business ideology. The Google search engine's strength is, in fact, that it lists search results according to how centrally a web site is in the network - that is, according to how interesting users believe it is.

#10 Urbanization

48.3% of the world's 6.5 billion people live in urban areas. The United Nations predicts that the share of the world population living in urban areas will rise to 53.6% in 2030, or about 3.9 billion people. While the average annual rate of change in urbanization towards 2030 is predicted to be only 0.5% in more developed regions, it is predicted to be 2.3% in less developed regions, primarily in Asia and Africa.

Large-scale migration from region to region and countryside to urban areas continues in both Asia and the Middle East. Rapid urbanization poses a fundamental challenge the development of adequate infrastructure and liveable housing, and the maintenance of healthy environments. Other than that it also put stress on traditional ways of living, family structure and cultural values - creating a growing potential for social and political unrest.

Nevertheless, there are also reasons for optimism. The historic association between economic development and urbanization is well established. Cities are crucial environments and institutional assemblages for economic growth. Current research indicates that even in less developed countries cities experience lower rates of natural population increase than rural areas, average household income is higher, and educational levels are well above those in rural areas. Thus, cities can also be seen as places of opportunity in which the major need is effective management and provision of services, creation of economic opportunity, and the provision of safe and healthy environments.

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20. november 2006

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