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Activist Shareholders – Agents of Change?

April 25, 2019
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Some people invest in a company because they trust the leadership to deliver shareholder value, due to track record and board composition. Some people invest in company because they like the product or service proposition, the basic business model. Activists invest for the latter and certainly not the former. Activists have faith in the underlying business but not the leadership, in fact an activist typically wants to replace the CEO, an impediment to releasing higher return for investors.

The activist takes a position from which to lobby other shareholders and their influencers, he is an agent of change and a disruptor, so to the board he is always an unwelcome intrusion. The activist takes on a significant challenge which, if successful, will bring substantial reward that is why he has a higher appetite for risk than the incumbent board and why he is invariably an aggressive hedge fund.

The first challenge he faces is to convince fellow shareholders that their trust in the incumbent board is misplaced and the business, having exhibited sluggish growth in a buoyant sector, is overdue for a new leader. In short it is time to call time on the CEO.  If he manages to convince some shareholders of his defenestration strategy, there will be others who baulk at such drastic action.

The second challenge he faces is to convince fellow shareholders that he has a viable alternative to the existing CEO, a replacement who will adopt a new strategy to release value trapped within the business. Nervous fellow shareholders will be wary that to endorse the candidacy of the activists’ man could be simply of jumping from the frying pan into the fire and may not result in anything more than unnecessary upheaval.  The status quo is a powerful advocate of inertia.

The third challenge he faces is to win a confidence vote at the AGM, by a significant majority ie over 50% and the size of some individual shareholdings might make this almost impossible.  The activist will also aim to win over proxy voting agencies to his proposal, but not all agencies will be open to change. For example, pension funds tend be quite conservative and see any external pressure to impose new leadership as a risk to their long-term investment strategy.

The fourth challenge for an activist is to be patient as even a lost motion at an AGM can sow the seeds of discontent which come to fruition months or years later. Look at Premier Foods from July 2018 to date. At the AGM on 18 July 2018 the Hong Kong based activist and minority shareholder (10%) Oasis called a vote of no confidence in the CEO with a proposal to replace him with the Finance Director and a new strategy of asset disposal to release value.

The incumbent board presented the activist as an asset stripper.‘If these activist investors succeed in removing him, they risk destroying significant value, rather than creating it’ said former head of Waitrose Mark Price. The motion duly failed by 59% – 41% votes but having achieved support from well over a third of all shareholders, the proposal had achieved consideration. This despite the Chair rallying support for his CEO from the largest shareholder, Japanese Nissin Foods (20%).

In November 2018 the CEO surprised the market by announcing he would step down in three months so a successor could be found to pursue a new strategy.  This appears to be by ‘mutual agreement’ but no doubt the confidence vote had some bearing. Two months later the UK activist Paulson increased its share from 7% to just under 12% suggesting that the CEO departure was a positive move, and there was indeed latent value in the business awaiting release. This seems to vindicate the Oasis AGM motion last July, despite it failing to succeed at the time.

Activists are truly agents of change, welcome or not, they make an impact even if it is just not always immediate.

Written by Garry Honey, founder of Better Boards, CEO, Chiron Reputation Risk and SAMI Associate. 

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

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COVER Magazine: Technology and Innovation Forum 3rd April 2019, Technology and the “Protection” industry

April 17, 2019

Life protection, health insurance and income protection insurance are often overlooked areas of the financial sector. The industry constantly worries about the “protection gap”: that fewer than 35% of the population have any protection insurance cover, either provided by their employer or bought by themselves.  This event, organised by the leading industry magazine COVER, set out to explore whether new technology could change this.

Artificial Intelligence (AI) is making inroads into so many areas of life, and so many professions, that naturally the Forum began with a Keynote talk about it – “AI methods for evidence-based risk assessment”, delivered by Professor Sophia Ananiadou, Director of the National Centre for Text Mining (NaCTeM).

In what was quite a dense and challenging talk (I’m sure I wasn’t alone in losing track of the details), the Professor explained some of the key principles of text mining and their applicability to underwriting, using health records.  She discussed how “explainable” AI could be applied, at least in specific domains such as biology and chemistry, with semantic metadata adding structure to the analysis.  In particular, she talked about THALIA, a semantic search engine that can recognise concepts occurring in biomedical abstracts indexed on Pubmed. She covered a number of examples of how text mining can help quantify mortality risk.

In the second session, David Vanek CEO of Anorak talked about robo-advisors and digital advisors. Referring to a previous COVER article “The Rise of the Robots” he argued that while big data and AI could add extra analysis to the economics of advice, it was clearly necessary to have a combination of online and offline services to support customers. He acknowledged that automated systems could link with bank accounts and other information sources to identify changes in customers’ circumstance, but argued that selling protection required an emotional connection and a very personalised, responsive approach.

The last of the pre-coffee sessions was Paul Huggett, Commercial Director of Rocketer talking about how social media could be used to close the “protection gap”: remarkably few people have income protection. He described how some paid social media advertising could address the 40m UK Facebook and 29m Whatsapp users. These approaches were fairly standard online marketing techniques.  The concept of “life triggers” was interesting  – analysis of social media content could tell you for example when someone bought a new house or had a child, giving you a key moment to attract them to your protection product.  He also introduced the concept of “look-alike audiences” – people whose characteristics were similar to your existing customer base, and so who might be seen as more likely to buy your product.

After coffee (and it has to be said some excellent pastries) there were two panel discussions. The first, with Paul Yates of iPipeline, Adam Higgs of FTRS and Paul Huggett, addressed the question of “knowing your customers”. They discussed how algorithms could produce better pricing and risk models and how Google Analytics etc could help you see the profiles of your customers and contacts. They view AI as a kind of sophisticated calculator, helping you find efficiencies, but essentially a back-office activity. Chatbots might have a role, but the panel thought human advice was vital. In the Q&A a question about diversity came up – this to a panel of balding white men. Everyone agreed (!) that more transparency and diverse approaches, avoiding a “one size fits all” model was required.

The second panel session looked into “direct-to customer” (D2C) sales, and how it fitted with the advisor market.  There was general agreement that a “blended” approach combining online and offline contact, depending on the needs of the client, was best. There would be different levels of complexity and hence of confidence, so the first contact needed to be a “triage” to determine the best channel to use. Only those with “clean lives” could be dealt with online.

The discussion covered several issues. There was a feeling that the way the industry tackled issues of mental health was not sufficiently nuanced.  The view that AI could never replace the emotional contact of an agent surfaced again.  My feeling was that this session hadn’t really got to grips with the radical changes new technology was going to bring – the D2C discussion was well behind what other industries already do, and the attitude to AI bordered on the complacent.

In his round-up comments, Adam Saville, COVER’s editor, identified the project that SAMI are doing with the Chartered Insurance Institute on the digitalisation of medical health records as a key way of improving access to protection. The ready availability of information on health conditions should provide benefits to consumers, GPs and underwriters with faster, more accurate assessments. This could underpin even more radical change.

Written by Huw Williams, SAMI Principal

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Megatrends and How to Survive Them: The Next Technology Revolution

April 10, 2019

Megatrends and How to Survive Them is the title of our book published by Cambridge Scholars Publishing and available on Amazon.

This is one of a series of blogs based on the work we have done for the book. This blog is about The Next Technology Revolution.  This revolution covers advances in robotics, Artificial Intelligence (A.I.) and machine learning, advanced materials, biotechnology and genomics. Biotechnology and genomics are covered in the next blog in this series.  We chose to focus on A.I. below because of the wide impact it will have across all organisations within our timeframe.

A.I. is embedded in many systems to solve business problems, from robotics and autonomous vehicles to 3D/4D printing and machine learning. It links into Big Data (the analysis of Big Data uses A.I.).

This trend has strong links with Connected World, of course, and it impacts Social Structure and Economic Activity as one of the drivers of change in society and the economy.  Shifts in population – ages and densities – will have impacts on what kinds of A.I. need to be developed. Migration and Urbanisation will lead to smart cities with needs for different kinds of A.I. as well.  Both of these will impact what is developed and likely, in what order.

Through the development of A.I. what was once science fiction is fast becoming reality.  The Qualcomm sponsored Tricorder XPRIZE was won last year.  A.I. will transform all aspects of our lives, from wars, crime and justice to our jobs, society and social structures.  It will transform what it means to be human.  A.I. is seen as “the new oil” because of its potential contribution to the world economy.

The evidence today is that the centre of gravity for A.I. research is shifting away from North America to China.  At a recent annual meeting of the Association for the Advancement of A.I., which has been setting the standard since 1980, China submitted more papers than the USA and only three less were accepted.  The figure below tracks the patents in A.I. across major patent agencies.

AI patents

The use of A.I. in decision making – whether in embedded systems or in explicit decision-making tools for managers or front-line workers – can raise concerns in the global North about potential biases and assumptions which are built in, intentionally or not.  Machine learning is very exposed to algorithmic bias, where the data used can reflect the implicit values (and unconscious biases) of the humans involved in the data collection, selection or use.  It has been seen to have an impact on search engine results, social media platforms, privacy and racial profiling. Despite this, one-third of Americans have already said that they would prefer a robot to a human boss.

As A.I. becomes smarter than we are and becomes autonomous, it may not make the same decisions that we would, and we may not be able to figure out why it made the decision it did.    AlphaGo made a move no-one could explain while beating the world champion. What might the implications be for this?

There are many areas of A.I. that will touch us by 2032.  Some examples are:

  • Many jobs will use A.I. assistance in some form. Already it is being used in surgery and in law.
  • Pharmacies (and warehouses) can use robots to pick and pack medicines or stock.
  • Cleaning and personal care is likely to be widely undertaken by robots and there is already a British Standard covering their use. As populations in some countries fall, there is likely to be an unfulfilled need for care which robots can take over.  This is already beginning in Japan.

Just as in any product or services, those that incorporate A.I. will go wrong on occasion, requiring specialist diagnostic tools and staff trained to do the diagnosis.

The impact on consumers and providers is likely to be high.  As purchasing decisions are delegated to A.I. (e.g. food ordering from smart refrigerators, algorithms predicting which brands you will want to buy etc.), the way that companies reach their customers and engage with them will be transformed.  Brands will be compelled to compete against each other electronically, but even within this space, these systems could reflect developers’ biases or completely block out brands that actually meet the consumer’s criteria. It will make it very difficult for companies to engage directly with their customers.  Smart assistants and connected devices could even be influenced by sponsors who fund the applications, either openly (for the consumer) or not.

These are just some of the issues that may arise, and, in this blog we haven’t looked at the ethics and decisions that will need to be made before we get this far; you will find more about that in the book.

Some questions that might be useful for you to explore:

  • How might A.I. disrupt your business model?
  • How will A.I. affect the skills of the people you will need?
  • How will your customers relate to you if all services are automated?
  • How will you deal with product or service failure due to A.I.?
  • How might products and services supplied on a subscription model present new quality and safety challenges, as costs of failure will fall more on the supplier?

With thanks to David Smith of Global Futures and Foresight for his thoughts on a number of these aspects of A.I. – we live in interesting times!

Written by Patricia Lustig, SAMI Associate and MD, LASA Insight, and Gill Ringland, SAMI Emeritus Fellow and Director, Ethical Reading.

The views expressed are those of the authors and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

World Economic Forum Global Risks Report – review

April 3, 2019

In January, the WEF published its annual Global Risk Report.  This report describes the results of a survey of the perception of risks amongst nearly 1,000 decision makers across all sectors, as well as analysis of their own.  Perceptions of risk are naturally set in the context of prevailing events, though respondents were also asked to consider risk on a 10-year horizon.

The underlying worldview of WEF may also have had an impact on results. The current trend of “taking back control” was positioned as a threat to global governance (assumed to be an inherently good thing), rather than the democratic, creative force some might view it to be.

Macroeconomic risks and geo-political risks are also seen as current concerns. However, over a ten-year horizon, extreme weather and climate-change policy failures are seen as the gravest threats.

Respondents were asked to rate risks by impact and likelihood. Unsurprisingly, “weapons of mass destruction” had the highest impact, but this was followed by three environmental risks – “failure of climate change mitigation and adaptation”, “extreme weather events”, and “natural disasters” plus “water crises”, which had been classified as “Societal”.

Fortunately, “weapons of mass destruction” was not scored highly on the likelihood scale! The three environmental risks were top, followed by two technological risks – “data fraud or theft” and “cyber-attacks”.

The top right corner of the chart combining the two factors looks like this: 

WEF blog

There are also some intriguing charts showing risk-trend inter-connections.

The report also shows how these perceptions have changed in the years since the first report in 2009. Coming as it did after the global economic crash, it’s perhaps not surprising that 4 of the top 5 by impact and 3 of the top 5 by likelihood then were Economic risks. Chronic disease also scored highly on both factors. Environmental risks started to be considered as important in 2011, but only in the last two years have they taken so many of the top places.

The analytical part of the report addresses four distinct themes:

Power and values: evolving risks in a multi-conceptual worldshows how a multi-polar world also has diverging norms and values. It identifies three disruptive trends: how to maintain a global consensus on ethically charged issues such as human rights; challenges to multilateralism and dispute-settlement mechanisms; and states’ increasingly frequent use of protectionist policies. These combine to make common global action more difficult – with climate change actions being a prime example.

Heads and hearts: the human side of global risks explores the widespread human costs in terms of psychological and emotional strain. People are becoming increasingly anxious, unhappy and lonely; anger is increasing and empathy appears to be in decline. A common theme is that psychological stress is related to a feeling of lack of control in the face of uncertainty. Mental illness is on the rise.

Going viral: the transformation of biological risks looks at the risks of devastating outbreaks of diseases such as Ebola, MERS, SARS, Zika, and yellow fever. Recent outbreaks (which are increasing) may not have had as much impact as had been feared, but the global approach to dealing with such diseases is not well-developed. Other trends such as urbanisation and migration combine to increase the risk. With the development of bio-engineering the risk of accidental – or even deliberate – release of dangerous pathogens increases.

Fight or flight: preparing for sea level rise. An estimated 800 million people in more than 570 coastal cities are vulnerable to a sea-level rise of 0.5 metres by 2050. This section looks at adaptation strategies being pursued, highlighting the growing prevalence of holistic approaches to flood resilience, including managed retreat.

The report also has a section on ten Future Shocks such as disruption to food supply and advanced biometric surveillance.  These are not predictions but “what-if” thought experiments. Some may be a bit “out there” but this sort of exercise is an extremely valuable and generally under-rated element of futures thinking.

The Report is a very well-researched document as you would expect, with hundreds of references and examples, and many impactful charts. It is a valuable resource for any foresight exercise.  Future Shocks (these and others) are well worth considering. Although the risk “perceptions” section has some potential biases as discussed, it is at least encouraging to see that climate change and other environmental risks are being recognised. But perhaps that is also just a current concern, to be eclipsed in time by something else – what might that be?

Written by Huw Williams, SAMI Principal

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Megatrends and how to survive them – the Connected World

March 27, 2019

Megatrends and How to Survive Them is the title of our book published by Cambridge Scholars Publishing and available on Amazon.

abstract-ai-art-373543

This is one of a series of blogs based on the work we have done for the book. We chose Connected World as a topic for discussion because over the next decade the Internet of Things (IoT) will  become ubiquitous, and many industries will be re-shaped. International platforms will offer economies of scale, be everywhere and underpin globalisation of the private sector. Big Data, whether relating to individuals, money or IoT, will be the subject of three-way power struggles over ownership of data. We discuss all of these in the book, and in this blog we raise the question of systems design for the connected world.

A recent conference on the Connected World had streams on a number of applications – Connected Homes, Smart Cities, Internet of Things, Smart Buildings, Utilities, Smart Cars. It had streams on technologies – 5G, Blockchain, Artificial/Augmented intelligence, Virtual and Augmented Reality. It had a stream on insurance and another on cyber security.

Taking these in turn, what could prevent the applications delivering on their promise? Three challenges that we can see, are not widely discussed. The first is the design and verification of embedded devices. These need to have fail-safe characteristics so that if, for instance, power is lost, they are able to close down safely. These disciplines have been applied in process control systems but may be lost in the transition to consumer applications. The second is the overall system design – a nightmare as smart cities evolve, with diverse networks added over time. Is there a school of computing tackling this? Third is “user error”. As populations age and their visual acuity reduces and response times increase, systems designed and tested by young men may have many users who do not understand the implicit rules and use the system in ways not anticipated by the designers. And as migration continues, increasing number of users will be unfamiliar with the systems and the language in which they are asked to navigate them.

The discussions around autonomous cars highlight another concern – the switch from people control to system control and back. As autonomous cars become more prevalent, how do we transition from person in control with assistance, to total computer control? The intermediate stage, with the computer in control until it asks for help from the human, does not sound wise.

All of the technologies are likely to continue to be developed, led by consumer markets in Asia. This will raise concerns in the West about potential hidden spy features.

The last two, insurance and cyber security, raise in a more pointed form the issues which lurk beneath the success of the technologies and the applications to fulfil their potential: viz, the use of big data and the resilience and stability of these connected systems.

The use of big data as a tool for calculating insurance risk starts to raise the question of what is insurance for? If it is for sharing risk, how is this compatible with using big data to set premiums by post code – with big data on weather and crime; age and lifestyle – with big data on health outcomes; on personal genetics – with big data on genetic markers?

Cloud computing arrangements are becoming increasingly popular as organisations are attracted to the potential cost savings and enhanced flexibility that cloud computing services can offer. One of the most critical concerns of cloud computing is data security. Large scale scandals over breaches of security of cloud computing services could slow but not halt the use of ICT platforms.

Cyber-crime has a wider reach than just finance, as recent hacks into online services, health services and national security agencies have shown. However, most headlines are on crime relating to money, and here a recent survey by Kroll of 540 senior executives found that the majority of perpetrators of cyber-crimes were random criminals, ex-employees, competitors and employees. Less frequent were attacks by political activists, nation states or terrorists. However, these less frequent perpetrators may be the main threat for the IoT and for fraud relating to data. For instance, a hacker shutting a city down could lead to demands from citizens to go “off grid”.

Tackling cyber-crime when it crosses national boundaries is made more difficult in a Multi-polar World. Differing regulatory structures may lead to “Panama Papers” – databases outside any recognised regime and exposing individuals’ data to the world.

Questions for leaders:

  • What impact will a fully monitored environment have?
  • Cyber-attacks must be anticipated – what are your main sources of threat? What are your business continuity plans?
  • What is the role of personal data in your organisation?
  • How are you planning to scope out new types of competition?
  • The Connected World allows for remote control – what effect might this have?

We live in exciting times!

 

Written by Patricia Lustig, SAMI Associate and MD, LASA Insight, and Gill Ringland, SAMI Emeritus Fellow and Director, Ethical Reading.

The views expressed are those of the authors and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

BP Energy Outlook 2019 and CO2 emissions

March 20, 2019

In their annual Energy Outlook, BP identified the dual challenge of the need for more energy to support global economic growth and rising prosperity, and the need for transition to a lower carbon future.

They used a scenario approach to address uncertainties in demand and climate change action out to 2040.  They stress that scenarios are not forecasts but ways of exploring the implications of different judgements and assumptions. CEO Bob Dudley said that this approach “will give us flexibility and agility to meet uncertainty head on” – the principal goal of scenario planning.

The first scenario, which is discussed in most detail, is a simple evolutionary one: “Evolving Transition”. We might think of it as a base case: it assumes that government policies, technologies and societal preferences evolve much as they have done in the recent past.

Even so, some interesting conclusions emerge:

  • Global energy demand grows by a third to 2040, with energy consumed by industry and buildings accounting for 75% of the growth – transport energy demand slows due to vehicle efficiency;
  • As China shifts towards a more services-based economy, much of the growth in industrial production will be located in lower-income countries and regions, including India, Other Asia and Africa;
  • Renewables become the largest source of global power generation by 2040, penetrating the global power system faster than any fuel in history; demand for oil grows, before plateauing, coal consumption remains flat.
  • Global carbon emissions continue to rise, by 7% by 2040.

My take on that is that, unless something changes and despite the rapid growth of renewables, growing energy demand will continue to drive climate change, with potentially catastrophic consequences.

Another scenario, “Rapid Transition”, sounded more hopeful. This brings together policy action across many areas – gains in energy efficiency, a switch to lower carbon fuels, material use of Carbon Capture, and in the power sector a significant increase in the carbon price.  This delivers a 45% decline in carbon emissions by 2040 compared to today, but even this is only in the middle of projections that claim to meet the Paris climate goals.

Significant levels of carbon emissions remain, and so to meet the Paris goals, the second half of the century would need to see the near-complete decarbonisation of the power sector together with greater electrification of end-use, supplemented by greater use of hydrogen and bio-energy.

Two other scenarios, “More energy” and “Less globalisation” explore different ends of the economic growth spectrum. The former, requiring 25% more energy than the Evolving Transition scenario, generates 28% more COemissions. Drily the Outlook comments this “highlights the need for further action to reduce carbon emissions”!

“Less globalisation” envisages escalating trade disputes that reduce global GDP growth and hence energy demand.  This means 5% less emissions than “Evolving Transition” but growth in emissions only beginning to plateau in 2040. Also there are concerns about energy security that drive more domestically-produced energy (fracking?) and less energy trade. The impact on net energy exporting countries could be de-stabilising.  Very little climate change benefit in return for the lack of prosperity and political risk.

BP energy outlook

Finally, the Outlook considers a “Single-use plastics ban”.  Even in the Evolving Transition scenario, the use of oil for plastics is assumed to decline due to increased environmentalist pressure. In this scenario, with an increasingly tight regulatory regime followed by an outright ban in 2040, oil demand grows more slowly, but ultimately depends on what alternative materials replace plastic.

Interestingly, in a classic and impressive way, BP is supporting its communication of the scenarios with animations (with more to come). Getting people to “live” alternative scenarios is made much easier if the basic story is supported by some evocative scenario names and illustrations.

Congratulations to BP for using scenarios so well for such an important issue. The implications for the planet are starkly shown, which is at least something that can be used as a call to action.

Written by Huw Williams, SAMI Principal

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Megatrends: Transforming Energy

March 13, 2019

Megatrends and How to Survive Them is the title of our book published by Cambridge Scholars Publishing and available on Amazon.

This is one of a series of blogs based on the work we have done for the book. This blog is about Transforming Energy, which focuses on both the way it is used (and how much) and where the energy comes from.  None of the trends that we discuss operate on their own – they are all part of a larger system.  This trend, in particular, impacts (and is impacted by) several megatrends:  Mobility and Economic Activity (as well as Population)impact the demand for electricity, Global Limits and Multi-polar Worldview are impacted by the shifts in where energy comes from.

There are major transformations underway in the global energy sector.  Where we get our energy from is changing, becoming diversified, with renewable energy becoming a much larger part of the mix.  This pushes decentralisation which in turn will force the business models in the sector to transform.

The use of renewable energy will increase as the costs for its production come down.  This leads to the cost of electricity, rather than the price of oil, becoming the key measure of energy costs.

As increasing numbers of people become middle class (using Hans Rosling’s four levels, levels 3 and 4, numbering roughly 3 billion people), the demand for energy rises.  Not just in order to produce and transport the goods that people aspire to buy, but also to allow them to exercise their choice to travel. This means that the demand for transport (of goods and people) rises from where we are today.

Changes in the pattern of where energy is sourced (and what energy is sourced) will undoubtedly affect global politics and Multi-polar Worldview.

Diversification of energy mix

The mix of fuels used to supply electricity is becoming decarbonised as it diversifies.  Coal powered electricity plants are being taken off-line in the OECD and China is slowing growth of coal powered plants.  In the global North, nuclear power is in decline in most countries due to costs of production and safety issues, as well as aging plants nearing the end of their life.  But in other parts of the world, investment is large and ongoing (see figure below).

Electricity production from natural gas is projected (in the figure below) to reduce very slightly out to 2040.  Coal powered plants are being replaced by wind and solar energy: these sources are not always available and currently the ability to store electricity is limited.

Demand for energy

Demand keeps rising as we find more ways to use energy. While the requirement of liquid fuel for use in each internal combustion engine is decreasing (as engines become more efficient and there is a shift to other types of engine), the number of devices is increasing. The number of vehicles will increase as more and more people wish to travel and as more goods are required by increasing numbers of middle class. This will keep the demand for liquid fuel at about the same level as it is now.

There will also be increased demand from the Internet of Things (Connected World) and The Next Technology Revolution.  Overall this means that the demand for energy will increase, perhaps substantially.

IEA diagram

If we continue to diversify our energy sources, a new model will emerge to utilise these diverse sources and it is likely to contribute to a re-distribution of the current economic/political power among countries. As we said in the blog on Multi-polar Worldview, power follows the money. It may cause an economic downturn in areas that export oil.  It may cause variations in pricing due to the intermittent nature of renewables.  It paves the way for disruptive technology and new business models

Some questions that might be useful for you to explore:

  • How will your business model need to change if the energy distribution model or pricing changes?
  • Will you produce your own energy and/or buy it in?
  • How will your products need to change to take advantage of the transformation of energy?
  • What opportunities might the distributed energy production model offer you in community engagement?

Some interesting articles in this area:

We live in interesting times!

Written by Patricia Lustig, SAMI Associate and MD, LASA Insight, and Gill Ringland, SAMI Emeritus Fellow and Director, Ethical Reading.

The views expressed are those of the authors and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

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