Impact Of Modern Trends On Resource Industry - A Case Study Of McKinsey & Company Essay.

Students should review the case study provided and undertake the following:

1.Analyse the case study, outlining the ways in which the identified relevant emerging themes might impact on the current business strategies relating to the identified organisation or sector. Your discussion should include an analysis of the ways in which those themes might affect the appropriateness of existing organisational policies and practices. Areas of focus can include any combination of the following:

1. Political environments
2. Technological advancements
3. Demographic changes
4. Social trends and shifts
5. Industry globalisation
6. Legal transformations
7. Global economic issues

2.Critically evaluate how those themes identified could affect the operational and/or strategic decision-making necessary to shape organisations within the broad sector over the next five years. Your answer should use contemporary examples of how those emerging themes have started to be addressed within your business sector.

3.Provide recommendations for courses of actions that organisations within the broad sector can take to ensure that they are able to manage the effects of those emerging themes effectively.

In the era of globalization and increased competitive market the taste and preferences of the consumers has undergone major changes. It is important for business organizations to meet their daily targets by achieving business objectives. It has been observed that the emergence of new trends in the way of business development disrupted the process of achieving business objective (Loorbach and Wijsman 2013). In recent world various sociological and political factors help to influence the business development of an organization however these factors can disrupt the developmental process in the future.

In this report presentation has been made of a global industry which at present has been working with largest mining, gas and oil companies. The company that has been presented for the purpose of this report is the Mckinsey & Company which at present has been named as the world’s largest private sector think tank. The Mckinsey Global Institute since the very beginning is focused on developing deeper understanding on the matter related to the evolution of global economy. It can be stated that this report has been prepared keeping in mind the basic requirements of the policy leaders in order to help them understand the impact of emerging trends that could affect their business operation and provide them with suitable ideas that could improve the business policy in the future.

It can be stated that the emerging themes that have been identified are-

• Natural resources.
• Productivity and growth.
• Labor markets.
• The economic impact of technology and innovation.
• The evolution of global financial markets.

In recent trends it has been observed that globalization is redefined by the flow of innovative ideas and information. It can be stated that in spite of all the themes mentioned above the invention of modern technology contributed enormously in shaping business operation in automation industries (Whitmore, Agarwal and Da Xu 2015). It can be added that with the advent of artificial intelligence, internet and robotics rapid transformation can be observed in the way resources are produced and consumed.

The drawback in the financial performances began when prices of commodities were still rising in the market. In this scenario the resource industry emerged in a weakened form facing investment and production challenges. It can be observed that such decline is due to the rising costs of resources and increasing competition among the producers of both services and assets (Lim, Chen and Chen 2013).  It has been observed that the return on invested capital in case of oil companies fell considerably between 2005 and 2011. It was observed that with the advent of technological changes and with new investment policies new energy supplies became available in the form of wind and solar power.

Globalization

In this context it can be stated the return on invested capital in the resource sector has declined considerably along with the productivity in case of both mining and oil and gas companies. The diagrammatical representation of Mckinsey Global Institute has been presented along with productivity report of other companies.

Figure: 1 The decline of production and rise of cost among producers.

Source: McKinsey & Company. (2017). Financial Markets | McKinsey Global Institute.

In the world of modern technology changes in the resource sector could be developed by way of regulation. It was expected that technology will influence the effect on cost and bring considerable changes in that sector however it was observed that with the adoption of modern technology by both producers and consumers there was an increased in resource productivity. In modern scenario it can be observed that with the adoption of technology fossil fuel consumption will reduce considerably which will create positive impact on greenhouse gas emission (Hirt and Willmott 2014). It can be stated that the sudden reduction in fuel consumption will produce an impact on greenhouse gas emissions however with the adoption of modern technology such emission will continue to increase by 2035 at a slower rate of growth.

It can be stated that with the adoption of modern technology consumers have changed their ways of consumption however it can be observed that in recent phrase there is a significant increase in energy productivity. It can be observed that such increase is likely to come due to considerable chances in the transportation sector. It has been emphasized that technology can change the way of living of consumers reducing resource consumption in the process.

In recent years it can be observed that transportation sector has greatest demand and may experience significant changes in the future in terms of fuel efficiency, engine performance and innovation. It was estimated by Mckinsey Global Institute that autonomous vehicles will have more fuel efficiency however it was estimated that electric vehicles will use electricity by replacing oil which would reduce the demand for oil in the future. It can be observed that with the change in global consumption of oil there will be changing demand for vehicles which will create effects on the demand for resources like it can be stated that with the reduction in sale of cars and the use of lightweight materials could lower the demand for iron ore in near future.

Modern Technology

It can be observed that modern technology will help to improve energy efficiency for both industry and consumers. The combination of advanced censors and analytics has been successful in reducing energy demands in both commercial buildings and factories (Manyika 2015).  It can be seen that through sufficient efforts manufacturing plants have been successful in reducing energy demands.

In today’s world with the rise in usage of renewable energy costs have fallen sharply with the development of new technology. It can be observed that implementation of new solar plants have been contracted however if such scenario persists wind and solar energy would be definitely competitive by 2025. In some locations renewable energies are much in demand and in order to meet the expectations it has been substituted with fossil fuels depending on their integration and storage issues (Stahel 2016). It can be stated that sufficient investment in innovation and technology will help to solve the challenges creating obstacle in the way of business operation.

The resource sector particularly the mining companies have been slow in adopting new technology. It can be stated that mining industry falls under the capital intensive industry which is depended on technology for operating its day to day activities. The advent of modern technologies like data collection, automation and mobile corrupting has been successful in transforming resource exploration and extraction. Innovative ideas have been implemented which helped to improve operation efficiency (Atkinson 2013). It can be estimated that with the development of modern technologies productivity is likely to rise across the sectors of resource producing in terms of cost reduction for oil and iron ore.

Figure: 2 Impact of technology in productivity.

Source:  McKinsey & Company. (2017). Productivity, Competitiveness & Growth | McKinsey Global Institute.

Based on the current scenario and the themes that have been identified an evaluation can be presented which would affect the business operation as well the decision making strategies of the policy makers in the relevant sector for the next five years. It is expected that in next five years the demand for commodities will change with visible changes in the ongoing shifts in demand and supply for natural gas, oil, iron ore, thermal coal and copper.

It can be stated that the global economy is largely depended on the supply of oil. The supply of oil would be more elastic in the future due to technological innovation which have been proving assistance to the producers to cope up with the changing demand rapidly (Grant 2013). It has been observed that modern innovation techniques have been seen in cases of industries in North America where horizontal drilling and hydraulic fracturing techniques have been useful to the producers in adding required capacity in a short development cycle (Atkinson 2013).  In this regard it can be commented that the industry needs to invest in the development of new areas by replaces traditional fields as they are decline.

Transportation Sector

The power sector is the largest user of natural gas however it has been observed that some countries have replaced the use of natural gas with coal (Stahel 2016). It can be stated that in near future the demand for natural gas will increase however it could face challenges from other renewable energies and the most important among them is coal which is quite cheaper from the others.

Figure: 3 Demand growth for resources at present and in next five years.

Source: McKinsey & Company. (2017). Natural Resources | McKinsey Global Institute.

In the global economy the demand for coal is ever increasing as it acted as a dominant fuel in generating electricity to a large extent (Stahel 2016). In this context it can be stated that the demand of thermal coal is likely to increase in next five years and would definitely peak in 2020 however by 2035 it would return to 2013 levels.

It can be stated that nearly half of the industries in the world is depended on iron ore industry and the biggest demand comes from the construction company itself. The supply of iron ore expanded rapidly with the investment due to the expectation of growth in price levels. In this regard it can be stated that the current supply of iron ore would be sufficient in order to meet the global challenges and huge investment is not required to meet the declining demands.

In the modern economy the use of copper has increased gradually as it has wide range of applications than that of iron ore. It can be observed that with the decline of ore grades and with the demand of copper investments in certain areas will become more expensive in the future. Lithium has experienced rapid growth in the electronics industry and gradually there has been growing demand of cobalt and nickel as well. It can be stated that growth in urbanization and economic development has caused scarcity of uranium and water in some regions which can be a major drawback (Betz et al., 2015).

It can be recommended that policy makers in order to carry on business operations efficiently should allow capital flows in certain ways in order to improve resource productivity while considering the market failures. This approach could help the companies to develop the idea of digitalization by adapting digital capacity in addressing the underlying issues. In order to carry on the benefits of resource revolution it is necessary that policy makers should invest in upgrading the skills of the workers (O'Faircheallaigh 2013). The operation of mining and oil gas is involved with high technical potential and the occupation involves dangerous activities therefore demand for new job groups like data scientists, machine specialists has increased. It is important to manage transitions efficiently and effectively especially for countries which are largely dependent on resources that are sources of government revenue.

Energy Productivity

It can be stated that with the adaptation of new strategies by developing more active approach to growth and development the uncertainty associated with the emerging trends can be overcome. In this regard focus should be made on productivity in order to create value by reshaping workflows and improving collaborations (De Jong and van Dijk 2015). It is important to adapt digital mindsets because barriers to the adaption of technology are not only limited to financial, physical and legal aspects, they can also be cultural. It is important that resource producers should promote talent and capability in their workforce which requires the recruitment of new talent and providing training to the existing talent in the business organization (Mourshed, Patel and Suder 2014).

Conclusion:

In the conclusion it can be stated that the emergence of various trends could affect the operation of business of a particular industry however resource producers should be aware of the fact that it may not be possible to adapt in a world of changing modern technologies. The present world is a platform of competition and global challenges and in order to succeed in this era it is required that the policy makers should undertake necessary measures to accelerate the adoption of new technology by generating strategic capability in the process.

References:

Atkinson, R.D., 2013. Competitiveness, Innovation and Productivity. The Information Technology & Innovation Foundation.–August, pp.2-7.

Betz, M.R., Partridge, M.D., Farren, M. and Lobao, L., 2015. Coal mining, economic development, and the natural resources curse. Energy Economics, 50, pp.105-116.

De Jong, M. and van Dijk, M., 2015. Disrupting beliefs: A new approach to business-model innovation. McKinsey Quarterly, 3, pp.66-75.

Grant, R.M., 2013. The development of knowledge management in the oil and gas industry. Universia Business Review, (40).

Hirt, M. and Willmott, P., 2014. Strategic principles for competing in the digital age. McKinsey Quarterly, 5, p.1.

Lim, E.P., Chen, H. and Chen, G., 2013. Business intelligence and analytics: Research directions. ACM Transactions on Management Information Systems (TMIS), 3(4), p.17.

Loorbach, D. and Wijsman, K., 2013. Business transition management: exploring a new role for business in sustainability transitions. Journal of cleaner production, 45, pp.20-28.

Manyika, J., Chui, M., Bisson, P., Woetzel, J., Dobbs, R., Bughin, J. and Aharon, D., 2015. Unlocking the Potential of the Internet of Things. McKinsey Global Institute.

Mourshed, M., Patel, J. and Suder, K., 2014. Education to employment: Getting Europe’s youth into work. McKinsey & Company.

O'Faircheallaigh, C., 2013. Community development agreements in the mining industry: an emerging global phenomenon. Community Development, 44(2), pp.222-238.

Stahel, W.R., 2016. Circular economy: a new relationship with our goods and materials would save resources and energy and create local jobs. Nature, 531(7595), pp.435-439.

Whitmore, A., Agarwal, A. and Da Xu, L., 2015. The Internet of Things—A survey of topics and trends. Information Systems Frontiers, 17(2), pp.261-274.