The potential impact of enhanced connectivity on business and society is massive; the most promising use cases in just four areas—healthcare, manufacturing, mobility, and retail—could increase global GDP by up to $2 trillion by 2030, according to research by the McKinsey Global Institute (MGI) and the McKinsey Center for Advanced Connectivity (MCAC) (Exhibit 1).
Yet although much of that can be achieved with existing technology, unlocking that value has not taken off as fast as expected, due to several long-standing structural barriers (Exhibit 2).
1. Value chain coordination
First and foremost, in order to attain the value of connectivity in any one domain, multiple actors (from private to public sector) that often aren’t accustomed to collaborating will need to align on still-evolving technical standards. Just consider what an autonomous vehicle needs to make it to the dealership—vehicle-to-infrastructure and vehicle-to-vehicle smart systems require public infrastructure agencies, connectivity providers, technology companies, equipment manufacturers, and rival automotive manufacturers all carefully coordinating their activities.
2. Use case fragmentation
Overcoming this value chain coordination obstacle is made more difficult by the fragmented nature of demand. Since the total connectivity value at stake is spread across hundreds of use cases and a number of industries, no single entity can spur sufficient change, and many key players may not be sufficiently swayed to join the charge. Consortiums made up of large multinationals, industry groups, and government may be necessary to bridge the gap; in the mobility space, for example, key players from the automotive and telecom industries have formed the Car Connectivity Consortium to work together on setting standards for in-vehicle connectivity.
3. Misaligned incentives
Misaligned incentives present further challenges. Connectivity providers themselves, for instance, have made significant investments in advanced networks only to have consumer-focused internet, media, and advertising over-the-top (OTT) businesses reap most of the rewards. Likewise, connectivity-driven healthcare innovations that could greatly improve patient outcomes depend on health systems and hospitals investing and altering their practices, but much of the benefit could go to insurers and the public sector (as well as patients). The economic and social benefits of advanced connectivity, however, offer a compelling rationale for public-sector players to play a critical role, such as supporting basic R&D, offering subsidies, or other regulatory actions to improve the investment case and facilitate collaboration.
Many of the most promising use cases involve dramatic personalization of products (such as in retail) or enhanced productivity stemming from machine-to-machine communication (such as in manufacturing), and these innovations rely heavily on the collection of specific personal and business data. Not surprisingly, this raises valid concerns about data privacy, confidentiality, integrity, and security—concerns that will have to be assuaged if the use cases are going to achieve widespread adoption.
4. Data complexities
Data ownership and interoperability further complicate matters. Who owns the rights to data generated by a patient’s monitoring device—the patient, the provider, the device manufacturer, or some other party? Who decides how this value is shared? The creation of common data standards and translation/aggregation platforms may help resolve these issues, but it will take the cooperation of industry associations, technology suppliers, and policy makers. Those same policy makers will also need to help devise methods of protecting privacy and intellectual property, as well as assignment of data ownership.
5. Deployment constrains
Finally, there are deployment constraints holding back progress. Connectivity providers and domain players have vast legacy assets that are expensive to upgrade, particularly if the value of such investment isn’t yet clear. Regulatory uncertainty further inhibits deployment, and legal clarity around broad issues such as spectrum availability, public infrastructure access rights, and power density limits could help jump-start investment by connectivity providers.
Taken together, these obstacles may seem daunting, but connectivity providers are not alone in rising to the task. Governments have a stake in accelerating network build-outs and upgrades to capture productivity benefits and achieve more inclusive growth. While policy makers cannot solve all of the issues, they could remove some of the uncertainty surrounding the feasibility, cost, and returns of rollout—and once connectivity providers gain clarity, they will be more inclined to move ahead. Considering the value at stake from advanced connectivity, there should be enough motivation for all the necessary parties to come together and do the hard work required to overcome them.
This post was adapted from the recent MGI/MCAC discussion paper, Connected world: An evolution in connectivity beyond the 5G revolution. It is part of an ongoing series.
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