Eras never align neatly with the calendar. The forces behind the first industrial revolution started well before 1800 but didn’t really get rolling until Victoria became queen in 1837. Today, a new era of 21st century companies has arrived. While it’s too soon to declare precisely how this emerging wave of companies will be organized and run, what’s clear is the context that will shape them.
They will operate in a world where, by whatever measure you choose—the size of economies, income per capita, longevity, health, possibilities for innovation and discovery—humanity as a whole will continue to be better off. In the last few decades, a billion people have risen out of poverty around the world. By 2030, places once called developing markets will account for half of global consumption. A.I., the biological revolution, and many other opportunity-creating, world-shaping innovations are only in their infancy.
True, these forces—innovation, technology, rising global prosperity, and globalization—were already in full swing when the clock struck 2000, but their effects are now as clear as they are persistent. At the same time, the forces that generate these unprecedented opportunities are creating challenges that were far less in focus at the new century’s dawn, challenges that will also shape the environment for future 21st century companies.
Start with inequality: Between 2005 and 2014, real incomes in the current winner-take-most economy stagnated or fell for 65% to 70% of households in the richest economies. As inequality has risen within countries, despite increasing global prosperity, so too has anti-globalization populism.
Technology’s accelerating spread drives network effects that enable the best positioned companies, cities, and regions to claim an outsized share of value creation. Today, the top 10% of all firms (not just tech firms) account for, on average, 80% of economic profit. Among nations, the rise of new economic powers feeds a cascade of geopolitical, geo-economic, and geo-technological rivalries that disrupt trade and supply chains.
What else? With tech no longer just a sector, but essential to every aspect of life and foundational to the performance of any company, anxiety is rising over the ability of a range of actors, be they countries or criminals, to tap into the dark side of technology’s dual-use nature. And beyond data privacy and cyber security, the potential workforce dislocation from accelerating automation and A.I. remain deep issues of concern.
Other societal attitudes have also progressed. An increasingly influential and vocal younger generation expects—no, demands—that companies walk their talk on diversity and inclusion. Looming over everything is the growing concern about sustainability and the threat of accelerating climate change. And society expects action: More than three-quarters of respondents in Edelman’s latest Trust Barometer say they look for companies to lead change rather than wait for the government to impose it.
The coming together of these positive and negative forces is why the new era of business is only now truly underway. Moreover, this double-edged world of opportunity and challenge will prevail for decades. While companies must continue to focus on what they do best—offering innovative, profitable products, and services—they can no longer be bystanders on social issues, especially where those issues intersect with their business activities, whether related to use of their products, or to the effect of their actions on the communities where they operate. To capture the 21st century’s unprecedented opportunities, while addressing its challenges, large, leading, and market-shaping global companies—and those that aspire to be—will need to chart a course that delivers sustainable and inclusive growth. But what will that take?
Drawing from our on-going research at the McKinsey Global Institute (MGI) on 21st century corporations, there is an essential group of questions companies should be asking themselves to succeed. These include: What is our mission and purpose as a company, and over what time horizon? Who benefits from our success and what are our responsibilities—to shareholders, yes, but also workforce, suppliers, ecosystem participants, sustainability and the environment, and society broadly? How do we leverage data and technology responsibly? What are the implications for our operations of rebalancing global and local imperatives, within countries and between countries in a more complex geopolitical world?
Answering these questions should prompt debate over a set of bold and deliberate choices: what market ground to try to stake out, how far to go in doing so, and how to deliver. In other words, this is about strategy and not just corporate social responsibility. The answers should offer ways to differentiate a company from the competition, to delight customers, to attract and retain talent, and to win over investors, while still delivering against rising expectations over social obligations and sustainability.
Take tech: With every company now a tech company, executives everywhere must think through technology’s potential for productive use and possible misuse, whether in new materials and biotech, or via social media platforms and artificial intelligence. Makers of increasingly powerful facial recognition software and equipment, for example, have to choose whether or not draw lines (democracy versus authoritarian, or commercial versus military) that may help them better attract top talent in a tight labor market but also risk ceding lucrative markets to competitors without firing a shot. And a growing number will need to grapple with the consumer benefit of prioritizing user privacy and data control versus maximizing the returns from data.
All this will be made even more challenging by a nearing future in which the business imperative to adopt productivity-enhancing technology, including automation, expands the rate of worker dislocation. Companies will face choices over whether to hire for new skills or retrain existing workers—either to redeploy them into new occupations that may be growing within their companies, or to help them transition back into the economy elsewhere. The economics here, already challenging, are likely to become more so.
Finally, while only a few have created true global digital platforms, all large companies operate within complex ecosystems of partners, suppliers, vendors, and customers, which typically span the world to generate value. While companies have been urged for decades to adopt greener, more socially responsible and energy-efficient supply chain practices, new technology has exponentially increased both their ability to do so—and also the ability of consumers, communities, and governments to push back if they don’t. How much responsibility for higher workplace or environmental standards can you, dare you, assume?
Resolving such questions demands thinking hard about trade-offs. Forging organizations truly capable of seizing the opportunities and navigating the challenges that the rest of the century offers won’t happen overnight. Advances will come in fits and starts, and lack, at least initially, any common standards for capturing progress on non-financial goals or delivering value to all stakeholders.
In the meantime, a new era awaits, and the stakes couldn’t be higher. For those who aspire to lead, the moment to start building the 21st century company is now. As CEOs zero in on bold choices and wrestle with these defining questions, will you join them?
This article appeared first in Fortune.