1

150 years (or so) ago, everything was done by hand

2

Now it’s done by finger (tap)

3

Yet…. slow growth is painful for everyone

4

Source: World Bank, New York Times

The Innovation Paradox

Michael Holman

VP of Research

April 5, 2017

Agenda

Challenges to growth

Innovations to fight back

Strategies to succeed

6

Agenda

Challenges to growth

Innovations to fight back

Strategies to succeed

7

Productivity growth has slowed

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2014

8

Total factor productivity growth, previous 10 years

Source: The Rise and Fall of American Growth, Robert Gordon

What to make of this?

9

“There has been a burst of innovations recently… that we will see come to fruition in the next five to 15 years…”

- Erik Brynjolfsson, MIT Sloan

“The economic revolution of 1870 to 1970 was unique… so many of its achievements could happen only once”

- Robert Gordon, Northwestern

Demographics are poised to make things worse…

10

United States

Source: http://www.populationpyramid.net, UN Population Division

This is a megatrend… companies that can address it will be poised for growth

11

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2014

Total factor productivity growth, previous 10 years

Source: The Rise and Fall of American Growth, Robert Gordon

Agenda

Challenges to growth

Innovations to fight back

Strategies to succeed

12

Where to focus for opportunities ?

13

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

TF

P G

row

th, 2

00

4-2

014

Output growth, 2004-2014*Bubble sizes indicate 2014 output

Productivity and output growth of select U.S. industries

Source: U.S. Bureau of Labor Statistics

Where to focus for opportunities ?

14

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

TF

P G

row

th, 2

00

4-2

014

Output growth, 2004-2014*Bubble sizes indicate 2014 output

Building and Construction

Source: U.S. Bureau of Labor Statistics

Productivity and output growth of select U.S. industries

Building and construction: From mass production…

15

… to building information modeling and advanced construction technologies…

16Source: Lux Research, “The Industrial and Digital Revolution in Building and Construction”

… to robots and, believe it or not, 3D printing

17

~$10,000 – Levittown prices!(actually Levittown house ~$80k in 2017 dollars)

Where to focus for opportunities ?

18

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

TF

P G

row

th, 2

00

4-2

014

Output growth, 2004-2014*Bubble sizes indicate 2014 output

Fabricated metal products

Chemical products

Food, Beverage and Tobacco

Petroleum and coal products

Source: U.S. Bureau of Labor Statistics

Productivity and output growth of select U.S. industries

Manufacturing: From electrification…

19

First industrial electric motors

Sources: Electrical Power in American Manufacturing, Richard Duboff; “From Shafts to Wires: Historical Perspective on Electrification,” The Journal of Economic History 43 (2), 1982, p. 347

…to sensing and connectivity…

20

…to ease of integration

21

Where to focus for opportunities ?

22

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

TF

P G

row

th, 2

00

4-2

014

Output growth, 2004-2014*Bubble sizes indicate 2014 output

Ambulatory Health Care Services

Hospitals and Nursing and Residential Care Facilities

Source: U.S. Bureau of Labor Statistics

Productivity and output growth of select U.S. industries

Health: From saving us from bad water…

23Source: Gordon; Encyclopedia of Chicago; Chlorination of Water, Joseph Race 1918

…to saving us from bad food…

24

0

2

4

6

8

10

1975 1985 1995 2005 2015

U.S. adult extreme obesity rates

0

5

10

15

20

25

30

35

40

1975 1985 1995 2005 2015

U.S. adult obesity rates

% o

f ad

ult

s ag

e 20

-74

Source: U.S. Centers for Disease Control

…to giving us better food

25

Where to focus for opportunities ?

26

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

TF

P G

row

th, 2

00

4-2

014

Output growth, 2004-2014*Bubble sizes indicate 2014 output

Transportation equipment

Transportation and warehousing

Source: U.S. Bureau of Labor Statistics

Productivity and output growth of select U.S. industries

Transportation: From cars….

27

… to more valuable cars…

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

Purchase price Cost of ownership savings

V2G revenues Carsharing revenues

28

Extra value provided

Toyota Camry

Tesla Model 3

Source: Lux Research report “EV Price Parity: When and How 200-mile Range EVs Can Really Win on Economics”

…to self-driving and flying cars

29

Agenda

Challenges to growth

Innovations to fight back

Strategies to succeed

30

Why do we need a new approach?

31

The future is already here – it’s just not evenly distributed yet

Leading firms are seeing productivity growth, but most others are flatlining

32

Source: Andrew G Haldane, Chief Economist, Bank of England

Business model innovation can help the leaders bring laggards along

33

Revenue Model

Supply Technology

Organizational Design

Application Technology

Markets

Product Product Requirements

Value chain

supplier buyers

product

moneySU

PLLIER

BUYER

SSU

PLLIER

BUYER

S

TASKORG

TASKORG

Source: Lux Research, “Business Model Innovation: Industry’s Latest Fad or a Useful Approach to Strategy?”

Bringing manufacturing analytics to the masses

34

0%

20%

40%

60%

80%

100%

Manufacturing Energy Heavy Industry

Manufacturing lacks in adopting predictive maintenance (PdM)

Use PdM Don't use PdM 0% 10% 20% 30% 40% 50% 60%

Cost to implement

Effort to implement

Culture

Lack of knowledge

Lack of proof of value

Lack of mgmt support

Non-adopters lack know-how

Source: Lux Research, Predictive Maintenance: The Art of Uptime

“the idea was to take the expensive approaches (which often cost more than $10 million …) and make them more affordable”

Enabling adoption of distributed generation assets

35

2kj

Targeting the developing world

36

Conclusions

Declining productivity growth is a key megatrend affecting business opportunities and future prosperity

Technologies emerging today can help address this trend – and generate strong new business opportunities

Widespread adoption of these advances will require business model innovationas well

37

38

Lux Research Inc. 100 Franklin Street, 8th Floor Boston, MA 02110 USA Phone: +1 617 502 5300 Fax: +1 617 502 5301 www.luxresearchinc.com

Thank you

Michael HolmanVP of Researchmichael.holman@luxresearchinc.com+1 646 723 0161