A Revolution in Interaction

Abstract

A new study of interactions reveals how pervasive they are As they increase, answers to fundamental questions about integration, scale, and scope will change What will happen when workers can carry out their jobs in half the time? The modern world economy is in the early stages of a profound change in the shape of business activity. Two centuries ago, dramatic shifts in the economics of transformation - of production and transportation - precipitated the Industrial Revolution. An upheaval of equal proportions is about to be triggered by unprecedented changes in the economics of interaction. Interactions - the searching, coordinating, and monitoring that people and firms do when they exchange goods, services, or ideas - pervade all economies, particularly those of modern developed nations. They account for over a third of economic activity in the United States, for example. More than that, interactions exert a potent but little understood influence on how industries are Structured, how firms are organized, and how customers behave. Any major change in their level or nature would trigger a new dynamic in economic activity. Just such a change is now beginning to occur. A convergence of technologies is set to increase our capacity to interact by a factor of between two and five in the near future. This enhanced interactive capacity will create new ways to configure businesses, organize companies, and serve customers, and have profound effects on the structure, strategy, and competitive dynamics of industries. Yet business leaders will find it difficult to anticipate the opportunities and threats this change will present because our assumptions and thinking about strategy and organization are based much more on the economics of transformation than on the economics of interaction. To recognize, understand, and act on the hidden power of interactions, we will need to adopt new mindsets, new measurements, and new vocabularies. What are interactions? Economic interactions play a ubiquitous role in the world economy. Individuals and organizations interact to find the right party with which to exchange; to arrange, manage, and integrate the activities associated with this exchange; and to monitor performance. These interactions occur within firms, between firms, and all the way through markets to the end consumer. They take many everyday forms - management meetings, conferences, phone conversations, sales calls, problem solving, reports, memos - but their underlying economic purpose is always to enable the exchange of goods, services, or ideas. Drawing on both public sources and McKinsey proprietary data, we have for the first time been able to estimate the scale of interactions in modern economies: * At an economy level, interactions represent as much as 51 percent of labor activity in the United States - the equivalent of over a third of GDP. Even in a less developed economy such as India's, 36 percent of all labor content is made up of interactions [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. * At an industry level, interactions account for over 50 percent of all labor in service industries, and even in mining, agriculture, and manufacturing, they amount to 35 percent [ILLUSTRATION FOR EXHIBIT 2 OMITTED]. * At a firm level, interactions make up a large part of even an industrial company's activities: in one US electric utility, 58 percent of all employee activity could be attributed to interactions [ILLUSTRATION FOR EXHIBIT 3 OMITTED]. * At an individual level, interaction activities vary with the type of worker. They peak at nearly 80 percent for managers and supervisors, and trough at 15 percent for workers primarily involved in physical labor [ILLUSTRATION FOR EXHIBIT 4 OMITTED]. As the labor mix continues its shift toward information workers, interactions will become still more important [ILLUSTRATION FOR EXHIBIT 5 OMITTED]. How interactions shape economic activity Given the ubiquitous nature of interactions, it is hardly surprising that they are important determinants of how firms and industries are structured, and how customers behave. …

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 117 citations exist upstream.