Are Russia’s leaders ready for the Fourth Industrial Revolution?

The Fourth Industrial Revolution is set to bring about a systemic change, driven by emerging technologies, that will impact business, society and politics and that will require new forms of government and corporate organization.

The decision-making frameworks prevalent throughout the first three industrial revolutions are exponentially losing their relevance. The revolution is irreversible, and leaders will be held accountable regardless of whether they are able to adapt to and shape the shifting realities.

Through its National Technology Initiative – a plan to create the right conditions for technological leadership by 2035 – Russia has already started putting in place the changes needed to adapt to this new reality. But more needs to be done, starting with the following four areas.

1) Russia’s leaders must master all things digital

The digital economy is a fundamental part of the architecture of the Fourth Industrial Revolution. Russia’s recent commitment to launching a large-scale system-wide programme to develop a digital economy is therefore an encouraging sign.

To make this a reality, Russia needs to put in place a fully developed venture capital ecosystem, strengthen property rights, and increase companies’ capacity to innovate.

Fortunately, Russia has solid foundations on which to build, at least when it comes to digital. The country has one the highest mobile phone penetration rates in the world (153 active subscriptions per 100 inhabitants); its average internet connection speeds are double the global average of 3.8 Mbps; and over 57% of households have access to fixed high-speed broadband, with plans for that number to hit 80% by 2018.

But to turn these advantages into long-term benefits, we need policies that will help promote digital literacy and raise awareness of the benefits of a digital society. Harmonization of cybersecurity, data protection, e-signature, privacy laws and property rights will also be important. The country will benefit from continuing its innovation in mobile financial services and e-commerce.

2) Russian leaders must disrupt themselves

As Peter Drucker said: “If leaders are unable to slough off yesterday, to abandon yesterday, they simply will not be able to create tomorrow.” Coco Chanel expressed it even more elegantly: “In order to stay irreplaceable, one must always be different.”

In American and European markets, the Fourth Industrial Revolution has seen the rapid disappearance of some companies and the emergence of new players. It is fair to expect a similar trend to happen in Russia.

New companies are appearing in the country all the time – for example Ulmart and QIWI – and estimated market values are growing rapidly thanks to extremely attractive business models. It is incumbents that are endangered. They, too, can survive and thrive in the digital age, but they need to follow the example of companies like Amazon, Capitol One or American Airlines and learn to reinvent themselves. Amazon disrupted its own books-by-mail model with Kindle e-readers. Capitol One reinvented its use of data to reach their most profitable customers. American Airlines invented Travelocity when it tried to change its own industry’s travel-agent-based business model.

Another way of staying ahead of the curve is to disrupt someone else! Uber disrupted the $70 billion food delivery market when it introduced UberEATs. Red Bull disrupted publishing when it launched Red Bull Media House to produce original culture, lifestyle and sports content. Fujifilm disrupted cosmetics when it realized that antioxidants found in the chemicals used in its core business could be used for make-up.

In Russia, companies are also reinventing themselves. Besides being the country’s main search engine, Yandex has introduced a taxi service. Russians can also use Yandex to pay for a variety of services, like parking. The company’s in-house machine learning and data analytics experts are developing cloud-based predictive analytics services for the retail, e-commerce, banking and telecommunications sectors. Language software provider ABBYY is now specializing in optical character recognition and data capture applications. Russian Post has recently launched an e-commerce department, and is considering its own payment system linked to the “Post bank” that it is affiliated with.

3) Russian leaders will have to ensure a smooth transition in labour markets

Around 60-70% of Russians are directly or indirectly employed in mass production. But if estimates are accurate, by 2035, 95% of production and supply chains will require no human involvement, and 50-70% of work places will be substituted with automatic technological solutions.

The social and economic consequences of this will be enormous, in both Russia and beyond. What must Russian decision-makers do to prepare the country for this transformation?

First and foremost, government must work together with business to tailor the education system to the needs of more dynamic labour markets in a more globalized world. Government will have to re-think labour, fiscal and social-protection policies to accommodate for emerging models and retain talent inside the country. R&D spending – which is still hovering about 40% below 1990 levels – should increase, and most of this spending must come from non-government sources. While in Russia the government’s share of funding rose by 14%, to 69%, from 2000 to 2014, in countries like the United States and China about 75% is covered by non-state supporters, and that has proven to be a sustainable model.

Likewise, business leaders can no longer afford to be passive consumers of ready-made human capital. To make growth sustainable, businesses need to put talent development and future workforce planning at the centre of their business strategy. They also need to be constantly re-skilling and re-educating their workforce in view of evolving consumer and industry demands.

4) Government and regulatory agencies must collaborate with business and society, and increase accountability and transparency

The future is not a given – it has to be built by a common effort from multiple players and through public-private cooperation. In Russia, teams like WorldSkills Russia, Agency for Strategic Initiatives, Russian Venture Company and a variety of private companies are engaged in building a common future that is sophisticated and high-tech. It involves autonomous vehicles, highly developed air transport (including autonomous), complex logistical systems (on sea, rivers, air and earth). Russia is building multi-sectorial cooperation in the fields of biotech, personalized medicine and new eco-friendly biomaterials. The National Technology Initiative aims to form fundamentally new markets and create conditions for Russian global technological leadership by 2035, relying on the work of universities and research centres.

At the same time as they push for technological innovations, leaders should also address the effects these changes could have on inequality in society. They must ensure they’re not actively or inadvertently excluding people, and that the policies, investments and values that they put in place are inclusive rather than divisive. This is why it is important to work with civil society and encourage accountability and feedback.

So are Russia’s leaders ready for the Fourth Industrial Revolution? The answer is conditional – it is a “yes, if”. Ultimately, the ability of governments and private companies to adapt to and shape the new realities will determine their survival. If they prove ready to embrace a world of disruptive change, forget old assumptions and achieve the levels of efficiency and transparency that will enable them to remain competitive, they will endure. If they don’t, Russia will struggle to fulfil its ambition to remain a big player on the international scene.

It is easy to look at these powerful forces and feel a sense of helplessness – as though most of it is out of our control. But leaders are responsible for directing these forces towards a future that reflects our common objectives and values. This is done through the decisions people make on a daily basis as citizens, consumers, investors and leaders. Today’s decision-makers often end up being trapped in traditional, linear thinking, or too preoccupied with the multiple crises that demand their immediate attention. At all times, leaders in Russia, and globally, have to grasp the opportunity to think strategically about the forces of disruption and innovate our common way into the future.