CONVERSATION ANALYSIS: Read thefollowing transcript and choose theanswer that is closest to each of thequestions that are based on thetranscript.

Lucia Rahilly (Global Editorial Director,The McKinsey Podcast): Today we'retalking about the next big arenas ofcompetition, about the industries thatwill matter most in the global businesslandscape, which you describe asarenas of competition. What do wemean when we use this term?

Chris Bradley (Director, McKinseyGlobal Institute): If I go back and look atthe top ten companies in 2005, theywere in traditional industries such as oiland gas, retail, industrials, andpharmaceuticals. The average companywas worth about
250 billion. If Iadvance the clock forward to 2020, ninein ten of those companies have beenreplaced, and by companies that areeight times bigger than the old guards.

And this new batch of companiescomes from these new arenas orcompetitive sectors. In fact, they're sodifferent that we have a nickname forthem. If you're a fan of Harry Potter, it'swizards versus muggles.

Arena industries are wizard-ish; wefound that there's a set of industries thatplay by very different set of economicrules and get very different results,while the rest, the muggles (eventhough they run the world, finance theworld, and energize the world), play bya more traditional set of economic rules.

Lucia Rahilly: Could we put a finer pointon what is novel or different about thelens that you applied to determinewhat's a wizard and what's a muggle?

Chris Bradley: Wizards are defined bygrowth and dynamism. We looked atwhere value is flowing and the placeswhere value is moving.
And where is the value flowing? Whatwe see is that this set of wizards, which represent about ten percent ofindustries, hog 45 percent of the growthin market cap. But there's anotherdimension or axis too, which isdynamism. That is measured by a newmetric we've come up with called the"shuffle rate." How much does thebottom move to the top? It turns out thatin this set of wizard-ish industries, orarenas, the shuffle rate is much higherthan it is in the traditional industry.

Lucia Rahilly: So, where are we seeingthe most profit?

Chris Bradley: The economic profit,which is the profit you make minus thecost for the capital you employ is in thewizard industries. It's where R&Dhappens; they're two times more R&Dintensive. They're big stars, the nebulae,where new business is born.