Digital transformation

The Fourth Industrial Revolution

We are on the brink of a digital revolution that may change the way we live, work and relate to one another. Technology has crept into our lifestyles in many ways. Compared to previous industrial revolutions, this will evolve at an exponential rate. It is already disrupting almost every industry in every continent. The breadth and depth of this disruption heralds the transformation of whole systems of governance, production and management. Billions of people are connected daily by mobile devices, with unprecedented storage capacity and access to knowledge. Already we are seeing breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing (Schwab, K., 2016).

Social media has changed the way we interact in our relationships, online banking is now a big part of our finance management and virtual reality is set to change the way we enjoy entertainment, just to mention a few. Facebook has reached 1.8 billion monthly users and each account is worth $14.17 on average (Heine, C., Adweek, 2016). More than 30% of the global population now uses social media platforms to connect, learn and share information.

In the face of such massive change technologically, needless to say, companies are all rushing headlong to be “digital”. What does “digital” really mean? Companies need to do a rethink about how they want to plan a move towards digital because unclear perspectives may result in piecemeal initiatives leading to missed opportunities or false starts ( Dorner, K., Edelmann, D., 2016).

Technology has made possible new products and services that greatly improve our lives, in terms of efficiency and pleasure- think disruption in transportation in terms of Uber, and Airbnb in the hotel and travel industry. Almost all services that used to be done physically traditionally – ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film or playing a game – can now be done remotely and in a seamless and comfortable consumer experience (Schwab, K., 2016).

On the other hand, the advent of the Fourth Industrial Revolution could also yield greater inequality in the labour markets. Automation may substitute labour and create an “anti-jobs” future. It might also exacerbate the gap between returns to capital and returns to labour. Talent, more than capital, be a key factor of production. Low skill/low pay and high skill/high pay segments may be further segregated. Across the industries, evidence points to the industrial revolution having a major impact on businesses.

On the supply side, new technologies are introduced that create new ways of serving existing needs and disrupt existing industry value chains. Agile and innovative competitors are also driving disruption with the use of global digital platforms for research, development, marketing, sales and distribution. On the demand side, growing transparency, consumer engagement, and new consumer behaviour based on mobile networks and data force companies to adapt the way they design, market and deliver products and services.

One major trend we see in the digital disruption is in the sharing economy, which combines both demand and supply using technology platforms – made easy by the mobile device, creating entirely new ways of consuming goods and services. These new platform businesses are rapidly multiplying into many new services. From Uber, we see the proliferation of services like Grab, Gojet, Zipcar and the like.

There are four main effects this industrial revolution has on businesses:

  1. Customer expectations – Customers are at the epicenter of the economy, which is all about improving how they are served. Now, more than ever, physical products and services can be enhanced with digital capabilities to increase their value.
  2. Product enhancements – New technologies make products more durable and resilient. Data and analytics can transform how they are maintained.
  3. Collaborative innovation – Customer experiences, data-based services and asset performance through analytics requires new forms of collaboration, given the speed at which innovation and disruption are taking place.
  4. Organizational forms – The emergence of global platforms and other new business models means that talent, culture and organizational forms will need a reform.

The Third Industrial Revolution provides the platform of simple digitization whilst the Fourth Industrial Revolution creates innovation based on combinations of technologies. Business leaders need to understand the changing global landscape, challenge assumptions of their operations and continuously innovate and adapt in order to survive and beyond survival, to thrive. (Schwab, K., 2016).

What then does digital mean for businesses and what do they need to do to continuously innovate? It is worth taking a pause and clarify what digital means to different businesses. We need to understand where the new frontiers of value are. It may be about developing entirely new businesses in different categories; or it may be about identifying and going after new value pools in existing sectors.

Digital is about creating value at new frontiers

Studying and seeking to understand where the new frontiers of value are will be of great help in this digital age.

Emerging growth sectors are a tempting area to plunge into, but to unlock their value, there needs to be a commitment to understand the developments and to evaluate opportunities or threats. For instance, the Internet of Things opens opportunities for disrupters to use data precision to identify flaws in existing value chains. In logistics, sensors, big data and analytics have enabled companies to improve the efficiency of supply chain operations.

Customer decision journeys are evolving and being digital means being closely in-tuned with how they evolve. Understanding the development of customer behaviour and expectations is important for businesses hoping to get ahead of trends.

Digital is about creating value in core businesses

Rethinking how to use new capabilities to improve how customers are served is digital’s next main element. Understanding each step of a customer’s purchasing journey and thinking about how digital capabilities can design and deliver the best experience is crucial. Data and metrics can be used on delivering insights about customers that in turn drive marketing and sales strategy.

Digital isn’t about working to deliver a one-off customer journey. Instead, it is about implementing a dynamic cycle where processes and capabilities are ever evolving based on inputs from the customer. There are 4 essential core components in this:

  1. Proactive decision making: To be relevant to the customer, we need to make intelligent decisions that deliver content and experiences that are personalized to the customer. For instance, remembering customer preferences is a basic example. It also includes personalization and optimization of the customer’s next step. Clickfox, for instance, blend data from multiple channels into one view of what customers are doing and what happens as a result.

Taking data from multiple sources, Clickfox creates accurate analyses of customer preferences. Source: (“Build Your Analytics Team With Clickfox”, Youtube.com, 2016)

  1. Interactivity in context: Analyzing how a consumer is interacting with a brand and modifying those interactions to improve the customer experience. For example, this means studying how content and experience may change as a consumer shifts from a mobile phone to a laptop or evaluating a brand to making a purchasing decision. Rising customer interactions generates a stream of  intelligence that allows brands to make better decisions about what their customers want. The rise of wearables such as fitbit and the Internet of Things are the latest wave of touchpoints that enable companies to blend digital and physical experiences even more.
  2. Automation in real-time: Automation of customer interactions can boost the number of self-service options that help to resolve problems quickly. Communications can be personalized to be more relevant. This is used in customer helplines like an online chatbot. Automating supply chain and core business processes can drive down costs.
pizza_hut_chatbot-0-0
Pizza hut just launched a chatbot for ordering pizzas at MobileBeat 2016. This chatbot is part of a strategy known as “conversational commerce”. It is a sign of how chat is starting to replace the clicking and swiping we do with apps. Conversable, the company behind the chatbot technology for Pizza Hut, also developed a platform that works within text messaging apps and by voice on Facebook and Twitter. Source:  (Brandon, John, 2016) (Why In-Chat Ecommerce Is The Next Big Hit – Pro Shops, 2016)

 

  1. Innovation based on customer journeys: To serve customers well, companies need to be innovative in how they interact with and sell to them. This may mean expanding existing customer journeys into new businesses and services that extend the relationship with the customer.

Digital is about building foundational digital capabilities

This section is about the organizational processes that allow an enterprise to be agile and fast. This foundation is made up of two elements – mindsets and system/data architecture.

Mindsets – Using data to make better and faster decisions, devolving decision making to smaller teams and developing much more iterative and rapid ways of doing things. This thinking should incorporate a broad sweep of the operations of different companies. A digital mindset flattens hierarchies, institutionalizes cross-functional collaboration and builds environments to encourage idea generation. Metrics and incentives should be developed to support such decision making agility.

System/data architecture – A key feature of digitization is to build networks that connect devices, objects and people. This approach is embodied in a continuous model where cross-functional IT teams automate systems and optimize processes to release and iterate on software quickly. A good example of this is exemplified in the book, the Phoenix Project.

( Dorner, K., Edelmann, D., 2016).

Since the packet-switch network and the microprocessor were invented 50 years ago, massive changes have come about. As digital technology ramped up competition, the rate at which incumbent companies lose their leadership positions continues to rise. In an in-depth diagnostic survey of 150 companies in 18 practices related to digital strategy, capabilities and culture, McKinsey developed a simple metric for the digital maturation of a company.

mckinsey

There are four insights from here:

  1. Incumbents must think carefully about strategy. Companies like Spotify, Square and Uber – pure-play disrupters at global level- are few in number. Ecosystem shapers that set the standards of universal control are even rarer. 95% of current companies must choose a different direction, not by doing digital full-scale, but by commiting to a clear strategy.
  2. The ability to invest in relevant digital capabilities well-aligned with strategy will determine success. Right capabilities will help your business to keep pace with customers as digitization transforms the way they research and consider products and services, interact and make purchases on the digital consumer decision journey.
  3. Technical capabilities like big data analytics, digital content management, and search engine optimization are important. A strong and adaptive culture, though, may help make up for the lack of them.
  4. Organizational structures, talent development, funding mechanisms and key performance indicators need to be aligned with the company’s digital strategy.

(Catlin, T., Scanlan, J., Willmott, P., 2015)

Digital transformation are just two words but the ideas they encapsulate are massive. Before launching into a full-scale digital transformation, it is worth taking a good look at our existing core business offerings and seek to understand the best way for a digital strategy throughout the company, failing which, weak piecemeal changes may jeopardize plans and result in false starts.

References:

  • Schwab, K., “The Fourth Industrial Revolution: What It Means And How To Respond”. World Economic Forum. N.p., 2016. Web. 
  • Heine, C., “Each Facebook User Is Currently Worth $14 In Annual Ad Revenue, According To New Report”. AdWeek. N.p., 2016. Web. 
  • Why In-Chat Ecommerce Is The Next Big Hit – Pro Shops. Pro Shops. N.p., 2016. Web. 
  • Dorner, K., Edelmann, D., “What ‘Digital’ Really Means”. McKinsey & Company. N.p., 2016. Web.
  • “Build Your Analytics Team With Clickfox”. YouTube. N.p., 2016. Web. 
  • Brandon, John. “Pizza Hut Launches Chatbot For Ordering Pizzas, Asking About Anchovies”. VentureBeat. N.p., 2016. Web.
  • Catlin, T., Scanlan, J., Willmott, P, “Raising Your Digital Quotient”. McKinsey & Company. N.p., 2015. Web.
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