You Are Being Digitally Disrupted – Do Something About It

There is no reason and no way that a human mind can keep up with an artificial intelligence machine by 2035. – Gray Scott, Futurist & Techno-philosopher

In 10-15 years time, an Artificial Intelligence (AI) could be helping to run your company. An AI could be “sitting” on your board of directors, at the right-hand of your CEO, informing and guiding major decisions. An AI could be at the center of your Industry 4.0 manufacturing, or listening in on your customer interactions. An AI could be assisting virtually everyone throughout your business – operations, RD&E, sales, customer relationship, marketing, manufacturing, supply chains and innovation. In other words, an AI could be involved in every situation where large volumes of data are used to make complex decisions. If you don’t have an AI, your business will not be able to compete with those that do.

This scenario is the inevitable outcome of the looming digital transformation. Computers today process large volumes of data very quickly according to preset instructions. Tomorrow, AI will produce insights and ideas that humans could not have done on their own. This is the AI-assisted world that is the result of the internet-of-things, blockchain, advanced analytics, machine learning, natural language processing or other digital technologies being implemented today. The amount and type of data being generated has reached a tipping point.  Humans are at the limit of our ability to synthesize this data and influence both virtual and physical elements at finer and finer resolutions of space and time. We have created a world in which humans are no longer capable of understanding, much less managing, by themselves. And research has indicated that only 10-20% of companies are prepared for this transition.

How do the transformations that are emerging today impact business performance and how does a company not get left hopelessly behind? What does a business do now in the face of rapidly advancing technologies for which the company does not have existing, well-developed competencies? There are specific things you can do today to start the transition.

Transforming Your Business

Consider a large, multi-national, B2B company[1] with multiple business units making a variety of different physical products that require world-class technology and significant capital assets. Despite decades of investment in digital systems – ERP, CRM, KM, etc. – it is still, basically, a human intelligence business. Decisions are still being made based on highly filtered data, limited perspectives and simple heuristics and are subject to a multitude of human cognitive biases.

Many companies have realized that transformation is coming and they are rightly concerned about it. Here are the statistics:

• Two-thirds of C-suite executives believe that almost half theFortune 500 companies will not exist in 10 years.
• Only 1 in 10 companies are considered mature digital businesses. In these companies, the CEO drives the digital vision and strategy (41% of these CEOs set the digital strategy, while 59% understand and support it).
• Less than a quarter (22%) of organizations have a well-defined digital transformation strategy, while 36% were either considering or planning a strategy and 29% had no strategy at all.
• Design-driven companies outperform other businesses according to 86% of survey respondents. There is an apparent split between companies that find it easy to build a collaborative, customer-centric culture (smaller, more agile startup-type companies) and those that don’t (i.e., the more traditional enterprises).
• By reducing economic friction, digitalization enables competition that pressures revenue and profit growth. If you keep operating as you are today, revenue will decrease an average of 12% and profits will decrease an average 10%.

The situation is even more sobering when one realizes that these statistics are highly biased. That is, they come from the most advanced companies in terms of digital transformation! These are primarily B2C companies (e.g., P&G), software (e.g., Adobe), electronics (e.g., Cisco). The survey includes very few industrial leaders like General Electric or even the very creators of digital transformation and AI technologies such as Google, Amazon, Apple, and Facebook.

On a practical level, the technologies and applications of AI are reaching a tipping point. Within 10-15 years they will permeate every aspect of our personal and business life:

1. Companies will be organized in fundamentally different ways.
2. Workers will work in fundamentally different ways.
3. Invention and Engineering (R&D) will take place in fundamentally different ways.
4. Manufacturing and business operations will be managed and controlled in fundamentally different ways.
5. Customers & companies, customers & customers, and companies & companies will interact in fundamentally different ways.

Just as Wall Street drove the adoption of ‘professional management’ as first practiced by General Motor’s Alfred P. Sloan, and promulgated by NYU’s Peter Drucker, Wall Street will drive the next wave of digital corporate governance and operation. Wall Street will force this change because the companies that become digital will vastly outperform those that do not. It is inevitable.

What today’s businesses face is a new world for which it is ill-prepared. Despite massive investments in IT over the past decades, there are very few companies that have the competencies or expertise to turn the company digital. There is limited understanding, in the hands of a very few, of the tools and applications of advanced analytics, natural language processing, blockchain, neural networks, etc. This will make it difficult for them to embed these technologies and approaches into the very fabric of their products, services and the way they operate. The first thing businesses must do is to understand what lies ahead.

The World Ahead of Us

Digital transformation is a hot topic today and there is near universal agreement that it is happening. There are numerous conferences dedicated to it and literally hundreds of articles, reports and posts discussing it. (See our newsletter and the Selected Readings at the end of this article for some examples.) There is less agreement on the trajectory this transformation will take and its effects on companies, societies, economies and individuals. It helps to take a step back from the discussions and hype surrounding digital transformation and think about the causes and effects of what is happening.

It is undeniable that something significant is happening in today’s business world that has to do with data and computation. But there have been dramatic increases in data and computation in the past that, while significant, haven’t resulted in dramatic, transformational shifts in how companies (and their customers) behave. Think about the PC revolution, the promises of the ‘paperless’ office, the implementation of vast and complex ERP systems and any of a number of other computational and data-centric technologies that businesses have adopted. What is it that makes it different this time? Why should companies be concerned for their very existence?

The argument is that this time is different. This time it is more transformative and significant. This time we are at a ‘tipping point’ where a threshold is being crossed that will cause very rapid change in the way companies and customers behave[2]. This rapid change will cause some companies to thrive and others to cease to exist. What are some of the indicators and evidence that this tipping point is real, that it is happening now and what it looks like?

• AI technology is real: After decades of optimism and false promises, AI is finally paying off in widely adopted, useful applications. From apps like Siri and Alexa to self-driving cars to Intellectual Property law, AI is making it out of the research lab and into the real world (see sidebar).
• New information is massive: The amount of data and information on every aspect of work-life, social-life or ‘company-life’, is increasing exponentially as the world becomes more instrumented and connected. The means for dealing with this massive data is struggling to catch up.
• Friction is being eliminated: Friction exists in how customers interact with your company and friction exists in how your company gets things done. Every time a customer calls, requires a demo, has a 1-hour meeting with a sales person, etc. is friction. The companies with less friction will win. Friction in all its forms is being eliminated.
• Innovation is diffusing: The ability to think of and create new and valuable artifacts is being spread across the world, across societies and across institutions. Ideas are coming from customers and partners. Invention and development is being done by outsiders. No longer does any one company have everything it will take to insure the future of their business.

In the inevitable interplay between technology and people, technological advances cause behavioral change and vice-versa. Advances in technology are driven not just by intellectual curiosity but also in response to evolving human needs and desires. And the evolution of human needs and desires are caused, in part, by new outcomes and experiences made possible by new technologies. It is a virtuous, reinforcing feedback loop that is accelerating and that will eventually result in a world that we can only see the faint glimmerings of today.

The Dimensions of Transformation

The implications for a digital transformation tipping point being crossed are enormous. You are already seeing rapid adoption of new, digitally-enabled systems by a wide variety of leading companies. The ‘point-of-the-spear’ for many companies, especially those in B2C businesses, is the digitalization of marketing and customer relationships. The amount of data about customer behavior is exploding and companies in this space, especially CPG and retail brands cannot afford not to make use of it. But there are other ways that companies are digitally transforming.

Examination of the literature reveals a large number of ways that digitalization is described and categorized and some common themes emerge. These have been distilled into the following eight dimensions of digital transformation. Different companies give priority to different dimensions and pursue them in different ways but all of them are ultimately important and necessary.

1. Products & Services – Putting ‘digital’ into the products and services that the company produces. This can be anything from making a product ‘smart’ (i.e., embedding cloud-connected sensors) to services that support the products use to other digital features of the offering.
2. Customer relationship – Changing the way customers relate to, and interact with the company through digital means. This includes mobile access, personalized interactions and all manner of social and individual communications.
3. Production (manufacturing) – Commonly called Industry 4.0 or the Industrial Internet of Things, this movement involves improving how products and services are produced in multiple ways from increasing manufacturing efficiencies to creating new ways to make things.
4. Company Organization & Behavior – Changing the way the company is organized and operates. Digitalizing business processes such as Legal, HR, Business Intelligence, Compliance or any one of a number of other business functions including, ultimately, management itself.
5. Workers & Stakeholders – The company’s changing relationship with its employees, contractors, investors and other stakeholders that are driven by digital technologies and new social behaviors. How people work includes everything from telecommuting to the new ‘gig’ economy.
6. Innovation & Development – This involves all aspects of how the company invents, innovates and engineers to create new offerings. AI is coming to the world of R&D with new ways to discover opportunities that were previously hidden.
7. Partner Relationships – Digitalization of a company’s relationships with its ecosystem (supply chains, channels, partners, etc.) is already happening and is inevitable. Everything from transactions to logistics to contract negotiations will be affected. Watch out for blockchain technology in this area.
8. Social Capital – The company’s relationship with society and social movements will change as more and more of what a company does becomes transparent and garners attention from advocacy groups and individuals. The way a company navigates its digital social presence can either build or destroy value quickly.

A company can work to digitalize itself in any and all of these dimensions, and ultimately, it will need to.

Start Your Digital Transformation Journey

Many companies are not prepared for the disruptions that the coming digital transformation will cause and some haven’t even started thinking about it seriously. Moreover, there is a spectrum of leadership commitment that will affect the path your journey takes. This spectrum is illustrated by these two extremes.

1. Enlightened Digital Leadership – A digitally literate leadership team that has a well-defined strategic plan and roadmap for transitioning the company and that has allocated the time, attention and resources needed to implement the strategy.
2. Skeptical and Cautious Leadership – A traditional leadership team that has heard about this ‘digital stuff’ but is resistant to investments in any significant initiatives and has adopted a ‘wait-and-see’ attitude.

Companies that are on the Skeptical and Cautious end of the spectrum are more disadvantaged but even they can start a journey with a few small steps and some guiding principles.

1. Network – Build a network of practice that is digitally literate, expansive and diverse. Make it span both internal and external boundaries. Tap into it often to guide learning and focus.
2. Discover – Generate as many new digital concepts as possible and have a mechanism to choose the best ones to learn from.
3. Focus – Form a working group that is the nexus of learning and knowledge dissemination and is a source of energy and drive for the digital transformation journey. Make the working group diverse and give it the authority to create a strategy and roadmap for how to approach your digital transformation.
4. Experiment – Do many different experiments that involve all aspects of the digital transformation of the company and do them often. Don’t worry if some don’t pan out. Use small experiments to guide larger ones.
5. Partner – Seek out new and different types of partners. Go outside your normal boundaries to look for effective guides who will assist in making the necessary transformations. Understand that your traditional IT partners may not be the best ones for this new world.
6. Protect – Get C-level sponsorship and buy-in, even if they don’t yet quite understand what it will look like in the end. Make sure they will protect transformation efforts from the inevitable questions and attacks that will occur. Get a commitment from them to become ‘digitally literate’, to understand what is happening and what will be required.
7. Learn – Realize that all of the above is in service of learning about this new world. Make a commitment to rapid learning that is both broad and deep and to capturing what is learned in ways that can be shared and used by others.

Realize that you cannot wait. There will be a lot of push-back and the friction, or viscosity, resisting forward movement will be intense. But there will be early, small successes that will point the way.

Conclusion

No matter what, if you have not started yet, get started now. If you have already started, accelerate your efforts. As more and more companies become digital, the need to do so will become obvious. Realize that your competitors and upstart companies not even visible to you may already be ahead and moving faster than you are.

As you dive in, understand that you and your company are facing what will certainly be a radical change in the way your company is organized, the way it operates and the way it behaves with your employees, customers, suppliers/vendors and other stakeholders. There is no other transformation that will have as large an impact on shaping the future of the business world and it’s time to start your journey now.

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Selected Readings on Digital Transformation

1. Marr, Bernard; What Is Digital Twin Technology – And Why Is It So Important?, Forbes #BigData; March 6, 2017.
2. Bughin, J., LaBerg, L., Mellbye, A.; The Case for Digital Reinvention; McKinsey Quarterly; February 2017.
3. Ismail, N.; How to prepare your business for a digital transformation; Information Age; Sept. 20, 2016.
4. Orton-Jones, C.; Top 10 digital technologies the boss should know about; Raconteur; June 28, 2016.
5. Weinelt, B.; Digital Transformation of Industries; World Economic Forum, January 2016.
6. Corver, Q., Elkhuizen, G.; A Framework for Digital Business Transformation; Cognizant; October 2014.
7. Yoshida, H.; 2017: The Year Businesses Will Learn the True Meaning of Digital Transformation; Digitalist by SAP; Jan. 2, 2017.
8. Afshar, V.; 2016 State of Digital Transformation; Huffington Post; Sept. 9, 2016.
9. McLellan, C.; Digital transformation: Retooling business for a new age; ZDNet; March 1, 2017.
10. Newman, D.; Top 10 Trends for Digital Transformation in 2017; Forbes CMO Network; Aug. 30, 2016.
11. Kane, G., Palmer, D., Phillips, A.N., Kiron, D., Buckley, N.; Strategy, not Technology, Drives Digital Transformation; MITSLoan; Summer 2015.
12. Birkinshaw, J.; Three ways to embrace digital transformation; London Business School; Nov. 4, 2016.
13. Neubauer R., Tarling A., Wade M.; Redefining Leadership for a Digital Age; IMD Global Center for Digital Business Transformation; March 2017.
14. Keeping Score: Why Digital Transformation Matters; Coleman Parkes; 2016.

[1] This is a composite picture taken from direct experiences with three companies who are in the midst of pursuing the digital transformation of their businesses.

[2] One of the most intriguing takes on this is Kevin Kelley’s book The Inevitable (you can read a summary of the book here).