This is not a book about theory. That doesn’t mean we have ignored business theory out of ignorance - both of us have strong academic backgrounds and value the insights that can be derived from rigorous academic investigation and analysis.
Despite the acknowledgement that this is not an academic analysis we will talk about some models throughout this book from noted researchers such as Michael Porter and Jim Collins and their frameworks for analysis of business and industry. But their work is powerful because it took years and in some cases decades of painstaking objective analysis to create the models and frameworks for which they have become famous.
Ultimately, however, an academic analysis sifts through the data created by experience of events and looks for patterns and insights from that data. Any such analysis requires a framework for that discussion. These frameworks can only be developed by experience and retrospection.
As we will repeat throughout this book, we didn’t know we were embarking on a digital transformation. We thought we were fighting to save a business. As such, it would be dishonest to look back with hindsight and retrofit our journey as if we had actually developed and followed a framework or roadmap.
Our journey began in the early stages of what has come to be known as Digital Transformation or by the agonizingly unintuitive initials - DX. We did not have a framework. We had precious little history except perhaps for the few almost mythological stories that were the stock and trade of speakers and industry forums. You have no doubt heard these and we ourselves will make reference to some of them. There are large learnings that can be taken from these stories, but they are not presented by those who could offer a first hand account. Where you do get a first hand account of a current situation one may be forgiven for questioning the objectivity. If the person is still with a public company, there are often limits on what they can say. If they have left the company, one may wonder if that has coloured their opinions. When you do get that precious combination of first person narrative and the ability to speak frankly about problems and issues, it is a rare and valuable experience.
All of this led us to the idea of a first person story with as frank and objective a telling of that story as we are capable of. Both of us have achieved that rare commodity that the late David Broadfoot used as the title for his last comic tour - “Old Enough to Say What I Think”. We also have the added benefit of being the majority shareholders in a private company which allows us another degree of freedom.
Of course, no story is completely objective. We can only strive to give you what we discovered and tell that in the first person. It is from our learnings from our actual journey through digital transformation that we have the most to share and we offer it to you in this book as what we hope will be the start of a continuing dialogue with many of you.
Digital transformation is still being defined and in our opinion it is still not fully understood or perhaps tragically misunderstood. To be frank, we find that the definitions range from the apocalyptic to the cynical.
We have seen reports which purport to expose the hype surrounding Digital Transformation. There was a recent article (SOURCE) which quoted an executive with a large company involved in several large “digital transformation” projects who bemoaned the fact that he didn’t really know what digital transformation was. After the initial shock wore off we realized that if this were true and he had allowed these projects to proceed, he probably didn’t know what management was, nor what leadership is.
We have also seen articles which try to counter the hype by putting digital transformation into a perspective. It is like “continuous improvement” or “reengineering” or any of the other schools of business improvement and consulting. We do not agree.
One does not have to be an apocalyptic “end is nigh” prophet of doom to recognize that digital transformation, or rather the disruption which it responds to is not “same old, same old”. It is a serious and fundamental change to how we do business.
Digital transformation is serious business. It is not a new approach to improvement. It is a not a trend or a fad. Many businesses have attempted to implement at least one of the many business improvement approaches, methods or even fads that have popped up over the past decades as an attempt to improve results or grow their business, often with limited success and even with some failures In most cases, the consequences of their underachievement or even outright failure is survivable at worst. That’s from the company point of view.
On an individual basis, the leaders of these companies have fared even better. CEOs are often rewarded for bold adventures that ultimately leave the shareholders and employees poorer. We’ve seen the bailout bonuses of Wall Street after the US financial meltdown or CEOs like BP’s Bob Dudly who got a 19.6 million dollar compensation package when the company posted one of it’s largest losses. Whether the management actions lead to modest gains or tragic errors, companies have survived a variety of trends, fads and methodologies.
Digital transformation is different. It is the “open heart surgery” of business consulting. If you make a mistake, the patient dies. It’s even more personal when you are the major shareholders of the company.
To be fair, neither of us entered into this with stars in our eyes. When taking over the company were not motivated by any exponential gains we would make. Yes, we wanted a return on investment for our time and skill. But we also felt a responsibility to the people who worked for us. Mistakes would hurt more than just the two of us.
We hope that our respect for the seriousness of digital transformation, combined what we hope is a frank and honest first person account will lead the reader to contemplate your own situation and perhaps offer you some insights that will help you meet the challenges of the years to come.
So we offer a great deal of this book in the first person. At times we will exit from the expected narrator’s voice to jump directly to one or the other of us speaking in our own voice.
And for those who are looking for a framework or a roadmap we also offer a third section of the book where we will take what we’ve learned and try to formulate that into a more analytical framework. Once our story comes to its current conclusion, this book wraps up the concepts, trends and lessons learned into a roadmap for change, to help others with their own digital transformation journey.
We are entering an era of accelerated innovation. Believe it or not, the pace of change will increase at a rate which will make previous thirty years seem relatively slow in comparison. This statement may seem hard to believe. But it doesn’t make it any less true.
We’ve almost become desensitized to the phrase “the pace of change” and with good reason. Those of us in middle or later parts of our career have already lived through a number of major changes. We have seen the birth of rock and roll, the emergence of television, the Woodstock revolution, putting a human on the moon, the computer revolution, the birth of the micro-computer, the internet, email and e-commerce, the high tech boom and bust, globalization and most recently the explosion of social and online media. Each of these on its own would prompted formidable change. Each of these came with the promise or threat. To their supporters, they would usher in a new and wondrous era for those who embraced the way of the future and a cataclysmic reckoning and extinction for those dinosaurs that did not leap into the change. To their detractors, each threatened our social order and our way of life. Whether you saw it as a positive or negative impact, everyone agrees that we have lived through a period of radical and increasing change. We have heard that phrase so many times that it has, to many of us, become trite and even hackneyed.
The actual reality of the situation often proved to be a little less dramatic.
Somehow we survived. There were some casualties with real impacts along the way. Corporate giants disappeared. Entire industries were devastated and exist, if they still do, as shadows of their former selves.
No matter whether you view these changes as positive or negative, there has been an impact. At the start of the last century the introduction of electricity changed the way factories were built and run. Formerly run by water and later steam power, factories were tall and compact, centralized around the drive shafts and pulleys that supplied the mechanical power. The introduction of electricity allowed for the sprawling low rise buildings of the automotive era and the massive flowing and increasingly automated assembly lines that they brought with them.
The automobile, itself a product of the assembly line, changed the nature of our cities. It affected every aspect of our lives, including introducing the modern sprawling suburbs, the decline of the inter-city core, the shopping mall right down to the drive-in restaurant and fast food. Would there have been a McDonalds without the ubiquitous automobile? Possible, but not likely.
While it seems today as an afterthought, part of any household, volumes have been written about television and its impact on our lives.
The introduction of electronic computers brought massive changes to the modern office with another “assembly line” - this one focused on numbers, ledgers and later on text and data. It’s evolution to the micro-computer and the silicon revolution has unquestionably changed us all.
And the internet - it is hard to believe that before the mid 1990’s that it did not exist or that for the early years it was little more than text accessible by computer. Or the advent of the “smart” mobile phone which truly launched in 2007.
Each and every one of these and more had huge impacts. As the we moved from the beginning of the last century to the first decades of a new century the pace of change accelerated. A Harvard Business Review article from 2013 gave a short but impactful summary of this acceleration featuring a graph created by the New York Times writer Nicholas Felton. The graph shows the adoption of technology from telephone to cellphone.
The same article notes the observations of Michael DeGusta of MIT’s Technology Review:
“It took 30 years for electricity and 25 years for telephones to reach 10% adoption but less than five years for tablet devices to achieve the 10% rate. It took an additional 39 years for telephones to reach 40% penetration and another 15 before they became ubiquitous. Smart phones, on the other hand, accomplished a 40% penetration rate in just 10 years, if we time the first smart phone’s introduction from the 2002 shipment of the first BlackBerry that could make phone calls and the first Palm-OS-powered Treo model.”
Unquestionably we have lived through a period of enormous and accelerating change that has affected all aspects of our personal and economic lives.
Inevitably for each of these waves of change, industries, places, towns and people felt the impact. Companies, jobs, the way we live and our entire social fabric was changed with each major technological wave.
There were also corporate, economic and work-force changes. Disruptions occurred. New companies and even new industries emerged. But each change over the last century built on the prior one over several decades. Each was more of an evolution than it may have seemed at the time. Even as far back to the introduction of the automobile, which replaced “the horse and buggy” we might forget that the first automobile plants were simply conversion of wagon manufacturers. Labour shifted from agricultural to factory jobs. White collar work aggregated to larger offices and bigger companies. But each change effectively built on the first.
At a macro level, looking back, we can see that each subsequent generation lives in a world that is unrecognizable and perhaps even unimaginable to its successor generation. In a world where the prior technology like the printing press took over 400 years to move from its first physical design to its modern computer replace, this is awesome.
Likewise, while at a macro level, changes to companies, workforces and jobs occurring over decades are studiable as pattern today, at the time the impact was devastating to some. There is that old saying that "a recession is when your neighbour loses her job - a depression is when you lose your job.” So it is with the changes over the past last century. While change was - and is - everywhere, somehow life moved on. Some lost their jobs. Others got iPhones.
But at the beginning of this century with the expansion of the internet, micro-computers and even the rather primitive digitalization that occured, seismic shifts were beginning to occur and displacements were more severe.
One example, rarely quoted, shows how entire segments of industries were wiped out, not in decades, but in years. Few of us actually use travel agents today, but at little as ten years ago, a travel agency was a real job, paying decent wages and serving customers with flight bookings, hotel reservations right down to booking rental cars and entertainment venues for vacationers but also for business. By 2010 this industry had been all but wiped out. In the UK over 75,000 travel agents lost their employment in a matter of a few years. The statistics over North America and the rest of the world would be equally impressive if not greater.
What caused this acceleration? We could simply blame the “internet” and no doubt it was necessary and even central - but it was not sufficient to turn change into a firestorm.
What happened? While the past century might have been seen as a series of waves - electricity, automobile, telephone, radio, television, computer - the new changes were an intersection, a convergence of changes, directly or indirectly linked by technology.
This convergence - where a number of developments combine to have a massive impact created new tsunamis of change which were enormous, powerful and extremely fast.
For the first time, companies and even industry sectors were virtually wiped out or if the survived, decimated in years, not decades. Where in the past change had happened in long waves, these new impacts were more like brush fires, burning hot and fast and devastating everything in their path.
The first firestorm changes happened in the industries where the products were easily digitized. Not only travel agencies were wiped out. The encyclopedia industry disappeared. Record and books stores were almost wiped out. Film photography and development brought down the industry and an iconic brand - Kodak.
In this case of Kodak the ultimate irony is that Kodak had actually invented the digital camera. The technology that it invented when converged with digital processors and smartphones destroyed the company. By 2013 - a mere 6 years after the introduction of the iPhone, Kokak was bankrupt. In 1988, it employed over 140,000 workers. That does not count all of the companies that did photographic development and processing around the world, nor the manufacturers of the equipment and chemicals that drove this industry. When the former “blue chip” company fell, the impact was as severe as it was swift.
While digital industries were the first, there were others to be affected by this new convergence. Others were vulnerable. The hollowing out of US manufacturing had been in progress for years, automation and globalization devastated North America including the US midwest and parts of Canada. Tens of thousands of high paying, often unionized jobs moved offshore overnight while the distribution and management at the end of the supply chain was managed by a relative few on micro-computers and digital communication in the new global economy.
Can the pace of digital change get any faster? The simple answer is yes - much faster.
What if the waves of change that we have seen were only the harbingers of what is to come? We’ve lived through tsunamis of change, through brush fires. What superlative will be left to describe the pace and impact of change? What will we say when entire industries are carved out or wiped out over a scant few years?
If the waves of technological adoption we referred to earlier are an effective measure of the acceleration of the impact and scope of change, we should brace for a new impact.
The HBR article we referred to earlier also compared three waves of change related to telephony. It showed how long it took for the landline, the cellphone and then the smartphone to reach at least forty percent market penetration.
In May 2018, a phenomenon occurred which showed how fast converging forces could drive market penetration of the new technology. Augmented Reality has been with us for at least a few years and it has interesting possibilities, some applications, but not incredibly wide usage.
Then came Pokemon Go. Leveraging a convergence of an established card game migrated to a video game, smart phones and digital networks Pokemon go took augmented reality to an enormous market penetration in only a few months. In May 2018 it had 147 million users worldwide with over a billion downloads. And for the first time, a significant number of players (43%) were female.
Is it any wonder that industry and social analysts believe that we have not yet seen the full impact of the digital transformation of business? Many sober analysts believe that the next decade will usher in a truly massive wave of change, one that will affect every business regardless of size or industry. One analyst from research firm IDC called this the era of “accelerated innovation”. In this new wave, all industries, companies and even economies will feel the full impact of digital disruption at a rate that will make the past six decades pale in comparison.
Hype? Perhaps not.
Even as we wrote this, the pace and the superlatives needed to describe each new wave was demanding and a bit exhausting. It gets harder and harder to imagine how, with so much change already absorbed into our lives, that this just the beginning - a warm up before the real sprint begins.
As writers, we understand that you may be skeptical about the magnitude and the impact that is yet to come. Each new wave of technology has had its apocalyptic predictions. But let us briefly make the case and judge for yourself.
The previous waves of change have had indeed had enormous impacts. But there were limitations that actually regulated the speed at which they would move. What would happen if these limitations were removed and change could happen not at the pace of the landline telephone or even the smartphone. What happens when we move at the pace of Pokemon Go?
In this case, another convergence of technical and social forces are at work - the intersection of what is known as Moore’s Law and Metcalfe’s Law. Moore’s Law as most people know, describes how technological progress continuously doubles the power of technology which in turn decreases it’s cost. As anyone who has even toyed with the mathematics of doubling will know, Moore’s Law explains how technologies that were once affordable only by the largest companies or governments will eventually make their way into wide distribution.
Less known is Metcalfe’s law which describes the increase in value of networks. Rather than a numeric doubling, Metcalfe predicted that a network grows in value by the square of its participants or nodes.
Each of these alone predicts exponential growth and acceleration - one with increasing power at less cost and the other increasing the value of a network. When the two meet the impact is inestimable.
The first wave came as computers moved into corporate and then general use. Transistors and later silicon chips allowed automation of many repetitive work tasks. Although this wave of automation seemed rapid at the time, it actually happened over a period of almost three decades. Part of this slow adoption was cost. There were computers in the 1950s and early ’60s but they were massively expensive and limited in what they could do. it was not until the 1980s before the micro-computer and the spreadsheet brought meaningful “off the shelf” applications to businesses of all sizes. Eventually, Moore’s law and the resultant decrease in cost made technology which was initially available only to the largest companies ubiquitous.
So there were disruptions and changes, but they occurred over decades and focused primarily on business applications, starting in the largest businesses and progressing through until they were a part of the fabric of all businesses. Inevitably in this model, the computer revolution was a means to add to the productivity of existing businesses.
Similarly, the next phenomenon - networks and interconnection - which we now know as the “internet” followed another path. The economics were the same, but this time it was the government that had the “deep pockets” to finance the initial and highly expensive experiments in networking. The first papers which described what would become “the internet” were published in the 1950s. In 1969 four host computers were linked together to form the ARPANET and by 1972 that network and its offspring that came to be known as “email” came into existence. Yet for many, it was as far as the mid-1990’s before this technology worked its way into larger use and awareness and the early 2000’s before its widespread impact.
The internet did disrupt some businesses and it created entirely new industries. Music and publishing were two industries that felt the early impact. These first disruptions were relatively easy as the end products lent themselves to becoming digitized. But the rest of the promised internet revolution far exceeded the abilities of this new technology. The bubble of expectations burst around 2003 and many of the new titans of industry either failed or went into a new era of consolidation.
So with the exception of the aforementioned industries, despite the hype, the Internet took decades to reach the level of impact. And despite the original hopes of its founders, corporate interests prevailed as business uses prevalled and led to new ways of working (email) of selling goods (e-commerce).
Music, publications and even photography were industries that were disrupted. And it was here that we saw the first Darwinian massacres of the digital revolution. Within these industries, companies that had huge resources and didn’t respond fast enough were devastated. Kodak, the company that invented digital photography collapsed while others took its technology to market with a wave of new digital cameras. The music industry which had long controlled all music creation and distribution felt the one-two punch of piracy and the digital creation and distribution that broke their monopoly.
Make no mistake, these were large industries, but to the average person or business outside their realm, the impacts were hardly apocalyptic. Automation, outsourcing and globalization had much bigger impact on the average business or industry. Yet there was a real difference. Automation, outsourcing and globalization increased competition in a way we understood - the industry itself was not changed. Components of it became more competitive. Individuals could suffer as companies moved the factories and processing, but the industries themselves would absorb these new lower input costs and move forward.
For all other industries Michael Porter’s famous five forces model still provided a relevant explanation and a model with which to understand and respond to the changes that ensued. Porter believed that surviving in a competitive environment meant dealing with five central forces. At the centre of Porter’s model is business rivalry or completion, which he regards as a positive force. The other four areas are two sets of power balances and threats to be managed. The power of your suppliers and customers must be kept in balance. You must manage the threats posed by new entrants and substitute products.
Source: Wikipedia ”Porter’s Five Forces Analysis”
For each of Porter’s five forces, there are books, business school courses and of course top line consulting firms that will have tailor-made strategies to defend against any one one of these. Faced with outsourcing as a threat, some of the biggest companies simply embraced it. New customer segments were addressed by a variety of marketing strategies. And so it goes.
Porter originally developed this model in response to what he felt were the weaknesses of the then popular SWOT (Strengths, Weaknesses, Opportunities and Threats) framework which he regarded as too general.
The Five Forces model gives a clear framework for analysis and does indeed isolate areas to address which lend themselves to specific strategies.
That specificity and precision is extremely useful if one is dealing with pressures from one or two of the forces. But what happens when all five forces are so strong that they negate or disrupt the ability to react with any known or even recognizable strategy? The model can indeed describe what is happening, but it becomes a diagnosis without a cure - without any possible treatment. It’s like trying to coach a hockey team by saying “we lost and everything we did, they did better”. The diagnosis is accurate, but it’s not particularly useful in trying to ascertain what to do about the defeat.
As we discussed in the chapter entitled Digital Transformation - the New Rules of Business - the new digital enterprise exists in a world where all five of these forces are attacked simultaneously with no obvious line of defence, no recognizable strategy to present a defence.
How do you deal with the power of buyers when they can move to a new company with a single click of the mouse? How do you leverage your power over supplier relationships at an advantage when where the raw materials of your product are electrons? What defensive strategy can you mount against new entrants when the barrier to entry for a global competitor is whether or not they have a credit card? How do you defend against the power of substitution when the substitution is not an inferior copy, but often a truly better alternative for at least a segment of our client base?
Even the central tenet of Porter’s model which says that rivalry is critical to keeping us on our toes is challenged when rivalry becomes hyper-competition. In hyper-competition, by the time you recognize the competitive threat it can be too late for a legacy organization to respond.
Economists have spoken about “perfect competition” but at best, that exists in a theoretical world, not one populated by human beings with payrolls, expenses and investors to satisfy.
So in a world where tumultuous changes were happening and needed to be dealt with, it might be tempting to miss why this new challenge represents a quantum shift, requiring not just strategies, but a true transformation of what we do and how we think about our companies and commerce itself.
In that world, these early signs were only a hint of what was to come. We describe ourselves - in publishing - an industry that has been ravaged by digital transformation as a “canary in the coal mine” or at times as “a voice from the future”. Despite that, even the rapid decline of publishing took several decades. Also, at least in our case, the new digital competition was at first a novelty and second, a new source of additional revenue, that is, until the new competitive ecosystem emerged and in a few short years many once profitable firms were on the edge of bankruptcy.
As we have noted, publishing and other companies where the product is easily digitized were the first wave. That initial wave of disruption created one of the myths of digital transformation, namely, the idea that a digital product is the end state of digital transformation. For an industry to be disrupted, the product or service must be able to be rendered in a digital form. That misconception has been reinforced by a number of industry gurus who spoke of this digital revolution as a movement from “atoms to bits”. It creates the illusion that an intensely physical industry cannot be disrupted if it’s products cannot be rendered in a digital form. Taken to its extreme, it would presume that an industry such as taxis could not be digitally disrupted until someone invented teleportation. Or that only a 3D virtual experience could replace the traditional hotel industry. That misconception and the sense of complacency it fosters are in large part why new digital competition such as Uber and Air BnB took their industries by surprise. It’s why the devastation that they brought was so swift and damaging.
The reality is that digital disruption is not about creating digital products. Digital disruption is driven by two extreme forces. As we will discuss in _______, first and foremost, digital disruption taps into unmet needs and inherent frustrations in the customer experience. Expressed in Porter’s terms, the side effect of the digital revolution is that the customer is now in control. In a world where the customer is in command of almost all information, where price comparison is done with ease and where the competitor is only a click away, the digital revolution not only put the customer in total control, it tapped into the pent up frustration of being “controlled” and unleashed that to create a new “dot customer” as predicted by the 1999 hit book, “The Cluetrain Revolution”.
Digital disruption is so powerful because it starts with the customer experience and totally reimagines the product, service or offering based on the creation of a vastly superior customer experience.
It is able to do this because digital disruption refused to be contained or restricted by the existing legacy organization. While the new cloud technologies are often a key component, if it were only about the technology, the story of disruption would be much different. Digital disruptors are freed by the new cloud technologies to abandon all of the legacy baggage of existing companies, not just the legacy applications but all of the concepts - location, processes and the culture of their legacy competitors.
That’s the true apocalyptic impact. To be clear, this has been made possible by the new four horsemen of cloud technology. SMAC, short for Social, Mobile, Analytics and Cloud has created a new technological platform, the impact of which we are only just beginning to see. But it’s not the technologies themselves, it’s what they enable and most importantly, how they have changed the way we think about products, services and our role as customers and suppliers.
Today, these SMAC technologies have matured to a level where it is possible and practical to set up the entire infrastructure for a global company in an afternoon using a personal credit card. The cloud and its various platforms provide an accessible foundation to provide computing anywhere, anytime. In this new world an ecosystem of “apps for rent” provides a manufacturing and distribution capability equal to anything a major company might have in place - without any encumbering legacy systems.
In a world where networks are everything, Social and Mobile platforms allow anyone to reach a market in record time. In this new digital economy, not only has the desire for control and immediacy of response been created in the new dot customer, but now analytics from data collected throughout the end to end delivery of a product or service allows a deeper and more immediate insight into the customer experience.
In this world everything, even the most modest of firms can have access to terabytes of data and the ability to store and process that data - on demand. What once took millions of dollars and months of time is now available on demand, in an afternoon with a credit card.
Lastly, freed of the legacy of assets, process and culture, new digital disruptors adopt a startup mentality where they are freed to reimagine every aspect of the product or service as a means of fulfilling an exceptional customer experience.
The capabilities of these SMAC technologies will increase exponentially over the next few years. The hyperscale public cloud providers like Amazon Web Services (AWS) deliver thousands and thousands of new cloud applications and the components to create them. Every aspect of the infrastructure of a company from accounting to telephone systems can be purchased on the web for a trivial investment. That now extends to data collection and analytics - once the purvey of large companies. New companies can reach new customers on the web and increasingly through social media and mobile devices with laser targeting. Products can be designed, prototypes printed and produced on demand for just in time delivery.
Ubiquitous low cost technology has is now free of corporate culture. Where technology was first adopted and explored and developed at a measured pace by large corporations, largely due to cost, the new wave is coming in the opposite direction. Consumer technology is being pushed into the corporation by passionate groups of devotees. The true democratization of technology has arrived.
Today, we are truly at a point in our history where technology is no longer a limitation. We are limited only by our imagination. Our new “legacy restriction” is our inability to jettison the old.
This new order is a huge threat to existing companies - even market leaders. We’ve seen this first hand. Even when a digital competitor emerges, it’s phenomenally difficult to tackle them head on. To do so is also to compete with or even disrupt your own product. It’s reasonable to that internal competition to be fiercely resisted by those whose job it is to defend the companies existing products against competitors. Their arguments are further bolstered by the damage that disruption will do - the “friendly fire” of internally led disuption will still have a massive impact.
The new digital competitor, whether introduced internally or externally can eliminate not just costs, but also revenue. As a direct example, when we stopped printing, we did eliminate costs, but we also lost all of the revenue associated with print. The new digital advertising, once an attractive supplement to the existing revenue, was not able to replace the cash flow. We literally had to report to our shareholders that we would be dropping millions in revenue to pursue a much smaller revenue stream. Our experience gave us much more empathetic view of companies like Blockbuster, Koday and even Canada’s own Research In Motion (now BlackBerry).
“Uberization” as we’ve come to term it, happens to companies who not only believe that because so much of what they do involves a physical product or service, or some other real or imagined barrier that it cannot be disrupted by digital means. It happens because they cannot disrupt their own businesses for very real reasons - loss of profits and cash flow with the promise of an uncertain future with a product or service which is often, at least in the initial stages, an inferior competitor perhaps on many levels save one - it’s ability to tap into an unmet and powerful, perhaps unspoken need in the customer experience.
In the early days of UBER some press articles were quoting a driver saying , “when they invent teleportation, that’s when I’ll worry about a replacement for taxis.” At this point, looking back, everyone can laugh at the naïveté of this comment with the same smug satisfaction as we did when we read statements from the early computer era like president of IBM stating that the world would have room for maybe five computers. Or when we read that most male executives dismissed the first micro-computers as tools for the secretarial pool.
But who could predict a world where a totally new competitor would leverage digital infrastructure, social media, the gig economy to create a taxi company that owned no taxis? Who of classic business school training would predict the success of this new competitor given that it could be more expensive than the taxi alternative? Which sane economist would predict the emergence of a global competitor that could achieve all of this and be a decade away from making a profit?
Uber proved another key point. You don’t have to be in a position to take all of your competitors business - you just have to take their most profitable business, Your competitor can then strangle themselves with the infrastructure, legacy systems, the old rules of commerce and the least profitable section or even money losing customers.
That should be a lesson for every industry no matter how it tries to exercise a Porter model strategy to defends itself - egulation, skills, investment or whatever. As the old joke about the two men and the bear pointed out, you don’t have to outrun the bear, you just have to outrun the other guy.
The world that is built on SMAC and the new rules of commerce is a world where the old rules simply do not apply.
The era of accelerated innovation
To this point we’ve presented a picture of tremendous change at an ever increasing pace. We’ve shown that what has emerged defies prior logic and strategies. We’ve shown that no industry is immune. But our real point is in this final thought - this is just the beginning. The true impact of the era of accelerated innovation is yet to come.
For those who think that digital disruption is reaching its peak, even for those who are investment heavily, the real punch has yet to be delivered. It’s truly shocking that the real surge in spending is just beginning (NEED IDC SPENDING ESTIMATES) and the pace of change will increase rapidly.
That acceleration will be fueled by a combination of factors coming online that will serve to act as a catalyst and accelerate change beyond anything we’ve seen to date and perhaps anything we can imagine. Moving from the inadequate and inaccurate metaphor of atoms to bits, the “uberization” steamroller will affect each and every product or service.
If you’ve taken a high school chemistry class you will no doubt be familiar with the concept of a catalyst. For those who have not, or for whom it is a vague memory, a catalyst is something that accelerates a chemical reaction. For example, if you fill a room with oxygen and hydrogen, not much will happen. Over an extended time it is possible that some of these atoms might combine in to a new molecule with two parts hydrogen and one part oxygen - H2O or water as we more commonly call it. Introduce some palladium to the equation and you will accelerate the combination. That’s been the situation to date. The forces we’ve termed SMAC built on the ubiquitous network of the internet accelerated the process of digital disruption. The new era, adds additional catalysts much like adding a spark to the hydrogen and oxygen. That will cause a tremendous explosion and instantaneously combine these atoms to produce water.
This new explosive catalyst is different than simply a new technical development - of which there have been and will continue to be many. These technical developments have made new things possible. They will enable companies to move digitally in the same way that mobile phone apps and the gig economy made Uber possible. Future devlopements like 3D printing will revolutionize manufacturing. The twins - augmented and virtual reality will change a number of industries from retail to medicine. The “Internet of Things” and the intelligent devices that populate our world are themselves making radical changes to industries. Robotics, with its cheap and unsleeping devices have already automated warehouses and factories and will soon move to everything from construction to restaurants. But the match that gets struck in the room full of explosive gas, the one thing that will truly jam its foot on the accelerator is the development in Artificial Intelligence.
Artificial intelligence offers the the final element to enable the digital enterprise. It started as a novelty. It has been the subject of science fiction novels. It’s been promoted, over-hyped and debunked by many. Yet as we sit today, it is about to launch and explosive change to our industries and our lives.
AI solves a multitude of issues in the digital world. It replaces the one remaining limitation to the speed of change and implementation - the human mind.
In its early incarnations, AI was a novelty and the darling of science fiction stories. Who could forget the lifelike speech of the HAL 2000 in the movie 2001. AI moved from laboratory and science fiction plots when it won chess championships. Years later, IBM’s Watson AI beat a human playing the famous game show Jeopardy demonstrating the ability to handle imprecise information in contextual settings. Recently the world’s GO champion was defeated by AI. GO adds a level of complexity that is light years ahead of any of the other challenges. GO has more possible variations in strategy than there are stars in the known universe.
With that degree of complexity, AI transcends the algorithmic approach to computing which has dominated and limited our progress to date. While computers can store and process enormous amounts of data, the old algorithmic world could only do this based on predefined rules. It still required humans to develop and even to advance the algorithms. Today AI can not just process, it can also learn even about things which are imprecise or contextually changed. It can make decisions based on that learning that exceeds the capacity of humans. It can operate remote machinery and devices absorbing billions and trillions of inputs - and it can spot anomalies, find new patterns, and evaluate alternatives - all the things that human experts can do.
AI provides the brain that can operate the digital businesses. It makes possible to digitize enterprises in new ways and at an accelerated pace. Self driving trucks deliver our goods. Robots perform the physical tasks once relegated to humans. Automated restaurants cook to order.
AI will be the catalyst that enables a host of new technologies, each revolutionary in their own right. It can do work formerly possible only by using human senses and cognitive reasoning, far beyond the capacity of the human mind. It does this tirelessly accomplishing millions of tasks in less than the blink of an eye. It does this in the context of a world where infrastructure and computing power to run it and to store and process vast data sets is ubiquitous and cheap.
AI not only performs at levels not possible for humans, but it adapts far more quickly. It learns new patterns without time required by the slow habit breaking/building required to train humans. It does not need to believe what it is doing and offers no conceptual or cultural resistance. In short, it supports the almost instantaneous adoption curve to allow global market penetration at the speed of Pokemon Go.
The next waves of change and the impact of the next wave of the digital revolution can occur at lightning speed and will be devastatingly powerful. It is rolling out as we speak and developing its sophistication daily.
There are some impediments to AIs onslaught, but these too are being eliminated. For AI to power a vast array of physical devices, robotics and autonomous vehicles, remote surgical or other precision operations the capacity and latency of our wireless networks must be eliminated.
Over the next three to five years that will happen with the introduction of so called 5th generation networks. We use the term “the blink of an eye” to describe the performance of our current, almost ubiquitous wireless and cellular networks, but that is actually a misnomer. Our current networks surpassed the blink of an eye some time ago. Your eyes blink at a rate of about 300 milliseconds or a third of a second. Current networks issue and receive instructions in about 50 milliseconds, six times faster than the blink of an eye. 5G will bring this down to an impossible 1 millisecond - fifty times as fast as our current networks.
The only other resistance to AI comes from humans and that too will fall to the inevitability of economic and competitive pressure. China is training millions of students in AI sciences and development and will implement both 5G and AI relentlessly over the next few years. The economies of the west must and will respond.
The last real governor of the speed of change - humans - will be removed from the equation organizations at every level will be transformed, rebuilt and operate at breakneck speed.
All of this will happen over the next decade. It is not fiction, all of the technology is working today in the field. In as little as three to five years what we have today will seem as quaint as the dial-in modem. The businesses of today - large and small will be transformed or replaced by their new digital equivalents with new business models and a hypercompetitive marketplace operating at a new velocity.
Unbelievable as it may seem, this new world will spawn ideas and changes that we have not yet imagined.
How will you prepare for that change? How will your business survive and prosper as we enter this new era of accelerated innovation? The future is challenging and uncertain and as tempting as it may be to think that you are helpless in the face of all this, we are reminded of the quote often attributed to Albert Einstein - “The best way to predict the future is to invent it."
That’s what we hope to explore in the remainder of this book. How can you invent your own future? How can you survive and even thrive in an era of digital transformation and accelerated innovation?
How can you plan for a world which we can’t really imagine? One way it to look at those who have already been disrupted not with an academic review but from a first hand experience. That is what we offer you in the second section of this book.
What follows is our first-hand experience of Digital Transformation as seen through our eyes. It’s often told in the first person and is, to the best of our recollection, the unvarnished tale of our journey.
We didn’t call it digital transformation at the time - we called it survival.