Chapter 14
How Digital Transformations Can Succeed
I’m a huge optimist when it comes to the digital era. I believe that the new digital tools have the potential to transform people, enterprises, and society. I’m also a realist when it comes to the disruptive power of digital. Like all the disruptive tools of the previous industrial revolutions, it will generate the pain of change. The question is not whether digital disruption will occur but what role we want to play when it does.
My intent is to share how diligence is the mother of good fortune, to quote Miguel de Cervantes, especially when applied to digital transformation.
Why Digital Transformations Fail provides a blueprint for successful transformation. It puts the digital transformation journey into context and provides a disciplined road map to move up the stages of transformation via the five-stage digital transformation model.
Targeting the right ideal stage (i.e., Stage 5) is only the start of the journey. It’s equally important to follow a disciplined approach to get there. That’s the role of the surprising disciplines. I call these disciplines surprising because one would assume that the key to success on digital transformation is creativity in coming up with new business models and in transforming the organization. My own experience has taught me that this is insufficient. The real key to success in digital transformation is discipline. The aspiration of Why Digital Transformations Fail is to bring rigor in execution to help make digital transformations successful.
Thriving in the Fourth Industrial Revolution is absolutely possible. There’s a myth that Abraham Lincoln, Steve Jobs, and Peter Drucker have something in common because they are all quoted for having said some variation of “the best way to predict the future is to create it.” Regardless of claims of their originality, they were all correct. As digital continues to drive an unprecedented pace of change, the modern equivalent is probably “the best way to prevent being Uber-ed is to be the Uber-er.”
To be clear, our motivations for leading change don’t need to be defensive. To the contrary, every change is an opportunity, and the world has never seen as much opportunity as that driven by the Fourth Industrial Revolution.
Digital Is an Opportunity of Historic Proportions
When Marc Andreessen published his article in the Wall Street Journal in August 2011 titled “Why Software Is Eating the World,” most traditional leaders found it hard to equate what was happening at Amazon, Pixar, Apple, or Netflix with the future of their own companies. That was understandable. As Bill Gates said famously, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” It hasn’t been ten years yet from the publication of Andreessen’s article, but his meaning is now suddenly clear. Digital disruption isn’t just for the tech or media or entertainment industries alone. It is so widely accepted that software will disrupt every industry that newspaper articles now list which industries have been least disrupted. And even those are scraping the bottom of the barrel when they list government and judiciary as being relatively untouched by digital disruption.
All that industrial transformation is an opportunity of historic proportions. Software is eating the world, not in a destructive Pac-Man way, but more in the manner of plants that consume carbon dioxide and light to generate oxygen. We see signs of this digital photosynthesis all around us. Digital is multiplying the capabilities of all other disruptors, whether nanotech or drones or solar. Examples of these abound. The sheer breadth of what’s possible today and how quickly it changes is breathtaking. I share a tiny percentage of such examples below.
Five of the top ten companies in the world by market capitalization in 2018, per PwC, are technology companies. And that doesn’t include Amazon or Alibaba, which are classified as “consumer services.”
Eight years ago only one of these ten, Microsoft, was on the top ten list.
Autonomous vehicles, which seemed like science fiction only a few years ago, will account for about $50 billion in sales by 2035. The children being born today may never need to apply for a driver’s license.
Warehousing, which used to be a heavily manual operation, is now significantly automated. Gone are the days when a human picker went to the toothbrush, deodorant, and lipstick aisle to fulfill your online order for these three products. Today, instead of the picker moving to the aisles, robots move the shelves to the stationary picker.
Additive manufacturing, like 3D printing, will account for 10 percent of all manufacturing in the next ten years. China has already 3D printed a six-story building. The International Space Station has been printing tools and spare parts for itself for years now.
Software algorithm-based supply chain planning will dramatically shrink the product inventories and lead times in supply chains. The fashion retailer Zara has been delivering fashion from designer ideas to retail stock within two weeks for several years now.
Agile, custom-built manufacturing will slowly replace large-scale “batch” manufacturing. Chinese smartphone manufacturer Xiaomi already ships new batches of phones every week, with each batch having superior capabilities to the last. They also register 70 percent of their sales online, including preorders, which allows them to purchase raw material only after sales have been placed.
Nearly 40 percent of all jobs in the financial services sector could be done by software robots by 2030.
Between 40 to 50 percent of jobs in the manufacturing, transportation, and retail sectors could be done by hardware or software robots by 2030.
Even robots in manufacturing will be disrupted in the next ten years as 3D printing takes over. If you can print your PC or smartphone at home, you eliminate robots in the factory.
Average pretax income in these sectors will rise due to these productivity gains, although perhaps not equally spread between all groups of workers.
Wealth management advice fueled by artificial intelligence (AI) will explode over the next few years. By 2025, 10 percent of all wealth being managed will use a combination of AI and humans. Of that, 16 percent of that will be managed only by robots.
Certain news agencies already generate 90 percent of their short, pro-forma real-time news updates on sports and financial markets using software robots. AI, with some human journalist help, will generate 90 percent of all news in fifteen years.
Voice recognition is already three times faster and more accurate than typing. In the future, natural language processing (NLP) bots will understand and execute most of the day-to-day tasks at home and at work.
Ambient computing will explode. It is the trend of pervasively embedding computers into everyday devices to the extent that we stop thinking of computers as individual boxes.
Deep learning, a cutting-edge subset of AI that is used in self-driving cars, will also be used to self-generate cryptographic algorithms to communicate between devices that are extremely difficult to hack.
Deep learning can already read your lips with more than 90 percent accuracy, whereas the average lip reader usually delivers 50 percent accuracy.
If deep learning can figure out how to play computer games without being taught or programmed, then AI-driven product development for R&D departments is already within reach.
The gig economy—the trend of part-time or temporary employment “gigs”—accounted for about 10 percent of the US workforce in 2005. It is already a third of the workforce today and expected to exceed 40 percent by 2020. You can win big by leveraging this trend.
Thirty-two million people in the US cannot read a road sign, but by 2020 we project to have ten million self-driving cars that will accurately read all signs.
By 2027, machine literacy—the ability for computers to be above basic human literacy levels—will exceed that of twenty-four million US citizens.
Ninety percent of the global population above the age of six will have a cell phone by 2020.
By 2030, 1.2 billion Indians will have smartphones (not just cell phones). And this is in a country where even landlines were a rarity just thirty years ago.
Studies have consistently proven that digital technologies are narrowing the education gap in developing nations. Add that to the 90 percent global cell phone ownership levels among people six years old and up in 2020 and you have a dramatically different consumer profile to market to by 2020.
In twenty to thirty years, the cost of producing energy at home will be a fraction of the cost of buying it off the grid.
More importantly, it’s the consequences of cheap electricity that are more exciting. Cheap electricity means cheap drinking water, as energy allows you to process all kinds of water, including seawater.
Dozens of new battery technologies ranging from bioenergy to graphene and micro-supercapacitors will pump new life into traditional lithium-ion battery technology. Medium term, technologies like lithium-air, lithium-sulfur, and vanadium flow will likely get us to a fully renewable future in twenty years.
Improvements in health care mean that the average American male lifespan in 2050 could be eighty-three to eighty-five years. For women, it would be eighty-nine to ninety-four years.
By 2020, we may see human trials of surgical nanobots. These tiny robots can capture individual cells, coordinate with each other, deliver targeted medicine, and purge themselves when the job is complete.
Medical diagnostics will become a self-serve industry, as smartphone extensions will allow patients to diagnose everything from A-fib (atrial fibrillation of the heart) to genetic disorders right at home.
In the next five years, there will be apps that can tell by your facial expression if you’re lying. Imagine what that could do to the judicial system!
Smart cities will use sensors and digital capabilities to manage traffic, utilities, law enforcement, medical support, and other community services. There are already more than 250 smart city projects in the world today.
India has a plan to build one hundred smart cities.
Lab-grown cultured meat will deliver superior alternatives to conventional meat, using 50 percent less energy and 80 to 90 percent fewer emissions. That’s good because the meat industry accounts for 18 percent of all our greenhouse gas emissions.
Robots and drones are likely to be the farm workers of the future, including on small- and medium-size farms. Robots can be made for $500 in developing markets already, and this price tag will quickly fall below the $100 level.
Virtual bartenders are already in use. Royal Caribbean’s cruise ship Anthem of the Seas mixes your cocktails and allows you to go beyond the menu to create your own cocktails.
Blockchain, currently the only technology claimed to be incorruptible, may finally give us secure online voting.
Blockchain will disrupt the need for middlemen to complete financial transactions. According to the World Economic Forum, 10 percent of global GDP will be conducted over blockchain by 2025.
A combination of full trust capability, transparency, and security will turn the manufacturing supply chains of the future into demand chains.
In developing markets, the use of low-cost blockchains will help address endemic institutional weaknesses. Examples include expanding the sharing economy to enhance local bargaining power, growing microfinancing, attacking middleman-based corruption, and delivering secure identity and ownership documents.
Over the next decade, modern manufacturing in the US will create 3.5 million new jobs. The big challenge will be to retrain existing workers more than threats from globalization. Up to two million high-tech manufacturing jobs may go unfilled.
Spending on digital advertising in the US has already overtaken TV advertising in 2017. Corporate advertising functions will evolve to become data- and algorithm-driven personalized customer engagement functions.
The corporate HR function will need a makeover to evolve away from delivering policies, processes, and talent management services. Those will be automated using HR tech. HR will evolve into delivering innovative, agile, digitally savvy human capital.
The Race to Turn Opportunity into Success
The question for forward-thinking leaders is how to turn these unprecedented opportunities into relevant action. Although the William Gibson saying “the future is already here—it’s just not very evenly distributed” has always been true, the sheer discontinuity of the emerging future allows change leaders to win disproportionately versus change resistors. That’s true of individuals and it’s also true of organizations.
To be sure, one of the reasons why digital transformations fail is that it is hard to drive change within established enterprises. Beyond all the issues of managing change in a legacy organization and culture, the financial risk-reward systems in larger enterprises appear to be stacked against them in favor of their nimble start-up competitors. As Maxwell Wessel points out in his September 2017 article in Harvard Business Review titled “Why Preventing Disruption in 2017 Is Harder Than It Was When Christensen Coined the Term,”51 the most disruptive challenges for established companies today come from start-ups that are able to create asset-light disruptions. Consider Uber vs. General Motors, or AirBnb vs. Hilton. Further, whereas larger enterprises are usually constrained to funding innovation using debt, their start-up peers borrow at 10X to 30X revenue multiples using equity stakes. Much of this cheap, asset-light disruption is enabled by digital technology. However, this dynamic cuts both ways.
Digital Is the Ultimate Leveler of the Playing Field
There are ways to even the odds within established enterprises. They do have financial wherewithal and industry knowledge and huge supportive ecosystems and select talent. Better yet, this democratization of change driven by asset-light digital models can be an equal enabler in established organizations, if applied correctly. The good news about the digital era is that it enables huge ecosystems for innovation. That can level the playing field.
One way to win disproportionately in the digital era is to be among the digital change leaders. Make your digital transformation initiative count. This book demonstrates how to improve the odds of digital transformation by lowering the costs and risk of change.
The Rest Is Up to You
We are fortunate to have the opportunity to lead change in only the fourth industrial revolution in the history of mankind. The technology is here. The change models exist. The conviction and mindset to thrive in this era will belong to individual leaders, as has always been the case throughout history. As you take up the challenge to transform the future, my humble wish would be that we learn from past stories. Digital disruption can be overcome. The reason why digital transformations fail is that they take more discipline than one might expect. It takes a surprising amount of discipline and a positive outlook of the possibilities for digital transformations to succeed.