7: Applying Digital to Change Resource Requirements

In August of 2012 Google’s fleet of a dozen autonomous (driverless) cars reached a milestone by driving 300,000 miles with no accidents.1 The autonomous cars drove in Nevada and California. If you’ve driven in Las Vegas or the Bay Area of California, you can appreciate the significance of this milestone.

Digital autonomy is an example of applying digital technology to replace physical assets. Other examples include smartphones replacing laptops, mobile apps replacing websites and digital connectivity replacing the need for physical facilities. Each provides an example of how digital technology creates an edge by displacing and changing physical resource requirements. This represents a different digital-to-physical relationship and business focus, as shown in Figure 7.1.

Figure 7.1 The Apply Model of a Digital Difference

Applying digital technology does not necessarily require replacing people with machines. Rather, the Apply model seeks to create value by using digital technology to give an organization and its customers new abilities, greater capacity or higher levels of performance, often in the form of new ways of working and types of solutions. Two case examples illustrate the Apply model in action. The first highlights how digital technologies were applied to change the working environment at Rabobank in the Netherlands. The second case projects the use of autonomous equipment in the mining industry.

Rabobank Uses Digital Technology to Unplug People

Rabobank Nederland, the central organization for the system of cooperative banks in the Netherlands, has 9,500 employees; the worldwide Rabobank Group has 59,000. In 2006, the bank started a program called “unplugged,” using digital technology to create a new combination of customer relationships, associate work practices and facilities.

Rabobank’s move to a new corporate office in 2006 created the opportunity to address developments in how people work and how customers expect to interact with their bank. The program encouraged employees to define for themselves how, when and where they would work; taking responsibility for achieving their goals with minimal rules and strictly defined processes.

Digital technology connects customers with bank associates and associates with each other. Employees plug into the bank via wirelessly connected smartphones, laptops, video conferencing and other unified messaging applications. Unplugging them from the need to be in a bank building raises customer service — bank associates are free to meet with customers at the most convenient place and time by leveraging Web-enabled applications and tools.

Implementing the unplugged initiative required more than handing out digital devices. Jeffery Mann2, vice president, Gartner Research, observed that the bank rearchitected its office space to create varied work environments in support of the different types of work customers perform while in the bank. Unplugging associates also involved upgrading behaviors and business processes based on building trust among associates, for example, by implementing self check-out in the company cafeteria and eliminating internal cross-charging, for participating in cross-departmental projects.

More than 90% of Rabobank’s associates voluntarily participate in the program, effectively defining unplugged as the way the bank works. Applying digital technology to transform how the bank works has created a performance edge — the bank has already reduced its real estate requirements by one-third and is moving toward cutting it in half. The bank also uses 30% less paper, has reduced interoffice travel via video conferencing, has increased associate satisfaction and receives greater customer satisfaction ratings.

Autonomous Mining Applies Digital Technology to Enhance Safety and Availability

Large-scale surface mining is a hazardous industry and highly profitable when operated effectively. Now, the density of digital technologies creates the opportunity to move people out of harm’s way and create an autonomous mine operation. Rio Tinto, one of the world’s largest mine operators, defines autonomous mining as the operation independent of human supervision.3 Autonomous drilling, loading and transport are all coming online as mining equipment grows smarter through the use of visual, laser, accelerometer, geospatial-based location and other sensors. The sensors are connected continuously and in real time via a high-capacity wireless communications network.

Autonomous operations provide the promise of placing fewer people in harm’s way, reducing errors and accidents attributed to fatigue while increasing mining capacity and capital efficiency. The potential for increased operational efficiency creates value by reducing operational capital requirements, and improving operational efficiency, and production capacity. The autonomous mine and other forms of autonomous operations provide examples of the emerging applications of digital technology.

Applying Digital Technology Changes the Tools of Business Activity

Digital applications change physical resource requirements. This differs from digital automation, discussed in the previous chapter, in which digital technology improves the performance of existing activities. Digital automation has limitless potential as technology changes the informational, operational and even physical dimensions of business activity.

Applying digital, however, involves displacing the physical. Consider this example from the airline industry: Jetstar, a subsidiary of Qantas, launched a new service in late 2011 when it purchased 3,000 iPads, preloading them with media content for flights within Australia.4 American Airlines went a step further, allowing passengers to use their own devices to access audio and video entertainment over an onboard wireless network. Passengers rent television shows for $0.99 and movies for $3.99.5 Cathay Pacific Airways, estimating that it will reduce the weight on its long-haul aircraft by at least one ton, is planning for the deployment of a similar type of application, reducing fuel consumption and creating a new source of revenue from customers purchasing the content they want rather than watching the plane’s preselected programming.6

Applying Digital Technology Creates an Edge by Changing the ‘Physics’ of Business

The Apply type of digital edge creates new revenue channels and processes as digital resources change physical requirements. Implementing digital technology in this way resolves contradictions between physical presence and business performance. Rabobank employees no longer need to be “in the office” to create value. People no longer need to risk their safety working at a surface mine, and airlines no longer have to carry the extra weight of proprietary systems when consumers bring their own devices.

These examples illustrate how digital technologies create new delivery channels to make value directly accessible. Channels realize revenue and results in two ways. First, digital delivery channels directly generate and collect revenue through digital products and services (as with mobile apps or American Airlines’ Entertainment On Demand rentals). They also raise workforce productivity and satisfaction. In addition, the near 100% uptime and availability of digital resources provides a consistent stream of operation, reducing cost and capital requirements.

Applying Digital Technology Can Require Changing the Operating Environment

Applying digital technology requires reconciling a fundamental issue — the relationship between digital technology and its environment. On the surface, applying digital technology appears as a simple matter of substitution — replace a human driver with an array of sensors, or remove people from a package-sorting line with a combination of bar code scanners and pneumatic sorting machines.

Most applications of digital equipment occur in environments like factories that are highly controlled and where the environment is made to fit the requirements of the technology (for example, unique requirements for temperature and humidity or communications protocols). These environments are often separate from other production and operations facilities, making the application of digital technology a discrete event. This is the case to date with most autonomous technology, creating two environments — a “greenfield” for digital technology apart from the “brownfield” rest of the world.

Consider technology applications that work with and within the realities of the world. Rabobank, for example, applied digital technologies to unplug the workforce in ways that integrated rather than segregated physical and digital work. Google’s autonomous automobile is another example. Originally planned to work as part of a smart environment complete with embedded road sensors, Google eventually and incrementally adapted its autonomous technology to work in the current road environment.

The benefits of creating capability that works within current constraints are obvious — lower implementation costs and increased flexibility, among others. However this is a consideration that is easily missed when exploring the use of advanced technology.

Apply a Digital Edge When the Outcome Is Best Delivered by Using Digital Technology to Replace Physical Resources

The range of situations for selecting a digital edge based on the Apply model is broad. Digital technologies can create opportunities to generate new sources of revenue, as illustrated by the airline examples. Think about the Apply model when digital technology is essential to delivering a new value proposition or business model, a situation often associated with content- and information-intensive offerings. Also consider applying digital technology when it is possible to replace rather than automate existing operations and processes with digital technologies (which is driving interest in autonomous technologies).

Capital investment, operating costs and infrastructure requirements can escalate the cost of applying digital technologies in specialized environments. Look for alternatives to applying digital technology in situations where there is a concentrated focus on reducing costs that might be better met through increased automation or traditional re-engineering. Likewise, recognize the limitations of applying digital technology within a current business model that is a brownfield environment.