Digital Transformation & Elements of Disruption
What is Digital Transformation?
Neither Digital nor Transformation concepts are new. “Digital” is as old as computing technology is, as computers work on digits 0s and 1s. Similarly, “transformation” is as old as the agricultural revolution which took the Stone Age to civilization. Even after the IT revolution started, there was lot of focus on business process re-engineering, which was nothing but business transformation leveraging latest developments in IT!
Gartner defined Social, Mobile, Analytics and Cloud (SMAC) as digital (and disruptive) technologies, a definition that has now been extended to UI/UX, IoT, Virtual/Augmented Reality, and Artificial Intelligence (Machine/Deep Learning, Robotics, NLP). Other interpretations include better user/customer experience, developing new business models and so on.
Digital Transformation is all about critical examination of business strategy (commercial, operational, marketing etc. across the value chain) to understand elements that are vulnerable for external disruption, and how latest technologies can help them transform before others can disrupt them.
Hence, it is business transformation driven by technology, where the focus is revenue growth and business sustenance. It should not be construed the same as IT transformation, which typically deals with standardization of technologies to automate processes, remove redundancies and reduce costs thereby improving bottom-line.
Currently, the focus is on developing new business strategies, models leveraging capabilities of today’s technology, while further digitization/automation of various business processes continues. Today’s automation not only focuses on business processes, but also the software development lifecycle (SDLC). DevOps practice is also gaining momentum in this context.
Finally, the future of digital transformation is to develop applications that learn and perform cognitive functions of human beings. Current applications are programmed to function in a certain way based on pre-determined logic, and when a new scenario comes in, they fail. Advances in machine/deep leaning, robotics, NLP will enable development of learning applications.
Why Digital Transformation?
The video rental business was led by blockbuster and Hollywood videos, but Netflix disrupted the business model by removing physical copies being rented by offering online downloads, which is cheaper and convenient for end users.
The retail business has been there for more than a century, but Amazon came up with new business model of selling products online, as opposed to brick and mortar traditional model. As a result, Circuit City, Borders leaders in their respective business went out of business.
Kodak invented the digital camera, but left the space for players like SONY and Canon, and went out of business. Nokia was the leader in mobile phones, but Apple disrupted it with smart phones, while Samsung moved fast with cheaper options. Similarly, Airbnb and Uber disrupted traditional business models of the hotel and taxi rental industries.
The evolution of digital technologies is disrupting industry structures and existing business models. As a result, enterprises that are not prepared for such technology driven disruptions are either going out of business or struggling to survive. Those who are able to embrace these technologies are able to survive. Hence, it is imperative for every organization to validate its business strategy/model across the industry value chain, in the context of latest technology developments, and adapt those technologies before competition walks away with its business.
What are the elements of disruption?
Given below are the few areas being disrupted as experienced in the marketplace:
1. Product changes from physical form to digital form
- a. Music(audio in general), Movies(video in general), Books
- b. This eliminates distribution and replication costs reducing the cost to consumer significantly, apart from convenience
- c. All the retailers renting/selling these products went out of business or on their way, e.g. Hollywood videos, Blockbuster, Circuit City, Borders etc.
- d. 3D printing could further disrupt by enabling most of the physical products moving to a digital form till the point of consumption
2. New channels of sales
- a. E-commerce, M-Commerce, S-Commerce
- b. Amazon disrupted brick and mortar retail business through e-commerce
- c. Those who could not adapt to these new channels are struggling to survive
- d. The latest trend now is to move to mobile commerce, social commerce
- e. Digital store fronts and virtual stores are already picking up in a big way, giving a new customer experience to the customers.
3. New Business Models
- a. Remote Infrastructure Management has been there in the technology business for a long time. The same concepts are being applied to remote patient management (healthcare) and remote asset management (manufacturing/Utilities)
- b. Clients are no longer confined to a specific domain. A Telco customer sooner or later will move into retail as they hold customer data, which makes it easier for them to cross sell other products
- c. Monetization of data leading to birth of new companies (E-Yearbook.com, Factual), new revenues for existing companies (Experian, Acxiom) or enabling new partnerships (Dunhumby & Tesco/Kroger, Mastercard & MuSigma/ Verizon & Telephonica). They typically use open data such as weather, census, private surveys, or enterprise data.
4. New Operating Models
- a. Taxi services is not a new concept, but Uber is disrupting this space with new operating model leveraging technology. They don’t own any vehicles
- b. Similarly, Facebook does not create any content, Airbnb does not own real estate and Alibaba.com does not own the inventory
5. New pricing strategy
- a. In the vehicle insurance business, the premium is typically based on age and make of the vehicle. With the arrival of telematics, Progressive started customizing the premium to the individual customer based on his/her driving patterns
6. Empowered Consumer
- a. Now consumers have access to same technology and information that large enterprises have.
- b. Consumers can check features, price and convenience of purchase sitting at home. Hence, they demand the best product at lowest price at their doorstep
- c. This is posing a great challenge to marketing professionals. CMOs are spending a lot on technology these days to understand consumer behavior better, reach them on the go, and making offers they can’t refuse.
- d. Personalized content, context and location sensitive content would have an upper hand in attracting customers. The ability to shop anytime from anywhere with location and context would be the key to success.
7. Process Innovation
- a. ERP, CRM, SCM applications standardized various process as much as possible. While they brought in efficiencies, reduced effectiveness
- b. Digital technologies are enabling organizations to innovate business processes. Marketing automation is one such example described above.
- c. In the retail segment RFID was expected to bring in efficiencies in supply chain and inventory management, but did not yield the desired results due to its costs. However, IoT technologies are expected to cross this barrier
- d. IoT technologies are expected to redefine most processes in retail, manufacturing, construction industries
- e. Apple and Samsung money is disrupting the payments process at the intersection of retail and banking
8. Shrinking product cycles
- a. With fast changing consumer behavior, manufacturers are expected to come up with product upgrades or new products every few months, if not weeks.
- b. How fast are new mobile phones being launched in the market? How fast are new wearable devices emerging? How many new consumer goods products we see on the shelves every time we visit a retail outlet?
9. Blurring industry boundaries and competition coming from heterogeneous industries
- a. Historically management theories prescribed that every enterprise has certain core competencies, and they are not supposed to go outside the boundaries of those core competencies. Hence, all the businesses restricted themselves within a given industry segment and its boundaries
- b. Amazon, Google, Facebook changed this paradigm by entering into multiple different industries.
- c. Tesco entered into e-reader, tablets, banking, while Wal-Mart is opening checking accounts for its customers and Google is getting into automobiles
10. From Capex to Opex (owning to renting, or selling to leasing)
- a. With the arrival of cloud, most capital investments in technology are getting converted to opex using pay per use pricing models
- b. Even car manufacturers are contemplating the idea of renting/leasing rather than selling c. This could spread to all capital-intensive industries