Following a recent blog I did on TM Forum Inform about “Linking digitization and companies’ performance“, I wanted to take the time to expand a bit the content:

Digital Transformation

Our manufacturing world and its ecosystem of partners, developers and customers is undergoing a paradigm evolution. It’s a profound change which is already affecting markets once considered protected from any revolutionary technology shifts, such as housing and traveling. Airbnb, and Uber take over these industries as the super-unicorns and car manufacturers such as Renault, Volkswagen, and Ford are getting attacked by Tesla, Google cars and so forth.

The IoT will connect not only things with things, people with things and people with people, but it will unleash an unprecedented flow of data. Owning the source of data, building value from it and improving the business relevancy of your offers to the end user will be amongst the game changers. The game will be less about selling products than owning the relationship and the data. Tomorrow’s winners will be the ones that have managed to not only connect their customers, but have made sense of the consequential flow of data to the end user.

Digital transformation has been happening for more than twenty years; the IoT is one of many milestones of digitization in our society and economy, but it is unique in that it will release an amount of data and information, previously inaccessible. This will then create the conditions to allow the next digital transformation, which will include virtual reality, analytics, artificial intelligence and deep knowledge.

 

In the coming years, some businesses will be able to adjust, change, and thrive in this new era. Others will battle to survive but will come out better from it in the end. Still more, perhaps the majority, will not recognize the change or will be unable to adjust. Within a few years, they might be struggling to survive after competitors will have managed to leverage these transformations to their benefit and consequently, overtake and commoditize their markets.

I did a recent blog on the Top 3 Analog Companies Digitization Challenges which highlighted that Analog companies have weapons at their disposal to fight back and even lead the digital transformation. It’s not too late for incumbents/analog companies to adapt, especially if they leverage their considerable assets and resources to counteract off the attacks. The World Economic Forum has issued a great White Paper on this subject.

These assets include:

• Investment capital
• Production capabilities
• Strong brands
• Strong channels
• In-depth relationships with global accounts
• Mobilization of Sales force on the ground
• Influence power: standardization, market price, specifiers, etc.

During his interview with Box CEO Aaron Levie, John Chambers, executive chairman of Cisco Systems, got the keynote audience’s attention at the BoxWorks 2015 conference (box.com) when he said, “At least 40 percent of all businesses will die in the next 10 years… if they don’t figure out how to change their entire company to accommodate new technologies”.

The potential consequences of these transformations on consumers and businesses are important. Entire industries are changing before our very eyes and the way companies do business is already altering and will be vastly different in just a few years.

The question for you is, does IoT change the way you have been doing business?

IoT will consist of billions and in the relatively near future potentially trillions, of smart, interconnected devices called “things,” all communicating through the Internet in a kind of global neural network. These smart machines interact and confer with people, the environment, other machines, infrastructures and each other to accomplish tasks and provide services hitherto unimaginable.

IoT is not a revolution as such, but just another step in the digital transformation journey of our society. The big change of the IoT is the fact that it unleashes data that was previously out of range (due to legacy protocols, non-connected products, etc.). This opens the door to new services, new integrations and new business models while at the same time challenging the existing go-to-markets, ecosystems, alliances, proactive and curative maintenance offers, services and operations of today’s analog manufacturers.

There is no doubt that IoT will change the lives of everyone, from the consumer all the way up to manufacturers and large corporations. Just as Uber and Airbnb have changed the world of transportation and lodging, other forms of transformation will affect individual routines such as working, purchasing, traveling, communicating and being entertained.

The old analog business models may no longer be adapted to these transformations. Companies, such as Polaroid, that in the recent past faced similar market evolution to digitization were unable to adapt their operating procedures or to transition quickly enough to take advantage of the new technologies, have faced grave difficulties.

The underlying question you should be asking is how and where you will be able to take advantage of these technologies to grow your company, lest your business declines and fades away.

Will you be able to use your existing staff and infrastructure to leverage these new opportunities? Can you move out of your comfort zone and handle the unique and changing challenges of these new paradigms?

It is important for you to understand that this is far more than just a change in the rules that you’ve been playing within your analog business for years and even decades. The old games are becoming obsolete and will be replaced by entirely new rules, playing fields, playing pieces, and referees.

In the future, the rate of adoption for new technologies will be measured in months, weeks, or even days.

The IoT is not a technology game changer; rather, it enables us to enter a world of:

• Data bulimia (an unmanageable amount of data)
• Connectivity between things and things, but also between people and things
• Digital in-security
• Pay as you need

If you’re not convinced, have a look at how digital transformation has been impacting companies in different ways. These changes will affect all industries, some more quickly than others:

• Telecommunications: In the past, it took more than seventy years for telephones to be adopted in 50 percent of the households in the United States; radio required only twenty-five years, and Internet access less than ten. More recently, Facebook took 852 days to reach ten million users, Twitter required 780 days and Google Plus only needed sixteen days.
• Banking: BBVA CEO and chairman Francisco Gonzalez has a stark warning: “Up to half of the world’s banks will disappear through the cracks opened up by digital disruption of the industry”.
• Companies such as Google, Facebook and Amazon, among others, are threatening the banking industry. Gonzales believes that technological change continues apace and society is changing with it. “We are witnessing the dawn of Big Data technology; the Internet of Things is just taking off and Artificial Intelligence is in its infancy. So, we are running a race which has no finish line, nor a pre-fixed route. We don’t even have a set of rules to guide us in our efforts”. González concluded in the Strategy Research Conference, organized by the Harvard Business School to analyze how large multinationals are changing their strategies to respond to technological change.
• Phones: Microsoft acquired Nokia in late 2013 in an attempt to popularize the Windows 10 platform on smartphones. Unfortunately, their efforts were too little too late, as the immensely popular Android and iOS platforms already had the market sewn up tight. Thus, even though the Windows 10 operating system is very well regarded, consumers were reluctant to make the jump to the new phone without applications and developers were reluctant to write applications without consumers.

 

LINKING DIGITIZATION AND COMPANIES’ PERFORMANCE

In a recent blog, I highlighted the link between digitization and financial performance: here.

In 2002, Capgemini Consulting published their online report, ‘How Digital Leaders Outperform their Peers in Every Industry’ after performing surveys on 391 companies and analyzing 184 publicly traded companies to assess their digital maturity. Importantly, the results were linked to their industry-adjusted financial performance.

Per Capgemini, digital maturity means to invest in technology enabled initiatives while at the same time, enabling digital transformation leadership.

They separated those two dimensions into four different categories and found that the companies that combine investments both in technology-enabled initiatives as well as the leadership capabilities outperform their peers.

Digitally mature companies derive more revenue from their physical assets (+9%), are more profitable (+26%) and have overall higher market valuations (+12%).

Another study, The Path to Digital Transformation, shows that digital transformation has the following positive impacts:

• Four years are needed before there are financial results from the digital transformation.
• The average net promotor score by customers will be 86% on average.
• 55 employees, on average, will have knowledge of digital capabilities.
• On average, 45% of products will be ordered online.

Digital maturity leads to increased financial performance, higher customer and employee satisfaction.

Digitization might have different faces and might be understood differently when talking about technologies, organizations, channels and so forth. However, it is without a doubt a major contributor to financial performance, customer satisfaction and market valuation.