How To Survive Digital Transformation

MIT researchers say the invention of the steam engine began the most transformative social development in the last 3000 years. Fast-forward to today’s paradigm shift – the convergence of technologies fueled by innovation accelerators like renewable energy, robotics, cognitive computing, and the Internet of Things. Is your organization prepared to thrive?

That’s the question that was discussed in a recent episode of Game Changers radio: The Next Paradigm Shift and Your Digital DNA, hosted by Bonnie D. Graham, and featuring Futurist Thornton May,  Frank Diana of TCS Consulting and me, Timo Elliott, SAP Innovation Evangelist.

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We had a fascinating discussion about what companies need to do in order to innovate and survive digital disruption. The panelists’ preprepared show notes give a good overview of the topics discussed:

Frank Diana

“We cannot solve our problems with the same thinking we used when we created them.” (Albert Einstein)

Perspective

•  The next 20-40 years will ultimately be viewed as the most transformative period in history.
• It will be ushered in by a convergence of forces: advances in science, a new general purpose technology platform, the exponential progression of technology and innovation, the digital phenomenon, and the ability to rapidly combine building blocks (combinatorial) to create value.

Forces at Work

• Exponential technology progression has been driven by Moore’s Law, but clearly we’re seeing the exponential rise of innovation as well.
• Those two forces have combined with societal change to create the uncertainty, speed and change dynamic in the current environment. Humans and institutions move linearly, and as such are poorly structured for future viability in an exponential world.
•  The characteristics required to survive in an exponential world are not part of the DNA of most institutions.

Innovation Accelerators

• The acceleration and convergence of the digital platform with a growing list of innovation accelerators spawns a mounting number of disruptive scenarios that collectively, even if they each play out 10%, are massively disruptive.
• Leaders must start thinking about the impact of these scenarios, sooner rather than later, to begin to understand opportunities, risks, and potential responses.
• The key skills for future leaders are scenario, ecosystem, and exponential thinking, seeing around corners, iterative strategy, foresight, and rapid experimentation.

Disruptive Scenarios

• When you look at disruptive scenarios like the connected car, the Smart Home, or Connected Healthcare, it is clear that we are shifting from a vertically oriented, value chain world, to a horizontal ecosystem world.
• Firm-centric thinking is a major obstacle for companies that must shift to an ecosystem thinking paradigm.
• However, thinking in the context of value creation and capture across an ecosystem of stakeholders (ecosystem model) is challenging, and fundamentally different than the current firm-level (business model) perspective.

Future of Work

• Famous economist Jeremy Rifkin believes we are moving closer to a Zero Marginal Cost society, where our current notion of work changes dramatically.
• Andrew McAfee in his work on the “The Second Machine Age” believes we are heading towards a world where people will no longer need to work. Even knowledge work, once believed to be something that only humans could do, will be automated in the future.
• Many like McAfee believe a Government-provided living wage is on the horizon.

Digital Platform

• The digital platform (social, mobile big data, Cloud) represents the third platform (mainframe and client-server being the first two).
• On its own, this platform is massively disruptive. When combined with innovation accelerators like renewable energy, 3D printing, cognitive computing, the Internet of Things, robotics, and others, this third platform becomes a general purpose technology platform that ushers in the most transformative period in history.
• General purpose technology platforms must have three components: energy (renewable), communications (internet), transport and logistics (IoT, 3D printing, autonomous vehicles, etc.).
•  The last two general purpose technology platforms were: Industrial revolution One: energy (steam engine), communication (printing press), Transport (railroad); Industrial Revolution Two: energy (oil), communication (telephone), transport (car, highway).

Law of Disruption

• The law of disruption states that while technology progresses exponentially, businesses change incrementally.
• This creates a gap for killer apps that the market rushes to fill.
• This gap is getting wider, and the opportunity for low cost new competitors and market entrants is growing. Incremental business change is no longer sufficient.

Thornton May

“When it’s steam engine time, people will invent steam engines….major innovations occur not when an inventor is struck by a bolt from the blue, but when the scientific and social conditions are ripe.” (New Scientist)

• Humans have been living in a “Transformative Time” for the past 600 years.
• What is surprising to this futurist is that even with 600 years of “transforming” under our belts, most executives feel like this is their first transformation. This is a good time for leaders to start transferring lessons learned in past transformations to the current circumstance.
• In times of transformation, never, ever believe you are in a mature industry. There are no mature industries, only mature managers who unthinkingly accept someone else’s definition of what is possible.
•  In many modern organizations the concepts of “leadership” and “management” have been conflated. “Leadership” and “management” ARE NOT synonyms. “Management” is all about getting “there”. “Leadership” is all about figuring out where “there” is. Transformational leadership means that today’s “there” is going to be fundamentally different than tomorrow’s “there.”
• Leaders effect transformational change/survive transformational epochs by creating a new vocabulary to talk about /think through a totally new reality. 90% of the Global 2000 is adopting a business as usual posture. They of course don’t say this. But this is how they behave.
• LESS THAN 10% of enterprises have actually commissioned a real, new IT strategy – where they have gone off site; have gotten their people together and crafted a REAL IT strategy. Real IT strategy making takes time – probably no less than six months. Real IT strategy is both a top-down and bottoms-up process. Real IT strategy requires stepping back and really thinking about what the world of the future will look like. Most of the exercises currently being touted as “IT Strategies” are, quite frankly, nothing more than tweaking or updating in-place annual budgets.  “Annual budget” and “IT Strategy” have conflated. “Budgeting” and “strategy making” are not synonyms.
•  Things are converging/combining. George Gilder, another digital revolutionary, observed that “the computer industry is converging with the television industry in the same sense that the automobile converged with the horse, the TV converged with the nickelodeon, the word-processing program converged with the typewriter, the CAD program converged with the drafting board, and digital desktop publishing converged with the linotype machine and the letterpress.”
• Groupthink: “Most people in an industry are blind in the same way. They are all paying attention to the same things, and not paying attention to the same things.” At the start of any transformation there will be a lot of competitors. For example, In 1837, upon the suggestion of their father-in-law, William Procter and James Gamble joined forces in a partnership. The candle and soap industry they entered that year was highly competitive, with 18 direct competitors in the Cincinnati market alone and many more across the country.
• The leaders who emerge from transformational times successfully tend to be what business school professors call ‘situational’ heroes: ordinary people anointed by their peers in recognition of their behavior.
• It is not the change that matters. It is how you behave related to the change that drives outcomes.

Timo Elliott

“First time in history, the world’s leading experts on accelerating technology are consistently finding themselves too conservative in their predictions…”(Steven Kotler)

•  Technology change has never really been about the technology, and that’s truer than ever. The technology is now the easy part. The hard part is actually knowing what to do with it.
• One of the biggest things organizations are struggling with is that the possibilities seem so endless that they don’t know where to get started.
• It’s obvious to everybody that there have been big technology changes. Gartner calls Social, Cloud, Analytics, and Mobile the “nexus of forces”, Forrester calls it “the Third Platform”. I tend to prefer the acronym, “SCAM” — but of course, it’s not a scam — it’s a massive opportunity to do business in new ways.
• The easiest and most immediate opportunities are in four areas: getting closer to customers; empowering and inspiring employees; optimizing resource use in real time; and taking full advantage of the new networked economy.
• Doing these things right means cutting across traditional organizational silos. Managing the required process and cultural changes is harder and more important than the technology implementation. The biggest barrier to innovation is usually the complexity of existing technologies and processes.
• Companies that can simplify their technology platforms, to enable more flexibility, will have a massive advantage for the next wave of innovation.
• The next wave is the big one. So far, we’ve only talked about using the new technologies that are available today. What’s really new is that the acceleration of technology change is threatening to destabilize the “normal” innovation cycle itself.
• There’s increasing evidence that we are now in the “second half of the chessboard”, to use Ray Kurzweil’s phrase. By Persian legend, the King offered a reward to the inventor of chess. He asked for a single grain of rice on the first square of the chessboard, two on the second, four on the third, eight on the fourth, and so on. The King thought he was getting a bargain, and agreed. But through the wonders of exponential growth, the actual amount of rice you’d need would be about 1,000x the annual global production of rice today, a pile larger than Mount Everest. What does this story mean to us? It means that we now see more real technology change in a single year than we used to in an entire decade — and we need new ways to deal with that change.
• As the technology gets more and more powerful, people start to become more and more important. A good analogy is with special effects on film. It used to be incredibly hard and expensive, so it was only available to the best directors. Now anybody with a PC is able to do spectacular special effects – but that doesn’t make them Steven Spielberg.
• Above all, it’s not about having long term plans about the future. Everything is changing so rapidly that what you really need in your corporate DNA are the genes that allow you to see and understand change early, and the organizational and technical flexibility to respond.