The Time is Right for Enterprises to Reimagine the Digital Frontier
By N. Chandrasekaran
CEO and Managing Director
Tata Consultancy Services
We are in the middle of a tectonic shift, one ushered in by five digital forces – emerging technologies that give companies unprecedented means to sift, analyze, monitor and above all, adapt to changing customer preferences in realtime. The shift, from an Internet Economy to a ‘Digital Consumer Economy’, has already begun to rearrange the pecking order of companies in the media, retail, high tech, telecommunications and other industries.
So dramatic is the scale and pace of change that not only is it impacting industry leadership but it is also rapidly blurring boundaries across industries. Over the last 10 years, we have seen computer firms transform into telecommunications device and music distribution firms; movie rental firms morph into TV production companies; and online retailers offering technology services. By the end of this decade, we expect industry leadership and boundaries to change even more dramatically.
Our latest study on the use of digital technologies strongly suggests that while these are the early days of this digital forces technology cycle, more companies need to start planning and strategizing on how to reimagine their businesses in multiple dimensions.
Our global study on the state of digital initiatives in large companies in North America, Europe, Asia-Pacific and Latin America found significant variations in digital investments and business impact. Across the 820 executives surveyed, the average spend on digital initiatives this year is sizable: $113 million per company. We defined these initiatives as those that digitally connect companies to their customers and/or the products sold to them. These initiatives involved the use of the Digital Five Forces of Big Data & analytics, cloud, mobile and pervasive computing, social media, and artificial intelligence and robotics. However, a few companies are spending much more than the others on their digital initiatives. Some 4% will invest at least $1 billion this year, and 8% will spend between $250 million and $1 billion. A global financial services firm, major entertainment company, and large retailer all are spending in the hundreds of millions annually on their digital initiatives. And the investments show no signs of slowing down; our survey participants plan to spend a similar amount three years from now ($111 million). But many others will spend far less: 45% will lay out less than $10 million each this year for their digital initiatives.
What that tells us is that being a truly digital company is seen today as critical to a select number of firms. But many more see it as just one more initiative. Yet 70% of all 820 survey participants believe their digital initiatives will either be the most important factor or of major importance to their firm’s success over the next five years. If these sentiments grow, we can expect digital investments to increase over the rest of the decade.
Overall Spend on Digital Initiatives in 2014
To be sure, spending isn’t the only measure of a company’s vision. Far more important is how it will spend its money. In fact, about 8% of the companies surveyed have been far more aggressive in reimagining how they operate to take advantage of the Digital Five Forces. We compared the answers of survey respondents that had reported the most and least success from their digital initiatives (defined as largest and smallest revenue impact in 2013 from those initiatives). We found that the most successful firms are far more likely to use the Digital Five Forces in tandem, not in isolation. Using them in tandem is a winning digital strategy; using them in isolation (e.g., just creating mobile apps and not doing much with the data) is not.
Why is this the case? Consider the healthcare industry. Using the Digital Five Forces in tandem enables some health insurers and healthcare companies to monitor the condition of patients around the clock wherever they are located (as long as they can maintain a wireless connection). Wearable digital bands and mobile apps (mobile and pervasive devices) monitor and report on people’s vital signs (through wireless communications to a cloud whose data is analyzed by ‘Big Data’ tools and by artificial intelligence software that knows when to issue an alert). And if those medical professionals monitor social media, they’ll have much earlier warnings on the next big disease outbreak.
But this is just one example — and it’s in an industry that will spend less this year on digital initiatives (0.3% of firm revenue) than nine other industries we surveyed. Those sectors were led by media and entertainment (0.7% of firm revenue will be spent on digital initiatives this year), telecommunications (0.6%), high tech (0.5%), retail (0.5%) and banking and financial services (0.5%). These industries are not only investing more to ‘be digital’; they are more likely to be digitally reimagining their businesses.
These industries are more likely to be proponents of creating and executing a digital strategy that we refer to as ‘Digital Reimagination.’ They are much more likely to be making wholesale changes in six aspects of their businesses:
- Business model changes. By connecting digitally to their customers and the products they sell to those customers (e.g., digital meters that utility companies are rolling out or sensors that industrial companies are putting on machines like aircraft engines, power turbines and medical equipment), companies are getting real-time visibility into how the ultimate customer is using their products. A number of companies have realized that such data enables them to move from selling to renting their products, from charging an upfront purchase price to a usage-based pricing model. Several auto insurance companies have started separate pricing policies for drivers who are willing to have their driving habits tracked digitally.
- Products and services: The companies with the most successful digital initiatives were nearly twice as likely as the least successful companies to have new digital products and services; 89% of the leaders had them vs. only 48% of the followers. Some companies have gained incredible advantages in innovation and product enhancement from their digital offerings. The ability to connect digitally to customers enables companies to get direct insights and leverage that to move up the value chain. Companies that stream movies and TV shows to consumers now have the data to determine the elements of a popular show or movie – for what audience segment, what plot, movie stars, types of endings, actors and narrative will be most appealing. Companies are also using social media to crowd source feedback to improve existing products. In this way, social media is becoming a powerful tool for companies to monitor mass scale consumer-to-consumer communications and to eliminate the ‘observer’ effect that taints much consumer research in traditional methodologies such as focus groups.
- Business processes. A number of companies have gained important advantages from digital initiatives in being able to quickly detect bottlenecks and inefficiencies in their marketing, sales, production, distribution, service and other processes. The most sophisticated companies are using the Digital Five Forces (and particularly Big Data analytics and AI/robotics) to eliminate – not create – workflows.
- Customer segmentation: Some companies are using the Digital Five Forces to move to the Holy Grail of chief marketing officers: segments of one. These digital technologies enable companies to track the preferences of millions of individual consumers and send tailored promotions to their phones when they’re near a store.
- Channels to customers: Those who use digital channels leave a trail of data that helps marketers pinpoint offers at moments of greatest need. Consider the data a retailer has on a shopper who leaves a store empty-handed (because she couldn’t find what she needed) compared to an online shopper who clicks on its website. The former leaves no data trail while the latter can leave a goldmine of shopping habit data. And for companies that can digitize and deliver their products through digital channels (e.g., media, banking, insurance and telecommunications) getting customers to opt for digital distribution dramatically lowers distribution costs.
- Workplaces: As companies digitally reimagine their businesses, they also find they must reimagine their work environments. Enabling employees to do their work from mobile devices makes them free to do their jobs from nearly everywhere. Companies can consolidate their office space, and many are doing so. What’s more, combing social media networks to identify people to hire opens a company’s recruiting universe far beyond the world of people who are applying for jobs. Some of the best job candidates are not those looking for work; they’re the ones with the highest work ratings on social networks.
The race is on for companies to reimagine their businesses for a digital world. While only a small number of companies we studied (8%) said digital reimagination was their digital strategy today, nearly a third (32%) said it would be their strategy by 2020.
As an increasing number of stories emerge of new and established companies that have pulled ahead because they used the Digital Five Forces to dramatically increase their value to customers, many more companies will find they too must digitally reimagine their business in bold new ways. One thing is for certain, to retain tomorrow’s customer, enterprises must embrace and engage at the Digital Frontier.