technology

A Look at Today’s Most Important Emerging Technologies

In today’s rapidly shifting digital landscape, it’s more important than ever for companies to stay on top of emerging technology trends. To help businesses keep pace with the latest technological changes, Forrester recently published a new report on “The Top Emerging Technologies for Digital Predators,” which includes a wealth of information relevant to companies regardless of where they sit on the digital transformation spectrum. Read on for a closer look at some key takeaways from the report.

What is a digital predator?

According to Forrester analyst and report co-author Nigel Fenwick, today’s companies tend to fall into one of three categories:

Digital dinosaurs—These incumbents struggle to shed their old business models and reinvent themselves for the digital economy. Their slow rate of change results from a number of different factors, including the power many feel from holding a near monopoly position, the need to defend large P&Ls (profit and loss), or simply a failure to see either the opportunity or the threat that digitization represents. Many retailers as well as manufacturing and construction firms belong to this group.

businessDigital transformers—These traditional businesses have successfully evolved to take advantage of emerging technologies; for the most part, they are creating new sources of value for their customers and are implementing competitive strategies that may take them beyond conventional industry boundaries. Companies like Burberry, L’Oréal, and Ford are good examples of digital transformers.

Digital predators—The third category of businesses is startup territory. These digital predators successfully leverage emerging digital technologies to challenge traditional incumbent companies for market share, frequently displacing them in the process. The names of some of the biggest digital predators won’t surprise anyone: Amazon, Airbnb, and Netflix, for starters.

What emerging technologies are having a significant business impact?

Fenwick argues that, regardless of whether a company is a digital dinosaur, transformer, or predator, every company needs to understand how emerging technologies are impacting the business landscape and, consequently, what role they might have to play in the company’s own digital transformation. This understanding can help executives like CIOs, CTOs, and CDOs ensure that their technology portfolios blend mature technologies that support current operations with emerging technologies that will help to serve future customers.

According to the Forrester report, some of the most critical emerging technologies that companies need to know about—that is, those technologies that have the highest potential to bring a competitive advantage, influence markets, or shift the business landscape altogether—include:

Intelligent agents—These are artificial intelligence solutions that have the capacity to not only interact with their users, but to learn their behavior and understand their needs, and eventually even to make decisions on their behalf through predictive analytics. The idea behind intelligent agents is to improve productivity, optimize a variety of business activities, and reduce costs. Equally important is the goal to increase customer loyalty by offering a personalized, high-quality experience. Some of the best-known intelligent agents at present include prototypes like Apple’s Siri or Google Now, but more chatbots, virtual agents, and robotic process automation services are being added to the landscape every day.

virtual realityAugmented and virtual reality—Augmented reality (AR) is a process by which digital information and experiences are layered on top of the physical world, while virtual reality (VR) goes one step further, creating a completely new, interactive digital environment. AR in particular has strong potential to dramatically alter the customer experience, especially in retail environments. For example, the home improvement retail chain Lowe’s recently released an AR “mapping” app that helps customers search for products, add them to a shopping list, and then easily navigate their way through the store to find and collect the items.

Internet of Things solutions—Smart devices and sensors connected to the Internet are providing companies with a new level of insight into how customers are using their products and how their systems are operating. The Forrester report makes the case that using a digital model to map the physical world will become a defining feature of business over the next decade, and that the Internet of Things (IoT) will simply become the business standard for companies dealing with physical assets.

Cognitive technology—Advanced machine learning has the power to mimic natural human cognitive functions, thus opening up the possibility for new data insights and suggested actions. Emerging technologies in this category include developments like natural language processing, which can personalize and differentiate the customer experience, as well as dramatically improve internal processes.

Hybrid wireless technologies—A new communications infrastructure could be on the rise given the advances in interfaces and software that allow devices to use and to translate between at least two different wireless providers, protocols, and frequency bands (such as radio, cellular, and Wi-Fi). These developments are likely to drive new applications that anticipate and meet customer demands in a whole new way.

server room

How to Thrive in the Fourth Industrial Revolution – 9 Principles

One of the biggest effects of the Fourth Industrial Revolution has been the erosion of conventional boundaries between industries. As a host of emerging and mutually reinforcing technologies (like the Internet of Things, data analytics, and machine learning) have opened up a vast array of new opportunities for business, it’s becoming increasingly difficult to see the difference between, for example, a retail store and a retail bank, or an entertainment production company and a telecommunications provider. In addition, the relationships among consumers, suppliers, and producers are similarly blurring as a result of digital technology’s power to enable individuals to connect outside of the traditional value chain.

In such a confused environment, full of ever-shifting lines in the sand, how can a business differentiate itself from its competitors (who may not even be in the same industry), build digital prowess, and play a pivotal role in the Fourth Industrial Revolution? A recent article from Strategy & Business magazine offers the following nine principles as a guide:

  1. Rethink the business model.

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Today’s digital landscape is full of cautionary examples of incumbents who clung to outdated business models, only to lose ground to startups that leveraged flexibility and innovation to introduce new products and services at significantly lower prices. Businesses today need to realize that traditional industries have changed forever, and paths to profitability have changed accordingly. As a result, it’s time to take a fresh look at long-established assumptions about doing business, and develop a new business model that’s a more appropriate fit for this new era.

  1. Build a platform-based strategy.

The value chain was the backbone of the old industrial system; in the new system, that backbone is the platform. A system that brings a range of vendors and customers together on a plug-and-play technological base, the platform has become widely recognized as one of the main driving forces of the Fourth Industrial Revolution. Companies must take steps to determine what role they will be able to play in a platform-based economy, such as a builder of platforms, an engager using platforms to provide products and services, or a developer of new technologies to serve existing platforms.

  1. Design for customers.

The new infrastructure of the Fourth Industrial Revolution may be a web of digital connections, but it’s important to remember that there are still real-life people at the end of those connections. Today, digital technology has given businesses the opportunity to be closer than ever to their customers, and to discover (and fulfill) what those customers genuinely want and need. A customer-centric approach to design has therefore become vitally important.

  1. Boost technological acumen.

business

Today, regardless of industry, software is the key to competitiveness. Over the next few years, every company, even born-digital startups, will need to improve its technological acumen in order to keep up with the pace of change and remain a competitive market force. This not only means recruiting software experts, it also means making training in digital tools and insight a key development focus for every single worker.

  1. Innovate quickly and openly.

Large-scale disruptive innovation has garnered the lion’s share of attention in the digital revolution, but many companies are finding that a steady stream of smaller, incremental innovations is just as effective, in terms of both profit and feasibility. Today’s digital tools allow smaller innovations like new products to be prototyped, manufactured in small batches, and tested in the market within a greatly reduced timeframe; this is a huge advantage in helping companies understand how real-world customers will respond.

  1. Leverage data.

Most companies are well versed in gathering data. However, the next step is to ensure that they properly analyze the data for important patterns, which can lead to critical insights and actionable decisions. For maximum effectiveness, companies should ensure that their analytics teams are integrated, and that there are regular discussions across the company about what findings are coming to light and how this information could affect the business.

  1. Embrace new financing models.

financing

The old ways of raising money are having a harder time delivering when it comes to financing new large-scale technologies. Instead, financing is seeing the same kind of shift that cloud computing brought to software—that is, a pay-as-you-go model that emphasizes smaller but more frequent payments in exchange for more flexible installations.

  1. Emphasize purpose over products.

Purpose is taking over from product as the main factor that differentiates one company from another. A clear value proposition, applied to everything a company does, is a must-have for anyone doing business in the digital age; consumers today want to know not only what a company provides, but why they provide it and towards what outcome.

  1. Handle data responsibly.

Even small companies are now collecting vast amounts of data, and customers need to know that companies can be trusted with their sensitive personal information. This not only means that companies must maintain secure privacy safeguards to prevent unauthorized data access, but it also means that they must handle data ethically and transparently to avoid betraying consumer trust.

internet of things

4 Important Takeaways from a New Study on the Internet of Things

IoTWorldForumHosted by Cisco in late May 2017, the fourth installment of the Internet of Things World Forum (IoTWF) brought together some of the world’s most innovative IoT thought leaders from business, government, and academia for three days of discussion and debate in London, one of Europe’s fastest-growing technology capitals.

One of the highlights of this year’s IoTWF was the release of a new study conducted by Cisco on the current state of the IoT landscape. To compile the study, Cisco surveyed more than 1,800 business and IT leaders across a range of industries in the US, the UK, and India, focusing exclusively on respondents from organizations that had completed or were in the process of implementing at least one IoT initiative.

Despite widespread excitement about the enormous potential of the Internet of Things, the results of the study highlighted the fact that getting successful IoT initiatives off the ground is not always an easy task. According to survey respondents, the majority of IoT initiatives (60 percent) grind to a halt at the Proof of Concept stage. As for companies with completed IoT initiatives, only 26 percent consider their initiative to be a complete success, while on the other hand, a full one-third of completed projects were deemed unsuccessful.

Other important takeaways from the study include:

The human factor still matters.

Technology may be at the heart of the Internet of Things, but it’s vital not to overlook the critical role that human factors like culture, leadership, and organization play in the ultimate success of an IoT project. In fact, of the four factors that survey respondents identified as the most important for successful IoT initiatives, three are all about people and relationships. The top factor, cited by 54 percent of respondents, was strong collaboration between IT and business units; this was followed closely by an organizational culture that focuses on and values technology (cited by 49 percent of respondents), and IoT expertise and knowledge both internally and through external partnerships (48 percent). In addition, survey respondents whose organizations had completed successful IoT projects described the use of close partnerships at every project stage – from strategic planning through to post-rollout – as a fundamental part of their overall success.

internet of things

And speaking of the human factor, it’s also interesting to note here that the success of an IoT project seems to be very much a matter of perception. IT executives, who prioritize things like technologies, expertise, and vendors, are more likely to consider projects successful than are business executives, who place greater importance on strategy, business cases, processes, and milestones. Thirty-five percent of IT executives who responded to the Cisco survey considered their IoT initiative to be completely successful, while only 15 percent of business executives said the same.

Support is critical.

With 60 percent of survey respondents emphasizing that IoT initiatives are much more difficult to implement in reality than anyone at their organization expected, it’s clear that a successful IoT project needs all the help it can get. Some of the main challenges that need to be overcome across all stages of implementation include time to completion, insufficient internal expertise, data quality, integration across teams, and cost overruns. Organizations that have been the most successful in implementing IoT initiatives have turned these challenges into opportunities by seeking out and engaging in strong partnerships throughout the process, as described above, in order to reduce the learning curve and bridge critical knowledge and skills gaps. Many survey respondents described the potential of these partnerships with other vendors as an important way to create connected solutions, share data, and consequently bring significant new value to industries.

Failure is a teaching tool.

One of the biggest shifts in mindset that has happened as a result of the digital revolution is embracing failure—not avoiding it. To succeed in the fast-paced world of digital transformation, businesses must become less risk-averse and use stalled or failed initiatives as a learning experience to feed and improve future efforts. Happily, the majority of businesses working in the IoT realm seem to be on board with this idea: 64 percent of survey respondents agreed that unsuccessful IoT initiatives actually had the unexpected benefit of accelerating, rather than slowing down, their organization’s level of IoT investment.

The benefits are significant.

If IoT initiatives are so hard to implement successfully, are they really worth pursuing? The answer to that is a resounding yes, as indicated by the benefits that survey respondents described as resulting from successful IoT projects. Nearly three-quarters (73 percent) of all respondents said that they had been able to use data from completed IoT projects to improve their business in some way; globally, the top three benefits named by respondents were improved customer satisfaction (70 percent), better operational efficiencies (67 percent), and improved quality of products and services (66 percent). Perhaps not surprisingly, these benefits can also help businesses boost their revenues: 39 percent of survey respondents cited improved profitability as the top unexpected benefit that IoT projects brought to their organization.

digital transformation

A Look at the ABCs of Digital Transformation

Digital transformation can be confusing, especially if you don’t know the jargon. To help those needing to boost their digital vocabulary, research and analysis firm Econsultancy recently developed a fun digital transformation alphabet to guide digital beginners through some of the most important terms of the digital age. Do you know your digital ABCs? Read on to find out!

A is for Agile.

A project management methodology that has become popular with businesses undergoing digital transformation, agility involves teams working collaboratively and using data to drive key decisions in a continuous test-and-learn process.

B is for Benchmarking.

Setting an organizational benchmark is the first step for businesses embarking on digital transformation. Progress can’t be evaluated unless there’s a starting point against which to evaluate it. Typical benchmarking tactics include a capability audit, skills assessment, or a comprehensive review of business strategies.

benchmark stats

C is for Customer Focus.

In the digital era, the customer is by far the most important driver of digital transformation. Most companies’ digitization efforts are strongly focused on creating a better customer experience.

D is for Data.

Data is one of the most valuable resources of the digital age, offering the potential for rich and detailed customer insights when properly mined and analyzed.

E is for Education.

Digital training for non-digitally focused roles is becoming a high priority for companies now that digital technologies no longer operate in isolation, but rather serve as the foundation for broad business operations.

F is for Failure.

Getting comfortable with risk, and consequently with failure, is an essential part of digital transformation. Playing it safe is no longer an option for companies that want to stand out from the pack.

G is for Governance.

governance

The pace of technology is moving much faster than the legislation and regulations that govern it. In order to ensure that innovation occurs in an environment that still protects public interests, a new system of governance will need to be developed. This is emerging as one of the most critical questions of the digital era.

H is for Hurdles.

Incumbents seeking to digitize themselves usually face a number of common hurdles, including legacy technology and systems, lack of in-house skills and expertise, and resistance to organizational change.

I is for Innovation Labs.

Innovation labs, essentially mini-startups operating within a larger business, are a popular strategy with incumbents looking to test drive digital transformation on a smaller scale before rolling it out across a company.

J is for Job Descriptions.

As roles evolve and new needs emerge, job descriptions are changing faster than ever, as are traditional hierarchies and reporting structures.

K is for KPIs.

Digital success can be difficult to measure, but clearly defined key performance indicators can help companies ensure they are staying on track in new and uncertain digital territory.

L is for Long-term Value.

Integrating new technology is not about creating a short-term fix, but rather about building long-term value. Digitally transforming business must look beyond their month-end targets and think instead about the longer-term potential for digital initiatives.

M is for Management (of change).

management

Change is hard for large, long-established organizations. In order for a transformation to be successful, inspired and committed management is an absolute must-have.

N is for Norms.

A company’s norms, such as dress code or office organization, have a significant impact on that company’s culture. If the ultimate goal of digital transformation is to change the organizational culture, changing the norms might be a good place to start.

O is for Outsourcing (versus insourcing).

Businesses that lack some of the key skills needed for their digital transformation are increasingly turning to outsourcing as a way of harnessing critical expertise. However, developing in-house talent can foster intracompany collaboration.

P is for Personality.

Digital transformation success stories of recent years have made it abundantly clear that leaders’ personalities play a critical role in guiding and driving organizational change.

Q is for (digital) Quotient.

Global research firm McKinsey coined the term “digital quotient” to describe a company’s level of digital maturity, skills, and capabilities.

R is for Roadmaps.

Digital transformation doesn’t happen without a plan. Leveraging the metaphor of digital change as a long-term journey, many companies are creating “roadmaps” to guide their transformations and help them achieve key goals.

S is for Structures.

Organizational structures are changing as digital transformation disrupts established hierarchies and breaks down barriers between business units.

T is for Talent.

Talent is at a premium in today’s digital marketplace. Given the high demand for (and short supply of) highly-skilled workers, industry experts estimate that talent shortages may continue to be a challenge for digitally transforming companies over the next few years.

U is for User Testing.

management

Companies cannot afford to wait until a product is perfect before launching it. Instead, user testing has become a more accepted phase of product development. It is part of an agile system in which lessons learned directly from users can be quickly integrated into future iterations.

V is for Vocabulary.

If you want to change your business, you need to change the words you use to describe it. (This ABC guide is a good place to start!)

W is for Workspace Design.

Workspace design has proved to be an important element of successful digital transformations. Features like open-plan offices and informal meeting areas help encourage the sharing and exchanging of ideas. This can lead to surprising innovations.

X is for (user) Xperience.

One of the main drivers of digital transformation is the creation of a better and easier user experience. Indeed, this is such an important element that user experience designers, or UX designers, are currently among the most sought-after employees.

Y is for Yardsticks.

No two digital transformations are alike. However, companies may still find it beneficial to chart their digital progress against that of similar organizations.

Z is for Zany Job Titles.

Just as job descriptions are changing, so too are job titles. But while the titles may be zany, the responsibilities they encompass are very serious indeed.

 

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This Is How to Boost a Company’s Digital Culture With a “Digital Factory”

When incumbents embark on the process of digital transformation, many are surprised to discover that one of the biggest challenges they face is not figuring out how to use new technology, but figuring out how to build a digital business culture.

The fact is that a successful digital transformation requires a radical overhaul of existing ways of working. It’s not simply a question of layering digital processes on top of the same old methods and hierarchies. However, it’s not uncommon for incumbents to find that their long-established practices are stubbornly resistant to the scale and speed of change demanded by digitization.

business

To address this issue, many incumbents are turning to an approach that has so far proved highly effective in helping companies transform their business culture: the establishment of a “digital factory,” as described in a recent article from McKinsey & Company. Read on to learn more about what this approach is all about and what elements are necessary for its success.

What is a digital factory?

As the name suggests, a digital factory has much in common with its traditional counterpart. It’s a unit that brings together the individuals, skills, processes, and inputs that are needed to create high-quality digital outputs. A digital factory is used to create and model a “prototype” of new ways to work – and the new products that can result. As a result, digital factories make it easier for the broader business to see innovations in action and gradually implement them.

The operation of a digital factory is governed by standard guidelines outlining required deliverables and work processes, including a clear structure for decision-making. A digital factory leverages advanced methodologies like agile software development, design thinking, and zero-based process reengineering to achieve the delicate balance between the structure and predictability needed for large-scale organizational change, as well as the flexibility and agility demanded by the digital marketplace.

What are the benefits of the digital factory approach?

The biggest benefit of the digital factory approach is that it provides a kind of laboratory-like testing ground. This gives incumbents the opportunity to observe a new digital culture and operating model in action. They can also get a feel for how these innovations could power broader change throughout a business.

digital factory

In this way, the digital factory serves as a microcosm for the company, offering a blueprint for what the future of the company could look like. Additionally, it is helpful in generating excitement and buy-in from employees and other key stakeholders. The digital factory also delivers outcomes. Thanks to high levels of flexibility and creativity, digital factories can typically launch a prototype of a new product or customer experience in as little as 10 weeks.

How can companies build successful digital factories?

To ensure the success of the digital factory approach, there are a number of key steps that companies can and should take. These include:

Behaving the way venture capitalists do.

When it comes to decision-making around factory initiatives and activities, speed is the name of the game. Businesses need to adopt a venture capitalist mindset, allocating funding for a product based on a good idea and a clearly defined business model rather than on time-consuming rounds of analysis.

Projects can then be jointly tracked – based on pre-determined KPIs – by the business owner and the digital factory head. If milestone objectives are met, projects can unlock further funding. If goals are not achieved, the project can be quickly ended and funding redirected.

Attracting top talent with creative strategies.

The skills needed for a successful digital factory are in high demand and, consequently, often in short supply. This means that companies need to get creative to attract and retain the necessary talent. Various strategies that have proved effective include hiring selects locate under the brand of the digital factory rather than the parent company, hosting events in the tech community in order to reach new talent that might not specifically be job-hunting, leveraging the networks of new hires to source additional talent, and making anchor hires (targeted hires of influential people that will attract interest from and bring in other talent).

Assembling teams with complementary skill sets.

Because agility and flexibility are key attributes of a digital factory, project teams must be kept to a relatively small size. Many companies adopt the “squad” approach by bringing together around eight to 12 people with the right set of complementary skills.

Typical members of such a team include developers, IT architects, user-experience designers, and a “scrum master” who is in charge of managing the team. This squad can be supplemented with additional specialists as needed, but keeping the core group lean ensures maximum flexibility and clear and direct communication.

Fostering workspace collaboration.

The physical space of a digital factory is an important factor that should not be overlooked. If digital factory employees are working in a space that’s no different from any other part of the building, it’s hard to imagine that the work that comes out of that space is going to reinvent the organization.

Instead, companies should strive to create an environment that signals and openness to innovation and a commitment to breaking new ground. This space should also facilitate collaboration between employees through features like open-plan spaces and informal meeting areas.

leadership

How to Think Like a Disruptive Digital Leader

CEOs and other top executives today know that a major shift is needed to adapt to the dramatic changes that the digital revolution has brought to the business landscape. But all too often, they overlook one of the most important factors in achieving such a shift successfully: their own mindset.

leadership meetingAs the business world becomes increasingly driven by digital developments, two distinct categories of CEO mindsets are emerging. One is the traditionalist: these executives are strongly on the side of the incumbent marketplace, of letting solid business cases determine investment strategies, and of prioritizing predictability over speed and innovation. The other is the digital market disruptor: the type of leader who believes that innovation can lead to big wins, that embracing failure is an inevitable part of risk management, and that innovation and speed should be prioritized over predictability.

These mindsets are important because, inevitably, a leader’s mindset is their frame of reference for interpreting and acting on information, and this process is in turn directly connected to how the company itself operates. Thus, a traditional CEO may struggle to lead a company’s digital transformation successfully, not necessarily due to lack of knowledge or willingness, but simply because they have difficulty altering long-established thought and decision-making patterns that are increasingly less relevant to the real world of business today. Transforming their mindset is therefore one of the first things that leaders who become successful digital drivers must do in order to transform their company.

To find out if you’re thinking like a disruptive digital leader, check yourself against these five key mindset traits of digital disruptors, as outlined in a recent article from Gartner.

Thrive on uncertainty.

Uncertainty can be paralyzing, particularly to incumbent business leaders who are accustomed to having plenty of time to make decisions and strong business cases arguing for or against those decisions. In the digital era, however, technology and innovations are evolving so rapidly and unpredictably that uncertainty is inevitable. Disruptive digital leaders not only understand, but embrace this idea. They don’t waste time or energy trying to make the uncertain more certain. Instead, they explore what is technologically possible, what impending changes might mean to the markets, and what are the risk-reward tradeoffs, doing the best they can to establish plans that allow for change and evolution.

Focus on “leapfrogging” ideas.

lightbulb

Traditional incremental thinking simply can’t keep up with the pace of change in the digital era. Disruptive digital leaders are therefore always on the lookout for breakthrough ideas—ideas that that have the potential to leapfrog ahead into a visionary new frontier and to bring dramatic, rather than step-by-step, changes to a company. Naturally, this requires a mindset that tolerates risk, given the volatility of future technologies. A true digital leader will be driven by this challenge and the possibility of creating net-new business value while still keeping a close eye on the end goal.

Master the digital-era levers.

The digital revolution has unfolded over a relatively short time frame, but it’s been long enough to demonstrate that not all new digital technologies are ready for the long haul. There are plenty of shiny innovations that look good if you’re interested in technology for technology’s sake, but won’t ever become true drivers of transformation. Digital leaders know to look beyond these distractions, seeking to master not isolated pieces of technology, but the real competitive levers of the digital era. Making long-term, strategic investments in areas like platform-based business models or customer data analytics can help companies become pioneering digital business leaders, rather than just another flash in the pan.

Start, experiment, learn, iterate.

If traditionally-minded leaders would rather wait until technology-enabled breakthroughs have been tried, tested, and proven, disruptive digital leaders know that waiting for certainty just means that another company will get in the door first. That’s why the mindset of digital leaders is focused on a start-experiment-learn-iterate approach: beginning from well-grounded strategic bets, these leaders explore and experiment with different pathways to breakthrough solutions, learning as they go rather than waiting for a sure thing before they start. The result is often a leaner approach that yields new value while still mitigating downside risk.

Innovate faster than the competition.

Speed is everything in the digital era. The current landscape is so rich in disruption and innovation that, often, the only way for companies to differentiate themselves is simply to launch their new product or service first. To achieve this goal of innovation at maximum speed, digital leaders work to establish a true culture of creativity. This means incentivizing speed, but not punishing failure—indeed, sometimes mistakes are even rewarded. This type of culture also involves breaking free of traditional industry rules, and championing and modeling risk-taking and discovery at every level of the company, from new recruits to established directors.

home office

5 Rules You Need to Know for Digital-Physical Fusion

When the digital revolution first began sweeping the business landscape, many experts and insiders were quick to announce that the full-scale demise of physical commerce was at hand. Pundits predicted that, in relatively short order, e-commerce would completely take the place of physical retail and services across a broad range of industries, from banking to entertainment. But while there’s no question that digital transformation has completely upended most industries, it also seems to be the case that brick-and-mortar retail is not going anywhere—at least not yet.

workstationThe insight that many of these early predictions of digital annihilation failed to take into account is that the physical world is, and remains, an indispensable part of both business and life. Humans value physical and social interaction; we like to have in-person exchanges with other people, and to touch, handle, and make real things. What’s really going on with digital transformation, therefore, is not the replacement of the physical world by the digital world, but rather the fusion of both worlds into new combinations that open up completely new sources of value. In an article from 2014, Bain & Company coined the term “digical” to describe this phenomenon. The new word recognizes the changes that both digital and physical innovations are bringing to the business world.

But despite the fact that the future seems to be all about digital-physical fusion, a surprising number of businesses still behave as if these two worlds were separate and distinct, running their digital operations as fully independent business units. For every company that has figured out a successful path to fusion, there are many others who continue to separate physical from digital—and who suffer the consequences of doing so. A typical case in point is the retailer that offers a different price for an item sold online versus an item sold in-store, but has no idea how to handle the customer who comes to the store in person wanting to pay the online price.

Writing for the Harvard Business Review, Bain & Company analyst Darrell K. Rigby reviews five important rules for businesses tackling digital-physical mashups, using insights drawn from the results of a study of more than 300 global companies and leaders across 20 different industries.

Rule #1: Make strategic digital-physical fusion your new competitive edge.

In a world where technology changes extremely rapidly and advantages are quickly copied, companies must learn to ride each new wave of opportunity as it comes their way, without throwing away vital core advantages or pouring too many resources into high-risk ventures. What’s important here is to understand exactly what advantages your core business can offer the new venture. These may include elements like proprietary customer insights, unique capabilities, or strategies for capitalizing on competitor vulnerabilities. Leveraging these strengths when embarking on a digical fusion initiative can provide just the edge that a company needs.

Rule #2: Add and improve linkages throughout the customer experience journey.

links

Digical innovations aren’t just about changing existing products or services; rather, they’re about improving the customer experience overall. Companies that are digically savvy take a systematic, end-to-end look at the customer journey, identify adjacencies (spheres outside the company’s traditional boundaries of operation), and use those to strengthen the core business and open up new revenue streams. The ultimate goal is the development of an innovative and holistic system, focused on the customer, that maximizes competitive advantages to accelerate growth.

Rule #3: Transform your approach to innovation.

The “waterfall approach” that previously characterized traditional companies’ traditional approach to innovation has had its day. Now, rather than having marketers and product designers create ideas and prototypes and then kick the ideas down to IT, companies that are having success in the digical realm are starting by creating teams of complementary experts from both digital and physical territory. With digital experts engaged at every stage of development, integration becomes dramatically deeper and broader, and the solutions generated are more innovative and wide-ranging, fusing the best of what the digital and physical worlds have to offer.

Rule #4: Separation is a transitional step.

office

Successful innovators often start by keeping their digital component separate from their core business. But while this strategy can be useful at the beginning, allowing for the formation of an innovative culture free from corporate bureaucracy and traditional business practices, at some point the goal must focus on creating the best of both worlds. In this way, companies will gain an edge over pure play digital disruptors who don’t have the physical assets and capabilities that the companies they are disrupting do. Integrated companies are better able to give customers a seamless digital-physical experience, communicate and coordinate effectively, and leverage existing assets.

Rule #5: Create a digically savvy management team (CEO included).

Traditional executives can have a challenging time leading digical transformations. Often, they are not fully aware of how limited their grasp is on technological issues, making it hard for them to spearhead innovation or hire the people who can do so. The key here is for businesses to boost the know-how of management teams by appointing chief digital or technology officers, implementing “no executive left behind” programs to ensure that digital training and mentorship is provided to all managers, and working towards a comprehensive understanding of how technology can transform the business.