As digital disruption reinvents the rules of business, Intel has a stark warning for every enterprise on earth, from global megabrands to embryonic start-ups: Embrace change now or face being consigned to the history books. Don't be fooled into thinking that the multinational company you work for will ride out the digital storm just because it makes tens of millions of dollars in revenue every quarter. The rapidly evolving digital landscape is taking no prisoners, and traditional industry titans are on the endangered list because they are generally slow to transform themselves in the face of competition. A staggering 50 per cent of today's S&P 500* companies are predicted to be wiped off the list within the next 10 years. It's almost certain that there will be big name casualties.
Why? Because every single industry, from finance to healthcare, construction to transportation, agriculture to cosmetics, is being disrupted. US financial institution PNC* estimates that 40 per cent of businesses in the Top 20 of every industry will be disrupted by digitally transformed competitors by 2018 alone. Simply put, today is the least amount of change we're ever going to see.
Intel describes this state of extreme business disruption as the Vortex of Change. Jim Henrys, Director of Business Solutions at Intel, explains why technological advances have broken the monopoly of large multinationals: "The democratisation of technology is the key driver of disruption. Cloud and mobile technologies have already turned business models upside down and given start-ups the power to disrupt entire industries, regardless of their size, but further unprecedented technological change is just around the corner – so this really still is early days.
"In a world where everything is changing and connecting, the biggest mistake to make today is to think you'll be on top indefinitely and stand still. This mentality puts your business at risk of becoming the next resident of the corporate graveyard. There are plenty of examples of pioneering companies that have fallen by the wayside after becoming too comfortable and not embracing change. Atari*, Blockbuster* and Kodak* are some of the prominent names that immediately spring to mind. The conundrum facing executives in boardrooms all around the world is how to avoid becoming a casualty of this Vortex of Change, and execute a successful strategy to remain competitive."
Hello world. The 4th Industrial Revolution is already here
We are currently in a period of human history where innovation is accelerating faster than at any other point in time. Historically, major technological breakthroughs have occurred once every 100 years. Each industrial revolution caused huge disruption but also presented opportunities for those who were ready to take advantage of them. This started in the 1760s with the emergence of coal and steam power and continued with the introduction of electricity in the 1860s. Fast forward to the 1960s and the compute and communications revolution made possible by the advent of integrated circuits and the microprocessor fuelled the next wave. Computing itself has drastically reduced the time it takes to make breakthroughs and whilst the ripple effects of the 3rd industrial revolution are still being felt, we’re already at the dawning of the 4th Industrial Revolution.
“In a world where everything is changing and connecting, the biggest mistake to make today is to think you'll be on top indefinitely and stand still”
2) Innovate, don't hesitate
Your business needs to be aware of challenges not only from incumbents in the market but also disruptors with no legacy or inertia to overcome and the ability to scale new business models at speed. Continuing to do business the way it has always been done simply won’t cut it in an age of constant disruption. Innovative thinking and behaviour is essential to retaining a competitive advantage, but many employees are not used to behaving this way. This is because innovation brings risk and employees are conditioned to spend their careers managing and avoiding risk. For innovation to flourish, it must be encouraged and incentivised.
To see this in action, we can look at Tesla*, arguably a benchmark of what it is to be an innovative company. Tesla started off with the goal of bringing electric cars into the mainstream. "Our first product was going to be expensive no matter what it looked like, so we decided to build a sports car, as that seemed like it had the best chance of being competitive with its gasoline alternatives,” said Elon Musk, CEO of Tesla, when talking about the firm's mission statement.
Once Tesla established its brand and made a profit, it turned its attention to building charging stations and developing affordable electric cars for the mass market. What's really interesting about Tesla is that it doesn't follow the rules. Instead, the company is consistently breaking them and finding ways to solve problems in innovative ways. And to do this it isn't afraid of investing heavily in R&D. Tesla knows that even if risks such as its upcoming solar roof tiles project don't pay off, it can take key learnings and move forward quickly. On the flip slide, when risks pay off, the rewards are guaranteed to be huge.
3) Use the Triple bottom line to measure success
Another increasingly important way to drive real business change is to re-evaluate how you measure success, and how you might be measured differently by your changing customer base. This comes through using a concept such as the Triple bottom line (TBL). Coined in 1994, the TBL is becoming an increasingly important way to measure success in the business world. It takes into account the traditional measure of economic success, but also performance in environmental and social areas. Even if your company is incredibly successful from an economic perspective, having a poor employee safety record or being viewed as environmentally irresponsible will quickly have a detrimental impact on the bottom line. Consumers are becoming increasingly informed and are more likely to do business with suppliers who are deemed more responsible.
Opinion about environmental initiatives is already changing at boardroom level. Over half of executives (55 per cent) now believe that sustainability can drive revenue growth, with one in five believing that it drives a competitive advantage. One of the companies that has benefited from focusing on sustainability has been Unilever*. The firm's sustainable living brands such as Dove*, Hellman's*, Lipton* and Knorr* grew 30 per cent faster than the rest of the business and delivered nearly half of its growth in 2015. And this is an area that the company is going to continue focusing on. As Paul Polman, CEO of Unilever, explains: “Businesses will be rewarded by consumers who are seeking responsibility and meaning as well as high-quality products at the right price. This data proves it again – there is no trade-off between sustainability and profitable growth."
Intel itself has been sourcing conflict-free minerals from the Eastern Congo since 2014. This helps to provide greater economic opportunities for the local community and improve safety for miners and their families. The initiative has also helped attract employees: “When we interview prospective new employees and ask people why they want to work for Intel, our conflict-free minerals program is something that comes up time and time again. The millennial generation places increasing importance on CSR and an increasing number want to work at a firm that is making a positive contribution to the world," adds Henrys.
4) Re-evaluate your business model
There are numerous business models that are emerging in the digital world of today. Is your business best suited to embracing the sharing, co-creation, experience or circular economies? Not only do you need to evaluate which of these models might be beneficial for your company, you should also think about how your competitors might use these strategies to rewrite the rules for you.
Sharing Model: Airbnb* is one of the poster children for the sharing economy model. A study of its impact in New York revealed that for every 10 per cent that Airbnb grows, revenue for traditional hotels drops by 2-3 per cent. Interestingly, Airbnb's success is not based on undercutting traditional players. In New York, the average hotel room price during the research period was $125, whereas the average Airbnb room price was $145. This shows that customers won't always choose the cheapest option – they will use the service which is best and most convenient for them.
The Co-Creation Economy: There are many facets to co-creation from product customisation (Nike ID* trainers) to revenue sharing (Apple App Store*). We're also seeing the rise of "prosumers" in areas such as the energy sector whereby users can not only consume energy from the grid, they can sell back any surplus generated from solar power. Additionally, companies are increasingly collaborating with customers to create better products and services. For example, DHL* created the “Parcelcopter” — a drone based parcel delivery service — after a customer workshop. While Amazon* was hitting headlines for carrying out its first drone delivery in December 2016, DHL had done this earlier in the year. And there was real business benefit to this. The DHL implementation of the last mile drone delivery reduced delivery times from 30 minutes to eight minutes, increased customer satisfaction by over 80 per cent and upped on time delivery to 97 per cent.
The Experience Economy: This business model is becoming increasingly important because customers are more loyal compared to paying for a one-off product. In order to be successful here, companies need to truly understand what their customers’ desired outcomes are – whether it is to have fun, to learn, to be healthier – not just tell them they need to “own this product”. Fitbit* and Nike* are great examples of this model in action. These companies are selling more than just wearable and sporting goods, they are promoting the aspiration of a healthy lifestyle.
The Circular Economy: Between 1970 and 2010, the amount of resources we have extracted from the earth has tripled (22 billion tonnes to 70 billion tonnes), according to the International Resource Panel (IRP). This is a trend that needs to be urgently addressed before our natural resources disappear. Thus the circular economy business model is going to become increasingly important. This moves away from a linear product cycle of “produce, use and dispose” to a circular model of use cycles, where products are designed and produced in such a way that they can be reused.
Michelin* provides a real-world example of how a business can adapt to move into the circular economy. The company has embedded sensors in tyres which enables them to monitor performance in real-time and respond accordingly, for example, by recalling trucks to its facilities when the level of tyre wear reaches a certain threshold; as required, tyres can then be retreaded, reconditioned and re-fitted. The raw material cost to re-tread and re-condition the tyre is 50 per cent the amount it takes to create a completely new one. This means that instead of dumping tyres into a landfill they can be reused. Essentially, Michelin is selling the same truck tyre two or three times and helping to save the environment. There are plenty more circular economy use cases expected to come to market with McKinsey* predicting that the circular economy has the potential to save $1 trillion in material costs every year by 2025.
5) Hyper-agility: Increase innovation and velocity
Earlier we talked about the importance of innovation when it comes to maintaining a competitive edge in the marketplace. While being a first mover is often a huge advantage in any industry, this requires a quantum leap in the way employees work. "In our dealings with customers who have been through these transformations, we find that companies who demonstrate 'hyper-agility' and can rapidly adapt to new working practices and models, are most likely to succeed," continues Henrys.
Henrys believes there are three defining characteristics of a hyper-agile company:
- The right culture: Implementing a company culture that provides greater employee innovation, increases collaboration and offers agile working isn't easy. This requires senior leaders to outline the reason for change and set out the expectations they have for employees.
It's inevitable that mistakes will be made on the way to becoming agile but as long as employees are supported, the changes will be successful and benefit the company as a whole. Without this overarching support of a cultural shift, efforts will be restricted to pockets within an organisation, which are insufficient to gain the traction needed to make real change.
- The right (modern) infrastructure: In order to successfully implement change, your business needs to have the appropriate systems, tools and capabilities in place. For example, a culture change that calls for greater data driven decision making but does not provide employees with simple and timely access to accurate data, will quickly revert to its old ways. Similarly, a new culture that calls for more collaboration between employees but does not provide the devices or workspaces to facilitate this will see no benefit.
Of course, these changes are not just about the right technology being in place, they must be supported with “approval” to work differently. In the example of data driven decision making, it must be made clear to employees what authority they have to make decisions based on the newly accessible data. When it comes to collaboration, systems of recognition and reward need to be put in place that support and reward teamwork.
- The right (smarter) places…and people: It’s a fact that smarter people and places are more efficient and productive. Smart meeting rooms make it easier to quickly get to the business of the day. Intelligent office spaces support a range of work styles – whether it be solo working, one to one collaborations, or impromptu gatherings of larger groups. Future advances also promise private virtual reality workspaces and meeting rooms that link geographically diverse locations. Additionally, we're seeing AI assistants and robotics entering the workplace and helping to create smarter, safer working environments.
If you need some inspiration, take a look at Netflix*, which is an excellent example of a truly hyper-agile company. The business is famous for rewriting the HR rulebook and developing a completely unique culture that has helped it to establish a subscriber base of 93 million users, a huge library of award winning shows and a market cap of $61 billion. Unique policies include nurturing a high-performance culture, paying top of the market salaries, offering unlimited holidays and providing freedom for employees to perform. Details of the Netflix model can be found in the firm's 120+ slide PowerPoint presentation, which is said to be one of the most famous documents to come out of Silicon Valley.
In Summary - Make that change now!
We've covered a lot of ground with this overview about how to start embracing the 4th Industrial Revolution. The key points to take away are that every industry is being affected by digital disruption, technological accelerants need to be embraced to help business transformation and the most successful companies are hyper-agile, always innovating and prepared to shift their business models. John F. Kennedy, the 35th President of the United States, summed up the importance of change when he said that it was the law of life: "Those who look only to the past or present are certain to miss the future". And, in this world of disruption, these words have never been more relevant.
Stay tuned to our series where we will provide best practice tips and more real-world examples which demonstrate how to successfully navigate the Vortex of Change.
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