Digital Transformations


Economist Events hosted an event in Madrid 4-5th of November 2015 called Digital Transformations. The topic was how digital technologies are disrupting businesses and changing our lives. In fact, I believe that we are experiencing the last years of the world as we know it. There are new technologies coming for example in robotics, artificial intelligence, predictive intelligence and virtual reality to name few, that will have huge impact and shape the 21st century just technologies have in the past. Here are some thoughts about the discussion.

Technology moves fast but the diffusion of technology into our everyday live is slow in comparison. Many of the technologies that will disrupt businesses in the future emerged in the 1990s and 2000s. Just think about the Internet becoming mainstream and the rise of the smartphones. The iPhone is already eight years old. These technologies have changed our lives, sure, but most businesses are still working as they did in the 20th century more or less. Banks, insurance companies, hospitals, schools, and government to name a few. The reason is that technology change is very much a human issue and it takes time to change the way we work and behave.

In my lectures, I have always talked about the digital decade as the first decade of the 21st century. This is the time when everything analogue became digital. The second decade is the transformation decade where the intangible things change. Things like business models, shopping behaviour, ownership, life-style and so on. And this is the decade of confusion and collisions between the old way and new way. Think about the content owner’s war with privacy  and how controversial Uber causing riots and strikes.

However there seems to be a general disconnect between general knowledge of the digital transformation and the few that “get it”. Companies like Google, Facebook and Amazon operate on a scale we have not seen before. At the same time many traditional business are ignorant of the possibilities of digital technologies and face getting disrupted. The conversation is simply not taking place. An important theme echoed at the event was the need to educate leaders on the possibilities of emerging technologies.

Some companies seem to be aware of the trends though. European carmakers like Daimler are shifting their attention to digital opportunities. The odds however are stacked against them. Incumbent companies have huge luggage to carry. They may understand Clayton Christiansen’s disruptive innovation theory, but he actually had another theory which explains why incumbent companies fail. It is called the The Resource, Processes and Values Theory – or RPV theory which states that company’s resources – the people, the processes that state how work is done, and the values of a company define how the company functions. This gets optimised over time and if there is a new opportunity in the market it is difficult for the company to take advantage if it. And if is a cheaper and less profitable version of their existing product, there is strong resistance to change.

Kodak was mentioned as an example. Sure, Kodak enjoyed good success all through the 20th century. By 1975 they had 90% of film sales and 85% of camera sales in US. That would be classified as owning the industry. Kodak had experimented with digital cameras in the 1970s. They had actually built the first electronic camera. However, the technology was crude, expensive and with low quality. And this is always the reaction of incumbents companies when faced with threat: It’s expensive, it’s low quality and nobody wants it. It maybe the case at any given time, but the exponential growth distorts our view. By the time the threat is real it is usually too late.

However, transforming companies in disruptive times is very much possible. There was another company in the same business as Kodak that was not mentioned, and that is Fuji. When they realised the change from film to digital they totally reorganised the company laying off thousands of people. They squeezed as much as they could out the film industry while it lasted by putting cheap cameras on the market. They diversified their chemical operations into cosmetics and sold that unit. While Kodak is an example of a Mammoth that went extinct, Fuji is an example of a company that survived.

Another discussion at the event was the observation of real-time. We have moved to a business that is real-time. If there is a moment, you have to respond to it. Many businesses find this hard. If a customer complains on Twitter, you cannot call a meeting and discuss the reaction. You have to respond now.

Privacy was also a big topic. We are transforming from a very private world into a sharing world. Any move to limit peoples privacy is not taken so lightly. If not done right that is. People seem to be willing to give some of their privacy away if they receive value by doing so. Probably the most private – you health, is not excluded. If you can use some services that will benefit your health, people will accept that. In general, the discussion was that privacy is something we haven’t figured out yet.

Big data also got is share of the discussion. While the definition not so clear it is obvious that data is growing exponentially. Just with the Internet of Things we can expect floods of data. But what is important is the value we get from the data. This is the challenge many business are facing. There are also technical issues as the traditional enterprise systems simply cannot cope with this scale. Not surprisingly, with the internet there was a rise of new solutions, for example databases, collectively called NoSQL database to meet this demand. Hadoop is an example of new solutions to tackle these problems.

Another great discussion was about machine learning. This is about getting machines better by experience. One section of machine learning is deep neural network which have shown remarkable progress in the last few years. Advances in the field of machine learning are likely to have huge impact on the labor market. However it is not clear how this will play out. Will people be replaced? Are new jobs coming instead? How will we retrain all the people? What will the unions do? These are some of the hard questions that people are asking. One theme on the event was that technology is all about augmenting the human. Making people more productive.

Finally, I want to mention Blockchain. It was a reoccurring theme that came up. Understanding blockchain is not so easy as it is not product but rather a byproduct of Bitcoin, a protocol layer, a distributed trust mechanism. Someone defined it as a living organism. At least, Blockchain has the potential to have significant impact, maybe on par with the Internet.

Events like this forward the evolution of technology. It is a about an intellectual conversion about technology trends and their impact. The world will face new challenges due to technology in future. At least some people got together and talked about it.

Picture from Sol, Madrid: