If there is one word that is capturing the new normal pace of the age we are in, it is acceleration. We are accelerating into the digital era, thanks to the explosion of data, accessibility of cheaper computing power, and broad adoption of technologies like machine learning and the growing web of connected devices composing the internet of things. An increasing number of companies are taking advantage of these trends to develop more innovative and compelling experiences for their customers, drive better and faster decisions, streamline their operations, and proactively reduce operational risks within their eco-system.
But while digital transformation promises accelerated innovation and economic advantages, the shift often creates unprecedented challenges for many companies steeped in legacy culture, process, technology, and ways of working. Not surprisingly, business model disruption and technology disruption are ranked as the top trends impacting their company over the next 12 months by the most recent 2017–2018 NACD Public Company Governance Survey. While board members are grappling to understand the implications of these changes for their organization, they must also turn their attention to the digital literacy and preparation of the company’s workforce to prepare it to face new challenges.
One critical challenge that can’t be ignored is the company’s role in preparing its workforce for intelligent automation. The World Economic Forum’s Future of Jobs Report predicts that 7 million jobs could be lost over the next five years through redundancy, automation, or disintermediation, with the most significant losses in white-collar office and administrative roles. Others argue the job losses could be less over the long term and there is much debate among economists, historians, and think tanks on the level of job destruction and creation that will come from automation. But two things are certain: one, in the near-term, we expect much workforce force disruption; and two, as artificial intelligence algorithms increase in sophistication and computational power, the pace of intelligent automation is likely to accelerate and push the workforce to focus on higher value activities. To meet that challenge, the workforce of the future will need to acquire a new set of skills rapidly in order to interact with the future of intelligent systems.
Unfortunately, many companies aren’t entirely equipped to assess and prepare their workforce for this disruption, especially in corporate functions like finance, treasury, risk management, and human resources. Research suggests these critical functions are still struggling to understand the full scope and impact of new technologies. For example, the 2018 AFP Risk Survey, supported by Marsh & McLennan Companies’ Global Risk Center, polled over 600 senior-level treasury and finance executives. The majority of respondents to the annual survey cited artificial intelligence, robotic process automation, and data engineering as technologies that could expose their companies to some risks, including disruption to business operations and regulatory risks. Only 14 percent of the same group surveyed say they are “significantly prepared” to manage these changes effectively and more than half (54%) say they are only “moderately prepared.” Similarly, the 2017 Excellence in Risk Management report, by Marsh and the Risk & Insurance Management Society (RIMS), found an awareness gap among many risk managers on the use of disruptive technologies by their organizations. The survey also found that more than half of organizations have not conducted risk assessments for disruptive technologies.
It is clear that the need to invest in re-tooling the workforce couldn’t have come at a more critical time. At the heart of this investment should be access for the workforce to a digital literacy program. Digital literacy is notably separate from computer literacy. Rather, it should be a focused program that educates employees in emerging fields such as big data, machine learning, process automation, blockchain, and the internet of things. The program would provide practical applications that are contextual to the employee’s role.
Thanks to advancements in online technology, there is now an array of learning opportunities available to employees and to board members alike. For example, Massive Open Online Courses offered through companies like edX and Coursera offer an array of courses, as well immersive, state-of-the-art educational content developed by top technology companies. Many of these platforms cater to the needs of individual enterprises and can customize digital literacy pathways for employees based on their industry and current skillsets. A small but growing number of companies are exploring these platforms as an avenue to accelerate learning within their organization.
A subset of technology companies is also opening up access to core technology courses beyond their employee population as a way to shore up interest in the technology used at the company and to close the skills gap. Microsoft recently announced the Professional Program for Artificial Intelligence for aspiring engineers and analysts with to a basic introduction of AI to mastery of the skills needed to build deep learning models for AI solutions that exhibit human-like behavior and intelligence.
Last but not least, there are more traditional ways to close the digital literacy gap. AT&T Corp., for example, sponsors a low-cost online master’s degree in computer science from the Georgia Institute of Technology’s school of computing and offers a variety of courses to retrain its employees who work in jobs that will become obsolete, such as landline installation and repair.
The concept of digital literacy is still at an early stage, but it is a critical foundational step that companies need to take to prepare their workforce for their future. Technology is disrupting everything in its path—including the demand for, and demands on, the workforce—and it’s not slowing down. The question boards need to ask is whether their organization is prepared to oversee the transformation of their company’s workforce proactively or passively react to the inevitable technological progress that will disrupt down the road.
Leslie Chacko is a director in Marsh & McLennan Companies Global Risk Center and leads research on emerging technologies. He has over 14 years of experience in advising clients in the financial services and high tech industries at the intersection of strategy, technology and risk.
That may sound like odd advice. After all, the whole world has gone digital—digital channels, digital stores, digital communities—and most businesses have spent the past decade thinking about almost nothing else.
But I’d argue that digital has become too pervasive to make sense as its own category. There’s no world of clicks separate from the world of bricks. There’s just a new hybrid world where people live their lives—a world in which “digital” is no longer a useful way to organize your thinking.
Boards should focus instead on a related “D” word: disruption. Thanks to digitization, all of us—at work, at home, and on the go—have new expectations about services, products, relationships, and experiences. We want higher levels of richness, relevance, convenience, and timeliness in all our interactions with companies. Disruptors like Uber Technologies, Amazon.com, and Facebook, have found ways to meet rising expectations, and in doing so they’ve defined what “good” looks like everywhere. These tech juggernauts are signaling that they intend to insert themselves anywhere they can remove friction, capture customer attention, drive out market inefficiencies, or strip away information to fuel their data and insight engines.
Most important, as digitization unfolds, power has shifted from companies to people, from supply side to demand side. That means boards need to focus on fundamental questions. They need to focus less on “where the puck is heading” and more on questions that dig in deeper: How fast can we move? Does our company have time to shift from low-growth to high-growth businesses, before disruptors steal our customers? Where do we have assets that can become the basis of new information-powered businesses? And the crucial issue in a time when customers are immersed in offers of low price and one-click convenience: How does our company stay relevant? How do we change our strategy for capturing and retaining customers’ attention?
The point isn’t to be right about the end-state—you won’t be. But you do need to encourage your management team to develop a point of view about how the future is shaping up, areas that your company has strong idea about, areas of weakness that may need more strategic thought, and options that will let you rally behind certainty and probe uncertainty. With this kind of framing, the board can take a disciplined approach to managing risk from digital disruption, instead of just trying to minimize or avoid it altogether. ‘Disruptors at your doorstep’ can become a rallying force and focusing lens —helping your team make clear choices about what to keep, what to start, and what to stop, liberating resources from declining businesses to fund growth and business reinvention. Put differently, think of imminent disruption as a crisis. As we’ve learned from times past, never waste a crisis.
The other critical conversation is about modernization of core capabilities, work approaches, and talent. Often this conversation shows up as an innovation challenge. As large incumbents, can we do new things and do things differently? Can we take a page from the playbook of digital market leaders like Amazon and Google? Some of these companies rent and assemble capabilities to get further faster, as opposed to building and managing everything on their own. They appear to work fluidly across functional and product “silos”—in fact, they have no silos to combat. And they tune their business cadence on the inside to reflect rapid changes in the external environment. In other words, they can operate in agile cycles with integrated teams.
Is your response to these thorny issues a “digital strategy”? I’d argue not. Disruption, on the other hand, requires vigorous debate to focus management energy on doing the right things, faster and with greater flexibility.
So forget about digital strategy. You’ve been losing sleep over it for too long. If you focus on the right issues, you won’t necessarily sleep better, but you’ll get a lot more value out of those wakeful hours. And value, after all, is the point.
Rick Chavez is a Partner and the Americas Head of Digital at Oliver Wyman.
Directors and executives could be forgiven for feeling like digital transformation has materialized out of thin air to attack their business models and markets. For most sectors, “digital” has historically been confined to tactical efforts across websites, mobility, social media, and e-commerce. Digital efforts were important to marketing execution but certainly did not inform overall business model strategy, much less determine which companies won, lost, or failed to survive. And while everyone is familiar with the global Internet giants that have emerged over the past two decades to dominate markets and stock indices, until recently digital disruption had not yet penetrated beyond the traditional realms of media, content, and e-commerce.
The massive competitive challenges witnessed in these early domains have now arrived in every other sector. Billboards lining airport corridors proclaim the urgency for companies to digitally transform. Corporations are funding incubators, venture funds, and innovation programs, and are facing the task of shaping the future of work. Many consulting firms and agencies make claims to broader digital transformation expertise, regardless of their historic core capabilities.
It is easy for leaders to get lost amidst the clamor. What follows is an account of the past, present, and the possible future of digital business risks and strategy that could help your board discuss digital business model risk and winning strategies.
Tracing the Origins
Along with my co-author, I presented the foundations of digital transformation and the strategic and financial performance considerations in a previous article. To begin to grasp how digital transformation impacts value creation, and to build on the concepts outlined below, I suggest starting there. The basic competitive dynamics across all past and emerging digitization phases reinforce the business model risk that directors and executives should understand as digital disruption changes their sectors.
The graphic below describes the primary phases of digitization over the past two decades and the emerging waves.
Click the graph to enlarge in a new window.
A pattern emerges across the phases. First, a primary enabling technology emerges, targeting specific product and service domains within a selection of target sectors. As these products and services are digitized, leading companies within these target sectors bring to market entirely new business models based on the primary enabling technology of the phase. These companies bring new value propositions to market and rewrite the rules of competition in the sector. For example, Google reinvented advertising, Amazon.com reinvented retail, Uber and other ride-sharing companies are reinventing transportation, and Social Finance (SoFi) is reinventing loans. Existing companies in these target sectors that fail to evolve their business models lose market share or cease to exist, while new, dominant-phase leaders emerge.
This dynamic has been consistent across the first three digitization phases, resulting in massive disruption across the target sectors as well as a recalibration of the world’s most valuable companies list—despite the relatively small number of target sectors initially involved. Currently, the dominant digitization phase is driven by Internet of Things (IoT) and smart products technologies, with implications for all machines, all physical products and the companies that design, manufacture, sell, and operate them.
Artificial intelligence (AI) and machine learning technologies are also in broad, albeit early, deployment with implications for every sector of the economy, including forming the foundational elements of continued robotics and digitized biology and chemistry.
This is an admittedly simplified picture. Primary enabling technologies do not evolve in isolation from earlier phases, and the phases themselves do not end. For example, more and more content continues to be digitized (from newspapers to videos to augmented or virtual reality), while the scope of digital services continues to expand (from basic e-commerce to mobile payments to blockchains) and AI is reinventing all previous primary enabling technologies. Furthermore, leadership in one stage of digitization does not guarantee continued leadership as the cycle continues. Yahoo! was among the major winners of the original content digitization phase but failed to evolve, while Google, which emerged during the same phase, has consistently grown in line with emerging technologies. Meanwhile, General Electric Co. and General Motors Co. are bucking the trend of established companies falling to digital upstarts to assume leadership in the industrial IoT and automotive markets.
While it is helpful to understand the enabling digital technologies, it is primarily beneficial for directors at companies of all types to seek to understand the implications of these technologies on the products, industries, and business models of their companies, and ensure that their CEOs have a sound strategy to address these considerations.
Every sector is now in the crosshairs of digitization. Many business leaders not operating in the initial target industries, however, have never been trained on how to think about digital transformation strategically. So long as a company was not in a target sector of digitization, it was sufficient to deploy point solutions related to the primary enabling technology of each phase, such as websites, mobile applications, e-commerce offerings, and a social media presence—and, indeed, it has always been important for companies to keep up with these tactics. Directors and the C-suite should understand, however, that this approach is not sufficient when it is their own sectors that are the primary focus of digitization.
Ryan McManus is senior vice president of partnerships and corporate development for EVRYTHNG, the IoT Smart Products platform company and serves on the board of Nortech Systems, the advisory board of Carlabs AI, and two advisory boards with the Aspen Institute. He is the founder of Accenture’s Digital Business Strategy and Transformation practice, has served an advisor to Fortune 100 companies, and is the author of numerous articles on digital transformation and corporate strategy. Ryan earned his MBA from the University of Chicago Booth School of Business.
Want to hear more from Ryan? Attend his session at the 2017 Global Board Leaders’ Summit. Learn more and register here.