The 49th World Economic Forum (WEF) annual meeting in Davos, from 22-25 January 2019, brought together CEOs, politicians, economists, scientists, and activists to debate the critical questions facing the planet. Globalisation, sustainability, the environment, skills, diversity, equality, cybersecurity, connected business, and digital transformation were among the headline topics.
At the core of these debates was the Fourth Industrial Revolution: the changes being brought about in industry and society by a confluence of technologies, such as robotics and automation, artificial intelligence, analytics, the Internet of Things (IoT), mobility, drones, autonomous transport, 3D printing, cloud computing, and social networking.
These technologies are levellers, because they open up the potential for competition and disruption – startups can seize markets from multinationals. But they are also dividers, by widening the disparity between technology haves and have-nots, and by changing the nature of work itself. This means that skills are essential, as is the ability to identify opportunities and maximise the value from digital investments.
In 2015, the WEF launched the Digital Transformation Initiative, in collaboration with Accenture, with the aim of “unlocking $100 trillion in benefits” for the world economy from the smart application of new technologies.
By 2018, the project had engaged with more than 300 executives, policymakers, and academics, leading the WEF to publish a report on its findings to date.
Every industry has its nuances and contextual differences, says the document, but they all share certain inhibitors to change. These include the fear of cannibalising existing revenue models (aka the innovator’s dilemma), low technology adoption rates within organisations, conservative management cultures, and constant regulatory change.
So how can organisations maximise the return on their digital investments, while being mindful of these challenges? There should be three main drivers for transformation, says the WEF. These are:
The quest for new efficiencies
These provide the impetus for many large companies, which use technology to improve existing processes and optimise assets and resources, in the hope of reducing their costs and enabling savings for customers.
However, other recent reports, such as one published in 2018 by Capgemini, have found that many organisations apply Industry 4.0 technologies tactically, rather than strategically.
Some new technologies, such as AI, are designed to make businesses smarter by complementing human skills, and not as cost-cutting human replacements. As a result, organisations that rush into slashing costs on the back of them may fail to realise the benefits – and perhaps even increase their costs.
Enhanced customer experiences
Customised offerings create ‘moments of truth’ and support decision journeys, says the WEF, while integrated customer information across platforms can speed up transactions.
Customers increasingly expected relevant, personalised experiences through every channel, and move on from services that don’t offer these options.
Advances in AI and other technologies are opening up new possibilities for this type of ‘hyper-personalisation’, giving customers control over customising their interactions, while providing more relevant services via analytics and AI.
New business models
Investing in these is the most difficult and least frequently targeted driver, according to the WEF’s research – particularly for large companies. This is because it requires a cultural transformation first, one that makes innovation the focus of business strategy.
Within this, real concerns about cannibalising existing business should be addressed by concentrating on overall demand, says the report.
Growth through change
Companies are also investing in new technologies to accelerate growth and productivity. According to IDC, total investment in digital transformation is expected to hit $2.4 trillion worldwide by 2020, representing a compound annual growth rate (CAGR) of 13 percent. The IoT will account for 42 percent of that spend – roughly $1 trillion.
Investments will be supported by the falling cost of technologies such as 3D printing and robotics, adds the report.
While mobile/social remains one of the key investment hotspots, the WEF forecasts that its share will fall from 35 percent to 25 percent, losing ground to new technologies such as augmented/virtual reality.
That said, return on investment in new technologies will be positive overall, with a 3x productivity increase realised when the right technologies are deployed in the right combination, says the WEF.
The five enablers of digital transformation
Companies need a clear strategic objective and a long-term approach to their technology investments. So what are the key principles? Based on the WEF’s research and discussions with industry leaders, there are five key enablers.
Source: The World Economic Forum
- Agile and digital-savvy leadership: A combination of strategic vision, purpose, skills, intent, and alignment across management levels ensures a nimble decision-making process.
- A forward-looking skills agenda: This infuses a digital mindset in the workforce by making innovation the focus of training and hiring programmes.
- Ecosystem thinking: Collaborating within the value chain (with suppliers, distributors, and customers) and outside (with startups and academia, for example) is essential. Working in isolation from existing relationships is not advisable.
- Data access and management: Strong data infrastructure and warehouse capabilities combined with the right analytics and communication tools can help to drive competitiveness.
- Technology infrastructure readiness: Building the right technology infrastructure to ensure strong capabilities in cloud, cybersecurity, and interoperability is a key priority.
On top of these, there are four execution principles, adds the WEF: Establish clear ownership of digital investment; invest in use cases, not technologies; fail fast, fail cheap; and follow an outcomes-based approach.
Outcomes matter, because the low cost and easy availability of technologies such as sensors, coupled with breakthroughs in data analytics, have enabled outcome-based services to become a reality.
In many instances, companies are using digital technologies to identify and target the outcomes that customers care about, explains the WEF. Consumers tend to adopt products and services that deliver real value to them, but also use these experiences to define their expectations across all other industries.
So: Are you ready for the future?
Plus: 2019 WEF announcements
Other announcements related to digital transformation at this year’s event included:
The Forum’s Centre for the Fourth Industrial Revolution Network revealed that it has grown to more than 100 businesses and governments, including five G7 nations.
The WEF launched a new initiative, Preparing Civil Society for the Fourth Industrial Revolution, aimed at helping citizens meet the challenges of rapid technological change.
The Centre for the Fourth Industrial Revolution Japan launched a coalition of G20 cities focused on accelerating the responsible and sustainable development of smart cities.
Meanwhile, the Forum released a study showing that 86 percent of the $34 billion global cost of re-skilling workers displaced by technology over the next decade is likely to fall on governments.