Author’s note: This post continues a series about Digital Transformation. The previous two posts explored what Digital Transformation is and some of the key challenges facing business leaders as they pursue it:
Today’s post about Market Outlook addresses impacts of technology change for both companies and society as a whole. As they set priorities, business leaders need to be aware that the scope of transformation is even larger than the industries in which they compete. Much of this change is for the good, but there are also sober realities to grapple with.
Digital Transformation in most experts’ minds is not only the largest challenge facing companies today but also the largest challenge facing the global economy. Whether you are a mid-market company, a global enterprise, a regional government or a country, Digital Transformation will impact your future.
Most experts agree on the scope of Digital Transformation, but unfortunately they don’t agree on the final outcomes. Many experts see the future as progressive and positive: technology advancements will create new platforms, business models and opportunities. Productivity advancements will enable entirely new capabilities for Health Care, Manufacturing, Financial Services and Government. These productivity gains will allow more work to get done faster, safer and more consistently.
Using technology as an enabler, businesses will be able to better understand the needs of their customers by using predictive analytics and machine learning. With better client input, companies will anticipate products and new features earlier by leveraging sensors and other IoT advancements. These new products will be enhanced during manufacturing with advancements in 3D printing and new materials. Finally, the products will be delivered (Just in Time) via ride/delivery-sharing services, self-driving vehicles and even drones.
But not all experts hold positive views about Digital Transformations. The life expectancy of companies is at an all-time low, with the FORTUNE 500 company survival rate averaging about 13%. Sure, experts agree that there are great success stories but they also highlight risks as technology transforms industries. These risks can be outlined in four areas.
- Impact to the labor force as more and more jobs fall to automation;
- Impact to the jobs of the future as more and more companies are not hiring or purchasing capital equipment;
- Economic challenges as many Digital-based businesses don’t impact GDP the same way non-digital business do;
- And finally, the wealth created by the Digital era is not being equally distributed. In fact, just the opposite is happening: the rich are getting richer while the middle class sees few standard of living advances.
Here are perspectives on each of these four organizational and societal risks. Company leaders need to be aware of all these areas as they set priorities for Digital Transformation.
As Digital Transformation takes hold, more and more companies are finding ways to automate previously physical labor functions with Digital labor. This fact is already affecting economic recovery from the 2009 recession. Many people are calling this recovery a jobless recovery because as profits return to companies they are not running out and hiring people again. Instead they are using the profits to automate business processes with electronic workflows, implementing analytics solution to measure and understand data, automating warehouses with robotics, material handling and IoT solutions, changing IT processes with DevOps, Agile and Lean, investing in CRM and eCommerce solution to drive revenue and implementing Mixed Reality solutions for training, sales and maintenance functions.
If you took the employee count, revenue and profits from GE, GM and Emerson from 20 years ago and compared with the employee count, revenue and profit of Google, Facebook and Apple today, you would quickly see that employing thousands of people to drive profits is not required like is was 100, 50 or even 20 years ago. The fact is, companies that are building Digital platforms to drive their business rather than hiring physical labor are financial performing much better. Companies no longer think about growing based on hiring, as investments in technologies in many instances are easier and faster. In fact, some businesses start out day one with an idea that requires very little labor. If you look at Uber, Airbnb, and Zipcar not only are they not hiring people, they are not spending money on physical capital. All three of these examples are market leaders in their segments—and they don’t own fleets of vehicles, hotels or rental cars. The Digital era is allowing companies to grow and create great wealth without hiring people.
GROWTH NOT AFFECTING THE ECONOMY
Skype, eBay and Craigslist are all examples of Digital Companies that took revenue and labor out of the economy and did not return either the revenue or labor in kind. Skype is used by millions of people daily to make both local and long distance calls. These calls are made for pennies on the dollar compared to 10 years ago, which is a huge savings for end users but over time will remove thousands of jobs and millions of dollars in revenue that used to flow into the economy. eBay is used by millions of people daily to sell both used and new items in an auction purchase experience. No longer are used items sold locally at local prices, as eBay has enabled any seller to reach national markets. Craigslist is used by millions of people to place classified ads for products and services. These classified ads used to provide jobs for newspaper employees, revenue to newspapers and kept expanding circulation. Today if you have an item to sell or you are looking to purchase something, you no longer purchase a newspaper, you simply go online, search the item you are looking for—both new or used—and purchase it.
SEPARATION OF WEALTH
As we move into an era where technology replaces manual and cognitive routine jobs, two very important things happen: first, as discussed in the Labor Changes section above, jobs are eliminated and not replaced in kind; second, the platforms, technologies and tools used to replace those jobs go to a smaller and smaller group of people. If you look at the enterprise that Henry Ford created, you not only see the wealth that Ford created for himself and his family but also for thousands of employees. Manufacturing and distribution of Ford vehicles required executives, directors, managers and supervisors to own, run and operate facilities, dealerships and repair locations. The wealth created by Ford alone had a trickledown effect of billions of dollars for thousands of people.
If you take that same example and apply it to any successful Digital platform company, you will quickly see that the number of people involved in the wealth distribution is a fraction of the old model. The enterprises that Ford, Carnegie, Mellon, Rockefeller created 100 years ago and even the companies that Gates, Jobs & McNealy created in the past 30 years had a direct economic impact and employed hundreds of thousands of people.
A fear that many experts share is that Digital Transformation does not require the physical resources that previous transformations had. In the 2014 book “The Second Machine Age,” the authors stress that the fact that the physical world is being replaced by the digital world is very real. We are slowly moving into a world that is ruled by:
- Bits not Atoms
- Interactions not Transactions
- Ideas not Things
- Mind not Matter
Regardless of experts’ points of view and their opinions of what will be the final outcome, everyone agrees that Digital Transformation will have a profound impact on business, governments and employees going forward—and technology advances are not going to slow down anytime soon.
UP NEXT: WHERE TO START
The next post in this “How-to Guide” series will focus on where organizations should start with Digital Transformation. Leaders need to be careful to pursue goals that are obtainable yet big enough to be worthwhile. The goals need to be tied to initiatives that deliver waves of additional activities and results. That’s how this ongoing process of transformation gets accomplished.