Courtesy - Fobes / Gartner
Digital disruption will give rise to new businesses, some created by machines
By 2017, says Gartner, a significant disruptive digital business will be launched that was conceived by a computer algorithm. The most successful startups will mesh the digital world with existing physical logistics to create a consumer-driven network—think Airbnb and Uber—and challenge established markets consisting of isolated physical units.
Digital disruption will give rise to new businesses, some created by machines
The meshing of the digital with the physical will impact how we think about product development. By 2015, more than half of traditional consumer products will have native digital extensions and by 2017, 50% of consumer product investments will be redirected to customer experience innovations. The wide availability of product, pricing and customer satisfaction information has eroded the competitive advantage afforded in the past by product innovation and is shifting attention to customer experience innovation as the key to a lasting brand loyalty.
The meshing of the digital with the physical also means the rise of the Internet of Things. “This year,” says Gartner, “enterprises will spend over $40 billion designing, implementing and operating the Internet of Things.” That’s still a tiny slice of worldwide spending on IT which is projected to surpass $3.9 trillion in 2015, a 3.9% increase from 2014. But much of this spending will be driven by the digital economy and the Internet of Things is in the driver seat. Gartner defines digital business as new business designs that blend the virtual world and the physical worlds, changing how processes and industries work through the Internet of Things.
Consider this: Since 2013, 650 million new physical objects have come online; 3D printers became a billion dollar market; 10% of automobiles became connected; and the number of Chief Data Officers and Chief Digital Officer positions have doubled. But fasten your seat belts: In 2015, Gartner predicts, all of these things will double again.
Gartner’s survey of 2,800 CIOs in 84 countries showed that CIOs are fully aware that they will need to change in order to succeed in the digital business, with 75% of IT executives saying that they need to change their leadership style in the next three years.
“The exciting news for CIOs,” says Gartner, “is that despite the rise of roles, such as the chief digital officer, they are not doomed to be an observer of the digital revolution.” According the survey, 41% of CIOs are reporting to their CEO. Gartner notes that this is a return to one of the highest levels it has ever been, no doubt because of the increasing importance of information technology to all businesses.
Still, reporting to the CEO does not necessarily mean leading the digital initiatives of the business. Reports from the Symposium highlighted another Gartner finding: While CIOs say they are driving 47% of digital leadership only 15% of CEOs agree that they do so. Similarly, while CIOs estimate that 79% of IT spending will be “inside” the IT budget (up slightly from last year), Gartner says that 38% of total IT spending is outside of IT already, and predicts that by 2017, it will be over 50%. This is a “shift of demand and control away from IT and toward digital business units closer to the customer,” says Gartner. It further estimates that 50% of all technology sales people are actively selling direct to business units, not IT departments.
Gartner sees the established behaviors and beliefs of the IT organization, the “best practices” that have served it well in previous years, as the biggest obstacle for CIOs in their pursuit of digital leadership. Process management and control our not as important as vision and agility. Compounding the problem of obsolete leadership style and inadequate skills, is a fundamental requirement of the digital business: It must be unstable. By 2017, 70% of successful digital business models will rely on deliberately unstable processes designed to shift as customer needs shift. “This holistic approach,” says Gartner, “blending business model, processes, technology and people will fuel digital business success.”
The rise of smart machines
By 2015, there will be more than 40 vendors with commercially available managed services offerings leveraging smart machines and industrialized services. By 2018, the total cost of ownership for business operations will bereduced by 30% through smart machines and industrialized services.
Smart machines are an emerging “super class” of technologies that perform a wide variety of work, of both the physical and the intellectual kind. Smart machines will automate decision making. Therefore, they will not only affect jobs based on physical labor, but they will also impact jobs based on complex knowledge worker tasks. “Smart machines,” says Gartner, “will not replace humans as people still need to steer the ship and are critical to interpreting digital outcomes.” But these humans will have new types of jobs.
Top digital jobs
By 2018, Gartner predicts, digital business will require 50% less business process workers and 500% more key digital business jobs, compared with traditional models. The top jobs for digital over the next seven years will be:
• Integration Specialists
• Digital Business Architects
• Regulatory Analysts
• Risk Professionals
Gartner: “You must build talent for the digital organization of 2020 now. Not just the digital technology organization, but the whole enterprise. Talent is the key to digital leadership.”
Where things can go wrong
Gartner highlights two areas of potential vulnerabilities as business pursue digital opportunities: Lack of portfolio management skills and inadequate risk management.
By year-end 2016, 50% of digital transformation initiatives will be unmanageable due to lack of portfolio management skills, leading to a measurable negative lost market share. The digital business brings with it vastly different and higher levels of risk, say 89% of CIOs and 69% believe that the discipline of risk management is not keeping up.
Gartner: “CIOs need to review with the enterprise and IT risk leaders whether risk management is adapting fast enough to a digital world.” This is also an urgent tasks, I might add, for CEOs and the board of directors.
The pursuit of longer life and increased happiness (i.e., better shopping experience)
Gartner predicts that all these connected devices will have a positive impact on our health. By 2017, the use of smartphones will reduce by 10% the costs for diabetic care. By 2020, life expectancy in the developed world will increase by 0.5 years due to widespread adoption of wireless health monitoring technology.
The retail industry could be the industry most impacted by the digital tsunami, drastically altering our shopping experience. By year-end 2015, mobile digital assistants will have taken on tactical mundane processes such as filling out names, addresses and credit card information. By year-end 2016, more than $2 billion in online shopping will be performed exclusively by mobile digital assistants. Yearly autonomous mobile assistant purchasing will reach $2 billion dollars annually, representing about 2.5 percent of mobile users trusting assistants with $50 a year.
By 2017, U.S. customers’ mobile engagement behavior will drive mobile commerce revenue in the U.S. to 50% of U.S. digital commerce revenue. A renewed interest in mobile payments will arise in 2015, together with a significant increase in mobile commerce. By 2016, there will be an increase in the number of offers from retailers focused on customer location and the length of time in store. By 2020, retail businesses that utilize targeted messaging in combination with internal positioning systems (IPS) will see a five percent increase in sales.
These trends seem to be a logical extension of current technologies. But 3D printing will bring us a completely new shopping experience and will expand widely what’s on offer. By 2015, more than 90% of online retailers of durable goods will actively seek external partnerships to support the new “personalized” product business models and by 2017, nearly 20% of these retailers will use 3D printing to create personalized product offerings.
Gartner: “The companies that set the strategy early will end up defining the space within their categories.”
This statement, which Gartner made specifically about the personalized products business, is true for all types of digital businesses and for all the new management processes and attitudes that all organizations should put in place, sooner rather than later.