Digitization, a Paradigm Change
How incumbents are successfully striking back, leveraging exponential technologies to reinvent their businesses.
Over 70% of the 3.000 CEOs interviewed at the end of 2020 said IoT and Cloud would become a core technology for their business in 2–3 years (see IBV 2021 CEO study.) Who would have envisaged CEOs of top non-tech companies talking about technologies just a few years back? Much less about technologies being core for their business?
Big Tech companies are attracting a lot of attention, as they have created new markets and enriched founders and VCs. But less is said about how some incumbents are changing the landscape of their business and industries.
Yara, a Norwegian chemical producer, targets 7% of the world’s agricultural land. Cemex, a cement and concrete producer, is transforming the construction industry relationships, with over 80% of clients on their new platform worldwide. SBI, a traditional State bank, is winning millennials in India. Disney, a 97 years old company, launched Disney plus and gained 100M subscribers in 16 months.
These are just some cases of incumbents striking back. In this post, I want to explore with you:
- WHY it is happening NOW: A singular convergence of very accessible technologies.
- HOW it is happening: a paradigm change.
- WHAT are the successful incumbents doing to win the new game.
WHY it is happening NOW: A singular convergence of very accessible technologies
What do I mean by singular convergence? The sudden availability of an unusual number of new technologies, their exponential adoption around the world, and their synergic effect.
Manuel Rivas, in his Article “What do we mean by 4th industrial revolution?” explains how previous revolutions took advantage of specific technologies: steam engine, electricity, and internet (first, second and third industrial revolutions). This time around is different.
It is the first time in history in which so many technologies appear at such a pace, from IoT or Cloud to Biotech, Artificial Intelligence, Nanotech, Blockchain, Quantum computing, or 3D printing.Unlike in the past, these technologies are spreading exponentially around the world at high speed. Globalization, the internet, and their low cost make them accessible to anyone. To use them does not require significant investments, like the case with the steam engine, or to wait till companies deploy infrastructure, as it happened with electricity or the internet. Today, a biotech student in Vietnam can run computer models on the cloud to design her new molecule at the exact cost than anyone at Harvard. A researcher in Kenya can build behavioral models for their marketing strategies using the same AI libraries anyone at MIT.
Finally, these so-called exponential technologies are synergetic with each other, allowing for accelerated innovation. Autonomous Cars, Advanced Robots, Extended Reality, or Virtual Assistants undistinguished from humans are possible thanks to the blending of several exponential technologies. And we are just watching the beginning of their joint potential.
HOW it is happening: a paradigm change
All these innovations, available to any company, no matter which size or location, are changing the rules of the game and generating new business paradigms.
In the recent past, companies focused on selling products or services tailored to functional needs. Today, leading companies are designing products, services, and platforms tailored to latent, intrinsic needs.
Let me explain and propose some examples.
Until some years ago, phones were used to talk to each other. Today’s phones connect people, allowing us to have the experience of belonging to the communities that we like (family, lifestyles, communities, etc.) Instagram, Tik-Tok or WhatsApp have been so successful because they answer our intrinsic needs of communicating and belonging.
As human beings, we like to hear and watch stories. We invented products accordingly: cinemas and TVs to watch third-party stories, CDs to listen to them, video cameras to film our own life experiences, VHS tapes to share them. Today’s interactive platforms and apps allow us to do all of the above effortless, giving users the deep satisfaction for their internal need of sharing.
When we look for a product, we combine our priorities, opinions of like-minded friends, and the advice of experts/sellers with our own perception of our needs. We compare and decide. Exponential technologies facilitate doing all of the above and much more, in an effortless way, lessening our intrinsic need to feel convinced that we are making the right purchase.
WHAT are the successful incumbents doing to win the new game
Some incumbent companies are striking back with great success. They are doing so by innovating at their clients’ core needs.
Indeed, we frequently read about the same examples: Facebook, Amazon, Skype, or Apple. But incumbents in less digitized industries and traditional markets are also winning the game by embracing the paradigm change described above. In the following paragraphs, you will find three examples that will trigger questions about what you can do in your own business.
#1. Yara, a $700 Million company, produces fertilizers and other agro-chemical products. Farmers buy fertilizers at the local dealers and use them based on their, sometimes limited, knowledge. The power of Yara to prescribe their products and to ensure independent farmers use them optimally is minimal.
By understanding farmers’ intrinsic need to take the right action at the right time, with the right product, adapting to changing conditions, Yara created an industry-wide business platform to connect and empower independent farmers. It uses IoT sensors and AI to provide hyperlocal weather forecasting, crop damage prediction, illness diagnosis, and real-time recommendations. It integrates third-party services such as The Weather Forecast or Blockchain-based IBM Food Trust, a farm-to-fork value chain.
Nearly a million farmers are using the platform, and Yara aims to cover 7% of all arable land with their new platform. Thinking big and embarking on an Ecosystem Platform, Yara has created a new growth engine for their business while increasing their final customers’ switching costs.
#2. Cemex, a 13 Billion company, is one of the world leaders in cement, aggregates, and concrete. Though the construction industry is one of the less digitized industries, Cemex has digitized the Lead-to-Cash process through a new digital platform Cemex GO. Two years after global launching, 80% of all customers use Cemex GO, and the platform manages over 60% of all purchases from Cemex. Cemex GO has become key at retaining clients and margins, even throughout the COVID troubled waters.
How did Cemex manage such a success? By uncovering potential users’ intrinsic needs (from the engineering office or the work-site foreman to the finance department), Cemex developed a digital platform tailored to their journeys. They also implemented a “voice-of-the-customer” office to collect customer reactions and quickly adapt to, for example, the local ways of doing business in Egypt, Colombia, or the UK.
In his post “Digital transformation tackles industry threats”, Jerry Lewis explains how this was an effort directly led by Cemex CEO. CEMEX has also redesigned and digitized its back-office functions with the customer experience at its core, including process automation throughout the order-to-cash, supply chain optimization across inventory and transportation management, etc.
#3. State Bank of India (SBI) is a traditional, state-owned, large bank, with most of its retail customers in the mid-range age. The advent of Fintech, their increasing penetration in Asia, and the lack of attractiveness of SBI branches inhibited the bank from capturing the millennial market.
SBI made an ambitious bet by shifting to a customer-centric platform strategy, aiming to attract new customers by creating an online marketplace, digital bank, and superstore, all in one. The platform uses the brand SBI (You Only Need One.) True to its brand name, it partners with more than 100 e-commerce sellers, including Amazon, Thomas Cook India, OYO Total Holidays, and Tata CLiQ, focusing on customer journeys.
SBI started with an MVP approach of 25 customer journeys, and it builds around 15 new journeys a month. The platform has 25 million users and growing in the youth population.
All these digitization cases share some core principles that I’ve seen in other successful incumbents:
#1. They instill structural innovation, going further and beyond the Eureka Myth. The examples I described above, and those of many other companies, do not happen just by a decision taken by an executive. They are the result of a purposeful effort to instill innovation into the company. These were ideas created not by one team but as the sum of a widespread innovation effort supported by the C-suite.
#2. They uncover the digitization paradigm of their ecosystem, visualizing their clients’ intrinsic needs through purposeful openness. They instill broad thinking instead of narrow focus. They look into their clients’ present and future journeys, not restricting themselves to their actual products and services scope. They look into comprehensive solutions, not just on specific product improvements. They are not reacting to a competitor’s move but reimagining the market themselves.
#3. They work with a genuine agility approach.
Regardless of Enterprise Agility’s formal implementation level, companies like the ones depicted in this post apply the five Cs of true Agility: Coherence, Constincency, Constancy, Confidence, and Communication.
Fernando Gonzalez, CEO of Cemex, said, “You are not going to be perfect… part of the investment is not going to pay off. But it doesn’t matter. You try to understand what is not working properly, you stop doing that, and you focus on what you think can pay off.” I believe that the top executives have to share and instill this way of thinking together with the five Cs.
#4. They are open-minded to third-party ideas, contributions, and revenue sharing. These companies have not been afraid of developing new solutions in partnership with other companies in the ecosystem. On the contrary, they instill open innovation to enlarge their accessible market. They emphasize creating new markets around intrinsic needs, with those partners that can accelerate the value proposition than they put on defending their actual turfs.
What is your company doing?
Manuel No is a Partner with IBM and leads Enterprise Strategy Spain, Portugal, Greece, and Israel. He is an expert in profitable growth strategies and implementation, leveraging exponential technologies to transform incumbents into digitally-enabled players. He has led projects in Europe, America, and Asia. The opinions expressed in this article do not necessarily reflect the opinions or points of view of the IBM corporation
