Prepare, Don’t Predict: How Your Business Can Survive Despite Impending Disruption
The following is an edited excerpt from the book, Competing in the Connecting World, by Gregg Garrett and Warren Ritchie.
In the decade ahead, Manuel, recently promoted to the position of CEO, will be sitting in his redecorated corner office attempting to prepare for an onslaught of afternoon meetings.
Instead of processing through his backlog of reports, he may find himself admiring the fork in his hand. It may look identical to the fork we use today, but in this near future this fork has features and abilities far greater than merely being able to hold the weight of the food on its tines.
This connected fork has come a long way since its “haptic fork” predecessor was first introduced to the public in the early 2010s. Then it was just a chunky gadget whose value was limited to measuring the rate at which the user ate, relaying the data to an app through Bluetooth. Occasionally, it would vibrate to remind the user to slow down in order to give his stomach time to signal to his brain that he was full.
In the intervening decades, sophisticated sensors were embedded into the utensil. The version Manuel may someday hold in his hand will likely measure the nutritional and caloric content of the food he’s putting into his body. Without having to lift a finger, the fork will send the data to his health-care provider, dietary planner, grocery delivery service, and physical trainer, parties that have a particular interest in this information. His insurance company may even reduce his premium if he can keep consuming nutritional content that is customized to his specific body makeup through DNA analysis.
The use of sensors in thousands of everyday products, such as the haptic fork, office chairs, wearables, and refrigerators, will change health care. It will no longer be a backward-looking industry dealing with crises after they happen. The connected toilet will likely have the ability to analyze urine and provide an up-to-the-minute report on your body’s chemistry. A complex ecosystem of connected devices and accompanying services will constantly monitor your daily activities, allowing you, with the assistance of your health-care professionals, to take a proactive approach to your medical care.
Instead of a once-a-year physical, you may find value in having your health care woven into your daily life. For instance, as Manuel completes his lunch and walks to his 1:00 p.m. meeting, he gets notified that his sugar intake is over the appropriate level (that damn bagel from the accounting department’s “bagel club,” which he was encouraged by his head of Human Resources to join).
A pop-up message on his mobile “phone” suggests that a short period of exercise will return him to the healthy zone. Seeing that his schedule is flexible later in the day, Manuel’s health service automatically alters his preferred autonomous transportation pickup location, moving it two miles away from the office, which will provide him with both time and opportunity to exercise while allowing him to still make his son’s soccer match on time. A simple thumb swipe approves the changes.
Later that afternoon, with his meetings finished, Manuel strolls the two miles and reflects on the seamlessness of this experience and the overall state of technology. Suddenly, an overwhelming surge of fear grips Manuel. Every device in his office and on his person, from complex machines, such as his personal bot assistant and cloud-based computer, to simple items, such as the fork and the 4-D printed shoes he is wearing, is connected. They’re collecting information, not only to enhance the experience of using the devices but also to benefit other services and products in his life. They’re not only internet-connected and “smart” but also starting to connect with one another in order to make their services more relevant.
What does this connected landscape mean for the future of Manuel’s business, especially because his predecessor and the entire previous generation of leadership never took steps to modify the product or services and prepare the company and the way it operates for this Connected World?
He likely shares some of the blame, too. The signs of the Connected World were clear when he started out on the executive track a decade ago. He saw how complex devices such as jet engines, manufacturing equipment, and cars were embedded with sensors to collect data on their usage and performance. Soon, he witnessed the emergence of smart thermostats, televisions, and thousands of other everyday products that recorded data, but they were all just one-off experiences that rarely resulted in tremendous value.
He failed to see the speed at which this technology was disrupting industries.
Start-ups such as Uber and Airbnb managed to disrupt entire industries in the span of several years. As a senior leader moving through the ranks of his organization, he was always trying to prove to the other executives that he fit in. He helped ensure that their product stayed a market leader for that era, while never preparing it for the future. Yes, they made a connected version of their product, and even offered a “premium” version that included a monitoring service of the product, but they never truly transformed their company. After all, his company produced a less-complex product, meaning he didn’t feel an obligation to address this potential disruption in a profound way.
Instead of seeing these connected products and services as the future, he chose to see them as novelty items, cute ways for companies to sell more of their standard products. So his company, along with everyone else, installed a sensor and connected some products with a focus on making simple features available remotely and reducing costs of the traditional industrial world.
Consideration of how this data may reshape the customer’s experience or the overall company was not fully understood or deeply considered. Manuel and the other leaders at the company never attempted to monetize the data or tried forming partnerships with companies that could find value in the information.
The Time To Prepare Is Now
The above scenario isn’t science fiction. It’s the future, and you and other business leaders across all industries are already seeing the seeds of this connecting world. Preparing for the change now, or like Manuel, waiting until the industries have already shifted, is your choice.
It’s likely that in a matter of years, you’ll witness the emergence of this new landscape, one where formerly discrete things will be a part of integrated ecosystems. The haptic fork that will provide real-time data to doctors and health insurers is only one example. What this means is that discrete products with limited connectivity will be insufficient to maintain a growing business.
Almost every thing will become part of the internet of everything, and the value of products and services will be determined by the seamlessness and usefulness of their connections to other products and services in the user’s life.
Maybe you consider these issues real but feel that these somewhat futuristic challenges are better left to your successor. After all, you aren’t currently feeling the effects of a potential disruption on your bottom line. Looking out at the current competition and trends in the industry, it may be hard for you to find a reason to start tampering with a business model that, by all indications, has the company performing optimally and is satisfying the board and investment communities.
Nevertheless, if you want to get a sense of how fast a business’s health can change once technological discontinuities begin to take shape, look at how industries are being impacted when companies choose to focus on “share economy” business models. Talk to taxi drivers, car dealerships, and car manufacturers about the impact of ride sharing companies (e.g., Uber, Lyft, etc.) on their industries.
Companies such as Uber and Lyft have built a business model focused on moving people (and goods) from point A to point B. Relying on outside devices to connect the consumer to the vehicle and its driver, it has created a platform business that is slowly altering car ownership. In the next decade, autonomous cars will further enhance these business models by disintermediating the human from operating the vehicle, reshaping the way cars are bought, sold, and used. Private ownership of vehicles will dramatically decline.
Instead, a transportation company may own a massive fleet of vehicles. This development alone will leave the major players in the capital-intense car manufacturing industry scrambling to react to disintermediation from their end customer. The mechatronics of the vehicle will change now that each vehicle will have to cater to the needs of potentially thousands of different riders, who may be using the vehicle for periods no longer than twenty minutes at a time. All this disruption could stem from a set of companies that are less than a decade old.
The Internet of Things Will Begin To Change Every Thing
The Internet of Things (IoT) is a collective set of technologies that, when assembled together, act as a key building block on our path to the Connected World.
IoT is the networked connection of embedded computing technology placed in objects that enable them to send and receive data autonomously. IoT is a set of building blocks that, when applied together, reshape the way information can flow. If managed properly, this flow of information can drive new value for the product user, the product owner, and the product manufacturer. In fact, this new product-in-use (PiU) data will build bridges to adjacent product and service experiences, helping to drive new ecosystems and paths to value.
We will explore these complex changes in greater detail throughout the book. As things are produced and connected to send and receive information, they will act as a disruptive force to your industry.
The only question is when you and your firm will first feel the disruption and whether it will be too late to react.
IoT is the linkage of two vastly different worlds: the Internet world and the Thing, or product, world. Leaders of product companies who were raised in the “things” industries will often view IoT as an extension of their product strategy and a way to enhance their product experiences.
Most often, these leaders work with their company’s engineers or IT staff to connect the thing (T) that they make to the network, usually through embedded computing or sensors. This new embedded technology can record, disseminate, and receive data, and command the device to behave differently. Leaders who have learned patterns from digital or Internet (I) firms will often see the connected product simply as a platform for a digital service or experience, often underestimating the complexity of the design, production, or distribution of the product itself.
Ultimately, these connected products must add value to the user, owner, or producer of the thing. Sometimes, the value will only be recognized if the product is connected to other things and services. How much value is there, for example, in a user knowing whether he or she is eating too fast versus the fork connecting to the rest of a person’s nutritional, activity, and health ecosystems? It will be more about ensuring a seamless experience between products and services.
What leaders will soon discover is that this fairly simple added technology will cause your company, which was at one time squarely in an established industry, to compete in a blended, connected industry. The company will need to merge “Things” norms, such as structure and way of thinking, with the “Internet” norms from digital firms. This likely will be a paradigm shift for most companies that are coming from a world of disconnected experiences and discrete products and entering one where all products, services, and the accompanying experiences are linked. Welcome to the era of the next technologically driven discontinuity.
A common mistake is thinking you can take your time adapting to this new reality because you have current market share on your side. Customers are constantly on the move. In the IoT-enabled era, customers are loyal to the extent that they don’t have a better alternative.
Take the case of Myspace, which from 2005 to 2009 dominated the social networking world. More than a hundred million users invested time in creating profile pages and establishing personal networks. Nevertheless, in the span of a couple of years, tens of millions of these users migrated to an upstart called Facebook.
An Internet of Things Leads To A Connected World
The IoT is reaching buzzword status. Its usage has become as common as “cloud,” “AI,” “autonomous,” and the holy grail, “digital.” It comes in the form of a new name such as “Smart” followed by a term such as “manufacturing” (smart manufacturing).
Some industry leaders understand the massive disruptive potential and are focusing on an X.0-type framing of their industry. An example of this would be “Industry 4.0,” which has become the term, born in Germany and extending to Asia and now the United States, for the digitization of the traditional manufacturing supply chain. Other industries are simply referring to their product name with the term “connected” added as a prefix (e.g., Connected Car). Regardless of what it is called, the technology advancements are driving significant change and requiring firms to rethink their strategies, or their “Digital Strategies.”
Yes, IoT is, at its core, an incredible collection of technologies. The focus and decisions for leaders, however, must be much broader than simply technological. They must understand that the systems in question are more complex than that of one product and the connection enabling it. They must understand that the Connected World is a set of ecosystems made up of many products and many connections. They must also comprehend, when preparing their business for IoT and its disruptive potential, that the true recipient of value remains The People.
The first thing that fifty percent of the population of North America does in the morning, before they pick up a cup of coffee, kiss their spouse, check on their children, use the restroom, or take a shower, is check a mobile device. People seek information. People push out information. People react to information from humans and machines. Our society is already connected, and it’s only getting more connected as more and more information is being produced, captured, and transferred.
People have been connecting for many years. Thousands of years ago, a person’s “world” likely revolved around food sources. Groups would settle near the source and gather around fire to survive. These survival tactics helped form social norms. Information was shared verbally, in song, or in simple writings, and decisions were made. Connections were direct, person-to-person. They were seamless. The Connected World, at its core, is the same today as it was back then, which is about connecting people and driving value. The simple model of connecting people is seen in figure 1.
As time passed, the world further developed and grew more complex. Many “things” were introduced. Tools, consumer goods, and devices entered our lives. Stores, homes, restaurants, parks, and entertainment venues were introduced as places consumers lived and operated. Each of these settings contained additional things in them that added some sort of value to a consumer’s life.
Consumers also needed ways to move between these places, so eventually bikes, cars, buses, planes, and boats emerged, introducing diverse ways to transport people and their personal goods. As society continued to mature and populations grew, specialties emerged in the working class, as did specialty tools. Similarly, business-oriented complexities became a common occurrence. Factories, office buildings, warehouses, roadways, hospitals, as well as freight trains, semitrucks, and cargo boats and planes all emerged into the common landscape of a business ecosystem. Look out your window. We live in a complex world. People and things are interacting throughout the day, every day. The things used in and around our lives inform our experiences.
See figure 2 for a simplified graphical representation of our world that is connecting. The people are still in the picture; however, now information flows from, to, and through a much more complex ecosystem.
This is our landscape for our Connected World.
What has remained constant is the need for and recognized value in trading information between people. This communication must now account for these things. This added layer of communication between things can either add value to people’s lives or steal value from it. Adding value often requires the things to fit into the ecosystem seamlessly.
Until the advent of IoT, it was always the responsibility of the person to ensure this integration took place. Connected products now allow for products to work with one another in a more relevant way. This relevancy may change the way a product works. It may even change the way the product is priced or consumed and how a service is administered or consumed.
As more and more things move online, the single connected product your company offers becomes one of many things that will inform a specific experience for the user. A driver or rider will have a multitude of connected things that will play a role in her experience of driving: the connected car itself, which includes the navigation and entertainment systems, the passengers’ preferences and schedules, the connected home, and charging station availability are just some examples.
This integration responsibility is not just in the car but also in the home, in the store, in the workplace. Everywhere. The profusion of connected products and services will eventually become overwhelming. There will be too many connections and too much data for her to control and manage. People will lose the ability to act as master integrators. This isn’t to suggest they’ll become Luddites. Rather, the expectations of consumers will evolve. They will begin demanding that businesses provide seamless integration for the products and services they offer.
In the Connected World, your customers will abandon a product the moment they feel it has become too difficult to integrate. It’s crucial, therefore, for you to factor in the issue of integration when designing products, creating business models, and forging business relationships. All of your actions should be based on the following understanding: the Connected World is one that removes the human from the role of integrator between two services, two products, or a product and a service. The integration should automatically occur for the person’s benefit.
If the future is one where every meaningful device in the consumer’s life will be connected, then unconnected products will not have the same value to a user as ones that are part of a larger ecosystem. Unconnected products will only be used in special situations. Some may find a way into a collector’s item category, such as antiques or craft works. Others may be a commodity item where human integration is easy and deemed appropriate.
Often, we ask our students to give examples of items that will never be logically connected. The year 2017 was the first time when students couldn’t imagine a product not connected. Prior to this, there were always some students arguing that a screw, clothing, or cleaning solution wouldn’t be connected. We have reached a tipping point of recognition that most products, if connected to a broader ecosystem, will bring value to the user. As you will read in future chapters, this value may come directly to the user, to the user through the added value in the ecosystem, or to the manufacturer and passed back to the user in price or services. As long as IoT technology and information are passed on for the people, we are on the way to a very Connected World.
Real Transformation Is Required
Often, when companies set a course to compete in the connecting world, they don’t look far enough down the runway. They don’t see potential disruption to the industry. They end up stopping short of completing the necessary transformation. Maybe they’ll connect the next generation of the product but make connectivity a premium option, instead of core to their new business model. They may buy the capabilities to deliver a connected service for today, instead of redesigning their company so that it’s ready to compete in tomorrow’s more advanced Connected World.
A car company, for example, isn’t transforming from an automotive company to a mobility company if only one percent of its vehicles in operation are connected. This doesn’t reshape the business and its accompanying capabilities. An appliance company is not transforming its company to participate in the multiple revenue streams if only some of its appliances connect to help monitor usage, sense needed repairs, or become part of the supply chain for groceries or laundry detergent.
One-off connected features are baby steps, insufficient to get the company where it needs to go in order to stay competitive in the Connected World. Inexperienced product managers may feel good to claim a connected strategy in motion if they have launched a sales app, or a stand-alone connected feature, but leaders need to look much deeper. For a complete transformation to take place, leaders must fully understand the Connected World as a technological discontinuity.
It’s not easy to shed the past and become the future, but that’s exactly what needs to happen. It’s why we wrote this book. You’re leading your organization during a time of tremendous change. Disruption at the industry level will necessitate the transformation of firms. It will force you to lead differently. But it’s a change that will offer fantastic opportunity.
Understand that a threat to your company and its position in its industry emerges due to advent of this technological discontinuity, which is when a new emergent technology offers highly superior benefits over an existing technology. The new technology, which sometimes stands on the shoulders of the previous one, breaks the preceding technology’s dominance. This technological discontinuity drives the need to consider new strategies, which often require new capabilities. These shifts in strategy and capabilities will force the need for organizational transformation.
The process and speed of obtaining these new capabilities is never homogeneous. Some companies are faster than others when it comes to shifting the business model. Other companies may move quickly, but in an effort to try to predict the future, they make the wrong choices. Differences in efficacy and speed of reaction lead to industry disruption. Companies that operate with the highest inertia and are unable to take the steps to adjust to the technological discontinuity will fail.
The reality is that some companies will go out of business, or be consumed wholly or in part by an adjacent competitor.
The quicker your company manages to understand the disruption and adapt to the technological discontinuity, the greater its chances of defending and increasing market share. Hopefully, when the new hierarchy in the industry reestablishes itself, you’ll find your company in a better position.
For more on how to enhance an existing firm’s chance of survival despite the impending disruption, check out Competing in the Connecting World by Gregg Garrett and Warren Ritchie.
