06
May 13

Digital transformation heralds Golden Age

As you are no doubt painfully aware, we’re living in the Age of Information and Telecommunications. You’re probably also aware that before that, we were in the age of Oil, Automobiles and Mass Production. But did you know that these two are just the latest installments of a series of cyclical, long wave techno-economic paradigms, beginning with the Industrial Revolution?

We often see new technologies disrupt and replace older ones. When Phillips introduced the CD in 1982 it disrupted the vinyl record, just as the MP3 would go on and disrupt the CD in the mid-90’s. Digital technologies have disrupted a whole bunch of technologies and with them: Industries.

Combining the MP3 with the internet and Napster, Sean Parker disrupted the whole music industry around 2000. And earlier this year, Kodak was made redundant because of the digital camera. Incidentally, growth of digital camera shipments has flattened – mainly due to bundling with smartphones.

The integration of cameras with smartphones has proven disruptive for the camera industry

The integration of cameras with smartphones has proven disruptive for the film and camera industry.

Technology regimes
The cyclical nature of technology is interesting from a macro perspective in so far as these dominant technologies bring opportunities for new companies as well as difficulties for existing ones. With new technologies come the conditions for the establishment of new economic conditions, but also challenging conditions for existing firms. The arrival of steam engine technology, for example, replaced sailboats and animal powered transportation, and had huge impact on manufacturing.

Technological revolutions arrive with remarkable regularity. This is one key point made by Caracas-born expert on technology and socio-economic development, Carlota Perez. In her seminal book “Technological Revolutions and Financial Capital: the Dynamics of Bubbles and Golden Ages” (2002), Perez demonstrates how a series of overlapping technology paradigms have defined the techno-economical capabilities of an era since the Industrial Revolution.

Overlapping technology regimes since the industrial revolution

Overlapping technology regimes since the industrial revolution.

After disillusion comes enlightenment
Technology regimes consist of two phases: Installation and Deployment. The installation phase is the beginning: 20-30 years with high hopes for the future and excessive investment finally leads to a bubble and a crash – primarily because the supply potential of the new technology is far greater than the demand. Put simply, the market can’t live up to expectations. This is the logic of the bubble and the reason the Installation phase ends with a crash, a financial crisis, and regulation to bring technology and society on the same page. In that respect, the burst of the dot-com bubble around 2000, the financial crisis, and regulation efforts dealing with piracy, privacy, cookie laws etc. are evidence to this scheme.

The logic of the technology paradigm is, that after the turning point – when the bubble has burst and it is clear that it’s still too early for markets to adopt the new technologies – there will come a phase in which the technology gradually will diffuse into most industries, synergies will be harvested, and a Golden Age can begin.

Inflated expectations are replaced by synergies and a Golden Age when technology disseminates, but it takes a crisis to get there!

Technology diffusion replaces market disappointment with synergies and a Golden Age, but it takes a crisis to get there!

Deployment and transformation
Each technology regime represents a cluster of core technologies with potential for penetration across products and processes. Behind Schumpeter’s notion of Creative Destruction is a clear bias towards product innovation, but for a dominant technology to be a true technology paradigm, it most hold a pervasive potential that can influence not only products, but production and distribution across a wide range of products, processes and services. Innovative process and services are key components of the transition period from the depressive to the revitalized phase of any techno-economic paradigm.

Making a Golden Age of the Deployment Period requires not only extension of markets and economies of scale, but in particular a diffusion of combinations of innovations within the paradigm. This is the central driver for renewed economic growth, the one factor that impacts considerable economic growth the most. A quick glance at Gartner’s yearly published Hype Cycle, provides an indication of how these combinations of innovations mature and find their ways to market in our current technology regime of the microprocessor.

Gartners Hype Cycle as of 2012.

Gartners Hype Cycle as of 2012. At the peak of inflated expectations we find 3D printing – this is considered a disruptive technology, albeit not at a paradigmatic level.

Obviously, this rubs of on the organisations exploiting the new technologies. As Perez says: “Each technological revolution generates a wave of organizational innovation, which, in synergy with the new generic technologies of widespread applicability, offers a quantum jump in productivity for all industries, however old and established.”

Golden Age
Looking back at the disruptive nature of the MP3 it is clear that it would not have disrupted the market without a disruptive distribution system: The internet. In the 80’s computer games were also digital, but limited (physical) distribution kept existing industry structures from crumbling. This points to the immense growth potential inherent in the combinations of innovations, Perez mentions: The combination of MP3 with the internet has led to iTunes and Spotify (and a massive decline in CD sales), MP4 and the internet has given us services like Netflix, Hulu and HBO (and have forced Blockbuster to reinvent their business model – will they be successful?).

With global broadband penetration now closing the gap, the scene is set for a period in which synergies will be found and exploited. 2,7 Billion people – almost 40% of the world’s population – are online, according to ICT Facts & Figures 2013. And we are going mobile, making the dominant technology truly pervasive.

Mobile-broadband subscriptions is up from 268M in 2007 to now more than 2B, reflecting an average annual growth rate of 40%.

Mobile-broadband subscriptions is up from 268M in 2007 to more than 2B in 2013, reflecting an average annual growth rate of 40%. Source: ICT Facts and Figures 2013.

Consumer side is driving the digital transformation we currently see happen across all industries. The market is finally catching up and we see other drivers than the proverbial efficiency gains and cost reductions. Digital is moving out of the IT department and is spreading across the organisations, particularly to Marketing. However, Marketing will not be able to pull this through on its own. Organisations must take the digital transformation to their hearts and inject it as a shot of adrenalin into its core. This takes considerable organisational change. Are your’s ready?


10
Nov 12

Banking: Service innovation is up!

Do you trust your bank? According to Capgemini’s 2012 World Retail Banking report, most people don’t: Twice as many customers around the globe (31%) say they have little or no trust in the banking system, compared to the 15.3% who say that they do. Yet, satisfaction is quite high – despite the fact that banks are struggling to cut cost and optimise earnings following the financial crisis.

Banks are rapidly cutting expenses. And, as The Economist points out, there’s a huge opportunity for this in closing branches. Renting, equipping and staffing branches can easily account for 40-60% of any big retail bank’s total operating costs, with computer systems making up most of the rest. So, we won’t be too surprised to witness the digital channels becoming more and more crowded as more and more banks seek to leverage the obvious operating savings.

In fact, Accenture’s 2011 report Boosting Relevance and Returns: Improving the Digital Channel in Banking quotes a Forrester forecast that predicts spending on the digital channel to rise from 12 percent in 2009 to 21 percent in 2014 (as a percentage of overall ad spending).

Branch revenues are falling, while online revenues are increasing and will continue to grow. So banks are increasingly pushing turnover through the digital channels because that’s where the customers are. Focus is on finding the optimal balance between (digital) channels with self-service capabilities for day-to-day financial transactions, and advisory-based channels (such as the branches) for more complex client needs.

Global Distribution of Sales Volume by Channels (%), 2000–2010E

Global Distribution of Sales Volume by Channels (%), 2000–2010E

Service innovation

For banks to pull forward, digital service innovation would seem like a plausible road to take? After all, their regular differentiation levers – low prices and innovative products have outplayed their roles: Prices are already challenging margins due to competition, regulation and new capital standards, and as banks increasingly market similar products, this commoditized market has limiting product innovation impact (cf. 2011 World Retail Banking Report).

As Forrester has pointed out, although uptake of money management tools is relatively low in Europe, one-third of online Europeans are interested in tools that will give them more insight into their spending.

Many Europeans are interested in money management tools, according to Forrester.

Many Europeans are interested in money management tools, according to Forrester.

Many of these services are already in the market. They’re just not offered by the traditional banks, but put to market by new, agile players with less resistance to innovation. Examples like Mint (organizing spending), Movenbank (social based CREDscore), and Fidor Bank (global-local, social, mobile banking concept) spring to mind.

Interestingly, in the 2011 World Retail Banking Report, Capgemini found that of the six most important factors affecting why customers leave a bank, only two were tied to economical considerations, the remaining four were all about customer experience. And the same goes for the reasons affecting why customers choose a bank.

The 6 top reasons that affect why customers leave a bank.

The 6 top reasons that affect why customers leave a bank.

This pattern has changed only slightly in the 12 months between the 2011 and the 2012 World Retail Banking report, with Fees and Interest rates moving up to 2nd and 3rd place respectively, but the overall picture remains the same: There is a huge upside for creating great customer experiences for banks!

“Positive customer experiences generate loyalty, but few banks consistently deliver them. Less than 50% of customers are having positive experiences through most channels today. Banks need to work harder to ‘wow’ customers as a way to strengthen relationships, as well as to improve loyalty and profitability.”

Digital channels are preferred for by customers for most banking activities: Information, service and day-to-day account history. But when complexity increases, branches are (still) preferred.

The branch is the preferred channel for purchasing complex financial products

The branch is the preferred channel for purchasing complex financial products

The key challenge for banks is to enhance the service in the digital channels. To lead customers towards the digital – not only for simple day-to-day transactions, but also for those high-profits interactions including advice and mortgages.

If traditional banks aren’t moving soon, other players will. They already have, and may well end up owning the relation to the customer.

What do you think? Can digital compete with branches? How can banks strengthen advice through the digital channels?


02
Nov 09

Cars need open innovation and apps

The other day when going to a meeting with a car maker client, I was a little early. So I went to the newsstand to browse magazines and ended up taking Fortune with me because of a small article titled “An App Store For Autos” (I just couldn’t resist).

In the article, the author suggests car makers a more open approach to software integration – after all, software is not what car making is about, so why not let others do that?

Audi and Mercedes have entered into collaborations with Bang & Olufsen to provide hi-end car-fi for the luxury segment’s audio experience, so integrating widget type features would seem only a small step away?

Open innovation

They seem to have gotten the message already at Ford, whose SYNC system (developed with Microsoft on their Microsoft Auto platform) is enabling synchronization with the driver’s media player and mobile phone, as well as offering traffic information. The news is that Ford is now opening up their development platform to embrace a model of open innovation.

In a statement, Ford says:

“The auto industry has long operated within a walled garden, with very little input from outsiders. The technology industry, on the other hand, continues to push the boundaries of innovation, and the result is a thriving industry that is delivering breakthrough technologies to customers.”

Letting people outside the industry join in development is a natural first step. Rethinking the in-car connectivity platform would seem the logical next.

In a way it’s similar to the discussion about the future of mobile services: Should mobile services be embedded in a browser (across platforms), or should they come as nifty, branded applications (for the individual platform)?

The way I see it, car makers should not be content with synchronizing people’s gadgets. They should provide enhanced in-car experiences with the help of open innovation – much like what we see on mobile platforms like iPhone and Android today (and what Ford is now spearheading with the University of Michigan collaboration).

With the expected surge in mobile broadband and data consumption and – not least – affordable data plans, there is a future lined up for in-car experiences that gets its juice from the cloud (check this PUGcast post for some interesting reflections on Cisco’s forecast) and functionality from in-car widgets. Cars will be able to connect with the environment, with other vehicles – and with the apps in these other vehicles.

A heads up windshield display from the not-so-distant-future, imagined by Wired

A heads up windshield display from the not-so-distant-future, imagined by Wired

The connected car

The Fortune article discusses ideas for apps that could be used e.g. to protect (limit?) certain drivers – say an old (or young!) family member, but why not extend the thought? With the car connected to the internet we can begin to look at it “as a node in a network,” as a recent Economist article wrote. I would be able to sync my car – not with my phone or music device, but with my entire music library, my contact lists, as well as those countless other services that belong to my online existence – e.g. my social graph that could be integrated with yet other services into the (soon to come) heads up display that will be the next generation windshield.

Not only would I be able to stay connected whilst on the road; I would also be able to enhance this experience with the integration of e.g. location based services, augmented systems to let me look around the corner through walls (as this post shows – online surveillance footage could be feeding this?), suggested routes (based on my preferences for landscape/shopping/gas/traffic the car would harvest from the surroundings), Google maps (with its new navigation app, needless to say) and of course: Fully integrated (geo tagged) social networking.

If the car industry has too long development cycles to make this happen (as recently suggested by BusinessWeek), leave it to others and the after-market, but please let us have a common platform this time!

What do you think?