Digital technology has been roiling markets and disrupting companies for more than two decades, but despite that lengthy history, incumbents are still struggling to enact and deliver on digital transformations.
The first challenge is disruption; digitization is enabling new, disruptive models that aggressively compete with legacy models, putting material pressure on incumbents’ revenue and profit growth. As incumbents fight back with their own digital strategies, our research shows that they often trigger a second wave of competition, closer to the notion of Schumpeterian imitation where incumbents start themselves to innovate, sometimes aggressively, against the threat of entrants slashing yet more revenue and profit growth. We estimate that on average, both waves of digital competition has taken out half of the annual revenue growth and one third of the growth in earnings from incumbents that have failed to respond to digital.
The second challenge is that, even when companies do launch transformations in response to competition, the results are often underwhelming. Based on our recent worldwide survey of 2,000 incumbent companies across all major industries and countries, we estimate that the average return on incumbent digital initiatives is below 10% — barely above the cost of capital. Besides the average, however, we also witness in each sector a large spread among firms in terms of their ability to sustain growth and generate a return from their digital investments. The top-performing decile of companies achieves revenue growth that is eight percentage points higher than the industry average and a digital ROI that is 10 times that of the bottom decile companies.
Boldness is key
To understand what these outperformers do differently, we dug deeper into the data and found that the degree to which they reshuffle their activity portfolio (e.g., by selling some activities, buying new ones, or materially reallocating investments among remaining business lines) as well as to which they adapt position in their industry value chain mattered enormously, both in achieving higher digital ROI and reversing the digital curse of low growth.
We clustered companies in two ways. First, based on the level of boldness of their corporate strategy, as measured by the degree of changes above, and extended to two measures of firm commitment to radical changes, e.g. how they are doing those changes at the expense of cannibalizing their current revenue and profit pools and how they are willing invest in digital technology. The higher the share of cannibalization and the higher the investment devoted in comparison to competitors/peers, the bolder the strategy; using our classification, we found four distinct clusters. In particular 13% of companies are part of the most offensive cluster ( which we call “big and bold”), which is composed of companies which are more radically adapting portfolio and investing significantly more than peers, with high rate of current revenue cannibalization. Further, a clear pattern is emerging: The bolder the digital strategy, the more likely the company is to have a successful digital transformation. In our dataset, bold corporate strategies were associated with significantly superior performance on all counts: revenue growth, profitability growth, and return on digital investment.
We then classified companies based on the digital strategy they were pursuing. To do so, we outlined six digital strategies. The first three are primarily offensive, targeting new demand, new supply or new business models. The second three are defensive in nature, since they are aimed at improving what the firm already does.
The six types of digital strategy
1. Platform play:
One third of firms have engaged to some degree in platform strategies, in an attempt to redefine their industry’s value chain so customers and suppliers can interact more directly and benefit from network effects. Platforms have the power to radically alter the way value is distributed in a value chain. Accor, which is opening its online booking platform to independent hotels offers a good case.
2. New marginal supply:
A smaller fraction of incumbent firms (13%) were using digital technology to tap into previously inaccessible sources of supply at a marginal cost, often, but not always, in combination with a platform play. Examples include the Swedish retailers H&M and Ikea, both of which are offering an online reseller options for their own customers, allowing them to sell used, branded products to one another.
3. Digitally-enabled products and services:
Other companies, some 55%, were using digital technology to create new products or services with digital features, typically to serve new demand. One example is P&G’s Oral-B toothbrush with Bluetooth-enabled digital guidance.
4. Rebundling and customizing:
Another 60% of companies are using digital technology to rebundle their products or services to better serve their existing customers. The paywall for news content erected by the New York Times where people can personalize reading lists and organize the content they read is a good example.
5. Digital distribution channels:
Many firms – almost 60% – invest in digital distribution channels, in an attempt to make it easier for customers to access their products or services.
6. Cost efficiency:
Almost half of companies we looked at were using digital to improve their cost efficiency, typically through automation or cost scaling. In an age where operational excellence is the norm, this strategy looks like it’s aimed at survival rather than creating a source of comparative advantages.
We found that successful companies, especially those with a bold corporate strategy, were considerably more likely to employ one of the three offensive digital strategies. Successful digital transformations are significantly less focused on cost efficiency and more focused on new products or new customers.
For companies committed to transforming and adapting, the key is to make sure that their strategy really is transformational and not just a bundle of cost-cutting measures. Our data shows that, while digital attackers often enter markets with a platform-based business model, only a handful of incumbents have done so. In effect, incumbents are losing because they’re playing defence. For companies looking to successfully ward off digital disruption, they have to play offense.
Source: Harvard Business Review
"Survive" automation by means of continuous training
Our society is undergoing a total technological change: artificial intelligence, automation, the Internet of Things, etc. We are unquestionably witnessing the dawn of the fourth industrial revolution, bringing its share of opportunities and breakthroughs, but also anxiety and upheaval. The labour market is the first in line on account of increasing automation of many jobs. What can companies do today to prepare the future?
Automation is on the way and its effects are likely to produce a far-reaching transformation of the labour market. In 2013, an Oxford study was already highlighting how robots would take over within 10 to 20 years. In 2016, the Brookfield Institute concluded that almost 40% of Canadian jobs would undergo some sort of automation in the same period. Finally, if any more persuasion is needed, a recent report from the McKinsey Global Institute estimates that 375 million workers – that is 14% of the global workforce – will need to change their type of employment due to technological transformation.
Developing workers' "employability"
The different forecasts are clear: we are likely to witness a growing imbalance between the needs of the market and the "quality" of the offer. A threat? Certainly, but there are also new opportunities to grasp. In order to bridge the gap between the skills on offer and the demands of the labour market, as well as to improve the "employability" of tomorrow's workers, the McKinsey report suggests at least two solutions: re-train workers and equip them with different skill sets, more in line with changing needs. A task that always falls to companies themselves, according to the consultancy firm.
Permanent training and re-training
Life-long apprenticeship must therefore become the given and accepted norm for everyone, companies and workers. A necessary cultural change to make continuous training an attractive and stimulating process. This means allowing workers to acquire skills at all stages of their careers and in every possible way, especially by benefiting from new technologies that make knowledge transfer accessible to everyone. While educational institutions and companies have a role to play, it is also crucial to put more emphasis on interactive tools and applications, such as MOOC (massive open online courses), allowing flexible, quality online learning.
Learning to learn and soft skills
In a world that is continually changing with increasing speed, the need for re-qualification and upgrading are growing. This process of permanent updating highlights another aspect essential to the future of the labour market: while knowledge is important, it is also and especially the worker's capacity to learn that will be decisive. At the same time, their soft skills will be increasingly critical: their flexibility, critical thinking, creativity, attitude towards problem-solving, and so on. In this context, companies' human resources departments will also need to adapt, so they are capable of accompanying, guiding and coaching workers down the road to the automated labour market.
Why are cobots the best logistics partners?
Cobotics is enabling robots and humans to work side by side. A fruitful collaboration, especially due to the automation of repetitive, dangerous tasks or tasks that require strenuous physical effort, thereby freeing up employees to carry out higher value-added activities.
Various technological "revolutions" are continuously changing the face of the economy and the reality for economic players. In this respect, new generations of robots are evolving very quickly in order to be even more responsive to the needs of companies, especially SMEs. This phenomenon is known as cobotics, short for collaborative robotics, and aims to develop machines designed to assist human operators in the best possible way. Unlike traditional robots, cobots work hand in "manipulator" with humans and do not replace them. While they have a relatively low degree of autonomy, these devices do have a genuine capacity for adaptation in real time. They can also learn new tasks and automate them in order to reproduce them ad infinitum, in particular thanks to machine learning and the emergence of tactile, visual and auditory sensors (as with Baxter, the robot with two arms and a face).
Many businesses understand that robotisation, and cobotics in particular, are not the future, but the here and now. A reality that comes into its own in certain sectors, such as medicine, aeronautics, automotive (on assembly lines, for example), education (as with Leka, the playful, teaching robot for children), industry, etc. These cobots are also shaking up the old rules of logistics, by taking over tasks that are laborious, repetitive or dangerous for workers, such as accessing high shelving, moving heavy loads, etc. A step forward in the fight against ailments associated with supply chain jobs, such as musculoskeletal disorders (MSDs).
These collaborative robots also represent progress towards "augmenting" humans, by increasing, for example, their cognitive abilities, accuracy, resistance or even their physical strength. Exoskeletons (such as Hercule V3), for example, are helping to improve human abilities — run faster, carry heavier loads, improve accuracy, etc.
Assigning low value-added tasks
While humans will still be steering machines and processes, there are many advantages associated with using cobots. When they are fitted with several arms, for example, they can perform different tasks at the same time, which is difficult for humans to do. Another example of simplifying the work of the supply chain: the development of applications for reading barcodes in warehouses. Using these sensors, the robot-assistant is then able to identify and position the products, carry out palletising and depalletising operations in complete safety, but also perform quality control, packing tasks, etc. These genuine mechanical co-workers therefore free human employees from these repetitive tasks so that they can focus on higher value-added tasks.
Better at anticipating
In order to take human-robot collaboration even further, certain developments are aimed at mechanical assistants capable of sensing and anticipating human movements, thanks to perception tools (cameras, gyroscope and accelerometer-type sensors, conductive foam, etc.) and learning algorithms (machine learning). The idea is to equip the cobot (such as iiwa, CR-35iA, iZac or APAS) with a form of "intuition" and "sensitivity" that enables it to adapt its behaviour to the actions and movements of the human operator. Intelligent and flexible, these mechanical employees are therefore synonymous with saving time and effort, as they can intervene, for example, to point out an error in the various stages of the production chain.
Developments for the future
The world of cobotics is full of promise, but the scope for progress is still huge. The challenge? Equipping these mechanical co-workers with more flexibility, mobility, better gripping skills (close to those of humans), integration systems and more accessible and intuitive programming modes, without neglecting aspects relating to the safety of such collaborative work.
Artificial intelligence: the future is now!
There is a lot of hype surrounding artificial intelligence. How do we bridge the gap between the optimistic vision of this technology as an engine for growth and the fears associated with the potentially significant job losses? UCM decided to ask its members.
In order to highlight the challenges and opportunities related to artificial intelligence, UCM carried out a recent study on this technology. There is no doubt that, in the coming years, artificial intelligence will become increasingly important in our daily lives. But are Belgian companies prepared for this revolution? What are their thoughts on the emergence of artificial intelligence? Are business leaders putting measures in place to seize its benefits? The findings are rather alarming...
Lack of support still prevails
Only 9% of SME leaders (in Wallonia and Brussels) have already integrated artificial intelligence into their business with around 5% planning to do so "soon". A relatively poor finding, especially since half of them believe that artificial intelligence is "useless and not for them". In terms of perception, one third of the entrepreneurs surveyed see this technology as an opportunity and 25% are "rather receptive" to its impact. The results also show that around 14% of these entrepreneurs see it as a threat and 17.3% see it as a risk. What is even more surprising is that around 75% of SMEs believe that artificial intelligence will have no impact on the workforce, although just under half still plan to review staff training. Another interesting fact: one third of the SMEs surveyed would like to slow down the emergence of artificial intelligence by "taxing robots and/or algorithms" in favour of human employment.
Essential requirements for promoting artificial intelligence
The UCM report also highlights that the majority of SMEs (57.8%) would like "more, and especially sectoral information". As UCM points out, this stems from the fact that artificial intelligence will have a geometrically variable impact depending on the sector concerned. One of the "requests" among companies is always: public support for investment (37.5%). Indeed, the digital revolution, and especially this technology, represents, for the most part, a significant cost. To help businesses meet this challenge, the survey also draws attention to financial support for staff training (20.7%) and consultancy cheques (16%). And these results are heightened even more by the fact that, according to the consultancy firm Accenture, Belgium is behind all the others as regards the forecasts of increased productivity generated by this technology. Indeed, several countries are taking action in this regard: according to the Indian company Infosys, 86% of organisations with 500 to 5,000 employees are utilising artificial intelligence.
Artificial intelligence: no longer science fiction
As UCM recalls, "the goal of AI is to copy the "reasoning" capabilities of the human brain without the biological capabilities" or, as Accenture puts it, it is "a set of technologies enabling machines to perceive, understand, act and learn, whether for themselves or to enrich human activities". Thierry Geerts, CEO of Google Belgium (interviewed by UCM), draws a parallel between the emergence of artificial intelligence and the revolutionary arrival of the computer in the 1980s. The future of business is definitely set to change... But what will this "new world" look like? Superintelligent virtual assistants, predictive analysis thanks to machine learning, reasoning bots, automatic means of transport, etc. There are plenty of examples for depicting what is just around the corner. Faced with these challenges, companies must be prepared to utilise artificial intelligence, because, as the philosopher Maurice Blondel once said, "the future is not forecast, it is prepared".
European robots versus Japanese automatons
Picker robots, medical robots, delivery robots… Is Europe being overshadowed by the land of the rising sun?
Japan no longer needs to make their mark in the robotics field. The first hotel managed by robots, the humanoid Erica engaged as an announcer by a Japanese TV news programme and AIbo, Sony’s robot dog, only reinforce Japan's image of expertise here.
But Europe is rapidly closing the gap. A report published by the French IFR (Federative Research Institutes) shows that our continent now has the most manufacturers of service robots.
Following many programmes set up by the EU to promote innovation, support research, and raise awareness of robotics, Europe now has 293 service robot companies compared to 242 in the USA and 134 in Asia. By 2020, this market should grow 20 to 25% a year. Many entrepreneurs are discovering robotic ambitions and digital investors are now showing an interest in robotics. That said, while the number of companies is raising Europe to a leading world position, from the turnover point of view, there is still a long way to go. The sector has not yet achieved sufficient clout.
The market for personal robots (6 billion dollars globally compared to 40 billion for industrial robotics) has huge fields of application: vacuum cleaner robots, grass cutting robots, and soon no doubt kitchen and ironing robots. This is a nascent market, just like that of professional service robots which represents double the turnover, but produces far fewer units.
Among professional service robotics, logistics is the most sought after application. The first logistics robots, already active in industry since the 1980s, especially on assembly lines, are entering the warehouses of distribution centres.
However, robots do not plan to stay in closed circuits they are coming out onto the streets. Tested by the French military, Effidence follower robots that assist operators to support weights, are now being tested by DHL and the French and German postal services.
Traffic congestion, respect for the environment, cost, etc. – the closer to the final addressee, the more the challenges increase. The solutions include, ecological transport methods, like the bicycle, sharing or even robotisation. For example, with the Lyon firm TwinsWheel which has already convinced Renault, the SNCF, Siemens, Nissan, etc. by choosing three segments:
- logistics on indoor or outdoor closed sites for industry and offices,
- semi-open sites, like hospitals, commercial centres and private districts
- delivery of the last km, that is on the roads, a solution much awaited by sector professionals.
Europe and farming robotics
Logistical robotics is not the only sector making our continent proud – the ‘traditional’ farming sector is also gaining steam. New robots are flourishing in the sector and work at picking, field labour or surveillance. Or what about an automatic system milking 1,600 cows a day, using a rotating plateau with 24 ‘milking spots’ and 5 robotic arms? It certainly does not look like a typical humanoid robot, but it nonetheless handles dozens of cows simultaneously for automatic milking sessions.
Another example is the chance meeting of two robotics engineers and an asparagus producer, which lead to the birth of the first farming robot marketed in the world, called Oz and supported by Naïo Technologies. The start-up, now based in Belgium, took up the issue of the work drudgery of market gardeners and the use of toxic chemicals to propose robotic mechanical weeding, without herbicide application.
Health, another promising opportunity
Robots have been aiding Japanese senior citizens for a couple of years, but they are now doing so in Roubaix as well. Roubaix-based firm Cutii is designing a home cleaning robot which, thanks to a call for projects in new technologies applied to medicine, it has tested with some fifteen elderly people before offering it for hire.
Moreover, the robot is starting its breakthrough in operating units and especially in neurosurgery. Finally, the automation by a start-up and a Strasbourg laboratory of a neurostimulation technique useful in treating patients, a world first, is crossing the Atlantic where the procedure is now accepted by private health insurers.
Will European innovations go even further ? While Europe is clearly competitive in innovation matters in the robotics sector, will it now make the transition to industrialisation?