IAN MANN REVIEWS: Do or die - the CEO's guide to surviving major digital disruption

Digital transformation: Survive and thrive in an era of mass extinction, by Thomas M. Siebel

"Today we are seeing a burst of evolutionary change – a mass extinction among corporations and a mass speciation of new kinds of companies," writes author Thomas Siebel. 

The extent of this change, and what is required for organisations to survive, is the focus of this book. Though I have mentioned this phenomenon in previous columns, it is worth repeating: Half of the companies that were on the Fortune 500 list in 2000 are no longer on the list today.

The cause of these declines is the stage of societal evolution we are experiencing. Science and technology have evolved spectacularly and have collided with our social and economic systems. This has disrupted the equilibrium we have been experiencing for a long time.

This is a process mankind has been going through since the discovery of fire, the domestication of dogs, agriculture, gunpowder, recording time accurately, transoceanic transportation, the Gutenberg Press, the steam engine, the locomotive, urban electrification, the automobile, the airplane, the transistor, television, the microprocessor, and the internet.

"Each of these innovations collided with stable society, and then a little hell broke loose," Siebel notes. What this list shows is that these disruptions are occurring more frequently and causing upheavals more rapidly.

Telecommunications provides a clear example. The telegraph revolutionised long-distance communication in the 1830s and was disrupted 45 years later by the first telephone. Forty years later came the first transcontinental telephone call from New York to San Francisco, and 40 years after that came the first wireless telecommunication with pagers.

Massive disruption

This was massively disrupted by the first cell phones, the arrival of high-speed wireless, and then in 2000, billions of smartphones. All in less than 20 years! This is but one of many examples of the speeding up of disruption.

Merely following the trends of change is not enough: organisations need to reinvent the way they interact with this changing world. This starts with the recognition that the existing model has run its course, and the organisation must evolve or disappear.

This book describes the essence of the current disruption – digital transformation. At its core is the confluence of four profoundly disruptive technologies. These are cloud computing, big data, artificial intelligence and the internet of things. The scope of digital transformation and its implications are still evolving, and its impacts are only in the process of being understood.

It is critical for companies of all sizes to address this digital transformation because failing to do so, is to risk extinction.

Caterpillar to butterfly

The first wave of digitalisation arrived through mainframes and minicomputers, mostly used to perform calculations. Then came the PC which added flexibility, because you could simply get on with work at your desk. The PC was a progression beyond calculations to word processing, graphic design, workgroup email systems, and more. It transformed days or months of human work into seconds via the keyboard.

However, computerising airline reservations and tickets, or providing banking information and services, was little more than doing the usual easily and effectively.

The current digital transformation "is a more caterpillar-to-butterfly process" and demands revolutionary changes to key competitive corporate methods.

The crux of this is that computers that had followed instructions, are now able to learn.  They will diagnose diseases, drive cars, anticipate disruptions in supply chains, take care of our elderly, and speak to us. And the list goes on to things we haven’t even thought of yet. What we do know is that this is the era in which we will master mental power.

In many ways digital transformation will improve human life. For example, in medicine, we can expect very early disease detection and diagnosis, extremely precise surgeries performed with the help of robots, at a dramatically reduced cost.  

In the automotive industry, we can expect self-driving cars, reduced accidents and casualties, fewer drunk drivers, lower insurance premiums, and decreased carbon emissions.

Here is an extremely brief overview of the four key technologies that both drive and enable digital transformation: cloud computing, big data, artificial intelligence (AI), and the internet of things (IoT).

Cloud computing is a way of accessing shared pools of configurable hardware and software resources such as computer networks, servers, data storage, applications, and other services. It can operate with minimal management effort, typically via the internet.

This market is estimated to reach a staggering $162bn by 2020, just a decade and a half after its inception. Amazon Web Services alone will grow to $43bn in annual revenue by 2022. It started as an internal service for Amazon’s computing needs. Traditional IT data centres will be extinct within a decade.

Over the last dozen years or so, software technologies have emerged that are designed to use scale-out architectures for parallel processing of ‘big data’.

With the cloud providing unlimited computer and storage capabilities, along with revolutions in software design for processing of data at massive scale, there is no longer the need for sampling data. Outliers or otherwise imperfect data are appropriately weighted through the analysis of large data sets.

Change in expertise

There is no longer the need for an expert’s opinion of an event’s cause: the AI algorithm can learn the behaviour of complex systems directly from the data generated by those systems.

Rather than requiring an experienced loan officer to specify the causes of loan defaults, the system or machine can learn those causes and their relative importance more accurately, based on analysing all available data from prior loan defaults.

An experienced physician is no longer required to predict the onset of diabetes in a patient. That can be learned from data by the computer more quickly and with much greater accuracy.

AI is the science and engineering of making intelligent machines and computer programs capable of learning and problem solving in ways that normally require human intelligence.

AI is already being applied to highly complex supply chain problems, such as inventory optimisation. In the health care field, AI will predict the likelihood of having a heart attack, based on medical records and other data inputs — age, gender, occupation, geography, diet, exercise, ethnicity, family history, health history of hundreds of thousands of patients who have suffered heart attacks, and millions who have not.

The fourth technology driving digital transformation is IoT. Its real power comes from the fact that computing is rapidly becoming ubiquitous and interconnected. Microprocessors are steadily getting cheaper and more energy efficient, and networks faster.

Today, inexpensive AI supercomputers the size of a credit card are being used in devices such as cars, drones, industrial machinery, and buildings. Essentially, everything is becoming a computing device and AI capabilities are increasingly being built into these devices.

Soon, humans will have tens or hundreds of ultra-low-power computer wearables and implants continuously monitoring and regulating blood chemistry, blood pressure, pulse, temperature, and other metabolic signals.

Each of the four technologies driving digital transformation present powerful new capabilities and possibilities.

Threats to your company are coming from unexpected quarters with devastating effect. In January 2018, Amazon, Berkshire Hathaway, and JP Morgan Chase announced a joint venture into the health care industry. That day $30 billion of market capitalisation was erased from the 10 largest U.S. health care companies, with some dropping by as much as 8%.

This example may seem extreme, but it is just the beginning. If you are the CEO, you had best become very familiar with digital issues and be the first, not the last, to get with the wave.

Digital transformation is the next do-or-die imperative. This book is a good place to start.

Readability         Light ---+ Serious

Insights              High +---- Low

Practical              High ----+ Low

Ian Mann of Gateways consults internationally on strategy and implementation and is the author of ‘Strategy that Works’ and ‘The Executive Update.’ Views expressed are his own.