– and yet it’s so hard to believe, the mind blocks it out. “Today, everyone expects continuous, linear development in technical advances, but the future will surprise us far more dramatically than most observers believe,” Kurzweil says. “Very few understand what it will mean for the pace of change to accelerate even faster.”
Two examples corroborate Kurzweil’s theory of the logarithmic development of progress. The best-known is Moore’s law. Gordon Moore, cofounder of Intel, formulated his theory in 1965 in the journal Electronics. He noted that the number of circuit components in an integrated circuit doubles each year, and predicted that this will continue. To this day, he has been proved right – processing power has doubled every year. Chips have become smaller and smaller. Today, a standard smartphone has 120 times the processing power of the control computer of NASA’s Apollo moon program, and is four times that of an IBM mainframe from 1998 – which was the size of a refrigerator. And an iPad 2 would have been one of the world’s fastest supercomputers in 1994.
Further support for Kurzweil’s theory is the fact that new technologies are adopted increasingly quickly. Following the invention of the radio, it was another 38 years before 50 million devices were in use around the world. The TV needed 13 years to be welcomed into 50 million living rooms. The Internet boasted that many users after just three years. Facebook needed one year to reach this figure, and Twitter just nine months. In 2016, the hype surrounding Pokémon Go heralded a new record: the game was downloaded to the smartphones of 50 million fans in just 19 days. New products and services are being developed and distributed at an unprecedented pace. Managers around the world still struggle to anticipate such rapid change.
1.4 THOSE WHO TURN A BLIND EYE TO DIGITAL RISK FAILURE AND EXTINCTION
Even though no one expects managers to develop psychic powers, the example of the erstwhile global brand Kodak shows what happens when the company’s management refuses to accept digital change. Blessed with creative developers, Kodak Labs presented the world’s first digital camera as far back as 1975. However, the management put the brakes on the project, fearing that this novelty might adversely affect the highly profitable business with Kodak films. Instead, rivals from Japan did so in the 1980s. When Kodak finally started making digital cameras, it was too late and their early advantage was lost. By 2012, Kodak was bankrupt and its market value of $35 billion was gone.
In the meantime, even the market for digital cameras has become a niche market, but who knows, had Kodak taken the bold step into the digital age in 1975, maybe a learning curve like that of Apple would have been possible. Perhaps then the first iPhone would have been built by camera manufacturer Kodak and not by the computer manufacturer Apple.
QUESTIONS MANAGERS SHOULD ASK THEMSELVES: WHERE ARE YOU?
• What is the phase and degree of digitization in your industry?
• Where is your business model most vulnerable?
• How quickly do changes take place, and how big are they?
• How do you react to these changes – with a lot of small, short-term initiatives or with larger, long-term initiatives?
• Do you know which digital investment(s) deliver the greatest benefit in your industry?
• How much change do you need to survive?
• What are you doing yourself? Where do you need partners or acquisitions?
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DIGITIZATION REQUIRES FUNDAMENTAL RENEWAL: DIGITAL@SCALE
WHY? WHAT? HOW? The concept for a successful transformation into a digital company is based on the answers to these three questions.
For a hundred years, Henry Ford defined our image of business: highly specialized assembly line production with a clear division of labor producing mass scale products (“You can have the Ford Model T in any color as long as it’s black”). The Taylorist system that focuses entirely on specialization and efficiency has given us affordable cars, washing machines, and holiday travel.
And it is this very model of success from the twentieth century that has now become the obstacle to the successful digital transformation of companies. Indeed, organizations that are built for efficiency fear that change brings disorder, and instead tend toward incremental adoption of innovation in tightly defined niche projects so as not to halt the well-oiled corporate machine. All economists know the S curve concept that defines the performance of a technology as a function of the funds invested for research and development. As such, the transition to a new superior technology – the leap to the next S curve – is initially always met with a loss in efficiency.
Unfortunately, those who hesitate to take this leap will lose in the long term. Although efficiency increases only slowly in the lower curve of the new S, the curve suddenly rises very sharply and is ultimately catapulted far beyond the level of the old technology. But this doesn’t help us: those who want to successfully lead their companies into the new digital age need to rethink all structures, processes, and products at scale across the board – that is, Digital@Scale.
It’s easy to build an app. A digital transformation is a much harder task. To ensure that the transformation doesn’t founder on good intentions and unfinished business, digitization needs to follow a clearly defined concept. To start, we need to leave aside catchphrases like Industry 4.0 in order to prepare for fundamental renewal. Three simple questions point the way forward: Why? What? How?
2.1 WHY? THINGS ARE GOING WELL, SO WHY DO WE NEED TO CHANGE?
Companies that are doing good business find it very difficult to suddenly reinvent themselves in order to ensure sales and profit tomorrow. Early indicators of change are often overlooked or seen as unimportant. Even today we still see experiences with the digital revolution like that of Blockbuster, Inc.
In 2004, Blockbuster was the largest video rental company in the United States with 8,000 stores and revenues of $6 billion. No one on the board of the powerful market leader took Netflix seriously, the rival company formed just a few years before where customers could rent DVDs online and receive them in the mail, with attractive subscription models. With no sense of urgency, the Blockbuster engineers worked on a system for online orders. In 2007, Netflix took a huge leap forward by offering video on demand – movies that could be streamed directly via the Internet. The DVD was obsolete. Customers swarmed to Netflix in droves thanks to its attractive offering: no waiting times for mail delivery, no returns to mail, immediate enjoyment.
Only then did Blockbuster react, and developed its own video-on-demand system, but it was too late and of poor quality. Netflix had already gained significant market share, and Blockbuster did not offer any innovative new features that might have won customers back – and to top it all, Blockbuster’s level of service and delivery was worse than that of Netflix. Netflix had immediately won over the Internet-savvy, mostly young customer base. And in just a few years, the vast majority of movie fans discovered just how easy it was to enjoy a pleasant evening
