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Economy 4.0: The Global Revolution and its 5 Disruptive Forces (part 3 of 7)

Written by Reinhold M. Karner on Wednesday, 05 October 2016.

THE MAJOR DISRUPTIVE FORCE OF THE DIGITAL TRANSFORMATION AND THE DIGITAL ECONOMY

Today, even the pace of innovation seems to be on its edge, with technology and society evolving at a faster pace than businesses can adjust to. This is challenging any leadership to ‘adapt or die.’

Smart phones, apps, digital media, photos and maps, social web, video games, the cloud, drones and robotics, accurate weather forecasts: these are just a few examples of life-changing things made possible by the exponential growth in the power of computer chips over the past five decades – Moore’s Law, named after Intel co-founder Gordon Moore.

In 1965, Gordon Moore observed that transistors were shrinking so fast that every year, twice as many could fit onto a chip without increasing costs, and in 1975, adjusted the pace to a doubling every two years. Although it was originally not expected to remain valid till today, no one really knows when the theory will no longer apply. This constant doubling for nearly all digital electronics is strongly linked to Moore's law: quality-adjusted microprocessor prices, memory capacity, sensors and even the number and size of pixels in digital cameras, the speed of data transmission and its result into an avalanche of data generation. Eron Kelly from Microsoft predicted: "In the next five years, we’ll generate more data as humankind than we generated in the previous 5,000 years."

Referring to part 1 in this series, in which I spoke about the progress and results of constant doubling (where 30 exponential footsteps take you not just 30 meters but 26 trips around the world), we are – according to MIT’s professor Andrew McAfee, using 1958 as starting point where information technology was first noted by the U.S. BEA – at exponential footstep number 39. That would take us 13,750 times around the world – just to illustrate the staggering and exponential speed of development of this major disruptive force. We have certainly arrived at the digital age and its digital economy, with a vast and exponentially growing number of use-cases.

What we can learn from anthropologist Ian Morris’s research is that nothing has bent the curve of human history more than the first industrial revolution. For thousands of years, humanity experienced an incremental upward trajectory. It was steam power in the 18th century that started it all, followed by other technological innovations including mechanical engineering, chemistry, metallurgy, electricity and the combustion engine. Within 200 years, it had bent the curve of human history — of population and social development — nearly vertically. According to Morris, the ability to generate massive amounts of mechanical power was so important that it “made mockery of all the drama of the world’s earlier history.”

Prof. McAfee’s lesson is clear: computers and other digital advances are doing for mental power (the ability to use our brains to understand and shape our environments) what the steam engine and its descendants did for muscle power.

2015 was the year where digital business found its way into the enterprise. The digital transformation is disrupting industries, economies, jobs and lives faster than most people realise. This is not just about digital start-ups, it’s everyone in every industry! Global digital commerce now amounts to over a trillion euro annually, and in the private sector, nearly 25 per cent of revenue comes from digital – in five years it should be 40-45 per cent! As most analogue revenues flatten or even decline in many industries, businesses are shifting to a new source of growth: digital revenue from digital business, including the digitalisation of things.

Digital business is the creation of new business designs by blurring the digital and physical worlds, making it possible for a variety of industries to participate seamlessly within the same value stream process composed of people, businesses and things.

There is another speciality, a unique economic property of digital information: such information is non-rival, and it has close to zero marginal cost of reproduction. That means that digital information is not ‘used up’ when it gets used, and is often extremely cheap to create another copy of a digitised resource (such as ebooks and music), while only one person or thing can consume rival goods at a time.

Digital business will break down traditional barriers between industry segments, creating completely new value chains and new business opportunities that may not be filled by incumbent players. It will also challenge existing industry boundaries and the dominance of leading players, causing them to rethink their business. As the famous Canadian author and influential management thinker Don Tapscott states, “Digital Business is a new paradigm. Paradigm shifts involve dislocation, conflict, confusion and uncertainty. New paradigms are nearly always received with coolness, even mockery or hostility. Those with vested interests fight the change. The shift demands such a different view of things that established leaders are often last to be won over, if at all.”

To compete in a digital world, enterprises must digitalise their models, in which products, services, markets, channels and processes are transformed through digital technologies. Gartner Inc., the world's leading information technology research and advisory company, believes, “digital business is the essence of digitalisation as it disrupts existing business models — even those that were born of the Internet and e-business eras. Why? As the presence of the IoT (Internet of Things) grows, the things’ ability to generate new types of real-time information and to actively participate in an industry’s value stream will also grow.”

Practically everything (device/object) that can be instrumented (digitised/connected) will be. Every piece of equipment, anything of any value will have embedded sensors and be connected to the Internet. The Internet of Things (IoT) will happen without human users!

Cisco’s executive chairman and former CEO John Chambers said that 500 billion devices will be connected to the Internet by 2025. He sees a global $19-trillion ‘Internet of Everything (IoE)’ opportunity (that's the entire US economy plus some) – the networked connection of people, process, data and things — which is opening up new opportunities in both public and private sectors. Chambers is picking the next 10 years to be a period of ‘explosive growth’ not seen since the '90s glory days of the Internet. “This new digital age will have five to ten times the impact of the Internet today,” he says.

In 2016, investments in IoT hardware will exceed 2.3 million euros per minute. Within five years, one million new devices will come online every hour, leading to approximately 50 billion connected things in 2020.

Samsung’s Co-CEO BK Yoon made a strong statement: “the IoT is a huge game changer. The most important topic for our industry right now, something that will revolutionise our lives and unlock infinite possibilities. By 2020 every single piece of Samsung hardware will be an IoT device, whether it is an air purifier or an oven.”

And it isn’t just their competitors that will follow suit. The manufacturing industry is where the future of Industry 4.0 facilitates the vision and execution of a Smart Factory, where modular, structured, cyber-physical systems will monitor IoT physical processes, creating a virtual copy of the physical world and making decentralised decisions.

3D-printing as new additive manufacturing and Industry 4.0 will widely change the way production and logistics are carried out. 3D-printers which create high-value innovation opportunities using advanced materials will soon be able to simultaneously print multiple materials such as plastics, calcium phosphate, graphene, conductive ink, glass, advance nickel alloys, electronics, food, bio-inks, pharmaceuticals, carbon fibre, kevlar and fiberglass. This will offer you a personal factory at your office or home, and a wide new era of inventions.

But we should also consider – although this might sound like science fiction to many – that as ‘things’ become more intelligent, they will become independent and autonomous businesses that buy and sell as people — with rights and responsibilities — just as corporate entities are today. Things that can receive information, negotiate, buy and request service represent new customer opportunities for all industries. When things become ‘people’ and customers, they’d have the greatest impact on supply chain, distribution networks and existing sales models.

That’s a lot of interconnections – creating billions of new relationships not driven solely by data but by algorithms. The Algorithmic Business is already here: interconnections, relationships and algorithms are defining the future of business. The Internet of Things will be the catalyst for a new age of algorithms. The arising algorithmic economy will include businesses that are key for creating highly beneficial data products.

But it’s vital to understand that the real value is not in big data, as Peter Sondergaard, Senior VP and head of research at Gartner Inc. puts it: “Data is inherently dumb, it doesn't actually do anything unless you know how to use it, and how to act with it. The real value is not in big data but in algorithms, as they define action.”

Dynamic algorithms are at the core of new customer interactions. In the future, algorithms – all encoded in software – will define the way most of our world will work. Using a set of rules to follow in making ‘computations’ is how today's leading websites and services work their magic. Agents and virtual personal assistants are becoming real: Apple’s Siri, Microsoft’s Cortana, Amazon’s Alexa and Google’s new virtual assistant tool Google Assistant are just the early prototypes. So, the post-app era is coming!

Agents enabled by algorithms define the post-app era. A market for algorithms will soon emerge. By 2020, smart agents will facilitate 40 per cent of interactions, so many users will even have forgotten about apps. Instead, they will rely on virtual assistants – algorithms in the cloud – that they trust.

The furious pace of technological adoption and innovation is shortening the life cycle of companies and forcing executives to make decisions and commit resources much more quickly. Leaders in business, politics and society should adjust to this new reality.

But there is another interesting ‘thing’ one should have on their radar in this infinite array of new technologies and innovations: Blockchains. It’s the outstanding technology most likely to change the next decade of business. Today, Blockchain is the technology underpinning the cryptocurrency Bitcoin.

The Blockchain technology is itself complex, and another example of the unexpected fruits of cryptography, but based on a simple idea. At its most basic, Blockchain is a gigantic, worldwide distributed ledger or database running on millions of devices and open to anyone, where not just information but – and that is its new nature – anything of value, like money, titles, deeds, music, art, scientific discoveries, intellectual property, and even votes, can be moved and stored privately and securely. That means Blockchain is a trust machine, a trust protocol – the second wave of the Internet!

Blockchain is at its core powerful for one reason: it solves the problem of proving that when someone sends you a digital ‘something’, they didn’t keep a copy for themselves, or send it to 20 other people. Their respective computers regularly agree on how to update the database using a consensus mechanism, after which the modifications they have settled on are rendered unchangeable with the help of complex cryptography. Once information has been immortalised in this way, it can be used as proof of ownership. Maintaining this type of ledger of goods and services is a remarkably important aspect of global economics.

Blockchain could for instance even help to cut electricity bills, research suggests. A Blockchain-based smart plug that can adjust power consumption minute-by-minute has been created by technologists at Accenture. In the future, ownerless companies could be based and run on the Blockchain.

On the Blockchain, trust is established not by powerful intermediaries like banks, corporations or governments, but through mass collaboration and a clever code. Blockchains ensure integrity and trust between strangers. The Blockchain can also serve as the underpinning for ‘smart contracts’ – algorithms that, for example, automatically execute the promises embedded in a bond.

As Harvard Business Review quotes, “it’s the first native digital medium for value, just as the Internet was the first native digital medium for information. And this has big implications for business and the corporation.”

It is easy to see why bankers get excited about distributed ledgers. Instead of having to keep track of their assets in separate databases, as financial firms do now, they can share one. Trades can be settled almost instantly, without the need for lots of intermediaries. As a result, less capital is tied up during a transaction, the risk will be reduced immensely and the cost of transactions will become negligible. More than 40 leading banks already have a stake in R3 CEV, a start-up meant to come up with shared standards. Similarly, firms including IBM and Digital Asset Holdings have started the Open Ledger Project to develop open-source Blockchain software.

Like the Internet democratised the exchange of information, transforming entire industries in the process, the Blockchain could democratise the exchange of value – a concept with staggering possibilities.

However, one can keep writing about this major disruptive force, going into the implications of autonomous cars, digital healthcare, and the next phase of mobility whereby most of us will use a mesh of mobile devices and wearables on our bodies and so on. So I’d like to refer to one last – but important – topic, from an unusual or perhaps unpopular perspective: robots, drones, smart machines and artificial intelligence.

As long as these technologies are supporting us in a fruitful way, we should be fine. But as we enter into a ‘conflict of interest’ zone between humans and machines, we should think twice, decide and regulate it in a wise way. We need to get this right, it’s unlikely that we’ll get a second chance without massive collateral damage – if any at all – if we get it wrong.

A worrying development is that by 2025, computers could do the work of 140 million knowledge workers, and robots could do the work of another 75 million people. There will still be high demand for skilled positions and many totally new professions will be created, yet we’ll eradicate much more jobs than create new ones.

And the aim can’t be to either expect or everybody to acquire an IQ of over 120, to make up nations of poets, thinkers and Einsteins, or for everyone to be a manager or top-qualified scientist, or to create a ‘useless class of humans’ who are paid a basic income and are allowed to ‘enjoy’ fun and leisure. This would be dead wrong and off track. We all have countless talents, and not everyone will, should or could become an academic. But to have a decent and rewarding job, the freedom and opportunity to enjoy an interesting career and be respected regardless of talent or position is key for us all, for our personal development and a peaceful coexistence – now and for many generations and centuries to come!

In the next parts of this series, Reinhold Karner will tackle the other three disruptive forces, and conclusions and recommendations will follow. 

From EntrepreneurCountry Global >>> The Fight Back Strategy for the Rest of the World Who Are Not US Tech Platforms or Digital Disruptors

Written by Julie Meyer on Thursday, 07 July 2016.

jm8People tend to over-complicate what is glaringly obvious most of the time.

Amazon, Apple, Facebook and Google are four of the most important companies of our age. Each in slightly different ways, but more similarly than differently, have won big in this digital, exponential age by doing a couple of things consistently and systematically:

• Using consumer data to power their services
• Recognising that all business models have that data as an implicit party in the business model, and then organising the economics for their industry, re-imagined as an ecosystem
• Using their reach, distribution, audience, scale as a ‘highway’ for applications to drive over (the Ap Stores). They understand that start-ups and applications are really just revenue-generating algorithms or digital cars in search of a route to market and a customer base to exploit.

In essence, these are the characteristics of ‘platforms’. They are open to the revenue in the App Economy and take advantage of the infrastructure.

There are really three versions of the future:

• The technology platform companies mentioned above, and a couple others like LinkedIn and Salesforce.com take over every industry. There is a lot of evidence for this assault.
• The second vision of the future however is that the digital disruptors – the Ubers, the Teslas the AirBnBs – become the new dominant platforms in niche (but massive) ecosystems – cars, homes, transportation etc.
• But what about the rest of the universe? 95% of the iceberg is neither in category 1 or 2. What is their fight back strategy? Where do they go, what do they read, how should they react?

Could it be that the answer is actually very simple? Imitate those with momentum? Take a page out of the playbook of the winners? But be sure you understand why they won.

Those non-technology, traditional firms – the incumbents (whether banks, insurance companies, retailers, newspaper groups, radio stations, telcos, healthcare organisations etc) – are preyed on by investment bankers who try to get them to buy companies, and consulting firms who tell them that they are more smart than them and could they outsource strategy to them. And many of these traditional, non-tech mid to large enterprises self-inflict with no outside help. One telco has created a massive program of taking 10% equity stakes in baby companies in each for off space across Europe. They hail it as a success, but actually all they have done is to create a kindergarten. Their revenues are worsening. They created a cost-center, not a future revenue line.

The battle today is one of future P&L’s. The Balance Sheet takes care of itself if you have a winning revenue and profit story. In this digital transformation as the world goes network and we all enter an exponential age, it’s a game of attracting the digital cars or revenue-generating algorithms over your highway. Goliath needs to be the highway; David is the car looking for the on-ramp.

There is a relative win here for most. One rather boring retailer in the north of England with 6 million customers sells clothing to low-income folks. That’s 6 million customers. That’s a highway. You don’t need to posh or sexy to be an effective highway for start-ups with a serious understanding of how to build digital revenues in your space.

Imagine if the telco mentioned above instead of focusing on taking 1,000 ten percent equity stakes in start-ups in exchange for office space had focused on 4 to 6 trials a year giving access not to 300 million of their customers but 30,000 or 300,000 customers. If they had said to the digital applications vying for their attention: ‘We’ll give you a shot but in X period of time, you need to prove Y revenue over Z customer base.’ Some would do just that, and many would fail. But the controlled experiment would have generated some fast knowledge about revenue-generation in the digital age for the telco. They would have some strong contenders for potential material revenue streams, instead of having spent tens of millions on a cost center.

So perhaps it’s really as simple as all business models will approach that of how Apple re-organised the music industry with clear economics for all stakeholders. Perhaps we don’t have to look too much further than to recognise that consumer data is the third party in your company’s business model; it’s just really a question of whether you know it and are on to it. Google says that it organises the economics of the information industry, but it actually organises the economics of the information industry. And you and I get jackshit for the use of our data. Free search, ok.

Money doesn’t solve the fundamentals of problems in business, actually. If the business model is flawed, no amount of throwing money at the problem will save the day. Traditional, non-tech firms need to spend as little money as possible to figure out whether a new revenue stream is going to become material, and constraining capital forces all parties to solve for x.

X is the answer to the question of how do I build a digital strategy. The good news is that Goliaths in every sector don’t need to innovate because a more nimble David is out there somewhere solving the problem of your future revenue streams for you. The job of the CEO of the bank, insurance company, retailer, media firm etc is first to open up and become a platform company, that is cloud-centric, and open to the Ap Economy. Secondly, to build a consistent and reliable means to engage with the Davids who know things about your customers, what they want and how the business models are going to emerge.

When David and Goliath dance, they have the possibility to organise a set of clear economics for the ecosystem in which they operate where all of the stakeholders or ‘Natural Allies) are incentivised to pull the proposition into scale and market maturity. This is Ecosystem Economics®, and it will predict and explain the winners in this digital, exponential age that is happening around us.

There is a fight back strategy for the rest of the world who are neither Digital Disruptors nor tech platform companies. Imitate the platforms and embrace the digital disruption by embracing digital enablers or Digital Davids.

So create your own category. Sing your own song. Dream your own dream. Follow your own heart. Be your own diva.

Written by Julie Meyer on Friday, 18 March 2016.

Some of my best friends are British :) …. And they violently disagree with what I’m about to reveal to you as truth with a capital T. And that’s because in British culture we’re not supposed to show our ego. That’s why we have the Queen’s award. You don’t toot your own horn; you wait until someone toots it for you, and gives you an OBE, CME, MBE etc. It’s Tall Poppy Syndrome – which does exist elsewhere, but it’s a unique British form which says, ‘Who do you think you are – that you have something special to offer the world, or that you are someone special?’

The Euro VC Industry is just making money for America - With apologies to Gloria Estefan, how do we turn the beat around?

Written by Julie Meyer on Thursday, 17 March 2016.

jm33The European venture capital industry is really just making money for America.

Much of the European venture capital industry has one play in their playbook: to find the best European tech entrepreneur from Helsinki to Madrid, and to sell their business to a US tech platform company. Twenty five of these buy the overwhelming majority of European venture back start-ups.

Why should you care? Why does this matter?

The Power of the Clean Sheet of Paper * The Third Version of the Future * Voila The Origins of Growth

Written by Julie Meyer on Thursday, 25 February 2016.

I attended a conference recently where many of the regulators of Europe’s banks, senior EU policy makers, and think tank Directors lined most of the panels. Pretty quickly all questions and discussions led to: how do we create growth? Quantitative easing? More lending? But there’s not demand for it. Capital markets’ union? Political union? Maybe technology has something to do with it? The men on stage were scratching their heads literally and figuratively, unaware it seems that the elephant on stage with them was: Europe’s entrepreneurs.

Étude de cas : l’industrie bancaire

Written by EntrepreneurCountry Global on Thursday, 04 February 2016.

Les plateformes telles que Google, Amazon, Facebook et Apple (GAFA) passent d’innovations en acquisitions ‘ubérisant’ toutes les industries sur leur passage  - Musique, Médias et Télécoms. Google s’est offert Nest, fabricant de thermostats connectés, pour 3,2 milliards de dollars tandis qu’Apple a lancé son portefeuille électronique Apple Pay. En moins de 15 ans, la capitalisation boursière combinée de GAFA a atteint plus de 1,7 milliard de dollars avec un chiffre d’affaires agrégé qui s’élèverait à plus de 300 milliards de dollars.

Steve Wozniak: From Computer-less To Apple Genius

Written by Amit Pau on Tuesday, 27 January 2015.

Recently, I had the privilege of attending 'The World of Business Ideas' Conference in Milan as a guest of our fantastic corporate partner - IBM. Whilst the calibre of speakers was excellent and the conference itself was highly interesting, there was one name that stood out in particular - Steve Wozniak of Apple. Whilst Steve Jobs was the name synonymous with Apple, the technology behind the so-called 'Apple revolution' was can largely be attributed to Wozniak's enthusiasm and ethos, which holds many lessons for budding entrepreneurs and businesspeople alike.

Mobile Payments – Apple is not the only fruit!

Written by Markus Sander on Monday, 19 January 2015.

Nobody can ignore Apple Pay. And nobody is ignoring Apple Pay. Must-have designer technology, heavy hitting icon brand and high profile merchant signings have finally aligned, like so many stars in the payments heavens. Together, and for once the use of the well-worn cliché seems justified, they deliver a 'user-friendly solution' that accelerates us several million light years towards payments nirvana.

Apple’s new payment product – will it or won’t it Pay?

Written by Zehra J Chudry on Monday, 03 November 2014.

Yes it will. Why? Well first I think it is important to look at what the Apple family of products has done to its respective technology platform markets. Apple, long considered an aspirational brand, tends to enter a saturated and competitive market late in the game and completely transform it.

IBM and Apple Partnership opens up endless possibilities for developers

Written by Andy Horn on Sunday, 20 July 2014.

app development accelerated

IBM and Apple have recently announced a historic partnership; I think the biggest surprise is that it did not happen earlier. They are two of the most successful and powerful IT companies on the planet; they have a vast range of products and services and supported by some truly great technical experts. These are two highly trusted brands, one known predominantly for its big data analytics and business focus, the other for innovative products, both B2B and B2C.

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