The Future of Digital Industrial Enterprises and the Quest for New Management Capabilities

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The next digital industrial revolution is already well under way. But it is not happening where technology visionaries or capital markets are generally looking. It is not a revolution just in technology, machinery, software, or speed.

GE has predicted a new “industrial revolution” worth $1 trillion a year as wind turbines, oil pipelines, and aircraft components become connected to the internet, but the impact will be even bigger than this.

The industrial applications of machine-to-machine connectivity have been around for a long time, long before the idea of the “industrial internet” emerged. Now we are talking about the Fourth Industrial Revolution, referring to a period of digital transformation that will have profound effects on economies, societies, and human behavior. It becomes impossible to ignore, and the digital industrial revolution of various industries can allow a few companies to achieve hyper scale with no industry boundaries of where they can play.

Companies that used to take decades to develop this scale can achieve it in 10 years. Digitization is lowering the cost of entering markets and providing an opportunity to speed past the competition to scale up enterprises. At the extreme, there are hyper scale businesses who push these new rules of digitization so radically, they are challenging conventional management views on scale and complexity.

These businesses boast an abundance of users, customers, devices, or interactions, numbered in the hundreds of millions, billions, or more. These billions of interactions and data points, in turn, mean that events with only a one-in-a-million probability are happening many times a day.

Taken individually, each of these businesses seems like a special case. But soon enough, there will be a few more companies like Google, which processes around four billion searches a day; or Alibaba, which facilitated 250+ million orders in a single day; and Apple, which, until recently, was very limited in scale and scope as a computer company. These hyper scale companies can move into any other industry, from automobile to banking and insurance, to disrupt them using their software and AI capabilities, as well as cheap capital.

One of the most significant changes comes in the form of strategic management and organizational design. We are now operating in a permanently complex world, and there are no signs of slowing down. Technology is making organizations more complicated and responsive. Traditional organizational charts with lots of embedded processes are becoming legacies over time, and we have to slow down on their use in order to move fast and reduce complexity. Reducing complexity in large enterprises is an executive level job, or else the CIO will need to accept this new responsibility. Complexities are slowing company down and this will be the CIO’s top priority.

Every CEO should reexamine new industry structures as these hyper scale companies enter into the industry, or facilitate new entrants to do so. The “reactionary” executives of the “old school” need to give way to “agile” executives. The practice of strategic foresight will be much like strategic management in the 70s. Enterprise systems actually may have aggravated management’s degenerative tendency to focus overly inward. Now, they struggle to organize themselves around the future. Due to exponential progression, it is difficult, if not impossible, to imagine the world beyond even four to five years.

Although the first wave of the information revolution was impactful and organizations are still occupied with digitizing their back offices, they will need to reconfigure the future. It will not be anything compared to what lies ahead in three to five years. Long-term planning is becoming irrelevant, and the art and science of strategic foresight will become the core of strategic management. Companies will have to institutionalize foresight capabilities, which are still emerging. We have been developing foresight tools and methods for the last eight years and are working on integrating them with traditional strategic planning processes.

The danger of vastly underestimating the sheer velocity of change is real. For example, in just six months, the projection for the number of autonomous vehicles sold in 2035 went from 100 million to 1.5 billion. The cycle of AI-driven automation, robotization and visual augmentation will power the Fourth Industrial Revolution. It will be driven by the speed, the breadth and the complete ‘systems innovation’ of technological and behavioral change.

The digital industrial revolution is forcing us to redefine enterprise and what assets they are supposed to own. Companies can now experiment on a massive scale in a short period of time from concept to pilots. Digital platforms can instantly conduct experiments across a base of millions of early adopters. They may, for instance, test different bundles of new products or new marketing approaches, and determine the optimal mix and dynamically adjust to real time changes to make their product and pricing more relevant – all with the help of advanced algorithms. Future enterprises won’t just need better algorithms. They need ways to humanize technologies, so that humanity won’t be lost in a future of machines running or co-running the (our) world.

Image via flickr

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