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WHAT SUCCESSFUL DIGITAL TRANSFORMATIONS HAVE IN COMMON

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Technological innovations have radically transformed the business landscape in many ways over the last two centuries, our research shows how digitization can significantly hurt incumbent firms in many industries, write Jacques Bughin and Tanguy Catlin in Harvard Business Review.

Technological innovations have radically transformed the business landscape in many ways over the last two centuries, from the introduction of steam power to the market conquest of radial-ply tires. Research by McKinsey & Company and the McKinsey Global Institute shows that digitization is having the same radical impact. In particular, our research shows how digitization can significantly hurt incumbent firms in many industries — depleting as much as half the revenue growth and one-third of earnings before interest and taxes (EBIT) growth of companies that neglect to embrace digital innovations.

It is not too late for incumbents to reverse the digital curse and re-create a more profitable growth path if they are willing and able to invest more in digital than their peers and take the offensive by reshuffling their activity portfolios and beefing up remaining activities with new business models. On top of that, incumbents would be wise to choose a “platform play” — creating value by intermediating in transactions between other parties, such as suppliers and consumers — because it opens the way to capture more value in disrupted industry chains.

Despite the demonstrated benefits of this path, which we call “digital reinvention,” only a minority of companies have fully embraced it. In our early research on 2016 data we had found that only 16% of companies had taken steps toward reinvention, meaning they restructured their portfolios (shedding declining businesses and expanding profitable ones) and poured more money than their peers into an aggressive digital strategy based on new platform business models. In more recent research in mid-2017, our data from 1,650 firms around the world still confirms that still less than 20% of companies take the path of “digital reinvention.” We conclude that, despite warnings from ourselves and others, most incumbent firms are failing to adjust to the digital era.

Hence, our new research, which focuses on understanding how to encourage more frequent (and more profitable) digital reinvention. We found six important and statistically robust factors that predict the probability that an incumbent company will choose the path of being a reinventor. They are, in order of importance:

1. Obsess about turbulence on the horizon. In general, incumbents tend to be disrupted because they neglect signals of turbulence. On the contrary, companies that understand the degree of digital turbulence are the most eager to go on the offensive. Those in the most digitally advanced sectors, such as high tech, already feel the pressure of digitization and are more inclined to take the offensive. In our survey, we found that one-fourth of high-tech companies are on the offensive, 2.5 times more than across all firms and sectors. In contrast, the automotive industry has barely half the rate of digital reinventors.

Even more interesting are differences within industries, where the perception of risk drives action. In the high-tech industry, we found that when companies conclude that their current model is not viable and must be fully adapted (versus making only marginal digital adjustments to the existing model), they digitally reinvent themselves 40% more often than the industry average. The tipping point for action is different by industry — in high-tech, companies often make the leap when cannibalization is perceived to hit 25% of their traditional revenue; in banking, the tipping point of perceived cannibalization risk is about 35%. In any case, at those tipping points the decision becomes relatively easy, as digital rules.

2. Understand all risks, not only those from startups. One mistake incumbents often make is to look at turbulence signals only from digital entrants. But for every digital startup in an industry, there also is likely be an incumbent reinventor in the making.

Imagine a firm in an industry with nine competitors. One competitor is a digital startup within the industry, one is a digital startup from an adjacent industry. The remaining seven are incumbents within the industry. These examples aren’t purely hypothetical; they’re estimates of a typical industry structure, based on our data. Companies typically face a mix of traditional competitors, new entrants within their industry, and entrants from adjacent fields. However, we also found that, on average, three of these traditional rivals are likely to have already chosen to forcefully engage in digitization, and one of them is probably already morphing into a digital reinventor.

In total this means the company in question faces offensive attacks from three digital players, not just one, and one of the attackers is a known competitor that has chosen to break from the established conduct of the industry — the so-called “red queen effect.” Furthermore, the more digitized an industry, the more often incumbent companies have jumped into digital reinvention. From an average of three offensive players, we found that grows to 5.5, or more than 50% of total competition in highly digitized high-tech industries.

To become a reinventor itself, a corporation would be wise not only to track new digital entrants but take a good look at traditional competitors that can become digital reinventors and must keep an eye out for established companies crossing their industry border.

3. Deliver a dual offensive: core and diversification. Today, many companies have in mind to defend their core business first and attack via diversification second. A typical incumbent focuses only about 30% of its resources on activities outside its core business. By contrast, true digital reinventors devote an equal amount of resources to revising core business models and investing outside the core.

However, we found that focusing only on non-core activities may be a mistake. First, revenue and, to a lesser extent, profit growth tend to be diluted though diversification as companies take time to build a presence in each new field. Further, companies’ assets and competencies outside the core are not yet as comprehensive and established, as they are in an incumbent market. Second, as discussed, core businesses are still the bread and butter for many companies; a digital reinvention in the core may still lead to a better growth path.

When digital reinventors increase offensive actions in both core and digital, we find that total revenue as well as profit growth is enhanced. The effect is not large, statistically — it is in the range of 0.5% to 1% of yearly revenue growth on top of base line depending on industry — but the effect is three times larger on profit, and further such an increase builds up over the years.

4. Fix leadership skills first. Many incumbents still face major roadblocks in their digitization journeys. In one way, this is natural, as incumbents have succeeded by establishing robust routines and competencies over the years. In general, the more successful those competencies were at providing non-replicable assets, the more difficult it is to let them go. What we find in our statistical analysis, however, is that companies are more likely to take the path of digital reinvention when leaders are committed to taking action, e.g. CEO sponsoring the program heavily, executive board appointing specific managers in charge of the transformation, etc.

5. Prioritize demand-centered business play. We mentioned earlier that incumbents see higher returns when they shift business models to a platform play – this effect is even greater for incumbents who show the other indicators of digital reinvention. Our new survey reconfirms the finding, but we also find two new nuances. The first is that one reason why digital attackers are often more successful than incumbents is that they select the platform play as their top priority two and an half times as often as incumbents choosing to go for digital reinvention. The second is that a platform model re-centered on the demand side increases the chance of being a digital reinventor, and making better profit inroads. This recipe for digital profitability is the consequence of the potential of large demand network effects, as it is emphasized in the management literature of platforms.

6. Experiment with frontier technologies. Digital reinvention only works if companies master the right digital technology architecture. Consistent with findings in parallel research, we found that digital reinventors ensure that they have adopted the full range of digital technologies, and diffused them across their organization to support mission critical applications and processes. Further, they are already investigating emerging artificial intelligence technologies, such as upgrading machine learning algorithms to deep learning ones, or investing in new generation of smart robotics, as a way to have an edge. Surprisingly, we see no evidence of leapfrogging in our data: companies that kickstart AI without mastering the first wave of digital technologies, such as social media or mobile, are not only rare but also do not get full return on their investments. Companies must master each generation of technology, and fast, in order to become digital reinventors and obtain good returns on their technology investments.

 

 

Source:  Harvard Business Review.

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Innovations

WAYMO’S DRIVERLESS CARS HIT A NEW MILESTONE: 10 MILLION MILES ON PUBLIC ROADS

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As it nears the launch of its first commercial service, Waymo is celebrating a new milestone: 10 million miles driven on public roads. In recognition of this threshold, the Alphabet company released a video that features a lot of new footage of its cars operating without a human driver behind the wheel. In addition, Waymo’s top executive is setting realistic expectations about some of the limitations of its advanced technology.

Last November, Waymo announced it had driven 4 million miles on public roads. Then, in July, the company said it had crossed 8 million miles. At the end of August, it hit 9 million miles, so today’s announcement is clearly another sign of Waymo’s aggressive scaling as it prepares to kick off its first ride-hailing service in Phoenix, Arizona, before the end of the year.

The news comes at a time of skepticism around the technology. In March, a self-driving Uber vehicle struck and killed a pedestrian while the backup safety driver was streaming a video on her phone, police said. Uber suspended testing in the aftermath, and some safety advocates said the crash showed the system was not yet safe enough to be tested on public roads.

Waymo is clearly the leader in this space, but there is also growing skepticism about its technology. In August, The Information reported that Waymo has been trying to remove human safety drivers from its self-driving cars, but that process has been slower and more challenging than anticipated. The vehicles have trouble making unprotected left turns, for example, and some of the cars have difficulty merging with highway traffic, the site reported, citing unnamed sources. Last week, The Information also reported that a previously disclosed crash was actually caused by a safety driver falling asleep at the wheel and accidentally disengaging the self-driving system. (No injuries were reported.)

 

In a blog post on Wednesday, Waymo CEO John Krafcik acknowledged that there were still some technical challenges to solve.

“Our driving should feel natural to our riders and others on the road. Today, our cars are programmed to be cautious and courteous above all, because that’s the safest thing to do. We’re working on striking the balance between this and being assertive as we master maneuvers that are tough for everyone on the road. For example, merging lanes in fast-moving traffic requires a driver to be both assertive enough to complete the maneuver without causing others to brake and smooth enough to feel pleasant to our passengers.

The experience of using one of Waymo’s self-driving cars to run errands, for example, is likely to be less convenient than driving yourself or using a human-driven ride-hailing service, Krafcik said. But only at first.

“Today, our cars are designed to take the safest route, even if that means adding a few minutes to your trip,” he said. “They won’t block your neighbor’s driveway and will choose the safest place to pull over, even if it means having to walk a few extra steps to a destination.”

Waymo also posted a video of an upbeat interview with Nathaniel Fairfield, principal software engineer at the company. The video features plenty of shots of Waymo’s self-driving Chrysler Pacifica minivans operating on public roads without a driver behind the wheel, which seems like an effort to rebuff reports that it is still using safety drivers in the majority of its testing. Also, see Waymo’s driverless cars navigate tricky situations, like snowy roads, dust storms, and that time a ball went into the street!

“Today, our vehicles are fully self-driving, around the clock, in a territory within the Metro Phoenix area,” Krafcik writes. Previously, Waymo said its robot taxi service will be “fully driverless” at launch, which the company promises will take place before the end of the year. The clock is ticking.

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Innovations

HOW A ‘SOLAR BATTERY’ COULD BRING ELECTRICITY TO RURAL AREAS

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Solar energy is becoming more and more popular as prices drop, yet a home powered by the Sun isn’t free from the grid because solar panels don’t store energy for later. Now, researchers have refined a device that can both harvest and store solar energy, and they hope it will one day bring electricity to rural and underdeveloped areas.

The problem of energy storage has led to many creative solutions, like giant batteries. For a paper published today in the journal Chem, scientists trying to improve the solar cells themselves developed an integrated battery that works in three different ways. It can work like a normal solar cell by converting sunlight to electricity immediately, explains study author Song Jin, a chemist at the University of Wisconsin at Madison. It can store the solar energy, or it can simply be charged like a normal battery.

It’s a combination of two existing technologies: solar cells that harvest light, and a so-called flow battery. The most commonly used batteries, lithium-ion, store energy in solid materials, like various metals. Flow batteries, on the other hand, store energy in external liquid tanks. This means they are very easy to scale for large projects. Scaling up all the components of a lithium-ion battery might throw off the engineering, but for flow batteries, “you just make the tank bigger,” says Timothy Cook, a University at Buffalo chemist and flow battery expert not involved in the study. “You really simplify how to make the battery grow in capacity,” he adds. “We’re not making flow batteries to power a cell phone, we’re thinking about buildings or industrial sites.

Jin and his team were the first to combine the two features. They have been working on the battery for years, and have now reached 14.1 percent efficiency. Jin calls this “round-trip efficiency” — as in, the efficiency from taking that energy, storing it, and discharging it. “We can probably get to 20 percent efficiency in the next few years, and I think 25 percent round-trip is not out of the question,” Jin says.

Apart from improving efficiency, Jin and his team want to develop a better design that can use cheaper materials. The invention is still at proof-of-concept stage, but he thinks it could have a large impact in less-developed areas without power grids and proper infrastructure. “There, you could have a medium-scale device like this operate by itself,” he says. “It could harvest in the daytime, provide electricity in the evening.” In many areas, Jin adds, having electricity is a game changer, because it can help people be more connected or enable more clinics to be open and therefore improve health care.

And Cook notes that if the solar flow battery can be scaled, it can still be helpful in the US. The United States might have plenty of power infrastructure, but with such a device, “you can disconnect and have personalized energy where you’re storing and using what you need locally,” he says. And that could help us be less dependent on forms of energy that harm the environment.

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Innovations

HERE COME WI-FI 4, 5 AND 6 IN PLAN TO SIMPLIFY 802.11 NETWORKING NAMES

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The answer, if you’re familiar with Wi-Fi standards coming from the Institute of Electrical and Electronics Engineers, is 802.11ac — and by the way, the upcoming 802.11ax is better than both.

But in an effort to make the wireless networking terms more useful and less like alphanumeric gibberish, the Wi-Fi Alliance trade group has some new names it wants for those technologies: Wi-Fi 4, Wi-Fi 5 and Wi-Fi 6.

The idea is to be clearer about what’s better and what your phone or home router can handle without sounding as much like an electronic engineer. Not that there’s anything wrong with electronic engineers, but even techies can have a hard time remembering that IEEE 802.11 means wireless networks, IEEE 1394 governs FireWire data connections, and IEEE 802.3 is about Ethernet network connections.

The underlying Wi-Fi specifications will keep their IEEE technical names, of course. The Wi-Fi Alliance comes later in the development process, just before the point when consumers get involved, smoothing the way with compatibility tests that let device manufacturers put reassuring certification logos on their product boxes.

Even though there were older versions of the Wi-Fi specs — 802.11a, 802.11b, 802.11g — the Wi-Fi Alliance isn’t going to try to reach back that far in time and attach any 1, 2 or 3 version numbers to them.

Changing brands can be rough as people try to reconcile the old and new labels. But if it all works out as planned, we can chalk it up as a victory for the ordinary person.

And cross your fingers that the marketing people don’t get carried away and stick us with Wi-Fi 2020, Wi-Fi XS Max or Wi-Fi Creators Edition.

 

 

 

Source: https://www.cnet.com/news/wi-fi-alliance-simplifying-802-11-wireless-network-tech-names/

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