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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

AMAZON’S LATEST GADGET: A SELF-DRIVING TOY CAR FOR CODERS

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LAS VEGAS: Self-driving cars, meet Amazon’s self-driving toys.

Amazon.com Inc’s cloud unit on Nov 28 announced a US$399 (RM1,670) autonomous toy car, aimed at helping web developers try out some of their own self-driving technology. Customers can train and tweak machine learning models in an online simulator and then test drive them on vehicles one-eighteenth the size of a real race car.

Amazon Web Services (AWS) is even creating a sports league and championship cup, borne out of races its employees had with each other using the model car, AWS DeepRacer.

 

Amazon.com Inc's autonomous toy car, The AWS DeepRacer, one-eighteenth the size of a real race car, aimed at helping web developers try some some of their own self-driving technology, is shown in this handout photo provided November 28, 2018.     REUTERS/Amazon.com/Handout via REUTERS   ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY.  NO RESALES, NO ARCHIVE.

Amazon’s autonomous toy car, the AWS DeepRacer, is one-eighteenth the size of a real race car. — Reuters/Amazon.com

“It started getting pretty competitive,” Andy Jassy, chief executive of AWS, said at the company’s annual cloud conference in Las Vegas. “We had to remind people that we were actually trying to build this and launch this for customers. But it was actually kind of interesting, educational for us.”

He added of the forthcoming competition: “This is the world’s first global autonomous racing league open to everyone.” The news represents another opportunity for the world’s No 1 cloud computing company to lure people to try its machine learning services such as Amazon SageMaker, applying them to the car.

 

Amazon.com Inc's autonomous toy car, The AWS DeepRacer, one-eighteenth the size of a real race car, aimed at helping web developers try some some of their own self-driving technology, is shown in this handout photo provided November 28, 2018.     REUTERS/Amazon.com/Handout via REUTERS   ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY .  NO RESALES, NO ARCHIVE.

The toy car is aimed at helping web developers try some of their own self-driving technology. — Reuters/Amazon.com

It also raises questions about Amazon’s interest in autonomous vehicles, an exploding area that has drawn heavy investments from automakers and technology companies alike, notably Amazon’s rival Alphabet Inc.

Simulations similar to the races Amazon is proposing are common in academic circles studying how traffic management would work in an era of self-driving cars. To be sure, autonomous vehicles rely on sensors, lidar and other components that are not the focus of AWS DeepRacer.

Amazon previously held what it called “Robocar Rallies” focused on behavioural cloning technology, which AWS DeepRacer events will now replace. – Reuters

 

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Innovations

USERS RATE ‘CREEP FACTOR’ IN NEW PRIVACY-SECURITY PRODUCT GUIDE

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The Mozilla Foundation, the nonprofit organization behind the Firefox web browser, is expanding a campaign begun last year to help consumers buy safe, secure connected toys and mobile gadgets this holiday season.

Mozilla’s 2018 edition Privacy Not Included buyers’ guide offers an assessment of the privacy and security qualities of 70 products, ranging from connected teddy bears and smart speakers to game consoles and smart home gadgets.

Strong Consumer Interest

More than half the listed products failed to meet the minimum security standards Mozilla created in concert with Consumers International, a global consumer advocacy group, and the nonprofit Internet Society. The guide invites consumers to interact with a “creepy” rating scale.

Some of the failed products may not be the kinds of products consumers generally associate with being vulnerable to misuse of user data. The goal is to make consumers and Internet of Things vendors more aware of privacy safety with respect to connected toys and mobile gadgets.

Last year’s first shopping guide revealed strong consumer interest in the privacy and security of connected toys and smart home products. Some companies that sold products also were interested. This year’s guide took the lessons learned last year and put them to work to build a better guide, according to Mozilla.

The main problem with an approach like this is that the desire for privacy varies among users, and there is no way to show that in Mozilla’s buyers’ guide, according to Shea Drake, content strategist and tech expert withBusiness.org.

“There’s no comparison tool, table of factors, or even standards for what is considered creepy versus whether it is useful/cool enough to be worth the creep factor,” he told the E-Commerce Times. “Alexa is voted as one of the creepiest products, yet there are still over 40 million units sold.”

How It Works

Consumers view pictures of the 70 products Mozilla included in the guide. At the top of the guide’s landing page is a horizontal row of pre-screened categories: Toys & Games, Smart Home, Entertainment, Wearables, Health & Exercise, Pets. Click on a product category to see the included toys or gadgets. Clicking on the image takes users to a product detail page where they can view the product’s characteristics.

Mozilla Buyers Guide

Consumers can rate products on a two-part Creep-O-Meter scale. A slider goes from “not creepy” all the way to “super creepy.” Respondents then can click on a thumbs up or thumbs down button to indicate their likelihood to buy the product.

Mozilla Creepiness Scale

Once a person votes, a display appears with a breakdown of the results, along with an opportunity to post and read other people’s comments on the product. Continue to scroll down the page to see a series of questions about the privacy characteristics of the product. The listings briefly explain what could happen if something should go wrong.

Mozilla includes a “Meets Our Minimum Security Standards” stamp on a page if the product has met its minimum security standards for IoT products.

Basic Safety Standards

Mozilla’s minimum privacy requirements highlight the fundamental ways Internet-connected products can fail when it comes to protecting your data. Mozilla’s researchers have assessed whether each product uses encryption, how easy the privacy policy is to read, how security updates are handled, and whether the maker addresses security vulnerabilities.

Mozilla’s bare minimum standards will reject connected toys and gadgets under the following circumstances:

  • Communications are not encrypted — Only the sender and the receiver should be able to access the information; there should be no eavesdropping.
  • There are no security updates — A product must support automatic security updates by default. Otherwise, companies cannot fix vulnerabilities in a timely matter if at all.
  • Weak passwords are permitted — Many products have default password such as “1-2-3.” Even worse, the passwords are printed on the box.
  • There is no easy way to reach vendors — It is often difficult to get privacy and data protection details from vendors.
  • The privacy policy is indecipherable — Details should not contain complicated security jargon or require an advanced reading level. Many consumers overlook opting out of data collection or learning how to delete their data. Many do not even know what data is being collected and sold.

Product Analysis

Only five of the 18 products listed on the Toys & Games page meet the minimum standards. They are Microsoft’s Xbox One, the Nintendo Switch, Sony PS4, the Harry Potter Kano Coding Kit, and the Amazon Fire Kids Edition.

Just six of the 18 wearables in the guide pass Mozilla’s minimum standards. Consistency within a manufacturer’s product line is not always a given. For instance, Apple AirPods failed, but the Apple Watch Series 4 passed.

In the smart home products category, most smart speakers have safety approval. These products include the Amazon Echo and Dot, Google Home, Apple HomePod, Sonos One and the Mycroft Mark 1.

Want a Nest-based smart home? Forget about it. None of the highlighted products have a safety approval from Mozilla.

Useful or Not

Mozilla’s approach to consumer education may not get the hoped-for results, but anything to build awareness helps, said David Ginsburg, vice president of marketing at Cavirin. Although typical consumers have a low chance of being breached, this awareness helps with their overall cyberposture — for example, proper home router and WiFi configuration, or securing their laptops.

“As with any buyers guide, do not let it lead to a false sense of security or fear,” he told the E-Commerce Times. “This is the case with all guides — Consumer Reports, Yelp, Trip Advisor. It is always the responsibility of the consumers to understand their individual risks versus rewards.”

It’s also likely that the vendors that received a “creepy” rating will take a look at product security and documentation.

“What is perfectly acceptable in one region may not be in another,” Ginsburg said.

These kinds of alerts are only as effective as the audience they are able to reach and who actually read them, noted Nathan Wenzler, senior director of cybersecurity at Moss Adams Cybersecurity Consulting Services.

Mozilla’s guide is definitely a necessary resource, and if anything, it needs to be expanded to include as many products as possible, he suggested.

“Even by their own admission, 70 products is a drop in the bucket in comparison to the number of IoT devices out there,” Wenzler told the E-Commerce Times. “It is a good start on Mozilla’s part, but there needs to be more of this kind of thing for a wider array of products that need to be made available to consumers in more ways.”

Standards Needed

Mandated government standards may become the ultimate solution to regulate privacy guarantees, but self-policing by the industries involved may be a better goal.

Standards could include plain speak about how data is used when it is gathered, and an easy way to opt out. If you are paying for a product, vendors should not make more money on how you use that product, suggested Business.org’s Drake.

“Breaches or improper use should include not only a minimum fine to the government, but also to each user of the product,” he said. “Right now, consequences are fairly minimal, but standards only work if we enforce them.”

A line needs to exist between safety and privacy, ghough one could say that certain security vulnerabilities could result in safety issues, noted Cavirin’s Ginsburg.

“A combination of IoT and privacy regulations (like CCPA) on the national level will probably make it through the new Congress,” he added.

Bare Minimum Goals

Encryption should be used wherever possible, to protect communication between the IoT device and anything it is connected to, as well as any data stored on the device itself, Moss Adams Cybersecurity’s Wenzler suggested.

Minimum standards should include requiring the default password to be changed and not allowing older, weaker connection protocols over wireless or Bluetooth, he said.

Many older security protocols have been broken over the years and could be compromised easily today, Wenzler pointed out.

As customers become more aware of the threats these devices can present, the more they will demand that security features be built into products, he added. That ultimately will be a far more effective way to get manufacturers to make security protocols a standard feature of whatever they produce.

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Innovations

TESLA VS. JAGUAR: THE FIRST REAL ELECTRIC CAR TRACK SHOOTOUT

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I’ve owned a ton of them over the years, and I’ve had both good and bad experiences with the cars. Currently I own two — a 1970 XKE and a 2014 F-Type — and they are about to get a sibling. I’ve ordered a new Jaguar I-Pace, which is the first legitimate challenger to Tesla, which surprised the automotive industry much like Apple surprised the mobile phone industry.

Tesla was first to build a decent electric car for this century. Not only that — its Model S set records in terms of safety and reliability. Most of the problems the firm has had have been due to a lack of competency in manufacturing and a borderline insane CEO. However, the design of the cars, with the exception of the Tesla X, generally has been better than first rate.

I recently read about Motor Trend‘s head to head challenge between the Tesla Model 3, the I-Pace, and the Alpha Romeo Giulia Quadrifoglio (don’t get me started on naming). Even though the I-Pace was designed to run on the track, it trailed both the other cars and the Alpha won — but not by much, and the Alpha is a decent track car.

I’ll share some observations about cars and close with my product of the week: the BlackBerry Key2, which I’ve been using for several months now and still love.

I-Pace vs. Tesla vs. Gas

As noted, the I-Pace (pictured above) is the first real challenger to Tesla’s dominance. You’d think I’d be disappointed that it didn’t do better on the track, given it was designed for the track. However, the I-Pace is a crossover, not a sedan, and when was the last time you saw an SUV run against a hot sedan and win on the track? An SUV is designed to go on and off road. It sits higher, and thus it won’t corner as well. Plus, it has far more wind resistance.

Until recently, Tesla cars, when tracked, would go into limp-home mode after a lap or two. You couldn’t track them at all until Tesla did a software tweak and introduced Track Mode in the Model 3, and now it’s a decent track car. On my last track day (I track a Mercedes GLA45 AMG) there was a Model 3 on the track, and it did impressively well. It was surprisingly competitive.


Tesla Model 3

Tesla Model 3

Now the issue with tracking any electric is where the hell do you charge the thing up? You use a ton of fuel when you track a car. I went through about a tank and a half of gas in my fast hatch in that one day on the track, and fortunately there was a place to fill up at the track.

There was a charger as well, but it looked to be a low-powered charger (not high-powered or Tesla supercharger), which means a full charge is measured in days not hours. That makes tracking any electric really risky. You could end up getting stranded at the track if you don’t allow enough reserve power to get to a high-powered charger (there aren’t many out there) or a supercharger (there are more, but they’re still not exactly as common as a gas station).

Why the I-Pace Didn’t Do Better

Now what has been driving a number of us nuts is that the I-Pace has a far bigger battery than the Model 3 typically ships with, and yet it has less range. The cause appears to be threefold: The car is an SUV and thus not as aerodynamic as the Tesla; the front motor Jaguar uses (which may be better off-road, but this hasn’t been confirmed) can’t be turned off to save energy; and the battery appears to have far higher protection against premature aging than the Tesla’s.

The battery’s life span is largely speculation, but it appears that Jaguar uses less of the battery than the Tesla does. I used to be the lead battery analyst for North America years ago, and I recall a Toyota test that concluded if you kept a battery above 10 percent charge and below 90 percent charge it would last indefinitely. It was charging to the limits that caused the battery to degrade.

Both Tesla and Jaguar have settings that are designed to reduce battery loading, but the Tesla’s settings can be overridden while the Jaguar’s appear hard-coded, which is why many of us are speculating on why the Jaguar doesn’t have a greater range.

The Mystery of the Jaguar Grill

One of the funny things that keeps coming up on the Jaguar I-Pace is the fact it has a grill and none of the Tesla cars have one. Folks talk about this as being a styling thing, but the reason that Tesla cars historically have gone into limp-home mode on the track is that their batteries overheat.

I once read that to get the car around the track, one car magazine would buy a ton of ice and park its car on top of it, in order to bring down the battery temperature enough to track the car.

The I-Pace uses what appears to be far more effective battery cooling, thanks to that front grill. It also conceals an impressive front spoiler, which provides additional downforce for cornering. Granted, that front spoiler also may increase drag, but it should improve track behavior.

Wrapping Up

In many ways, the Tesla Model 3 is the more practical car. It uses Tesla’s increasingly convenient charging network; it is a sedan, which is likely closer to the way most of us drive — few SUV drivers ever go off road; and, as the third Tesla line, its design showcases lessons Tesla learned over the last two cars.

However, the Jaguar arguably is better looking. It is rarer (though all electrics are rare) and should convey more status. It reflects higher quality (given that it isn’t cheap, it likely should). Since my wife and I use our SUV mostly as a pet carrier, the SUV design is far more practical for us, and the huge ugly thing that the Tesla X became just isn’t an attractive alternative.

The Jaguar is just closer in design to what we need, and since we rarely drive more than 50 miles a day, the charging and range limitations aren’t issues. Still, had Tesla made a small, attractive, SUV with fold-down back seats and without those cool (but very unreliable) gull wing doors, our selection process might have ended very differently.

What many are just getting around to understanding is that these new electric cars can change a lot with software updates. The Track Mode thing with the Model 3 is relatively new and expected to migrate to other Tesla vehicles (meaning you eventually might be able to make it around the track in a Tesla Model S, and the I-Pace’s track performance is likely to improve as well). Unlike most gas cars, your electric likely will improve over time.

The car I’ve ordered is supposed to be in before the end of the month. I’ll provide a more in-depth review at that time, but for now, I’m still glad I ordered an I-Pace. That said, with other electrics from Mercedes, Audi, and particularly Porsche entering the segment, in a few years I may find another that catches my fancy more.

Rob Enderle's Product of the Week

The competition between Google and Apple is fierce. Android phones generally provide greater value (bang for the buck), but Apple phones provide greater status. They’d better, because you are paying Apple a huge premium for them.

The issue with Android phones is that they are known to be relatively unsecure. I have no desire to see the stuff on my smartphone show up on the Dark Web, along with an impressive number of my old and obsolete passwords and IDs.

In addition, I still think the move from phones that had keyboards, like the Palm and BlackBerry, to phones that don’t, like most Androids and iPhones, was stupid. You can blind type on a keyboard phone, while you largely can’t on a screen phone. I believe this one thing is what has caused the massive uptick in distracted driving and funny YouTube videos of folks walking into things like open manholes and fountains.

The BlackBerry Key2 is more secure, although it is an Android phone. It runs BlackBerry DTEK, which tells you how secure your phone is, and it loads Android on top of a BlackBerry platform, making the phone very difficult (if not impossible) to rootkit (that is, to put a piece of malicious software below the OS, fully compromising the phone).


BlackBerry Key2

BlackBerry Key2

It has a twin sensor camera and a decent flash, making it competitive with other smartphones in that regard. I’ve experienced no unique problems with Android apps, including Dell Mobile connect (which puts your phone screen on your PC monitor and allows you to drag and drop from, and remote control your phone from your PC).

Oh, and when I must type a long note, I am a ton faster on the BlackBerry Key2 than I am on a regular smartphone or a tablet. Thus, the BlackBerry Key2 is my product of the week.

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