21 Aug Digital Transformation
Widely recognized as the father of modern business strategy, Michael Porter is a renowned economist and one of the most legendary thinkers in the world on management and competitiveness issues. Throughout his career, Porter has applied theory and economic strategy concepts to many of the most complex problems faced by corporations, economies and current societies. Below, he explains the Four Waves of digital transformation, and how the great speed in changing the nature of products creates new threats and competitive opportunities. His vision is optimistic, when analyzing how technological advances will radically improve our capacity to satisfy many business and human needs.
We have been living a digital revolution in business for decades now, and we are reaching a turning point.
It is a moment that we all must understand, beyond our knowledge or professions. Because, as Michael Porter says, it is a transformation that affects all industries and all areas within a company. Next, his perspective on how to think about these changes and what the consequences will be.
The four waves of digital transformation
“The digital revolution is not a single event, but a series of waves of technological competition. Each wave laid the foundations that led to the next. Until today, we have gone through three of them, we have just started the fourth wave.
The first wave was the arrival of the powerful and economical information technology that allowed us to begin to automate processes within the company – the value chain – and automate order processing. Computer-aided design (CAD) appeared, so as not to have to draw on boards, and MRP to be able to manage and order the manufacturing process, making it more efficient and obtaining more information about it. ERP systems also emerged, which helped us automate many processes within the company. As a result, we became more productive. It was a huge discovery for productivity in the economy and generated many opportunities for economic growth.
The second wave was generated by the emergence of the Internet, which added the fundamental piece of connectivity. We were able to move information at a low cost; connectivity became really cheap and ubiquitous. And finally, everyone could be accessed through that connectivity at a very, very low cost. The Internet allowed us to connect the ends of the value chain. We not only automate the order processing or the acquisition of suppliers, but we were also able to connect all of that, obtaining even more knowledge, being more productive when operating. The Internet allowed us to connect withour main customers, distributors, and suppliers in the supply chain. It also provided visibility and the ability to coordinate and incorporate all that long chain that goes far beyond the limits of the company.
We were able to connect geographically to be able to imagine a plant system in different places in a very, very efficient way. And we got another increase in productivity and efficiency.
About a decade ago we began to enter the third wave, which refers to connected smart products. The first waves were about processes. This third one, about the product and allow it to learn by itself, but basically, we need to have visibility and the ability to interact with all these products that do incredible things, and that has become the main problem. We have too much data, we cannot control it, we cannot figure out how to use it. We have so many product capabilities, and so many things that we can affect and what the product can do, but we cannot figure out how to carry it out practically, there are too many options. For me, the metaphor is: I get on the car, and I miss the time when I could turn on the radio. A single switch. I knew how to do that. Now, when you get in the car and you see that user interface and you tighten those screens, you cannot make them work. That is the product. Information technology began to be embedded into the product itself, which, by containing information technology, could then have access to the Internet. That generated a radical change in the essence of the products and what they can do. It also generated a new mountain of information that we had never had. We had a lot of information about the business within the company but we did not have much information about what happened with our product. In fact, we had very little visibility; we sent the product to the customer and we lost track of what the product was doing and where it was. The third wave allowed us to have great visibility about what happens with our products; in fact, forever.
Now we are entering the fourth wave. That it is our interface, the human one. How we connect and how we take advantage of all the capabilities and data that humans have. Yes, we can automate our problem today. All this capacity, this functionality, all these new interfaces that have exceeded our competences. And not only the consumer, this is also true for many people within the company to perform their work.
So, the fourth wave is about the human interface, this is the next big and exciting challenge. I think we should all basically understand what was there before if we want to understand how we will solve this challenge.”
Connected Smart Products
“A connected smart product begins as a physical product. Like a tennis racket, for example.
A smart and connected tennis racquet has a microprocessor board and a series of sensors on the handle that use the strings and the impact of the ball on the strings to calculate the shot. The racquet can really measure everything through integrated sensors: speed, force, angle, rotation; all about how you are hitting that ball. It has a battery and has a Blue- tooth connection to a Smartphone. The Smartphone con- nects to the Internet. Then, this tennis racquet is revolution- arily different from any other that has existed before. Now we have the data to measure exactly how we are playing, without the need of our coach. The physical product has hardware, but a connected smart product has software and sensors that perform functions of data collection and also operational functions. The software is really running and controlling the product. The data is directed to the cloud, which is a server that works somewhere for this product or for the family of products like this, where the information is stored. Another thing that is in the cloud is what is called the digital twin of that product whose information is stored there, that is, the virtual twin of the racket of the previous example. The digital twin model is the platform on which the data is actually stored; the twin gives a thorough idea of all the data we have about this product throughout its life and its circumstances.”
The skills of connected smart products
“This new class of products has four skills that no previous product had. The first is the ability to monitor. We did not know what happened with the product as time passed, but now we do.
We used to sell a product that then disappeared. Now we can know what happens after the sale. We can monitor the condition and performance of the product. We can also monitor what is around the product. For example, pacemakers are connected and they are also intelligent, there is a lot of technology within that mechanical object. The doctor cannot only see how the pacemaker works in your body 24 hours a day, but he can also see how some of the functions of your body work because it is inside you and has sensors that measure certain attributes of your physiological condition. Thus, we have a much greater capacity to understand what really happens.
Another skill is control. Nowadays, we have much more control over the product than in the past, when it used to be physical. As we have now introduced software and technology into the prod- uct, we can control it remotely, and dig- itally. Now, if we can monitor, it’s easier for us to control. If we can monitor and control, we have more possibilities in what is called “optimize”. The windmill, for example, with the technology of intelligent connected products, allows us to modify the angle of each of the blades, reflecting the wind conditions as they change, and also, the effect on wind and air. which is being generated by other nearby windmills. Thus, we can continuously optimize the angle of the blades to achieve the greatest possible amount of power to generate electricity.
We can also predict what will happen to a product. So not only can we optimize performance, but we can also optimize its durability, we can make sure there are no unexpected failures, we can perform maintenance at the right time, and so on.
Finally, if it is possible to monitor, control and optimize, it is sometimes possible to automate. The product can be handled on its own. We all know that this is what is coming. It is not very common now, but there is a lot of talk about cars that drive themselves, which would only be possible with all these other characteristics. Getting to cars that drive themselves or any completely automated product, without any human intervention, is complicated because the problem is that so many different things could happen, and you have to be prepared. For example, if a human being drives a car and there is a cow on the side of the road, the human being will say: “Aha! That’s a cow! “, And he is also going to say:” It seems that cow is walking a bit … I’m not sure what it can do, so I better slow down, because it could start walking on the road.” Automating that would be difficult. What if it was a dog? What if it was a squirrel? To automate it completely, it is necessary to be able to anticipate each of the possible situations, something that is very, very difficult.
We’re going to need a lot of human intervention to make things work, to use them, to fix them. It is what we understand about automation. It is increasingly possible, due to the advances I mentioned, but it is not necessarily what we want to achieve.”