Going digital, or digital transformation (DX) in its more formal use, is the new arms race especially for big companies. All your competitors having transformative initiatives to become more digital might be making you feel like a bit analog & falling behind, right? Relax, because you are most probably not.
Instead, not going that fast might help, since digitalization also comes with two notable risks, one of them being a bit hidden but in fact a sound threat. Before explaining those two risks, let’s basically recap the elements of DX just to be on the same page:
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Fourth Industrial Revolution (Industry 4.0)
from a manufacturing perspective, describes the era where digital transformation is taking us to. It is for sure not to start using robotics, automation & human-machine-computer interaction at the shop floor (as this was the third revolution not the fourth, and for the interested, robots, for example, have been helping us automating manufacturing operations for a few decades now). Instead, Industry 4.0 is simply the incorporation of IoT to reshape manufacturing in a more intelligent way via self-diagnosis & self-optimization capabilities of the cyber-physical systems (e.g. predictive maintenance) – therefore also expressed as smart factory or factory of the future.
Internet of Things (IoT) / Machine-to-Machine (M2M)
machines / devices / appliances / systems communicating is not something new (check your surroundings for a moment please), but IoT refers to a widespread & almost standardized application of this communication over internet / cloud, including the one among manufacturing machinery & equipment, thus leading to an end-to-end connectedness across the value chain / network. This connectedness & data exchange also makes it a typical generator of big data. Smart home / home automation, wearables & health monitoring are applications of IoT technology to date apart from its use in the manufacturing environment.
Big Data & (Advanced) Analytics
the new data format of this new age, along with the toolkit to take advantage of it. But of course, if not really utilized, there is no point to possess this – big – data, right? Anyways, a more detailed discussion can be found in an earlier post (link here), so let’s move.
3D Printers
the digital technology that allows printing 3D objects, often layer by layer. Maybe not so famous as much as the above buzzwords, this in fact brings a huge concept shift from conventional assembly & machining / subtractive manufacturing operations to an additive one. There are already emerging examples of 3D printing in mass production & mass customization (i.e. aviation industry), whereas it is also being used to accelerate new product development (NPD) / new product introduction (NPI) process as the new rapid prototyping or minimum viable product (MVP) generation mechanism. Moreover, 3D printers also contribute to the Maker movement / Do it yourself (DIY) culture favoring individual production of small batches. Nice to see makerspaces / fablabs at universities, as well.
Augmented & Virtual Reality (AR & VR)
although more basic formats date back to a few decades ago, can be named as cutting-edge forms of visualization & real-time simulation. With augmented reality, for instance, you are able to overlay a digital 3D model of an object in a physical space. With virtual reality, on the other hand, you can go beyond to create a virtually real or imaginary 3D environment where one can also interact with. Combinations & merging of AR & VR form what is called mixed / extended / cross reality (MR & XR).
Blockchain & Cryptocurrency
as opposed to – fiat – money with a central bank control & govt backing, the digital medium of exchange with decentralized control which reside on a special data structure called the blockchain. Digital currencies & transactions have been around for a long time, but it is the emerging cryptocurrencies that take us close to my former macroeconomics lateral thinking scenarios which involve stopping to use different currencies worldwide or (fiat) money at all. Still, it may be worth not putting all the bits (or bets if you wish) in the same coin (no no, this is not a formal financial advice).
Artificial Intelligence (AI)
mostly referred to as an integral element of DX; however, i believe well-deserves to be addressed separately, so let’s keep this for a later discussion.
Generation-Y (Millennials), Generation-Z & Generation Alpha
the residents of the ongoing & upcoming era who are considered to be born after 1980 for Gen-Y, 1995/2000 for Gen-Z, and 2010 for Generation Alpha. In other words, it is us as well as our children who are leading & experiencing DX at the same time & now taking most of the concepts attached to the digital age as granted.
The above list may not fully represent what is in scope of DX whereas includes the most common elements that you might have probably encountered, i believe. Now if we are all aligned on the scope, let’s get back to the main point.
The elements discussed above collectively bring in efficiency & excellence in manufacturing & services, more visibility & transparency across the value chain, better product / service, process & customer experience design capabilities, quality, accuracy, pace & flexibility to sales & after-sales processes, just to name a few.
Consecutively, these translate into benefits for both the top line & the bottom line & help gain / sustain a competitive edge. Hence, it is no surprise that digitalization is appealing for most businesses in this era.
Still, you do not need to invest in those concepts unconditionally as it always boils down to ROI, or cost-benefit, simply said. From a bottom line perspective, whether to incorporate 3D printing or not, for example, on top of all the revolution it offers, also involves a standard capex rationalization discussion.
Not even counting other issues associated with these technologies including cultural resistance, problem to integrate with other business functions & initiatives, talent & expertise shortage, difficulty to rapidly scaling them, among many others.
In short, ability to ensure true value realization out of digitalization efforts as discussed above is the first risk to be aware of, and maybe just the more straightforward one. There are a handful of companies already capturing benefits out of several of these concepts, while unsuccessful implementations are more frequent. To assess the benefits, as always, an accurate interpretation of the concepts / technologies is key to begin with.
But remember, i was mentioning two risks not one at the intro. And the second risk is more related to topline growth hacking, particularly a growth boom in a relatively short period of time which has the potential to leave us within a possibly unpleasant situation. And here is how it works.
When you digitalize your processes, primarily on the marketing, sales, and g2m / distribution front, you make your customer base able to demand for your products / services on a much more streamlined manner than before. This seems good first to lead to a growth boost.
Yet, if your inventory level in a manufacturing setting, or supply capacity in general is not also pre-boosted in line with this potential demand, a major portion of those customers start experiencing problems when they try to access your products / services & face out-of-stocks or poor-quality services (think of, for example, e-commerce apps / online channels that break down on a Black Friday after a burst campaign run prior to the exact sales day).
Sterman, J.D. (2000) Business Dynamics
What is happening, really? Overshoooooot & collapse! Since you cannot close the inventory or capacity gap all of a sudden to meet the boosted demand, those unsatisfied customers start walking away, again rapidly (no need to mention how quickly word-of-mouth works in the digital age) while your residual capability to satisfy the remaining customers is not still only insufficient but also eroding.
Moreover, at some point after this initial crisis, you might possibly find yourselves with a level of inventory or capacity that was not enough to meet customer expectations, while being overly excessive for a period with only a few orders, which might even lead to far-reaching undesirable implications including a debt or cash-flow crisis. This situation is especially risky if your order fulfillment lead time is already long.
The overshoot & collapse dynamic is a very tricky one for any growth hacking business. The reason is, when you discover what is going on, it will also be too late to respond with a corrective action, as there would not really be any immediate remedies to recover from the situation you are in. And why is that?
Simply because putting additional inventory or capacity in place to fulfill the boosted demand in a way to fully meet customer expectations not only comes at a price but also with a delay. (RIP Forrester, and long live Atilgan, Barlas & Sterman!)
Mostly unrecognized, though, the overshoot & collapse dynamic is indeed often encountered in many industries as a fundamental mode of behavior resulting from non-linear interaction of simpler dynamics. The only difference is that this behavior is now much easier to be triggered with the help of digitalizing business processes, especially the ones at the front-end towards the sales funnel. Yet, the bottleneck is still there in your supply processes, or at the back-end.
So as always, mind your steps in planning & executing your digital investments, this time not driven purely by ROI concerns but instead not to be hacked by your own – digital – growth. And in any case, do not let digital transformation turn into the goal of your business but treat it as a mean to achieve your actual business objectives.
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