Emerging Digital Business Power Trends will Reshape Industries
What trends are in your blind spot? The next big shift could be closer than you think Gartner analysts advise
Cannes, France 2 November 2004 — Speaking at its annual Symposium/ITxpo today, analysts at Gartner, Inc. outlined some of the most significant trends in which technology advancements will reshape business and industry during the next decade.
The Globalised Micro-Business
Business Greenfielding
Proactive Transparency
Information-Work Productivity
Design Innovation
Social Information Analysis
Described by Gartner as 'Digital Business Power Trends', these trends are all based on anticipated advances in information technology. They will cause deep and long-term changes in the way businesses operate, shift power balances among people or organisations and will materially impact performance and results. Technologies that are maturing, proliferating and falling in cost are major factors in each of the trends. The trends must combine with economic or social forces before major shifts occur.
"The biggest technology and business change trends can sneak up on you suddenly," said Mark Raskino, research vice president for emerging technologies at Gartner. "You noticed them when they were a long way off, but as they accelerate and overtake - passing through your blind spot - they can still take you by surprise."
The Globalised Micro-Business The opportunities of reaching and nurturing global 'mass poor' consumer markets
When mature markets stagnate, business planners must innovate and scour the globe for new growth opportunities, including those where IT is a change catalyst. Mr Raskino explained, "Western consumers are reaching saturation point. Breakthrough thinking emerging amongst academics and business innovators suggests that future growth lies in developing the world's poorest communities into consumer markets. The key to this is reaching poor consumers in remote locations cost effectively, offering very low cost products and financial services via large networks of very small businesses." This 'globalised micro-business' exploits telecommunications to interact with low-income populations, helping turn them into addressable markets. For example, in India the compounded annual growth rate (CAGR) of mobile phone sales between 1999 and 2003 was more than 120 percent. By 2008, more than 80 percent of the annual 50 million handsets sold there will be enhanced-capability and smart phones.
Gartner predicts that by 2012, 70 percent of consumer industry multinationals will rely on Internet and mobile access paths to mass poor markets for at least 25 percent of their annual revenue growth. "Distribution of very low price, single serve products - like sachets of shampoo - and shared services like PC access will help local economies evolve," said Mr Raskino.
He cited the example in Bangladesh of Grameen Telecom, which runs a finance arm that can allow an individual to borrow the money for a phone, which is then rented out as a micro-business to hundreds of people in a village. "It is neither exploitation, nor corporate philanthropy — it is about co-development of economies which benefits all."
Business Greenfielding Re-inventing business operating models without legacy hindrances
The dot.com threat may have been a mirage or illusion, but transformational business model efficiencies, enabled by Internet-era IT, are not. By the end of the decade, IT-enabled process models and green field businesses will disrupt and force remodelling of most major industries. Mr Raskino said, "Our research has found that most CIOs do not believe they can transform their businesses to real-time systems and processes, even within a decade. Yet, most of them believe that someone setting up a new business in their industry could. Internet-era technologies are maturing. This progress leaves an efficiency gap in its wake for businesses trapped with legacy systems that encapsulate slow, outdated business processes."
According to Gartner, entrepreneurs can sniff out these efficiency gaps. Mr Raskino pointed to UK based grocery delivery firm Ocado, which reliably delivers online orders to homes in one-hour time slots. He also cited ING Direct who can deliver an entire banking operation online into a new country within 180 days. "Often, the entrepreneurs who make these moves are executives with long experience in an industry and they are impatient for change."
When IT-enabled innovative start-ups arrive in an industry, incumbents usually meet them with a mixture of denial and derision. Eventually the incumbents are often forced to totally reinvent themselves, as internal change is too slow. As a result, Gartner predicts that by 2012, start-up or spin-off businesses will force significant business operating model changes in at least 60 percent of major industries.
Proactive Transparency Leveraging the effects of information transparency for strategic gain
Digital transparency has crept up on businesses during the past five to seven years. Technologies that accelerate transparency are mushrooming, including text messaging, instant messaging (IM), blogging, camera phones and USB memory keys. The trend is irreversible and transformational. Innovators are leveraging the trend as a competitive weapon. An example is open source, through which powerful new models for business value creation have been developed by sharing information rather than hiding it. For public corporations, the globalisation of capital flows requires increased information disclosure. To compete for capital, you must reduce risk to the lenders by keeping them better informed.
Gartner predicts that by 2012 half of the top 25 percent (by profitability) of the world's largest companies will be operating business models dependent on proactive transparency policies. There are signs that businesses are moving in this direction already. In the USA, Progressive Insurance issues its public financial updates monthly instead of quarterly. At a simpler level, McDonald's regularly publishes detailed ingredients and nutritional information online for all its meals. Progressive and McDonald's are not required to make these disclosures. They do so because they believe it is in their commercial interests to be proactively transparent. "Transparency can seem abstract until it lands your CEO in jail and your company in bankruptcy. You can't hide business secrets anymore," said Mr Raskino. "Think about the case of Parmalat - where desperate executives reportedly asked for hard drives to be smashed with hammers. You can't erase all the back-ups and copies. By the end of the decade, proactive transparency will be central to the most successful business models."
Information-Work Productivity The need for new economics and new measures
Businesses have poor understanding of the way information and knowledge work progresses and crude measures of the outputs and their value. During the next decade, several threads of work will come together to improve the measurement and valuation of information and knowledge. By 2012, Gartner predicts 30 percent of large companies will adopt management information systems that reliably apportion corporate performance outcomes to individual information-worker contributions.
Mr Raskino posed some simple questions; "If you double the number of people working on your brand — can you measure the financial return? What difference would it make to organise them in three layers with a high reporting ratio rather than five layers with a conventional reporting ratio. And if you give them all brand new tablet PCs, how much more valuable will your brand become?" These questions are too hard to answer for most businesses and so decisions are made by guesswork. "The management science equations of 20th century car production lines simply won't do in a knowledge economy," said Mr. Raskino. "This is creating a growing efficiency gap. We see large variations in knowledge work input costs between businesses, with no explanation of the reason except local management culture and perceived wisdom."
The academics are building better models for valuing information era outputs. They are developing methods for the economic and accounting valuation of 'organisational capital'. Furthermore Gartner observes rapid developments in business process technologies such as BPEL, (business process execution language) which it believes will help abstract, codify, standardise and make measurable many information flow processes that are buried in low-level code or people's heads. "Social software is making the links between people in organisations more visible and traceable. As a result the operations of virtual workgroups might be better studied and understood," added Mr Raskino.
Design Innovation Blending IT and aesthetic design to power product and service innovation
Design is becoming a competitive differentiator. In advanced wealthy economies, the basic needs of humans are satiated and markets are saturated. Businesses seeking growth must address higher-order human aesthetic needs. Gartner predicts that by 2012, 70 percent of large company information management functions will have a specialist unit of hybrid IT and aesthetic design skilled professionals. Said Raskino, "IT is rapidly becoming a part of every product, but ugly products won't sell."
IT has adopted design in a relatively limited way, yet, recent developments in hardware show the market power of fusing design with IT. "The iPod designed by Apple is a clear example of this. The evolution of design has also moved onto services where Apple's iTunes service represents another good example," said Mr Raskino.
Commercial IT still focuses mainly on transaction and process. A good example is RFID, primarily viewed as a technology key to supply chain management between manufacturers, distributors and retailers of consumer products. Yet, the fashion house Prada uses RFID to tag clothes so customers can find out more about its collections. While Prada represents the extreme end of high design and aesthetic values, Gartner said it offers lessons for others to learn from. "Prada has had to create a specialised team of people who can understand and interact with design creatives but also with the labs from which the latest technology is emerging," said Mr Raskino. "It is one of very few organisations where IT is currently seen as revenue generating, rather than an administrative overhead. It directly contributes to the reason why someone will pay high prices and deliver good margins to Prada for a pair of shoes or a leather bag."
Social Information Analysis The enormous future opportunities of analysis of social network discourse
Since the 1960s, commercial IT has focused on transactions. Questions about who buys a company's most expensive products and which manufacturing plant has the lowest cost per unit are easily answered by analysing the mass of stored transactions in data warehouses. Yet, only since about 1995 has mass human interaction data started to be accreted in data stores and there are now huge quantities of human discourse data on record.
The Internet has opened e-mail, calendaring, search, social networking and IM to everyone. Mobile and wireless has added text messaging, voicemail and location tracking. Gartner expects that analysis of these rapidly growing information assets will lead to new business insight and opportunities this decade, just as the analysis of transactional data did in the last decade. It predicts that by 2012, companies that apply social information analysis to identify and remove redundancy in their organisation design will structurally reduce sales, general and administrative expenses as a percentage of total costs by 20 percent. It also foresees that companies that exploit the results of customer social information analysis will know the relative effectiveness of each channel in their marketing mix to more than 90 percent accuracy. "In future business it won't be who you know, but what you know about how they know that counts," Mr Raskino said.
The analysis of social networks and discourse has barely begun, but early examples are powerful. When the U.S. Army had the task of finding Saddam Hussein, they quickly realised that the best way to find him was to map the networks of people with whom he interacted. Gartner expects that military R&D expenditures will lead to algorithm and software advances that will eventually benefit business. The underlying technology trends that make this progress possible include the utility processing infrastructure, the proliferation of electronic interactive channels, the increased tagging of content to add context and meaning for later analysis, and the rapidly falling cost of storage.
Mr Raskino said that at this point in the information age the number of major IT enabled business improvement opportunities are multiplying. He urged business leaders to carefully select the two or three trends with highest impacts on their industries and get to work on them. To avoid being blindsided by the next major technology-enabled business trend, the CIO must take the lead in opening up a three-way discussion with the chief executive and the strategy function.
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