India@digital: The new DNA for evolution
On 10 December 2015, the pantry on a train from Varanasi to New Delhi ran out of milk, causing discomfort to a hungry infant and her mother (Kusum Yadav). Following a frustrated mother’s tweet at 11.03am, the ministry of railways swung into action and directed the DRM (Divisional Railway Manager) of Allahabad to take action, which led to the station master at Fatehpur providing milk to the cranky child at 11.47am. This is a classic case of how an unmet need was fulfilled in a short time frame by leveraging various facets of digital—social media, handheld devices, ubiquitous connectivity—and an ecosystem of support, including physical resources.
And the recipient of this digital solution was not the stereotypical “young, urban, English-speaking male”. This is just one example of how all-pervasive the impact of digital has already become. In the future, the impact of digital technologies will be felt widely across Bharat, touching the lives of men and women, whether young or old, located in urban or rural areas, and including vernacular users. In fact, it is estimated that the 2020 “Internet population” will be older, more rural, more gender balanced and more vernacular. By 2020, more than 54% of Internet users will be older than 25 years of age, as against 40% in 2013, while more than 50% will be from rural areas—up from 29%.
Digital has the power to fundamentally impact every aspect of life, including the level of consumption, access to financial services, education, working and playing styles, information usage as well as interactions with friends and family. And the Internet will impact each of these aspects in different ways, right from enhancing the physical experience to substituting it, while enabling a broader reach of physical offerings by lowering delivery costs. This complete transformation of the physical experience makes the Internet a clear game changer.
Before one analyses the impact of digital, it is important to properly define it. At BCG, we view “digital” as primarily covering five dimensions:
• Core Technologies—the simplistic SMAC (social, mobile, analytics, cloud) moving onto emerging technologies such as Internet of Things (IoT), Artificial Intelligence (AI), Augmented Reality (AR) or Virtual Reality (VR)
• Data—driven by low cost of storage, and an explosion of structured and unstructured data being captured by various devices
• New business models—new ways of thinking around ownership (on-demand, subscription, rental, freemium) and partnerships (marketplaces, ecosystems, freemium)
• New consumer behaviour—not only the quintessential millennial demanding personalization, sharing economy, simplicity, multitasking, speed, security, but also the conventional user increasingly going digital, while seeking vernacular, on tap and other user-friendly features
• New ways of working—led by design thinking, and entailing concepts like agile, lean start-ups, open innovations, customer centricity, ethnographic research and exponential organizations
India has taken decades, and in some cases, centuries to develop physical infrastructure comparable to those in developed markets. For example, Indian trains, cars and planes are nowhere close to those of the developed markets even after decades. But in the case of digital adoption, India is much more in line with the rest of the world, which offers our country the opportunity to leapfrog. For example, cars (per capita) in India are at 0.026 (compared to 0.7 for some developed markets), even after 120 years since automotives were first launched in India. On the other hand, India has already achieved 34% smartphone penetration, which is expected to rise to 65% by 2020, just within 10 years of the invention of smartphones. This is not that far behind some developed markets, where the average smartphone penetration is between 70% and 80%.
However, achieving this digital leapfrog, especially in a diverse and complex country like India, requires a certain set of “capabilities” to be in place. Just as in the case of an iceberg, some of these capabilities are “above the water line”. These capabilities have been spoken about ad nauseum, with the agenda regarding them now very obvious, although significant action has yet to be taken. At the same time, a few capabilities still remain “below the water line” and have not been addressed well. However, for India Inc. to be able to fully realize the benefits of digital, developing these hitherto hidden capabilities will be critical.
The capabilities above the water line that are now known but need solving for, include:
• Telecom/network infrastructure: Including an ICT (Information and Communications Technology) highway (with 3G/4G+ networks), affordable broadband and data devices
• Payment network and infrastructure: Covering mobile payment modes and a ubiquitous and universally accepted payments network
• Supporting regulations: Covering decisiveness and clarity on cybersecurity and privacy, intellectual property regulations, Net neutrality, labour laws, IT Act, Copyright Act, education framework—especially for online distance education and e-learning of SMEs (Small and Medium Enterprises).
• Core technologies: Starting with SMAC but also moving to IoT, 3D printers, machine learning, AR/VR, AI and other emerging technologies.
• New ways of working: Abilities in ethnographic research (as opposed to conventional consumer research), design thinking including UI/UX (User Interface/User eXperience), open architecture and an ability to integrate through APIs (Application Programming Interfaces), with internal updates and enhancements.
As one looks beyond the more obvious and discussed capabilities, to below the water line, there are a set of capabilities that need to be addressed to fully harness the potential of the digital revolution. These include:
Transforming mindsets to adapt to new ways of working: As organizations look to the future, they will need to completely revamp their structure and working styles to effectively embrace digital, and create a digitally-native enterprise. The entire organization will need to adapt to digital, this is not just a role for the IT department. This change of mindset will likely pose a huge social challenge. For the first time in human history, younger people with less experience will know more about something, i.e., digital. At the same time, decision-making will still lie with the older, more experienced people. This gap between capability and authority will be a key challenge facing organizations going digital.
“Agile”, in this context, is an interesting concept. Organizations understand the “why” with regards to embracing “agile” in their pursuit to deliver digital solutions. However, they struggle with the “how” of building capabilities for such agile implementations. How do you handhold organizations and their people in the first few cycles of implementations? How do you percolate this way of working to the entire company, and not have it tagged as an IT initiative? How do you create a start-up mindset—involving ideas like digital centres of excellence, daily immersions, “implement fast-fail fast”—instead of letting agile be equated to chaos? Enterprises that combine the best of both worlds—the digital capabilities of young staff with the maturity of more experienced people—while building the required capabilities, will create truly successful, innovative and agile models.
Leveraging Big Data and analytics (BDAA): Two years ago, the Harvard Business Review dubbed the role of a data scientist as “the sexiest job of the 21st century”. The Big Data panel recently in Boston said that the time to hire a data scientist was “yesterday”. And top paying job listings at Facebook and LinkedIn are no longer for software engineers, but for data scientists. Hence, it would seem that all Indian organizations need to do is to hire a few good data scientists—assuming they exist—and be done with that. And therein lies the fallacy, that a few data scientists with fancy algorithms and great visualization tools are all there is to BDAA. This is definitely not enough.
There are three clear capabilities that firms should invest time and energy into. First, they should define end-state use cases and associated value propositions and work backwards to identify the data elements needed to drive this value. This calls for strong outcome-oriented and value-based mindsets as well as robust data governance. Second, all business units, including IT divisions, need to recognize the need for as well as know how to extract, transform and use the right data elements for meaningful analyses. Finally, robust master data and transactional data governance is needed on an ongoing basis. This will ensure that structured as well as unstructured data can be extracted and analysed in real time to drive superior business decisions. This is an iterative cycle that, if embraced correctly by organizations, will help drive significant value. Starbucks is a classic example that invested in this cycle a few years back and is now able to reap the benefits of having moved from user segmentation to the aspirational “segment-of-one”.
Going “phygital”—a marriage of the digital and physical worlds: Virtual technology is fast merging with the physical world, making “phygital” the latest buzzword. Apple Watch epitomizes all that is good about this phrase. Ironically, the less glamorous physical nuts and bolts of supply chain and logistics are extremely important factors driving the success of digital. It is quite interesting that one of the most critical capabilities to win in the digital world will require mastering the physical world. Take the example of milk being delivered to the mother on the train we mentioned at the outset of this article. While it is just an example, imagine if one wanted to offer this as a service to everybody. Just think about the challenges of predicting volumes required by geographic locations, of storing a perishable commodity like milk, and the infrastructure required to be able to deliver the milk at the right time and place, with marginal incremental costs. Hence, we believe that the winners in the digital world will be the ones that master the physical world.
As the world’s leading e-commerce provider, an organization like Amazon is taking its strides in “phygital” to a new level. In e-commerce, supplier cost and profitability is directly proportional to the number of stock keeping units, the volume of inventory stored and the number of warehouse hubs required to reach customers easily. Now imagine a situation where Amazon could avoid these storage costs while still delivering products to customers faster, using emerging technologies like 3D printing. In the week of 18 February 2016, Amazon filed a patent to partner with Mixee Labs to meet customer demand by 3D printing their products through mobile hubs. In simple English, they will soon have trucks with 3D printers installed, so that new orders can be quickly given physical form using the new technology and delivered practically anywhere within an hour.
Partnering to create support “ecosystems”: The fact that a technologically advanced leader like Amazon needs to partner with Mixee Labs speaks volumes of the need to create “ecosystems” and form partnerships with other firms to stay competent in this digital age. The Google story and the rise of Android has given a new meaning to “open architecture”. As recently as late September 2016, organizations like Facebook, Amazon, Alphabet, Microsoft and IBM joined hands to launch their new “Partnership on AI”. This is a classic example of how intense rivalry is morphing into true commercial partnerships. With the fast-evolving digital capabilities needed to “stay in the game”, it would be foolish for organizations to try and “do it alone”. Technological advances enable various stakeholders to plug-and-play into each other’s assets and tools, creating experiences and offering value propositions that no single firm can deliver.
Firms need to rapidly create partnerships with entities in related areas and go-to-market together with a commercial relationship that is a “win-win-win”, for the organization, its partner, as well as the end consumer.
In summary, the digital revolution is here to stay. This is no dot-com boom waiting for a bust. Organizations have only two options, either invest in digital, or perish. Not every investment today will have a cogent business case. Yet, you need to make these investments, and believe that they will pay rich dividends. This is your only chance of survival, and, like Steve Jobs said: “You cannot connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will connect in the future.”
Alpesh Shah is senior partner and director at BCG, and Rajiv Gupta is partner and leads the Technology Advantage practice at BCG India.