The rise of the planet of the apps
5 min read 09 Mar 2016, 01:21 AM ISTNew engagement models are evolvingthe future belongs to shared economics, co-creation and outcome-driven pricing models
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Millennials will constitute 76% of the global workforce by 2025. A generation, that is “digitally native", unlike the preceding one, which became a digital “convert" somewhere along the journey. The business paradigms of the earlier generation are almost alien to this group. Hence, enterprises would have to metamorphose to remain relevant. It is almost impossible, for example, to imagine a millennial going to a bank to withdraw cash or for that matter imagining him filling up product registration cards, after purchasing electronic items, and then posting those to the manufacturers. Welcome to the world of digital enterprises.
It may, however, be pertinent to pause and define what would constitute digitisation. Multiple opinions abound on this. A common belief is that adoption of elements of SMAC ( Social, Mobility, Analytics and Cloud) is an encapsulation of a digital framework. I would however simplify it to say that such a strategy would encompass road maps to have one or more of the following three concepts:
1. Digitise channels
2. Digitise processes and
3. Product digitisation
Channel digitisation is a better understood concept today—driven primarily by the e-commerce wave and the digital linking of the supply chain. In a hyper-connected world, straight-through processing of a transaction is an example of a digitised process. Imagine being able to buy a product, in a foreign country, and then selling it, nearly simultaneously, in a third country, at the click of a few buttons.
On the other hand, product digitisation is even more exciting. An extreme example of a new age digital product is bitcoin. A stateless global currency—a concept that would have been difficult to fathom a decade ago.
Kodak moment
The greatest fear of enterprises is to suffer the fate of Kodak—a leader once, which was left by the wayside with the advent of digital photography. This time around, the killer blow could come from unexpected quarters. A company like Uber, a digitised taxi business that caught operators off guard, is now piloting an on-demand flu vaccination service in the US. I don’t think hospitals and clinics in Boston saw this coming. That’s the power of digital!
Most G2000 companies, today, see Silicon Valley as their biggest threat. One never knows what a Google or an Apple may do next, that could completely disrupt the best of business models. Metromile’s “pay per mile" insurance service is a classic example of how a decades old, auto insurance industry could get shaken up by a digitally connected, pay-per-use model. And there are hundreds of technology companies out there!
Software really seems to be eating up the dead wood!
Demand side economies of scale
One visible trend is the rise of technology platform-based business models. Facebook, Amazon, Apple’s App stores, Airbnb, etc., are essentially platform-driven business ecosystems. Platforms generate network effects, where the two parties to the transaction (say producers and consumers) mutually benefit as the ecosystem grows. Hence, the economic focus is shifting from the traditional supply side optimisation to demand side economies of scale.
The traditional supply side economics relied on creating barriers to entry, by stitching together an efficient supply chain. However, platform driven business models are allowing enterprises to harness the economic benefits of tapping into resources, that they may not even own. The last time something like this happened was maybe when the telephony network was introduced. The more the number of phones, the greater was the value of the system.
The traditional enterprises are fast adopting platform-based models. Philips, for example, is creating an interconnected cloud platform for real time exchange of data between patients, providers, devices and sensors. This platform would encompass the entire value chain of healthy living, prevention, early diagnostic, patient care and device management. A strategy that’s also likely to expand Philips’ definition of its target market segment.
Autobots on the move
Robotic process automation is a natural consequence of the digitisation wave. Mckinsey & Co. predicts that by 2025 nearly 260 million jobs will be replaced or augmented by technology. “Always on" enterprise and interconnected devices are generating extreme volumes of data—both structured and unstructured. Accenture predicts that by 2020 there will be four zettabyte of data, of which only 35% will be useful for analysis. That’s still a lot of data to be analysed manually.
Advancement in artificial intelligence (AI) and natural language processing capabilities are leading to very interesting next-generation analytics and automation platforms. On the one hand, one could have Ipsoft’s Amelia AI platform, that can converse in 20 languages, and on the other we could witness completely futuristic ideas like VITAL.
VITAL is an algorithm that has recently been appointed by a venture capital firm, Deep Knowledge Ventures, as an “equal" member of its board—maybe a global first for a machine.
The world is changing rapidly and machines are joining the workforce. Factory workers are passé, now even boardrooms are on the radar.
Implication for Indian IT: The game of thrones
The top 15 “born digital" public companies and the largely platform-driven 140-odd unicorns have a combined market value of nearly $3 trillion. Flush with cash, unmatched agility and technology prowess these companies are poised to give the traditional large enterprises a run for their money. And that’s not all. Silicon Valley seems ready to unleash a few more unicorns within this decade. So, the big corporations have no option but to adapt—to even remain relevant, let alone retain market share. What started as a small shift from the world of websites and URLs to the realm of mobile apps has now taken life-threatening proportions.
Mckinsey estimates that nearly 80% of the incremental IT spend will be on digital technologies. Around half of this spend will be funded by cost-cutting in traditional areas. Still, it will be a big net positive for the industry and presents a lucrative opportunity for Indian IT.
New engagement models are evolving. Gone are the days of blissful T&M (time and materials) billing. The future belongs to shared economics, co-creation and outcome-driven pricing models. To deal with super intelligent corporations, IT companies themselves would have to improve their intelligence. The IT/BPO provider of the future should be in a position to automate a lot of mundane tasks, including even certain types of codes. Intelligent routing of appropriate parcels of work to the best suited employee across the organisation could well become the norm of the future. Thus, making work interesting for the individual employee and also giving rise to small and agile work teams.
The future pecking order of the outsourcing companies is up for grabs between digital leaders and digital laggards—the next season of the game has commenced.
Amit Singh is executive director, head of IT and co-head of outsourcing at Avendus Capital
