VUCA is a matter of perspective

VUCA is the new black.  Suddenly everyone has realized that sometimes the economy or markets are volatile or uncertain.  If I were older and cranky I'd blame this on the millennials, not because they are millennials but because they've never lived with a stock market that goes down.  Volatility seems like something we've only just discovered.  Not too many people seem to remember the stock market crash of 2008, but of course that was a decade ago.

VUCA is now getting tossed around like it is a new idea, which is NOT true. VUCA is, however, more relevant than ever to people who refuse to take the long view, or who refuse to prepare.  What is volatility or uncertainty after all, if you have a longer term view?  What appear to be massive swings in an economy or a market in the short term turn out to be small hills and valleys over a 20 or 30 year horizon.  There is of course the famous and perhaps misquoted statement by Zhou Enlai, the Chinese premier, who replied "too early to say" when asked about the impact of the French revolution.  Some people have suggested this is the sage advice of a people who take a long view, reflecting on the impact of the French revolution in the 1789.  Others note that he might have been referring to violence in France in 1968.  This quote has the benefit of being true and the added bonus of proving that ambiguity and uncertainty matter.

VUCA

VUCA, like many four letter acronyms, probably springs from military usage.  It stands for Volatile, Uncertain, Complex and Ambiguous.  A learned scholar would note that there's not a lot of difference between these words.  Many things that are volatile are also uncertain.  Uncertain and ambiguous are almost synonyms.  Many things that are complex can be uncertain or ambiguous.  VUCA is just a way of saying difficult to describe or understand.

We innovators and purveyors of future insight talk about VUCA like it's a problem.  Wouldn't it be nice if the world were predictable, stationary, completely certain.  The problem is that very few people want to live in a world with such predictability and stability.  We'd get bored fairly quickly I think, and those of us who like change would go absolutely crazy.  I think it's healthy for people to live in a VUCA world.  It only becomes a problem when the world becomes too uncertain, too volatile or too complex, and that measure is often in the eyes of the beholder.

Three ways to respond to VUCA

There are options to respond to a VUCA situation.  The first is to react to the volatility and change after the fact and complain about what a crazy, VUCA world we live in.  This is what most people do, simply react after the fact and complain about change, as if change isn't the norm.  Sorry to sound judgemental but this is the least interesting, least engaging response and one that places the blame on change that is already occurring.

The second option is to take a long view.  Notice that much change reverses itself or corrects over time.  I noticed just this week that jean shorts seem to be back in style, after being the butt of jokes (jorts anyone?) for years.  The market crashed in 2008 and reached the same point as the top of the market a few years later.  In this model we ignore the momentary blips and look for longer term, not reacting to every change.  This model relies on patience, past performance and slowly adapting to the markets and environments as necessary.  Call this the dollar-cost averaging approach.  If you don't know the reference, ask your broker.

The third option to address VUCA is to look ahead, examine trends and conduct foresighting or scenario planning.  The future, as we've been assured, is out there, and there is evidence of what is going to happen, many times long before it happens.  Uncertainty can be reduced by looking at the possible options and their likelihood of occurrence.  Volatility can be anticipated if we look forward and expect it.  Playing out various scenarios helps to illuminate what is likely to happen and what the requisite reactions will be from those who are simply reacting to the events.

VUCA is what happens to intellectually lazy people

Isn't VUCA just an excuse for "I was too busy or preoccupied or lazy to do a little investigation into what could happen?"  Maybe VUCA isn't an acronym but Latin for "didn't do enough planning".  Of course much of this diatribe is tongue firmly planted in cheek.  The world is more volatile and markets and economies are more uncertain than ever.

 But on the flip side we have more information and are more connected than ever.  Instead of being a victim of VUCA and acting like VUCA impacts are unpredictable and unavoidable, perhaps we should become more proactive, trying to anticipate the volatility, trying to reduce the uncertainty, trying to simplify the complexity.  But that takes foresight, thinking and free time, all of which are sadly in short supply in too many businesses today.

If you need help, contact me.  I've conducted dozens of foresighting and scenario planning exercises for non-profits, universities, government agencies and of course corporations.  If you are living in a VUCA world and don't want to simply react to changes, and don't have the patience to simply wait them out, we can help.  You can reduce the impact of volatility, create more clarity and simplify complexity by working to understand the future.

Customer experience is about to undergo a significant transformation

I've been writing lately about the intersection of innovation and digital transformation, first because it is a very current topic and second because there are fascinating possibilities as innovation and digital transformation collide.  Increasingly, new product development is being digitized (that it, it is becoming an increasingly digital experience with generative design) and new product development must incorporate digital capabilities - sensors, data, communications.  Soon all products will be smart products.  But I digress.

The real point I wanted to write about today is that while all of this new innovation and digital transformation is occurring, it is very easy to get caught up in the technology and emerging capabilities and miss what is probably the most important focal point of your work - as an innovator or as a person focused on digital transformation.  Do you call someone working in digital transformation a digital transformer?

The important focal point - the thing that should be paramount in your thinking is:  how does this improve customer experience?  Customer experience and how customers engage and interact with your solutions is becoming the most important factor in product design, development and innovation.  Digital transformation is simply accelerating this change.

Why is customer experience paramount?

It's similar to the Maslow's hierarchy of needs.  Once a specific set of needs has been relatively well provided for, you move to a higher and often more esoteric set of needs.  Once shelter and food are reasonably well provided for, you move on to well being and happiness as an example.  The same is true for products and services.

Once a product has the appropriate features and capabilities, you move into a new state:  does this product or service enhance my experience?  take for example two competing products, both of which have the same list of features. The first device is much easier to use, integrates into the way you live and work and seamlessly interacts with other devices.  The other is more difficult to use, doesn't integrate and doesn't interact or play well with other devices.  The customer experience of the first device makes it much more attractive than the second device, even though they both have the same capabilities and features.  All things being equal, most people will choose the first device.  That's because the basic needs are satisfied and now customer experience,usability and design matter more.

Why is this accelerated by digital transformation?

I'll argue that we are at peak or perhaps even beyond peak product design.  For years we celebrated individuals who designed products.  Jony Ive was a well-known figure from Apple because of his designs.  However, the value from products and services is increasingly in the data and connectivity, so improving the experience from a digital perspective is increasingly more important than the physical design - it does not lessen the demand for good physical design, just shifts focus.

Digital transformation allows innovators and digital transformers to create new experiences from digitally connected devices, adding value with data and experiences like augmented reality, voice control and other factors.  Don't be fooled though, simply adding more data or more digital features isn't going to win.  Good design and customer experience at the digital level matters a lot, since the vast majority of consumers aren't digital natives.  However, we can expect a lot more focus on customer experience, regardless of the type and nature of the offering or solution.

CX and UX in demand

What we can anticipate is that individuals who understand customer experience and usability will be in great demand, especially those who understand the importance of usability and experience in an increasingly digital product offering.  Understanding that people want access to data and information, but on their terms, that is easy to use and easy to understand and augments or enhances a physical product or experience is vital.

This poses an interesting predicament - we have been focusing on developing data scientists, who understand the data, but have we spent as much time developing data experience professionals, who understand how to make the experience of data and digitally enhanced products effective?  Of course the science leads the experience - it's that way with every new technology advancement.  How quickly do we catch up with digital experience?

Digital transformation: Pandora's box or cornucopia?

Digital transformation.  Everyone from the CEO to the janitor understands that digital transformation is important.  Every competitor is talking about what digital transformation will do for their business - create new revenues, cut inefficiencies and costs, discover new value in previously unremarkable data.  Digital transformation is the latest management philosophy, like ERP or business process re-engineering or innovation that have come before it.  Yet unlike some of these previous philosophies, digital transformation has the power to actually transform a business, rather than simply improve core processes or cut costs.

Right now, digital transformation is a moniker without a definition.  Some people refer to digital transformation as digitalization - improving systems and processes to the point where the business runs on fully integrated digital data and systems.  Other people refer to the goal of being "data driven" - that is, letting data drive processes and decisions.  Some people refer to digital transformation as the advent of artificial intelligence and machine learning as a core component of business operations.  The truth is, like innovation, digital transformation is in the eye, and the definition, of the beholder.  And when definitions are loose and not shared, different implementations will create different outcomes, and what could be a transformative activity is likely to become a discrete project.

Digital and Transformative

There are digital projects and there are transformative projects, but there are very few digital transformative projects.  I use the emphasis intentionally, for this reason:  improving your ability to manage your data (a digital project) won't necessarily transform your business, and you can transform your business without necessarily improving your digital operations, but both are discrete projects.

Digital transformation is a journey.  There.  I said it.  It is an old trope but sometimes old sayings are valid.  To transform a company and make it much more digital, agile, fast and innovative, it will take time and commitment.  This is not a one time AI project in a portion of the business, but an intentional change to how business is done.  Nothing like that happens quickly or in isolation.  Many of the leading firms working on digital transformation have been at it for several years, and when they are being honest they'll admit they have several more years to go to achieve any real digital transformation.

Secondary and Tertiary effects

What's equally if not more important than the realization that digital transformation is a journey of many projects and not a single project is the subsequent understanding that the transformation isn't simply a technology or business process transformation, but will eventually impact:
 - data
 - customer service and experience
 - business models and revenue models
 - partners and the delivery or service ecosystem

While digital changes that you implement today may not seem to impact how you interact with customers, the channels you use or the service experiences customers enjoy, think about the fact that you are transforming your business, as customers and expectations are also being transformed.  If you believe you can continue to operate in the models and methods of the past, while transforming only the data portion of your business, you are sadly mistaken.

Digital transformation will change much more than the data, internal processes and products.  Take for example the new Lumi diapers from Pampers.  These are diapers with a sensor to alert parents to their child's activity and the dampness of the diaper.  With a single sensor (digital capability) information can flow from the diaper to the parent's phone or PC.  Also included in this solution is a digital camera, which the parent can use to turn on or off and view the child at a distance.

From that description, all we've done is place a sensor on a diaper, and exchange data.  But look at what happens next.  The app on the PC or table must be interactive and useful for parents in order for this to succeed.  Thus, customer experience becomes important.  Then, for Pampers to actually benefit from this device they must drive more diaper sales, and create more loyalty, so being able to order diapers from the app is a fairly simple addition, changing the business dynamic between Pampers, the retail channel and the parent.  Of course the delivery of diapers is part of the customer experience as well.

One small change, many secondary and tertiary effects

The challenge with digital transformation at a project level or at a corporate level is the unexpected or even unanticipated secondary and tertiary effects.  By simply including a sensor or data device on a product, you create data flow which creates new insights and opportunities for customer interaction, leading to the importance of customer experience.  As the customer becomes more involved in the data stream, the company has new opportunities to market goods and services, changing the retail channel dynamic and creating new revenue streams and business models.  To support these new models, new and existing ecosystem partners must play an integrated role to provide the service and product expected.

Pandora's Box or Horn of Plenty?

The pessimistic side of me says that many companies will focus on the data flow as they add intelligence to devices, and ignore all of these secondary possibilities.  Some portion of me wonders if these opportunities are a Pandora's Box, full of promise at the start but unleashing issues we haven't fully addressed like ethics and privacy.

But perhaps the best metaphor for the prepared and thoughtful company is a horn of plenty.  There are many opportunities within a digital transformation, and companies that fully consider their opportunities, including the immediately obvious data and analytics opportunities but also the opportunities new data exchange creates, can reap fairly dramatic rewards.

Smart, fast, innovative and digital

The title of this post is the answer to the question:  what does my business need to look like in the future in order to be successful?  I think that increasingly we can make the assumption that the pace of change will remain about the same, the world and markets we participate in will remain volatile and the increasing effects of the digital transformation will only increase.  Therefore, slow, rigid, dumb companies that cannot evolve quickly, cannot become nimble and can't innovate are already dying a slow death.  I'm looking at you, Sears.

I think most people would agree that the factors I've listed in my post title are conditions for future success, but many might debate the depth of knowledge or engagement that is required to really succeed.  Further, it may be apparent that many of these attributes are desirable, but they may be addressed in a siloed or discrete manner, rather than with the understanding that these aren't discrete or standalone capabilities but are mutually reinforcing, and need to be continuous capabilities.  To compete effectively you can't simply make a one-time digital transformation and rest on that new infrastructure.  Digital will keep changing and your new platform will need to change with it.

The same is true with innovation. Your company might "become" innovative but once it has achieved this milestone it must continue to conduct and perfect its innovation chops.  There are no one time effects in the race to remain relevant.  These aren't throw away lines in a management report or one time showcase projects.  These are the new operating realities.

Digital and Smart

These two factors are a good case in point.  It is entirely possible to be digital - to have a lot of digital, automated processes and good data management and hygiene and to be relatively dumb.  Having a digital framework and good data management does not ensure the ability to act with insight and precision, to become a "smart" organization.  Even in companies that are making the digital transformation today, too much of the data remains uninterpreted and unused, and decisions are made without the benefit of good information and insight.  It's not enough to make a digital transformation, because no one really knows what that means.  It's more important to use digital techniques and tools to become smarter than your competition.

Digital and Fast

Again, two factors that could work together that are at risk of working in opposition.  Digital transformation means creating new processes, managing data more effectively, automating processes which should enable speed and agility, but in many cases simply reinforces the status quo and blocks agility and change.  Ask yourself - does our digital transformation work help us work faster, to become more nimble and agile, or does it simply create barriers to new change?

Being digital should enable a company to work at greater speed, to be able to anticipate course changes and move with agility.  So far many "digital transformations" I've seen do the opposite.

Digital and Innovative

Finally, we reach the culmination of the review.  Being digital does not ensure that your company will become more innovative.  In fact it could mean the exact opposite.  If you are doing digital transformation you are implementing machine learning or artificial intelligence, robotics or IoT.  You are improving your ability to gather, manage and use data.  In other words, your teams are using their engineering brains.  Are you at the same time using your creative brains to imagine new solutions, new ideas and discover new opportunities and problems?  More importantly, is your digital transformation guided by the need for efficiency or the quest for better innovation?

The key word is AND

Future competitive strength will reside in organizations that are smart, fast, digital and innovative.  As the subheading suggests, the key word is "AND".  These capabilities aren't mutually exclusive - they rely on each other for greater success, and can't be one time activities - they must become internal capabilities that are constantly evolving and improving.  When you stop working on one of these, all the rest will suffer.  We have to learn to think differently about our companies, their operating models and internal core competencies and capabilities and prepare them to work in a new way, where digital is a priority, where speed and innovation are paramount and where intelligence and insight guide every action.

Digital transformation marks the demise of product innovation

There comes a time when every phenomenon reaches its zenith, before a long fall or a sudden collapse.  We like to refer to this point in the cycle as the "tipping point" - the point at which we can remain in stasis or the structures will collapse.  We are warned that we are close to the tipping point for global warming, for example, where more carbon dioxide in the atmosphere may result in weather and climate changes that create catastrophic change in the weather, sea levels and other factors.

I'm going to stipulate that the business cycle and innovation are at a tipping point.  For close to 20 years (dating approximately from when Jobs returned to Apple) we've been living in the product innovation era.  That era I believe is rapidly drawing to a close, and shortly will collapse, because of other factors such as digital transformation.  When the transition occurs, those companies still focusing on discrete product innovation will be left in a difficult place, because the skills they are building and the focus on product innovation will be less important than emerging abilities in digital transformation and in agile, nimble business models.  They will have succeeded in preparing to fight the previous war, as my military friends like to say.

Several converging forces

There are several reasons why we'll see at least a slow decline in product innovation, if not a collapse.  First is corporate, especially executive cynicism.  Innovation hasn't delivered on its promises in many cases.  There are many reasons why, most notably the inability to accept risks and learn from exploration, as well as the fact that most businesses are too locked into their operating models, business models and markets to do more than incremental innovation.

The second reason is that we are reaching the point of feature saturation.  Most companies don't innovate entirely new products.  For the most part they add additional features and capabilities to existing products.  When cars compete on the number of cup holders and TV remotes require a PhD to determine how to use them, we've reached feature saturation.  There's really not much further we can go with many of the existing products.

The third reason for forecasting a rapid demise in product innovation is the emergence of digital transformation.  As data becomes more important and frankly more valuable and scalable than tangible products, companies will shift to digital products or products that produce data.  What they haven't yet realized is the digital transformation will require shifts to their business models and revenue streams.  Digital transformation will require that companies become a lot more agile and nimble, able to adjust their business models and revenue streams as customer demand shifts.

There's a silver lining in that cloud

If this all sounds a bit dire or ominous, take heart.  There is a silver lining for those companies that recognize where we are on the life cycle of the product innovation era, and what's about to unfold.  Digital Transformation holds within it the demise of physical product innovation but contains within it the new opportunities for business model agility and innovation.  Big businesses will simply have to think differently about what their operating structures and models must be.  No longer will they be able to tinker on the edges with new products.  Innovation will move to the very core of the business, to consider what all the new data means, and how to take advantage of the data streams and insights.

Digital transformation can open up an entirely new way of thinking about innovation, but that innovation will focus on what has traditionally been the most resistant to innovation and change - the existing structures and business models.  Companies that realize this and become more flexible, nimble and agile will use digital transformation to innovate how they operate.  Other firms will do some digital transformation but attempt to retain their old business models, and will collapse due to the conflicting goals of old models and new data.

The future is here, just not widely distributed

If this all sounds futuristic, you aren't looking close enough.  Some of what I'm writing about is already here, just not widely distributed.  Airbnb and Uber are examples of what a more nimble, asset-less company might look like.  Time will tell if they are the avatars or just the next iteration on a journey toward a new type of company.  Companies that understand how to use the data that digital transformation creates and create business models, revenue models and operating models based on the data and needs of customers will succeed, and they'll operate in a different fashion, with different structures and different models than companies do today.

It's both a challenge and an opportunity, blending digital transformation and new innovation models.  Are you ready for some real change in big corporations?  Or, will they slowly wither and die as newer, more nimble players demonstrate the ability to use data effectively?

Digital Transformation will also transform Product Innovation, by the way

There is one really ironic twist to all of this.  Just as we are 'ending' an era of product innovation, digital transformation will revive product innovation, mostly by adding new sensors and IoT capabilities to existing products.  If the data is valuable (and it is) companies will want to gather and harvest the data in any way they can, so more products will become smart and connected.  That's one way the product innovation era will be extended, mostly to the benefit of digital transformation and data.

Challenges when innovating smart, connected devices

I've been struck by the importance of two rapidly converging forces - digital transformation and new product innovation.  As we've discussed, here and elsewhere, ad nauseam, there is increasing demand for new products and services, making stretching the capacity of tenuous innovation processes and teams.  When we add in the new requirement that many of these new products must also be smart and connected, innovation gets a lot more interesting and a lot more difficult.

What does it take to create not just a new product, but a new product that is smart and connected?  Certainly it takes more than simply gluing a sensor to an existing device.  If only it were that simple.  Let's think about what it takes to create smart and connected new devices by considering the simply air filter.  Yes, 3M has released a smart and connected air filter.  As I noted in a previous post, capital equipment (tractors as an example) have been smart and connected for years, but when the concept jumps to consumables like air filters, literally any device can be smart and connected, and that changes everything.

Smart AND connected

First, let's talk about our language.  There are a number of what I'd call "smart" products that capture data or respond to surroundings.  These devices can analyze the environment and turn on or off or take a specific action.  They are somewhat "smart" in that they operate in a way that responds to commands or to the environment.  But many of these aren't necessarily connected to the internet or other systems.

Smart and connected requires that the product include senors and other IoT capability AND share that information with the consumer and with the manufacturer or distributor through the internet.  When the data is shared beyond the household, the smart and connected device becomes the basis for a new potential revenue and business relationship.

What's more important, the product or the data

Using 3M's air filter as an example, we can begin to see that the end product will become the razor and the data created and shared will become the razor blades, only in reverse.  The air filter's value to 3M in terms of revenue and profit is marginal, but the value of the data gathered, managed, analyzed and repackaged is much higher.  As the data is shared, and aggregated from other sources and combined with other geographic, demographic or psychographic data it creates insights for new products and new services and can be packaged and sold to others.  This in turn offers the potential for new business models, new recurring relationships with consumers that the company can control and monitor and new product development based on insights from the data.

Emerging impact on customer experience

A smart connected filter also means that 3M can create and leverage new customer experiences.  Previously if I acquired an air filter I did so based on availability and cost, since the filters were mostly commodities.  If I acquire the 3M smart filter and download the app and have a good experience learning about my usage and in the reordering process, I may "lock in" to 3M's products and even a recurring revenue stream if the customer experience is good.  For a product where traditionally customer experience wasn't important, suddenly secondary issues like customer experience with reordering or the applications or data presentation matters.

Managing and harvesting data

There are so many considerations when transitioning a traditionally "dumb" product to a smart, connected product.  I've noted the challenges with customer experience just above.  Another is the nature and volume of data that will be generated, and the importance of gaining insight and value from that data.  While many of these products may not generate a lot of data, the aggregate data generated will be significant.  Imagine that 3M sells hundreds of thousands of air filters in a year and each is connected and shares even just a few bits of data every day.  That data provides a baseline about product usage.  But when consumers sign in to 3M's app more data becomes available - the customer's location, purchase preferences, reordering models and so forth, for every home that has a smart device.  With that data 3M can then merge their data with more data about location, geography, neighborhood incomes and other data to get a full picture of the client profile, usage, buying patterns and other data to use to improve products, offer new incentives or advertising or package and sell the data.

Transition from dumb to smart and connected

So, far from a simple transition, there are significant shifts when moving to a smart, connected device.  Beyond simply adding a sensor and connectivity, which are not simple but are probably the easier activities, companies will have to consider the data generated and how to obtain value, the enhanced customer interaction and experience and the potential impact to existing business relationships and business models.

If you find that this is more complex than you first imagined, you are right.  My team can help think through this with a framework we've built that considers many of these components to a successful smart, connected device as part of innovation and new product development.  Contact us if you'd like to learn more.