By Christophe Begue & Laura Ong
Spurred by the growing prevalence of AI, IoT, and other emerging technologies, many electronics companies are reevaluating their digital strategy in order to remain competitive.
According to a recent study from IBM Institute for Business Value – IBV, 73 percent of electronics companies cite new technology as a ‘dramatic external force that will impact their business in the next two to three years.’ In response to rapid change in their industry, 41 percent of electronics companies are ‘launching or modifying new business models in the next two to three years, compared with 17 percent who did so in the last two to three years.’
The IBV has recently published three papers which, taken together, provide new insight into the digital strategy that top performing electronics companies are pursuing in this era of fast-paced technological change. “Intelligent Connections” outlines four archetypes in IoT and AI adoption, with a focus on the behavior of ‘Reinventors’ who leverage these technologies in a transformative and visionary way. “Using Data by Design” discusses the implications of digital reinvention for the electronics industry in particular. Lastly, “Navigating the Cloud Continuum” provides guidance for electronics companies developing their cloud strategy, a necessary step for the effective deployment of these emerging technologies.
Who are the Reinventors?
The recent IBV paper, “Intelligent Connections” relies on 3158 interviews with C-suite executives to identify four archetypal patterns of AI and IoT adoption: the Reinventors, the Tacticians, the Aspirationals, and the Observers.
Among these four archetypes, the Reinventors (19 percent of CxOs) are of particular interest, as they exhibit both a high level of IoT adoption and a highly transformative vision for the impact that intelligent IoT can have on their business.
Tacticians (31 percent) share this high level of IoT adoption but lack the Reinventors’ transformative vision. Aspirationals (13 percent) have a visionary IoT strategy that has not yet been implemented. Observers (38 percent) have neither adopted IoT nor envisioned a transformative IoT strategy.
“Intelligent Connections” examines common trends among the Reinventors, in order to better understand the behavior of companies implementing visionary IoT strategies. In particular, it highlights areas of difference between Reinventors and Tacticians, shedding light on the features that set truly transformative IoT implementations apart. These differences, surrounding ‘clarity of vision,’ ‘aligned strategies’ and ‘execution agility,’ are particularly instructive considering the gap in financial performance between the Tacticians and the Reinventors. In the past two to three years, 77 percent of the Reinventors experienced high profitability versus only 55 percent for the Tacticians.
Reinventors are much more likely than Tacticians to provide connectivity for products and devices (61 percent versus 35 percent). They are also much more committed to investing in AI and machine learning than Tacticians are (57 percent versus 7 percent). In order to analyze and maintain the vast quantities of real-time data that flood in from connected devices, Reinventors focus on building a scalable IoT infrastructure. This includes cloud infrastructure, device connectivity management software, IoT Platform as a Service (PaaS), IoT data store/data lakes, and microservices.
Not only do Reinventors tend to invest in both AI and IoT – they also perceive a symbiotic relationship between the two.
65 percent of Reinventors strongly agree that the full potential of IoT can only be realized with AI, as compared to 10 percent of Tacticians. This difference of opinion has strategic implications; 68 percent of Reinventors believed that combining AI and IoT enables new services, business models, and revenue streams, but only 11 percent of Tacticians agreed. Not surprisingly, Reinventors are more likely than Tacticians to invest in emerging technologies that leverage data and AI, including robotic process automation (39 percent versus 8 percent), robots (31 percent versus 5 percent), virtual reality (30 percent versus 8 percent) and augmented reality (29 percent versus 7 percent).
Reinventors also excel at aligning their IT strategy to their business strategy, with 79 percent reporting close alignment, compared to 48 percent of Tacticians. One key example of this alignment is Reinventors’ reliance on business partners to gather the full range of data they need. 72 percent of Reinventors, versus 56 percent of Tacticians, reported that they collaborate selectively with competitors, underscoring the value of “coopetition.” Reinventors then leverage the data they have procured from customers and competitors to enhance their offerings and create a more compelling customer experience. 81 percent of Reinventors, but only 66 percent of Tacticians, ‘use data to identify unmet and undefined customer needs.’
In fact, the strategic alignment that Reinventors display tends to permeate their operations and culture as well. For instance, 74 percent of Reinventors display the strong experimentation and iterative practices that characterize agile methodology, compared with only 52 percent of Tacticians. This ‘fast failure’ approach goes hand in hand with a collaborative and inclusive culture; 80 percent of Reinventors empower their teams to determine a best course of action, compared with only 50 percent of Tacticians. Not surprisingly, Reinventors are much more likely than Tacticians to be effective at managing organizational change (87 percent versus 44 percent). This flexibility is crucial, since Reinventors who make big bets on leading edge technologies like intelligent IoT must adapt to a wide range of technological, workforce, and operational changes.
What does Digital Reinvention mean for electronics?
The phenomenon of Digital Reinvention is uniquely relevant to the electronics industry, in hich connected electronic devices provide increasingly seamless and proactive digital experiences while gathering valuable user data. Equipped now with a fundamental understanding of what Reinventors value and how they behave, this section will refer to the recent IBV paper “Using Data by Design” to explore what Digital Reinvention means for electronics.
How the game has changed
Over the past several years, the cost of data storage has fallen sharply, cloud computing has enabled faster and easier data processing, and the development of smart sensors has delivered an abundance of rich user data. These three developments have set the stage for a new era in electronics, in which AI and IoT technologies work in tandem to draw intelligent insights from numerous data sources and convey them to the user on a wide array of interconnected devices. Informed by data on individuals, the usage patterns they have of their devices, and the environment in which they live, user experiences across devices are becoming increasingly integrated, personalized, and proactive. These innovations have catalyzed a fundamental change in the electronics industry – not just in the products sold, but also in the way electronics companies can, by building content and service ecosystems, seek to create value for the user that goes far beyond the device itself.
One aspect of this change has been the blurring of industry boundaries. Media companies are using their free connected content platforms to gather and utilize massive amounts of consumer data. On the other hand, Microsoft, Facebook, Amazon and Google have also started providing devices and content, as well as AR, VR, and voice/gesture recognition. These offerings allow them to leverage the massive amounts of data available, while gathering even more data each time each that consumers interact with a device. Meanwhile, Samsung has made a foray into data-driven pharmaceuticals with Samsung Bioepis, and Panasonic has ventured into B2B and B2B2C markets, providing battery cells for Tesla’s Model 3 and selling cutting-edge LCD displays for medical and business use cases. A recent IBV survey of over 400 global electronics executives found that 72 percent believe the boundaries between electronics and other industries are blurring, and 73 percent believe that the electronics industry is experiencing the impact of incumbents delivering new forms of innovation.
These fuzzy boundaries have given rise to a new paradigm: the everyone-to-everyone economy. Electronics has evolved from vertical supply chains and static consumer experiences to a rich ecosystem in which consumers play an integral role. In the E2E economy, companies work collaboratively with their competitors to access data and create value. This new economy is ‘orchestrated,’ relying on seamlessly collaborative networks of partners. It is also ‘contextual,’ in that user experiences are closely calibrated to current needs. It is ‘symbiotic,’ in that each member depends on the others – customer and business alike. Finally,
it is ‘cognitive,’ leveraging AI that continually learns and makes predictions.
How electronics companies can embrace Digital Reinvention
In the age of Digital Reinvention, electronics companies must adapt their strategy and operations in order to remain relevant. The IBV study identifies five main steps that can help to prepare for this transformation.
First, electronics firms must refine their strategic focus. This will often involve a shift toward collaborative partnerships and shared data platforms, which can enrich customer interactions and unlock new opportunities to create value. Second, they must develop new expertise, in order to offer genuinely innovative capabilities amid rapid technological change. One component of this should be an investment in sophisticated AI capabilities that allow a richer understanding of context and help improve user experiences. Third, electronics companies must establish new ways of working.
They must recruit the talent to develop and sustain new areas of digital expertise, while nurturing a culture of design thinking, empowered teams, and quick iteration.
Fourth, electronics firms must adopt a self-funding approach, funneling earnings directly from past wins to current investments, to enable faster feedback and increased sustainability. Finally, they must work constantly to develop their digital prowess, in order to stay abreast of swift technological advancement.
Developing the right cloud strategy
A fundamental step towards embracing Digital Reinvention is developing an appropriate cloud strategy. While most legacy enterprise applications remain managed in propitiatory data centers, emerging technologies like IoT and AI are usually delivered on the cloud. This means that in most cases, “an appropriate cloud strategy” means introducing some form of hybrid cloud, as discussed in the recent IBV paper, “Navigating the Cloud Continuum.”
Hybrid clouds combine the benefits of the two primary cloud types: private and public. Private clouds, which are used exclusively by a specific organization or ecosystem, have traditionally been used to support IT and house intellectual property. Public clouds, which are accessible to everyone via the internet, have generally been used for IoT integrations, sharing data between suppliers, distributors, and sensors. Between these two extremes lies a continuum of hybrid cloud solutions that combine the security of private clouds with the flexibility of public clouds.
Hybrid cloud adoption is widely acknowledged as a strategic choice for electronics companies. In a recent IBV study, 54 percent of executives reported that they expect hybrid cloud adoption to “facilitate innovation” in their organizations, and 40 percent expected it to help them enter new markets. See Figure 7 below for a list of eight prototypical use cases. With IoT devices projected to grow at a rapid pace, the opportunities for hybrid cloud will continue to expand.
Which business processes should be moved to the cloud?
Certain use cases are better suited to the cloud than others, and drawing this distinction is key to a strong cloud strategy. In order to evaluate whether a given business process should be moved to the cloud, IBM proposes four critical questions to ask in “Navigating the Cloud Continuum.”
First, does this use case have high business value; is it closely aligned with strategic business goals? Mission-imperative use cases tend to be well suited for the cloud because they require prompt responses to customer demands and secure intellectual property management. Second, what data needs does this use case bring up? The added value of moving a given use case to the cloud depends on which data sets are relevant and who needs to access them. In certain cases, hybrid cloud can enable novel and high-value integrations between private and public data. Third, how important is the speed of data transmission? Perishable datasets, like customer inquiries and factory data, can require prompt
action. In such cases, it can be valuable to integrate edge computing into a hybrid cloud implementation to minimize latency and deliver actionable insights as quickly as possible.  Lastly, how much security does this use case require, and can it be successfully moved to the cloud without infringing customer data privacy?
Determining “cloudable” use cases is only the first step in developing a cloud strategy. After identifying which business processes should be moved to the cloud and where they will lie on the “cloud continuum,” the next step is to establish a cloud governance council comprised of all the business and IT stakeholders involved. This council can develop overall goals for hybrid cloud adoption and oversee each use case as it moves to the cloud. Indeed, a firm’s hybrid cloud strategy must continually evolve. This means not only moving new use cases to the cloud, but also reaching out to new ecosystem partners while developing expertise in essential technologies such as blockchain, cognitive computing, virtualization and networking.
As devices become intelligently interconnected, cooperative ecosystems grow stronger, and user experiences become increasingly contextual, electronics firms will need to reinvent themselves in order to maintain a competitive advantage. Some – the Reinventors – are already embracing this transition, investing in AI and IoT while developing strong collaborative networks and fostering a culture of empowerment and experimentation. While there are a number of lessons to be learned from the Reinventors, a well-developed cloud strategy is foundational to their success. This involves careful consideration of where each business process fits best on the continuum between private and public cloud.
 See “Navigating the Cloud Continuum,” p. 7 for a discussion of edge computing and why it is often useful in such cases. www.ibm.com/uk-en/