The Fourth Revolution

The world, as we know it, has been constantly transformed by technology through centuries. If mechanisation of production using water and steam brought about the first industrial revolution in 1800s, mass production with the help of electricity brought on the second industrial revolution in 1900s. While the third industrial revolution focused on automating single machines and processes using electronics and IT. We are now in the midst of the fourth industrial revolution or Industry 4.0, as the experts like to call it. Industry 4.0 will drive the end to end digitisation of physical assets and lead to a combination of cyber and physical systems (See graphic: The framework of tomorrow). This time around, there is a more fundamental mindset change in the way customer engages so it no longer just a technology decision. It is a change in the organisational construct and companies have little choice but to gear up for transformation.

A global study done by PWC of 2,000 companies across 26 sectors estimate that annual revenues will increase by $493 billion and costs will reduce by $421 billion owing to shorter lead times and higher assets over the next five years owing to digitisation. The companies will invest $907 billion in the next five years in digital technologies such as sensors or connectivity devices, software and applications. Already, emerging technologies such as artificial intelligence (AI) and the internet of things (IoT) are changing the way man and machine interact with each other. BVR Mohan Reddy, executive chairman, Cyient, says while AI has been around for more than three or four decades it has become mainstream because the cost of computing has come down drastically over the years. “All AI and deep learning systems were available back then but they were very expensive. These are deceptive technologies that have been around for a while but have now become blatantly obvious to people. Applications for AI will only increase in the years to come,” he says. It is already used in healthcare where image recognition improves the diagnosis of diseases and in pharma for drug discovery. In financial services, AI is being used to analyse truckloads of data faster and lower costs.

The plummeting cost of key technologies means that the world around us is becoming more connected (See graphic: When tech becomes economical). In 2005, there were just 500 million devices connected to the internet but there will be about 8 billion connected devices by 2020, according to industry estimates. And there is more technology that is coming our way. Robotics, drones, 3D printing, augmented reality (AR) and virtual reality (VR) which will merge the digital and the physical worlds and companies are combining a whole of host of these technologies for their digital transformation 

“Digital transformation will have an impact on three dimension- products, process and business models,” says Omprakash Subbarao, head-digital & strategy, Sonata Software. He believes that companies will have to now offer their clients an omnichannel experience which has to be seamless. Earlier, people who wanted to go on holiday went to a tour operator’s office to make a booking. Today, the consumer may browse for holiday options on his desktop and then walk into a tour operator’s to finalise the deal and as he is negotiating the final price, he could be comparing the deal with what’s on offer by other tour operators on his mobile. “Companies have to be present across channels and there has to be a seamless integration across all channels,”believes Subbarao. Sonata Software which specialises in the travel, retail and distribution verticals, helped the largest tour operator in the UK build such a seamless omni-channel experience for their customers where they could browse, shop and share their travel experiences.

All this maybe a little overwhelming for companies that are still finding their way around cloud, mobile, social and analytics. Jagdish Mitra, chief strategy & marketing manager, Tech Mahindra, whose mandate is to keep looking out for disruptive technologies for the tech giant, tries to give a structure to a host of advanced technologies. “Cloud, analytics, mobility, social and security technologies will be the foundation that emerging technologies are going to be built on,” he says. As to what technology can do to existing business models, Mitra has a real example to share. “We are working with an aircraft manufacturing company. They now have an opportunity to create a new business model,” he claims. Typically, aircraft is manufactured and sold off with an offer to support them when they need it. Tech Mahindra has built an IoT platform called aircraft health monitoring system. On a regular basis, the aircraft sends data back to the platform (that’s IoT at work). Now once the system understands how the aircraft is functioning, it recommend the changes or repairs that need to done when it is on air or when it is grounded – so this reduces the downtime that a commercial aircraft is going through. “Now, they are no longer offering support only on demand. It is a proactive service to the customer. You can call it analytics-as-a-service model,” says Mitra. Since these proactive services reduce costs for the customers they don’t mind paying for it, leading to additional revenue streams for manufacturers.

Changing inside out 
While going digital has caught everyone’s fancy, the changes have been superficial in some cases like getting a digital interface to interact with customers or acquiring a company to figure the digital piece. “There is a big difference between doing digital and being digital. Doing superficial digital is easy. The meaningful transformation that re-orients core processes which calls for re-organising the organisational and financial structure is challenging,” says Malcom Frank, executive vice president-strategy, Cognizant. He says you cannot spray paint when it comes to going digital. “You have to start with a specific process or experience. Most companies invest in technology that they hope will catch the attention of consumers and that is not going to work,” he points out. He cites the example of Blockbuster versus Netflix. Blockbuster was doing digital. They had a dotcom presence where people could book CDs online or they could pick it up at one of their stores or get it through mail. “They thought they had it all covered. Netflix was being digital top to bottom and was able to deliver at unit costs that Blockbuster could never do. When they got rid of the disks, Blockbuster was done. When Uber shifts to driverless cars, it will be similar to what Netflix did with CDs,” says Frank. Tech experts say the way companies leverage technology would define their competitive advantage. Netflix, Amazon, and Uber have successfully leveraged technology not to only disrupt existing models but also build a significant edge for themselves. 

“The reason that Uber is so successful is because they have built an open system around predictability. I don’t have to call the driver. I know exactly where he is and the exact time he will be arriving,” says Mritunjay Singh, president-services and executive director, Persistent Systems. “You have to build a system that captures the change in consumer behaviour and consumer behaviour is always built around simplicity.”

According to Cognizant’s Frank, the companies that are getting digital right are figuring out what consumers want from banking or retail experience and once you re-orient your thinking on those lines, putting the digital pieces together is easier. It will change how data is used and even help them develop new commercial models. Cognizant helped one of its clients, a credit card company, give out personal loans at the point of sale. They were under a lot of competitive pressures because other companies were able to give loans at the point of sale. So, the firm was losing out on business. Cognizant helped them develop a system based AI which based on the consumer’s past credit history and current cash flows was able to offer loans at point of sale. The card company successfully leveraged on customer’s existing data not only to retain customers but also create a new product.  

It also helped the Ohio-based Key Bank’s clients to carry out banking tasks on the go and on multiple devices. Using the Oracle Banking Platform, Cognizant redesigned and transformed KeyBank’s core systems, applications, business processes and customer interfaces to a more intuitive, personalised and simpler customer experience on a new digital platform. KeyBank, the principal subsidiary of KeyCorp, is the 13^th largest bank in the US, with operations in 32 markets, approximately 3 million customers and more than 400,000 daily digital banking transactions. “Cognizant worked with our team to navigate the shift by redesigning and re-engineering our platforms and processes to make the experience of banking with us from anywhere simple, modern and more secure,” says Amy G Brady, chief information officer, KeyCorp.

Customer is king
Singh of Persistent Systems believes it is critical to build systems that capture customer behaviour. “How the customer interacts with technology has changed from a desktop to a laptop to a mobile and will move to move to voice and video soon. It is important to capture the behaviour of the consumer, otherwise you will lose the market,” he says. According to Singh, the smart way is to build a platform that churn new things quickly and react instantly to customer needs. Persistent Systems did just that for one of its healthcare clients. The company developed a digital platform with a quick turnaround time that reduced patient waiting time by 40% and led to over $5 million potential savings in operational costs annually.

Singh points out that while transformation is essential, for the companies, the transformation is a challenging one because it is hard to define the RoI. He gives an example. “If you are a bank, an app is not the best way to reach your millennial customers because they are not going to use a banking app separately, you have to reach them through Facebook, Twitter or Instagram where they are constantly present. But as a bank it is difficult to justify the RoI on Facebook chatbots doing banking transactions, as it is a very small channel,” he says. 

But companies in the past have paid the price for ignoring new channels to reach their customers. “When Amazon identified e-commerce as their preferred channel, many retailers didn’t take them seriously since it was only a negligible part of the sales. Walmart said it is 2% of my sales and I can do that in my sleep and 10 years later their sleep is gone,” says Singh. Cognizant’s Frank feels  companies that don’t take the initial steps to digital transformation will face the risk of going out of business. “Companies that are not willing or able to make the incremental digital transformation in their business model are putting 100% of their revenues at risk,” he says. 

Learning together
While technology changes thus far have been driven largely by CTOs in companies, Krishnakumar Natarajan, executive chairman, Mindtree, says digital transformation needs to be a priority for board members as well. “If companies don’t make the transition, some of them are going to destroy shareholder value and, hence, board members need to engage to ensure the executive management is on the right path to digital transformation,” he says. Natarajan, who drive’s Mindtree’s digital business, says while technology companies have been ahead of their clients at every major technology change since the mainframe era, this time around both parties are learning on the go. “So, technology companies were either advising clients on what they should do or they would have smart clients who told them this is what we want but we don’t have the capabilities and the tech companies executed it for them. This time I don’t think the clients are clear on what they want and they are looking to technology companies to play the advisory role and not all technology companies are in a position to do that.”

Cyient’s Reddy is not too worried. He says the clients are starting to look at them as collaborators rather than vendors. About 20 years back when Cyient started out, one of its clients in aerospace engineering would come to the company saying they wanted this engine blade designed to a given specifications. “We would do the product design within a period of 12 months. Now, the same client comes to me and says we have a problem. He tells me his competitor has a health monitoring system that fixes bugs in aero planes on a real-time basis at 40,000 feet. He asks me if I can help him solve the problem and only this time he gave us three months to come up with solution. You can no longer throw bodies at the problem. You need to understand the dynamics of the business. Especially, when you are developing mission critical solutions,” he says. Cyient also helped Thales, a leading French multinational company, to upgrade the Jubilee Line and Northern Line upgrade of London Underground. The London Underground and its commuters benefited with 18% reduction in journey time, 20% increase in passenger capacity with 11,500 more commuters per hour, and an increase to 30 trains per hour during peak times.

Building niches
It is not only large technology providers that are riding the digital wave, start-ups are finding their own niches as well through distinct offerings. Vinay Nathan started his Industrial IoT solutions providing enterprise –Altizon Systems in October 2013. “A lot of IoT platforms came and went. But things have stabilised now. Next, 5-7 years this second wave will become a force and new leaders would emerge in IoT,” he feels. Simply put, IoT is about using sensors to connect machines and obtaining data. Nathan was surrounded by auto component makers in Pune and there he spotted the opportunity. “In early days, we found there was hardly any automated data collection on the shop floor and that becomes a big gap in system,” he recalls. “A tier 2 component maker would come to know of his production details only 4 days later. A lot of post-portem happens on Indian shop floors” adds Nathan. Even the analysis of this data by humans is futile. “It is no good collecting the data, if human is involved in analyzing. Human should only be involved when there are anomalies in the system,” he says. His company has built an IoT platform and 130 enterprises have been using it. Varroc, a client of Altizon, is a tier-1 auto parts maker with 35 plants around the world, bulk of them is in India. Altizon started working with Varroc on overall equipment efficiency system and implemented solutions in five of its plants where efficiency has improved by 15%. The system also alerts if there are any signs of an impending break down so preventive maintenance will reduce the overall downtime. “You produce more, you sell more, leading to an increase in revenues. Auto parts is a very thin margin business and IoT helps a great deal,” Nathan claims.

The Gurgaon-based GreyOrange’s robots can find and fetch anything in a warehouse in minutes. All you have to do is stand before a station and touch the SKU/object you wish to pick on the screen and GreyOrange’s robot Butler brings the entire rack to you. In an industrial warehouse, the maximum time is wasted in walking back and forth to racks to pick objects. “We have integrated artificial intelligence with our algorithms. So, Butler can learn from a peak Diwali sale, and plans its movements based on most ordered things”, says Akash Gupta, co-founder, GreyOrange “Once you start handling 30,000 deliveries per day, it’s not possible to do it manually.”

While the company counts all major e-commerce companies as its clients, their share of clients across sectors like retail and FMCG have also been increasing steadily. “The idea is to increase the predictability and reduce the amount of ‘safety stock’ which is hard cash for companies by increasing the dispatch speed. Even a shoe manufacturer can operate as swiftly like an e-commerce company and supply the right amount of stock just in time,” he says.

Automating for success
The biggest concern today is that technology would replace humans. Artificial intelligence is particularly driving the automation of messy complicated office processes that improve efficiency and rules out human error particularly in financial services. There have been concerns about displacement of workforce when automation takes over. Automation displacing workforce is going to happen but it may not happen at the rate that the alarmists talk about. “Companies have to wrap around their head about some hard truths. They would have to look closely at processes and if those processes going digital means some job losses then they would have to take those difficult decisions in the long-term interest of the company,” says Cognizant’s Frank  

But automation has been a continuous process that tech companies have been working on and something that will continue to make operations more efficiency. Tech Mahindra’s Mitra compares it with computerisation and IT adoption of companies during the third industrial revolution. “Last time we saw same debate but that enabled growth of economy, created different knowledge base. We thrived, same thing is going to happen here,” he believes.

Data is the new oil
Data will drive Industry 4.0 and for companies to make the successful transformation, data analytics will have to be part of their core capabilites. “But before data becomes an asset it is a liability because companies find it really difficult to separate the signal from all of this noise. They have stumbled upon a gold mine but they need work with technology companies to acquire the skill set to find the gold,” says Benjamin Pring, co-director of Cognizant’s Centre for the Future of Work. He says data is as important to this industrial revolution as oil was to the previous industrial revolution. Just as oil was just a sticky mess before it was refined and move up the value chain, it became the fuel of the industrial economy. According to him, data is right now between muck and value and companies that are able to convert that into insight will emerge as winners. 

Data is coming in different formats and multiple sources. There is also the need to not only make data analytics available on a real-time basis but also integrate it easily with other platforms as well. “In today’s fast changing environment, it is more important to build an open system that is flexible and built for speed. A plug-and-play model that can take data inputs in any form be it text voice or video,” says Singh. From analysing consumer behaviour, the companies need to move to predicting consumer technology. “Some of it is happening already in retail. But banks still have a long way to go. Whenever a customer goes to a bank for an address change, most banks fail to see it as a lifestyle change especially if he is moving to a better locality. They miss a chance to cross-sell some of their wealth management products,” adds Singh.

Keeping it safe
An increasing presence in a digital world and having open platforms that integrate with outside systems means increased security concerns for companies. Data is not collected in various formats but at various touchpoints and exchanged on a real-time basis across various channels that a company is present in, so there are increased risks of security breaches owing to cyber-attacks. So, companies are spending millions of dollars on security. But the shift to digital means service providers which are working with retailers, banks or hospitals are now required to put security inside every interaction. So, it has changed from what happens next to what technology does to something that is being injected into every process and transaction. It is critical to do that because consumers and decision makers are putting a premium on trust. “Companies are expected to build that digital trust in technology interactions across middle office operations, customer experience and back-end technology,” mentions Paul Roehring, vice president, strategy and marketing, digital business, Cognizant. “We may not completely win the war against security attacks but it changes the way security is created and paid for,” he adds.  

Since digital transformation can be an overwhelming process, the best way to do it is through proof of concept or pilot projects and it is okay to fail and learn in the process. “You must have the courage to experiment and fail which was not in our DNA.  Apart from experimentation, collaboration with different stakeholders, be it customers, suppliers or technology partners, will drive a lot of digital transformation,” sums up Natarajan.