Why this looks like a case of disruption playing out in front of us

Back to some news and analysis before the next practical guidance. As ever, my goal is to introduce you to some of these notions and explain in simple terms how you can think about them going forward in your own Digital Transformation journey. I’m always available for consultation and would be happy to help out. Email me at info@dgtlfutures.com

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On to the issue.

Intel, Disruption Theory and why it doesn’t bode well for them

Lately I've been studying quite a lot about Disruption Theory and trying to make sense of it in a modern digital context. So when I read that Intel had announced a specialised processor aimed at the research community, I thought this might be a clear example of the theory in practice rolling out in front of our eyes.

Today, Intel announced that an 8 million-neuron neuromorphic system comprising 64 Loihi research chips — codenamed Pohoiki Beach — is now available to the broader research community. With Pohoiki Beach, researchers can experiment with Intel’s brain-inspired research chip, Loihi, which applies the principles found in biological brains to computer architectures. Loihi enables users to process information up to 1,000 times faster and 10,000 times more efficiently than CPUs for specialized applications like sparse coding, graph search and constraint-satisfaction problems.

The problem with theories like these, is that it is pretty much the same problem we have when we discuss human or animal evolution. We find it hard to understand the future direction of the evolutive process in real-time, mostly because it happens so slowly and over many generations. From a retrospective position we can clearly see what happened and we can often even, have an informed guess as to the why it happened. Reliable prediction, it seems, is just out of reach of our capabilities. With modern digital technologies and the pace with which they evolve, we might just be able to see enough in to the future to discern and predict outcomes for companies in this new world.

Disruption Theory

It is firstly, important to explain what disruption theory is and where it came from. The ideas were first documented and argued by Clayton Christensen’s early works (co-written by Joseph L. Bower), with one in particular gaining traction in the academic world: Disruptive Technologies: Catching the Wave.

This essay published in the Harvard Business Review, was born out of the observation that businesses have a difficult time staying at the top once they’re there:

One of the most consistent patterns in business is the failure of leading companies to stay at the top of their industries when technologies or markets change. Goodyear and Firestone entered the radial-tire market quite late. Xerox let Canon create the small-copier market. Bucyrus-Erie allowed Caterpillar and Deere to take over the mechanical excavator market. Sears gave way to Wal-Mart.

Later in the book “The Innovators Solution”, Christensen outlines that businesses today are subject to pressures that force growth upon them. Putting it bluntly grow or die. Now, growth can come in different guises, it can of course be profits or turnover, it increasingly in the digital age other metrics like MAUs or Engagement, drive todays start-ups to explore ways to generate, sustain and increase that growth, all to their peril if they don’t — we’ve seen the tanks in stock value when they fail to reach the growth figures imposed upon them by Wall Street and the like.

The equity markets brutally punished those companies that allowed their growth to stall. Twenty-eight percent of them lost more than 75 percent of their market capitalization. Forty-one percent of the companies saw their market value drop by between 50 and 75 percent when they stalled, and 26 percent of the firms lost between 25 and 50 percent of their value. The remaining 5 percent lost less than 25 percent of their market capitalization.

Disruption Theory was developed to help understand this phenomenon and make sense of these pressures and help model how new businesses and business models tend to appear in markets, ravaging the incumbents.

The Innovators Dilemma goes in to much more detail than I can fit in this newsletter, and I thoroughly recommend you read it, but distilled to its essentials, DT tells us how under certain circumstances, most effort is placed in maximising profits, with resources and innovation aligned to getting better profits to satisfy the markets which in turn causes otherwise well-run operations to start to fail and to eventually get killed in a deeply cut-throat world.

The (relatively) new entrants

Intel is a well-run long-established microprocessor design ad fabrication company, with a phenomenal marketing arm and deep links to the most important companies in the computing industry. Founded in 1968, a year before AMD, it has run head to head with AMD and in nearly every battle beaten AMD on just about every level that means anything; marketing, price, availability, design, availability, etc. 

The new entrant in the microprocessor market in known as ARM, or as it was previously known, Advanced RISC Machine and before that Acorn RISC Machine — giving you an idea to its origins, powering Acorn Archimedes personal computers. Founded in Cambridge, UK, in 1990 (22 years after Intel), the processor design was a complete revolution and rethink of classic processor design, with the clue in the companies’ original name; RISC.

RISC means Reduced Instruction Set Computer. The Instruction Set of a processor is a fundamental element to how the processor behaves but more importantly, how it is directed to do things, what is more commonly known as programmed. Modern terms such as coding are basically the same things. Different microprocessors can have the same instruction set, allowing programmers to write the same code, or for the compilers — software designed to turn more human-readable code into native machine language, that is virtually impossible to understand as a human — to translate into the same instructions.

Compared to ARM, Intel microprocessors are CISC, Complex Instruction Set Computers. Without going in to microprocessor design, an instruction is a type of command run by the processor to achieve a desired outcome, like a multiplication, division, comparison, etc. Complex instructions can be of variable length, take more than one processor cycle to execute (processor cycles govern how fast the microprocessor can operate), but are more efficient in memory (RAM) usage. RISC instructions are more simplified and standardised, and critically, take only one processor cycle to execute. They have trade-offs, managing memory (RAM) less efficiently and require the compilers to do more work when translating the code into machine language, i.e., potentially slower development times whilst waiting for the compilation to finish.

The memory issue was only an issue up until recently, when memory has become effectively abundant and cheap, allowing hardware designs to incorporate huge amounts of RAM in their designs.

Ignoring the up and coming

Intel has largely ignored or had difficulties recently, responding to the threat that ARM provided. ARM processors were smaller, more efficient in terms of power requirement and often faster than equivalent Intel processors designed for static, electrical sector-powered computers like the desktop computer you may be reading this on.

But the world changed, and mobile started to take over in unit sales a number of years ago. Intel responded with underpowered, more expensive and generally all-round disappointing designs for mobile workloads, the original Intel Atom being one example.

ARM, on the other hand, had the presence of mind to license its modular designs to different microprocessor manufacturers — Samsung being the most successful and well-known — but also interested parties looking to get an advantage in their own hardware designs, the most famous being, of course, Apple. The iPhone is powered by an Apple designed ARM processor, and its last iteration the A11 has been shown to be even faster than Intel’s desktop-class processors. The iPad I'm writing this on has beaten almost 95% of all laptop computers for sale in 2019! More devices are being designed to fit environmental constraints like power, size etc., and the natural choice seems to be ARM over Intel. Intel’s announcement is a late entry in to the IoT (Internet of Things) wave, where applications like Autonomous Vehicles, Security and Smart Devices are becoming more prevalent.

Today, ARM processor-based designs sold by Samsung, Qualcomm etc., clearly outsell Intel, as shown in this Statista chart:

Source: Statista

The response

According the DT, the oft-used response by the incumbents, is to go for more profit by uplifting its products to a higher class. It would appear that in the face of competition from ARM — who’s ambitions have been publicly announced, take 10% of the desktop/laptop market by 2022-23 — and indirect competition from the operating system and application developers like Microsoft, who have recently added and promoted support for ARM designed systems for handhelds, IoT and the like.

This announcement falls neatly into that category, by providing a high-class, limited availability design for universities and research centres, Intel probably expects to sell them at a greater margin, compensating in part the revenue losses to the more downmarket sales in basic computing devices like tablets and laptops. This is a step in to what is described as seeking sustaining capabilities, technologies and business model that maintain or increase profits, as described by Christensen, and is a clear sign of the disruption having some impact in the incumbent’s bottom line.

The risk

If we follow DT to its conclusions, it possible to see the risks Intel poses for itself, namely being innovated out of business. I’m clearly not suggesting that Intel will fail next year, but I think the long-term future is at risk if there is not some kind of reaction, with Intel creating further opportunities. DT shows us that disruption is an inevitability and it is better to be your own disruptor rather than being disrupted yourself. The mechanism is described in the aforementioned book, The Innovator’s Solution:

Once the disruptive product gains a foothold in new or low-end markets, the improvement cycle begins. And because the pace of technological progress outstrips customers’ abilities to use it, the previously not-good-enough technology eventually improves enough to intersect with the needs of more demanding customers. When that happens, the disruptors are on a path that will ultimately crush the incumbents. This distinction is important for innovators seeking to create new-growth businesses. Whereas the current leaders of the industry almost always triumph in battles of sustaining innovation, successful disruptions have been launched most often by entrant companies.

Apple successfully disrupted its amazingly successful iPod business by another, even more astronomically successful business, the iPhone. In fact, there still has not been a product as successful as the iPhone in the history of the world.

The types of innovation

To close out this issue, I thought I’d just introduce the notions of innovation, as presented by Christensen.

Sustaining innovation, basically entails making a better product from the one you’re currently producing. That can either be thought more efficiency, lowing costs or even improving incrementally the value proposition. In fact, sustaining innovations are often so compelling to an incumbent that they often ignore the disruptive innovations completely.

That being said, a disruptive innovation is one that starts with a different take on the currently available product or creates a new category of product not previously seen, often in a form that is what is called an MVP, minimum viable product. It is then iterated upon over and over until it becomes a formidable competitor to an established product and thus taking market share or profits from the incumbent.

You don’t have to be restricted to one or the other exclusively, and in fact smart companies like Apple use a combination of both sustaining and disruptive innovations to their advantage. Iterating on a tried and tested cash cow, the iPod became so popular that Apple was often quoted as “the iPod company”. That was until Apple disrupted itself with the iPhone.

Reading List

Bitcoin tumbles as U.S. senators grill Facebook on crypto plans

As a follow-up to Issue 19: Blockchain ≠ Cryptocurrency, the impact of the announcement by Facebook of Libra, has been felt far and wide.

During the hearing, a U.S. senator said Facebook was “delusional” to believe people will trust it with their money.

Bitcoin was not the only cryptocurrency affected ed either, Etherium lost over 13% and others lost around 8%. Bitcoin had been gaining since April this year but has been trading at 4 times lower than its peak value of just shy of 20,000 $.

Image source: Reuters

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Democratising and demystifying the process

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In trying to explain Digital Transformation to organisations that are interested in it, we technical people tend to lose sight of the big picture and confuse business leaders by burying the discussion in technical jargon, this is direct feedback I’ve received recently. In order to deal with this, I thought I’d try to demystify the subject, this is the first attempt.

On to the issue:

In the previous issues I have written down some practical examples of things to do to help you along with your Digital Transformation, but what I omitted to do, was to show you how this fits in the overall process of Digital Transformation and therefore guides you in deciding how to start.

This following few issues of the newsletter will try to rectify that.

Digital Transformation in 5 stages

In discussing Digital Transformation with a number of managers and directors over the last few months, I’ve seen a fairly common response to the topic. They typically don’t have a clear picture of what it is and more importantly, how to start.

As a result, I thought I would outline a plan to help better understand how to implement Digital Transformation in your own business. This is an issue directly targeted to those who have been charged with the task of modernising, digitising or otherwise developing digital tools in their businesses. If you know of someone in that role, please forward this email on to them and get them to sign up, as the next few issues will help them get started.

Just for a second, let’s take a look one more at one of the definitions of Digital Transformation — there are lots of them, but I find this one particularly succinct and accurate:

“Digital Transformation is the methodology in which organizations transform and create new business models and culture with digital technologies” - R Wang, Constellation Research

From this definition, as offered, we see that it is not a project, nor a plan, but a methodology by which to follow, that will have an effect on your company’s culture and its business model(s). 

I generally think of Digital Transformation as a 5-Stage plan:

Audit and Analysis

Audit is the starting point. You can’t expect to define a strategic plan if you don’t know from what position you are starting from. This part requires a deep internal reflection, as well as a detailed external analysis.

The internal and external assessments, sometimes known as the micro and macro analysis respectively, were discussed in some detail in Issues 10, 11 and 13. These are not the entire story to complete the necessary evaluations of your business and market. There are several tools, some better than others depending upon your particular situation, so I'll touch on a couple here to give you a starting point.

Internal: Functional Analysis Diagnostics

A simple table helps you determine your strengths and weaknesses vis à vis your competitors. The table essentially splits your organisation up in to its component parts, Accounts, Sales, Marketing, Logistics, Technical, R&D, etc. Try to be as discerning as possible to create an exhaustive list. Once you have this list, start thinking about the criteria you wish to judge the success or otherwise of these functional units, i.e. In sales there are a number of KPIs that are important to measure, things like; number of new clients per month, sales conversion figures, profitability, etc. You’ll know what is best for your organisation of course. However, I would suggest doing some research to determine what other organisations measure in the various business units, as this might give you some further ideas.

This should produce a table with 2 columns, one for the business unit and the second with the KPIs you have just listed. Take this exercise on over a few days or weeks to give your mind time to develop ideas.

To complete the exercise, and this is the tricky part, you need to determine a scale on which to judge your organisation in comparison to your competitors. 1 to 5 is a good starting point, with 1 being poor and 5, excellent. This is very difficult because in some cases you will need to make assumptions based on your (limited knowledge) or make investigations and do the research required to gain this insight.

The end result is a table that gives you a profile of your international organisation with respect to your competitors and should show you where you are better or worse than your competition. If you’ve been following along, this should immediately alert you to the areas that need work to improve!

Internal: Value Chain

The Value Chain was discussed in Issue 11.

Internal: Strengths and Weaknesses

The next area to determine are your strengths and weaknesses from a global perspective of your organisation. Whereas the functional analysis broke it down to individual functional units, we concentrate on the broader parts of the business and the areas in which you excel as opposed to doing not so well. Using the previous tools will help you reveal areas that you consider your strengths and your weaknesses.

This could be something more transversal like your price/quality ratio; are your products and services better priced or of better quality? Can you quantify this? Do you have feedback to prove disprove this analysis?

Your reputation in your chosen market is also something to consider at this point; do you have a good/bad reputation? Do you have strong program on-boarding new clients, maintaining a relationship with existing clients?

Astute observers will notice that this is only half of the well-known strategic tool, the SWOT — Strengths Weaknesses Opportunities and Threats. The OT will be discussed in another issue, we’re not there yet.

External: PESTEL Framework

Issue 10 discussed the framework typically used to examine the external factors that have an impact on your business. There’s even a handy template you can copy to get you started.

External: Porter’s 5 Forces

Like for the PESTEL Framework, I went in to some detail on Michael Porter’s 5 Forces model in Issue 13.

Key Success Factors

One thing I didn’t mention in previous articles, is a tool that can aid in your understanding of the factors that are most important in a market, which, if you compare against your strengths and weaknesses — determined previously — you may find that you are aligned or not.

This requires some thought and research as it directly asks the question, what does the market determine is the value of a particular product or service? This can be understood through several exercises. You may have internal data that shows that prices of your products have steadily been falling (or rising) which would indicate a lowering of perceived value for the client. However, as nothing exists in a vacuum, it may be the fact that there are more competitors who have entered the market, offering the same product or a substitute that is perceived to be equivalent or better for a lower cost.

This is an activity that needs to be repeated for all the links in the value chain to determine where your organisation is gaining its value. Looking at this thoroughly will help you concentrate on areas for improvement, which, by this point leads us nicely in to the next stage in Digital Transformation.

Segmentation and Targeting

Whilst mostly informative for external issues you wish to change — your product offerings, your services, fidelity programs, etc. — segmentation and particularly, client profiling are tools to better understand your customers and their aspirations in a particular market.

Segmentation

Segmentation is simply the process of dividing up the potential client base into logical groupings. Segmentation can be done in a myriad of ways, so I'll just give you an example. You can segment by feeling if you know your market very intimately, but I prefer to follow a few rules and processes as its tends to give better food for thought.

Detailed Market Research is a starting point I always use for segmentation purposes. Knowing the market in which you intend to operate requires a detailed understanding of its components, the people, the processes and dynamics. Some of this work you will already have done using Porter’s 5 Forces, but data is required to determine the size, the GDP, the sectors that operate in it, the growth rate. You need to understand the demographics, population statistics and current education and unemployment rates. These all have an impact on the attractiveness of your potential market.

The most effective way to come to a conclusion on the segment to target is to distil all the research data down in to a spreadsheet and score the various elements based upon your interpretation and have it checked over by an independent.

I generally create a table with the market types listed as columns. Each row then represents a criterion predetermined as important to compare/analyse — typically financial, structural, cultural, technological and opportunity for growth/development. These are just suggestions and you should develop your own, that light be more pertinent to your segment.

Score each criterion using a 1 to 5 or 1 to 10 rating, with the totals determined as the last line of the table. At this point you should have one or two clear scores that are objectively higher than the others. They warrant further verification but are strong candidates for the segments you should target going forward.

Nothing is stopping you do this exercise using differing criteria, and in fact I would encourage you to do so to give you the most information possible to determine the segments that are most appropriate.

Client Profiling

No, this is not creepy Facebook-type data collection, rather, a more humane evaluation of your clients and their pain points that you wish to resolve through your offerings. It starts with the Empathy Map. Using the empathy map, you tap in to the mindset of potential customers you’ve identified using the segmentation techniques describes above. The goal is to get you away from the typical organisation-centric point of view that tends to lead to solutions looking for a problem. We’ve all seen the product that doesn’t actually solve a well-defined job to be done; Tim Cook once described this phenomenon during an Apple Earnings Call in 2012:

"You can converge a toaster and a refrigerator,"

He went on to say that it wouldn’t please anyone.

The Empathy Map, from XPLANE, and looks at problem-solving from a customer-centric point of view, asking simple questions and depending upon the level of detail or accuracy required, interviewing or otherwise surveying them to get a better picture from their perspective.

Source: XPLANE

Broken down in to 6 parts, the Empathy Map is a concise and simple to use tool to gain insight for the direction of your next products or services and it drives your thought process beyond the simple demographics I’ve outlined in the segmentation analysis. Getting to know the behaviours, worries and wishes of your clients is helpful to development of those products and services, be them internal or external. Remember, the trick is to use this tool for each segment previously identified. Additionally, try to personify the chosen segment, by giving the person a name, age, marital status, job title, situation and further context.

Think and feel

Try to outline what the mindset of the chosen profile is, what he or she thinks, using the following questions as a starting point:

• What is important to her?

• What are her fears, frustrations and anxieties?

• What are her hopes and dreams?

• What are her needs?

• Try to imagine her emotions and what affects her

• What might keep her preoccupied?

See

Outline what it is he sees in the environment from his point of view:

• What does he see in the marketplace?

• Who is around him?

• Who are his friends?

• What problems does he see?

• What does he see others saying and doing?

• What is he reading or watching?

Say and do

Try to empathise with what the person might say and do in their given situation:

• What is her attitude?

• What is she saying to others?

• What has she actually said?

• What might she want to say but has not?

Hear

How does the immediate environment affect her day-to-day life:

• What does he hear others saying?

• What are his friends or colleagues saying?

• How is she influenced?

• By whom is she influenced?

Pains

Describing the pains here, gives us a good insight to the types of solutions we can offer to ease the pain:

• What are her biggest frustrations?

• Are there any obstacles preventing her from completing her jobs?

• Are there risks that are too great fro her?

Gains

Gains indicate the things that are perhaps currently working or an aspiration on the part of the profile we’re analysing:

• How is success measured for him?

• What might he be doing to achieve his goals?

• If some wants and needs are being fulfilled, how is this being achieved?

I hope this puts in to perspective and helps you start your own methodology. If you have any questions or want to discuss your own projects, please let me know, I’d be only too happy to see how I can help out.

Join the Slack channel to keep the discussion going.

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The next issue I will cover the 5 levers in Digital Transformation for your first projects in Digital Transformation, it is here the real value is revealed.

Reading List

Getting to the payoff of digital transformation in HR - Tech Target

A discussion on the importance of change-management in Digital Transformation from a HR perspective. Understanding in this domain, is critical for success in your own progress.

Image: techtarget.com

The Future is Digital Newsletter is intended for anyone interesting in learning about Digital Transformation and how it affects their business. I strongly encourage you to forward it to people you feel may be interested.

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An opportunity for digital platforms?

Good day to all, wherever you are.

As you may be aware, I was a guest on Episode 54 of the ICT Pulse podcast where I discussed the opportunity for ride-hailing services as an extension to public transport in the Caribbean. At the time I was researching and writing notes for an article I was going to publish on a blog, but I thought it fitted better here.

It's an ongoing discussion as the landscape is changing rapidly, so these are just thoughts and results of some of that research. I hope you enjoy it.

Just a a quick house-keeping note before we move on… If this email was forwarded to you, I’d love to see you onboard. You can sign up here:

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On to this week’s issue:

Could new tech platforms provide the missing link in Public Transport in the Caribbean?

If we look at the context of public transportation in the Caribbean, I would not be alone in summarising that it is, at best, subpar and at worst, totally inadequate. Many, if not most, services have grown sporadically or organically in response to highly localised demands. In many islands, getting from one place to another is a bit of a crap shoot, where in some instances there is an excellent service, often efficient and timely in peak demand periods and others with literally no service. They are often one-man operations or a collective of sole traders that are free to set their working schedule, their holidays and consequently their prices. Some Islands have tried to implement standardised tariffs but with limited success. 

Regulation is an equally fractured situation, where inherited and historically acquired “rights” have been allowed to flourish. This came painfully visible when in Martinique, a year’s long project to put in place a standardised, subsidised, regular tram service serving the central conurbation of the Island (Fort-de-France and Lamentin), was started. This zone was historically covered with sole traders running what are locally known as Taxi Collectif, or Taxico.

Source: Martinique Transport — The tramline in Martinique

Source: antillesexception.com

Taxicos are a pure cash business with some drivers making concessions for ‘seasonal’ tickets to well-known riders, but most simply printed out and pinned up inside their minibuses their pricing schedule.

Their “right” to run their businesses had been passed down from generation to generation for many years, so when the local government tried to implement the tram system, thereby forcing the Taxicos outside the designated zones, there was much wrangling by drivers who foresaw a significant drop in revenue. Today, the system is up and running and the Taxicos are still running their services in the same area and the issue has not as yet been fully resolved.

Out of town

Like in other Islands, when you get outside of the populous areas, getting around on public transport is a hit and miss situation. Take Barbados for example, if you are in Bridgetown and want to go to Oistins Market Friday night, there are a plethora of buses to take you there. Getting to the north of the island is a different matter however, often involving long waits — sometimes between connections — and a relatively high cost to the user.

This concentration of services is quite natural, businesses, even sole traders, have costs to run their business and will quite sensibly target where the easy money is. In fact, if we look at this from a more removed point of view, we see pretty much the same setup in large countries such as the UK where urban areas are well served, and rural domains virtually ignored by public transport. In the Caribbean it is exactly the same, but on a smaller scale. The only difference is that in the Caribbean the distances involved are also much shorter. And that affords and merits discussion on potential for developing services that are better for the users and profitable for suppliers based on the fact that they shouldn’t involve high costs to the operators.

Analysing the forces acting on the system as a whole

When we look at the end users and their relative power in the value chain of the public transportation business, and I'm specifically talking about the Caribbean as I know its not the same in London or New York, we see that they are relatively powerless — essentially they are in a take it or leave it situation. With no powerful central public transportation organisation with a solid offer, users are powerless to exercise pressure upon that organisation in order to obtain better service. With no organisation of users as lobby, they relinquish the right to exercise pressure on abusive pricing of poor to bad services. Yes, they can just choose not to use the buses and Taxicos, but what alternative do they have?

Source: pixabay.com

Well, there are a few, and herein lies the opportunity for businesses to develop aligned offers. Let’s look at the basic alternatives, walking, hitchhiking are obvious ones, but clearly not practical when you have things to carry or the weather is inclement, as it can be here sometimes. Pure-player Taxi services exists throughout the Caribbean but are pretty much in the situation of monopoly like taxis in London before Uber arrived — very expensive and poor service… (the amount of times I got surly and aggressive Black Cab drivers in South London 15 to 20 years ago, was phenomenal! But that’s another story).

Source: martinique.org

Other alternatives like boat taxis exist in some islands, but are few and far between, with environmental difficulties affecting their viability and profitability. Running a boat for a quantity of people equivalent to a large-ish bus is much more expensive; the cost of the boat, the safety equipment required, the inefficiency of the engines compared to road going vehicles, the requirement to have crew members, the list goes on.

There are possibilities to enter these markets, and indeed we are seeing some foray in to this across the Caribbean. There has, however, not been much success so far, but the signs of change are there. Ride sharing platforms, the obvious ones like Uber and Lyft, seem to be uninterested in the Caribbean so far. In fact, Uber had a brief foray in to Trinidad, but had to suspend and eventually close down operations, despite having over 5000 active users. Safety concerns and economic issues were the problem that Uber couldn’t quite figure out. With enough effort and time, they may have been able to overcome most, if not all of the barriers, but it didn’t seem worth it to Uber at the time.

Source: ridecaribbean.com

There are many local start-ups currently vying for attention and a start in this greenfield race to build out ride-sharing in the Caribbean. Take Saint Lucia for example, where RIDE Caribbean is a start-up specialising in on-demand taxi services for not just enabling people to get around the island, but also courier services, home delivery for groceries and retail purchases, thereby mutualising the types services a user can request, all this enabled by a blockchain-based currency to enable the unbanked use cashless systems that are a focus of development for many Caribbean nations. Putting it bluntly, less cash = less fraud.

It's not going to be easy in the Caribbean for purely economic reasons, and I think the idea RIDE Caribbean is an interesting one, whereby the use cases are extended beyond simple get person A to place B, which with limited movement of persons would prove difficult to earn a living. I would suggest two things going forward; a detailed and deep investigation of the challenges and operating costs of the Uber experiment in Trinidad, and a detailed market research plan that provides proper statistics on the quantity of potential clients per use case — ride hailing, deliveries, courier services , etc. Remember Digital Transformation requires data!

Up until recently, public transport services have been largely left to their own devices, aside from ensuring that safety standards are met, and despite this, in some cases the safety record is still dubious. A status quo, if you will, prevails over public transport services in the Caribbean. The risk for new entrants is immediate and stifling government regulation. Taking a look at the FWI, which is in Europe and still a French colony, there are legal precedents already established that would make an entrant like Uber in to the local market have to absorb large costs, not forgetting the local government’s ability to make life difficult — Martinique operates under a certain autonomy, akin to the Welsh Assembly (I’m hugely simplifying this for brevity). In the territories that are independent, there is even more of an incentive to protect local businesses from the potentially predatory entrants I’ve mentioned above.

Opportunities

The real opportunity lies in locally developed and run businesses, perhaps with outside backing (financial and operational), that are seen as contributing to the economy and not taking away from it, whether that be in reality or perception to those that govern. They should look at the specifics of each island and develop the value proposition directly to those markets, as they are in the ideal place to better understand and operate in the constraints that exist.

Up to this point I have only talked about public transport in the collective, i.e., buses, trains and taxis (that are more profitable with multiple riders). But there is a growing movement in the personal mobility scene, defined by one of my favourite analysts, Horace Dediu, as Micromobility. Micromobility is concerned with small, lightweight and generally slow vehicles like electric scooters, electric bikes and other more exotic contraptions.

These are cheap to purchase, cheap-ish to run and offer a huge opportunity to help solve the last mile problem. Take a look at this stunning graph:

Source: MicroMobility.io

The first to third quintile is made up of rides of between 1 and 7 Kilometres, easily in the range of the types of vehicles served by the Micromobility industry. If the majority of movement is made between 1 to 7 Kilometres and it is currently done with cars with on average less than 2 passengers per ride, we quickly see that traditional cars and certainly fuel powered ones, are an extremely inefficient way to move people around.

I guess that these new types of vehicles can essentially replace cars and the traditional ownership requirements, that are not only expensive — remember in the Caribbean, car import duties are often high, making car owning an expensive proposition for most people in countries with low incomes and small GDPs —, but like their use day-to-day very inefficient because of the simple fact that they stay stationary for more than 90% of their time — taxis and other professional uses excepted.

"... there are about 25 billion car trips per year, and with some 27 million cars, this suggests an average of just under 18 trips per car every week. Since the duration of the average car trip is about 20 minutes, the typical car is only on the move for 6 hours in the week: for the remaining 162 hours it is stationary – parked." - RAC Study on Parking Policy in the UK

Any company that invests in owning a fleet of different types of vehicles, from 2 to 4 wheels, putting them out for hire via digital platforms, could not only help reduce inefficiencies, but also reduce costs for people that would otherwise own a car.

Nothing exists in a vacuum

Of course, an action in a particular market would provoke a reaction. Looking at the authorities, clearly the risks for any business of this type would be regulation and safety concerns. But if handled properly and in good time of any proposed launch, this would give local government an opportunity to prove they are forward thinking, environmentally friendly and innovative — something Generation Z absolutely requires from any service it interacts with.

Not only that, but existing car import and sales businesses would not just lie down and take it on the chin either, and just like local authorities could invest and be part of the movement and change. We know that all the big car building companies are going all-electric sometime in the near future, it’s just a matter of time. Some have publicly revealed it (VW), others have merely outlined their intentions, but as we’re seeing in increasingly densely populated areas, cars will become less and less of the correct tool for the job to be done, moving one person over a short distance, quickly and efficiently.

And mass public transportation systems more and more difficult to implement for the reasons we saw in Martinique, where the grand TCSP (Transport Collectif en Site Propre) took over a decade from start to finish with ballooning costs, much of which was attributed to displacement of communities and homes to make way for the extra space required to create the dedicated lanes for the trams.

Classic Uber doesn’t seem to the answer either, and in fact some studies have shown how Uber has actually increased congestion in some cities. We need to think of better answers and the Caribbean is well placed to do just that.

Next week I'll be getting back on to more practical matters. After meeting with several executives, it is clear that Digital Transformation is still very much misunderstood. I'm hoping to aid in the demystification over the coming months. I hope you come alone and share it to those that need to know, but I’m getting ahead of myself. See you next week.

Reading List

Source: André François McKenzie on Unsplash

Congress Demands Facebook Put Brakes on Libra Cryptocurrency - Gizmodo

As a follow-up to last week’s issue on Cryptocurrencies and Blockchain, this article in Gizmodo rather proves the point I've just outlined above about products and services not existing in a vacuum and being subject to scrutiny and even competition, sometimes before they’re even released to the public at large. Whether you think the product is good, bad or are ambivalent to Libra, it’s clear that it will not be allowed to just walk in established markets.

The Future is Digital Newsletter is intended for anyone interesting in learning about Digital Transformation and how it affects their business. I strongly encourage you to forward it to people you feel may be interested.

Remember you can read all the back issues here:

Back Issues

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Long live Digital Transformation?

Good morning from Martinique

Sometimes these newsletters practically write themselves. With some effort and editing, I get them in to a state worth publishing and with my ideas fully fleshed out. Other times, I’m struggling to finish the writing and it's almost always for the same reason. My ideas aren’t fully baked yet. This is one of those, so I’m putting it out there for discussion, pushback and to get me to drive this thought forward.

On to the issue.

Jony Ive is out of Apple

In an unexpected bombshell of a press release, Apple announced yesterday that Jony Ive, Apple’s Chief Design Officer, was to leave by the end of the year, with Jony setting up a design studio of his own having Apple as one of his clients. This is just massive news and the dollar-store wisdom mongers have already started to spew their shallow conjecture on to the Internet (“Apple is doomed! Doomed I tell you!”).

I’ll start writing an issue on Apple soon, as I think that — thanks in part to Jony Ive — Apple is actually a good example of a company that did a largely successful Digital Transformation.

Digital Transformation is dead

In some ways, I regret using the description “Digital Transformation” as the underlying topic of this newsletter. It’s being overused, oversold and under-explained. Frankly, it has become cliché as is often the case with expressions and buzzwords. Media outlets, Consultants and simple well-meaning newsletter writers like me, flog the term to death, with each manipulating its use to support their own reasoning. It has often been overused or used for the wrong reasons, some of which I discussed in “Issue 5 - Why Digital Transformation is different from standard IT”. Despite this, I am grateful that my newsletter is more about digital technologies and how they affect business rather than regurgitating Digital Transformation! Digital Transformation! Digital Transformation!

Source: Google/M Cowen

What is interesting from an analyst’s point of view, is how quickly the phrase has been adopted, transformed, abused and very soon to be thrown out with the trash and dismissed as marketing spiel. The phrase has been around for many years, but its popularity in everyday use started to increase around 2014. Now in 2019, I’m seeing a change in its use, with it starting to become old hat.

That being said, not everyone or every business is at the same point along their transformation journey. Some businesses have only just started to think about the opportunities and implications on their activity, some are ignoring it completely and others are at a stage where they would say they have completed. They’re all both correct and incorrect in these assumptions as I would like to explain here.

Stages of Digital Transformation

With people and businesses in different states of transformation using digital technologies, it is important to define and explain what some of those stages are. There are essentially 4 stages of Digital Transformation, they are not to be confused with the 5 levels in the Digital Transformation model in detail I discussed in Issue 4:

… Venkatraman and his colleagues developed a model for Digital Transformation in the shipping and logistics industry. Their model discussed 5 levels of transformation whereby the increase in the range of potential benefits to a business corresponded to the degree of business transformation implemented within the organisation.

To recap, the five levels are named as: Localized Exploitation, Internal Exploitation, Business Process Redesign, Business Network Redesign and Business Scope Redefinition.

Builtin to the model is an additional notion that at a basic level of exploitation, transformation is only evolutionary and limited benefits are accrued. It is only when an enterprise commences its Business Process Redesign that the level of business transformation and hence, its potential benefits become ‘revolutionary’.

Source: An Analysis of Digital Transformation in the History and Future of Modern Ports, Heilig, Schwarze, VoS, 2017

Ventrakaman’s model is based on identifiably practical steps to help understand at what state your current digital integration is, and what steps to take next in order to move to the next level, thereby increasing the potential for returns on the that investment. My 4 stages of digital transformation are more about the perception businesses have about their current mindset in digital transformation, whether they are starting out or fully embracing and implementing digital technologies. There are those that I consider are on borrowed time, those that are only just now getting interested in digital technologies, those that have understood and have actively started their journey and lastly those that have got to the stage where they have largely transformed their business. Let’s take a look at each one in a little more detail.

Those on borrowed time

OK, it’s a bit harsh to say this group is on borrowed time, as there will always be some businesses that will survive or even thrive on not being digital, but those businesses will have made a strategic choice and will no doubt ride a wave of fashion for all things handmade, old school or Ye Olde. But aside from those outliers, there are still many businesses that are ignoring this phase of evolution in technology and simply not doing anything to understand what is happening. It’s understandable on many levels.

It is hard to understand Digital Transformation, when you are being bombarded from all sides with information that is sometimes useful, but much of the information out there only serves to cloud the situation for many businesses. I recently had a meeting with a senior manager for a large local company who literally said to me that it is unclear what Digital Transformation is to him.

Created by M Cowen

The other reason I see, when talking to businesses, is the lack of time they afford to the discussion and learning necessary. I get it, everyone is pressed for time, everyone has ten thousand things to do by Friday night, but if you don’t spend the time learning and understanding what Digital Transformation can do for you and business, then you are frankly failing in your responsibility to build and grow your business. The risk for these businesses is disruption. If they don’t wake up to the realities, they risk getting disrupted out of business.

On borrowed time, the Ostriches - these companies have not and possibly will not start a digital journey and as such will almost certainly put their business at risk over the coming years. The best thing to do in this scenario is get an expert onboard as soon as possible and start looking at simple effective ways of digitising basic operations. The small-scale wins will build confidence and drive future projects, moving the business up to the next level.

The laggards

I don’t mean this as an insult, I mean it in the sense that these businesses are slow off the mark, but off the mark they are. These companies are just getting started with Digital Transformation and are typically huge companies and often incumbents in their respective markets. They have huge inertia issues to deal with, turning the giant container ship around is tough, slow and uses a lot of energy just to make the smallest of incremental changes. The often have very complicated personnel challenges, where change management planning and implementation are often a bigger project than the digital project itself. They are sometimes small organisations, with cashflow difficulties and can’t afford to invest in, what are perceived as risky projects with difficult to predict outcomes.

Interestingly, both types need to start with low hanging fruit projects, ones that provide simple, immediate and cheap returns. I’ve worked with a company who, as one part of their business, fielded problems and site issues like failed air-conditioning units, or broken tiling, in the field for multiple sites. Despite it being the same client, calls were being made, emails sent, text messages and even WhatsApp were all used to record an issue. It was not very efficient. After a short period of understanding their processes, we put in place a work-order ticketing process that centralised the flow of requests into the company and centralised the workflows necessary to resolve the issues. They use external contractors to carry out repairs, and this digital system helps control every aspect simply and efficiently. Other benefits in the day-to-day use of the system became apparent and have been implemented with success, things like automating ticket creation and work-order demands, gaining insight using data models to better understand recurring issues and how to deal with them. Simple, inexpensive and highly efficient in terms of returns on investment.

Fast Followers

The Fast Followers are those companies that have fully understood the stakes and have started in earnest their transformation of their products, services and operations. They will likely finalise the most pressing and important aspects of their transformation over the coming couple of years and have already started to see the benefits to their businesses bottom line.

They have successfully embraced innovation and internally run innovation workshops to develop and implement new or evolved products and services. The projects they started with were small and incrementally they gained confidence and experience allowing them to go deeper.

Transformed

Those that have transformed will be one of two types of business; either a business that has in all essence got far enough down the Digital Transformation journey as to have seen radical change internally and externally to their business and seen the benefits of that throughout all of their value chain, or a business that started from zero and therefore had very little friction setting up and building out their digital capacity because the empty page form which they started afforded the flexibility or their size, meant that change management wasn’t a roadblock. Tech start-ups tend to be the archetypal businesses that start transformed and continue their transformation on a continual basis.

Because analysts can’t pass up an opportunity to diagram our thoughts, here’s my basic Digital Transformation Stage Model:

I’m continuing the reflection, and will no doubt write up more as I clear up the topic in my mind. Your input would be greatly appreciated. You can email me back here, or if you would like a more open discussion ask me for a code to join the Slack Community I have setup (it’s a little too quiet there for the moment 😉).

Reading List

A.I. May Not Take Your Job, but One Could Become Your Boss - NY Times

Source: NY Times

In Issue 12, I discussed management obesity and how middle management had the most to fear from AI and other automation. I think this piece in the NY Times articulates that too, with practical examples and insights in to how business is organising itself to be more efficient at the expense of management. It’s not all doom and gloom though, take a look back at Issue 12 and you’ll see why.

A Numbers Game - OECS

Source: oecs.org

This article is a love letter to statistics and statisticians in the Caribbean. A region that is typically bad at data collection because it is often associated with taxation and snooping. The SSU (Statistical Services Unit) of the OECS is arguing to the contrary and detailing that only with better data are we able to make better judgments about the use of things like public funding for infrastructure and social benefits.

In Issue 8, I wrote a quick snapshot about digital in the Caribbean, it remains the most popular issue I have written so far. I was asked by a friend to research and write something similar about the state of digital healthcare in the Caribbean. I tried, I honestly did, but getting information proved rather difficult. I’m still researching.

“Data a are very important to empower citizens and hold their government to account,” says Dr Gale Archibald, Head of the Statistical Services Unit at the Organisation of Eastern Caribbean States (OECS) Commission.

Metadata is the biggest little problem plaguing the music industry - The Verge

Source: theverge.com

A fascinating insight to the digital music industry and how it struggles to keep its data clean and how that directly impacts realties payments.

The Future is Digital Newsletter is intended to be shared as far and as wide as you wish. Thanks for being a supporter, have a great day.

It does have uses in Digital Transformation though

With the announcement of Facebook’s proposal for a blockchain-based currency, I thought it would be a good idea to get in to the subject … It’s time. Time to talk about Blockchain, my apologies.

Here’s a couple of articles to get you up to speed:

• The Ambitious Plan Behind Facebook’s Cryptocurrency, Libra - Wired

• Top Democrat calls for Facebook to halt cryptocurrency plans until Congress investigates - The Verge

On to this week’s issue.

Blockchain and how it is the enabler of cryptocurrencies

If there is a technology that has had more than its fair share of free publicity, it’s Bitcoin and in general Cryptocurrencies. Largely because the ‘value’ of Bitcoin took on another level of interest when it reached nearly 20000$. Can you spot when that happened?

Source: Data from Google Trends/M Cowen

I’m an on-the-record sceptic of Bitcoin and other Cryptocurrencies, and so far, nothing I’ve seen has led me to believe differently. They are almost all, a waste of money. They are all, without exception, a huge waste of energy in a time when economising energy should be a priority not just for governments but individuals alike, and at the very worst end of the scale, some are downright fraudulent. That being said, the underlying technology of these currencies is actually quite interesting and has place for use in Digital Transformation, hence why I’d like to talk about it in this week’s issue. That technology is, of course, blockchain, or as it was originally known as, block chain.

Blockchain is “an open distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”, as describes in the Harvard Business Review article called The Truth About Blockchain. Let’s break those terms down individually.

Open

Blockchain’s openness is based on the fact that no central organisation manages, overseas or controls the blocks, the chain, the transactions and the ultimate lifecycle of a particular blockchain in circulation. This openness is both an advantage and disadvantage depending upon your point of view. The openness allows it to be used freely for just about any application that requires a ledger. Companies have used it for marketing purposes, granting virtual money to users. But a dark side exists too. In fact, virtually all of the online merchants of illegal drugs and stolen medicines, require payment in cryptocurrencies. You’ve no doubt yourself been a victim of spam email suggesting they have sexually compromising information about you and to present that being leaked pay them in Bitcoin (don’t by the way, it’s fake). Cryptocurrencies are believed to be anonymous, but this is doubted and there have been incidents whereby the identity of uses has been uncovered, so beware!

Distributed Ledger

The ledger, is of course, the list into which transactions (debits or credits usually) are recorded. In a small business, this is typically a spreadsheet or basic account application and is not distributed. A ledger can be distributed where the entire database and all its transactions recorded are replicated geographically in a digital format. As stated above, there is no central organisation, administrator or storage. These databases can be permissionless or require permissions to record transactions. In other words, anyone can record transactions or only specified users can. To do this you need to run a node, but I’m getting ahead of myself, more about that later.

Efficiency

I’d personally dispute this part. In my opening statements I said that it is a huge energy consumer and hence by definition is inefficient. That, sadly, is not its only efficiency problem. Blockchain is actually extremely limited in its speed and quantity of transactions and scales poorly. So much so that in 2016 several banks exploring the possibility of using the technology in the personal and business banking sector abandoned the work as blockchain was just too slow. Looking at Bitcoin, as of today it is only pushing 360K transactions per day. Some Supermarkets transact faster than that!

Digging into the why, for Bitcoin the ledger is not open, and each node has the earn the “right” to add a block to the chain. The gain this right, each node has to solve a complex mathematical problem involving extremely large prime numbers, which in turn requires massive computing power, hence energy and cost. In China, whole villages have been setup next to hydro-electric dams to benefit from the lower energy costs compared to a standard electric grid system. Incidentally, the current chances of solving the mathematical problem for Bitcoin is around 1 in 5.8 trillion (read: unlikely). This is the process that is known as mining.

Verifiable and Permanent

Blockchain’s permanence comes from the fact that when changes are entered in one copy — remember its distributed — the other copies are altered in the exact same way simultaneously, making the change permanent (there is no undo function!). This also explains why it is not efficient, because every single transaction has to be recorded, replicated across all nodes immediately. The bigger the database or the change, the slower the replication process. This simultaneous recording allows all transactions to be verified as all copies should be at exactly the same state at any given time. 

For completeness, there is some debate of its permanence, and some blockchains have been successfully hacked and currencies pilfered as a result.

Hopefully you have a clearer idea of what the blockchain is and how it is not a currency or virtual money. The technology is simply used to record transactions across the globe so that no single person controls the flow in and out of the ledger, thereby “controlling” the virtual money and potentially its value when converted to cash. Getting money in and out of cryptocurrencies is a whole different debate and one I’m not prepared to get in to at this juncture. If you’ve kept up with me so far, you’ve probably identified areas in which the blockchain technology could be useful for things other than buying MDMA on the Dark Web.

Other uses for Blockchain

So, what other uses for blockchain technology are there, and how does this integrate with Digital Transformation?

Remember the underlying technology is simply to record transactions in an immutable way. This lends itself for a whole raft of uses outside cryptocurrencies, allowing for uses where transaction recording is required or where charging a small fee for each transaction entered in to the ledger is part of the business model. In fact, much disruption in the market is predicted as blockchain has the capacity to upend not only traditional transaction-based business model but also the newcomers like Uber and AirBnB, according to some. These predictions are predicated on the fact that transactions are essentially free and hence cut out the middle-man when transacting between two parties, think driver and rider in the Uber business model, or the renter and owner in the AirBnB business. These are unlikely to come to fruition as easily as that, but you get the idea.

Areas that are more realistic and very interesting to see how they will develop are numerous and varied, with examples in the contract business, financial services (outside of cryptocurrencies), video games, digital book sales, supply chain and others. I’ll take look at a few here, to give you some ideas.

Contracts

Contracts could be administered, enforced and verified totally outside of human interaction using blockchain. This is purely theoretical for the moment as it relies on the use of Smart Contracts that are not widely implemented currently and as such their legal status has not been written in to law in most of the world. On a local basis, a blockchain-based contact between a supplier of services could take advantage without requiring a third party to verify use or abuse.

Financial Services

Aside from the failure of the larger schemes due to inefficiencies discussed earlier, blockchain can be used to do essentially the ledger tasks of smaller projects, speeding up and reducing friction in the banking sector. Backend settlements systems seem to be a target for blockchain compatibility.

Video Games

Modern video games are becoming more and more collaborative, just look at the popularity of Fortnite. Blockchain is said to be investigated to help keep track of digital assets both purchased and earn in massive online collaboration games.

Digital Book Sales

Currently ebook sales are dominated by two players, Amazon and Apple. There is talk of a blockchain implemented ebook store that by definition would bypass those their parties, resulting in possibly cheaper book sales.

Supply Chain

Several efforts and beta projects exist in the supply chain field; BiTA are working on supply chain standards, Everledger are using IBL’s blockchain services in addition to Walmart co-investing with IBM to monitor its supply chain.

Mostly theoretical

The underlying theme that is obvious when reading this issue, is that blockchain is largely theoretical in its uses, with many projects in progress but very few in active use on a mass level apart from cryptocurrencies like Bitcoin, Etherium, etc. It seems that this is unlikely to change in the very near future, largely for the reasons stated above, power consumption and transaction speed. Technology has a habit of overcoming difficulties like these, so it is worth keeping an eye on the advances over the coming years.

Reading List

Plans for world’s largest cryptocurrency IPO shelved

Bitman Technologies (BT) were to IPO (Initial Public Offering) in September in what was expected to be the largest cryptocurrency IPO. However, the fall in the price of Bitcoin put a spanner in the works for BT. BT builds and sells all-in-one kits for cryptocurrency mining and had hoped to raise up to $3bn during the IPO. The company has holdings in both Etherium and Bitcoin and had seen huge losses of value due to the crashes in value since the beginning of 2018 — they are both riding at around 1/6 of their peak value.

Bitcoin's Climate Impact Is Global. The Cures Are Local.

If you want to know more about the world of mining and its environmental effect, read this.

How blockchain technology helps young Caribbean farmers access finance

A good illustration how blockchain can lend itself to initiatives on a small-scale, providing real benefits.

The Future is Digital Newsletter is intended to help you understand Digital Transformation and it’s impact on your business, I encourage you to forward it to people you feel may be interested in the subject matter.

Thanks for being a supporter. Have a great weekend.