Manufacturing of the future will be connected and efficient
Continuous plants will have sensors built in the key parts of the production process, sending real-time operating status to the control tower. All this big data will be aggregated to generate insights to boost yield, energy efficiency, throughput, quality and condition of critical equipment for predictive maintenance. Real time connectivity with sales data will dictate the product mix. Hazardous, repetitive and strenuous work will be automated. (Exhibit 12).
Retail will evolve to be all about customer experience
A digitized retail store will require almost zero human resources. A customer will be able to walk into a clothing store and receive notifications on customized promotions based on purchase history. Augmented reality will change how we try on clothes. Payment will be conducted automatically. At the back end, shelves will auto-optimize inventory and replenish stock based on analytics of customers and sales data (Exhibit 13).
Mines will be transformed into high tech, operationally efficient enterprises
Digitization will significantly increase productivity of mines. Mine planning will be done with the aid of advanced software, combining geological and equipment considerations. Large vehicles around the site—excavators and haul trucks, for example—will be driverless, equipped instead with sensors to gather terrain data as well as carry out self-diagnostics for predictive maintenance. Drones will monitor environmental data such as air quality, temperature, and weather to optimize day-to-day operations (Exhibit 14).
Smart farming will revolutionize food production
Farming will be virtually unrecognizable. GPS-controlled autonomous tractors will do most of the work, from preparing the soil and sowing seeds to harvesting the produce and trucking it to collection points. Automatic watering and fertilizer systems will utilize sensors to optimize soil conditions and minimize waste. Livestock will be geotagged with location and health sensors (Exhibit 15).
Winning in a digital age
To capture the digital opportunity, governments and businesses should consider innovative pathways to create value across three dimensions:
Products and services. Innovations to fulfill unmet or partially met customer needs, by creating new products or services that use digital technologies.
Business models. Transformation of customer experience, delivery models, and value propositions, made possible by digital technologies.
Business processes. Improvements along the value chain, using digital technologies to enhance process efficiencies and eliminate waste.
These three dimensions are not mutually exclusive; in fact, businesses that attempt to innovate along one dimension often come across barriers that require a breakthrough in some other dimension. One example is Apple’s success with the iPod. Although not the first to unveil a portable music player, Apple developed a high-quality product (the iPod) in tandem with a business model innovation: iTunes and the ability to download music inexpensively. Such two-pronged innovation sealed Apple’s dominance, which has continued with the unveiling of the iPhone and the iPad.
Defining the players
McKinsey’s review of the world’s top 50 innovators, as ranked by Forbes, reveals that few companies—even the most innovative ones—are distinctive across more than one innovation dimension. Four main archetypes of digital innovators emerge (Exhibit 16).
All three types of innovators beat the S&P 500’s average performance of 42 percent over the past five years by a wide margin. (The sample set for all-rounders was too small to derive any meaningful result.) In short, innovation is key to superior value creation. (Exhibit 17)
Indonesia is poised to become a hotbed of digital innovation across sectors such as retail and financial services, with new business models as the dominant form of innovation.
Five ways to win in the digital age
To unlock the potential of digital technologies, Indonesian companies must reinvent themselves through a holistic digital transformation with five strategies:
1. Define customer-centric experiences and differentiate on design and agility
In the age of rapidly evolving customer-centric experiences, companies need to ensure that the customer is the focus of all digital initiatives. Consumers are looking for the next-generation user experience—personalized, interconnected, fun, fast, and seamless. Such an experience depends on world-class design and agile development, and it is being championed by both digital companies such as Facebook, Google, and LinkedIn and nondigital corporates such as Disney, Starbucks, and Starwood Hotels. Starbucks in particular is a leading example of offering not only a consistent user experience across all physical stores around the world but also a digital experience through the highly popular Starbucks card apps, which feature rewards and loyalty points. A customer-centric experience is not limited to business-to-consumer (B2C) companies. Several business-to-business (B2B) customer-centric champions such as 3M, IBM, and Xerox are pioneering new, tailored customer experiences. For example, IBM consultants work closely with their customers to ensure that IBM Research develops software solutions for specific client problems.
2. Develop omnichannel engagement to link the online and offline worlds
Multichannel is passé. Nowadays, customers not only interact with companies across several different channels along the customer decision journey—for example, a physical store, a kiosk, an online website, a call center, e-mail, social media, and a mobile phone application—but also demand seamless engagement across the touchpoints. Indeed, a Google survey found that one-third of US consumers and 40 percent of Asian customers use multiple channels in their buying behavior. Companies must adapt accordingly. Many companies are upping their O2O (online-to-offline and offline-to-online) offerings to offer coherence across online and offline channels.
Argos, for example, has successfully complemented its brick-and-mortar store with online and mobile channels. In 2015, Argos’ mobile revenue reached GBP 1 billion—the first company in the United Kingdom to reach this milestone. Argos has also forged a partnership with eBay, where eBay customers can place their orders and collect them at an Argos store.
3. Leverage big data to drive real-time decisions across value chain
The amount of data in the world is growing exponentially. Currently companies use only a minuscule fraction of data generated for insights and decision making. By harnessing the superior computational power now available, companies can tap the power of big data and advanced analytics to inform real-time decisions across the value chain. The data can drive better decisions across the board from performance management, forecasting, customer segmentation, and tailored offerings to product development.
For example, Intel harnesses big data to conduct predictive analysis on its quality assurance, effectively cutting down on unnecessary tests and reducing test time. FedEx’s Sense Aware tracks high-value and time-sensitive shipments. It attaches sensors that read location, temperature, light exposure, and shock and send real-time data to FedEx and its customers. Capital One utilizes big data to analyze the demographics and spending pattern of its customers to offer the best products, thus increasing conversion rate and gaining profitable customers. And the Nebraska Furniture Mart conducts price scraping across 18 competitors to adjust pricing up to twice a day using digital signage.
4. Double down on cybersecurity to protect information capital in a connected world
Given their growing volume and importance, intellectual property and business data must be treated as assets in the digital age. More data, interconnected processes, and digitally enabled decisions coupled with a buildup in malevolent elements of increasing sophistication means that institutions must invest in cyber security to protect their information capital and ensure resilience. Indonesian hackers are quickly gaining in skill and reach: the country is subject to one medium to major cyber attack a day—most of which originate from within Indonesia’s borders. Common targets include commodity industries, strategic installations, and residents. However, local Indonesian citizens, corporations, and government organizations are not yet aware or resilient enough.
A focus on cybersecurity requires three elements:
1. Strategy. Stakeholders must differentiate protection for the most important assets and integrate security into the technology environment across the value chain.
2. System. Stakeholders must deploy active defenses to be proactive and uncover attacks early, as well as conduct realistic testing and war games to improve incident response.
3. People. Stakeholders must enlist frontline employees in cybersecurity efforts, helping them to understand the value of information assets, and integrate cyber resilience into enterprise-wide governance processes.
5. Build digital capabilities to develop the organization of the digital age
The hardest part of any digital transformation is building the right institutional culture for the transformation. Indonesian companies must evolve to embed digital in their DNA. Key organizational essentials include leadership, an organization structure, and the right mind-set and capabilities.
On leadership, companies could appoint a Chief Digital Officer (CDO) to drive the company’s digital agenda. For example, Starbucks appointed a CDO responsible for all digital initiatives, including the mobile app and loyalty program.
On organization structure, companies could deploy a center of excellence to integrate new-age digital competencies across the organization; Wal-Mart, for example, carved out innovation labs in attractive, talent-rich locations. Companies can also embed digital expertise like agile development DevOps skills, mobile skills, and analytics capabilities in key functions and units; Kellogg’s, for example, has a digital strategy department that coordinates digital efforts across its marketing, technology, sales, and analytics departments.
On mind-set and capabilities, companies could blur the boundaries between internal and external talent sources to meet rapidly evolving needs; P&G, for example develops deep relationships with select partners for preferred access to specialized skill sets such as advanced analytics, digital architecture, and cyber security. Companies could also instill a digital mind-set of “test and trial,” increasing the “clock speed” of decision and execution. In this vein, Spotify CEO Daniel Ek has said, “We aim to make mistakes faster than everybody else.“
Indonesia is poised to benefit greatly from the digital revolution. To accelerate progress, the country’s public and private sectors must focus investments in digital technologies to enhance infrastructure, increase penetration, and boost productivity. The resulting economic impact—USD 150 billion annually by 2025—is too large a prize to ignore. Implementing a holistic digital strategy will enable Indonesian companies to win in the digital age and lift Indonesia’s economic growth to the next level.
The authors would like to thank Shilpa Aggarwal, Sharmeen Alam, Natasha Benita, Nirun Fuwattananukul, Thomas Hansmann, Jan Hartmann, Sree Ramaswamy, Abhyuadaya Shrivastava, Gregor Theisen and Phillia Wibowo for their contributions to this article.