Achieving Disruptive Growth in an AI-driven World

You, your colleagues, and your customers (all of us at RCG Global Services included) no doubt are feeling the incredible pace of change. A state of persistent change, rapid advancements, challenged assumptions, and disruption is now the norm, the lightning-speed of change driven by digital technology, AI, and mobile and trends such as these:

• 5G Capabilities that will enable mobile engagement and experiences like never before
• The next generation of data technology will likely change the way that we use our phones completely
• Augmented reality features are more impressive and immersive, allowing us to merge reality with CGI imagery on our phones and mobile devices
• More customers are going online
• The internet is connecting everything
• Big Data is getting bigger and smarter with IoT, AI and more
• Apps are moving to the cloud, fast
• The world has gone mobile, and it will go voice

“It’s increasingly clear that we’re entering a highly disruptive extinction event. Many enterprises that fail to transform themselves will disappear. But as in evolutionary speciation, many new and unanticipated enterprises will emerge, and existing ones will be transformed with new business models. The existential threat is exceeded only by the opportunity.” – Thomas M. Siebel

Consider these shocking statistics about our new digitally connected world—and being connected extends to much more than just smartphones and devices anymore:

• There are 5.11 billion unique mobile users on the planet
• Americans check their phones 14 billion times a day
• 85% of internet users owned a smartphone in 2017
• 20% of Americans now own a smart speaker
• There are over 10 million voice-enabled units in circulation between Alexa and Google Home with over 20% of mobile queries being voice searches in 2018, growing to 10% in 2020
• The artificial intelligence voice search coupled with smartphones is the next big thing shaping everything
• M-commerce is yet to peak and is predicted to account for 53.9% of all
  e- commerce sales by the end of 2021.
• Mobile already accounts for 69% of digital media time
• 80% of social media engagement is mobile
• 82% of customers use their mobile phone while making a decision about purchasing in-store
• 52% of consumers are entirely put-off with a business after a bad mobile experience
• Mobile devices are used for over 40% of online transactions
• People are 60% less likely to purchase from a brand after a negative mobile experience; 57% won’t recommend a brand afterward

If you, as a business leader, wonder if you are alone in the feeling of being overwhelmed by the speed of change, you are not. Everyone is feeling the pace of innovation and struggles to keep up. Consider how nearly 7,000 business and IT executives responded when asked about the speed of change, almost all indicating an accelerated or significantly accelerated rate.

Yet, as a pretty sobering thought, keep in mind that as fast as things are changing now, it will never be slower again — while new technologies are taking us from the digital age toward a new reality, one we call the post-digital world. And, more importantly, growing businesses face a range of challenges and opportunities which demand some future-proof planning and lean but muscular structures of strategic agility. Things move so fast that what worked even a year ago might not be the best approach today.

All of this drives our operating business model to:

• Support large numbers of concurrent users (tens of thousands, perhaps millions)
• Deliver highly responsive experiences to a globally distributed base of users
• Be always available – no downtime
• Handle semi- and unstructured data in volume, speed, variety, variability
• Rapidly adapt to changing requirements with frequent updates and new features at unprecedented scale.

Now, consider the innovators’ challenge.

Estimates are that only one in ten companies achieve the innovation and growth they need to compete for the long term.2 A large number of innovations fail because the organizations are not up to the task or lack the strategic agility to do so. So many of the capabilities (described as resources, processes, and values) that previously made a company victorious become its own disabilities.3

On the one hand, it is incredibly exciting to know that narrow AI applications will add $13 Trillion to the world economic output.4 Yet, there will be winners and losers who reach extinction, as the opening quote by Tom Siebel states.

Research by the Economist indicates that business executives are optimistic about the economic benefits that AI will bring, but they do recognize some obstacles. Over the next five years, executives expect AI to have a positive impact on growth (90%), productivity (86%), innovation (84%), and job creation (69%) in their country and industry.

At the forefront of this adoption are three (3) significant drivers of AI use in business:

1. AI-powered digital customer engagement
2. Generation of valuable insights
3. Increasing automation at work

We, at RCG Global Services, consistently see these use cases be implemented in the following ways:

1. Products and services offered by firms
2. Operational capabilities of firms
3. Driving business decisions (in planning and real-time)

Key areas of focus are workforce enablement, including raising a digital workforce with Robotic Process Automation / Intelligent Process Automation (RPA/IPA) and operations optimization, including improving traditional operations research and optimization problem solving by using machine learning; and increasingly critical, customer engagement.

Over the next five years, the impact of cognitive technologies on business will grow substantially. Leaders in all sectors need to understand whether, how, and where to invest in applying cognitive technologies to dramatically improve performance and create a competitive advantage. And, yes, every industry wants and is implementing AI – from the funeral industry to convenience stores. All industries are using AI at this point at varying degrees of advancement and success, and they are all engaged in cognitive and advanced analytics solutions across a variety of enterprise functions, processes, and settings.

While industries vary as to their use-case priorities for AI, predictive analytics is an overall key priority together with real-time operations management. This focus makes sense since implementing AI is already having and will continue to have a significant impact on industry and organizational innovation and efficiency. Intelligent systems can automate a considerable amount of your work and help reduce the risk of human errors. As time goes by, your systems will learn and get smarter. It will result in better outcomes.

Adding to the speed of change, rapid advancements in AI are accelerating things even more and unleashing disruption.

According to Stanford University, AI learning is much faster than ever. New algorithms and powerful computing hardware have led to dramatic gains in the speed of AI systems just in the past two years. In October of 2017, the amount of time it took to train an AI model was about ten days. In May of 2019, it was 2 hours and 43 minutes. The accuracy of the model is 93% or as accurate as a person identifying images of 1,000 kinds of objects. There will continue to be these drastic improvements, and their effects and opportunities will be incredible.5

Natural Language Processing is revolutionizing products and services At the same time, there have been a series of breakthroughs in Natural Language Processing (NLP), another branch of AI. The developments are driving a revolution in products and services. Over the past 18 months, researchers have made incredible breakthroughs in creating algorithms with unprecedented abilities in a variety of language tasks. We can expect better and smarter chat and better search. Systems may be able to analyze and compose documents.6

So, take a quick checkpoint on AI, where do you stand? (More importantly, where do you stand compared to your competitor). Not sure? Consider this helpful e-book on nine steps to trailblaze your AI Journey by Dr. Rob Nelson.

Now, let’s get to the heart of the matter of growth or extinction and your firm’s readiness for disruptive growth.

Companies create value for their shareholders via profitable growth. As stated by a private equity partner on the board of directors of RCG Global Services “a company that does not grow will die,” and the “king of growth is cash flow.” In addition to this is the emerging importance of customer value (which we will get to in a moment). Yet, it is difficult to know how to grow, and choosing the wrong path can be even worse than no growth path. So, is innovation a black box?7

Not quite, if you consider addressing the fundamental forces that help enable strategic agility and a strong core from which to innovate. That is the basis for this short paper. How do we strengthen the ability of a firm to thrive in a highly disruptive environment, and how can that firm itself have the capability to succeed with disruptive growth — as well as to survive in today’s disruptive and dynamic environment?

Enter Customer Value

Alongside “growth,” the value of a customer base is the sum of existing and future customers. Loyalty leaders create revenues nearly 2.5 times as fast as their industry peers and deliver 5 to 10 times more shareholder value over the next ten years. 8 There is a new standard emerging where leaders track customer value creation. More is possible than ever before in measuring and managing customer value. The bottom line is that you ignore this critical component of strategic performance at your peril. It is part of your growth consideration.

So, let’s now review four key areas that are fundamental to ensuring your firm is positioned truly capable of disruptive growth in an AI-driven world of disruption and innovation?

A model for strategic performance

Start with execution done well – this makes a huge difference in a company’s performance. The three core processes of execution are people, strategy and operations.9

It is essential to get all three of these processes right, as well as their linkage. Focusing on strengthening a firm’s operational core capabilities and operating model to execute is a foundational component of the ability to achieve the strategic performance necessary for disruptive growth. Whether having the right talent and culture in place or the right technology or the ability to execute strategy with rigor and accountability, firms often need to update their overall approach. They must focus on the result as a deep, meaningful change in the culture and cognitive frameworks that underlie the organization’s activities, critical skills, decision mechanisms, organizational learning, and power structure.10,11

Focusing on core areas of strategic importance is critical. While the areas vary from firm to firm, typically they include a customer focus, financial performance, people management, and other core strategic pillars. In successful firms capable of disruptive growth, there is a real focus on behaviors and alignment of attitudes as defined by management to capture the hearts and minds of employees and staff. And, no matter what the good intentions of business executives, the moment of truth comes in the reality of longitudinal results, including key financials, such as EPS and EBITDA, and customer value and satisfaction metrics. The academic literature in strategic management and marketing validates this concept, citing better performance yields in profitability and other measures for those organizations that undergo a successful strategic and operating orientation change across a core set of dimensions underpinned by cultural transformation.12,13,14

It has been shown repeatedly that organizations that can successfully change their strategic orientation and culture will deliver substantially better performance over time in both fiscal and non-fiscal measures.15,16

Such organizations are more likely to demonstrate the ability to adapt and innovate—skills that are necessary to succeed in such radically changing times. They build cultures that emphasize employee development, empowerment, and participative decision-making and possess the operating infrastructure that offers the discipline and rigor to deliver and sustain changes over time. Such organizations not only find good strategies but, more important, properly resource their implementation. High-performance organizations are much more adept and skilled at addressing typical challenges and barriers to poor performance and transformation including:

High-performance companies achieve levels of core strength via a strategic orientation culture. And, they transform themselves, led by strong guiding coalitions, typically composed of stakeholders who recognize the enormity of the threat to the organization’s survival if change does not occur. These individuals understand the operational requirements and lengthy return horizon when implementing transformative strategies. Their support empowers the transformers to do the “heavy lifting” required to overcome the business model, resource, cultural barriers, and the roadblocks presented by fragmented organizational structures. Knowing how culture and strategy affect one another, transformers insist on organization-wide involvement (top to bottom) and a leadership structure that enables people to produce good results. The guiding coalition creates a sense of urgency and cultural change, followed by behavioral change over time.

They focus not only on the mechanics but also on the organizational culture to create a workplace that empowers rather than blocks, facilitates change and innovation, and creates an engaged, accountable, and loyal staff committed to customer success. Such a culture depends on highly effective operating systems and infrastructure, followed by discipline and rigor. High-performance organizations are skilled at staying ahead of competitors and staying in touch with their markets, communities, and customers in their decision-making and relationships. They have strong cross-functional and system capabilities and thinking.

Strong cross-functional and system capabilities and thinking.

The figure below outlines a high-level view of a model to create and manage strategic performance.

It can be helpful to have a strategic advisor that provides an unbiased external viewpoint and proven change management skills to help guide the organization through the phases of transformation. For an organization just starting its journey to create strategic performance, a typical timetable for a holistic and meaningful change is three to five years, depending on the size and scope of the organization as well as the current state.

The effect of market orientation on business performance is widely studied and quantified in over 20 years of scientific literature that makes the connection between a firm’s adoption of market orientation and profitability. As discussed, profitability is key to growth and cash flow. It is a competitive differentiator.

What is market orientation? It is a culturally based approach to understanding and responding to
the market and is a form of strategic orientation that results in a deeper understanding of customer needs, the particular dynamics of the marketing environment, and the strengths and weaknesses of competitors17 that ultimately lead to higher business performance. It also connects with other concepts of the learning organization, an innovation-oriented culture, etc.

Market orientation results in a business culture that ensures a set of specific norms, values, and behaviors necessary for generating, disseminating, and responding to both internal and external market intelligence for creating superior customer value through excellent organizational skills and capabilities thereby ensuring long term profitability by continuously identifying and managing constraints in the system obstructing market-oriented culture in an organization.18

While widely understood and measurable, only more recently, have we seen the ability to knowingly increase and improve a firm’s degree of market orientation from a practical and managerial perspective by using a model and structured approach.

Market-oriented organizations (i.e., those with higher degrees of market orientation) are considered “learning organizations”19 able to adapt and drive competitive advantage, and “as a result of creating a market orientation, organizations develop the capacity to evolve.”20

The critical components of market orientation include, among other things:

• Extreme customer focus (and market, competitor and stakeholder focus)
• Shared knowledge across the firm (and organizational learning)
• Inter-functional coordination and responsiveness

Empirical evidence supports that market orientation development can be measured developed, and it can be established through phases to achieve higher degrees of strategic performance. Research has highlighted that the value of inter-functional coordination to deliver results. In a way, inter-functional coordination is the “gift that keeps on giving,” but it must be emphasized and developed to higher levels to have a meaningful impact. This effort requires a serious leadership commitment to promote, design, and sustain this component.

The vital leadership mindset is a recognition that the development of market orientation is a strategic process that takes time, commitment, and energy well in advance of the “pay-out.” The organization must be committed to seeing the program through to its high stages of development, or it will not reap the benefits because the benefits of higher market orientation and positive performance are not seen and significant until the later stages of development. Implementation involves culture change and is a strategic process.

For example, the RCG Global Services Culture-driven Strategic Performance model, among others, emphasizes this aspect particularly in inter-functional coordination in strategy activation. Any transformation program needs to ensure a high degree of inter-functional coordination is implemented and maintained to ensure readiness and capability. This important behavioral component of market orientation amplifies and reinforces the cultural dimension of market orientation.

A recent article by Harvard Business School professors Marco Iansiti and Karim R. Lakhani highlights what we at RCG are also seeing: AI and machine intelligence are fundamentally changing business operating models to where AI runs the show to compete in unprecedented ways by eliminating traditional constraints that completely change the way a firm can work. Digital and AI are the fabric of the operating system of the firm. Achievement of innovation at scale is as have never before seen. 

There is a particularly disruptive trend: the emergence of the digital start-up that challenges traditional firms across many industries. There are many examples across industries that we affectionately call ants and zebras such as Ant Financial and Zebra Medical, where AI is behind the creation and delivery of value. They challenge traditional firms like large financial institutions such as JP Morgan and US Bank as well as conventional firms like GE Healthcare, Philips, and Siemens “Healthaneers” who struggle to keep pace.

But, traditional firms must face the shift despite the challenge. Many of RCG’s customers, for example, are in this journey of transformation which requires a new operating model, technology, data science, analytics, and governance. It is no surprise that the traditional firm must deal with silos, legacy systems, and culture issues. It is more likely that for conventional firms to achieve disruptive growth, some major strategic re-orientation and transformation work is needed not just to put AI at the firms’ core but to deal with the entire business model.

This challenge includes:

• Re-architecting the firm’s operating model
• Defining the right technology roadmap and architecture
• Building the right capabilities such as with data science
• Creating an agile product focus and assuring the right governance is in place as it relates to digital, analytics, and data science assets.

Additionally, the challenge includes the issue of strengthening the core for strategic performance and setting the optimal approach for system innovation.

Lastly, in today’s world, innovation must be a priority for any company. There are many ways to approach innovation, but companies need a systemic approach. A firm should bring together a diverse team of individuals and groups so ideas can be created, developed, and implemented. Innovation must be a priority for any company that wishes to be ready to grow in the post-digital economy.

When we discuss innovation, we don’t only mean the kind of “radical innovation” you may be most familiar with as consumers (e.g., the first iPhone, etc.). Innovation doesn’t always take big leaps forward – it can be step by step over time. That said, as discussed earlier, the need for speed is accelerating. Ideally, as part of your operating model and culture, you will have the ability to bring about incremental innovations on an ongoing basis to drive customer value.

Now, we get into issues of who is responsible for leading innovation and making it happen—pursuing a systemic approach without being stifling is essential. Whether you set up an Innovation Lab or you have an R&D group or you’ve defined a joint effort with marketing, we need to make sure there are both an idea generation machine and a way to bring the best ideas to fruition. That requires a framework and some form of control and coordination. Most importantly, there must be a customer focus.22 It is crucial to identify innovation goals and a strategy from business model innovation to process innovation to market innovation to innovation in products and services. As part of the strategic performance model, we also need accountability and metrics. While rigor may sound like the antithesis of innovation, there needs to be a commitment to assuring the effectiveness of the innovation effort and proactively managing inhibitors while fostering employee excitement and engagement. A firm can learn how to make their innovation more productive, more sustainable, and more successful in support of disruptive growth by taking a systematic approach.

Is your firm innovative How so? What is your approach? Do you have a systematic approach? How might you improve this vital area of competitiveness?

Perhaps your firm is well on its way or is already capable of disruptive growth in this fast-changing business environment, or maybe you are struggling. In any case, now is a good time for a “check-up.”

Consider these five things as part of an honest assessment:

1. Where is your firm at in its ability to grow through disruptive innovation – or at least stay relevant in this dynamic market?
2. Does the firm demonstrate strategic performance capability and results? What gaps or opportunities may there be? What actions could you take to bolster your core strengths and drive a performance culture driven by the market and customer? How good is your firm at execution?
3. Are you strategically driving market orientation as a strategic orientation? If measured today versus your competitors, how do you think you would score? Do you have, or should you have a programmatic effort in place? Do you have the right information sharing, market sensing, customer-focused, and data-driven decision-making in the area? How good is your inter-functional coordination is going to market?
4. What does/should driving your digital transformation with AI as a core system for your business look like, and who is disrupting your space? What are the Zebras and Ants you face? Do you have a transformation roadmap that addresses vital issues like technology, process, capabilities?
5. Are you systematically approaching innovation to drive and accelerate innovation in your firm? Consider formalizing your efforts in a way that enables your organization to unlock its potential.

Whether you are in a stable, top-performing organization or need some tweaks to get there, you need to drive a significant transformation to complement and balance the effort. It can be helpful to have a strategic advisor that provides an unbiased external viewpoint and proven change management skills to help guide the organization through the phases of transformation. Any organization interested in pursuing substantial transformation or just specific adjustments can benefit from choosing a known programmatic approach that delivers results rather than trying to find its way through painful trial and error. Having the right partner and model in bringing the transformation to life is a critical success factor, especially in these challenging times.