What does the digital economy mean for competitiveness?

2015 is turning out to be a defining year for the Internet of Things (IoT), which is poised to transform every industry and society in the years ahead. The world economy is currently in the midst of a shift from the internet economy to what can be best called the Digital Consumer Economy. This shift will virtually reshape the competitive landscape of every player in the market. Over 60% of CEOs worldwide are stating that increase in competitive forces may significantly disrupt their industries in the near future.

The emerging digital consumer economy will be characterised by empowerment of consumers through pervasive digital devices, which are embedded with sensors. These devices provide anytime, anywhere access to contextual real-time information that customers need in order to make rapid decisions. The consumers are also hyper-connected with one another via social networks and shared intelligence. Furthermore, the companies that serve consumers are also empowered with information about these consumers, completing the information food chain. The rapid declines in the costs of processing power and sensors over the past 10 years is further fueling this transformation and making it more inclusive.

The five key technologies, which I call the Digital Five Forces are also maturing and further precipitating the shift. These are Mobility and Pervasive Computing, Big Data, Social Media, Cloud, and AI-Robotics. These forces are increasingly being used in various permutations and combinations to drive new applications. As a result, new Digital Composite Forces are emerging. Foremost among them is the Internet of Things, which combines mobility and pervasive computing, big data, cloud, and—increasingly—artificial intelligence. A potential 50 billion devices are likely to be connected to the IoT in the next five years (by 2020), driving new economic opportunities and growth.

A vast majority of business leaders are yet unsure about what to do about this oncoming change. A TCS survey found that only 8% of companies have yet embarked on the road to “Digital Reimagination.” This involves leveraging a combination of the Digital Forces to reimagine the enterprise along one or more of six dimensions: business models, products and services, customer segments, channels, business processes, and workplaces. Though the fundamental rules of competition and strategy may not change, the competing players will undergo significant change in terms of how they operate with or relate to their own customers. Recently, we leveraged the IoT for a major global engine manufacturer to create a new services stream by using sensor-collected big data to predict failures on their engines. When such a failure is predicted in advance, the vehicle operators are automatically sent notifications along with directions to the nearest service center. Apart from driving new maintenance revenue, this has also helped improve the customer experience by reducing inconvenient breakdowns. A recent report from Harvard Business Review, which we associated with, has Professor Michael Porter outline briefly what companies need to consider given the changes in the competitive landscape.

The opportunities for businesses are limitless, as are the growing risks and need for cybersecurity for the new IoT networks. This is why, earlier this year, we agreed during the IT Governors meeting at Davos, that the primary priorities for the IT industry in 2015-16 will be twofold: First, building up the initiative towards Digital Transformation of Industries (DTI) that improves the state of the world, and second, securing this through enhanced cybersecurity and global Internet governance through public-private dialogue. Most of all, we need to change competitive strategies, cultures, and mindsets to embrace this new world—one in which the default is digital.

Author: Natarajan Chandrasekaran, CEO & MD Tata Consultancy Services and Chair, IT Governors Steering Committee, World Economic Forum

Image: A woman takes picture of an LED television installation at the Internationale Funkaustellung (IFA) consumer electronics fair in Berlin, September 3, 2009. REUTERS/Tobias Schwarz