The focus with artificial intelligence has been on its potential impact for knowledge workers in sectors where digital technology is already well-entrenched such as financial services and research and logistics. But two experts in innovation and digital strategy argue the biggest impact will be where we aren’t paying much attention: Traditional manufacturing, mining, transportation, construction, logistics and health care, which account for about 75 per cent of the world’s gross domestic product.
“Those sectors haven’t been significantly changed by digital technology yet. But they will be affected. Soon,” Vijay Govindarajan, a professor at Dartmouth College, and Venkat Venkatraman, a professor at Boston University, write in Fusion Strategy: How Real-Time Data and AI Will Power the Industrial Future Hardcover.
The profound changes of recent decades have been primarily in asset-light, high-information sectors, where businesses sell to consumers. But now we are likely at a new inflection point, where advances in hardware, cloud data, algorithms, generative AI and mixed reality will transform asset-heavy industries. We have been told, of course, for years this will happen – aren’t our refrigerators by now supposed to be automatically ordering milk or lettuce from the supermarket when we run out? – but the academics believe after several false starts the industrial world’s digitalization will now begin in earnest.
Industrial products will be infused with sensors, software and real-time telematics. The two academics say it is already happening in large companies they have studied and will gain momentum. “Going forward, industrials will need to combine what they do best (create physical products) with what digitals do best (use AI to parse enormous, interconnected, product-in-use datasets) to make strategic combinations that would otherwise be impossible,” they write.
That combination led them to dub it fusion strategy. They point as an example to John Deere, where its See & Spray device has allowed targeted spot spraying rather than just blanket application across fields. A self-propelled machine that moves through fields at up to 25 kilometres an hour, its 36 cameras scan at high speeds and the vision processing units use deep learning to distinguish crops from weeds. A command is sent to a nozzle and the weed is killed. “The innovation here is not in industrial machinery. It’s in merging the digital and industrial domains with data and AI – a significant shift for a company like Deere that has designed only big industrial machines in the past,” they stress.
At the heart of this effort is data – real-time information about products currently in use. It will be assembled in “datagraphs,” which will capture the interrelationships between the company and customers. The information is dynamic – live – not static nor historical, and assisted by algorithms will enable greater understanding and action.
Managers have to become adept at overseeing this new interlocking of the physical and digital business domains. “The modern automobile is a computer on wheels that’s connected to the cloud. Tractors are becoming industrial machines driven by intelligent agronomists. The latest buildings are architectural marvels with autonomous control systems,” Profs. Govindarajan and Venkatraman write. Agriculture’s future, they predict, will be sustainable farming enabled by sensors and software. In medicine, we will see personalized health care with biomarkers and customized cures. Education will be transformed by personalized tutoring supported by AI. New advances are making it all economically and technologically possible.
Karl Marx highlighted labour as the key factor of productions, but interestingly China, led by a communist party, in 2020 recognized data as a new factor of production. “All industrial products will become digital sooner than companies think,” the academics warn.
Executives have been taught over the past 40 years through Harvard professor Michael Porter’s research that they need to seek success through one of three routes: Beating competitors on costs, differentiating themselves significantly from others or being highly specialized with a niche product. Profs. Govindarajan and Venkatraman suggest instead the new strategic choice leaders must make will be between four fusion battlegrounds, picking one as the main area to pursue this blending of machine and data even while they explore the others:
- Products: These products will be designed with telemetry and the key will be to analyze the data and improve performance systematically. The products will not necessarily be on the move; they can be stationary, such as buildings, glass windows and gas turbines.
- Surround fusion products with fusion services: Industrial companies can offer services that allow these data-rich machines to work more effectively inside customer operations, improving the economic outcomes for those businesses. An aircraft engine manufacturer could collect data from all the engines deployed worldwide to help individual customers.
- Integrate products into fusion systems: There are possibilities for interconnecting these data-enabled products, creating a higher-order system. A farm, construction site, oil refinery or mine has equipment from various industrial companies and there are opportunities for system integration that then applies the data more effectively.
- Solve customer problems, one at a time, for many: This strategy would combine products, services and systems to solve each customer’s distinct problems. Industrial suppliers, in this strategy, become extensions of their customers’ operations.
If we are at a takeoff point, executives in the sectors that have been less affected so far by the digital revolution will have to get up to speed, using these ideas and frameworks to rethink their strategy.
Cannonballs
- Hybrid workers are more satisfied and quit less than onsite workers, the first randomized control trial has found. Workers assigned to hybrid situations reported greater job satisfaction, better work-life balance and higher life satisfaction than colleagues asked to work onsite.
- Executive advisor and organizational psychologist Merete Wedell-Wedellsborg says the most ambitious and capable executive teams she has seen in the past two decades are notable because each member brings exceptional personal capabilities that complement the others and the scale of the achievement they aspire to is huge. But their third – and least obvious – characteristic, she writes in Harvard Business Review, is an almost constant generative tension that characterizes their interactions: “The energy on the teams is sparked by benevolent friction, conflict, impatience and even well-intentioned intolerance.”
- “The first minute of action is worth more than a year of perfect planning,” author James Clear argues.
Harvey Schachter is a Kingston-based writer specializing in management issues. He, along with Sheelagh Whittaker, former CEO of both EDS Canada and Cancom, are the authors of When Harvey Didn’t Meet Sheelagh: Emails on Leadership.