Organizations and their leaders have been educated to avoid risks. This thinking is different from Alphabet (formerly Google), Apple, Amazon, Airbnb, Facebook, Microsoft, Netflix, and Tesla; what to learn from them to survive in a period when digital technology dominates almost everything
In the past 20 years, the world has changed much more than in the previous 40 years. Transformations are led by digital technology and we see some companies at the forefront of this transformation. I mention eight that immediately call attention and that “disrupted” existing sectors or created others, which are Alphabet (formerly Google), Apple, Amazon, Airbnb, Facebook, Microsoft, Netflix, and Tesla.
As of recently, in mid-January 2021, Apple was worth about $ 2.2 trillion (in a rough comparison, as they are different things, the company is worth more than the GDP of countries like Italy, Brazil, South Korea, and Russia); Microsoft, $ 1.6 billion (about 14 times more than IBM); Amazon $ 1.5 billion (almost four times more than Walmart); Tesla over $ 800 billion (more than nine of the largest automakers combined); Facebook almost that ($ 750 billion approximately); Netflix, more than $ 200 billion (in the same level of Disney); and Airbnb at around $ 100 billion (more than double the largest hotel chain in the world, Marriott). Not to mention Chinese companies like Alibaba and Tencent, that are a whole different animal.
To get an idea of the speed of change, Google, in 1999, had eight employees and when the company went public, in 2004, the projection was to raise US$ 4 billion. Today, it is worth around $ 1.2 trillion. Likewise, in 1994, Amazon was just a small online book store.
But is this phenomenon exclusive to foreign countries? No. 20 years ago, in Brazil, we had 2 million computers and the vast majority was owned by companies. Whoever surfed the internet was called an “internauta”! Today, we are completely connected. Just as an example, 120 million people use WhatsApp in Brazil, an App that is installed on 99% of the Brazilian cell phones and that works as the main source of information for about 80% of Brazilians. Another data? In the last Black Friday, iFood broke the record of 2.5 million orders in a single day, which was equivalent to 100,000 deliveries made every hour.
Brazil is not isolated from the rest of the world and we need to throw away concepts that things are different here, that what happens outside will not happen here. Absolute truths are often proven to be wrong and there is no comfort zones anymore. We can buy shoes online (Netshoes), leave the car at home (Uber), and no longer need to go to the bank to open an account. These companies are actually showing us the way. And here is important to note thar “showing the way” does not mean copying them, but using them as inspiration.
By the way, I watch with reticence as many courses in management and administration still do not train professionals to be digital fluent. The lessons (good or bad) that these companies teach us, the crossing that they promote between technology and value to stakeholders, would help a lot in understanding the current and future world of business.
It is not for lack of literature. For example, we can dissect Amazon’s operating model by reading Brian Dumaine’s “Bezonomics” book. Or through Scott Galloway’s “The Four”, we can get an idea of the strategies of four of these companies (Facebook, Alphabet, Amazon, and Apple). And, of course, there are countless articles available in this world of information that is the worldwide web!
Let’s open a window and observe a fact that is similar to us all: they are pioneering the intensive use of AI! AI is at the core of them all. Not just in isolated applications, scattered here and there, but at the heart of your operating and business models.
Take, for example, the photography sector. Compare 20 years ago. Today we take more than 10 trillion digital photos a year, a number five times greater than all traditional photos that were ever taken since photography was invented. And they are stored in clouds and analyzed by algorithms from companies like Google, Facebook, Instagram, Snapchat, TikTok, and others.
Digital photography, powered by AI, not only replaced previous companies (Kodak and Polaroid), but created a whole new business world
Based on these analyzes, they continually improve their algorithms and recommend increasingly personalized products and services to us. Digital photography, powered by AI, not only replaced previous companies (Kodak and Polaroid) but created a whole new world of business. A world that was previously unthinkable. Just compare Kodak to Instagram. These are completely different things. Kodak died not as a result of the competition with Fuji, but from the combination and factors such as the emergence of the smartphone and social networks (Facebook and Instagram to name two). An unimaginable competition for traditional thoughts.
Another likely “disruption”: voice technology. Increasingly ubiquitous, as in assistants like Alexa, the technology has the potential to greatly decrease the value of brands. In this sense, ‘brand’ is the term that refers to a set of associations that consumers use to find a product. But when buying habits migrate to online platforms (and this was accelerated by the pandemic), the design and experience of seeing and touching the product lose their relevance. Voice technology further distances the attributes; with simple purchase orders, Alexa, for example, can suggest a product according to its need at the moment, regardless of the brand.
Now, let’s look behind what allows Alexa to work: delivery at the right time. This implies extremely oiled logistics and this capacity can only be achieved with an extremely high level of digitization and automation. No coincidence, all attributes enhanced by AI algorithms.
In fact, the end-to-end experience offered to an Amazon customer (from product recommendation to home delivery) is managed by AI algorithms. There is the participation of humans, but this work is secondary in most Amazon workflows.
Amazon explicitly adopts AI in its daily life (and not just in the visible part, like Alexa, drones and Amazon Go) and this could be seen already in 2016, in one of the famous letters to shareholders published by Jeff Bezos. In it, he said: “Much of what we do with machine learning happens under the surface. Machine learning drives our algorithms for demand forecasting, product search ranking, product and business recommendations, merchandising placements, fraud detection, translations, and much more. Although less visible, much of the impact of machine learning will be of this type, contributing to the improvement of the main operations in a quiet, but significant way”.
All sectors are in transformation. Take for example retail and its supermarkets, which today is where innovation goes to die, with its tiring and frustrating shopping experiences; the automotive industry with the convergence of factors such as automation, electrification and the concept of “using” rather than “having”; medicine, moving from disease to health, from mass treatments to individualized treatments, from compulsory attendance to telemedicine and attendance when necessary and from reactive to prescriptive. But the transformations go further; to the point that there is a question of what is the workplace or what is a school.
In the coming years, we will begin to see new models of companies, with new business models and new operating models. It is a challenge for companies that exist today
Current organizations and their leaders have been “built” and educated to avoid risk. Most CEOs would not accept taking risks with less than a 50% chance of success, no matter the size of the potential return. We see this in the field of AI applications, where investments are timid, often restricted to experiments and prototypes, with many fears of the next steps.
This thinking is different in the eight companies mentioned here at the beginning of the text. The conservative mindset mentioned in the previous paragraph is what is likely to cause “old economy” companies to lose value to “new economy” companies. Traditional automakers versus Tesla. Big retailers versus Amazon. Technology companies versus AWS.
The growing evolution and sophistication of AI allow us to break assumptions, habits, and processes that we have built and solidified over decades in relation to the companies’ operating and business models. AI can cause obsolescence in the professions and in the operating models of companies. It can make room for us to create new and innovative business models. The combination of digital and analog is inevitable. The digital, powered by AI, is no longer “the new economy”, but simply “the economy”.
The thought of following paths already taken and never making inroads into unknown territories is the mantra of executives and traditional companies. They have great resources to innovate, but they rarely take big risks or innovate, for fear of cannibalizing part of their business. Remember that Skype and WhatsApp did not emerge from within telecommunication companies and Airbnb was not a spin-off of a large hotel chain.
The more intensive use of AI and the creation of “AI-powered organizations” is the opportunity for companies to reposition themselves for the new digital age. It is not electricity and the internal combustion engine that will change and shape the world in the coming decades, as they did in the last century, but digital transformative technologies like AI.
But for this to happen and for companies to remain competitive, it is necessary to take more risks. I think the inspiration may come from Jeff Bezos’ first letter to his shareholders. “Failure and invention are inseparable twins. To create, one must experiment; if you knew in advance that something is going to work, it wouldn’t be an experiment”.
Cezar Taurion is VP of Innovation at CiaTécnica Consulting, and Partner/Head of Digital Transformation at Kick Corporate Ventures. Member of the innovation board of several companies and mentor and investor in AI startups. He is the author of nine books that address topics such as Digital Transformation, Innovation, Big Data, and Emerging Technologies. Guest professor at Fundação Dom Cabral, PUC-RJ and PUC-RS.