By Bjorn Biel M. Beltran, Special Features Writer
The fourth industrial revolution is heralding a world of rapidly transforming business landscapes. Across all industries, from media to manufacturing, a technological arms race is threatening to change the world as we know it. Innovation is at the forefront of this global transformation, and business models, policy environments, and even social norms are facing disruption at the hands of new technologies like the Internet of Things (IoT), big data analytics, cloud computing, and artificial intelligence.
“The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production,” Klaus Schwab, founder and executive chairman of World Economic Forum Geneva, explained.
“Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres,” he added.
Understanding just how such an all-engulfing phenomenon is affecting and will affect Philippine competitiveness in the future is a challenge in itself.
At the BusinessWorld Economic Forum, held at the Grand Hyatt Manila in Taguig City on May 18, Erika Fille T. Legara, a professor at the Asian Institute of Management’s Department of Analytics, Information & Operations, recounted how a Filipino entrepreneur asked her about how the Philippines can hope to catch up to the fourth industrial revolution, when the country is barely positioned for the third.
“He said, ‘Why are we talking about the fourth industrial revolution? The Philippines is still in Industry 2.0. We haven’t even positioned yet to three, and now you’re talking about four’,” she shared.
“But then again, the future is not very evenly distributed. Whether we’re moving from three to four, or two to three, or taking a leap from two to four, it is important that we are all aware of what is happening around us. And how these developments can potentially affect our businesses, our people, our society,” she added.
The Internet of Things, she explained, held the potential to change the world much like the Internet did during the turn of the millennium. The technology is based around the concept of connecting any device to the Internet and to each other. Through the IoT, devices ranging from smartphones and smartwatches, to appliances like coffee makers, washing machines, and even machinery like jet engines can freely collect and exchange data, as well as communicate with one another.
“What does this mean for businesses? Take a look at Boeing. A Boeing 77 has two engines. Each of its engines produces 20 terabytes of data per hour. So if you’re flying from New York to LA, that takes about six hours. That’s 240 terabytes of data. That’s a lot of big data,” she said, noting that the sensors inside the engines are communicating to each other, monitoring vital flight conditions like temperature, humidity, and pressure throughout the trip.
Using this abundance of data, machine-learning software and artificial intelligence could then be used to interpret and obtain meaningful insights for businesses. Sectors with a heavy dependence on machinery and robotics like manufacturing could stand to gain huge competitive advantages, given the right capabilities.
Even sectors not conventionally perceived as technologically independent, such as farming, are not immune to the disruption such technologies present.
“We can now deploy sensors to our soil, to our water management system. We can fly drones to monitor our fields and distribute seeds and fertilizers,” Ms. Legara said.
“Above all these, these sensors can also collect data, send this data up to the cloud, perform some machine-learning models and do different levels of analytics, from descriptive to predictive all the way to prescriptive analytics. And then these results will go back to the stakeholders, including our farmers,” she added.
However, is the Philippines equipped to facilitate the constant exchange of such vast quantities of data over its networks?
Ret. Gen. Eliseo M. Rio, Jr., acting secretary at the Department of Information and Communications Technology, lamented the fact that compared to the country’s neighbors in Southeast Asia, the Philippines has fallen behind in terms of its telecommunications services. The problem, he said, was due to a lack of government support.
“Up till now, the government has not supported our ICT industry in the same manner as the other countries have. Up till now, all the infrastructure that are being rolled out in our telecommunication industry has all been private sector-funded,” Mr. Rio said during his talk.
He added that just privately funded roads tend to have tolls to recoup investments made by investors, the same could be said for privately funded telecommunications networks — that is, the burden falls to the consumer. And though the current administration has plans to address the lack of infrastructure, it remains, in his belief, the primary obstacle for businesses trying to mitigate the effects of disruption.
“Everything now, all aspects of our lives, are controlled or even influenced by information,” Mr. Rio said. “Information is the new oil, they say, but that oil has to be distributed by pipes. That pipe is what the government needs to use to support the telecommunication industry, so information can flow faster at less cost to most of the areas in our country.”
The bad news is that the longer the Philippines remains unequipped to handle the strain of technological advancement, the more difficult it will be for businesses to play catch-up with the rest of the world. The price for any business adapting too late in a fast-changing, disruptive environment could be death.
“There are clear winners and losers from disruptions. Everyone knows the saga of Netflix and Blockbuster,” Kristine Romano, managing partner of the global management consulting firm McKinsey & Company in the Philippines, said.
“Blockbuster used to be an eight-billion-dollar company in 2005 and only five years later filed for bankruptcy. It could not compete with the instant and low-cost digital delivery of Netflix. Similarly, you find the likes of Google whose market share has gone from 12% in 2001, to an estimated 90% today. Meanwhile, who still uses their Yahoo accounts?,” she shared.
Ms. Romano further said that by being the first mover, or at least being one of the top 25% of companies fastest to respond to disruption, companies can negate the projected revenue and profit losses for disrupted businesses, according to their research at McKinsey.
“We tracked the direction of the revenues of the most disrupted industries and we found that growth in disruptive industries can be reduced as much as 6 to 12 percentage points. Now, of course, the numbers vary by sector by player, but our research shows that digital enables competition that puts pressure on revenue and profit growth,” she said, further noting that disruptors tend to have the competitive advantage when compared to disrupted businesses that fail to adapt.
To ensure chances of success, the imperative to change and adapt should naturally come from the very top of the company ladder and work its way downward. Culture change is inevitable, and if industry executives play their cards right, they could see themselves becoming the digital leaders of the future.
“You don’t need to be a digital native to win; a great strategy by itself can retrieve all of the revenue growth lost and contribute to further growth. Companies with a high DQ or digital quotient rely on internal collaborations, take bold risks, and experiment with new strategies,” Ms. Romano said.