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When Physical Meets Digital.

"When digital transformation is done right, it's like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar."

--George Westerman, MIT Sloan Initiative on the Digital Economy

Digital technology first transformed the industries that have at their heart information--publishing, mail, news, music, and movies, just for a start. Then it moved into service industries, where information can dramatically improve asset utilization--retail, car services, airlines, and hospitality. Now it's moving into industries that have physical products at their heart--businesses that make, market, and sell things. When "physical meets digital," things really get interesting. This was the topic of IRI's 2019 Annual Conference, from which the papers in this issue are drawn.

The transformation of physical product industries is clearly different from that of services or information providers. In many of the industries that have already undergone transformation, the product itself is digital; it has very low marginal costs and very low costs of distribution. Growth, once it's catalyzed, can be hyperbolic. In industries where information is used to leverage underutilized assets, often assets owned by others, the profit flows to those who broker the assets. These are also purely digital businesses, ripe for exponential growth when digital technology makes the flow of information seamless and continuous.

Manufacturers, on the other hand, face different challenges, and the challenges are multifaceted, ranging from the acceleration of product development to the adoption of new, services-led business models. The digital transformation initiatives in many manufacturers are still nascent.

Even so, manufacturers are moving forward on several fronts. Many industrial firms are informating their factory operations with Industry 4.0 tools and the Internet of Things, for example. Others are using increasingly sophisticated simulation to shift the design process to virtual space, dramatically cutting the time and costs of new product development--and increasing the universe of feasible designs. Still others are creating smart products, increasing the product's performance, reducing downtime, and--when the new product is delivered as a service--creating new revenue streams.

RTM has looked at many of these challenges in previous editions. In this issue we gather several discussions on the topic, gleaned from this year's IRI Annual Conference, held in Pittsburgh, Pennsylvania, in May.

Lee Hood, in his IRI Medalist lecture, takes us on a journey through the transformation of medicine over the past five decades, a journey that is marked by the use of information technology to drive major changes in our basic understanding of physical medicine. In his article, "How Technology, Big Data, and Systems Approaches Are Transforming Medicine," Hood describes seven paradigm shifts in medicine he has created or participated in, from the invention of DNA sequencing technology and the application of engineering to biology to the creation of the disciplines of systems biology and quantitative wellness. In each of these shifts, the availability of increasing volumes of data together with powerful scientific frameworks paved the way to better health--and a deeper understanding of what health is.

Hood's journey is instructive for another reason: the path he took to realize it. When the transformation he was interested in advancing required it, Hood either shifted to a new venue or created a new entity. He created the first cross-disciplinary biology department at the University of Washington, for example, and he left there to create the Institute of Systems Biology (ISB) when that concept was not supported by the university. He merged ISB into Providence Saint Joseph Health when that move offered the opportunity to pursue his theories about scientific wellness in a clinical environment. And those are just two examples from a remarkably productive career.

Eric Chaniot shares another transformation story: the ongoing digital journey of Michelin, the tire manufacturer. In "Tools for Transformation," Chaniot describes how Michelin has embraced digital as the next phase of its identity, remaking itself from tire manufacturer to mobility company. Michelin is using digital technology to get closer to customers, engage employees, transform the design and manufacture of its products, and optimize operations. It has introduced new business models that sell tires as a service, for example, and has sought to engage employees in understanding the effect that changes in technology and customer preferences are having on the tire and mobility industries. Critically, Michelin's journey has been sponsored by the CEO, and the company has dedicated significant resources and managerial attention to make it successful.

Companies need tools that can help with digital transformation. One methodology that is increasingly used for the development of digital products and services is Lean Startup. Unfortunately, Lean Startup approaches can trigger antibodies in many corporate settings. Attempting to create a digital future in such contexts can be difficult. In a paper based on my presentation at the conference, "Lean Startup in Large Organizations," I discuss the challenges established companies--especially industrial companies--face in applying Lean Startup to create new businesses. The challenges emerge from the collision of corporate norms with Lean Startup's privileging of learning over planning. Transformation succeeds when corporations find ways to bridge the divide. Making this happen requires "Yes ... AND" practices: practices that complement Lean Startup and help it coexist with the core business in established companies.

Gerald Kane looks at the broader picture of digital transformation. In "The Technology Fallacy," he describes a study that looked across industries and initiatives and found that people--not technology--are the real key to digital transformation. He and his collaborators have studied the factors that differentiate digital leaders from laggards and found common elements marking success--including strong leadership, not only in setting direction, but also in providing employees with the confidence that the company is moving forward. He also notes the importance of cultural factors, particularly agility, a willingness to experiment, and a bias toward collaboration and cross-functional teams, in powering digital transformation.

Mehran Gul looks even more broadly, at the global innovation ecosystem. In this issue's Conversations interview, he describes "The New Geography of Innovation." Digitalization and globalization have democratized innovation, so that Silicon Valley and its innovation model, though important, are not likely to be the center of the innovation universe in the coming decades. Gul explains where new innovation hubs are emerging, what is driving their creation, how they are different from Silicon Valley and other established hubs, and what countries can do to nurture innovation in their specific contexts.

The waves of digital innovation appear to be coming so fast that they are crashing into one another. The wave defined by physical + digital is cresting quickly. It may not crash to shore as quickly as its predecessors, but its effects have the potential to be both deeper and broader. When digital information transforms the core processes of scientific research and product development, the consequences are likely to be transformative. They are also likely to redefine industry boundaries. We hope this issue illuminates some of the possibilities, as well as some of the important challenges.

Jim Euchner is editor-in-chief of Re search-Technology Management and Honorary Professor at Aston University (UK). He previously held senior management positions in innovation leadership at Goodyear Tire and Rubber Company, Pitney Bowes, and Bell Atlantic. He holds BS and MS degrees in mechanical and aerospace engineering from Cornell and Princeton Universities, respectively, and an MBA from Southern Methodist University.

DOI: 10.1080/08956308.2019.1661075

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Title Annotation:FROM THE EDITOR
Author:Euchner, Jim
Publication:Research-Technology Management
Date:Nov 1, 2019
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