Global Chair Emeritus
Speak to senior executives today, and they often convey a sense of exasperation. On the one hand, they feel mounting pressure to cut costs while increasing revenues, improving responsiveness to customers, and enhancing—or at least not compromising—quality. On the other hand, after several rounds of productivity programs introduced in the wake of the Great Recession, they feel they have reached the limits of what is humanly possible: if they cut any more, they will cut to the bone.
So, are they correct? Has the “lean revolution” run its course? Or is there still room for improvement, to do things better and differently?
In our view, the plain answer is that there is still a lot of room for improvement. Every day, we encounter evidence of poor performance. Every day, we discover places where companies could be more productive—or rather, less unproductive. Here are some examples:
The list could go on and on. But there is some good news: the tools for extracting costs while increasing revenues are more widely available than ever before. They come in both digital and physical form—what we call the two sides of connectivity.
It’s no secret that the world has never been more connected than it is today—thanks to the digital revolution. By 2016, half the world will be connected to the Internet. With the PC, and increasingly with the smartphone, we can get more information faster, we can make better decisions, and we can create better-quality products and services faster and at lower prices.
But the flow of digital information would be worthless without the flow of physical goods. Amazon may be a digital miracle, with its promise of next-day delivery. But without global supply chains, optimized storage facilities, and local delivery companies in many parts of the world, the click of a button would just be a hollow sound.
Digital and physical connectivity go together, even as the former comes to substitute for some of the latter. They reinforce each other. In fact, you can’t hope to be truly successful if you don’t place equal emphasis on these two channels of communication. They are key enablers not just of productivity improvements, but also of quality, flexibility, and growth.
This is why it is so astonishing that many companies are laggards when it comes either to digital connectivity or to supply chain, logistical, and other types of physical connectivity.
To grow these days, you need to take care of both your digital and your physical connectivity. In other words, you need to be hyperconnected.
In the course of our work with clients, we have come across several hyperconnected companies. Amazon’s story, of course, is famous. And it is still unfolding. Not content with its best-in-class delivery record, the company is developing “delivery drones”: small, unmanned flying vehicles designed to deliver packages within 30 minutes of a customer’s online order. Here are some other examples:
There is much that you can do on your own to improve your company’s productivity—and prospects for growth. After years of lean reforms, it’s not so much about cutting out the fat as cutting out the frequent mistakes.
But at some point, the politicians and administrators involved in the development of the infrastructure required to facilitate digital and physical connectivity become critical factors. These people influence what might be called “institutional connectivity”—the harmonizing of standards, rules and regulations, and regional and global agreements on the flow of capital, goods, services, and people. For example, Amazon is now working with the U.S. Federal Aviation Administration to get permission to use its delivery drones.
These politicians and administrators also influence the funding of infrastructure projects. We calculate that the global demand for investment in areas such as energy, transportation, and social infrastructure (including hospitals and schools) will average $4 trillion annually between 2011 and 2030.
You need to be prepared to lobby for investment and to exploit emerging opportunities as new roads, bridges, railroads, and digital networks are developed in different parts of the world.
Some governments are leading the way. Singapore launched its Smart Nation Programme in 2014 to optimize existing resources. The government understands that there are only so many roads and hospitals that can be built. Its database, with 8,000 data sets, is helping to improve the use of government services. For example, the Health Ministry’s central database stores patient information across hospitals, allowing doctors to access patients’ full medical histories and enabling patients to avoid unnecessary doctor visits and obtain their records before visiting specialists.
Meanwhile, in Tel Aviv, the government has introduced a real-time data-collection system that enables operators to optimize traffic flow by adjusting traffic signals and directing drivers to less congested streets. Since it was introduced two years ago, the system has increased mobility, accessibility, and safety, reducing traffic delays by 60 percent and traffic accidents by 50 percent.
Then there is the remarkable transformation in China, which has spent 8 to 10 percent of GDP on infrastructure over the last 25 years. We are on the cusp of a new era of trade routes between East and West, which will reshape the pattern and pace of global trade. On the 11,000-kilometer “Silk Railway,” passing through Kazakhstan, Russia, Belarus, and Poland, travel between China and Germany takes just two weeks. Likewise, the fabled Northwest Passage between Europe and China is now a real possibility—via the Canadian Arctic. These routes shave as much as 15 days off the traditional route to Europe via the Suez Canal and the Mediterranean.
There are many opportunities for your company to benefit from increased digital and physical connectivity—and many more will emerge over time. You need to ask yourself and your team many questions, within three overlapping loops:
It is more than 40 years since the first mobile phone call. It is nearly 25 years since the launch of the World Wide Web. Yet the world is only now starting to comprehend the power and capture the potential of the two sides of connectivity.
Both help with the two sides of your business: they protect your bottom line and promote your top line. Chances are that you are making only fractional use of the enormous potential of digital and physical connectivity. If you ask the right questions and act on the answers that you get, you should be able to raise the productivity of your company—and reap the rewards of much higher profitability and much higher growth.