Why embracing the Fusion Economy is key for businesses to stay relevant
Goodbye digital age, hello fusion era
This article is contributed by Charlie Ang, Senior Principal Strategist at SPH Tech in SPH Media Ltd. A version of it first appeared in the Singapore Institute of Directors' SID Bulletin, Q4 2021 issue and re-published in The Business Times.
Goodbye digital age, hello fusion era
It has often been said that Covid-19 did not change the course of history but accelerated it. This pandemic hastened climate action, geopolitical disorder, consumer behaviour shifts and digital transformation by, arguably, four years.
As companies grapple with the "here and now" urgency to serve their customers with digital-first fulfilment models during this period, what should they look at in their next phase of transformation? And how should they make sense of and incorporate emerging technologies such as artificial intelligence, blockchain, immersive reality and 5G?
Before addressing these questions, consider the paradigm shift of 2020s - which affects not only business and technology, but the entire world. Thinking digital is necessary - but insufficient - to anticipate the substance, scale and scope of what is to come.
Tim Berners-Lee, the inventor of the World Wide Web, calls it Web 3.0. The World Economic Forum refers to this as the 4th Industrial Revolution, "characterised by a fusion of technologies that is blurring the lines between the physical, digital and biological spheres".
Every aspect of the world from society, economics, politics, business to industries will reincarnate into their 4.0 versions - the Everything 4.0 future.
From the Digital Economy of 2010s, enter the "Fusion" Economy of 2020s. In the past, the digital world converged with the physical world, through mobile, social and cloud technologies.
From hereon, the digital world envelopes the physical world, using cognitive, immersive and trust technologies. (See graphic)
The emerging digital universe, commonly called the Metaverse, consists of a multiplicity of worlds - physical, virtual, augmented and digital. We will not be merely using the Internet but living in it, similar to Meta's vision. Whichever is the preferred future narrative, it is obvious that we are again at the dawn of a new beginning.
The Future is Fusion
The Fusion Economy has three overlapping conceptions overlayed on top of today's Digital Economy.
- The Autonomous Environment (powered by cognitive technologies) is highly cognitive, always connected and autonomously functioning.
- The Hybrid Experience (powered by immersive technologies) enables multiple realities to be perceived, enjoyed and integrated for elevated human experience.
- The Decentralised Ecosystem (powered by trust technologies) is governed, organised and operated by programmed trust, rules and policies to support peer-to-peer economic activities.
This new landscape will manifest the 4.0 value chains and customer journeys of every industry.
In Education 4.0, for instance, the AI Personal Coach would pre-empt its user's learning needs, then selects, buys and pays for the on-demand Virtual Reality course. This learning asset is managed and protected by a blockchain, which instantly distributes each net sale proceeds to multiple shareholders of the Distributed Autonomous Organisation (DAO), a self-managed company.
A Retail 4.0 scenario could look like this: The shopper consults the intelligent avatar store assistant for designs, dresses up her own digital twin with various outfits and visualises it in a life-size hologram. To get social feedback, her fitted looks are sent to her friends and random observers for ratings. Upon her purchase, the dress (worn on her avatar) is recommended to people who look like her. From a shopper, she becomes a model who gets paid a commission for every recommended sale.
How not to be stuck in 3.0
How should companies prepare for this radically different future? Every paradigm shift will reshuffle the deck of winners and losers. Think how platform players have superseded pipeline business operators. Netflix busted Blockbuster, Apple nuked Nokia, Amazon's Web Services upended HP and IBM, while Google and Facebook shrunk the traditional media industry.
Now, the game restarts, rules are rewritten, and stakes escalate. Radically novel and superior business models will crown the next royalty of every industry. Each external paradigm shift needs to be accompanied by internal mindset shifts and business model re-invention.
To pivot to the Fusion Economy, it is advantageous for leaders to pursue revolutionary, over evolutionary, approaches. The evolutionary perspective is "present-forward": retrofitting production-ready technologies and emerging trends into today's business models. This is the default mode of almost every company. It usually works, except when there is an industry-disrupting paradigm shift.
The revolutionary approach is "future-back", a concept popularised by consultancy Innosight. The process involves imagining the next-generation business model of the future and working backwards to innovate towards it today.
Future-back is essential if the firm wants to leapfrog to (instead of risk being blindsided by) the next paradigm shift - in this case, from 3.0 present to the 4.0 future.
This strategy also helps to uncover non-obvious strategic opportunity areas adjacent to the firm's core business.
For instance, electric and autonomous vehicles could sprout adjacent growth sectors for carmakers, such as electric charging infrastructure, autonomous fleet management and monetisation, fractional car ownership, mobility subscription services and even self-driving hotel rooms.
There are useful lessons from recent history. For example, Borders improving its physical bookstores using present-forward when Amazon built up the Everything Store from future-back.
Nokia tried making a better smartphone while Apple enabled digital lifestyles. Carmakers adding new features to their cars as Tesla is accelerating the future of electric and autonomous mobility. Blockbuster opening more video rental stores, whilst Netflix scaled mail-delivered rentals.
None of these incumbents stands a chance against disruption using the present-forward track.
Retrofitting new technologies around an ageing business architecture could at best delay, but not surmount, the next big-bang disruption. A new paradigm demands a "newborn" business architecture.
There are three steps for today's industry leaders to avoid incrementalism in the age of radical change:
- Discard Present-Forward strategy in favour of Future-Back.
- Envision the future environment of their industry and develop the vision (i.e. preferred future) of their company within that context.
- Steer their transformation path from the original trajectory towards the new vision.
In this final step, three strategic options are on the table:
- Transform the core,
- Innovate the next-generation business model and
- Enter adjacent strategic growth areas. Based on the firm's ambitions, available resources and disruptive threats, it can pursue one or more options.
An example of a company that has undergone a future-back transformation is Netflix. It pioneered and scaled two bold business models since its founding in 1997.
By 2007, its DVD-by-mail service had delivered its billionth DVD. Instead of concentrating solely on improving its core DVD rental business and becoming the next failed Blockbuster, it visualised a very different future for the industry and forged the movie-streaming business model.
Hundreds of millions of monthly subscribers provided the necessary scale to enter the adjacent space in original content programming.
Ultimately, transformation during a paradigm shift requires a radical end in mind.