CONTENTS

03 Foreword

04 Introduction

05 About the Research

06 Key Findings

09 Behaviors of Transformation

34 Technologies to Support Change

40 Barriers to Conquer

45 Key Takeaways
 FOREWORD

Leaders in the digital era have taken the basic tenets of

business and reimagined how they operate. Traditional
customer segmentation has given way to personalization
at scale, expanding addressable markets and unlocking
exponential value. The power of the enterprise has been
magnified to the power of the ecosystem. And the ability
to rehearse the future, thanks to Agile, cloud and other
technology pillars, has given organizations the leeway to
embrace risk and explore new avenues for growth.

In 2017, TCS developed a thought leadership framework

called Business 4.0TM to help companies harness the
power of digital technologies to drive their growth and
transformation agenda. Late last year, we commissioned
Longitude, a thought leadership firm that is part of the
Financial Times group, to survey 1,231 senior executives
around the globe to understand the extent to which firms
across industries and regions have adopted the behaviors
of Business 4.0, the benefits they have seen so far and the
challenges they are facing in their transformation journey.
The results of this inquiry are encapsulated in this study.

We found several useful insights which I believe would be

valuable for you. I hope some of the findings will resonate
with what you are going through and others would inspire
you to reimagine.

Happy reading and reimagining!

Rajesh Gopinathan
CEO and MD
Tata Consultancy Services
W
hen disruption knocks, opportunity is always close behind. The rise
of digital technologies has completely upended industries,
companies, and consumers, throwing open abundant possibilities
to redefine every aspect of business. We call this transformation
Business 4.0.

Business 4.0 is the next wave of change breaking over

organizations across the world. Digital technologies such as the
cloud, the internet of things (IoT), analytics, automation, robotics,
and artificial intelligence (AI) are vital enablers of this
transformation, but it is not enough to use these to simply
mechanize existing functions.

Instead, firms are using technology as a foundation for four critical

business behaviors that will help them move to the next level:

Driving mass personalization – personalizing

products and services to a market of one customer,
often even of one transaction, and at scale

Creating exponential value – adopting business

models that leverage value from transactions at
multiple levels and address new markets

Leveraging ecosystems – collaborating with partners

inside and outside the supply chain to create new
products and services

Embracing risk – moving beyond rigid planning and

operational barriers with an agile strategic approach

TCS’ global research study – based on a survey of 1,231 senior

executives across industries – shows the way forward by helping
organizations benchmark their progress against peers.

04
 ABOUT THE

W
RESEARCH

e surveyed 1,231 respondents from firms across 11 industries and

18 countries, the latter including Australia, Brazil, Canada, France,
Japan, Mexico, Singapore, the US, and the UK. The survey was
conducted over November and December 2018.

All respondents were either directly involved in or were aware of

their firm’s digital transformation plans. Almost half of the
respondents (42%) were from the C-suite, while the rest were
manager level and above. All firms included in the survey report
had annual revenues of at least $500 million.

In addition, we conducted in-depth interviews with 30 experts and

business leaders from across industries worldwide to get their
perspective on Business 4.0 and how it is driving performance
within their organizations.

Please see the ‘Demographics at a glance’ charts at the end of this

report for more details.

05
M any organizations have embarked on a digital transformation
journey, but most are yet to realize its full potential. Some
understand that adopting digital technologies is not enough to
reap rewards, that it requires a rethink at the strategic level. The
most successful have been quick to adapt their business strategies
to take advantage of the limitless possibilities that digital offers.

To understand how the dramatic impact of digital technologies is

playing out in the fast-changing business landscape, we surveyed
1,231 senior executives worldwide and conducted detailed
interviews with 30 senior executives from across industries.
Analysis of the findings has helped us identify a select group of
Business 4.0 leaders, the benefits they are realizing, and the
barriers they are encountering in the pursuit of their aims.

The study found that the 9% of organizations that have adopted

all of the Business 4.0 behaviors (the ‘leaders’) report and
anticipate stronger financial performance than those that have yet
to adopt any of the behaviors (the ‘followers’).

We have identified three distinct groups in the survey, based on

their adoption of Business 4.0 behaviors:

Leaders: 9% of respondent organizations that have

adopted all four behaviors

Early adopters: 82% of organizations that have adopted

one, two, or three behaviors

Followers: 9% of organizations that have adopted none of

the behaviors

07
O ther key findings of the study:

Progress is most evident in personalization. Offering more

personalized services to customers, our study finds, is the most
prominent business benefit derived from digital. In contrast, most
struggle to drive exponential value and embrace risk.

Benefits are building, but not for all. Organizations report a wide
range of business benefits from adopting Business 4.0 behaviors.
Chief among these are increased revenue, higher profitability,
access to new markets, and stronger customer relationships.
More leaders are generating gains in these areas than the rest
of the survey group, and many more than followers.

Business 4.0 leaders are also technology leaders. The results

reveal a strong link between Business 4.0 maturity and
technology adoption. The leader group is far more likely to have
developed capabilities in automation, AI, IoT, and blockchain,
for example.

Size matters. The larger firms in the survey are considerably more
likely than smaller ones to have adopted the four behaviors. Their
greater resources to support technology adoption matter, of
course, but more important may be their ability and need to scale
new capabilities across multiple business units and geographies.

Some sectors and regions are edging ahead. Banking and

telecom firms perform strongly, while manufacturing and retail
and CPG firms are catching up. North American firms are the
regional leaders in mass personalization, while Latin American
(LATAM) firms are slightly further ahead in driving exponential
value and embracing risk.

08
B usiness 4.0 leaders boast four unique attributes. Using digital
technologies, they personalize transactions at the individual level,
even for single transactions, and they do so at scale. This enables
them to improve customer experience and earn higher revenues.
They have developed business models that allow them to create
multiple levels of value – for example, by offering services or data
in addition to products – and to expand their addressable market.

The leaders in our research also collaborate actively with multiple

players in ecosystems to share data and ideate in the process,
develop new products and services, and improve their innovation
capabilities. Last but not least, they are agile and ready to take
risks, including fundamentally changing their business model. As
we show below, they are realizing clearer gains from such
behaviors than early adopters and followers.

Leader Distribution by Industry, Geography, and Size

The leader group is fairly evenly distributed across most of the

industries covered in the survey, with banking and financial
services and telecom accounting for the largest shares. European
respondents comprise the largest proportion of leaders, followers,
as well as early adopters.

The larger firms in the survey (those earning annual revenue of $1

billion or more) feature prominently among the leaders. Although
larger in scale and therefore less flexible than smaller firms (most
of the larger firms, for example, work to long-term business plans
with fixed resources), they have greater resources to support
technology adoption and change programs. More importantly,
they have the ability and organizational experience to scale to new
capabilities and technologies across what are often global
businesses with multiple divisions and units.

Please note that the composition of the leader group is influenced by variations
in sample size for different demographics, particularly on a regional level

10
 Groups by industry

10% 15% 12% 18% 8%

18%
16%
15% 16%
15%
16% 16%
8%
18% 11%
11% 16%
14% 20%
12% 15%

Leaders Early adopters Followers

Travel and hospitality Retail and CPG

Life sciences and healthcare Manufacturing

(including pharmaceuticals)
Insurance
Telecom Banking and financial services

Groups by region

14%
22% 24% 26% 27% 23%

13%
15% 8%
39% 50%
39%

Leaders Early adopters Followers

Asia-Pacific LATAM Europe North America

11
 Groups by revenue

Leaders

30% 29%

41%

Early adopters

18%

55%

27%

Followers

21%

54%

25%

More than $5 billion $1.1 billion to $5 billion $500 million to $1 billion

Figure 1: Business 4.0 leaders by revenue, industry, and region

12
D
riving the returns

A compelling finding from our survey is that our leaders’ efforts are
clearly paying dividends for them. The responses indicate that
leaders have been able to crack the code when it comes to mass
personalization, creating new value, leveraging ecosystems, or even
embracing risk. This suggests that they know precisely how and
where to deploy digital technologies and which processes to change
to capitalize on them.

As a result, the leaders are able to maximize their returns.

For example, a remarkable 60% of leaders – substantially more than
early adopters or followers – expect greater than 10% revenue
growth over the next three years (see Figure 2).

Leaders are more likely than early adopters or followers to boost

customer profitability from their personalization efforts (78% of
leaders versus 60% of early adopters and 35% of followers), and to
boost their revenue through participation in collaborative
ecosystems (57%, 43%, and 27%, respectively). Leaders are also
more agile, and more likely to launch new products or update
existing ones quickly. Adopting the full combination of Business 4.0
behaviors, then, appears to boost the likelihood of achieving
superior financial and operational results.

13
 Revenue growth over the past three years

20%
Increased by >10% 19%
19%

48%
Increased by 5-10% 37%
26%

22%
Increased by <5% 28%
39%

6%
Stayed the same 9%
10%

2%
Decreased by <5% 3%
3%

3%
Decreased by 5-10% 2%
2%
1%
Decreased by >10% 1%

Leaders Early adopters Followers

Expected revenue growth over the next three years

60%
Increase by >10% 35%
22%

26%
Increase by 5-10% 40%
33%

8%
Increase by <5% 13%
23%

2%
Stay the same 6%
17%

1%
Decrease by <5% 2%

3%
Decrease by 5-10% 3%
2%

2%
Decrease by >10% 1%
1%

Figure 2: Revenue growth over the past three years and expectation over
the next three years – leaders, early adopters, and followers

14
 I t is encouraging that the majority of firms in our survey
have adopted at least one of the Business 4.0 behaviors
(see Figure 3). Many, however, will be operating at the
beginning of the maturity curve for each behavior. For
example, 68% of organizations are yet to introduce agile
practices – integral to embracing risk as well as other
behaviors, and key to establishing a culture that is
conducive to transformation – beyond the limited spheres
of their operations. Seventy percent of leaders, in
contrast, say agile underpins ‘every process in their
organization’ today. A little over half (55%) of the overall
survey group are currently utilizing the cloud extensively,
and a whopping 90% expect to do so by 2021.

Adoption by Business 4.0 behaviors

We can customize products and services

to every transaction (mass personalization) 78%

We operate a business model that 36%

drives exponential value

We collaborate with multiple partners in our network to create 54%

new products and services (leveraging ecosystems)

We plan to transform our business model

within one year (embracing risk) 33%

Figure 3: Percentage adoption of Business 4.0 behaviors

15
 B
Mass personalization
should not be restricted
to a one-time
usinesses are gearing up to meet the rising demands of the digital
customer. This has required a strategic shift in business strategy.
No longer is it enough to cater to different market segments;
firms instead need to focus on the segment of one customer and
often a single transaction. Market segmentation is giving way
to personalization.

“Mass personalization is probably the next evolution of real

customer service,” says Adam Warne, CIO of UK retailer N Brown.
“It is the thing that makes customers feel loved by a brand.”

experience, product, or
service. A business Furthermore, as K. Ananth Krishnan, CTO at TCS, clarifies, mass
personalization should not be restricted to a one-time experience,
should be able to do
product, or service. “A business adopting mass personalization
this all the time, on a
would be able to do this every time, all the time, on a very
per transaction basis. granular per interaction, per transaction basis,” he explains.
“Conceptually, everybody sort of gets the experience story, but
often falls short on the implementation.”

A majority of businesses have realized the need to pursue mass

– K. Ananth Krishnan,
personalization, with over three-quarters saying they are able to
Chief Technology customize to individual transactions. For most of those firms,
Officer, TCS personalization is having a positive impact on their bottom line,
and for some it is helping to reduce customer churn (Figure 4).

Benefits achieved through mass personalization

Higher customer profitability 60%

Increased value of customer transactions 59%

Increased volume of customer transactions 58%

Reduced customer churn 32%

Figure 4: Percentage of respondents securing benefits of

mass personalization

17
 S lightly more manufacturers and insurance providers (83% in both
cases) than organizations in other industries are pursuing mass
personalization. Many types of manufacturers (such as automotive
producers) have a lot of experience in customizing products to
individuals’ preferences, and are now using digital to fine-tune
that capability. Personalization is also more widespread among
North American firms (84%) than those in other regions.

It is clear, however, that even these firms can do much more to

sharpen the focus of personalization. For example, they are more
likely to design personalized offers based on analysis of past
purchases than on pre-browsing activities or data sourced from
third parties (see Figure 5), which suggests they are primarily
reacting to past preferences rather than anticipating what the
customer might want in the future. This is more confirmation that
most firms are in early stages of Business 4.0 maturity.

How businesses gauge customer preferences

Analysis of purchases made from us in the past 63%

Research with customers (such as surveys or focus groups) 60%

Data on customer behavior from third parties 49%

Pre-purchase browsing behaviors 41%

Figure 5: Methods used by organizations to personalize offers

18
C A S E S T U D Y
Global auto-maker builds value through personalization

utomotive manufacturers have not been

slow to understand the value that
digitally-enabled personalization can create
for their businesses. Several original
equipment manufacturers (OEMs) offer
customers the ability to tailor the cars they
are purchasing to a high degree.

Many, for example, have harnessed

technologies such as cloud and mobile
applications to enable consumers to browse
vehicle configurations online and build their
ideal car – from the engine specifications
right up to upholstery and accessories.

“Our products are highly complex and

highly configurable, so our customers can
play with vehicle configurations and pick
whatever they want,” says a senior
executive of one automotive OEM who was
interviewed as part of this research. “They
can choose from many different options for
interiors, colors, engines, transmissions, and
multi-media systems. We have grown the
value of our global brands by extensively
improving the level of personalization for
each customer.”

19
C ompanies create exponential value by using digital technologies to
develop new revenue streams and expand their addressable
markets. As a result, they create multi-layered benefits that delight
their customers and differentiate them from the competition.

Consider, for example, a brick-and-mortar retailer partnering with

e-tailers to offer its stores as pick-up points for online shopping,
thereby increasing footfall at its physical locations. A search
engine can monetize a free service by leveraging the data it
gathers. Tapping the power of the cloud, data analytics, and IoT,
among other technologies, can help companies unlock value at
multiple levels.

Meanwhile, servitization – augmenting or replacing the sale of

goods with the provision of services – is an important means of
creating new value for manufacturers. An example is provided by
Bridgestone Corporation, the world’s largest tire and rubber
company.

“We are moving from a company that provides tires as spare parts
to helping customers improve productivity and reduce downtime
by offering tires as a service, driven by insights from data
analytics, which will, undoubtedly, extend our reach beyond our
legacy business to emerging and service-oriented domains,” says
Yukio Saegusa, Vice-president and Chief Digital Officer of the firm.
“We create value for our customers, but it also means we are
operating at the front of the value chain, rather than competing
downstream.”

The leaders in our survey have been quick to spot this

opportunity, but others are also internalizing this Business 4.0
behavior, albeit at a slower pace. More than one in three
organizations surveyed said they are already reaping the
exponential value from their initiatives and transactions.
Moreover, half of them expect to be doing so within the next
three years.

21
O verall, the adoption of this behavior has progressed furthest
among the insurance providers and telecom firms in our survey.
Insurers, for example, have augmented their core revenue streams
from premiums with revenue generated from car maintenance,
health monitoring, and other complementary services.

Our survey found that companies are finding exponential value at

a more granular level than just the bottom line (see Figure 6).
Some are using digital technologies to target a wider range of
customers or – in other words – find new markets. Others are
creating value through collaboration with partners in ecosystems
– by sharing customer data, for example.

It is worth noting that reducing costs is well down the list of

sought-after benefits from this behavior, supporting a view that
creating new value is top-of-mind for businesses that are shifting
to Business 4.0.

Benefits gained from operating an exponential value model

Ability to target a wider range of potential customers 64%

An expanded geographical marketplace 62%

Higher profitability 54%

Higher revenues 50%

New business models through collaborative ventures 50%

Competitive advantage with better differentiation 31%

Reduced central costs 29%

Figure 6: Percentage of respondents gaining range of benefits

from an exponential value approach

22
C A S E S T U D Y
PostNord pioneers warehousing-as-a-service

ostNord, a state-owned communications

service provider in Sweden, has expanded
its portfolio to offer logistics solutions to,
from, and within the Nordic region. It is
developing a new warehouse service
concept called ecNOW, aimed at smaller
e-commerce operators who may be in their
early phase but have become too big to
store goods on their premises. They need a
logistics setup, including a warehouse, a
distribution network, and everything that
surrounds them (including a customer
support system), which can be expensive.

PostNord’s idea is to set up a standardized

approach where companies can buy
warehouse space along with supplementary
services. It can provide a standard service
for many small e-commerce companies,
creating huge economies of scale while
leveraging existing space and infrastructure.
Björn Ekstedt, Group CIO, explains: “At the
end of the day, we would like this to be
something that you can order via the
customer portal. An e-commerce company
just goes in, orders the warehouse solution
they want and off they go.
Very uncomplicated.”

This additional service will have exponential

benefits: better customer value, advantages
of scale, better utilization of existing
infrastructure, and increased demand for
core services.

23
 B
To cover all stages of the
customer journey, we have
to create ecosystems with
other industries and
usinesses increasingly collaborate with multiple partners – within
and beyond their supply chain networks – to bolster their
innovation capabilities and create new products and services, in
the process providing greater customer value. Among the
surveyed industries, the largest numbers of firms adopting this
behavior are found in the health and life sciences, telecom, and
manufacturing industries, although the practice is widespread in
all seven.

Auto manufacturers, for example, partner on digital platforms with

consumer electronics producers, entertainment firms, telecom
companies, and other service providers to support connected car
offerings. Banks and insurers use application programming
organizations. interfaces (APIs) to share data that can be used to create new
financial services.

Japan Airlines is a good example of a transportation business that

– Tomohiro Nishihata, is taking part in wide-ranging ecosystems. “To cover all stages of
Japan Airlines’ Executive the customer journey, we have to create ecosystems with other
Officer of Innovation industries and organizations,” says Tomohiro Nishihata, the airline’s
Executive Officer for Innovation. “On our website, we partner with
up to 70 different companies to provide services such as
accommodation and shopping.”

25
 T he ability to leverage ecosystems is the second most likely
behavior to be adopted after mass personalization. And yet, there
is some distance to go before firms derive maximum value from it.
As K. Ananth Krishnan from TCS says, most companies – even
those that can create small ecosystems – “struggle to dynamically
configure ecosystems for the customer's needs. Building a large
ecosystem is also a challenge, as most companies usually have no
more than a few dozen partners in their ecosystem.”

Those in the survey are, for example, notably less likely to

collaborate with competitors or acquire start-ups to boost
innovation than they are to work with existing supply chain
partners – despite the benefits that can be derived from these
strategies (see Figure 7). For many, risk-aversion and fear of the
unknown may be holding them back from such bold initiatives.

How organizations leverage their wider ecosystem

We collaborate with multiple partners in our network

54%
to create new products and services

We access a dispersed workforce or the gig economy

46%
when we need to boost our skills base

We harness networks of assets (that we do not own)

43%
to create new services

We acquire start-ups to improve our innovation 37%

capability

We collaborate with competitors to create new

30%
products and services

We do not currently leverage our organization’s wider

5%
ecosystem but we plan to in future

We have no plans to leverage our organization’s wider

2%
ecosystem

Figure 7: Methods used by organizations to leverage

ecosystems
26
 N onetheless, there are powerful reasons for businesses to take a
bolder approach to their ecosystems. Firms that have leveraged
them to develop new products and services report that it has
helped them increase revenues and access new markets (Figure 8).
Other benefits include the ability to trial and develop new
products and services, perhaps reflecting the challenge of
adopting a disruptive mindset from within the confines of an
organization that also needs to maintain the status quo, along
with reduced risk during the innovation process.

Leveraging ecosystems also helps address the skills shortage that

many businesses are currently struggling with, as it can provide
access to different types of skillsets that the core organization
lacks. As the demand for digital-related skills grows across sectors,
creating structural unemployment in economies worldwide, we
can expect more and more organizations to tap into ecosystems
to augment their talent base.

Benefits of leveraging wider ecosystems

Higher revenues 44%

Access to new markets 43%

Ability to develop more innovative products and services 41%
Ability to act faster to satisfy customer demand or perceived 39%
appetite for new products or services

Access to different skillsets 35%

Reduced risk when developing new products and services 33%

Trialling new products and services in partnership with a
31%
third party

Bundle offerings with third-party providers 30%

Tap external resources to scale our business 30%

Figure 8: Percentage of respondents who are securing a range

of benefits by leveraging ecosystems

27
 N oting that playing it safe has its limitations in business, Girish Nayak, Chief
of Customer Service, Operations, and Technology at ICICI Lombard
General Insurance, says, “If you want to be ahead of the rest, you need to
try something new.”

Developing an entirely new product, making an acquisition, changing the

business model, or any other major initiative all involve risk to some
degree. Failure to do so can damage the business, opening it up to
disruption by firms that are willing to experiment with new business
models or implement unconventional approaches.

After all, digital technologies have made it easier than ever for
organizations to embrace risk. Agile methodologies, cloud, automation,
and AI are all examples of tools and approaches that help businesses to
reduce the time – and often resources – needed to test new products or
The ability to fail fast ideas. In the words of K. Ananth Krishnan:
reduces the magnitude “If there are shorter cycles from idea to execution, organizations
of risk and contains its can change course and adapt to shifting circumstances much
impact. better than somebody with a very inflexible timeline that
runs into months or years.”

Despite this, embracing risk is the Business 4.0 behavior that is least
likely to have been adopted by surveyed organizations. The reason for
this is straightforward. Embracing risk across planning, product marketing,
and research and development (R&D) – especially while fulfilling existing
commitments to customers, employees, and other stakeholders –
requires a fundamental change in strategic thinking that is easier to talk
about than achieve in practice.

“Embracing risk is the most difficult behavior for organizations to

understand and implement,” explains K. Ananth Krishnan. “How they
need to change their operations, their culture, or their business model to
truly embrace risk is a major challenge to most businesses.”

29
 N othing less than a change in mindset is required, notes a senior
R&D executive from a global pharmaceutical company. “Many
pharmaceutical companies have established a dedicated
innovation group tasked with pushing the envelope on how to
collect clinical trial data more quickly and more cost-effectively,”
he explains. “The challenge lies not just in creating new processes,
but in gathering support within the company to scale these new
processes on a broad basis.”

“For us as a pharma company,” the executive adds, “learning to

embrace risk that comes with novel approaches and technologies,
in addition to the large risk inherent in the overall drug
development process, will be a behavior I can see translating into
a competitive advantage.”

One form of risk-openness that the most successful brands

demonstrate is the flexibility in business planning, which means
they can constantly adapt to changing customer demands and
The world is so fast now that
market conditions when planning ahead. Adopting agile
opportunities just come at methodologies across the enterprise – not just in IT, where the
you. We need to create a approach was pioneered as a way to develop software through
business agile enough to incremental, iterative sprints – is one way to create this flexibility.
respond to those Firms must be able to shift course quickly when circumstances
opportunities as and when change, be they initiatives at risk of failure or market opportunities

they arrive. that arise, and agile gives them the means to do so.

As Krishnan Ramanujam, President, Business and Technology

Services, TCS, notes, “Agile is not just a way of implementing

– Adam Warne, Chief technology. It is a new operating model; a way of running your
business by adopting agile ways of working, a fail-fast, minimum
Information Officer,
viable product approach to engineering and a product-centric
N Brown approach to business.”

Relatively few of the surveyed firms can currently point to high

levels of planning flexibility within their businesses. Most still
operate within multi-year planning cycles (see Figure 9), which is
far from ideal considering the speed at which entire industries can
be transformed. The positive news, however, is that there are
indications that this is set to change: a third of surveyed firms, for
example, plan to change their business models to meet changing
customer requirements within the next year; half plan to do so
within three years (see Figure 10).

30
 Organizations' appetite for risk when planning ahead

We work to three-year planning cycles with

38%
finite resources and budgets allocated

We work to five-year planning cycles with

22%
finite resources and budgets allocated

We plan for the year ahead with finite

18%
resources and budgets allocated

We plan for the year ahead but are flexible on

13%
resources and budgets depending on market conditions

We adapt and transform continuously to market

conditions, making resources and budgets 9%
available as needed

Figure 9: Percentage of respondents who are

moving toward more agile planning

Plans for fundamentally changing business model in response

to customer demands and market conditions

Yes, within three years 47%

Yes, within one year 33%

We have no plans to change our existing

10%
business model

Yes, within five years 10%

Figure 10: Organizations’ willingness to adapt business models

31
 A s they consider whether to reset their approach
to risk, firms should remember that embracing
risk in business planning brings a wide range of
commercial benefits to organizations, including
higher productivity, stronger business
sustainability, faster time-to-market, and lower
commercial costs. Openness to risk also enables
organizations to operate more dynamically:
almost half of those who have adopted flexible
planning say they have improved their ability to
innovate and translate ideas into new products,
while four in 10 can give product teams more
autonomy (see Figure 11).

Benefits of flexible planning (embracing risk)

Better productivity 61%

Make our business sustainable 50%

Expand markets and customer base 48%

Ability to innovate and translate ideas into

48%
commercial value

Faster time-to-market for new products and services 43%

Lower fixed centralized costs 42%

More autonomy for product teams and departments 40%

A greater volume of smaller initiatives to bring new

39%
products and services to market, reducing risk

Figure 11: The benefits achieved by embracing risk

32
 C A S E S T U D Y
Mississippi’s government leaps into the cloud

n a fast-changing environment, with disruptive

technologies offering new opportunities for efficiency
measures and improvements in citizen engagement,
public sector institutions are struggling to adapt.
Budgets are tight, while the lack of talent with
specialized skills further complicates matters.

The Mississippi Department of Employment Security

has discovered a way to overcome these challenges
and turn them to its advantage by adopting one of the
key change behaviors – embracing risk. Taking a leap,
it was the first among US state government agencies
to migrate its unemployment insurance system to the
cloud.1

Mohammed Jalaluddin, Director of the department’s

Office of Technology Support and Innovation, relates
that the initiative required dealing with large amounts
of data transmitted between the Federal agencies.
Both follow stringent rules on security and data
protection, and neither had previously managed such
data in the cloud. Two years of working with the
agencies, he says, helped the department learn about
how cloud services could be used in the public sector.

“As a result,” says Jalaluddin, “we eased a lot of

apprehension around data security and set the
precedent for other states to follow. We blazed a trail
of our own.”

Government Technology, Maine Officially Becomes Next State to Join Unemployment Insurance Cloud Consortium, published December 2017,
accessed September 2018, http://www.govtech.com/civic/Maine-Officially-Becomes-Next-State-To-Join-Unemployment-Insurance-Cloud-Consortium.html

33
 T
Cloud is becoming the
he adoption of Business 4.0 behaviors is enabled by the
development of strong digital capabilities, as we have emphasized
throughout this report. Managing IT applications and infrastructure
on the cloud, automating business processes, generating unique
customer and market insights from data, and using sensors and AI to
anticipate events and respond in real time, all provide the
foundations for businesses to transform their operations and seize
new opportunities.

The cloud priority

Cloud is becoming the building block for all advanced digital

capabilities. For example, an IoT ecosystem that generates
burgeoning volumes of data is sustainable only when backed by the
limitless storage capacity of cloud. Similarly, many AI-based
building block of all applications require the cloud’s vast number-crunching power to
advanced digital generate and act on insights. “Cloud is definitely helping us scale and
capabilities grow our business,” confirms one of the senior executives we spoke
with as part of the research.

Companies understand what cloud means to their ability to compete in the digital era,
and most are in the process of migrating their IT operations to that environment. The
Business 4.0 leaders, however, have been much more determined than the rest of the
survey group in their development of IoT, AI, and other digital capabilities.

35
 I t is also worth noting that leaders appear to
accord broadly equal priority to the use of
cloud and development of IoT, AI,
automation, and blockchain capabilities
(see Figure 12). This suggests a conviction
that the use of all these capabilities will
drive better outcomes for their business
than using one or two.

Technology adoption

74%
Cloud-based IT 65%
62%

63%
IoT for predictive maintenance and tracking 42%
20%

61%
Blockchain to build digital trust 38%
17%

61%
AI to develop new business models and customer value 37%
18%

61%
Automation to free up workers 43%
32%

Leaders Early adopters Followers

Figure 12: Adoption of digital technologies and capabilities by

leaders, early adopters, and followers

36
 O
The ability to leverage
data, in particular, will
set successful
companies apart from
not-so-successful ones.
rganizations that utilize a cloud environment have seen significant
benefits from its use, including an improved ability to analyze data,
better data security, and lower operational and capital costs. Other
positive outcomes include the ability to update or launch new
products more quickly, as well as flexible access to processing power.

Newer, more disruptive tools

Every organization in the survey will manage IT on the cloud by 2021,

but there will also be a significant push to develop greater capabilities
in emerging and disruptive technologies such as AI, IoT, and
blockchain.

According to Pratik Pal, Global Head of Retail, Consumer Goods,

Travel, Transportation, and Hospitality at TCS, the ability to leverage
data, in particular, will set successful companies apart from
not-so-successful ones. “Technologies such as artificial intelligence
and machine learning have the potential to create significant impact
on businesses that understand that data is the competitive
advantage,” he says.
– Pratik Pal, Global
Head – Retail,
We can also expect to see organizations pushing automation
Consumer Goods,
technologies further out into the enterprise to encompass more front-
Travel, Transportation, and back-office processes in customer service, finance, human
and Hospitality, TCS resources, and other functions. According to Adam Warne of N
Brown, automation technologies – a current investment priority for
the retailer – will remove friction from processes and enable new
business models to operate seamlessly. “More importantly, we’ll be
able to take manual tasks away from people and let them use their
minds more.”

As illustrated by Figure 13, we also see variations in response by

region and industry segment. For the geographic variations, we would
note that there was a higher preponderance of telecom respondents
in our LATAM sample, which may have impacted the results as
telecom respondents are also more likely to appear in the leader
group.

37
 Technology adoption by region

70%
67% 67%
62%
57%
50%
44% 45% 45%
43%
39% 39% 40% 39% 39% 39% 39%
35% 36% 36%

Blockchain to build IoT for predictive AI to develop new Automation to free Cloud-based IT and
digital trust maintenance and business models and up workers processing services
tracking customer value

North America Europe LATAM Asia-Pacific

Technology adoption by sector

69%
67%
66% 66% 65%
64%
61%

50%
48% 48% 48%
46% 47% 47%
46%
45% 45% 44%
43% 44%
41%
40% 39%
38% 38% 38%
35% 36% 36%
34% 34%
31% 31% 33%
29%

Blockchain to build IoT for predictive AI to develop new Automation to free Cloud-based IT and
digital trust maintenance and business models and up workers processing services
tracking customer value

Travel and hospitality Life sciences and healthcare Telecom Retail and CPG
(including pharmaceuticals)

Manufacturing Insurance Banking and financial services

Figure 13: Adoption of digital technologies and capabilities by

region and industry

38
U nderlying agile

Inculcating agile practices widely throughout the organization

complements the implementation of the aforementioned
technologies and gives businesses the best chance of translating
their new capabilities into Business 4.0 attributes.

It is no coincidence that 70% of the leader group claim that agile

underpins every process in their organization, compared with only a
third of the overall survey sample and 14% of followers.

By adopting agile as an operating model, companies can improve

speed-to-market and allow themselves to fail fast if needed, making
it easier for them to embrace risk. Agile practices are particularly
powerful when combined with automation. This embodies the
Machine First™ approach: designing any new processes – or
redesigning and simplifying existing ones – with digital technologies
as the default vehicles for process execution. “Agile and Machine
First are the yin and yang of Business 4.0,” Krishnan Ramanujam of
TCS points out.

Adoption of agile practices

24%
Agile underpins every process in
36%
our organization
51%

47%
We have adopted agile in small pockets
47%
of our organization
35%

$500 million to $1 billion $1.1 billion to $5 billion More than $5 billion

Figure 14: Adoption of agile practices by company size

39
T he idea of the steady state in business is a thing of the past, believes
Brad Clay, Chief Information and Compliance Officer at Lexmark
International. “There is a period of intense change followed by a phase
of stability, followed by another period of intense change,” he explains.
“The most difficult thing is helping people think differently about
change when they are used to business-as-usual lasting for 10 years.”

People – their reluctance to change and, in the case of senior

management, their failure to lead and provide the right level of
support – are among the biggest challenges organizations face in
making a success of major business initiatives.

It is no different, we find, when organizations seek to develop

Business 4.0 behaviors (see Figure 15).

When it comes to embracing risk, for example – the toughest of the

four behaviors to embed – traditional corporate culture is seen as the
principal impediment for organizations. As company cultures are
inevitably personified to some degree by the actions and attitudes of
the organization’s top team, when senior leaders are personally
reluctant to live an open-to-risk mindset, it has a bearing on how the
rest of the workforce behave.

Correspondingly, our research also finds that a lack of senior

leadership looms large as an additional barrier to adoption of all the
behaviors.

Biggest barrier to adoption

Driving mass personalization 35% Inflexible or outdated technology

Creating exponential value 38% Risks to data security
Leveraging ecosystems 36% Risks to data security
Embracing risk 36% Traditional corporate culture

Figure 15: Percentage of respondents who

identified specific barriers for each behavior

41
 Lack of leadership the key barrier

Driving mass personalization 21%

Creating exponential value 19%

Leveraging ecosystems 16%

A
Embracing risk 24%

Figure 16: Percentage of respondents citing lack of leadership

as the biggest barrier to adopting Business 4.0 behaviors

t the same time, technology-related factors hinder organizations in

more specific areas (see Figure 16). Data security concerns, for
instance, appear to hold many firms (38%) back in seeking to develop
new revenue streams (including from the sale of data) that create
exponential value. The same concerns give organizations pause when
sharing data and ideas with partners in collaborative ecosystems.
When developing mass personalization capabilities, inflexible or
outdated technology is the main culprit when progress stalls.

Ultimately, only new investments can resolve the challenge

of obsolete technology, but the cost of doing so is falling in
some areas.

Working in a cloud environment can give organizations access to a wide variety of

affordable solutions that may previously have been beyond their reach. Cloud also
need not pose insurmountable security issues. Over half of survey respondents
(and more than half of leaders) maintain that migrating operations to the cloud
has served to improve their security.

42
H arnessing abundance

“All along, businesses have been run under the paradigm of scarce
resources allocated optimally to solve a business problem and deliver
value,” explains Krishnan Ramanujam from TCS. “Thanks to digital
technology, we have a great opportunity to move to a paradigm that
turns the optimizing for scarcity idea on its head and shifts to a
harnessing abundance paradigm. In this approach, we think, ‘What is
in abundance that I can use to solve this business problem?’ That
abundance could be in the form of talent, capital, or most often in
our context, data.”

Executives often state that talent shortages thwart their best-laid

plans to bring about technology-enabled change. Our survey group is
no exception, with many stating that a dearth of in-house analytics
skills hampers their efforts to drive personalization.

A skills gap is seen as a tougher obstacle to digitalization itself than

limited budgets and siloed technology.

The leadership of Business 4.0 organizations should be able to use a

flexible mindset to surmount such difficulties. Accessing needed
skills, funding, and other resources within their ecosystems is one
such approach. “You're never going to have enough resources to do
everything you need to,” notes one senior executive. “Organizations
must work with the ecosystem and think differently about how to
get these things done.”

43
 T o access resources such as talent and
capital, the Business 4.0 world requires a
shift in mindset – from focusing on
scarcity to harnessing the abundance of
talent and other resources that
ecosystems can provide. “Competition
to access the best talent, whether in
product development, manufacturing, or
ICT, is becoming a major strategic
challenge,” says a senior executive we
interviewed at a global auto-maker. “In
that context, a Business 4.0 approach is
likely to be effective in enabling greater
speed and scalability.”

Harnessing abundance of resources

77% 53% 38% 54% 36% 16%

Online human resources, such as IT Crowdfunded financial investments

programmers and legal experts

Leaders Early adopters Followers

Figure 17: Resources accessed today by leaders, early

adopters, and followers

44
 O
With this in mind, it is our
view that the Business 4.0
approach provides a blueprint
ur research paints a positive picture for businesses and their
digital ambitions. Specifically, our research indicates that
Business 4.0 behaviors will be taken up more widely by
organizations in the coming months and years. Half of the
survey respondents expect to change their business model
within the next three years (joining the third that have already
done so) with the intention of expanding their addressable
markets.

After all, becoming a Business 4.0 organization takes time. Many

of the businesses this study covered took their first steps
toward digital transformation several years ago – or are in the
process of implementing new business models.
for organizations to follow
when introducing their own The more decisively they move toward Business 4.0, however,
the surer they can be of earning returns.
transformation strategies
and finding their way in the
Our research brings attention to the correlation we see
digital economy between taking action on Business 4.0 and the ability to deliver
business success.

It is telling that our leader group – the firms that have made the
most progress in adopting the four behaviors – has realized the
greatest business benefits, including better financial
performance, thereby demonstrating cumulative and ongoing
improvements.

46
T
he organizational barriers to embracing Business 4.0
transformation are linked to mindsets, cultures, and
technologies from the past. Recasting each of these
can be a massive change management exercise, but
critical nevertheless, to success. Old-style command
and control structures cannot support the
responsiveness or the speed-to-market demanded
by today's consumers.

The change has to begin at the top. A different style

of management is needed to pull off a successful
Business 4.0 transformation – one that empowers
individuals, enables collaboration and harnesses
their initiative and creativity to consistently
innovate, deliver superior customer experiences and
create value at scale. In such organizations, large,
complex problems are broken down into smaller bits
that multiple small, self-organizing teams address in
a collaborative, iterative way on an ongoing basis.
We call this Enterprise Agile.

When confronted with legacy technology,

forward-thinking organizations are embarking on
holistic, multi-year core transformation initiatives
encompassing operations, systems and underlying
infrastructure, to create lighter, smarter and more
responsive operational stacks. They are leveraging
ecosystems by embracing the cloud, open
architectures and exposing application programming
interfaces (APIs) to partners, while putting in place,
robust cybersecurity safeguards.

47
F ive lessons gleaned from the research can guide executives as
they steer their organizations toward the Business 4.0 world:

Ecosystems will not deliver without genuine collaboration.

In the digital era, fewer businesses – even the world’s largest –
can succeed by relying entirely on their own resources. Tapping
into what ecosystems have to offer requires modifying or even
discarding proprietary approaches toward sharing data and ideas.
Working together, organizations can effect industry change that
removes regulatory barriers and increases trust in new processes
that use technologies such as robotics.

“In today’s world, a company does not exist as a

standalone,” explains Girish Nayak, Chief of Customer
Service, Operations, and Technology at ICICI Lombard
General Insurance. “You need to integrate with the
larger ecosystem that you are a part of. And you need
to do this seamlessly in a digital manner.”

48
A gile is not just for IT.
Although agile practices were initially applied in software
development, business leaders now see its advantages across the
enterprise. The merits of fail-fast approaches to risk and
cross-team working are difficult to dispute in virtually any sphere
of operation. Many of the organizations that are already on the
road to Business 4.0 have found that adopting agile
methodologies gives them quick wins that prove the case for
further transformation.

“Agile sets us up in a way that we’re in a cycle of

continual improvement,” says Tobi Cates, Administrator
at the Office of Workforce Programs for the Wyoming
Department of Workforce Services. “For us, as a
government organization, agile is truly key to how we
begin to reform. I think it can start in small pockets,
because then it will have exponential growth. Agile can
overlay everything: it doesn't just apply to the
technology world.”

49
L eadership from the top is non-negotiable.
Business 4.0 behaviors will not take root if practiced in one or two
functions of the organization. Strong senior leadership is required
to cultivate them widely, otherwise the endeavor will fizzle out.

“Innovation and transformation have to be driven from

the top down, as they require dedicated teams and
budgets,” says the senior R&D executive for a major
pharmaceutical company. “It’s not something that you
can do in parallel to your day job, because when the
going gets tough, innovation will fall victim to the
business priority of developing new medicines.”

50
I ndustry-focused blinders must come off.
The blurring of boundaries separating industries means that
competition today can come from anywhere. But so can useful
lessons and best practices: your next business model may have
been pioneered in a completely different industry. There is much
to learn, for instance, from companies such as Uber and Airbnb,
which understand how to harness abundance in resources rather
than planning with finite resources in mind.

“We look at what other airlines are doing, but

ideas and solutions can come from anywhere,” says
Abdul Rahman Mohamed, former Chief
Information Officer of Malaysia Airlines.
“To retain customers and create new ones, you
have to focus primarily on their experience with
you. An open architecture helps to collaborate
with ancillary businesses.”

51
T
he Machine First philosophy should guide Business 4.0 delivery.
As organizations rethink and design new processes, analytics, AI,
IoT, or automation technologies must be the default vehicle for
process execution. How can you use technology to free people
from mechanical tasks and allow them to focus on high-value
ones? Design any new processes, or redesign and simplify existing
ones, with technology as a priority – a Machine First approach.

“In 10-15 years’ time, a pharmaceutical business

might look not unlike an IT company,” says the senior
R&D executive for a major pharmaceutical company.
“Already now one of our main activities is collecting
data and making it accessible to a diverse group of
experts, employing smart technology to make the
best drug development decision at the earliest point
in time. And while pharma is often seen as laggard
when compared with other industries, we need to
adopt existing technologies and ecosystems much
quicker if we want to stay competitive and deliver
value to our customers.”

52
 Demographics at a glance

1,231 respondents surveyed in total

Region

9%

Europe

40% Asia-Pacific
25%

North America

LATAM

26%

Countries: Australia, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, India,
Japan, Luxembourg, Mexico, Singapore, Sweden, the Netherlands, the UK, the USA

Global annual revenue

More than $5 billion 19%

$1 billion to $5 billion 28%

$500 million to $1 billion 53%

Sector

Travel and hospitality 11%

Life sciences and healthcare

16%
(including pharmaceuticals)

Telecom 11%

Retail and CPG 16%

Manufacturing 15%

Insurance 15%

Banking and financial services 15%

53
 Role and function

Job function

22%

IT

Business

78%

Business: Sales/marketing, Operations, HR, Finance

42%
Senior management respondents
58% C-suite respondents

Involvement in digital transformation

I am directly involved in
delivering one or more aspects of our digital 74%
transformation strategy/plans

I am aware of what our digital transformation

strategy/plans involves but I am not directly involved 26%
in delivering it

54
NOTES

55
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About Tata Consultancy Services Ltd. (TCS)

Tata Consultancy Services is an IT services, consulting and business solutions organization that has been partnering with many
of the world’s largest businesses in their transformation journeys for the past 50 years. TCS offers a consulting-led,
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A part of the Tata group, India's largest multinational business group, TCS has over 417,000 of the world’s best-trained
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