When trying to find innovation, look for the intersection of the physical and digital worlds

I remember my first forays onto the internet in the mid-’90s.

I could look at cars, buy airline tickets, and even see what other books people bought when I purchased the same book.  But there was barely a hint of confluence between the physical and the digital.

Today, the distinction between physical and digital is becoming a thing of the past. Today’s innovation is taking place at the very intersection of the digital and physical worlds. And it’s happening all around us, often led by chief marketing officers looking for new ways to differentiate their offerings.

What is digital-physical innovation?  In short, it’s the increasingly seamless merging of traditional offerings with new information technology capabilities to enhance the customer experience.

Flickr/Marco Derksen

Tesco virtual supermarket in South Korea. Flickr/Marco Derksen

Take, for example, Tesco supermarkets in South Korea.  The company wanted to increase sales without creating more stores.  Tesco understood that Koreans work long hours and have little appetite for shopping at the end of the day so they created virtual grocery stores at subway stations.  These virtual stores, shelves and all, are projected on the walls of subway stations.  To purchase items, shoppers simply go to a Tesco app on a smartphone and scan the projected items’ QR code.  When purchases are completed, the order is delivered to shoppers’ homes shortly after they get home from work.

The Tesco app was downloaded 400,000 times in one month after the launch and Tesco skyrocketed to number one in online sales in Korea.

Despite measurable consumer interest and active support for a broad digital strategy from a majority of CMOs, an IBM study shows that only 36 percent of CMOs say their organization has an digital strategy that delivers results today.

Interestingly, the biggest stumbling block to an integrated digital strategy is social media. While businesses have increasingly embraced social media as the latest platform on which to engage with customers, in the top levels of many organizations there’s a struggle in how to strike the right balance among the social, digital and physical worlds. Remarkably, despite its proliferation, a lower percentage of CMOs said that they are prepared for social media this year when compared to two years ago.

This is borne out by the fact that while 87 percent of CMOs say they will collaborate with customers over social networks in the next 3-5 years, only one in five indicate that they are doing so today.  However, while social media collaboration is still gaining a foothold with business leaders, the move toward co-creation online resulting in new digital/physical innovations is catching on.


Converse’s Made by Facebook app

Companies such as Levi’s are tapping into customer’s desires for a say in the products and brands they’re consuming, letting customers collaborate to build their own jeans from scratch alongside a master tailor. Similarly, in Converse’s Made by Facebook campaign, the company is empowering Facebook fans to design and sell Converse shoes via the social media platform.

But just how far will physical-digital innovation take us?  Work being done on telemedicine at The University of Texas’ Erik Jonsson School of Engineering and Computer Science offers us a glimpse of what is possible. Telemedicine is useful when patients are too distant or infirm to travel to see a doctor.  In traditional telemedicine, the doctor can see and speak with patients, but cannot touch or feel them.  With physical therapy, for instance, that denies therapist from understanding how much force patients are applying when doing exercises.

The UT researchers solve this problem with haptic devices. Haptic devices can measure force, vibration or motion.  With these devices connected over a network, a patient can squeeze the device at home and a doctor on the other side of the world can determine exactly how forcefully it was done and exactly how much stronger the grip is in the patient’s right hand than in the left.  If an exercise is being done incorrectly, the doctor or therapist can “see” that and provide immediate feedback or correction.

Of course physical-digital innovation is not exclusively for the front-office or for consumer audiences. Across all business functions, the need to transform operations and bridge the gap between digital and physical is becoming more and more urgent.

Physical components of a supply chain, such as trucks, pallets, warehouses, even individual packages, are being digitally-enabled with sensors and actuators that allow data and analysis for on-the-spot action. Companies that capture and integrate that information gain the ability to dynamically manage costs for serving even the smallest segments of their markets and the flexibility to determine the best inventory allotments based on supply and demand predictions. Using real-time data, these companies also can find the best transport methods by weighing predicted customer service outcomes against the impact on their carbon footprint.

How critical is digital-physical innovation to enterprise success?  Perhaps the ultimate proof is that outperforming organizations are 26 percent more likely, according to the IBM study, than their underperforming counterparts to have fully developed digital-physical strategies. Indeed, they have discovered that operating at the intersection of the digital and the physical is a good way to find themselves on the road to success.

Saul J. Berman is a vice president and partner of IBM Global Business Services.