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The Second Half of the Chessboard
An ongoing exploration of technology-fueled innovation impacting the
fast moving consumer goods retail industry
Paper 1:
Retail enters the Second Half of the Chessboard
About
As Founder and CEO of CART, Gary
Hawkins has an unparalleled view to
current and future innovation in fast
moving consumer goods retail. Reviewing
thousands of new solutions each year,
combined with over 30 years of industry
experience leading shopper-focused
innovation across the supply chain,
uniquely position Hawkins to guide retail
into the future.
His work has been widely acknowledged
by domestic and international publications
including Harvard Business Review, the
Financial Times, Elsevier, GDO Week,
Mobile Commerce, and more. He has
authored two internationally-published
books, the Age of “I” white paper, the Retail
3.0 series of position papers and myriad
articles. Hawkins is a regular guest lecturer
at Georgetown University’s McDonough
School of Business in addition to keynoting
retail conferences in the US and abroad.
He can be reached at
[email protected]
The CART platform connects
retailers, wholesalers, and
brand manufacturers with
solution providers, helping
the industry keep pace with
today’s unrelenting
innovation.
1 ‘The
Age of Spiritual Machines’, Ray Kurzweil
There is a legend involving the inventor of chess and his patron, the
emperor of China. The emperor had so fallen in love with his new
game that he offered the inventor a reward of anything he wanted in
the kingdom.
The inventor modestly asked for just a few grains of rice in the
following manner: the emperor was to put a single grain of rice on the
first chess square, and then double it on every consecutive square (a
chess board has 64 squares). The emperor immediately granted the
seemingly humble request.
One version of the story has the emperor going bankrupt because the
doubling of grains of rice on each square ultimately equalled 18
million trillion grains of rice. At ten grains of rice per square inch, this
requires rice fields covering twice the surface of the earth, oceans
included.
The other version of the story has the inventor losing his head.
But there is one thing to note: It was fairly uneventful for the emperor
and the inventor through the first half of the chessboard. After thirtytwo squares the emperor had given the inventor about 4 billion grains
of rice, about one large field’s worth.
But it was in the second half of the board where trouble started.1
It took radio 38 years to reach 50 million global users. Television took 14 years to reach 50 million users
around the world. The internet took 4 years to achieve the same benchmark. Facebook 3.6 years. The
ubiquitous iPhone: 2.8 years. The iPad achieved 50 million global users in 18 months. The Angry Birds app
was downloaded by 50 million people in 35 days.2 These examples provide some hint of the accelerating
pace of technology adoption. And, to use an oft quoted line, “You ain’t seen nothing yet.”
The retail industry is entering uncharted territory as technology-fueled innovation explodes across every
part of the supply chain, from product manufacturing (think 3D printed food) to distribution (self-driving
cars or drones) to realtime marketing to the individual shopper (iBeacons done right).
The disruptive power of innovation is amplified as technologies collide and combine to enable new
capabilities. The nebulous Internet of Things (IoT) is now a stark reality for the consumer goods industry
since Amazon recently announced a group of home appliance makers have integrated to its Dash
Replenishment Service, enabling the automatic reordering of household consumables, no human required.
So what’s fueling this flood of innovation? Four underlying, synergistic technology trends.
Many readers will be familiar with Moore’s law that states computer
processing power doubles approximately every 18 months. Not as
many may be familiar with Ray Kurzweil, noted author, technologist,
and currently Director of Engineering at Google, who has calculated
that a $1,000 computer will surpass the brainpower of a mouse this
year (2015), will surpass the brainpower of a human by 2023, and will
surpass the brainpower of all human beings combined by 2045 - only
thirty years from now.3 One may take issue with the specifics of
Kurzweil’s predictions but no one can deny the exponential growth in
processing power at ever cheaper cost.
The rapid growth of low-cost processing power is expanding the use
of artificial intelligence. Solutions powered by A.I. are addressing
complex problems based on the analysis of vast amounts of
information using powerful computers and sophisticated algorithms
that mimic human capability. It is A.I. that powers IBM’s Watson, the
system which won the Jeopardy! Challenge in 2011, beating the two best human players4, and makes
possible Google’s self-driving cars. The use of artificial intelligence is tailor made for the vast amounts of
data found in consumer goods retail.
2
BrandNexus
3
‘The Age of Spiritual Machines’, Ray Kurzweil
4
“Soft Artificial Intelligence is Suddenly Everywhere”; The Wall Street Journal, January 16, 2015
© 2015 Gary Hawkins. All Rights Reserved
The growth in processing power and use of artificial intelligence are feeding on Big Data. The explosive
growth of big data - the latest buzzword is mega data - continues unabated. Data is growing at a 40%
compounded annual rate and worldwide data is projected to reach 45 zettabytes by 2020. What’s a
zettabyte? One zettabyte is equivalent to 250 billion DVDs or 36 million years of high-def video. In other
words, a lot of data.
Pervasive connectivity has led to the development of massive data centers being built around the country
and around the world to house increasingly sophisticated applications feeding off big data. These data
centers power cloud computing, enabling delivery of powerful solutions to anyone anywhere via a simple
web browser. The development of the cloud has transformed access to technology, no longer do
companies have to maintain expensive hardware and software on site, along with the requisite human
resources to keep it all operating.
Waves of Innovation Threaten Incumbent Companies
Disruptive innovation can be thought of as a wave, creating change as it sweeps through an industry.
Inevitably some established companies adopt new ways of doing business, new market entrants become
established, while some number of incumbents fail to adapt and disappear. This is easy to see when
observing how Amazon disrupted the retail bookstore channel, how Apple’s iPod and iTunes ecosystem
devastated the music industry, and how Procter & Gamble’s Swiffer created a new category.
Disruptive innovation does not exist in isolation though.
Just like a storm sweeping over a lake, one wave follows
another. Over the past twenty years Amazon has gone
from a disruptor in the book industry to an established
player. But Amazon then moved on to disrupt the
publishing industry through the development of its Kindle
eReader. And new entrants like Jet are seeking to disrupt
the disruptor through the use of new business models.
Concept adapted from Mckinsey & Co.
The tsunami of technology is powering waves of
innovation that are growing faster and larger. Each wave as
it moves through the industry taking out a growing
number of incumbents, be they retailers, wholesalers, or
brand manufacturers.
Democratization of Technology
Merriam Webster defines democratize as “to make (something) available to all people.” We are witnessing
the democratization of technology as solution providers are able to put increasingly powerful applications
in the cloud, making incredible capabilities available to even the smallest retailers.
© 2015 Gary Hawkins. All Rights Reserved
Contrary to the past several decades, when large scale was requisite for significant technology investment,
the tech pendulum is swinging back the other way as the cloud fosters delivery of increasingly sophisticated
solutions to ever smaller businesses. As the pace of technology driven change continues unabated it favors
nimbleness, long the province of small to mid-market retail companies.
Large scale is at risk of becoming an impediment, big companies weighed down by large investments in
outdated technology and hamstrung by complex processes.
Rapid advances in technological capability enable younger firms to leapfrog older firms, unencumbered by
expensive, established infrastructure. The same concept making it possible for companies outside the
traditional consumer goods supply chain to enter the marketplace; Amazon and its online ilk expanding
quickly into delivery of packaged goods, Blue Apron and and others delivering ready-to-make fresh meals
to customers’ homes. The day is rapidly approaching when your groceries will be delivered by a self-driving
car, or by drone, disrupting Uber’s nascent delivery service.
Organize for Innovation
In my discussions with industry leaders it is worrisome that few have stepped back to consider the
implications of the constantly increasing pace of innovation to their organizational structures. We see
wholesalers falling further and further behind in their efforts to collaborate with brand manufacturers across
a meaningful number of stores. Brand manufacturers retaining the same organizational and budget
structures that served them well over the past decade but are fast becoming irrelevant as new capabilities
blur lines. Retailers of any size are hamstrung by their inability, and often unwillingness, to implement new
technologies, solutions, or services in a timely fashion.
Quite bluntly, we see a mammoth industry ripe for transformation. Industry interlopers, not burdened by
decades of “we’ve always done it this way” thinking, poised to cherry-pick shoppers by providing new
services. Many industry pundits fall back on the fact that the industry has been at risk of transformation at
different times in the past without it ever seeming to materialize in meaningful fashion. What these
observers fail to understand is that this time is different; the powerful forces of technology innovation will
not be denied. Indeed, change is coming faster and faster, increasingly driven by consumers.
Now entering the second half of the chessboard
To say that the consumer packaged goods retail industry is undergoing massive transformation fails to
convey the magnitude of what’s happening. We are at the knee of Kurzweil’s curve, the point at which
technology-powered change begins to speed up and continuously accelerate. Through the CART platform
we are already seeing this new reality as an astounding mix of new innovative solutions flow into the retail
industry almost weekly, powering capabilities we could not have envisioned the month before.
The retail industry is changing in ways never before experienced. What’s different this time? Disruptive
innovation is happening everywhere across the industry simultaneously, unlike in the past when major
© 2015 Gary Hawkins. All Rights Reserved
The Power of Exponential Growth
15 years ago, a $1,000 computer had processing
power equivalent to the brain of an insect…
Today, a $1,000 computer has the processing power
equivalent to the brain of a mouse…
Calculations per Second per $1,000
By 2020, that same $1,000 computer will have the
processing power equivalent to a human brain…
And by 2045 that $1,000 computer will have
processing power equivalent to the brains of all
human beings combined
All Human Brains
We are here
One Human Brain
One Mouse Brain
One Insect Brain
1900
2000
2020
2040
2100
* from Ray Kurzweil’s The Age of Spiritual Machines
change would often occur in a specific area. The other difference: The pace of disruptive innovation is
constantly increasing, driven by the underlying technology trends described earlier. For industry leaders,
there is no breather or time-out. Unrelenting, constantly accelerating change is the new norm.
The retail industry is entering the second half of the chessboard… and things are about to get interesting.
© 2015 Gary Hawkins. All Rights Reserved