Think at the Scale of Civilization Infrastructure to Plan for Digital Business

Summary Businesses and governments are building a collection of new infrastructures to support a digital civilization. CIOs must work with business leaders to determine how to exploit opportunities in five civilization infrastructure domains.

Overview

Key Challenges

• Enterprises must work within, and contribute to, civilization infrastructure. Civilization infrastructure is the convergence of the digital world with the newly connected world of critical infrastructure to meet the needs of a digital society.
• Enterprises should assume they will have to design for a world with 100 billion things, 10 billion humans and countless algorithms in 2025. Existing IT infrastructures, especially networks and security, will be overwhelmed and need new approaches.
• Commerce that exploits the Internet of Things will rapidly expand the opportunities and risks for players that are purely digital and those that operate mainly in the physical world. Competition will be about capturing or collaborating in the various domains of civilization infrastructure.
• The expansion of civilization infrastructure will introduce new competition to existing players in all industries.

Recommendations

• Run a digital business planning scenario that envisions a digital world at least 10 times bigger than today's. Determine how this expanded scale affects the enterprise's competitive position.
• Take the results of the scenario exercise to the CEO and the rest of the executive committee. Recommend that the enterprise commit to a general long-term direction with regard to civilization infrastructure. For example, decide whether to dominate one or more infrastructure domains, play inside the ecosystem created by another player, provide alternatives to existing players in niche areas, or explore other options (such as with partners and governments).
• Add strategic flexibility as a criterion for technology investment decisions. Design and build your business model so that over time it can reconnect to alternative platforms or ecosystems with reduced effort.
• Use the five-part civilization infrastructure model to evaluate partners and acquisition candidates that will fulfill strategic imperatives, as well as competitors and potential threats.

Contents

• Introduction
• Analysis Be Prepared, as Digital Business Will Overwhelm Existing Infrastructure
• Civilization Infrastructure Is Bigger Than Strategists Think Nodes
• Assets
• Connections
• Algorithms
• Governance
• The Tectonic Shifts of Civilization Infrastructure Are Already Happening
• Recommendations
• Gartner Recommended Reading

Figures

• Figure 1. Civilization Infrastructure

Strategic Planning Assumptions

By 2025, existing IT infrastructure will be overwhelmed by 100 billion things, and 10 billion humans and algorithms.

By 2020, the most successful digital businesses will blend the physical and digital world in all aspects of delivery: marketing, purchasing, delivery and customer service.

Introduction

CIOs must help their enterprises remain competitive in a digital world that, within a decade, will be 10 times bigger than it is today. The complexity, number and speed of commercial and government transactions and arrangements will grow exponentially with the number of things that connect to the internet — over 20 billion by 2020 — with double or triple the number of endpoint sensors. For example, how would an enterprise:

• Connect 10 million people with wearables to hundreds of healthcare facilities and thousands of healthcare professionals within a city?
• Integrate the observations of hundreds and even thousands of satellites to improve the resolution of earth-based observations?

These digital business activities will need a new infrastructure than can support this growth, especially in networks and monitoring systems, as well as devices that can react to changing environments automatically. The addition of internet-connected things within the following five domains of infrastructure create plenty of opportunities for new leaders to emerge and displace current players (see Figure 1):

• Nodes — People, things, businesses, accounts, systems, digital entities
• Assets — Information, currency, securities, titles and deeds, stored value, loyalty points
• Connections — Transit and supply lines (ocean, air, road, rail), internet and network connections, social networks
• Algorithms — Automation of rules, laws, contracts, decisions, orders, standards, actions
• Governance — Regulatory, judicial, electoral, political networks, contracts

Current digital giants (for example, Amazon, Facebook, Alibaba and Google) will not necessarily remain dominant, as they mainly focus on connections between people and businesses, mostly within two or three infrastructure domains. CIOs should understand the tectonic shifts that are possible in civilization infrastructure so they can set digital business strategies.

Figure 1. Civilization Infrastructure

Source: Gartner (October 2016)

Analysis

Be Prepared, as Digital Business Will Overwhelm Existing Infrastructure

Digital business creates new business designs that connect people, businesses and things to drive revenue through new and enhanced products and services, as well as greater efficiency, improved safety and higher quality. Until now, the emphasis has been on the entities (or economic actors): people and business. Today, though, we estimate four to six billion things are connected to the internet. By 2020, there will be billions of additional connected things (see "Forecast: Internet of Things — Endpoints and Associated Services, Worldwide, 2015" ). "Things" include physical objects, such as sensor devices, asset-tracking devices, smart machines, smart grids, vehicles, 3D printing, robots, smart cities and drone delivery services. These "things" will play an active role and contribute value in digital businesses where physical interactions are important.

Things will not be merely passive objects that exchange data between people and businesses. Many will play important roles in driving actions (resulting from data analysis and algorithms). All this activity will stress current network and computing infrastructures by:

• Exchanging data about themselves and their environment, for example:
• Monitoring remote-controlled vehicles, factories, industrial equipment, medical assets, HVAC systems, residential devices, sporting goods, smart cities, and so on
• Ultra-high-definition surveillance videos for security, entertainment or science that will consume large bandwidth
• Making decisions in real-time at the point of action (optimizing fuel consumption on an airliner based on flying conditions and other inputs from inside and outside the craft)
• Performing real-world tasks (an autonomous vehicle that responds to changing weather, traffic and road conditions)
• Initiating and concluding transactions (a worn-out bearing in a piece of industrial equipment contacts the manufacturer to order its own replacement before it causes an outage, and schedules the service with a repair shop or sends the user a virtual reality link that enables her to do the repair)
• Making new forms of transactions, which could drive the growth of approaches, such as cryptocurrencies and blockchains for asset management

Most of these activities involving things will happen in addition to the activities of people that already occur online. They will require network platforms and services to handle the bandwidth, device types, data formats, interaction types and other requirements of the Internet of Things. To survive in this new digital business world with its high demands, new infrastructure will be needed, or disruptions like those experienced by Pokemon Go players will become more common in any connected service. 1

As a result, what is currently called critical infrastructure (see Note 1) is about to undergo disruptive change. Civilization infrastructure is the convergence of the digital world with the newly connected world of critical infrastructure to meet the needs of a digital society. The way we design, build, manage and maintain energy, water, air lanes, roads, food and security will dramatically improve. New areas will be considered infrastructure, including digital services like search and social media. The unexpected benefits could include:

• Healthcare will become more affordable and accessible, requiring fewer hospital beds.
• Education will also become easier to afford and obtain, requiring fewer classrooms.
• Agriculture will continue its remarkable growth in productivity to address the needs of a growing population that will reach 10 billion in this century.

Infrastructure lasts for decades, even centuries. To ensure that civilization infrastructure can sustain the increasing loads placed on it, the design target for 2025 should be for 10 billion people, 100 billion things and nearly limitless algorithms.

Civilization Infrastructure Is Bigger Than Strategists Think

The five domains of civilization infrastructure will often be invisible to the average business or consumer, but as with the earth's tectonic plates, shifts in them will shake the rest of the digital and the physical worlds.

Nodes

Nodes are the entities that are connected by and interact over networks and physical infrastructure. This domain includes familiar types, such as people, business, accounts (formalized identities, activity logs and ledgers that link individual people and businesses to websites and businesses) and systems (devices and applications connected to the internet). Their numbers will continue to grow in the connected world, and they will continue to increase their engagement online. In the world of civilization infrastructure, the nodes also become actors in the economy and society.

The next era of digital business will see the growth of things and digital entities. Things will not simply act as extensions of people the way devices do today. They will use built-in intelligence to act independently, sometimes even initiating transactions. Purely digital entities are already emerging in transaction and exchange environments (high-speed trading, foreign exchange markets, ad placements, recommendation engines) that operate independently, without people. These could even include, for example, a fully autonomous business for selling rights from a patent portfolio.

An interesting and growing area is in financial services, with fintechs developing methods to deposit, invest and protect assets.

Examples:

• Businesses: GE, Amazon, Walgreens
• Government institutions: Smart cities, smart schools, smart ports
• People: Professionals, homebodies, retirees, children
• Things: Drones, self-driving cars, autonomous weapons systems
• Autonomous virtual entities: financial roboadvisors, virtual personal assistants

Assets

The categories of assets will contain many of the same elements as they currently do, but there will be many more digital assets that are monetized and exploited in new ways, including:

• Cryptocurrencies: Bitcoin, blockchain and digital payment services (new types of money and means of facilitating trusted asset exchanges)
• Titles and claims: Ownership titles for real estate, automobiles
• Licenses and grants: License grants from a government such as taxi badges, fishing licenses, licenses to operate a business
• Copyright and performance rights: For music, books, video, plays

Connections

The connections domain comprises infrastructure that enables the delivery and transport of physical goods and services as well as data. As the Internet of Things grows, the implantation of advanced technologies in all of the networks listed below will transform how they will perform as infrastructure. In addition, the networks' increased intelligence will improve their capacity to operate, maintain and reinvest where necessary. A new form of economics will emerge from these connections, where the creation of value comes from the density of connections and the new markets they create.

• Energy and water networks: Oil, natural gas, water, sewer, water treatment, electricity
• Digital networks: Social networks, GPS networks, research networks, cable TV networks, telecommunications microwave networks
• Commerce networks: Amazon, Google, eBay, Alibaba, Apple
• Transportation networks: Roads, air lanes, sea lanes, drone lanes, railroads, river ways, canals
• Governmental networks: Electoral networks, national and international crime networks, county services networks, city services networks
• Logistics networks: FedEx, UPS, postal services, Schneider, DHL

Algorithms

Algorithms are pieces of software that take input data and transform it into specific outputs. They've been around for a long time, but they are growing rapidly more intelligent and will play a critical role in digital business:

• Automation: Algorithms will increasingly control aspects of the physical world, as in driverless cars, smart machines and autonomous businesses.
• Learning: Algorithms will use machine learning to adjust to deal with complex or emerging situations autonomously.
• Differentiation: Companies will use proprietary algorithms to create unique business value. High-speed trading algorithms and roboadvisors for personalized product recommendations are examples.
• Integrated systems: Algorithms today will be integrated into larger and larger systems that will affect larger portions of our lives. Today's focus on point algorithms will give way to an integrated future.

Governance

The governing domain includes structures for ensuring the order and security of the digital/physical world.

• Governments: Governments will set policies that affect digital business (for example, laws requiring utilities to buy excess power from solar-powered homes). They will issue regulations — for example, safety standards for autonomous vehicles. Police and security services must protect things critical to public safety from hackers.
• Laws, regulations and contracts: The legal system will evolve to cover the new realities of intelligent things. For example, a business entirely run by algorithms could become a legal entity, and judges will have to determine who is liable if a faulty sensor on a road or a malfunctioning smart appliance causes an injury or financial harm.
• International and industry organizations: Digital business requires standards, and industry bodies are forming to establish them. Digital business also often crosses national boundaries, so international organizations will help to set common expectations and settle disputes.
• Vendors: Vendors must create policies that balance the interests of stakeholders within digital business — for example, when do they comply with a government request to share customer information? Security vendors will help protect digital business infrastructure.
• Enterprises: Security, data integration, performance and reliability will expand from internal hygiene to a collective responsibility as all participants must bear some of the load to keep ecosystems and platforms running.

The impact of such a broad and deep network of regulations that can often overlap and conflict with each other can seem overwhelming. The ability to analyze these complex networks will be increasingly important to business and institutional strategy for two reasons:

• Compliance: A deep analysis and understanding of regulatory, as well as ethical and moral considerations, will reduce the risk of an institution or business getting out of compliance with the agencies enforcing laws as well as public opinion, which may influence future laws.
• Regulatory Steamroll: In the past two decades, many new business models started up and thrived in open defiance of regulations and laws. With video-sharing sites, for example, the applicable regulations did not imagine the ubiquity and reach of internet content. Management teams and boards will need to weigh the risk of pursuing a new venture that could potentially challenge the boundaries and scope of existing regulations. They will often have to gamble that the laws or the enforcement of those laws will be adjusted. In the U.S., Uber has bet successfully in most cases that municipalities would yield to the public's demand for the service.

The Tectonic Shifts of Civilization Infrastructure Are Already Happening

Within 15 years, a large portion of the real world will become digitalized and therefore capable of playing a role in this civilization infrastructure. The world in 2030 will differ dramatically. Companies must therefore be prepared to exploit these changes. Here are some examples:

• Changing of the Guard: The next era of digital business will be at least an order of magnitude bigger than the current digital world. So will the companies that dominate it. Digital giants such as Alibaba, Amazon and Google have enormous resources with which to tackle new opportunities, but they must prove they can succeed in new domains. They are aggressively moving in these arenas — testing autonomous vehicles, selling algorithms, developing new network infrastructures and gaining new partners for their platform ecosystems. There will be opportunities for new companies to emerge and even dominate. New players will have the advantage of open data and be able to use digitalized infrastructure to tailor services for customers.
• The Rise of Things: Things have already started to become economic agents in their own right, exchanging information and executing transactions independently. For example, automobile internal systems already perform ongoing monitoring, notification and scheduling of auto repair. Enterprises will have to learn how to engage, market and sell to things on their terms — for example, things will not have brand loyalty or be susceptible to emotional appeals.
• Autonomous Business: Technology will soon become good enough to perform many physical tasks that require humans today. Thus, whole operations can be almost completely automated. The Henn na Hotel in Nagasaki, Japan, uses robots for reception, and the owner plans to use robots eventually to perform 90% of the tasks performed in hotels by humans today. Factories, warehouses, data centers, drones and heavy machinery are already run semiautonomously or via remote control. Boeing is already designing a "swarm" strategy for the U.S. Department of Defense that employs F-16 drones directed from the new F-35 fighter.
• Algorithmic Business: Algorithmic business is the industrialized use of complex mathematical algorithms pivotal to driving improved business decisions or process automation for competitive differentiation. Algorithmic business takes all the current and future capabilities in analytics, together with the developments in allied areas such as business transformation, and seeks to integrate, encapsulate and productize them so that they can be embedded into the broader processes and organization of the business, as well as create new business models on their own.
• Science Fiction: In science fiction, the environment fulfills human needs without people having to do anything or even say anything. Our environment will start to look more like that in the next era of digital business. Repairs to cars and houses will be arranged before we know something was damaged. Chronic illnesses will be monitored and kept in check before they become acute and exhibit symptoms. Appliances will exploit utilities' variable pricing to lower energy and water costs. What is the next goal once human needs are largely satisfied for most of the global population?

Recommendations

• Run a digital business planning scenario that envisions a digital world at least 10 times bigger than today's. Determine how this expanded scale affects the enterprise's competitive position. Will the services it provides today matter at the larger scale? Where are opportunities to expand on the enterprise's capabilities? What new constraints will there be — for example, the inability to operate at scale with the enterprise's infrastructure alone or more parties that will have a say in how the enterprise operates?
• Examine the scenarios to select one that could be put into action today. For example, if you are building cloud applications that are relevant outside your enterprise, could you commercialize them so that the entire industry invests in your future instead of you doing it all yourself?
• Take the results of the scenario exercise to the CEO and the rest of the executive committee. Recommend that the enterprise commit to a general long-term direction with regard to civilization infrastructure. For example, decide whether to dominate one or more infrastructure domains, play inside the ecosystem created by another player, provide alternatives to existing players in niche areas, or explore other options (such as with partners and governments).
• Add strategic flexibility as a criterion for technology investment decisions. Design and build your business model so that over time it can reconnect to alternative platforms or ecosystems with reduced effort.
• Use the five-part civilization infrastructure model to evaluate partners and acquisition candidates that will fulfill strategic imperatives, as well as competitors and potential threats.
• Do not rely on any single provider, however large, because they can become an impediment. Companies like Facebook, Amazon, Alibaba, Apple, Baidu and Google became giants in less than 15 years. Other new companies will become giants, too. And network effects work in reverse — early digital leaders like Yahoo and AOL lost their advantages pretty quickly and faded.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

"Building a Digital Business Technology Platform"

"Five Business Ecosystem Strategies Drive Digital Innovation"

"Master the Triple Tipping Point to Time Investments in Digital Business Strategy"

"Algorithms Will Drive Success in Asset-Intensive Industries"

"Architect Digital Business to Maximize the Value of Dynamic Economic Agents"

"Unlock Digital Business Value Through the Economics of Connections"

Note 1

Critical Infrastructure

Critical infrastructure is a term used by governments to describe assets that are essential for the functioning of a society and economy. Most commonly associated with the term critical infrastructure are facilities for:

• Electricity generation, transmission and distribution
• Gas production, transport and distribution
• Oil and oil products production, transport and distribution
• Telecommunication
• Water supply (drinking water, wastewater and sewage, controlling of surface water such as via dikes and sluices)
• Agriculture, food production and distribution
• Heating (natural gas, fuel oil, district heating)
• Public health (hospitals, ambulances)
• Transportation systems (fuel supply, railway network, airports, harbors, inland shipping)
• Financial services (banking, clearing)
• Security services (police, military)

Evidence

We based this document on discussions with CEOs, research into existing digital businesses and our thinking about where intelligent things will take digital business in the next five to 15 years.

1 S. Lui. "Why Pokemon Go Keeps Crashing (And How To Fix It)." lifehacker. 18 July 2016.