Let's get phygital! - CIOs need to prioritize digital-physical convergence, says Accenture

Accenture has declared that 2023 will be the year When Atoms meet Bits as part of its annual Tech Vision report. Increasingly CIOs need to build the infrastructure for digitalizing the physical world to stay competitive and respond to increasing complexity. On the surface, this may just sound like a rehashing of buzzwords like metaverse, 'phygital', and digital twins. But the real value will come from building out the infrastructure for automation, trust, data, and science.

The latest Accenture survey found that 96% of executives agree that the convergence of digital and physical worlds over the next decade will transform their industry. Even for companies that do not build physical products paying attention to this convergence will help improve their supply chain, predict trends, and understand their customers. The trends for building this infrastructure include digital identity, data transparency, digital science, and generative AI. There is a bit of nuance to all of these, which we will explore in more detail below.

Michael Biltz, managing director of Accenture Technology Vision, explained:

A few years ago, when digital twins were new, everybody was doing pieces. They would say, ‘I am creating a digital twin off of a piece of equipment,’ or ‘Take a digital twin off of a customer or consumer.’ But what is happening now is that we’re starting to get enough critical mass that people are putting them together into entire systems. And I think this is where it gets really interesting is that instead of the idea that your digital twin is a machine, it is your entire manufacturing plant or your entire supply chain.

Then the question is, what happens when it’s your entire supply chain? And then you start to take things off both sides. For example, I can have a digital twin of the consumption models of how people are consuming from an individual to a group perspective. Then on the other side, I also have the digital twins for my manufacturing plants and how quickly we can change or customize or personalize them. Then suddenly all of these things come together and allow granular control both from efficiency but also in providing new personalized things from manufacturing all the way in.

At an Accenture presentation on the study, Alexander Buresch, CIO at BMW, said his firm is using the term 'phygital' to re-imagine their IT and physical world across R&D, production, sales, and after-sales processes. This is very much an exercise in identifying the data for describing things and building processes for connecting the right data across the lifecycle of its cars. It’s essential to provide standard technologies and consistent platforms to consolidate data and services across the company. BMW has also been a big driver in Catena-X, an industry effort to share data across peers and partners in the supply chain. He has also set up a special training program called a Digital Boost that trains teams in data analytics, modeling, automation, and AI.

As for the high-level view, Accenture writes in its report: 

The next wave of business transformation will shift from building isolated digital capabilities to creating the foundations of a new reality—a shared reality that seamlessly combines our physical lives of atoms and our digital ones of bits. The goal is not incremental improvement, but a step change. The true value of this convergence is in creating something fundamentally new. Look at generative AI – many people are using it to generate purely digital images and content, but we already see how it will shape the future of science, enterprise data, how we design and manufacture products, and so much more.

Four trends

Here is more insight into the four trends:

(1) Generative AI has had a breakout year owing to the success of ChatGPT and various image-generation services. Accenture predicts that large language models like GPT-4 will impact 40% of all working hours. Increasingly multi-modal AI will make it easier to connect insight and processes across text, sound, image, video, spatial data, and sensor data. Industrial equipment could correlate this data to identify problems and automatically explain the appropriate repair procedures.

The big deal is that the pace of innovation is growing much faster than Moore’s law. Accenture’s Chief Technology and Innovation Officer, Paul Daugherty said:

Generative AI is not just a new innovation, it’s an exponentially increasing innovation. The number of parameters that are powering these large language models and foundation models has increased five thousandfold in just the last four years.

New AI co-pilots will coach salespeople, create content, automate processes, write code, and protect data. Daugherty said:

That is going to enable a tenfold expansion in human skills and capabilities that people can acquire, to do their work and live and play more effectively.

(2) Digital identity refers to the growing digital infrastructure for authentication, access, payments, and entitlements. Significant changes include the end of tracking cookies, the rise in new authentication attacks, the proliferation of disparate identity ecosystems, and the dawn of open-source wallets.

Both Apple and Google are making it much harder to track users without explicit opt-in. Brands will need to be much more proactive about building trust and providing value for their data.

Existing identification processes based on hard-coded social security and phone numbers are cracking at the seams. Data breaches have compromised a vast number of social security numbers. Meanwhile, hackers are using SIM swap techniques to mimic a victim’s phone number to compromise two-factor authentication systems. The FBI reported 1,611 of these attacks in 2021, a five-fold increase over the previous three years combined with average damages of $42,000 per attack.

This has galvanized an explosion in digital wallets for identity, access to services, unlocking cars, flying, opening office doors, driver’s licenses and more. New services include Microsoft’s Entra Verified ID and JPMorgan’s Onyx. Meanwhile, Accenture, Visa, and dozens of others are collaborating on the OpenWallet Foundation to promote wallet interoperability that preserves user choice, security, and privacy. Visa, for example, is now embedding digital identity services within its payment business. Marie Austenaa, head of digital identity at Visa, said that countries with widely adopted digital IDs are seeing much lower levels of fraud, higher rates of transaction success, and high levels of innovation.

(3) Data transparency will be critical in building customer trust and improving services. Companies will increasingly need to improve their infrastructure to find and fix problems or have customers discover them through third-party services like Yelp. Modern variants include Cirium for aggregating aviation data, Xeneta for supply chain data, and Climate TRACE for greenhouse gas emissions. Companies that build out the infrastructure can increase loyalty and profits. Icebug, a Swedish footwear brand, increased net profits by 37.8% in a year by publicizing detailed sustainability metrics like carbon emission and percent of recycled materials.

Data fabric and data mesh will be the critical technologies for scaling up this data infrastructure. Data fabric takes a top-down approach to autonomously aggregate, deduplicate and tag data. This can help firms build a single source of truth on top of the existing data infrastructure without necessarily moving it all to a data warehouse or data lake first. Data mesh is a bottom-up approach that empowers subject matter experts to create “data products” by automating the security, governance, and quality management aspects. Both techniques will improve access to data from enterprise systems, factory automation, and consumer products.

New concepts like data mesh and data fabrics are stepping stones for companies to determine how they will get the right data to the right place at the right time. This kind of infrastructure will create the connections and context across all aspects of the business, supply chain and consumer touchpoints

(4) Science technology (ST)  joins IT and Operational Technology (OT) as a fundamentally new infrastructure to help commercialize biological, materials, and space innovations. In particular, digital twins can speed up the pace of discovery, refinement, and collaboration. These innovations dramatically accelerated the pace of COVID vaccines thanks to improvements in computational biology and collaboration technologies.

Melanie Kalmar, CIO and CDO at Dow, has been building the digital infrastructure to accelerate innovation for the $50 billion material science company. In some cases, better simulations can dramatically speed discovery. She said:

We are engaged in combining the atoms, which Dow knows very well due to our focus on chemistry, with the bits of the digital world to bring better, more sustainable products to the market, really speeding up innovation while delivering growth and value to all of our shareholders.

For example, new predictive analytics models allowed them to accelerate the R&D process for a polyurethane formulation by 200,000 times from two to three months to about thirty seconds. Improvements in IT platforms and new tools have reduced their commercialization timeframe by two to three times. Dow also uses new market listening techniques to make sense of customer reviews, identify trends, and prioritize specific research.

My take

Conversations about digital transformation typically focus on building better digital tools and processes. Transforming the design of physical products and the factories that build them will require better ways of capturing data about them and sharing it transparently.

This certainly is not the first time something like digital twins played highly in Accenture’s predictions. In 2021 they brought our attention to Mirrored World and the Power of massive, intelligent digital twins. And 2022 was all about Putting the me in metaverse. Despite some hiccups on the consumer side, the industrial metaverse is starting to deliver some real value. Some of the metaverse ideas may also play a role in creating a new identity infrastructure for protecting our access to money, cars, buildings, plane flights, healthcare, and other real-world experiences.

This year’s big difference is that companies from Dow to BMW are figuring out how to connect isolated digital twins into part of a more coherent digital-physical infrastructure. The big deal is that the underlying infrastructure is getting better at pulling data from across multiple touch-points in the real world to improve people’s lives and the bottom line.