August 22nd, 2018
The digital economy. Digital transformation. Digital disruption. When CEO’s — especially CEOs of established companies — talk about keeping up with the rapid pace of technology change, it’s these terms that can wreck a good night’s sleep.
They all want to avoid what Geoffrey Moore calls “a Kodak moment.” This is when a business realizes it can’t make the jump into the future. These are brands that were masters of incremental innovation. But, today, incremental innovation just isn’t cutting it.
It’s All Those #!@! Startups!
Darn those software startups. They don’t have to make anything — like an airplane engine or an MRI scanner or paint. Jeanne Ross and other business wonks have said that startups can do only one thing well. That may be true. But what is that one thing?
They don’t have the baggage of legacy anything. Technology infrastructure. Business processes. Decades of experience. Mature product lines. They’re “beginners.” And as Zen master Shunryu Suzuki famously commented, “In the beginner’s mind there are many possibilities, but in the expert’s mind there are few.”
So, just maybe any established business that needs an innovative spark — regardless of its product or service — could take a lesson from software companies.
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What Can a Software Company Teach Us About Digital Transformation?
Vijay Gurbaxani, in a blog post for Harvard Business Review, “You Don’t Have to Be a Software Company to Think Like One,” asserts that ”Every business is, willingly or unwillingly, a competitor on a software playing field… competing against platforms like Uber in transportation, Google in automotive, Airbnb in hospitality, LinkedIn in recruiting, Netflix in television, and the list goes on. …this approach recognizes a fundamental shift in the sources of value creation and competitive advantage toward software.”
If you accept Gurbaxani’s premise — and it’s hard to dismiss — it requires companies to do some major rethinking about where the value lies in what they make or do. Fortunately, there are many great examples of huge, many decades-old companies that have done just that.
General Electric is a great example. GE’s chief digital officer Bill Ruh believes that in an age of digital transformation, the value in GE’s offerings has migrated from the things it builds to the services that surround the things it builds. Software is how those services are delivered and how efficiency is created around an asset, whether it’s a machine or a factory.
Remember, GE is 124 years old! But Ruh is moving GE from an industrial product company to a digital industrial solutions company. If that’s not a change in business models nothing is.
Hyatt Hotels has undergone a similar transformation. It believes customers today buy experiences, not rooms. So, Hyatt is using data to improve how it understands its customers. It’s integrating customer data across multiple systems to discover patterns that will help the company excel at customer service.
To deliver an even better customer experience, Hyatt uses the data it retrieves on flight connections as well as data it has on customer buying patterns. For example, if a top customer has missed a flight connection or been bumped during travel, Hyatt can use the customer’s purchase history to notice that the Apple Martini is a frequently purchased drink. So, voila, just as the customer gets to her room, there’s an Apple Martini waiting.
Data: The Gold of the Digital Era
Although doing only one thing well can be a competitive jump start, Jeanne Ross also points out that it’s a limitation that can be exploited. Her research into incumbent companies that have first weathered digital disruption and then profited from digital transformation reveals that sustained competitive advantage rarely comes from a single business capability.
Instead, the advantage comes from integrating — there’s that word again — an established set of capabilities that others may not understand or know how to combine into something much more valuable than the sum of its parts.
Being able to quickly integrate key business capabilities gives companies an advantage that is hard for others to copy. That’s how established companies can get the better of startups and other competition.
Data and analytics lay at the heart of any successful digital transformation. And that requires data from many unconnected applications and systems. That’s why integration is so vital to transformation efforts.
Here’s one more example from GE to drive the point home.
This one comes from former GE chairman Jeff Immelt. He talks about his locomotive customers, who obsess about velocity. Immelt says that every railroad CEO knows the average velocity for all its trains. It’s usually between 20 and 25 miles per hour. Not very fast it seems.
So, what’s the difference in revenue between a locomotive that travels an average of 22 mph and 23 mph? Two hundred fifty million dollars a year! One mile per hour. What delivers that one mph difference? Better scheduling. Less down time created by predictive maintenance. And that, as Immelt explains, is all about data and analytics.
Immelt says, “… I circle back and would say to any CEO, industrial or nonindustrial, that where we are right now is going to be the most important thing that you’re going to work on, at least in this era. And you give up your latitude at your own peril.”
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About the author: Myles Sue is Dell Boomi’s product marketing manager for enterprises.