by Chunka Mui
Technology innovations are enabling sophisticated data strategies with the potential to reshape products, upend customer relationships, and transform the role of the IT organization. This four part series explores (1) the new context, (2) the opportunities enabled, (3) the implication on trust and customer relationships and (4) the implications for the IT organization. The series concludes with a 90-day plan for a purposeful and systematic analysis of the opportunities and risks.
Part 1: The Shape of the New Battlefield
Like trench warfare where each hard-earned patch of ground is soon counter-attacked, information technology investments over the last five years could be characterized as “spend a lot to stay in place.” Numerous studies have shown the correlation between IT investments and productivity. For example, IT applications in inventory control, enterprise requirements planning, customer relationship management, etc., generated enormous efficiencies in core processes and practices. Yet no study has shown any clear relationship between IT investments and profitability. One explanation is that while the productivity improvements are real, their financial benefits were quickly competed away. Competitors raced to match incremental gains, and customers reaped most of the value in lower prices or improved service.
In a trench war, it’s hard to win by overrunning your enemy’s core. World War I combatants learned that lesson through great loss of life. Instead, the key is to outflank the opposing side.
That’s an important lesson for business as well. CIOs and the IT function must keep improving core business infrastructure and business data. Strategic opportunities, however, are at the edges of the corporate ecosystem, where they have direct connections to, and influence on, products, customers, and markets.
The dotcom era drew many early sorties out to the edges. But it was too soon. The technology was immature, the communications networks were sparse, and the customers were not ready.
Now, the infrastructure has been laid and mass adoption is happening, and innovative offerings spread quickly via the Internet. In this new context, information technology won’t just facilitate efficiency; IT has become small and cheap enough to be embedded in the products and services customers buy. Smart products, connected customers, and enormous streams of operational and market information are becoming the norm. In many ways, the next five years will be about delivering on the promises of the last ten years.
To capture the potential value, two key business challenges must be addressed: First, how can businesses harness new technologies to deliver immediate benefits while ensuring an ongoing stream of strategic innovation? Second, as new technologies deliver even better information, how can companies respond to growing problems around information privacy and security—twin issues that might not only drive customers away but also place the information assets of the corporation in great peril.
Since information technology underlies both the opportunities and the challenges, the CIO and other IT leaders will be drawn front and center into the response. They must not only marshal the enterprise response as a tsunami of information floods the core systems but also, perhaps for the first time, be on the front lines of designing products and protecting customer relationships.
Disruptions at the Edge
Almost since its introduction, information technology has primarily addressed problems that are the electronic equivalents of paper forms, accounting, and transaction processing that goes on in the back offices of commercial entities. Indeed, payroll and general ledger systems are derivatives of this focus, as are ERP, inventory control, and CRM systems.
Change, however, is at hand.
Technology advances—I call them edge technologies—will spark business innovations that significantly influence customer relationships and potentially transform the way companies go to market. Consider, for example, a recent General Motors program that allows subscribers of OnStar—which enables GM to remotely monitor a car’s performance, condition and location—to get monthly emails from their cars. These emails give drivers critical information about the status of their cars, warn them of trouble, and remind them about maintenance visits. In the course of creating the email, GM retrieves and analyzes over 1,200 trouble codes from each car.
The program marks a major transformation in what GM knows about its products and how the automaker interacts with customers. Traditionally, GM only interacted with customers through mass-market advertisements or when they bought new cars. And, except for a very small percentage, GM rarely dealt directly with its vehicles again. Now, it maintains direct contact with both the vehicle and the customer, and offers customers information they care about. GM gains performance data it couldn’t get before; customers gain peace of mind.
How other companies develop edge technologies will differ in pace and application depending on industry and company context. But five general characteristics will influence technology in every industry. IT leaders must understand these trends and help lead their companies’ efforts to capitalize on them.
1. Connectivity is becoming pervasive. Driven by myriad wired and wireless technologies, corporate networks will interact with products, customers, suppliers, regulators, and even competitors, vaporizing notions of enterprise boundaries.
2. Network nodes will communicate not just at the telecommunications level, but also at the software level. Software technologies such as web-services, service-oriented architectures, and Ajax will allow for interactivity, interoperability and enable robust applications across widely distributed networks.
3. Miniaturization is expanding information networks with smaller, cheaper, and more pervasive nodes. This expansion will come in the form of wallets, handsets, sensors, monitors, cameras, cards, tags, etc., all of which could be standalone or embedded.
4. Increased intelligence and cheap storage are allowing devices to collect, analyze, and store all sorts of data. Some of this data is not conceptually new, e.g. scanner and customer interaction data, but will be collectable on a massive scale and at a previously unimaginable granularity. Other data, such as a car’s operational data, will have been previously impossible, or at least impractical, to gather in real time.
5. Some of the knowledge drawn from the collected data will be emergent, previously unavailable for regular business decision-making. This will include knowledge about identity, location, preference, health, and quality of service. This knowledge will allow better insight into a market or customer base but also will raise enormous issues around ownership, privacy, and security.
These five advances will collectively improve company capabilities to increase visibility and control over product and process conditions, customer demand, and other market factors. This has enormous business implications. At the least, it will spark another round of market skirmishes around cost reduction and incremental revenue. Or the innovation might be more radical, such as the creation of killer apps in the form of revolutionary products or new business models.
Next in the series: Platform Plays
ABOUT THE AUTHOR
Chunka Mui is the co-author, with Larry Downes, of Unleashing the Killer App, Digital Strategies for Market Dominance, the digital strategy best-seller (Harvard Business School Press, 1998). His current writing projects include Killer Platforms, an essay series that explores leading edge digital strategies, and The Devils's Advocate, Avoiding the Mistakes that Cost Companies Billions, a book, co-authored with Paul Carroll, that draws the lessons of the largest strategic failures of the last 25 years.
In addition to research and writing projects, Chunka Mui is an independent business advisor and a frequent speaker at public and private conferences. He also chairs the Diamond Fellows, Diamond Management and Technology Consultants' network of external advisors, and regularly works with Diamond consultants on client-related research and consulting projects. He is also a member of the board of advisors for Brulant.
Previously, he was a partner and chief innovation officer at Diamond, a vice president at the CSC Index division of Computer Sciences Corporation, and a founding member of Center for Strategic Technology Research (CSTaR) at Arthur Andersen & Company (now Accenture).
Chunka Mui was born in Hong Kong but grew up on the south side of Chicago. He holds a B.S. Degree in Computer Science and Engineering from MIT. To find out more about Chunka Mui, or to contact him, visit http://www.chunkamui.com/contact.htm.