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Shockwaves from the Edge: Part 2 in a Series

By   /  April 1, 2011  /  No Comments

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 2:  Platform Plays

Edge technologies (see part 1) could conceivably spawn many innovations that deliver no lasting competitive advantage. Imagine project managers or business units scrambling to reinvent individual products or establish communications loops with customers. The result would be a mishmash of disparate applications and a cacophony of incompatible data streams.

This scenario is familiar to business and technology executives alike: Think about ongoing struggles with separate, incompatible, and overlapping customer databases. As such, technology leaders must help avoid uncoordinated, conflicting innovations. Rather than focusing on narrow applications, they should steer the organization towards platformsthat take advantage of hard-earned lessons in information systems architecture and modular design. Well-designed platforms will enable immediate applications but will also facilitate on-going innovation and make emergent knowledge accessible throughout the enterprise. A platform approach recognizes that the most valuable applications might not yet be apparent and maintains the flexibility needed to respond.

Amazon.com, for example, has built a platform that keeps the entire transaction and product evaluation history for every one of its 50+ million active customers online and is continually developing new methods to draw knowledge from this data. Amazon constantly mines this data, using it to determine recommendations for each individual, to help customers evaluate competing products, and to enhance each customer’s shopping experience. And, unlike most companies, Amazon deploys its knowledge as soon as the customer steps into its store and at every point of interaction, rather than just at checkout. As a result, Amazon has consistently received the highest customer satisfaction ratings of any service company, online or offline.

The Hartford Financial Services Co. applies a platform approach to improving quality of service of its customer call centers. Taking advantage of the rapidly falling cost of storage, The Hartford records every telephone call between its customers and its service representatives. It also captures supporting call information such as policy data, computer screen snapshots, talk time, hold time, and the outcome of the call. And, increasingly, the company surveys customers immediately after their service interactions, asking questions that shed light on key satisfaction and sacrifice measures. All this data feeds an evolving platform known as the customer experience management system (CEMS).

By linking voice conversations to process and outcome information, The Hartford has created a closed-learning loop that facilitates coaching, process improvements, and service recovery. Guided by clear performance metrics and a growing set of analysis tools, coaches, supervisors, and the service reps themselves can replay and review every element of any call. Best practices are generalized from the actions of the best performers. Specific improvements are designed for poor performers. General process breakdowns are identified and addressed. Individual interactions that require immediate remediation or intervention are also identified, helping to retain customers who might have otherwise left without The Hartford ever knowing why. What’s more, the effectiveness of all changes is measured, both individually and on an organizational basis.

Few companies exemplify the platform approach better than GM and its OnStar system. GM, of course, is in deep trouble due to healthcare and pension issues; OnStar will not save it from those problems. But, if the company can restructure itself to address those issues, OnStar will be an important instrument of GM’s future transformation. At the least, it will be a valuable case study of a product platform from which others can learn.

OnStar uses cellular connections and on-vehicle sensors to remotely monitor vehicle status and to establish voice communications with drivers. GM planners originally conceived of OnStar as an optional feature providing car safety and security, but realized its long-term success would be driven by applications they could not yet anticipate. So rather than limiting OnStar to a few pre-specified applications, GM built it as a platform that encouraged the evolution of new services. Rather than creating an isolated business, GM built a platform that is enhanced by business alliances—inside and outside the company.

With revenue generated by more than five million subscribers, OnStar operates in the black. But the platform is more significant than those revenues suggest because it enables innovations that reduce cost, improve the core product, enhance customer experiences, and foster new business opportunities for the entire GM enterprise.

Improved Customer Relationships: GM now has the opportunity to be relevant to customers’ daily lives in a positive way. For example, every time an airbag deploys—1,000 times a month—OnStar reps call to check on drivers and dispatch help if necessary. It also fields, each month, about 15,000 emergency service calls, 25,000 roadside assistance calls, 50,000 remote diagnostics calls, 50,000 calls to remotely unlock doors, and 350,000 calls for directions.

Cost Savings/Improved Core Products: These go hand in hand; OnStar enables real-time observation of a large number of vehicles under myriad driving, weather, and traffic conditions that would otherwise be impossible to simulate, and design problems can be identified before full-scale production. During production, manufacturing problems can be detected before vehicles leave the assembly line. After vehicles are in service, remote diagnostics allow predictive and proactive servicing. Design and durability issues can also be detected and used to improve later production runs. The bottom line: Conservative estimates indicate that hundreds of millions of dollars in warranty costs have been averted.

New Products: OnStar’s largest innovation might well be the transformation of the GM business model itself. The automotive business is generally cyclical, with profits dependent on the sale and financing of new vehicles. OnStar and the offerings built on it offer the possibility of annuity-based sources of revenue, such as subscription, service, and insurance. For example, GMAC Insurance offers OnStar subscribers insurance policies where premiums are heavily discounted—up to 40 percent—depending on the car’s actual mileage. The lower the mileage, the lower the premium. Thinking farther out, imagine GM managing a fleet of vehicles and selling transportation time, much the way that GE manages a fleet of aircraft engines and sells hours of service.

Though necessary, building good platforms for edge innovations will tax even the most skilled IT organizations.  First, the data management challenges will be immense.  Many organizations’ ability to gather data already exceeds their ability to analyze it.  Now edge technologies offer the ability to collect orders of magnitude more data.  Exploiting such capabilities will require sophisticated design of the processes that might benefit from emergent knowledge and careful instrumentation of the data collection technologies.  Second, deep systems architecture skills are required.  In particular, organizations will have to turn to best practices in enterprise architecture and modular systems.  While these best practices, e.g. object oriented systems, are well developed, few organizations have deep expertise in applying them.  In part, that is because their core systems did not exhibit enough complexity to force such adoption. The number and complexity of applications driven by edge innovations, however, will demand it.

Next in the Series:  Trust, Landmine or Opportunity?


Chunka Mui

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.

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