In 2006, Clive Humby, the British mathematician who established Tesco’s Club card loyalty program, is attributed to have coined one of today’s most misused axioms around data – “Data is the new oil’. Most people correlate Data with Oil, rather than looking at Humby’s quote in entirety: “Data is the new oil. It’s valuable, but if unrefined it cannot really be used. It has to be changed into gas, plastic, chemicals, etc to create a valuable entity that drives profitable activity; so must data be broken down, analyzed for it to have value.”
Treating data like oil – using it once then assuming its usefulness has been depleted and disposing of it – would certainly be a mistake. The internet and the data provided by Connected Ecosystems has the potential to break down the barriers to economic growth. The disparity created during the industrial revolution as people moved to towns and cities to find work no longer needs to exist, as essentially, the economy can be driven from our smart phones or wearables or connected devices. Our times are changing, and so must the way we manage and structure Digital Businesses or generate value from Data.
Business leaders today live in a heightened state of alert to the threats and opportunities arising from Digitization. The least common denominator of success will be the ability of an organization to organize and extract value from data. Exactly what was proposed by Humby, but with vastly different context than in 2006. The industry landscape today is going through an upheaval as digital ecosystems take shape. The ongoing digital revolution, which has been reducing frictional, transactional costs for years, has accelerated recently with tremendous increases in electronic data, the ubiquity of mobile interfaces, and the growing power of artificial intelligence. Together, these forces are reshaping customer expectations and creating the potential for virtually every sector with a distribution component to have its borders redrawn or redefined, at a more rapid pace than we have previously experienced.
As boundaries between industry sectors continue to blur, companies within traditional industry lines—will face off against companies and industries they never previously viewed as competitors. This new environment will play out by new rules, require different capabilities, and rely to an extraordinary extent upon data and the value that can be extracted from data. Not only for defending existing revenues, but also for attacking and capturing opportunities before others. McKinsey believe that by 2025, some $60 trillion in annual revenue could be redistributed in the high tech, media, and telecom sector, where tech giants have built platforms on which entire ecosystems run. Not every company will succeed by orchestrating its own ecosystems. For many, joining existing ecosystems will be more effective.
Behind the scenes, the largest corporations have been building platforms to manage suppliers, connect to customers, and enable internal communication and data sharing. While many platforms are internal, the biggest and best known are more open: spanning e-commerce marketplaces, social networks, and digital-media platforms, connecting hundreds of millions of global users. Two headline making examples of such platforms are Airbnb and Uber. Their success is based on using digital technology to make accessible new sources of supply that were previously impossible (or at least uneconomic) to provide. Airbnb did not build or buy hotel rooms, it has brought people’s spare rooms into the market. Uber, similarly, hasn’t placed orders for new cars; it has brought onto the roads (and repurposed) cars that were underutilized previously. On the demand side, they have been able to remove information asymmetry, providing customers with more complete information and disaggregating aspects of products and services formerly combined due to artificial reasons.
Purifying supply and demand means giving customers what they always wanted but in new, more efficient ways. This isn’t where the disruptive sequence ends. Many of these new propositions, linking the digital and physical worlds, exploit ubiquitous connectivity and the abundance of data. In fact, many advances in B2B business models rely on things like remote monitoring and machine-to-machine communication to create new ways of delivering value by improving the connectivity of physical devices, layering social media on top of products and services, and extending those products and services through digital features, digital or automated distribution approaches, and new delivery and distribution models.
Companies like Amazon, Apple, Tencent, and Google are blurring traditional industry definitions by spanning product categories and customer segments using hyper-scale platforms that enjoy massive operating leverage from process automation, algorithms, and network effects created by the interactions of hundreds of millions, billions, or more users, customers, and devices. This operating leverage provides them an opportunity to upsell and cross-sell products and services without human intervention, and that in turn provides considerable financial advantages.
One of the key notions of digital business is that digital assets, capabilities and channels can allow us to create new scenarios where we can mine value. Customers now enjoy the conveniences of modern technology use with capabilities such as voice interactions and visual search. Engaging through technology then presents itself as an opportunity for businesses to use digital capabilities to leverage that customer convenience. Technology-driven options such as cryptocurrencies and blockchain technology and the rise of AI mean business engagement will be increasingly based on technology interactions at the machine level.
Referring back to Humby, data also needs to be collected and maintained in a usable and accessible format in order to achieve these economic benefits. Currently, a staggeringly low 10% of all data is collected in a format that allows for easy analysis and sharing. The more data collected, the greater the complexity of the IT system needed to extract value and maintain proper protection. Merely collecting more and more data, without a clear use or data governance plan, results in more cost and liability than benefit. In addition, there’s the risk factor of being exposed to unauthorized access or a hack and the cost of the servers to host the data, which increase by anywhere from 10%-60% if there are requirements that the data be localized within a specific jurisdiction.
In summary, digital innovation is driving the move to business ecosystems by making it easy and quick to connect everything from organizations to things and providing the intelligence needed to manage resulting complexities. This sets the stage for innovation, creating opportunities to develop new business models, services, products and customer experiences. To leverage business ecosystems, organizations will need a paradigm shift in perspective, away from the traditional supply-demand economic perspective to an ecosystem perspective that sees the organization as a participant in a wider, more dynamic network of entities connected by the Data and the intelligence it holds about its customers and partners.
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1. Competing in a world of sectors without borders By Venkat Atluri, Miklós Dietz, and Nicolaus Henke, McKinsey Quarterly July 2017
2. Gartner- 100 Data and Analytics Predictions Through 2021, Analyst(s): Douglas Laney | Ankush Jain