By now, most readers have seen our 14th Annual State of the CIO report. One prevalent theme: CIOs would like to concentrate on business innovation, competitive differentiation, and business strategy, and spend less time on maintenance of legacy systems and internally focused operational excellence of IT organizations.
Of course, this is easier said than done. Three quarters of CIOs say that it is a challenge to balance current operations with innovation. Worse yet, even with sufficient time and resources, it’s not easy to turn a high-level strategy such as pursuing “mobile” or a “digital enterprise” into concrete initiatives. And, with virtually every business at least attempting to become agile, go mobile, move to the cloud, focus on actionable intelligence, create a data-driven culture, and so on and so forth, it’s getting harder for firms to differentiate themselves, much less attain and maintain competitive advantage.
I’ve identified four major IT-based strategies—which I call digital disciplines—by which CIOs can enable their companies to create unique customer value and attain market leadership. These strategies exploit digital to create better processes, better products and services, better customer relationships, and better innovation. They update a classic strategy framework—value disciplines—originally formulated in the 1990’s by Michael Treacy and Fred Wiersema in their bestselling book, The Discipline of Market Leaders.
Information excellence is the first digital discipline. It supplants, complements, and extends physical operational excellence by using real-time information to dynamically optimize processes, collects and analyzes data to improve processes and customer experiences, seamlessly fuses physical and digital worlds through everything from augmented reality to omnichannel retailing, and can create new revenue streams by monetizing exhaust data. As some examples, UPS has been deploying ORION (On-Road Integrated Optimization and Navigation) to optimize fuel and labor costs while also seeking to maximize revenue and customer satisfaction on its tens of thousands of routes, each of which has an average of 120 stops each day. Burberry grew three times faster than the overall luxury goods market not only through omni-channel fundamentals such as “order online, collect in store,” but also by integrating online and in-store inventory pools, enabling in-tweet purchases, and deploying “magic mirrors” that play relevant runway clips triggered by RFID tags. 23andMe has monetized genetic data collected from DNA test kits by selling the data to Genentech in a deal valued at up to $60 million, rivaling revenue from its core business. Better yet, this is ethically aligned with customer goals, because the aim is to find a cure for Parkinson’s.
The second digital discipline extends product leadership to solution leadership, that is, moves beyond standalone products and services to smart, digital products and services connected to each other, the cloud, and partner ecosystems, and includes watches, soccer balls, jet engines, entertainment, healthcare, utilities and even smart cities. Physical network connections in turn enable business connections and thereby enable new business models, enhanced customer relationships, and a new focus on experiences, transformations, and outcomes. For example, Disney connects theme park guests through MagicBands, enabling magical experiences where characters might greet guests by name and customized food orders can arrive at a restaurant table at the same time that the guests do. Nike enables transformations through a connected family of products and services unified by NikeFuel and the Nike+ ecosystem and extended through ecosystem elements such as Withings scales incorporating body-fat analyzers. This enables Nike to contribute to better health and athletic performance. Connected solutions can enable new business models. For example, American Family Insurance provides Nest Protect smoke detectors to its customers at no charge and also offers reduced premiums, because AFI can validate that the smoke detectors are functional, reducing the risk of a catastrophe. Moreover, because they are connected, the fire department can respond more quickly.
The third digital discipline is collective intimacy. It represents the evolution of customer intimacy from physical, human-mediated relationships, such as those that traditionally existed between customers and their tailor, butcher, hairstylist, or physician, to virtual interactions such as those occurring over social media, and beyond that to virtual, algorithmically mediated relationships utilizing massive data sets. For example, Netflix processes data on customer demographics (for example, gender, age bracket, and zip code), behaviors (e.g., watch, ignore, fast forward, pause, or rewind), and contexts, (e.g., location, mobile device or big screen TV, and time of day). Its recommendation engine can then provide better recommendations to each customer based on data from all customers. Amazon uses a related approach for upsell/cross-sell (“Customers Who Bought This Item Also Bought”), and the Mayo Clinic can provide patient-specific therapies based on extensive repositories of genetic, microbiomic, and pharmaceutical data. Algorithmically based intimacy isn’t restricted to human consumers: GE can leverage data from many airlines to recommend “personalized” improvements to individual airlines such as “single-engine” taxiing.
The final discipline is accelerated innovation: improving or disruptively transforming processes, products and services, or customer relationships by exploiting crowdsourcing, crowdfunding, innovation networks, idea markets, and cloud-mediated contests or challenges. Not only is such innovation faster, it can be better, by utilizing a larger pool of innovators, and cheaper, through contest economics which only pay for demonstrated results rather than mere activities. Examples include the GE Flight Quest challenges, which were directed to better predicting flight arrival times, and then improving them, and a variety of contests sponsored by companies such as AstraZeneca, Caterpillar, EMC, Fisher-Price, and many more, run at cloud-based intermediaries such as InnoCentive.com, Kaggle.com, and EdisonNation.com. Of course, additional tactics such as 3D printing for rapid prototyping, global collaboration, and agile development can contribute to faster, cheaper, and better innovation as well.
In this CIO magazine blog, we’ll explore the strategies that a variety of leading companies are pursuing to disrupt industries and attain competitive advantage by leveraging these four digital disciplines.