by Nicholas D. Evans

The hidden disruption of digital business models

Oct 27, 20147 mins
Digital TransformationEmerging TechnologyInternet of Things

In prior blogs, I’ve written about digital transformation and how it’s being applied by CEOs worldwide to re-think and re-design their traditional, existing business models and processes in the context of today’s disruptive technologies, the consumerization of IT, ubiquitous low-cost computing, and our globally connected society. It’s my belief that many of these new, SMAC-enabled, digital business models have the intrinsic potential to be more transformative than they would first appear from the outside.

One of the interesting questions often raised in regard to digital transformation initiatives is actually how “transformational” the initiative really is. Does the initiative truly create transformational change to the business model, process, product and/or service, or is it more of an incremental value-add?

Firstly, this is a great question to ask of all of your digital initiatives. It’s in essence a litmus test to uncover the degree of change that’s anticipated, or already experienced, from deployment of your digital initiative. As the sponsor behind the initiative, or perhaps one of several stakeholders, you’ll know right away from your digital strategy the degree of change you’re aiming for. As you look across your portfolio of projects, it’s likely that some will be closer to the “transformational” bar and others will be deliberately more “incremental”, but still intended to yield specific forms of measurable business value.

This “degree of transformation” discussion is very much akin to the kinds of discussions I have with customers when conducting innovation workshops. In our particular form of these workshops, we encourage innovative ideas of all kinds: from strategic, and highly disruptive, “change the business” types of ideas, all the way to more tactical, incremental ideas. The idea with these particular workshops is that all ideas, from strategic to tactical, have initial merit and should be captured. As long as they’re aligned with the key focus areas of the workshop, determined ahead of time with the workshop sponsors, and are intended to add business value, then let’s go ahead and capture them for subsequent discussion and prioritization.

As a sponsor or stakeholder you likely know the degree of transformation inherent in your initiative based upon your strategy. But what about the outside industry observer, customer or partner? It’s my belief that due to the “digital medium” these new business models are designed to operate in, they have the intrinsic potential to be more transformative than they would appear from the outside. By digitizing a traditionally analog business model or process, we’re effectively turning it into bits and atoms and enabling an infinite variety of possibilities. The rules can be whatever you want them to be – with the market being the petri-dish to determine if the new rules are viable and can lead to adoption and growth.

A Smart Parking Example

A good example of this hidden disruption of digital business models – in terms of the hidden degree of transformational change – in my opinion, is smart parking. At first glance, it’s just a way to find a parking spot. Sure, it’s a great SMAC example, because it also has elements of social, mobile, analytics and cloud, but is it really doing anything more than giving directions to drivers on their mobile device so they can find open parking spaces in the city? Surely that’s just an incremental value-add, and hardly transformative. It’s just going to save me a few minutes in finding a spot.

When you take an in-depth look at smart parking, however, you’ll find some truly transformational aspects to the digital business model – what you might call some “hidden disruptions”. Firstly, smart parking has obvious benefits for drivers, but it also has transformational aspects for cities and also for the transportation industry as a whole.

Parking is essentially a real estate play for cities. It’s typically the second or third source of revenue for the city as a whole. Any business model or process change that can improve parking revenues, reduce time spent looking for parking, reduce traffic congestion, and reduce pollution can yield substantial benefits to the local city and economy.

Today, according to Streetline, there are approximately 2 billion parking spaces in the U.S. A total of 70 million hours are spent each year looking for parking which represents a $1B loss to the economy. In addition, 30% of city drivers are looking for parking and this adds about 10% to the average vehicle’s CO2 emissions. Smart parking systems enable cities to better understand parking behavior and make policy changes that can improve conditions. This might include changes such as parking hours of operation, parking time limits, or even demand-based pricing. The result is that smart parking can enable cities to increase revenue by up to 20-30% and cities can achieve an ROI in 1-2 years. Recent case studies have shown sales tax revenues increased by 11.9%, a 30% reduction in greenhouse gas emissions, a 10% reduction in traffic, and an increase of 2% in local GDP. Reducing traffic and parking congestion improves commerce by making cities more accessible for all involved.

 So today, I’d argue there’s a strong business case for smart parking with transformational levels of benefit – i.e. beyond single digit percentage improvements and into the 10%-plus range. When we look ahead to extensions of this business model into smart cities, intelligent transportation networks, and connected cars, that’s when things get even more interesting. Is smart parking really just about parking or is it about digitizing and connecting the physical world to enable a wide range of new business models and associated services? i.e. The start of an IoT play.

What happens when smart parking systems get integrated into an ecosystem of other IoT devices within a city such as air quality, lighting, water pressure, and even trash cans? The result is opportunities for smart city operations and services to become highly responsive, pro-active, and even predictive based on digitally observed changes in the real-world environment. Sensors used for one purpose may also be re-tasked or multi-tasked to serve other city purposes as well. For example, smart parking sensors that include temperature sensors can be used to measure road surface temperate and proactively know when salt trucks or snow removal trucks should be dispatched.

What happens when smart parking systems get integrated into the connected car? In the near future, the result may be that your digital assistant, accessible from any device including your car, can share your schedule with relevant merchants via the smart parking ecosystem so they can reserve prime parking for you a couple of minutes ahead of your scheduled arrival time. This and one hundred other personalized services that you’ll access via your mobile and your connected car will make this intelligent ecosystem very “sticky” in terms of the services provided. Early entrant service providers and merchants will build highly personalized and curated experiences for their customers which may be hard for later entrants to unseat.

In summary, digital business models are highly attractive because they have so many future directions they can take and the opportunity for business model and business process innovation is so wide open. The potential for transformational change is particularly strong when going from a totally analog business model to a highly-digitized one. Just as Amazon digitized the book selling industry and NetFlix the movie rental industry, transportation is an example of one of the next, many industry areas to go digital. When the Internet of Things is part of this business model as well, it opens up even more possibilities for hidden disruption since we’re digitizing the physical world and instrumenting people, assets and infrastructure. This has the potential to radically change how people work and live since it moves us into an era of instant digital experiences, interactions and transactions underpinned by intelligent consumption of resources.