COMPASS MAGAZINE #11
COMPASS MAGAZINE #11

HYPERCONNECTED BUSINESS Always-and-everywhere connectivity is re-inventing every aspect of business

As mobile devices proliferate, individuals generate data trails that businesses can use to instantly fulfill every whim. Things, too, are getting connected through the Internet of Things (IoT), raising the level of customer experience. The result is a hyperconnected world where communities collaborate to solve challenges and every company must rethink its fundamental assumptions about the business it is in, the services it provides and its relationships with customers, competitors and the world at large.

For nearly 25 years, industrial giant GE heartily proclaimed, “We Bring Good Things to Life.” Today, as a company aggressively pursuing leadership in the software- and data-driven era of hyperconnected business, a better slogan for the 124-year-old multinational might be, “We Bring Good Life to Things.”

Each second, GE collects millions of data points from its installed equipment. Its sensors are embedded into more than US$1 trillion (€870 billion) worth of GE equipment, ranging from medical imaging systems to jet engines, at customer sites worldwide, all feeding data back to the cloud through the Internet of Things (IoT).

Entire communities of users, from drilling managers and airline pilots to weather scientists and medical technicians, access the real-time data to schedule maintenance checks, improve machine efficiency and reduce downtime on every monitored piece of equipment. GE also gleans extensive insight into how its customers use its equipment, recommends how they might use it more efficiently, and analyzes patterns to identify how GE could make its products even more indispensable. In the process, GE is reinventing itself as an entirely new business based as much on the value of the data generated by its products as on the products themselves.

“For every physical asset we own in the world we have a virtual copy, running in the cloud, using software that gets richer with every second of operational data,” said Colin Parris, GE’s vice president in charge of software and analytics, explaining how GE’s digital strategy reduces downtime for airplane jets. “The worst thing is if a plane breaks down and there was no time to prepare. If we can do the analytics first, and predict a month or six weeks in advance how to prevent a problem, we can figure out exactly when to inspect and what exactly could be wrong before it becomes a problem.”

HYPERCONNECTIVITY: “THE SHARP INCREASE IN THE INTERCONNECTEDNESS OF PEOPLE, ORGANISATIONS AND OBJECTS THAT HAS RESULTED FROM THE INTERNET, MOBILE TECHNOLOGY AND THE INTERNET OF THINGS.”

THE ECONOMIST INTELLIGENCE UNIT FROM THE 2015 PAPER “HYPERCONNECTED ORGANISATIONS: HOW BUSINESSES ARE ADAPTING TO THE HYPERCONNECTED AGE”

For a company like GE to re-invent itself so profoundly, and to do so at scale, it needed to rethink how its user communities could be re-imagined not as audiences but as revenue drivers.Three years in, GE forecast some US$7 billion (€6 billion) in revenue for 2016 from selling software and data services, according to recent reports in Forbes. Hyperconnectivity – which allows GE to monitor, analyze, communicate with and even repair its equipment anywhere in the world via secure internet connections – makes it possible.

“In our emerging competitive environment, business isn’t just about being connected or collecting data,” said Robert C. Wolcott, professor, executive director and co-founder of the Kellogg School of Management’s Kellogg Innovation Network (KIN) at Northwestern University in Evanston, Illinois. “Everyone’s connected. Everyone has data. What you do with it to understand and serve customers every moment, real-time — that’s what matters. It’s a completely different mindset and way of running a business.”

BUSINESSES WITHOUT ASSETS

Increasingly, hyperconnected networks offer companies new opportunities to gain sustainable competitive advantages by building rich, interconnected communities that link buyers with sellers and users with their peers. The result is a world in which physical assets have become unnecessary for some of the most successful hyperconnected businesses.Uber, for example, owns no taxis, but has become the world’s largest ride-for-hire company by pairing people who need rides with car owners willing to take them where they want to go for a fee, with Uber managing the entire transaction. Without building a single hotel, Airbnb has become the world’s largest accommodations provider, developing a thriving online community that pairs people looking for a place to stay with those willing to rent out their properties.

“A LOT OF COMPANIES ‘GET IT’: BEING NETWORKED TRANSFORMS YOUR ECONOMICS OF INNOVATION.”

MICHAEL SCHRAGE VISITING FELLOW, MASSACHUSETTS INSTITUTE OF TECHNOLOGY

Amazon – the granddaddy of hyperconnected businesses – doesn’t stock a single kitchen gadget, clothing item or tool, but sells millions of them every day; it has even turned the powerful computer networks it uses to transact its own business into a service it sells to other hyperconnected businesses: Amazon Web Services. It’s a powerful model that is generating profits with unprecedented efficiencies – so efficient, in fact, that some economists believe hyperconnectivity is contributing to global economic sluggishness and unemployment, though they foresee unprecedented growth once efficiency peaks.

THE NETFLIX EFFECT

Netflix began as a company that distributed rental DVDs by mail. Recognizing the power of big data generated by hyperconnected communities, however, it risked losing its mail-order customers so that it could reinvent itself as an online-only streaming service. That decision, widely criticized at the time, has generated enough data about user preferences to power instantaneous movie recommendations personalized in 190 countries. The strategy – an outgrowth of innovative thinking pioneered by eBay in the 1990s – is fueled by recommendation algorithms that analyze members’ viewing behavior.

Today, those recommendations are no longer powered only by what its members view on Netflix, however. Now, Netflix can tap into other information – its members’ Facebook and Twitter feeds, for example – to discover their interests. If a viewer has “liked” a lot of automotive companies on Facebook and follows automotive companies on Twitter, for example, Netflix might recommend movies about auto inventors, or ones that feature car chases. It’s not just mining its own data, but mining the communities to which an individual belongs, a technique being employed in all types of markets.“Netflix is a poster child of how a company can develop communities of users to prepare for this age of accelerated change and volatility,” Kellogg’s Wolcott said.

HYPER-POWERFUL COMMUNITIES

Hyperconnected communities like those built by Netflix are an emerging boon for corporate collaboration and innovation. Design teams at innovative companies understand and utilize the power of hyperconnectivity to discover what their members want, use those insights to tailor their products and services, and deliver just the right offer at just the right time.

In the complex health and medical market, for example, IBM recently spent US$2.6 billion (€2.2 billion) to acquire Truven Health, whose big data stores will give IBM 200 million health records and data assets to add to its existing treasure trove and the ability to analyze digitized visual data – anonymized x-rays and MRI scans, for example – for insights as easily as it analyzes digitized text data.“We can combine our data sets together, including one of the largest democratized health records – with electronic health records from Phytel, Truven, claims data, imaging data, genetics, medical health data – and from all of that we can run analysis,” Deborah DiSanzo, IBM general manager of Watson Health, said in a February 2016 interview with Fortune after the deal was announced.

In the same way GE now markets its analytics software to major clients, IBM sees opportunity in marketing not just computers and services, but also health data to new customers interested in mining the information for actionable insights. It’s a new, hyperconnected business model pioneered by Google and Facebook, which began as a search engine and a social media site, respectively, but which have converted trillions of data points about their users’ activities into a new product they can rent to other businesses, which pay to mine them for insights.

ON C-SUITE MINDS

“A lot of companies ‘get it’: being networked transforms your economics of innovation,” said Michael Schrage, visiting fellow at the MIT (Massachusetts Institute of Technology) Center for Digital Business and author of Serious Play, a book on digital simulation and prototyping. “Instead of R&D professionals handling their experimenting and scaling alone, they are sending out visual representations [data plus pictures] of their models to communities of design teams, customers and colleagues. What this means is: You iterate together. It‘s the new economics of scaling.” 

“FOR EVERY PHYSICAL ASSET WE OWN IN THE WORLD WE HAVE A VIRTUAL COPY, RUNNING IN THE CLOUD, USING SOFTWARE THAT GETS RICHER WITH EVERY SECOND OF OPERATIONAL DATA.”

COLIN PARRIS VICE PRESIDENT, SOFTWARE AND ANALYTICS, GE

Hyperconnected online communities make feasible all kinds of projects that previously would have been impossible, said Karalee Close, London-based managing director for Digital, Big Data and Advanced Analytics in Healthcare at the Boston Consulting Group. She gives the example of PatientsLikeMe.com, a hyperconnected community founded by two brothers whose third brother has Amyotrophic Lateral Sclerosis (ALS), also called Lou Gehrig’s Disease. Intent on finding a cure, they reached out to others who have been diagnosed, as well as to researchers, recognizing that many minds working collaboratively can solve a problem faster than one mind working alone – the same concept behind parallel processing.

“They now share and sell their data back to pharma companies, and it’s used in the interest of research,” Close said. “And this makes more people more willing to share more data.”

AWARE, BUT COMPLACENT

As the hyperconnected economy gains momentum, however, researchers are identifying major gaps between companies whose leaders say they understand its importance and those who are actually adapting to it.According to “Hyperconnected Organisations: How Businesses are Adapting to the Hyperconnected Age,” a 2015 report by The Economist Intelligence Unit, 59% of the 561 executives surveyed said that they believe failure to adapt to hyperconnectivity is the biggest risk their organizations face. Yet the survey found that fewer than one in five (19%) executives said they see a need to fundamentally reshape their business in response to hyperconnectivity, and less than half are training their employees on digital skills. But becoming a hyperconnected company is not possible without fundamental changes in how a corporation is structured and managed, MIT’s Schrage said. For example, employees must be given access to a company’s data, taught how to query it, and trained in how to interpret the results to re-define their jobs and the ways they do them. This not only requires retraining, but also a more democratic distribution of information and the authority for rank-and-file employees to act on it.

59%

The percentage of corporate executives who say they believe failure to adapt to hyperconnectivity is the biggest risk their organizations face, according to a study by The Economist Intelligence Unit.

19%

The percentage of corporate executives who say they see the need to fundamentally reshape their business in response to hyperconnectivity, according to a study by The Economist Intelligence Unit.

“Technology is but one piece of a hyperconnected community,” Schrage said. “Companies must also look to retrain workers and users to this new way of thinking. ‘Skill-ification’ is about creating new capabilities in users and in user communities. Skill-ification means enhancing human capital.”Like GE, forward-thinking firms that succeed in “skill-ifying” their employee and community bases in the fundamentally new ways of working made possible by hyperconnectivity can bring the good life to things and people, creating unprecedented value and opportunity.The rapid uptick in interconnected people, things and communities is not just a technological trend – it is one of the era’s defining characteristics. It’s little wonder that companies of all sizes view the hyperconnected economic revolution as their biggest challenge … and greatest opportunity. ◆

 

THE HYPERCONNECTIVITY PLAYBOOK

If a company isn’t as far along in its hyperconnected transition as it should be, how can its CEO accelerate change? The experts interviewed by Compass recommended a series of actions:

1. Think strategically, not project by project. If every project or exercise requires its own large investment of resources, people will be less likely to explore changes, according to a study published by MIT Sloan Management Review. Invest in data, systems and governance that promote community building at every turn and encourage experimentation to garner experience and insights quickly.In its paper “The Digital Imperative,” Boston Consulting Group (BCG) advises: “Take advantage of digital capabilities to transform the current business. Best-in-class companies think ‘end to end’ about where digital efforts can produce a step change in performance and value for their customers – not only in marketing, but also in operations and the back office.”

2. Be willing to alter or replace your current systems and processes. MIT Sloan found that most large corporations are saddled with fragmented analytical processes, limiting their ability to operate with agility and insight. Companies need better ways to use internal and external data.BCG research shows that “leaders in the use of big data generate 12% higher revenues than companies that don’t experiment with big data.” BCG goes on to say that “digital transformation offers companies new opportunities to gain sustainable competitive advantage from data and to generate entirely new revenue streams, business units and standalone businesses by capitalizing on the data they hold.”

3. To envision the future, disregard the present. Robert C. Wolcott, executive director and co-founder of the Kellogg School of Management’s Kellogg Innovation Network (KIN) at Northwestern University (Evanston, Illinois) and author of the forthcoming book The NOW! Economy, urges CEOs not to define their company’s prospects based on what it does today, but on what customers might demand in the future.BCG makes similar recommendations. “Incumbents should be more disruptive in their approach,” BCG advises. “They often do not fundamentally rethink their business model. Only rarely do they launch anything that might attack the current business.”

4. Build a portfolio of options. Many companies think they have a three-year strategic plan, but it’s really just a one-year operating plan extrapolated over three years. That’s budgeting, not strategy, Wolcott said. In a volatile world, leaders need mechanisms to generate foresight about the longer term, to translate insights into action, and have flexibility to pivot rapidly as the future unfolds.BCG therefore recommends that businesses “prototype” their strategies. With rapidly evolving competitive landscapes, businesses must conduct rapid cycles of test-learn-refine and continually revise their strategies based on what they learn.

5. Position your business in the broader landscape. Like the musicians in a symphony orchestra, companies (instrumentalists) must understand and secure their own place in a broader community – what BCG calls “the network of companies, individual contributors, institutions, and customers that interact to create mutual value. Ecosystem players join forces with external companies working toward a common goal to achieve complete alignment of the value chain. Collaboration across a broader ecosystem creates new opportunities to address consumer needs.”

6. Support digital transformation with structures, governance and incentives that promote speed, risk taking and experimentation. Hyperconnectivity success depends on technology, people and process. BCG advises that businesses adopt an organization and culture that “promotes speed, risk taking and experimentation.” To support these efforts, look for a platform that helps establish and customize the layered processes of creating, managing and supporting hyperconnected communities; facilitates dynamic and fast-changing interactions among staff members; and helps management track results in real time, enabling organizations to do more of what works and re-invent what doesn’t.

For more information, see the Boston Consulting Group paper “The Digital Imperative” at http://bit.ly/BCGDigital

by Mary Gorges Back to top
by Mary Gorges

IT analyst Ray Wang on the business model changes required by digital transformation http://bit.ly/DigitalBizModel