Digital Strategy: How Digital Winners Think

Paul Willmott is a Director at the McKinsey London Office.

Transcript

Digital winners are thinking broadly about whom to collaborate with. In some cases, that may include collaborating with firms that would have been considered competitors historically—or, at the very least, collaborating with firms that can share data with you.

Digital winners are also creating the right scale of investment in their IT infrastructure. It’s very hard to keep up with the pace of evolution in the digital world unless you have a flexible IT infrastructure and one that can plug and play products and services from other places. Some renovation is required in many companies.

Reference: Digital Strategy.

As I suggested in the preceding article, a graduated, step by step approach may be quite a reasonable tact in your digital strategy.  But this is so, only if you have clear line of sight on where your company needs to be, say, at the end of one year, three years, or five years.  The flexible IT infrastructure is something I don't hear very often among technology firms and management consultants, as many of them seem to push for and advise on an entire (i.e. inflexible) IT infrastructure.  Otherwise what Willmott points out can be a way to manage activity, costs and risks of executing your digital strategy.

Digital Strategy: The Future Is Now

Paul Willmott is a Director at the McKinsey London Office.

Transcript

Companies need to make several key decisions around how they’re going to address digital. [1] The first one is “are they in the right businesses to start with?”

It’s true that companies have been using technology for many decades. But a few things have changed. First of all, customer expectations are very, very different now. We know that around 80 percent of purchases are researched online before a customer goes into a store. Indeed, many customers now prefer to complete the purchase online. Even in groceries, over 10 percent of customers in the UK now will shop online and actually make the purchase.  In banking—in this country, in the UK—it’s over 30 percent.

[2] The second thing that’s changed is that the cost of delivering high-end IT solutions is reducing all the time. Historically, it would have been very expensive, and a lengthy process, to deliver a highly functional technology solution that customers would want to use. That’s no longer the case—it can sometimes be done now in just weeks or months.

Digital is fundamentally shifting the competitive landscape in many sectors. It allows new entrants to come from unexpected places. We’re seeing banks get into the travel business in some countries. We’re seeing travel agents get into the insurance business. We’re seeing retailers go into the media business. So your competitor set is not what it used to be.

One thing that digital allows is what I call “plug and play dynamics”—meaning that companies can attack specific areas of the value chain rather than having to own the whole thing. This is because digital allows different services to be stitched together more quickly and cheaply.

Reference: Digital Strategy.

Software and technology firms may push you as the CEO toward systemic and process solutions, which are of course more involved, costly and risky.  It doesn't mean that you ought to wholly accept or dismiss such sales efforts, but it does mean that (a) you are clear on what you're trying to accomplish for your business and (b) you have line of sight on your whole value chain, especially as it relates to your aims.  Then "plug and play dynamics" makes sense as a means to titrate involvement, control costs, and manage risks.

Internet of Things: What You Should Do

James Heppelmann is the CEO of software company PTC.

Transcript

Manufacturing executives are very intimidated by what’s happening. If I were the head of a company that’s been making diesel engines for the past 100 years, my company would know diesel engines. But the definition of what is a diesel engine is now changing quickly. In the past ten years, we had the inclusion of embedded software and electronics. But now, when we step across the line from a smart engine to a smart, connected engine, suddenly there’s an explosion of new technological opportunities and concerns. I’m going to need a device cloud and big data and integration and security and applications on smartphones and tablets—and wow!

Who in our engineering department understands that technology stack? You know, not many. Maybe you turn to your IT department; it’s actually more like what they do. Maybe you’re going to have to get your IT department involved in engineering your next-generation product. My advice would be to try to understand the layers of the technology stack, try to get to the point where you are going to really add value. Putting sensors in your products, collecting data within your products—you can add a lot of value there.

You’ll probably then want to connect that to some type of a cloud solution you probably need to purchase—a device cloud of sorts. You’re probably going to need some big data analytics, and you’re going to need some investments in big data technology. You’re going to need security and integration technology and, again, that probably needs to come from the outside.

But when it comes to the applications that help you to operate and service and create feedback loops, you’re going to want to get involved again because who knows diesel engines and how to operate them better than the company that’s been making diesel engines for 100 years?

Reference: How the Internet of Things could transform the value chain.

Before you plunge yourself into what technology stack means, be sure you are as crystal clear as possible about what you as the CEO are trying to accomplish for your company.  2015 business goals are undoubtedly front and center in your mind, but what are the essential purpose, values and aims that course in the veins of your people over the long run?  That's Step 1 of The Core Algorithm: Begin with the end in mind.  Step 2 is Walk backwards to map pathways from there and then to where you are here and now, the intent being to lay out all that what you need to reach that end.  What Heppelmann more implicitly emphasizes is: You as the CEO must have solid enough understanding of what you need to do and how you need to do so, and you must have members in your leadership team who have deep grasp in how technology stack can truly add value vis-a-vis your goals and purpose.

Internet of Things: Three Big Risks

James Heppelmann is the CEO of software company PTC.

Transcript

I probably would put the biggest risks in three buckets. [1] The first risk is that I do nothing and somebody leapfrogs me. That’s a big problem, and we’ve seen a few examples that have been pretty dramatic.

[2] The second risk is that I do something and it doesn’t work. I overestimated the capabilities of my internal engineering and IT departments. I invested a lot of money, and it didn’t really produce a successful product. It didn’t scale, it didn’t perform, it didn’t work.

[3] And the third risk is the risk of unintended consequences. I built something. I began to collect data. That data got hacked and compromised. We’ve all seen examples—when credit-card numbers get stolen and so forth. The company who gets blamed actually was a victim, but the customers say, “I’m still going to blame you because if you’re going to take that type of information from me, then you have a duty to protect it, and you failed in that duty.”

The mitigation for not doing anything and for being leapfrogged is that you need to move forward with a strategy and a technology investigation and a prototype and then plan what you are going to do. And I’d say if you’re not already doing that, you’re already vulnerable because a lot of companies are deep into that process for sure.

On the risk of doing something and it doesn’t work, it’s like any other big, new-product project you’re trying to do. You have to make sure that you actually have the capabilities to do this and that you understand how you’ll create value by doing it.

And on the third item—unintended consequences, particularly around security and availability—I think you need to find some good outside partners. Because, to be frank, most manufacturing companies are not really in a position internally to solve these problems.

Reference: How the Internet of Things could transform the value chain.

Taking advantage of the Internet of Things for your business, and thus creating smarter products, processes and tools, is, from my point of view, a second step.  The first being à la The Core Algorithm is begin with the end in mind.  What is it that you're trying to accomplish for your business, and what are challenges, obstacles or threats to you're doing so?  Being as crystal clear as possible on your aims and purpose will help you identify risks accordingly and manage them effectively. 

Internet of Things: The Value Chain

James Heppelmann is the of software company PTC.

Transcript

I think the idea of smart, connected products will have a dramatic impact on value chains because we’ve always thought of the value chain as being around the product and that the product was just a dumb stone, if you will, moving through some smart value chain. But now, the product’s actually a first-class participant in its own value chain. It’s talking to its creators in engineering and manufacturing. It’s talking to the people who are supposed to service it. It’s talking to its operators. It’s even talking to the sales and marketing department about what the customer is thinking.

The product becomes, for example, a sensor in the relationship with the customer. And this challenges the conventional concept of CRM. The idea of customer-relationship management is that customers will talk to you about their feelings about your product. And now, in this new world, we’re going to have products that are early-warning devices that tell us about what value the customer is getting or not getting. What’s the degree of utilization? What kind of problems are customers having? What are the opportunities for upsell? When are customers going to need a replacement product, a consumable? You name it. The product becomes a sensor in the relationship with your customer. That will change a lot in terms of how things are created, sold, serviced, operated, and so forth.

Reference: How the Internet of Things could transform the value chain.

To the extent your customer is fully apprised, trained and supported on your smart products, then you are on the way toward building an ethical, responsible relationship and utilizing technology developments for a common good.  The value for your customer, among a number of things, is more effective, real-time communications and more efficient, reliable processes. 

Internet of Things: What Is It?

James Heppelmann is the CEO of software company PTC.

Transcript

The term Internet of Things doesn’t actually communicate much. It’s a catchy phrase and we all like it, but it’s not clear what it means. But when we say “smart, connected products,” then I think it becomes a little bit more tangible, and people really understand that much of the excitement here isn’t about the Internet—it’s about the things.

If you step back and say, “Why would people connect things to the Internet? What’s the point?”—I think there are three killer applications.

[1] The first is that you can service things better if you can communicate with these things and have feedback loops. You can be proactive. You can be efficient. You can maintain higher degrees of up-time. Better output with lesser input.  

[2] The second thing you can do is you can operate these things better—operate them remotely for reasons of safety, efficiency, accessibility, you name it. 

[3] And the third thing is that you can make them better. You can have feedback loops into the engineering and design processes to understand if the customers use the product like you thought they would. How does the design perform in actual use for the customer? So I think that this will have a transformative effect on the way things are created, operated, and serviced. And a tremendous amount of efficiency and differentiation and value will be created as a result.

Reference: How the Internet of Things could transform the value chain.

Of course the Internet of Things isn't just about things, but also about people, too.  Beyond mobile devices, we will increasingly have wearable technology and no doubt embedded (implanted) technology as well, which monitor our vital signs and medical condition, not to mention our whereabouts and activities, via the Internet.  Google Glass and Apple Watch are just recent, high profile examples.  As with any media and technology, digital and analytics, there are upsides and downsides.  CEOs like Heppelmann and their marketing team will tout the upsides, of course, but it is our responsibility to weigh the downsides as well, from cyber hacking to privacy breaches.