The Journey to Digital: Part 4 The Final Chapter, Digital Nirvana

Seth E Dobrin, PhD
IBM Data Science in Practice
9 min readJun 11, 2018

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Companies have a choice today. They can be the disrupted or the disruptor. I made this case in Raiders of Every Industry: The Journey to Digital, Journey To Digital: Part 1, Table Stakes, Journey to Digital: Part 2, Data Transformation, and Journey to Digital: Part 3, Insight Transformation.

In those previous posts, I laid out what a true digital transformation requires. I introduced the need for automation in the form of machine learning in software and platforms, described how clients can build their data strategies as core data assets, and laid out a path to a successful insight transformation. In this post, I focus on the final phase: the Digital Nirvana.

Digital Transformation

The final stage is where the enterprise really begins to see fundamental changes in its business operations and performance. These changes include how you do business, what you offer, how you offer it, and to whom:

Customers will tend to get more and more important as the transformation proceeds. You’ll get to know more about who they are and how to build connections with them that can endure even through the change.

Digital in the Context of Digital Transformation

The word ‘digital’ is thrown around like confetti at this point. For that reason, I think it’s important to define it so we’re all on the same page:

Digital is understanding your business through the eyes of your customers and delivering them something that makes their lives better, cheaper, or faster — and basing every decision on how it will make your customers lives better, cheaper, or faster.

I like that this definition applies weather your customer is another business, a consumer, an internal stakeholder, or your employee. Note that is doesn’t mention being paperless, using mobile devices, having a chatbot or the like. What is does talk about is a philosophy of business that, if done religiously, leads to disruption or recovery from being disrupted.

The Importance of Knowing Your Customer

If an organizations wants to “understand your business through the eyes of your customers” or “base every decision on how it will make customers’ lives better, cheaper or faster”, that organization must first know those customers. That might seem obvious, but it needs to be said.

If you haven’t read Journey to Digital: Part 2, Data Transformation, take a look because to know your customers you should define them within Customer360 data assets.

Data Services

One hallmark of a digital company is that it stops focusing on products and looks toward selling services. For example, it can begin to sell access to unique data by making APIs available externally — weather data, traffic data, financial markets data and TV viewership behavior are just a few examples. Some companies build their businesses around aggregating and then reselling data as a service: for example FactSet, a firm that aggregates, normalizes and cleans a vast array of financial data about corporations from a wide array of sources and makes it readily available for a fee. Similarly, Nielsen has a long history of collecting consumer behavior data and selling that data to television advertisers. In recent years they’ve updated and expanded their business model well beyond television viewership data to include data, derived data and insight-driven reports about market trends.

If your enterprise is rearchitecting its data platforms and applications to leverage microservices (and they should be), then this is fairly straightforward since all of your APIs should be built for external consumption.

However, many companies struggle to understand how to sell data without jeopardizing their intellectual property (IP). With some industries, this is more obvious than others, especially if they can protect the IP by aggregation. In other cases, the value of the data services might simply outpace the value of the IP to the enterprise. Or, the best option might be to sell derived data rather than the raw data that fuels the business. And of course, for some industries or companies, selling data just isn’t an option.

Product > Platform > Ecosystem

Another hallmark of a digital company is that it tends to build platforms or ecosystems. This blog might seem like buzz-word bingo at this point, but this part is truly important. Many companies that have differentiated themselves and deeply disrupted their industries have built ecosystems, but it’s a difficult shift for many companies to make. Most pre-internet Fortune 1000 companies have built themselves around products — from their organizational structures to how they launch, sell, and market products, all the way to how they measure success. It’s just how they’ve always operated.

Shifting from selling individual products to platforms is the first step. As an example, let’s look at the journey in my own organization. When I first joined IBM eighteen month ago, the business unit I’m in had 150 to 15000 individual products, depending on how you sliced them. This was confusing enough for me as a new employee, but of course it was even worse for our customers. Since then, we’ve consolidated, integrated, and eliminated products to get to three platform offerings that represent a greater set of capabilities than when we had 150 products. The three platforms are: Hybrid Data Management, Unified Governance & Data Integration and Data Science & Business Analytics. The move to platforms meant working across organizational silos and it required the right personalities in place to avoid the natural immune response to this type of effort. It also meant resolving the financial structure since the platforms were originally split across multiple profit and loss statements. The lesson is to watch out for any organizational and financial structures that might threaten the platforms your organization needs to build and execute.

Launching traditional products or new releases usually focuses on tactical plays that the sales team needs to execute, often combined with a marketing event or push of some kind. And typically we measure success with revenue targets. By contrast, a platform evolves constantly. There’s no launch beyond the initial launch of the platform, just an ever-expanding array of services or capabilities. With platforms, we measure success by adoption, and revenue is secondary.

The core issues are complex enough, but they get even more complex in the context of ecosystems. I view an ecosystem as an integrated set of platforms that those outside your organization can extend themselves. For example, the iPhone is an ecosystem, as are Amazon Marketplace and Amazon Web Services. Gartner’s recent research article — “Eight Ways Ecosystems Supercharge Business Models” (Jan, 2018) by Hung LeHong, et al. offered some key takeaways:

  • Digital business is causing enterprises to rethink many aspects of their business models. Using ecosystem approaches to bolster or disrupt traditional business models is a vital element.
  • An enterprise can connect to other ecosystems to (1) gain new sales channels, (2) provide new customer interactions, (3) create and run new products/services, or (4) extend existing products and services.
  • An enterprise can also choose to form ecosystems. Doing so enables an enterprise to pursue four styles of platform business models: (5) collaboration, (6) orchestration, (7) creation and (8) matching.

Monsanto, via its subsidiary The Climate Corporation, has built an agriculture ecosystem that leverages its platform offerings and extends its capabilities through partners who pay to gain access to the ecosystem. The Climate Corp and Monsanto may eventually seek to collect a portion of revenue from each of its ecosystem partners just as Apple does with the App Store. Climate Corp even views Monsanto as a partner in its ecosystem since Monsanto provides inputs to farmers via the ecosystem. Monsanto’s competitors can also participate and might actually do so unwillingly since it means Monsanto essentially derives revenue from those competitors. The unwillingness deepens as clients start using the ecosystem with competitor products since the resulting data feeds into the ecosystem itself. Wouldn’t you love to have your competitors generating your revenue and insights?

IBM is building an ecosystem. We’re in the process of extending and integrating the platforms I mentioned to create an ecosystem called IBM Cloud Private for Data. That allows our clients to have all of the capabilities of our three platform offerings plus capabilities from partners, all within a single ecosystem that can be deployed virtually anywhere, including within our competitors’ environments.

Offering a free tier makes ecosystems easy to consume and explore. To foster that activity from within the business, I suggest measuring success first by adoption and then by revenue.

Selling Outcomes

Another hallmark of digital companies is that they tend to focus on outcomes, which is an extension of their relentless focus on customers. Satisfying a customer need via your platform or ecosystem equals a good outcome — but what exactly does this mean? There are several good examples.

Despite GE’s struggles in recent years, they are focusing well on selling outcomes. With their jet engine and turbine business, GE now sells uptime on these properties rather than selling the capital equipment itself. They realized that their customers, primarily airlines and power companies, aren’t just buying jet engines or wind turbines. They’re buying uptime. Consider jet engines and specifically American Airlines since I spend a lot of time on flights with American. What matters to American Airlines isn’t primarily planes and engines so much as getting passengers from point A to point B with minimal disruption and at a profit. There are factors within their control and factors out of their control. They want uptime on their equipment to be a factor that they control. In order to address that, GE created a value proposition for the airlines: We’ll provide jet engines at some reduced cost or on a subscription basis and we’ll provide a subscription service that tells you when to take the equipment out of service with some reasonable lead time. GE provides the guidance to the airlines based on existing sensors and data, and they recoup the capital cost of the jet engine plus they convert one-time capital revenue into a stream of recurring revenue. American Airlines gets advance notice, so they can rotate equipment out of service without inconveniencing passengers. GE identified a need and seized the opportunity to satisfy that need while creating a new revenue stream. And the revenue is higher-margin because they no longer need to manufacture a new jet engine, get a sales person to sell it, and ship it to the airline in order to generate the new revenue.

Digital Metrics

When companies first start this journey to digital, their success metrics don’t typically change. They continue to measure product sales and profitability. However, over time, companies will hit the new metrics more and more reliably and resources will begin to flow toward improving those metrics. But what are the new metrics? Gartner developed several metrics that I’ve adopted to measure digital transformation. See Digital Business KPIs: Defining and Measuring Success (Sept 2017) by James Michael Anderson and Paul E, Proctor.

You’ll know you’re a digital company when the metrics for the entire corporation change to measuring your digital offerings. Specifically (1) revenue from Digitizing Products and Services, (2) Outcome-based revenue, (3) Subscription-based revenue, (4) Ecosystem and Platform-based revenue, (5) Digital contribution to overall revenue and margin, (5a) Percent of net revenue from new digital sources, (5b) percent of net margin from new digital sources, (5c) Average net margin of digital and non-digital revenue.

Illustrative Framework: Digital Business KPIs for New Revenue Sources and Business Models. (from: Digital Business KPIs: Defining and Measuring Success, Gartner. James Michael Anderson, Paul E. Proctor, 28 September 2017)

At this point, you’ve only just begun. Any digital transformation is an ongoing journey of corporate self-discovery and customer understanding. As a corporation builds a better relationships with customers and understands them better, the digital products and services will change, their platforms and ecosystems will evolve and the outcomes they deliver will create new needs and expectations from customers. Being the disruptor is an on-going battle against yourself, against known competitors, and against the competitors who have yet to arrive.

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Seth E Dobrin, PhD
IBM Data Science in Practice

Vice President and Chief AI Officer || Leader of exponential change Using data and analytics to change how companies operate || Opinions are my own