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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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October 26th, 2011

4 Trends Reshaping Business Models as Everything Computes

Can you see the forest through the trees in today's IT trends?

“Today everything computes. Intelligence has been infused into things no one would recognize as computers: appliances, cars, roadways, clothes, even rivers and cornfields.”

So begins an IBM Smarter Planet ad in the Wall Street Journal arguing that computing must get smarter to manage today’s wealth of data. This data is not your father’s data of computer bits and bites. It now includes tweets, visual images, videos, machine output, etc. In this new world, IBM argues, computing must be:

  • Designed for new data streams
  • Optimized and fine-tuned to specific user tasks
  • Managed in cloud-based solutions that offer security and flexibility

Major computer models don’t change often, IBM states. But when they do change they “unleash enormous productivity, innovation and economic growth,” capturing the conclusion of economists who study Kondratiev long economic cycles.

Does your business model capitalize on a rising sea of data from computers and data collection devices embedded everywhere? Here are four seismic shifts, already underway, that will impact your markets, creating both business model risks and opportunities:

1) Customers have the power

An information-laden world makes economic black boxes transparent between suppliers and customers, giving customers enormous power. I’m talking about a lot more than transparent pricing and customer comments on social media sites. Let’s look at one market – surgery, where surgeons used to call all the shots.

Hospital administrators measure costs and outcomes for different surgeons rather than merely cater to product requests of individual surgeons. The result? Standardization of procedures and products. Our government is analyzing data to unearth surgical fraud. Insurers now find and steer volume to the best surgeons – the ones with the lowest total cost (including rework) for outstanding outcomes. Insurers are also able to determine which procedures deliver the best results (spine surgery or physical therapy, injections and patience for a herniated spinal disc). Individuals increasingly have access to this data and the cost-motivation to use it.

The curtain is coming off many black-box processes and products – PK-12 education, law school, pharmaceuticals and even vitamins and nutritional supplements to name but a few. Measurement shifts power to the buyer.

As customers gain power, what changes in your business models will be needed to secure their loyalty?

2) Products become services

With computing embedded in products, companies can now sell outcomes, versus products. Makers of smart engines sell fuel minimization via an engine, analysis of engine data sent over wireless networks and service (some of it automated) titrated to data-based insights.

I find this change refreshing as the availability of information creates new opportunities for differentiation and reduces commoditization. It also allows for new revenue models (e.g., charges based on fuel saved).

What available information might you capture to promise a higher-value outcome to your customers?

3) Personalization expands exponentially

Data analytics differentiate buying patterns of individual customers and prospects. Visa, for example, plans to use credit card holder purchasing data to compete with Google for ad dollars. We’ll see more than tailored marketing messages and offers, however. Personalized solutions will expand like the flu. In health care, genomics information is leading to tailored drugs and therapies. In fashion, clothing is manufactured to our exact body measurements. Personalized on-line magazines are gaining market share.

How can you personalize your offering to deliver more customer value?

4) More efficiency and fewer workers

More data – from all parts of a process and across locations – will make the enormous efficiency gains from Sigma Six and Lean appear in retrospect as puny. Data on traffic is leading to smarter road messaging. Data on environmental issues is leading to better remediation and prevention. Data on electrical use is making us more efficient users of electricity. By identifying the underlying causes of high-cost Intensive Care Unit hospital stays, providers and insurers are addressing root causes of avoidable stays.

Those are the good changes. Smarter computers will also replace workers. Vacuum cleaners operate without operators. Why not commercial lawn mowers? Just as voice recognition systems displaced customer service workers, smarter computers can reduce demand for radiologists, accountants and lawyers. Today Macy’s uses voice prompts to answer phone requests. Tomorrow, we might return Aunt Sally’s holiday gift to a machine.

How might your processes benefit from better diagnosis? How can you reposition your business model to gain from automation?

We often fail to see the forest as turbulent markets draw our attention to the trees, lest we crash into one. The information age’s next wave will deliver smarter computing. Capitalize on it before its creative destruction reduces your opportunity set.

 

 

 

 


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