of information technologies – including the cloud, big data, social, mobile, and the Internet of Things – enables disruptive applications of the value disciplines approach which couldn't have been anticipated at the dawn of the Internet era, when the cloud was an atmospheric phenomenon, a social was a mixer, cell phones were bricks, and online meant dial-up.
Fortunately, the Treacy and Wiersema framework permits digital extension, evolution, and elaboration. As just one example, customer intimacy implied dedicated, onsite account teams in business markets and a personal touch in consumer markets: think avuncular corner butchers or personable sales clerks. In other words, customer intimacy required an organizational, people-based, cultural approach. Today, it is just as likely to entail applying sophisticated algorithms to customer transaction or other data to provide offers that maximize customer satisfaction, consumer and business customer outcomes, retention, and profitability through upsell/cross-sell and reduced churn. IT is increasingly, inexorably, inextricably intertwined with the creation and delivery of customer value. And we are just at the beginning of this digitally enabled journey.
Market leadership based on implementing these strategies can be measured in terms of traditional business metrics such as market share, revenue, profitability, labor productivity, and return on invested capital. One study3 showed that a dollar invested in IT returned almost two, mostly through revenue growth rather than cost reduction. Moreover, this return was substantially higher than investments in R&D (research and development) or marketing, making it somewhat ironic that marketing budgets are currently4 three times larger and growing twice as fast as IT budgets, although the CMO (chief marketing officer) is increasingly funding digital initiatives due to their strategic importance.
However, the benefits of the digital disciplines can also be measured in terms of environmental, community, and societal benefits. For example, IT can reduce carbon footprints through substitution, such as when videoconferences replace physical travel; synchronization, as with electricity demand response; and reuse, as with collaborative consumption, sometimes called the sharing economy.
Or consider Ushahidi CrowdMap, a cloud-based application that has helped increase the transparency of Kenyan elections and the effectiveness of Haitian earthquake relief. The Arab Spring reached critical mass largely due to Twitter and Facebook. Basic mobile phones have increased the transparency and efficiency of fish markets in Kerala, India, increasing the availability of fish to consumers, and of incomes to fisherman.5 While success for most businesses might be defined by profitability or market share, for a nonprofit or enlightened corporation it can (also) be measured through the achievement of social goals and alignment with values. Rather than – or in addition to – being profit-maximizing, author Dan Pink calls these organizations “purpose-maximizing.”6
Information Excellence
Although implementation details of the four digital disciplines of necessity vary in their application across industry verticals and by firm, as generic competitive strategies, they are easy to understand.
Information excellence is not shorthand for data quality, but the employment of comprehensive real-time information, predictive analytics, dynamic optimization, and integrated virtual and physical operations to implement better business processes and to better use assets.
“Better” as perceived by customers in terms of quality and performance. “Better” in terms of financial metrics, such as returns on invested capital through better asset utilization. “Better” in seamlessly integrating the virtual and physical worlds of information and operations. “Better” in terms of activities, process design, and rightsizing assets – doing things right – and outcomes – doing the right things. “Better” as in faster, cheaper, more flexible, higher quality, more reliable, more convenient, easier to use, more available, or more sustainable. “Better” as in making better decisions; executing those decisions with higher likelihood of success; and doing it all faster than the competition. Business processes are not limited to internal back-office constructs, but extend to customers, customers' customers, and end-users, as well as to supply chain partners and other stakeholders.
Businesses can exploit information throughout virtually all processes. Which customers should be targeted with promotions? Which services are most profitable and should receive incremental marketing investments? Which direct mail layout results in the greatest response rate? Which products will sell the most this season and thus should be inventoried to minimize stock-outs? Those are obvious kinds of questions that big data and predictive analytics can help answer. But it isn't just sales, marketing, or supply chain optimization. How about whose air conditioner should be lowered or shut off to avoid brown-outs? Which of the candidates is best for this job? How fast should this train go? Which potholes should be fixed first? Is this melanoma? The essence of information excellence is acquiring data, analyzing it, synthesizing information and insight, and then making decisions and optimizing virtual and physical processes, customer experiences, and relationships.
For example, UPS plans its routes via ORION (On-Road Integrated Optimization and Navigation), which implements state-of-the-art algorithms to minimize driving distance and fuel consumption while minimizing late deliveries.7 If an average truck needs to make 120 stops, there are 6,689,502,913,449,135,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 different possible sequences of stops, not including additional options to get from one stop to the next.8 UPS has 55,000 such routes in the United States alone, and therefore 55,000 such calculations to perform. Every day. This type of problem is obviously not amenable to human solution, and to make things even more complex, ORION needs to balance out an optimal solution with a degree of delivery consistency. UPS expects to save several hundred million dollars annually when ORION is fully deployed.
Kroger's QueVision system uses infrared cameras to track shopper arrivals, feeding a proprietary algorithm that then predicts the number of cashiers needed, reducing average wait time eightfold. And Kroger isn't just focusing on its own processes; it's also aiding consumers with theirs: a mobile app will plot out optimal paths through the store based on grocery lists.9
Chapter 7 will delve into Burberry, which has leveraged information excellence to achieve dramatic growth in the luxury goods industry, by offering streamed fashion shows live at stores on the world's biggest digital signage, deploying mirrors in dressing rooms that magically display runway clips of the clothing items being tried on, and by arming store personnel with a customer's purchase history on an opt-in basis to ensure fashion consistency.
Solution Leadership
Solution leadership is a broad concept encompassing extensible, adaptable, smart digital products and services connected to cloud-based capabilities and an expansive partner ecosystem including social networks, which all together offer a unique, differentiated “product-service system” that can grow exponentially – in terms of features, customer adoption, and revenues – via network effects.
The original Apple iPod was a better product, thanks to its innovative click wheel, elegant design, and features such as random shuffle. It was also a better solution, thanks to iTunes and access to a near-infinite library of songs. The Apple iPhone was a better product, thanks to its innovative touchscreen, elegant design, and ease of use. It was a better solution, thanks to the App Store and the third-party app developer community. Thanks to network effects, more customers mean more apps, and more apps mean more customers. More of both mean more money: the Apple App Store
Sunil Mithas, Ali Tafti, Indranil Bardhan, and Jie Mein Goh, “Information Technology and Firm Profitability: Mechanisms and Empirical Evidence,”
Lisa Arthur, “Five Years From Now, CMOs Will Spend More on IT Than CIOs Do,” Forbes.com, February 8, 2012, www.forbes.com/sites/lisaarthur/2012/02/08/five-years-from-now-cmos-will-spend-more-on-it-than-cios-do/.
Robert Jensen, “The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector,”
Dan Pink,
David Zax, “Brown Down: UPS Drivers vs. the UPS Algorithm,” FastCompany.com, January 3, 2013, www.fastcompany.com/3004319/brown-down-ups-drivers-vs-ups-algorithm.
Steven Rosenbush and Laura Stevens, “At UPS, the Algorithm Is the Driver,”
Kim S. Nash, “State of the CIO 2014: The Great Schism,” CIO.com, January 1, 2014, www.cio.com/article/744601/State_of_the_CIO_2014_The_Great_Schism.
