Digital Disciplines. Wiersema Fred

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the $10 billion per year revenue threshold in 2013,10 and grew another 50 percent in 2014.11

      Services are becoming smart, digital, and connected, too: Pandora, TiVo, Netflix, and Shazam are connected services, driven by the cloud. Amazon.com is a connected retail service. But it isn't just virtual services: Domino's pizzerias are connected; the water and electric and cable utility services have points of presence such as smart meters and set-top boxes that are connected; Staples in-store copiers are connected; Uber transportation services are connected; FedEx and UPS delivery services are connected; and so on.

      Products and services aren't limited to handheld devices or web applications running on PCs. BMW Group has driven past treating cars as standalone products and now views them as smart, digitalized12 solutions that tie to a global cloud of data centers, offering solutions ranging from entertainment to real-time traffic information, access to social networks such as Facebook and Twitter and services such as Pandora and Yelp. Nike has sprinted past the idea of athletic shoes as just products, and now sees them as integrated with cloud-based activity trackers, digital coaching services, and social networks such as Facebook. GE sells aircraft engines and wind turbines, but is flying high by tying them back to engineers and customers who are fed enormous amounts of data to maximize performance and improve designs. Chapter 10 will delve into Nike's approach to solution leadership through the Nike+ flexible partner ecosystem, and Chapter 17 will examine GE in more depth.

      Collective Intimacy

      Firms know that social media should be a part of their strategy. Today's successful businesses are exploiting social media to engage with millions or hundreds of millions of customers, enhancing personal relationships with those customers 140 characters at a time. But collective intimacy is much more than that; at its heart it is about developing intimate, value-added relationships with every customer. Collective intimacy goes beyond mass personalization to develop a unique relationship with each engaged customer, based on insights derived from all customers using big data algorithms.

      Only a few industry leaders are effectively integrating all the elements of a collective intimacy strategy – exploiting social media and communities together with customer relationship management, collection of data including not just stated preferences but also actual customer behavior, characteristics, and contexts, and using advanced algorithms to build virtually unassailable customer relationships that drive value for customers and the firm. Amazon.com is drowning its competitors, using a flood of information based on millions of customers and billions of purchases to recommend products using sophisticated algorithms. Better recommendations mean higher revenues through upsell/cross-sell, faster growth in customers, thanks to word of mouth and social selling, and higher profitability through reduced customer churn. The Mayo Clinic uses a voluminous repository of genomic, microbiomic, and epigenetic data across tens of thousands of patients to better prescribe personalized therapies for each patient. Chapter 13 will examine how Netflix uses advanced algorithms to pursue collective intimacy and thus provide better movie recommendations, increase customer satisfaction and loyalty, and maximize customer lifetime value.

      Accelerated Innovation

      Digital innovation is in many ways easier than physical: It can be easier to build and experiment with software than to build a full-size prototype. In either case, though, accelerated innovation uses the Internet, open innovation mechanisms such as contests, crowdsourcing, innovation networks, and idea markets, and cloud-based experimentation and platform as a service to dramatically accelerate the invention, commercialization, and adoption of improvements to processes, products, services, and solutions, and customer relationships. Netflix famously improved its Cinematch movie recommendation algorithm over 10 percent via an open contest, engaging scores of researchers around the world for the same cost as hiring a handful of them, and paying only upon attainment of a quantifiable improvement.13

      Netflix then performed an encore with the Netflix OSS (Open Source Software) Cloud Prize, which used a somewhat different approach. There were multiple categories, rather than one objective. The goals were qualitative rather than quantitative. The results were dedicated to the improvement of cloud technology generally, with all entries treated as open source. Cloud computing technologies help Netflix but making them broadly available doesn't hurt Netflix's core differentiators, so an open-source approach garnered more entrants and better results.

      Amazon Web Services has created challenges won by cities such as London, New York, and Asheville in implementing cloud technologies for better government; Goldcorp has run seismic analysis challenges on gold mine data to turn bankruptcy into, well, gold; Procter & Gamble complements its formidable internal R&D capability with crowdsourced and external open innovation to create new billion-dollar brands, as we'll see in Chapter 16; and GE has run them for improved airline and hospital operations, as we'll see in Chapter 17.

      Exponential Value Creation

      IT is an exponentially accelerating whirlwind that is feeding on itself. “Things” such as sensors, devices, equipment, vehicles, and buildings are creating an avalanche of big data, which is uploaded over networks to the immense computing resources of the cloud, which is running sophisticated algorithms to process and interpret it, linking to social networks, and driving real-time and predictive decisions implemented by people and things.

      Estimates of the number of things that will be connected in the next few years range from tens of billions to trillions.14 These estimates may seem far-fetched, but there are already billions of cell phones and smartphones in use. eReaders and tablets and PCs and smartphones and wearables and smartwatches and Wi-Fi cameras and light bulbs and toasters and refrigerators and video security cameras and digital photo frames and planes and trucks and traffic lights and who knows what else will connect to each other and the cloud over wireless (and occasionally, wired) networks. Even pills are becoming connected: the FDA-approved Proteus Pill already incorporates a wireless sensor the size of a grain of sand that signals – from inside the digestive system – when the pill has been taken.15

      These devices, in turn, will generate massive and increasing amounts of data: purchase transactions, video streams, status updates, tracking data, oil pressure, turbine speed, and ambient temperature, on top of documents, slideshows, spreadsheets, songs, and photographs.

      Data will increase in frequency and resolution. Netflix used to have a few data points for each movie: number of days out and possibly a rating. Now it knows the number of times you've watched it; on what device; at what time; where; and which scenes you've skipped or replayed. The stream used to be standard definition, then became high definition, now is becoming 4K, and eventually will be 8K, 3D, and holographic. Or consider this: reading utility meters every 15 minutes rather than monthly leads to 3,000 times more data. This means not just more data, but the ability to deduce when you are running the dishwasher or the air conditioning. The doctor used to know your gender, height, weight, temperature, and blood pressure. Then, your cholesterol and triglycerides. Now she can access your electrocardiogram or electroencephalogram on a continuous basis, not to mention your entire genome, which is about 700 megabytes.16

      Multiply all these trends together: more devices, each generating more data, more often, and you are multiplying exponentials.

      This

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