Sell more today then its Digital Business; survival is Smart Business
Vice President and Principal Analyst, Constellation Research
Constellation Research
Andy Mulholland is Vice President and Principal Analyst focusing on cloud business models. Formerly the Global Chief Technology Officer for the Capgemini Group from 2001 to 2011, Mulholland successfully led the organization through a period of mass disruption. Mulholland brings this experience to Constellation’s clients seeking to understand how Digital Business models will be built and deployed in conjunction with existing IT systems.
Coverage Areas
Consumerization of IT & The New C-Suite: BYOD,
Internet of Things, IoT, technology and business use
Previous experience:
Mulholland co authored four major books that chronicled the change and its impact on Enterprises starting in 2006 with the well-recognised book ‘Mashup Corporations’ with Chris Thomas of Intel. This was followed in…...
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Many Enterprises see their adoption of Digital Business being driven by Sales and Marketing additions to their current products and activities. Sadly this is unlikely to be enough as many Industry sectors are becoming transformed markets adding a imperative time scale for individual Enterprises to reconsider their need to grasp Digital Business.
In the fifty plus years from 1955 to 2014 only 61 companies have remained in the Fortune 500 listing of the top companies, an astonishing 89% of them didn’t recognize how their business was being lost to external transformation.
But why suggest the current transformation is about Smart Business rather than Digital Business? Because there is a single factor that underpins the real transformation; ubiquitous connectivity leading to a massive increase in the information available to make smarter business decisions in a dynamic manner. When Buyers, Sellers, Partners, and any manner of value chains, become integrated around information then an industry sector is a transformed marketplace. The term Digital Business seems to have become linked to merely improving sales and marketing techniques in the current industry sector business model.
The forces driving the transformation may be subtly different, as is the timing, in different sectors, but the impact usually makes its self felt by a change in demand. The motor industry is an interesting and visible example starting with an amazing shift in one of the top competitive features of a car over a period of little more than three years.
In 2015 between twenty and thirty percent of customers for a new car place Internet connectivity in their first three factors they consider! That Internet connection changes the game, and the relationships between what a car is, and what a car can do. For the Manufacturers it introduces competing around software and services as much as the classic mechanical engineering.
It arguable that the starting point was manufacturers leading the way with online Digital Business for the sales and marketing models, the resulting understanding and comparisons buyers could make often exceeded the knowledge of showroom sales staff. Now smarter customers want a new level of connected cars so they can continue to be smarter customers when travelling in their cars. But of course that’s the most visible factor driving change, there are several primary factors driving a sector transformation;
1) Government Legislation
The EU requires all cars to be fitted with ‘eCall’ capability for automatic respond to a detected emergency involving the car from 2018. This feature alone ensures that all cars have to have an onboard operational SIM service, and are therefore ‘connected’ cars using onboard sensing for smart behavior management.
2) Car Buyers Requirements
A number of surveys have been carried out, all of which broadly agree that a significant shift towards onboard connectivity as a necessary sales feature is occurring in line with general smart phone connected use.
- Telefonica survey of 5000 people; more than half said a connected capability would be a key part of their next car purchase requirements
- McKinsey survey of 2000 people; 13% would rule out of their next purchase any car that didn’t have connected capability, whilst more than a quarter would prioritize connected capability above engine power and fuel consumption
- BI Intelligence report; sales of connected cars are 45% higher than the equivalent models that do not offer a connected capability.
3) Product Design
In common with many other products the amount of compute power and software, has dramatically risen with the result that McKinsey reported many cars now had twenty times the power of the average home PC. This may be difficult to precisely verify given the number of variable factors, but its undeniable that manufacturers have become skilled software engineers. All this compute power has made cars themselves ‘smarter’ as clean fuel-efficient engines, hybrid engine management, assorted safety features are the norm. in a move recognizable from customization of other digital devices, driver controlled ‘soft’ settings for drive comfort or sports handling are the new competitive battleground. Ultimately the demands for increased safety move towards various forms of Driver Assistance and into the realm of driverless cars
The car of today increasingly relies on, and competes, through the use of computer technology to turn them into Digital Products. The cars of the next five years will use connected capabilities to transform a car from a closed mechanical environment into being part of a connected smart services market environment. For a car manufacturer the whole basis of their industry Sector has been transformed into a new and entirely different place with the competitive and revenue emphasis being increasingly changed.
It’s not only a battle amongst the current players, if it was then perhaps the speed of change and nature of the competition might take place at a different, and perhaps slower rate. New players have already emerged making both headlines to awake the interest of car buyers, as well as offering new views of how the next generation car, or motorcycles, will be smarter.
Tesler Motors not only confounded the market by launching a high performance expensive car as a starting point rather than selling a battery car as a budget conscious choice, it also changing the traditional industry model of dealerships with a sell direct approach. Tesla enjoys a relationship with its customers with frequent feature upgrades more akin to Apple than a car manufacturer. At the same time your Tesler car integrates with the other digital aspects of your life such as interfacing with the drivers online diary to find a suitable date for a service.
Zero Motorcycles have followed a similar path with high performance machines being at the front of their product introductions and setting a brand image far from other electric ‘scooters’. Zero Motorcycles set new standards for managing relationships with their customers, personalizing everything from the pre purchase enquiry into ongoing ownership. Meanwhile rumors, and indeed R&D expenditure suggests that Google with its driverless Smart Car, or Apple will extend Apple CarPlay might move into the motor industry to complete its transformation into a Digital Product market place.
The first question today’s market leaders face as the car market transforms into a market based around connected Smart Services is how they transform their existing enterprises from competing in todays ‘hardware’ market to competing with new skills as a ‘software’ company. The second is how to take their share of the new revenues, even control the use of Apps in a manner more akin to the smart phone industry, or even as broker in transportation operations in emerging smart cities.
Is the Motor industry a unique case? Hardily given what has already happened as Mobile Phones were transformed to Smart Phones, as Smart Buildings become common to managing a buildings use of resources, as music moved from hardware, (CDs etc), formats to Smart personalized selections based on Services. The major shift in each case has been the same common feature of connectivity introducing a leveling and sharing of knowledge that changes what and how a product is defined, paid for, and consumed towards being a Smart choice.
In 2010 Mark Johnson identified in his book‘ Seizing the white space’ 19 new Digital Business models, or perhaps Smart Service models. The book accurately identified and predicted, as its sub title promised, ‘Business Model Innovation for Growth and Renewal’ at a time when the technologies of the Cloud, Mobility with Apps and Services were just starting to make an impact. Certainly in 2010 few would predict that just five years latter how customers choices when car buying would have changed so much!
With the benefit of hindsight it is interesting to recognize how many of the Enterprises named have been able to ride the transformation of their Industry sector to become global leaders. A position from which they have in turn further driven the speed of transformation to their advantage! Its also worth remembering that this was before the widespread adoption of the term Digital Business, these first wave Enterprises grasped the principle of ‘connected’ business via the Internet as the real innovation in capability.
As the term Digital Business has become associated with sales and marketing transformation, today it would be better to recognize that true Industry Sector transformation path arising from the 19 models occurs through the ‘connected’ integration of market places (buyers, sellers, partners, collaborators, etc) leads beyond this. Connected and integrated around information leads to a transformed market place aroiund ‘Smart Business’.
The message is simple, adding new ways to address your existing customers within your existing Business and Industry sector model is unlikely to be enough to ensure your enterprises long-term survival, let alone a prosperous future. A competitive strategy to out perform competitors in the existing Industry sector business model is no more than securing a short term tactical advantage. An advantage related to deploying a sales and marketing Digital Business initiative. True strategic change in the structure of your Industry sector and therefore your business undoubtedly lies ahead;
The future risk and the future rewards lie in the timing, and extent, which your industry sector will transform into a truly connected market place where buyers and sellers will compete around the speed in which they can turn pooled knowledge into intelligence supporting Smart Business actions.
If you are unconvinced that this will happen then take a look at the Carpe Diem blog of Mark J Perry in which he analyses the difference between the Fortune 500 companies on 1955 listing versus the companies listed in 2014. Only 61 companies stayed in the list and incredible 89% have failed in one way or another though what he refers to as ‘Creative Destruction’. Its pretty safe bet that these guys thought that their industry couldn’t transform too!
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