Driving Digital Disruption To Create Business Valuebusinessinnovation.berkeley.edu/wp-content/uploads/2016/... · 2016-10-20 · using new digitalized workplace model Digitalizing

CONFIDENTIAL AND PROPRIETARYThis presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other intended recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates. © 2016 Gartner, Inc. and/or its affiliates. All rights reserved.

Driving Digital Disruption To Create Business ValueDale Kutnick

Sr VP, Emeritus

Gartner,Inc

1 © 2016 Gartner, Inc. and/or its affiliates. All rights reserved.

Digital Business Is Still Evolving

Digital business: The creation of new business designs reached by blurring the digital and physical worlds

Web

2000

E-Business

2005

DigitalBusiness

2020

DigitalMarketing

2013

AutonomousBusiness

+ SmartMachines

Algorithms

2 © 2016 Gartner, Inc. and/or its affiliates. All rights reserved.2 © 2016 Gartner, Inc. and/or its affiliates. All rights reserved.

By 2019, CEOs expect 41% of revenue, on average, to be attributed to digital.

Source: CEO Survey 2015


An Abstracted View of Digital Business Evolution

Hybrid sensors: mobile phones, tablets, laptops, etc.

Virtual sensors: social nets, search engines, e-commerce sites, cookies, etc.

Traditional IT: ERP, supply chain management (SCM), electronic medical records, DBs, Microsoft Office, etc.

Traditional OT: operational technologies that manage industrial processes, buildings, etc.Actuators

Process Control Systems

Robots

IntelligentAnalytics and

Algorithms

VirtualSensors

TraditionalIT

Ecosystem

PhysicalSensors

TraditionalOT

Ecosystem

WebscaleInfrastructure

"Cloud"

NetworksProcessing

Storage

Hybrid"Sensors"

?

?IoT


IoT Will Disrupt Business and Operating Models

Billions of sensors will feed "grid-plexes" running

algorithms that initiate physical world actions

and drive:

+ Higher efficiencies in most

physical environments

+ Improved safety and reliability

+ New business services

The goal: IT + OT/IoT + web/grid-scale

infrastructure + PaT ("People as Things") will drive

algorithmic business

Action: CIOs and business leaders should reconsider their

"technology investments" from an IoT perspective


In digitalized, "weightless" businesses, "People as Things" (PaT) are

monitored by "virtual sensors" for ...

• Actions (e-commerce, social nets, Internet searches, messaging and others).

• Sentiment, intentions, emotions ....

• Context (location, activity, etc.).

• Profiles (LinkedIn, Facebook, and soon, genomics).

… to drive actions determined by smart machines' intelligent analytics

and algorithms. Wearables and (future) embedded chips will add other

"sensory" dimensions.

People as "Things" (PaT) Algorithms


Business andSociety Context

Enterprisesbecoming moredata & analytics

driven

Hyper-competition

&Hyper-automation

Automationdriving

diminishinglabor value

Externalization and

combinatorialinnovation


Business andSociety Context

M&A andenterprise

restructuringsare accelerating

Digitalized entities

invading adjacent verticals

"X"as a ServiceExpanding

IT isdevolving to

"T & I"


Winners will be enterprises that can exploit the five Cs:Collection, Curation, Correlation, Crunching and "Coining"


Cars

Home

Hospital

Cities

Physical

Factory

Transportation

Fitness

FinancialPayment Equities

Stored Value

Credit

Loans

Savings

Utilities

Healthcare

Health

Insurance

Already DigitalLegacy Twin Digital Twin

Connected Home

Connected Bank

Blockchain-Based Financial Service

Social Networks

Media

Gaming

Apps

Digital Advertising

Search

Digital Business Leads to New Digital Competition

Industrial Internet

Smart City

Connected Healthcare

Connected Insurance

Connected Car


IoT Will Unleash New Economic Models

Optimizing internal processes vs.

client-facing, revenue generating will impact:

+ Income statements (e.g., cost of goods, sales,

general and administrative [G&A], etc.)

+ Balance sheets and asset management

Provide new revenue-generating opportunities:

+ Services, data, algorithms/analytics

Enable new platforms and ecosystems:

+ Network connections effect

Action: Ensure that economic models (and derivative leading indicators) are specific

to consumer vs. industrial IoT deployments


Five Business Models Drive IoT Economic Value

Asset Optimization and Monitoring

Predictive Maintenance

Pay for Outcomes

Turning Products Into Services

Aggregate and Sell Data

Use Info. to Sell Other

Goods/Services

Remote Management and Oversight

Remote Control

Become a Platform

Send Content/Upgrades to Things

Enhance Customer Experience With Services

Action: Models and opportunities will vary considerably between consumer and

Industrial IoT; business leaders must determine how to monetize the data


Every Industry Will Be Digitalized

Pharmaceuticals

Healthcare

Vehicles

SportPublic Transport

Government

Consumers

Retail

Mining and Resources


… And, of Course, Manufacturing

Performance, predictability, consistency, efficiency, safety


Advanced IoT-Driven (Semi) Autonomous Functions

+ Vehicles for construction, mining, agriculture, etc.

+ Transport vehicles (ships, planes, trains, trucks and others).

+ Warehouses and distribution center management.

+ "Plex" data centers.

+ Robot-assisted surgery.

+ Agriculture/Animal management.

+ Hotel/Hospitality management.

+ Process manufacturing management.

+ Infrastructure management (e.g., smart cities and highways).

Action: Accelerate testing and deployment of these areas ...


Caveat Emptor: Potential IoT Pitfalls

Poor business/use cases

Security and privacy (e.g.

hacked sensors)

Integration with IT and OT

versus shadow IT

Data collection and

management

Cost overruns on projects

(overambitious?)

Lack of governance

structures

Orphaned IoT assets

People skills


A Virtuous Circle Approach for Digital Business Initiatives

Action: IoT business concepts must be vetted through a business and economic model, detailing how

sensor data from the physical word will be monetized, and how progress will be measured.

Virtuous

Circle


REGIONAL CIO FORUM

CONFIDENTIAL AND PROPRIETARY


Economic Models/Architecture

What leading indicators should we measure?

– One or two derivatives from "lagging indicators."

Ultimate impact on income statement/balance sheet:

– Revenue or market share growth.

– Lower cost of goods, services, maintenance, delivery …

– Lower cost of sales, G&A.

– Improved asset deployment/utilization.

Action: Concepts are great, but a 3- to 5-year economic model, supported by measurable

leading indicators, will be critical


REGIONAL CIO FORUM



Business Models

Value to internal operations:

– Reliability, maintainability, agility, quality

– Lower overall costs; integrated data view

– Safety, environmentals (risk mitigation)

Value to external customers and suppliers:

– Variation of the above, plus …

– New services and functions

– Ecosystem participation


Example for a Usage-Based Model

Value for customer:

Pay for outcomes/results

No capital expense; predictable

operating costs

Impact for supplier:

New revenue from continuous

customer engagement

Usage data (for re-engineering)

Leading indicators:

Revenue/Customer; customer

retention/loyalty; profit/customer

Market share growth; lower cost

of sales and distribution; G&A

Improved asset

deployment/utilization

030201

1%-3% higher revenue

10%-20% lower cost of sales

Balance point: Customer adoption

Digitalizing Marketing

% of marketing spend that is digital

3%-5% lower cost of acquisition

7%-12% higher conversion

Balance point: Channel mix

Digitalizing Sales

% of revenue through digital

channels

2%

50%

12%

Sales and Marketing

33%

Digitalizing Operations

% of operational

assetsthat are

connected

Digitalizing Supply Chain

% offleet tracked in real time

Operations

0.5%-1% lower mfg. operations cost

10%-15% higher asset uptime

Balance point: Payback for key assets only

25%

5% 5%

75%

20%-30% higher utilization

5% lower fuel costs

Balance point: Payback for key routes only

% of"sensorized"

products

Digitalizing Products

Products

1%

50%

2%-3% higher annual gross margins;

Balance point: Lower warranty fulfillment costs; higher customer "retention"

2020 Goal

Today

Digitalizing Customer

Interactions

% of interactions

that are digital

Customer Experience and Service

25%

50%

20%-25% higher 24/7 availability

Balance point: Customer satisfaction

Digitalizing Customer Service

% of interactions that employ

smart machine

15%

70%

20%-25% lower call centre cost

20%-30% lower time to resolution

Balance point: Customer satisfaction

Leading Indicators for a Consumer Products Digital Business


Leading Indicators for Digital Government

1-3% leaner operations

10-20% lower cost of operations

Risk: Inefficient back office

Digitalizing Programs

% of programmatic spend that is

digital

3-5% lower cost of programs

7-12% higher productivity

Risk: Ineffective programs

Digitalizing Back Office

% of back office

through digital

platforms

2%

50%

12%

Programs and Back Office

33%

Digitalizing Operations

% of operational assets that

are connected

Digitalizing Supply Chain

% of fleet tracked in real time

Operations

0.5-1% lower mfg. operations cost

10-15% higher asset uptime

Risk: Payback for key assets only

25%

5% 5%

75%

20-30% higher FTL utilization

5% lower fuel costs

Risk: Payback for key routes only

% of departments using new digitalized

workplace model

Digitalizing Workplace

Workplace

1%

12%

1-3% higher revenue per employee

2-3% higher employee satis.

Risk: Employee satis.

2020 Goal

Today

Digitalizing Citizen

Interactions

% of interactions

that are digital

Citizen Experience & Service

25%

50%

20-25% higher 24/7 availability

Risk: Citizen satisfaction

Digitalizing Citizen Service

% of interactions that employ

smart machine

15%

70%

20-25% lower call center cost

20-30% lower time to resolution

Risk: Citizen satisfaction


Describing the Quality of Digitally-Earned Revenue

Analog Revenue

Digital Revenue

Earned with less cost?

Drives higher velocity (turnover)

More easily earned across geographies

Potential recurring flows subscription

Earned with less capital investment?

Potentially fewer physical assets employed

cost

Physical Assets req’d

Capital req’d

cost

vs.

Easier, due to shared outcomesIf this, then $


Green Energy (E.g., Solar Power) as a

Service

Lighting as a Service

Supply Chain and Logistics

Management as a Service

Chronic Disease Management

as a Service

Agriculture/Farm Management

as a Service

Power/Engine Management

as a Service

Sensor Data Aggregation/Analytics

as a Service

Data Brokerage/Exchange

as a Service

Services for

Autonomous "Customers"

Evolving IoT-Enabled Business Service Models

Action: Generating incremental revenue from IoT services will require a continuous

engagement approach that increases costs


REGIONAL CIO FORUM



Select the Appropriate IoT Approach

1. Simple, identifiable things (e.g., RFID, NFC) — no active behavior

2. Sensing things (can measure and send data; e.g., water or

pressure sensors)

3. Controllable sensing things (sensors + control functions/actions)

4. Complex autonomous things (e.g., robots, autonomous vehicles)

5. IoT "platforms" and ecosystems of integrated "smart" things

(e.g., smart cities, refineries, factories, supply chains)

Action: Risk, cost, integration and complexity rise in descending order; IoT platforms will demand

significant investments in maintenance, APIs and scaling


Enterprise Capabilities for IoT Success

IoT

Business

Product Mgmt.,

Ops. Tech.,

Engineering

ITO

Finance

Goal Setting and Bus. Model

Resources

Information Mgmt.

Integration

Analytics Functionality

OperationsProduct Design

Device and SW Mgmt. Communications

Security/Privacy/RiskProject Management

Security/Privacy/Risk

Program Management

Business Risk


• Potentially millions of endpoints and customers to support.

• Significant R&D required to stay ahead ..

• Continuous upgrades, releases, version control, etc.

• Develop a platform (e.g., an "OS"), or join an ecosystem?

• Assume longer time horizons to reach financial goals.

Deploying IoT, at Scale = Becoming a Software Company?

Action: CIOs and IT leaders should lead the effort to

help determine/develop requirements and strategies


• Solicit digital business ideas/concepts from business units

• Develop tools/metrics (esp leading indicators) to measure digital business cases

• Engage business leaders with digital business and economic models that have been thoroughly vetted

• Examine digitally-enabled threats & opportunities (and tech-enabled “business abstractions”) in existing & adjacent verticals

• Ensure that the IT organization can help (or lead) in planning and implementing digital business initiatives – new skills required!

• Be prepared to advise on vendor negotiations, integration, security, data management, infrastructure provisioning, intelligent analytics, et al

Actions:

Documents

Driving Digital Disruption To Create Business Valuebusinessinnovation.berkeley.edu/wp-content/uploads/2016/... · 2016-10-20 · using new digitalized workplace model Digitalizing