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A company that was founded to produce widgets may very well feel this is what it does best. So why change?
According to Gartner distinguished analyst Steve Prentice, the past has shown that companies that do not evolve, quickly go out of business.
Consider Blockbuster, which used to be larger than Netflix and, at one time, could have acquired the on-demand video service. Digital-powered business initiatives promise to give CEOs an opportunity to grow the business, but they need to break with tradition.
In some organisations, CIOs or IT heads attempting to introduce new digitial initiatives could encounter hostility or even ridicule. In fact, research from Gartner revealed that two-thirds of CEOs do not think their CIOs have the right skills to lead digital initiatives.
Challenges of perception
The challenges organisations face are both internal and external.
Among the organisations that have begun on a digital path is global manufacturer GE, which has created a software platform called Predix as the basis for new industrial internet applications.
From an external perspective people associate GE with machines. It makes industrial machines for the oil and gas industry, as well as jet engines, wind turbines, power generation equipment and medical instruments. Its revenue comes largely from selling and maintaining these machines and its customers associate the company with such products and services.
However, GE’s digitisation strategy rests on adding sensors to these machines, creating an industrial internet, powered by its Predix analytics platform. Through this platform, it hopes to derive new value from digital technology, where Predix can be used to ensure the machines run optimally.
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GE software vice-president and chief technology officer Harel Kodesh, who previously worked at a number of IT companies including EMC and Microsoft, said: “I have been in GE for a year and I have worked on software platforms all my life.” But even after six months in the job, he said the IT research houses did not understand what GE was doing.
For instance, while GE CEO Jeff Immelt discussed the Predix platform during the company’s October 2016 earning call, there were no questions about it, suggesting the investment community is not yet interested in GE's efforts to be a software company.
Commenting on the lack of interest in Predix, Kodesh said: “You need to let it grow.” He recalled a similar story when he worked at Microsoft on the Windows CE mobile platform. At the time people were only interested in Windows and Office.
“First people will doubt GE can be a software company. Second, the big earning numbers are in other parts of the business. It is all about the numbers and the magnitude, and the numbers are not there,” said Kodesh. From an earnings perspective, he said Prefix adds very little to the bottom line.
The third part is to grow the ecosystem. “We need to build a community,” Kodesh said.
At some point, he explained, someone at UBS, Morgan Stanley or another investment bank will start to ask their software analysts to attend GE earnings calls.
A lack of understanding among these influencer and other stakeholders is something many companies building out their internet of things (IoT) platforms will face.
Car maker Volvo recently expanded its Volvo In-Car Delivery pilot to enable people to have their online purchases delivered to the boot of their car.
It works by means of a digital key, which is used to gain one-time access to your vehicle. Owners simply order the goods online, receive a notification that the goods have been delivered and then just drive home with them.
Volvo In-Car Delivery involves the car maker connecting to an e-business ecosystem. Volvo has used the project to see how it can generate value beyond normal car ownership by teaming up with Nordic communication and logistics supplier PostNord, Nordic online toy and baby goods store Lekmer.com, and Swedish online grocery retailer Mat.se, to have Christmas toys, gifts, food and drinks delivered to Volvo owners’ cars.
Such a project could be seen as non-core to a company that prides itself in building safe cars. But for Volvo senior vice-president and CIO Klas Bendrick, such projects are essential.
“I report to the board and executive team. Our company is changing and paving its way in the automotive industry. We are becoming more than a car company. In the past five years we have developed our capabilities, separated from Ford, and we are delivering on a future road map, which is getting good feedback,” he said.
The internal case for experimentation
Bendrick regards projects such as Volvo In-Car Delivery as part of an innovation journey the company needs to take, and part of a continuous development process.
“The idea is one thing, a proof point is another, as is developing the value chain. We have to look at what will happen in the market moving forward and use technology not just for the sake of technology, but for convenience. If a technology does not make a customer’s life easier, better, safer or more fun, we don’t use it,” he said.
For Bendrick, the business case is clear: Companies that do not experiment in new areas will find that someone else will grab the market opportunities or devise a new element of customer value.
“A number of innovations will not work, but this is the natural evolution of future business models,” he said. It is the same reason why some startups with great ideas do not take off, Bendrick argued. “It is part of developing your own capabilities.”
Speaking on how CIOs can engender innovation in their organisations at the recent Gartner Synposium in Barcelona, Gartner fellow Tina Nunno said: “Digital projects have an 80% failure rate. If you only do projects with a return on investment, then you can’t do innovation.”
Clearly, if such a project does indeed succeed, it could offer the business a high return. Nunno recommended that CIOs encourage their teams and business leaders to use innovation as a learning exercise to test a theory. The main goal in such experimentation is to use the least amount of money to test the theory, she said.