Digital Disciplines. Wiersema Fred

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 is driving a global increase in data traffic. Wired data is growing by well into the double digits annually, but mobile data is growing at 60 percent per year.17 Mobility is growing for many reasons, such as convenience and speed. The ability to do something now ties into our innate need for instant gratification, which surfaces in behavioral anomalies such as hyperbolic discounting, where immediate results are perceived as being of significantly higher value than those requiring a wait. And, time compression is important for businesses as well, whether to create differentiated customer value or to reduce supply chain costs such as inventory carrying costs. Consequently, the mere act of making a function available on a mobile device can be a market hit: CUNA Mutual developed a smartphone app allowing car buyers to get a loan while at the dealership – generating a billion dollars in loans in only two years.18 Put differently, mobile by itself can support operational and information excellence, not to mention when used in conjunction with other technologies.

      In turn, there is a need to store and process that data, helping accelerate the growth of cloud computing. Amazon Web Services, at the time of this writing the largest cloud provider, already stores trillions of “objects” – documents, photos, databases, movies, etc. – in its S3 Simple Storage Service.19 Companies such as Amazon, Google, and Microsoft each are estimated to have hundreds of thousands, if not over a million servers.20

      Underpinning it all is our innate, inescapable human need to be connected and to care about others and what they think. As UCLA professor Matt Lieberman, cofounder of a field of study called social cognitive neuroscience, puts it, “We are wired to be social.”21 Originating as a mammalian need for mothers and their infants to stay connected, he argues, this orientation drove language, growth in the neocortex, and ultimately homo sapiens' immense abilities in problem-solving, pattern detection, and collaboration. And social media is not broadcasting or marketing in a traditional sense. It is all about two-way interaction, connection, relationships, and engagement.

      Social media increases the value of all four digital disciplines. It enhances collective intimacy, by strengthening bonds between company and customer. It accelerates innovation, by enabling collaboration, providing early customer and partner input into needs and wants, and supporting co-creation of solutions. Connection to social networks is often an essential part of today's leading solutions; even cars – and sharks – now connect to Facebook or Twitter. It impacts multiple touchpoints in driving information excellence, including

15

Peter Murray, “No More Skipping Your Medicine – FDA Approves First Digital Pill,” Forbes.com, August 9, 2012, www.forbes.com/sites/singularity/2012/08/09/no-more-skipping-your-medicine-fda-approves-first-digital-pill/.

16

Reid J. Robison, “How Big Is the Human Genome? In Megabytes, Not Base Pairs,” Medium.com, January 5, 2014, https://medium.com/precision-medicine/how-big-is-the-human-genome-e90caa3409b0.

17

“Cisco Visual Networking Index: Forecast and Methodology, 2013-2018,” Cisco, June 10, 2014, www.cisco.com/c/en/us/solutions/collateral/service-provider/ip-ngn-ip-next-generation-network/white_paper_c11-481360.html.

18

Nash, “State of the CIO 2014.”

19

Frederic Lardinois, “Amazon's S3 Now Stores 2 Trillion Objects, Up From 1 Trillion Last June, Regularly Peaks At Over 1.1M Requests Per Second,” TechCrunch.com, April 18, 2013, techcrunch.com/2013/04/18/amazons-s3-now-stores-2-trillion-objects-up-from-1-trillion-last-june-regularly-peaks-at-over-1-1m-requests-per-second/.

20

Rich Miller, “Estimate: Amazon Cloud Backed by 450,000 Servers,” DataCenterKnowledge.com, March 14, 2013, www.datacenterknowledge.com/archives/2012/03/14/estimate-amazon-cloud-backed-by-450000-servers/.

21

Matthew D. Lieberman, Social: Why Our Brains Are Wired to Connect (New York: Broadway Books, 2014).