Strategic Update: The Future of the Digital Economy
In the world of B2C (business to consumer) e-commerce, the products and services that are marketed and sold are the same as in bricks-and-mortar transactions. The disruption is in the medium. In the bigger B2B (business to business) world, the products themselves are changing. And the big product is data – reams and reams of it. Data is central in B2B business but the dynamics are different. For one thing, businesses tend to hold tightly to the data they accumulate, giving it away only for clearly understood benefits. The data can be used by along the value chain, driving new partnerships and raising concerns about security. Building trust is therefore important.
Steve Bolze, President and Chief Executive Officer of GE Power, USA, did not mince words: “Digital transformation is the single biggest thing in my company and will be for the next 20 years.” The aim: to get more out of the company’s installed base. By analysing even just a small percentage of data, a tremendous amount of productivity can be released, Bolze reckoned. “All of our businesses are being reimagined by software,” with a chief digital officer in each division. “Embedded in GE is a $6 billion software company.”
GE, for example, has created a new cloud-based platform called Digital Twin, which is a virtual copy of any asset, allowing the company to compare actual performance to the optimum and identify how to operate more efficiently. Use of the Digital Twin no only prevented a power plant in Italy from being shut down, but it also allowed the facility to be run far more efficiently than before.
Digital transformation is allowing companies not just to be in tune with their customers, but also to identify their ultimate consumers and very quickly drive the evolution of business models. With digital technology applied to its products, for example, a sports apparel maker can evolve into a health and fitness company. “We can set a higher purpose for a company – to improve people’s lives and help the world run better,” explained Bill McDermott, Chief Executive Officer of SAP, Germany.
A key challenge in this digital new age is the issue of privacy and data ownership. Not everybody is willing to share data. In healthcare, while individuals may think nothing about filling up paper forms with their medical information, they may question the digitization of health data, even if doing so may improve the quality and efficiency of services. “The logic is that individuals benefit from the sharing of data,” observed Liu Jiren, Chairman and Chief Executive Officer, Neusoft Corporation, People’s Republic of China. What is important in building trust is transparency, he added.
Security of data is a legitimate concern with the significant increase in the intangible assets that companies are holding and the commensurate rise in the risk of cyber-attacks. Many companies have been hacked but are not even aware that they have been. “There is a certain amount of complacency still in the boardroom,” said Inga Beale, Chief Executive Officer of Lloyd’s, United Kingdom. Most security breaches are caused by human error or misconduct, she explained. Companies cannot just focus on their own systems. “It’s no good just checking your own firewalls and protections; you also have to check those of all your partners,” Beale said. Consumers expect companies to keep data safe. “Not one company has all the solutions. The expectations are that not only are you secure, but so are your trading partners. I don’t think you will last very long if your information is not secure,” she added.
Leadership is crucial for successful digital transformation. At GE, all hires have to know how to code or go through training to learn. When senior leaders have a working understanding of systems, it takes away their fear of them, Bolze said. Education for people to be digital-ready should be a broader concern. “We have to initiate the uninitiated into the digital economy because there is a digital divide,” McDermott argued. “We have to retrain people, including blue-collar workers that don’t feel a part of this economy. How do we connect them and give them the skills so they can participate in this world we are now in?”