The digital revolution is changing the concept of value creation and how businesses capture that value. The authors describe how General Electric responded to encroachment by nontraditional high-tech competitors that were offering efficiencies and greater customer outcomes.
Businesses are increasingly dependent on connectivity, advanced analytics, and a focus on customer outcomes. The authors provide examples of organizations working with customers to seize opportunities for performance improvements using digital technology.
How Is This Article Useful to Practitioners?
Practitioners should recognize that digital technology has created new opportunities for greater efficiency and connectivity in most industries. Limitless computing and errorless replication can be achieved at low cost, and new business partnerships create and capture value. The authors describe the adaptation of General Electric’s (GE’s) business model from industrial hardware sales to its industrial internet initiative launched in 2011, which focuses on customer solutions and providing efficiencies.
GE created a global software development and support center where mechanical engineers work closely with software designers to develop a unified software platform for the entire enterprise. The expectation is to have more than 1,000 software developers and data scientists centralized in one California facility.
GE’s industrial internet initiative includes adding digital sensors to machines, connecting them to a common cloud-based software platform, and building advanced analytics to achieve greater productivity. Crowdsourced product development and partnerships with potential competitors are also part of the initiative.
Digital ubiquity promotes outcomes-based business models tied to efficiencies delivered to customers. For example, in the past, GE tried to sell more wind turbines to its client E.ON. But with the use of sensors, software that connects the turbines, and advanced real-time analytics, GE created turbines that produce more energy, and the client can instead buy fewer turbines with increased productivity.
Outcomes-based business models will create new opportunities for companies, greater challenges for regulators, and increased risks. It is important for investors and the financial sector to understand the changing business relationships, new assets, and different risks that arise with digital ubiquity.