How to embrace digital technology.

Over time, digital technology and the internet of things will transform virtually every sector and every business. Here’s how you can embrace them:

Apply the digital lens to existing products and services. We still live in an analog world. However, over the next five years many business components will be digitized to enable a new range of products, services, and business models. Consider how Uber has transformed transportation services by digitizing all aspects of reservations, tracking, billing, customer service, driver performance, and ratings. What cumbersome processes in your business or industry are amenable to instrumentation and connectivity? Which ones are most challenging to you or your customers?

Connect your existing assets across companies. If you work in a traditional analog setting, examine your assets for new opportunities and look at other industries and the start-up world for new synergies. Your customer connections are especially valuable, as are your knowledge of customers’ needs and the capabilities you built to meet them. Nest is connecting with public utilities to share data and optimize overall energy usage. If you work in a start-up, don’t just focus on driving the obsolescence of established companies. Look at how you can connect with and enhance their value and extract some of it for yourself.

Examine new modes of value creation. What new data could you accumulate, and where could you derive value from new analytics? The industrial and consumer printing company 3D Systems is creating platform- and service-based business models that go beyond selling hardware and consumables. How would recombining the components of your business give rise to new opportunities? How could the data you generate enable old and new customers to add value?

Consider new value-capture modes. Chances are that digitization will deflate some of your old models but will also create interesting new opportunities. SAP’s cloud efforts allow it to charge customers for only the features they use, enhancing its ability to acquire new customers. Could you do a better job of tracking the actual value your business creates for others? Could you do a better job of monetizing that value, through either value-based pricing or outcomes-based models?

Use software to extend the boundaries of what you do. Digital transformation does not mean that your company will only sell software, but it will shift the capability base so that expertise in software development becomes increasingly important. And it won’t render all traditional skills obsolete. Your existing capabilities and customer relationships are the foundations for new opportunities. Invest in software-related skills that complement what you have, but make sure you retain those critical foundations. Don’t jettison your mechanical engineering wizards—couple them with some bright software developers so that you can do a better job of creating and extracting value.

Source: HBR
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