Insights from the June 2017 Advanced Practices Council (APC) Meeting

ADVANCED PRACTICES COUNCIL INSIGHTS - JUNE 2017

So many of today's articles, blogs, and presentations at conferences focus on the strategy of digital transformation - how to rethink your company's business model to leverage emerging technologies and tools such as sensors, cognitive computing, and predictive analytics. We can continue to learn from these successful examples as we explore ways to emulate their success in our own companies. We hear very little about companies who didn't succeed, despite innovative strategies, due to lack of disciplined and creative execution of the strategies.

At the most recent Advanced Practices Council (APC) meeting, IT executive members learned from leading researchers about the latest thinking and practice in both strategy and execution of digital transformation.

DIGITAL TRANSFORMATION STRATEGY

Cognitive Computing Strategies According to Haluk Demirkan, organizations face three strategic challenges: inefficiency, demand, and innovation. In the near-term, cognitive computing can improve asset utilization, reduce operational costs, and improve working productivity, thereby improving ROI. The next wave of cognitive computing applications can help create new products, services, and business models. Demirkan described five strategies, beginning with those that address inefficiencies: Tools: Intelligent tools can assist people to work more efficiently by collecting, packaging, and transporting data. For example, Watson can identify cancer-causing DNA mutations much faster than humans, resulting in faster decisions about treatments, insurance companies use smart tools to predict fraud; and surgeons can operate remotely.

Personal Assistants: Siri, Cortana, and Google Now organize online documents, calendars and emails; determine the best way to communicate with others; and automate legal document review. Macy's provides a Watson-enabled shopping assistant to answer yes or no questions. Collaborators: Collaborators alert humans to possible fraud, support smart call centers or help desks, and provide personalized dashboards. Lowe's has an autonomous robot retail service for its stores to help customers find what they seek.

Coaches: Coaches understand and help to solve problems. A robot suit analyzes and helps improve a wearer's golf swing. The Oregon Track Club uses Watson to combine physiological test data, biomarker data, and data on nutrition and sleep into an individualized training program for athletes.

Mediators: Mediators elevate interactions between entities at multiple scales. For example, John Deere, which originally provided machine maintenance services for its farm machinery, created a digital product line with more intelligent and sensing farm equipment; remote diagnostics and optimization services; and analyses of soil, plan, and equipment. This led the company into a new market segment where it partners in an agricultural information service marketplace.

Transforming for Digital Ubiquity Domino's reformulated its strategy to focus on facilitating digital pizza ordering because of consumer preferences. It built digital capabilities, mobile technologies, and analytics to enhance innovation and meet consumer expectations regarding service, transparency, and speedy delivery. By doing so, same store sales increased by 14%.

According to Karim Lakhani, digital technology is driving every company to become a software and services company. To facilitate such a transformation, product companies must shift their strategies to products and services, cultivate platforms and ecosystems, and develop new revenue and business models. He cited GE as an example of this digital transformation strategy at work. The current GE has transformed itself from one that produces advanced industrial products and captures value through sales and service to a company that produces advanced industrial products with sensors and leverages data analytics based on sensor data while capturing value not only from sales and service, but also by getting a share of resulting customer cost reductions and revenue increases.

DIGITAL TRANSFORMATION EXECUTION

Governing the New World of Analytics of Things (AoT) Michael Goul developed frameworks for applying effective governance related to predictive analytics for APC members. These frameworks address such governance issues as:

 Risks of outdated models and data  Model update latency exposure  Bad data risks  Lack of employee skills to build Analytics of Things (AoT) solutions  Adherence to data and analytical model contracts.

Goul extended his research to help CIOs manage emerging contexts in which ecosystems must function with multiple stakeholders from different industries that come and go as "smart" changes over time. Contracts are the glue that holds these ecosystems together in multi-tenant platforms. Such contracts must address data and predictive model ownership and consider:

 Data exclusivity vs. non-exclusivity  Co-mingling vs. no co-mingling of analytic models  Data use after a data owner leaves a partnership  Analytical model after a model owner leaves a partnership  Duration and fixed monetary exchange  Value-based compensation.

There are already a number of lawsuits related to data ownership in these ecosystems, especially regarding indirect access to data. According to Goul, it is best practice not to own all the data. Goul suggested that CIOs take a major role in guiding their organizations on data and analytics sharing contract terms, helping stakeholders to understand that data sharing can foster innovation and such ecosystems are more than the sum of their parts.

Building Operational Capabilities Essent, a Dutch state-owned energy organization, was steadily losing significant amounts of money until Patrick Lammers, Chief Commercial Officer, articulated a clear vision (becoming the undisputed commercial leader) and a strategy for achieving it. He asked leaders to get on board or leave. He then posed the following questions at regular leadership meetings to those who stayed:

 What is your gap to target?  What are the root causes?  How much does each root cause contribute to the gap to target?  What mitigating actions have you taken?  When are you on target?

At the same time, Lammers expected such performance dialogues to take place at all levels of the organization.

The new CIO, Hein Muskens, fired his department's 15 top managers, explaining, "The fish smells from the top"; and then created a new organization with fewer layers. People were told to apply for jobs in the new organization. About 40% of staff left.

Lammers set the expectation that all new IT changes should generate 375,000 Euros per year in extra operating results or allow Essent to reduce five FTEs.

Crowd-powered Organizations Dirk Ahlborn, co-founder and CEO of Hyperloop Transportation Technologies (HTT), described the crowd-powered organization he has created to build a hyperloop that will transport passengers from Los Angeles to San Francisco in 36 minutes. The crowd consists of passionate

engineers, designers, marketers, videographers, government transportation agencies, research and development labs, universities, engineering firms, and citizens around the world. HTT is structured around agility and teams. According to Ahlborn, there are huge advantages to having distributed teams. By not expecting people to devote 100% of their time, HTT can attract better talent who can learn from each other. The model works because many people want to be entrepreneurs, but also need a day job.

Unlike traditional ventures, Dirk doesn't require large funding for salaries of full-time employees. Crowd members use free or low cost software to collaborate and are compensated by earned stock options as well as the excitement of working on a new venture.

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