Data driven business models
Danny Wootton, Director of IoT for UK markets at IT outsourcing company CGI, outlines the four focus areas that will underpin new data driven business models
In the mid-1990s, as part of their strategic planning process, Rolls-Royce was reviewing their business and service strategy. This was driven by a need to change business models, which at the time did not generate the required cash flow to support the R&D investments needed. Rolls-Royce also needed real-time and on-demand product status data in order to generate service revenues.
Out of this review came the TotalCare® service model: a data driven model that bills customers based upon flying hours, rather than payments to purchase the engine and one-off overhauls etc. This model is now widely recognised as one of the first big data driven business models at scale.
Many projects undertaken by organisations are still technological and often done as a stand alone project: whether a company uses on premise or cloud solutions, bespoke applications or SaaS, automation or low cost labour etc. However, one of the biggest challenges faced by business leaders is how to differentiate themselves in the market and this often involves exploring new business models, for both B2B and B2C markets, which ultimately drive profitability and new level of services.
These new models can take various forms:
- Consumption Driven: usage, processors, transactions
- Performance Driven: throughput, availability, service level
- Value Driven: increase revenue, profitability, loyalty
However, to do this, the business will need to capture and understand the relevant data to drive those models. But data driven models are still not widely adopted. Why is this?
Data driven models
Moving to a new business model can be problematic for organisations, often struggling to balance the necessary changes in culture, R&D, technology and financial results as they move from one model to the next over time.
A good example of this is how a sales culture would change as a business moves from large upfront sales of product and services to outcome-based opportunities that start small and grow over time. This change affects areas such as product development, sales incentives, reduction in order book value and lower in-year revenue, as well as requiring far closer integration with the client’s business.
In most cases, organisations are also constrained by their legacy systems, that are often too old to handle new transaction types but at the same time critical to existing services and revenue streams.
Legacy systems shouldn’t stop organisations from developing new services. Cloud and IoT technologies can now help explore new models at a fraction of the cost currently being spent on maintaining legacy services, with numerous technologies facilitating the flow of data between legacy and cloud systems. This enables businesses to try new business models with clients, potentially even doing A/B testing with different customer groups.
Four key focus areas
So, if, and more likely when, organisations start to plan new business models there are four major areas they should be exploring that will underpin new data driven business models.
Internet of Things: As you become more integrated into your customer’s business or people’s lives, it will become essential that you can monitor how your products and services are performing in real time.
Analytics: With outcomes and performance against baselines becoming the main drivers for businesses, analytics will be at the heart of your organisation’s decision-making.
User experience: Given digital is the main driver to necessitating new business models, then a great user experience of those digital services will be the key to driving increased adoption rates.
Organisational transformation: It should not be underestimated the magnitude of change that your people will have to go through, requiring a carefully managed transformation programme.
So, whether you are trying to enter a new market, disrupt your existing market or just optimise how you run your business, using data driven business models is fast becoming an approach you cannot ignore.