Legacy companies have so far treated data as just fuel for products. But this stymies their competitiveness and future viability, shows Mohan Subramaniam, Professor at IMD Business School. Discover how treating data as a “parallel product” can create new revenue for your company and ensure your viability.
With tech leaders actively modernising their data, the place, purpose and value of data has been ever widening in the enterprise. By moving their data to the cloud and applying AI, modern enterprises have unlocked new levels of operational efficiency, better customer experience, improved decision making and so much more.
While such data-driven benefits are timely, they don’t quite do justice to the potential that data has, shows Mohan Subramaniam, professor of strategy and digital transformation at IMD Business School, Switzerland. He calls it “digital myopia.”
Instead, if correctly used, data can generate revenue independently. It can help legacy organisations to gain a strategic advantage and break into new and unexpectedly profitable markets. It also allows legacy firms to do justice to the belief that “data is the new oil”. He sat down with us to explore how other organisations have done it.
Meet Mohan Subramaniam
Professor at IMD Business School
Mohan Subramaniam focuses on the digital transformation of incumbent industrial firms and new sources of competitive advantage in the digital age. He is a recognized thought leader in digital strategy. He is the author of a book titled “The Future of Competitive Strategy: Unleashing the Power of Data in Digital Ecosystems” (MIT Press 2022). His articles regularly appear in the Harvard Business Review and the Sloan Management Review. He serves on the editorial advisory board of MIT Sloan Management Review.
The Challenge from Modern, Digital-Native Enterprises
Legacy companies have worked within the traditional boundaries of products, value chains and markets. They were safe within these limits; they knew their territory and their competitors. Then came the internet revolution and a new digital ecosystem. Disruption followed in their wake.
Modern, digital-native organisations focused on data rather than product. They innovated beyond sector-boundaries and geographies, quickly toppling the traditional players. The old rules are finished.
“In China, companies like Alibaba and Tencent have taken over 50% of the market share from big Chinese companies,” reports Subramaniam. This requires a recalibration of thinking, he says.
“All companies must revisit their thinking about competitive strategy. Just thinking about products and value chains and industry structure doesn’t help. And the trouble is that when they think of digital ecosystems or when they think of data, they don’t think of it with as much clarity as they have with their products, value chains and industries.”
How Legacy Companies Can Respond to Modern Challenges
Legacy industry leaders must reimagine what they can do with their data. While still maintaining their stronghold as product-based, industry-oriented companies, they must start using data to cut into new territory, serve new customers, and open new revenue streams. Companies can have the best of both worlds, insists Subramaniam. Here’s how:
“Traditionally, we think of data as episodic and interactive data.
“You sell a product, a component is shipped, or something is manufactured. That kind of data, you aggregate and analyse for insights after the fact. What’s my contribution margin? How many products did I sell? Which region is it selling, and so on?
“What modern technologies [like mobile, sensors, and IoT] allow you to do is to use interactive data. Legacy firms interact with their customers through their products. When you connect with the internet, all the data is interactive. You can track product-user interactions. If you do that, it allows you to do things with data that you could not do before, if you simply kept using episodic data.
“When you’re using it in real time, when you actually know what the customer is doing with your product, then that data can be used in very different ways.”
Interactive data is usually anonymous by default; even if not, it can be anonymised easily. So, it cuts right through problems of data privacy, too.
When you connect with the internet, all the data is interactive. You can track product-user interactions. If you do that, it allows you to do things with data that you could not do before, if you simply kept using episodic data
Mohan Subramaniam Professor at IMD Business School
Use Cases of How Data Can Be Applied to Create Revenue
When asked for some use cases where data was applied to create revenue, Subramaniam gave us three examples.
The first was the famous example of GE and their jet engines. GE used real-time streaming data from their jet engines to help pilots optimise their flying and save fuel. The airline simply had to pay GE with a portion of their saved money. This service, called Outcome Based Sales, was an independent offering apart from their main product, the engine.
The second use case was also for an engineering company, Caterpillar. Using integrated sensors, Caterpillar can tell how many of the machines have been idle, how safely the operators have been using them and whether the fleet has safely reached their destination. Vital information for which site engineers will gladly pay a small subscription fee.
Finally, he gave us a possible use case in insurance. Insurance companies can install sensors on plumbing lines in house, for example, and modulate the water temperature based on weather. Ensuring that they don’t freeze and rupture. And in case they burst, insurers can immediately put the homeowner in touch with a plumber to come home and fix the breach. This can substantially reduce the risk for both the owner and the insurer.
These examples show how the established infrastructure and processes that legacy companies have can be a tremendous advantage. An advantage that digital natives don’t have. With the right technology, they can harness more data and create previously unthought-of services.
What’s needed is bold imagination to tap into that advantage.
The Path Ahead is Open for Legacy Organisations
Through new technologies like AI, IoT and NLP, companies, both modern and legacy, have begun to solve the trilemma of data volume, velocity and variety. Applying APIs, they’re managing where the data should go in real-time; they’re using sophisticated algorithms to unearth insight from it and rethinking what’s possible. Subramaniam’s research provides a framework for this rethinking. It is shift away from the view of data supporting business to one in which data is the business. In short, the path ahead is truly open for legacy organisations.