Digital technologies are playing a significant role in the modern economy and digital business transformation. However, digital transformation without a proper implementation strategy can bring hurdles in the business’s success journey. Inadequate evaluation of the offerings of digital technologies makes organizations assume that any application of cutting-edge digital technologies will lead to successful digital business transformation. As a result, many enterprises make impromptu business decisions about the utilization of digital technologies and it becomes difficult for them to maintain competitive parity, despite making substantial business investments. It is recommended to hire experts for professional digital transformation services to ensure a successful digital transformation journey.
To help you understand the full value that digital technologies can offer, here are four examples, each of which focuses on the strategic benefits available at different tiers of digital transformation.
First Tier - Operational Efficiencies
Ford implements a new automated visual assessment of paint jobs in its plants through AR and VR, the Internet of Things (IoT), and Artificial Intelligence services. Leveraging these advanced technologies, the company enhances blemish detection and minimizes defects in its cars. Here, data is generated by the latest technologies from factory assets, and AI utilizes this data to identify and prevent manufacturing defects simultaneously.
Second Tier - Forward-looking Operational Efficiencies
Installation of sensors on construction equipment products has helped Caterpillar to track how each of them is used at a construction site. It notices that customers utilize their motor graders to level lighter gravel instead of heavier dirt. Leveraging this insight, the company launched a cost-efficient motor grader specifically designed to level gravel rather than dirt.
Just like Ford, Caterpillar also benefits from operational efficiency profits by enhancing product development productivity. However, the only difference is that the company’s sensor data is generated from customers using their products and not from manufacturing plant assets.
The customer aspect brings additional challenges. So, the efficiency advantages in the second tier of digital transformation also go beyond asset utilization.
Third Tier - Data-based Services from Value Chains
General Electric (GE) tracks product-sensor data from their jet engines, evaluates it using Artificial Intelligence, and provides real-time guidance for pilots to fly in a manner that optimizes fuel efficiencies. GE then appropriates a portion of the cost savings of their customers through new incomes from result-driven revenues. In other words, their customers pay a portion of their savings from fuel efficiencies along with the payment for the product.
In this case, the initiatives involve making changes in the existing business model from one that is designed to produce and sell products to one the offers data-driven services to online customers.
GE’s research and development, sales, product development, and after-sale service units, all are digitally connected to generate, receive, analyze, distribute, and respond to the sensor and IoT data from thousands of disconnected products in real-time. As this generates new revenue streams, it does more than improving operational efficiency.
Four Tier - Data-based Services from Digital Platforms
Peloton utilizes product-sensor data generated from its exercise equipment to build a community of users and to match users with appropriate trainers. Peloton’s products produce user-interaction information and then the company uses it to accelerate exchanges between its online customers and other third-party entities involved in its value chains. AI technology matches individual users to ideal trainers based on the product-user interaction data analysis.
Like GE, Peloton is not only earning new revenues from its data-based services but also by expanding its products into digital platforms. The third tier of digital transformation is one of the most challenging tiers for industrial-age legacy organizations and companies operating with value-chain-based business models and a bit of experience with digital platforms.
To bring more operational efficiency and enterprise mobility, enterprises should invest in custom enterprise app development services offered by experts.
Key Digital Value Drivers
To understand better about the aforementioned tiers of digital transformation, you need to first identify that modern digital technologies have two key digital value drivers:
Data in its new extensive role, and
Evolving digital ecosystems.
Data changed from episodic (produced from discrete events, for example, the shipment of a component from a supplier) to interactive (produced from sensors and the IoT in real-time). Continuous tracking of assets and their operational metrics can improve business productivity.
Most importantly, this interactivity swapped the roles of products and data. Traditionally, data has supported products, but, now products are supporting data. Products are not limited to delivering functionality, building a brand, or generating business revenue anymore; they now also act as channels for interactive data and sources for new consumer experiences.
To make the most of interactive data’s new expansive role, organizations require a network of data generators and recipients. Such networks can originate from the sensor and IoT-powered connectivity that amount to digital ecosystems.
There are mainly two types of digital ecosystems that have emerged. One is the production ecosystem, which covers digital connections within value chains. For example, by connecting sensor and IoT data generated from cars to spare-part suppliers, service dealers, and warehouses, etc., car companies can deliver predictive car maintenance services.
The other one is the consumption ecosystem, which encompasses the external value chains of a company. For instance, smart light bulbs are installed on street lamps to sense bullet shots; their consumption ecosystems involve a network of camera feeds, ambulances, 911 operators, and everything which ensures street safety.
Productions, as well as consumption ecosystems, are driven by interactive data which drives new value. Considering the 4 tiers of digital transformation, the first three tiers depend on production ecosystems while the fourth one relies on consumption ecosystems.
Which Tier is Suitable for Your Company?
Before investing in digital transformation services, it is important to create an effective digital transformation strategy. To define an optimal digital transformation strategy, you need to evaluate your requirements to engage at each of the four tiers of digital transformation and then think of making investments that will help you unlock the advantages of interactive data and digital ecosystems.
First Tier
This tier is a must as almost all companies can leverage the benefits of operational efficiencies. The majority of digital business transformation initiatives are made in the first tier. For example, firms such as oil and gas run oil wells, refineries, and pipelines that need substantial investments; improvement of operational efficiency is a must.
If these organizations adopt use IoT devices and AI to locate reserves and to maintain pipelines and refinery assets, they can save about 60% of their operational costs. Major challenges encountered in this tier involve the installation of extensive interactive data generation in asset utilization and breaking data distribution silos.
Second Tier
The second tier is essential for companies selling products that can access interactive data from users, which can be leveraged for the strategic benefit that exceeds what’s available in the first tier. The second tier is the end if existing product-user interactive data is not open for revenue-generating services. Most of the consumer goods come under this category. The main use of interactive data in these businesses is to enhance efficiency in advertising or product development.
Third Tier
This tier is for firms who want to generate data-driven services from products and value chains. Such companies must augment their production ecosystems to extend their strategic advantage from business operational efficiencies to new data-driven services.
In the third tier, companies start using data not only for operational efficiencies but also for revenue generation. The third tier is the final stop if your company does not have access to a consumption ecosystem.
Fourth Tier
The fourth tier is strategically essential for any company whose products have evolving consumption ecosystems. Companies that remain within their production ecosystems in such scenarios are at the risk of being commoditized. Their main challenge is extending products into digital platforms.
Final Thought
It’s obvious that not every company will want or afford to engage in all of the four tiers of digital transformation mentioned above. Some may choose to focus on one or two. However, every company must constantly strive to tap into new opportunities.
Investing in digital transformation services that utilize a comprehensive strategy, considering the above-mentioned tiers, will help you provide value to business value to your customers.
