Digital Transformation I: An Introduction

The key statements in looking at the digital transformation case for GE are as follows. First and foremost was the companies top executives to see that there was a problem before there was a dramatic impact on their revenue(the lifeblood of any company.) Their leaders were able to see that there was going to be a threat, or opportunity, in the digital world to their value chain. Then perhaps equally importantly the decided to act decisively. They poured resources and fresh manpower/leadership into areas that required the most rapid expansion. In this way they were able to leverage their relationships with large industrial customers to gather and control massive amounts of data. The next step in the process was to leverage that data into sustainable resource generating assets. This takes the form in their data analytics and data "solutions" they sell to customers. Keep in mind that these customers could by all rights do this by themselves internally, however GE has been able to leverage their relatively unique position as providers to a network of industrial customers to create a network that's total is definitely greater than the sum of its parts. It is this all important "network effect" that leads to an incredibly scale-able and lucrative business model.

A similar if not as dramatic a transformation has taken place at Netflix. As at one time they primarily shipped pysical DVD's they quickly moved to steaming data. Now, they like other online content distributors such as Hulu, have started to generate their own shows or "content." In this was they have transcended their original role as strictly distributors all together and moved on to capture more of that value chain.

I believe the key takeaway from this article is that the creation and control of networks of data is the bedrock upon which truly profitable businesses will be based in the future. Digital assets will become much more valuable than tangible assets even in areas like heavy industry eventually. As margins are squeezed ever tighter by stronger and stronger competition for tangible traditional revenue streams, which have strict anti trust laws to prevent any one player from dominating the market, these revenue streams will return less and less margin up to a limit. Digital revenue provides opportunity to generate large revenue without necessarily owning large capital structures. Furthermore the digital world is largely dominated by what are essentially monopolies and they have found a way to operate despite dominating certain markets. Google dominates internet search engines. Facebook dominates social media, displacing the incumbent Myspace in one of the strongest examples of network disintegration available. Uber dominates personal transportation. The point is there are generally one winner and many losers in digital industry. Further the disparity between 1st and 2nd place is generally very large because the winner is able to dominate the marketplace. This allows for greater margin and a much more scale-able business model which can drive profitability into the future.