Businesses did not always view information as a source of value. Manufacturing was about producing things, logistics for delivering the things to customers or intermediaries, and retail or services for selling the things to satisfy demand. Information was created at each point along the way (when goods were produced, shipped, or sold), reflecting the activities that were being transacted at each step in the end-to-end process. IT systems reported on this information in order to track the flow of goods and services from point to point, from firm to firm. Information was the end of the line – a necessary byproduct of business activity.
Today, however, more firms view information not as the end point, but the enabling engine for efficiency and growth:
- Manufacturers of physical assets such as heavy machinery (e.g., oil rigs, wind turbines) are collecting information about the assets in use. Data scientists analyze the information in order to determine early signs that predict failure. This information becomes the basis for value-added predictive maintenance services that benefit customers, while becoming a new revenue source for the manufacturer.
- Logistics companies monitor information in real-time on traffic conditions and redirect vehicles in order to work around obstacles. The resulting improvement in delivery time of parts or merchandise provides greater efficiency in production and increased customer satisfaction. Further analysis of delivery patterns has enabled companies to revise their distribution networks, simulating delivery performance across a range of alternative hub-and-spoke models.
- Retailers can measure the impact of weather (e.g., storms) on sales in particular locations to help predict where demand will increase, such as more sales of snow shovels and down parkas when a blizzard is forecast. Then they can use a distributed warehouse model to move inventory to the store where it will likely be demanded. The overall result is increased efficiency of operations and increased customer satisfaction when they are able to find the goods they wish to purchase.
In each of these product-centric industries, the firms that view information as a strategic asset have a competitive advantage via improved operational efficiency to reduce costs and value-added services to grow revenue. The same principle applies to firms in industries based on information objects.
Take insurance, for example. One company in the Midwestern United States had a business processing automobile accident claims. Their clients were insurance companies, auto repair shops, and auto companies. They soon realized that the information they were collecting in the course of transaction processing was valuable to each of these constituencies. So they built an add-on business to sell relevant extracts of this information in the form of reports to their customers and partners. But they didn’t stop there. With a ready audience for their information products, they went on to build estimators for insurance adjusters who could access the mobile app while examining the vehicle in order to provide estimates on the spot. These estimates, in turn, are new sources of data on industry trends that can also be leveraged.
The lesson is that firms that are leaders in their industries view information as their differentiator in the marketplace, increasing in value each time it is touched or used. They also promote an information-centric culture among their employees – and that will be the subject of my next blog post.
For more expert advice on dominating your industry in the digital economy, see Algorithms: The New Means of Production.