Disruptive Innovation Creates Business Dilemma

In a rapidly changing technology and business environment, companies across industries such as information technology (IT), airlines, retailers, media, and banking are experiencing major disruptions by new and disruptive technologies and business models. The success of recent companies such as Dell, Facebook, Google, Best Buy, eBay, Salesforce.com, Virgin Blue, easyJet, Netflix, and ING Direct in capturing market share is a classic example of disruptive technologies and business models. The term disruptive innovation first gained popularity in 1997, coined by Harvard Business School professor Clayton Christensen in his book The Innovator's Dilemma. Christensen focused on how to embrace disruptive innovation to advantage and for survival. A sustaining innovation hardly results in the downfall of established companies, because it improves the performance of existing products along the dimensions that mainstream customers value. Disruptive innovations create new user excitement and acceptance along with the dumping of existing products and services. Apple's iPhone and iPad are clear examples of disruptive innovations that users accepted unequivocally.

Disruptive Innovation Introduces New Paradigm

Disruptive business models focus on creating, refining, reengineering, or optimizing a product/service, role/function/practice, category, market, sector, or industry. The most successful companies incorporate disruptive thinking into all of their business and management practices to gain distinctive competitive value propositions. Despite that, many established and often well-managed companies struggle with disruptive innovation. This is mostly because companies have been doing the same things with a regular source of sustained revenue and are not willing to cannibalize and change. We have seen many companies across every sector that have failed to embrace disruptive technologies or business models. They remained focused on making incremental gains through process improvements, were satisfied with their business models, and didn't recognize the threat of disruption until the last moment. Companies that haven't seen these innovative models as an opportunity have lost their edge and gone out of business.

To stay ahead in today's rapidly changing business environment, organizations need agile business processes that allow them to adapt quickly to evolving markets, customer needs, policies, regulations, and business models. The convergence of these emerging technologies and business practices—cloud, social, mobile, video, and big data–driven analytics, along with business process management (BPM)—is opening up interesting avenues for businesses.

Service-Oriented Architecture and Business Process Management Drive Systems of Engagement

Social and mobile business models have already contributed important new frameworks for collaboration and information sharing in the enterprise. While these technologies are still in a nascent state, BPM and service-oriented architecture (SOA) solutions are well established, providing a history of clear and complementary benefits. This is not surprising, given that BPM and SOA have arisen as the natural result of business and information technology (IT) users striving to work together more efficiently and effectively.

Learning from customers' past experiences, interactions, and social conversations provides valuable insight that can be used to improve products, enhance customer-facing processes, and ultimately improve the overall customer experience. As stated in Chapter 1, although the five “Perfect Storm” technologies (cloud, social, mobile, video, and big data) have developed separately, their convergence at this time has been recognized as the “Tornado” phenomenon described by Geoffrey Moore. This “chasm” decision making is driving enterprise information technology adoption strategies for IT that is creating business value in terms of agility. Since we are taking a “whole product” approach to digital business strategy for virtual enterprises, utilizing the digitization of customer-focused business practices, processes, and protocols will produce superior customer experience management solutions.

Clearly how this convergence is transforming customer value propositions throughout the business world is the theme of this book. So we want to illustrate how the converging actions of the Force 5 Tornado may be harnessed to enable competitive advantage by defining their synergistic interrelationships as shown in Figure 2.1 as the Force 5 Tornado Data Model. The common element of the Force 5 Tornado technologies of cloud, social, mobile, video, and big data–driven analytics is the value of information to anticipate the future. The interrelated five Forces of the Tornado are disrupting product-focused businesses as laggards and replacing them with more valuable customer-centric business ecosystems.

As the technologies and business practices surrounding cloud, social, mobile, video, and big data–driven analytics as well as SOA and BPM mature, IT and business stakeholders are discovering new ways to work together and engage customers via dynamic business processes that address several important business imperatives.

Contemplating further, we find that fragmented data, disjointed systems, and multichannel interactions make it difficult to deliver a consistent customer experience. Such inconsistent experiences result in lower customer satisfaction and a loss of business in the longer term. There are multiple opportunities to up-sell and cross-sell products that impact the bottom line. If companies can't identify such opportunities, bring a product to market quickly, or offer the right product to the right customer at the right time, significant loss of revenue may occur. Furthermore, it is paramount for businesses to embrace regulations such as know your customer (KYC), export/import laws, payment card industry/data security standards (PCI/DSS), and taxation policies. They must also comply with the service-level agreements (SLAs) that they have committed to their customers. If they don't meet these requirements, they can face serious fines, penalties, and losses of business.

Business processes are at the heart of what makes or breaks a business, as well as what differentiates it from the competition. Business processes that deliver operational efficiency, business visibility, and agility give an enterprise an edge by enabling it to conduct business in a cost-effective, dynamic way. As organizations strive for greater efficiency and effectiveness, they create or adapt technology to fill their needs. Force 5 Tornado technologies of cloud, social, mobile, video, and big data–driven analytics are driving a fundamental business transformation with agility. Astute organizations are implementing these technologies to respond to today's multifaceted business challenges and to take advantage of new opportunities.

In order to take advantage of the convergence of cloud, social, mobile, video, and big data–driven analytics to become more innovative, nimble, and adaptive to change, we must first understand how these technology-based solutions work independently of one another.

We will explore this convergence in more detail later in Chapter 2 with the focus on video as a fifth force of the perfect storm. Video has strong implications for transforming the way businesses relate to and engage their customers via technology. The fact that we include video reflects our convictions that it is another important technology enabler that recently has changed consumers’ behavior in many ways. Smart devices with built-in cameras that record good quality video offer consumers the power to capture events on film at the time of happening and report them to the world via social media. Real-time news streaming is relying on crowdsourcing for real-time news and videos from social feeds. These videos have not only challenged and transformed news agencies and media reporting, but also have helped in capturing consumers' feedback and support across all industries around the globe.

The recently emerging cloud-based technologies and cloud operating environment (discussed in detail in Chapter 3) based on a scalable elastic model have supported a new services deployment model that can be consumed globally from anywhere on any device. The cloud platform has enabled enterprise solutions to fit into Christensen's framework for disruptive innovation. This new technology platform for computing offers cheaper, simpler, and often wider alternatives compared to legacy models of enterprise computing.

These models have encouraged established corporations to respond by adopting the new business models alongside their established ones. According to Michael Porter and other strategy theorists, managing two different business models in the same industry at the same time is challenging because the two models and their underlying value chains can conflict with each other. For example, airlines selling tickets through the Internet to fight back against their low-cost competitors risk alienating their existing travel agents.

Social computing concerns the intersection of social behavior and computational systems. It encompasses various technologies and tools for social engagement, social media monitoring, and analytics. As consumers share experiences on social networking sites such as Twitter, Facebook, LinkedIn, and Google+, astute organizations are tapping into the dialogue to better understand their customers and prospects. Analyzing the data generated from social interactions can reveal insights into what customers want, need, and prefer, a body of knowledge commonly called customer sentiment. Social computing tools help organizations identify key trends and develop ideas for new products and services. Within the workplace, companies use similar social technologies for collaboration, brainstorming, and innovation. Wikis, chats, discussion threads, content ratings, gamification, and crowdsourcing are commonplace.

Mobile computing implies more than just doing familiar tasks from new devices and locations. Today's mobile applications infuse device-centric features such as GPS-driven geolocation services, contextual search results, gamification, and the ability to interact easily with social media sites for group validation. Smartphones and tablets support these new modes of interaction while integrating traditional work-related tasks, drawing on information from enterprise information systems. The mobile technology landscape is driven by consumer apps that utilize a variety of operating systems, tools, languages, and platforms. Innovative organizations are taking advantage of mobile computing advancements to help employees, partners, and customers connect and collaborate, regardless of location.

Big data is a major revolution of current times and will have a larger impact in advanced analytics in the coming years (discussed in detail in Chapter 8). Big data is becoming relevant in all business cases and will help in gaining competitive advantage. As the technology platform is maturing rapidly, organizations need to give strategic importance to big data sources to gain insights and to offer their products and services based on customer needs. Analytics and business intelligence based on new big data sources will help business decision makers with greater predictability.

Business process management (BPM) represents a strategy of managing and improving business performance by continuously optimizing business processes in a closed-loop cycle of modeling, execution, and measurement. Everything companies do to attain their business goals involves a process, structured or unstructured. BPM technology helps organizations to create, document, and modify business processes quickly and drive process changes in a nontechnical, business-friendly manner, along with technology for implementing, executing, and monitoring end-to-end processes. BPM systems often span numerous departments and IT systems in an organization. By merging technologies and functions into a seamlessly integrated environment, BPM gives technologists and business specialists a common language for achieving their shared and separate goals.

Service-oriented architecture (SOA) has become a popular method for linking disparate applications across many different business lines and functions, thereby centralizing and improving process efficiency. It facilitates the creation of loosely coupled, interoperable business services that are easily shared within and among enterprises. Companies utilize this architecture for its reuse and agility. When properly constructed and interfaced, SOA applications can last for decades in the form of virtualized enterprise applications. SOA interoperates with all parts of the IT architecture to integrate business applications, moving them onto a common service bus and a common work flow engine.

Having understood these key technologies concepts at a very high level, we need to analyze further how the convergence of these technologies and business models would help in driving business agility.

Effective collaboration is often fueled by information that is created and managed both within the business and through external sources. To complete an assigned task, knowledge workers must access and discover many pieces of information. For many organizational processes, this has increased the number of people who are involved in a completely unscripted and undefined chain of events. Without a defined process, the time required to complete an activity increases.

In addition to discovering information and people who can aid decision making, employees continually create new information using a variety of tools and resources, both within and outside the company. The use of these tools is typically not well coordinated in the context of what these people are working on. Even more troubling, many knowledge workers can't access them. The term social BPM is sometimes used to describe the use of social tools and techniques in business process improvement efforts. Social BPM helps eliminate barriers between decision makers and the people affected by their decisions. These tools facilitate communication that companies can leverage to improve business processes. Social BPM enables collaboration in the context of BPM and adds the richness of modern social communication tools.

In conjunction with SOA, social BPM increases business value by extracting information from enterprise systems and using it within social networks. Meanwhile, social technologies permit employees to utilize feedback from social networks to improve business processes.

Let's look at some examples of how the convergence of BPM, SOA, and social technologies can improve internal efficiency for employees and create better experiences for customers.

With the advent of social networks and mobile technology, companies need to focus not only on process efficiency but also on customer engagement. Customers demand to interact with companies via new types of social and mobile channels. They want to place their orders using mobile phones and tweet about their issues. Companies need to gear up to meet these expectations according to the customers' demands. Most companies are organized into departments such as marketing, sales, and service. They might maintain prospect data in a salesforce automation system, order information in an enterprise resource planning (ERP) system, and customer issues in a customer relationship management (CRM) system. In order to best serve the customers, organizations must pull information scattered across systems, include information from social networks, and create a unified customer view. No matter what channel customers use and no matter what departments they contact, they get a consistent response from the company. BPM helps deliver these experiences and design customer experiences that integrate the underlining channels, systems, and applications to make sure that accurate, consistent information is delivered to the right people at the right time across any channel of interaction.

In addition to orchestrating systems and channels for consistency, BPM also enhances decision making. By using data from both current and historical transactions, sales and service professionals can determine customer preferences, customer value, and churn propensity. When infused into the process and presented in the right context, this insight can enable knowledge workers to make timely suggestions, such as presenting a targeted offer, giving a discount, or offering a troubleshooting tip based on experiences with similar customers. BPM in conjunction with complex event processing (CEP) capabilities can “listen” for event patterns and identify customer issues as they arise (credit card stolen, baggage lost, or change of address). Powered with this insight, systems can trigger alerts or invoke corrective processes immediately. Such abilities let customer service reps take action before routine issues snowball into disasters.

In order to succeed in the most competitive business environment, an IT organization needs to understand the business requirements for new information and how it can affect measurable business outcomes and help drive innovation. The increasing volume, variety, and velocity means data will need different infrastructures for accessing, storing, managing, analyzing, governing, presenting, and collaborating on, and sharing information.

CIO-CMO Alignment via Business Process Management and Balanced Scorecard

The need for developing a system of engagement (SOE) using cloud SOA products, including platform as a service (PaaS) middleware for BPM services, is a fundamental core of the Ecosystem Hub architecture. This will also support adaptive strategic planning processes, described in Chapter 1, as well as adaptive real-time operational planning processes with big data analytics (BDA) collaboration services. See Figure 2.2 for an illustration of the key elements of BDA services delivered by the Ecosystem Hub architecture.

As previously stated, Ecosystem Hubs provide the environment that facilitates digital business web services for applications such as inventory visibility, BPM, and performance metrics displayed in real-time dashboards. Application software developed using an SOA and deployed as web services has provided the technology base for the concept of the next-generation Internet—Web 2.0.

Systems of engagement (SOEs) are emerging as a new paradigm for both consumer and business applications. Users are tempted to access multiple channels such as mobile, social, locations, and maps in the context of their transactional applications to make effective decisions. These sources render various data types (mostly unstructured or semi-structured) that need to be captured, processed, and analyzed in real or near real time to provide information that users are seeking from their systems.

In a 2011 white paper, management and IT leader Geoffrey Moore introduced the term systems of engagement to describe systems that focus on “empowering the middle of the enterprise to communicate and collaborate across business boundaries, global time zones, and language and culture barriers, using next-generation IT applications and infrastructure adapted from the consumer space” (Castiglioni and Crudele 2013).

Business Agility Readiness Transformation

The disruptive technologies such as delivery platforms (cloud, social, mobile), communication and collaboration channels (web, mobile, social), and big data (structured and unstructured) are influencing major business transformations almost at the same time. As written by Geoffrey Moore, systems of records such as enterprise resource planning (ERP), supply chain management (SCM), customer relationship management (CRM), and human capital management (HCM) have delivered great transactional and operational efficiencies to business. These systems need to undergo major transformation and be complemented with systems of engagement, and finally need to be supported with multidimensional scoring (MDS) to create business agility.

Business Agility Circle of Influence

The biggest technology influences of the next half decade include cloud computing, social media (or more specifically social business), next-generation mobility, big data, and predictive analytics. These will not only help the current businesses to survive and thrive but also help build digital businesses with greater agility. Systems of records (SORs) of the past helped business with transactional data, providing facts, numbers, charts, and reports to run business operations successfully. Systems of engagement (SOEs) with the evolution of social media influence relationships and trust in the context of records.

Now in the current business environment, multidimensional scoring is the big idea to explore, evaluate, and deploy to measure business agility in a much more tangible way.

What Is Multidimensional Scoring (MDS)?

Grading, rating, scoring, and return on investment (ROI) have been talked about in many business contexts. We have discussed use of the balanced scorecard to evaluate the success of business parameters. Lead scoring has been extensively used in the context of customer relationship management, but Lauren Littlefield explains three-dimensional scoring as the next big thing in measuring success in business quantitatively. This concept is illustrated in Figure 2.3.

Systems of records (SORs) render facts and figures about businesses while systems of engagement (SOEs) drive relationships, and, in turn, relationships drive revenue. Three-dimensional scoring ultimately turns engaged relationships into revenue-driving streams that can be measured.

We tend to measure the effectiveness of everything in our lives, and that holds true for businesses as well. Business entities such as products, services, customers, suppliers, employees, and their profiles, life cycles, and engagement must be measured for agility that provides sustainable competitive advantage.

Customers are the most valuable assets of any business, and they are directly responsible for the success of business; therefore it is extremely important to profile them (company, contacts, etc.) and score them individually as to their likes and dislikes, behavioral patterns, buying decisions, recommendations, connections, favorites, and so on. The profile score enables direct communication and engagement strategies, helping achieve a higher conversion rate of closure.

Scoring and profiling all business entities such as customers, employees, partners, and suppliers will directly provide metrics to measure the time and resources that need to be deployed based on the score.

Measuring Relationship in Systems of Engagement

We have assessed the significance of relationship in business. We know that business entity relationship plays an important role in business process optimization and effectiveness. But new behavioral and social inputs in the process add the third dimension in the 3-D metrics that will play a highly significant role in the next generation of business agility.

Recall the discussion in Chapter 1 of the role of trust in the culture of a digital business as the key to virtual enterprise relationship management as a core competency for business ecosystem success. Therefore, we add trust expressed in terms of “listening to own conscience” as the fourth dimension in the multidimensional scoring (MDS), as shown is Figure 2.4 that would further enhance innovation in driving business agility.

Listening to Own Conscience: Fourth Dimension in Driving Agility

Listening to our own inner conscience offers the voice that will add the fourth dimension in the multidimensional metrics to provide business agility.

In his book Self Power (Ebury Publishing, 2012), Deepak Chopra, MD, highlights the power within every individual and the spiritual awakening coming from divine power to create something new or to solve the greatest challenges. He describes the three levels of emotions in awareness:

1. Contracted
2. Expanded
3. Pure

This concept is both logical and spiritual, and has higher levels of consciousness relationship to self-power. He further describes how consciousness is linked to the spiritual solution that must be scored and graded in the multidimensional metrics.

Stephen R. Covey in his book The 8th Habit: From Effectiveness to Greatness (Free Press, 2004) also emphasizes the necessity to find your own inner voice and express your voice with vision, discipline, and passion, and as coming from divine power and conscience. He then advocates inspiring others to find their voices to inculcate leadership.

In the book Behind the Cloud (John Wiley & Sons, 2009), Marc Benioff, founder and CEO of Salesforce.com, outlines his initial awakening to leverage the disruptive innovation offered by the Internet. He made several trips to Hawaii over several months in quest of his inner voice and conscience. Benioff decided it was time to think more deeply about the technological landscape—and his own career—so he took a sabbatical that started with a trip to India, where he met a diverse variety of people, including a spiritual leader and humanitarian, Mata Amritanandamayi. Despite all the technological resources available to him, he listened to his inner conscience and executed what he found there with passion to create Salesforce.com as one of the most innovative business corporations of recent times.

In accepting Hall of Fame induction by the San Francisco Bay Area Council, Larry Ellison, founder and CEO of Oracle, chose to praise Steve Jobs for his creative genius in our generation. He characterized Jobs as a philosopher, an artist, and an inventor who always listened to his inner voice and conscience and applied what he found there with tireless diligence and meticulous precision until his last breath to put the most sophisticated Apple devices in our hands and to converge major technologies. According to Ellison, Jobs was our Edison and our Picasso who was singularly focused on turning ideas into things that worked.

These references to inventions and innovations support the notion that people should listen to their own inner consciences, surrounding them with all other dimensions of information. It is paramount to allocate a grading pattern to this fourth dimension.

The automobile industry is not an exception to this disruptive innovation in technologies. U.S. automakers lost their competitive edge in the face of Japanese automakers' innovative cost and fuel efficiency. Recently, Tata Motors announced its Nano, which will retail for 1 lakh, or about $2,500, in the Indian market. It is a fully functional, four-door vehicle that aims to replace motorbikes. Small Brazilian company Obvio is set to release its first hybrid car, the 828, at a price of $14,000, less than half the cost of a Toyota Prius. By radically redesigning the traditional automotive production and distribution processes, Tata is positioned to grow sales of cars across the developing world and perhaps ultimately in low-end segments of the developed world. This is an example of disruptive innovation where competitors will have to create entirely new processes to produce a similar product, and it will not be easy to make a profit at this price by stripping down a conventional car. Tata Motors is targeting not only scooter and motorcycle buyers who pay around $1,250 today but also customers who need cars for commuting in busy traffic. Tata Motors introduced new automobile design and production processes to create a new market for the Nano. The company is also planning an innovative distribution model of shipping semifinished parts to rural entrepreneurs who can assemble and service these cars and customize them to suit customer needs. This innovative and disruptive model of distribution and being able to make to order on demand would help facilitate greater customization in the auto industry.

These emerging technologies such as social and collaborative power of software (discussed in Chapters 4 and 5) have also started disrupting the conventional business model by encouraging the carrying out of business from anywhere, not necessarily needing to have physical infrastructure. It is much easier to start business operations remotely, assemble the team globally, and build the global virtual team with the help of collaborative technologies.

We have witnessed the failure of electronic retailer Circuit City, which was focused on low prices, while competitor Best Buy rapidly moved to greater value for customers, not just a focus on price. Circuit City, the consumer electronics giant, went bust and closed down its large number of retail stores due to the lack of innovation in its business model while Best Buy offered value-added services and an innovative approach to business that helped it to survive, thrive, and prosper.

Besides many other factors, Circuit City was slow to adopt the latest technology and remained in Web 1.0 with its website not being easy to navigate. In contrast, Best Buy kept enhancing the customer experience with the latest technology on the Oracle Web Experience platform and with online strategies that had the customer at the center of the company's efforts. Similarly, leading bookseller Barnes & Noble, video rental store Blockbuster, and Circuit City were all faced with a dilemma and unable to recognize the leading technology innovation of Internet-based delivery that gave rise to Amazon, Netflix, and Best Buy. It's the same thing that has been happening to the newspaper and publishing industries: New and more efficient business models have emerged, making previous models increasingly obsolete.

Netflix's rental-by-mail model and Redbox's $1 DVD kiosks are the clear winners over Blockbuster's business model, but the online video distribution models that Netflix, Hulu, YouTube, and others have pioneered are also disrupting the DVD market.

Video: New Disruptive Technology for Digital Content

The amount of video has rapidly increased in recent years. Creating video content and dissemination has been easier than ever before using smart devices with powerful cameras. Recently, YouTube reported more than 4.5 billion hours watched per month. Netflix reported 1.5 billion hours of video consumption. People post their videos on YouTube, look for some entertainment, and send videos to friends on social media.

The share of total video plays by mobile and tablet platforms continues to take away playing time from other devices, as reported by Ooyala as part of its Global Video Index for the fourth quarter of 2013. Ooyala, the software as a service (SaaS) video management and analytics company, releases the aggregated numbers developed from its client base that serves 200 million viewers globally. The mobile plus tablet share of video plays reached almost 18 percent—an increase of more than 10 percentage points over the 7 percent reported a year earlier. The report predicts that mobile video “could make up to half of all online video consumption by 2016” (Seave 2014, March 31).

Long-form content dominates all device viewing. Long-form content is considered content that runs 10 minutes or longer, and even longer-form content is 30 minutes or longer (Seave 2014, April 1):

• Watching content for longer than 10 minutes is at 61 percent for desktop video viewing, 60 percent for tablets, 75 percent for mobile devices, and 81 percent for connected TVs.
• Watching content for longer than 30 minutes is at 34 percent for desktop video viewing, 36 percent for tablets, 53 percent for mobile devices, and 63 percent for connected TVs.

We live in an increasingly digital age. More than a third of the world's population uses the Internet today; by 2017, nearly half will. In developed economies, these numbers are far higher: In the United States, for example, the share of the population using the Internet will increase from 83 percent today to 87 percent by 2017 (Webster and Perry 2013).

Reaching the connected audience effectively requires the ability to create highly engaging experiences, and digital video has quickly become a critical component of these experiences. About half of worldwide Internet users watch video online today; by 2017, almost two-thirds of worldwide Internet users will be watching video online (i.e., some 2.2 billion people). In the United States, 76 percent of Internet users watch video over the Internet today; by 2017, 85 percent of Internet users will watch video over the Internet.

Let's explore some of the use cases for digital video. Broadly, there are two camps that publish digital video, and their goals are somewhat different.

Travel Industry Disruption by Force 5 Tornado

The travel industry has a history of IT innovation disruption and now digital video is disrupting the marketing of destinations in the tourism industry:

1. First, the global distribution system changes airlines reservations…
2. Then, disruption via Internet disintermediation of travel agent in 1990s…
3. Now, DMAI Futures Study cites destination marketing organization disruption via “Googling”…

The travel, tourism and hospitality use case describes a destination marketing industry scenario that illustrates how the Ecosystem Hub Implementation Roadmap can be employed for evaluating business agility readiness. The example used is for the Sonoma County Tourism (SCT) Ecosystem as depicted in the example shown in Figure 2.5 for the “to-be” SOE deployed for the next Sneakaway campaign.

The Epilogue contains the keystone scenario assessment of business agility readiness for the SCT Sneakaway campaign. Recall that this use case features an overview of the development of the Ecosystem Hub via the cloud-based Simpleview Social CRM Partner Extranet to further describe the SCT Ecosystem. As such, key issues surrounding cloud, social, mobile, video, and big data analytic applications are discussed.

Remember that this case study will continue to evolve in order to provide an illustrative real-time story of how the Force 5 Tornado technologies can create the business agility needed to gain and sustain your competitive advantage. It may be accessed via the Creating Business Agility blog. Stay tuned for more…!!!