Digital transformation: Get your head out of the cloud

This is the first of a five-part blog series.

So, one of my New Year’s resolutions was to blog more, but to date I’ve been blogging about as much as exercising. That said, as my IoT strategy and planning team grows at Dell Technologies, it’s freeing up a little time and there’s no time like the present. This is the first in a five-part series about the importance of digital transformation, why I like to say we’re in the “AOL stage” of IoT, and how we get to IoT advanced class, including through enabling a cloud-native edge.

Let’s kick it off with a buzz

I get it, digital transformation is a buzzword. Nonetheless, it’s a very important concept to embrace and one that will likely determine the future growth or demise of your business.

In fact, Pierre Nanterme, CEO of Accenture, has stated that digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000. If you want to know the reasons why, grab a coffee, get comfortable and read on.

It’s about rapid innovation

Here’s my short prediction of how most businesses will operate going forward: They’re going to develop applications to power a smart service or device, which will drive an entirely new customer engagement and, in the process, transform their business.

That business will generate data, which will be analyzed to improve the performance of the application and identify what new features are required. In turn, this will provide new insights to generate a whole new set of applications, which will lead to additional customer services. And so the cycle of innovation will continue.

It’s about rapidly delivering outcomes

Critically, the speed that the business can react and reiterate this cycle represents competitive advantage. I believe that this is the way every digital business in the future is going to operate. It’s all about pace of innovation. Think about it as shifting focus to outcomes and services rather than just producing widgets.

Power by the hour

Remember the pioneering 1980s Rolls-Royce initiative “Power by the Hour” — an arrangement where Rolls-Royce maintained ownership of the jet engines, managed maintenance and repair, charging customers on a fixed cost-per-flying-hour basis? Over the years, we’ve seen many industrial manufacturers follow this path by offering performance-based contracts tied to product availability or usage.

Heating things up

Nest is a great early IoT success story, where it redefined the thermostat to keep your home comfortable while using less energy. As a result, other thermostat makers were forced to redefine their products to compete by offering similar outcomes.

In another well-known example, many years ago, Xerox had the vision of creating Managed Print Services, where it managed fleets of printers and multifunction devices, even those made by other companies, for enterprise clients using a simple click-charge pricing model. Xerox took care of maintenance, upgrades, paper and toner replenishment, with clients only paying for pages printed. All in all, a better customer experience at a lower operating cost.

Air as a service

When the 100-year old company Kaeser Compressors began building intelligent air compressors, it was initially about offering predictive maintenance as a service to customers. This has since led to an entirely new business model — “air as a service,” with pricing based on the consumed quantity of compressed air. Interestingly, performing maintenance on customer equipment used to be a revenue generator for Kaeser, but in this model, if one of the machines fails not only does revenue stop, but it’s a cost center for them to fix it.

New business opportunities

So, now there’s new commercial pressure to build reliable products and minimize maintenance downtime, using predictive capabilities. While this type of transformation requires a major change in mindset, it opens up exciting and completely new business opportunities to drive continuous value from these products.

A new mindset is required

If you think about it, the “old way” of developing products has been reactive to customer needs, whereas the “new way” is about trying to predict customer needs and adapt through continuous improvement. This is increasingly possible because we have a more intimate understanding of user behaviors and context based on continuous telemetry from connected products.

Value is cumulative

The value is no longer just in the product itself at the time of purchase, but the perceived future value from feature updates and a growing ecosystem.

So here are my three takeaways for the new product mindset:

1. 1. The new control points are personalization and continuous connection with customers;
   2. The network effect is a critical consideration — either find the ecosystem your product participates in or build one yourself; and
   3. It’s key to break down large capital investments and create stickiness to ensure recurring revenues. You have it with your smartphone today.

Nurturing existing products

Putting some of this in context, Sonos is a great example of a company that believes in continuing to nurture its existing product line through regular software updates. When the Play:1 launched five years ago, it required a device called a bridge to hook into your home router. Today, updated software allows these same Play:1 devices to stream songs without a bridge. And if you happen to already have a bridge, a software update repurposes them to act as network extenders for Sonos speakers to be used in the far reaches of a large house.

Ecosystems — build one or join one

More recently, Sonos released Trueplay to breathe new life into users’ existing products. This feature, which arrived via an update to the Sonos mobile app, helps map a room’s unique acoustic properties to optimize the way each speaker plays. This is all about tweaking your business model to adapt to user needs and building an ecosystem in the process.

Another example of this constant customer connection and delivery of continuous value is how Tesla updates its cars over the air with new features. For example, the company recently pushed out the automatic ride-height feature to clear known bumps based on location.

It’s all about results

Let’s switch to the goal: business results. Consider a handful of stock gains since the recent low point in the U.S. market in January 2009. Netflix has grown over 9,000%, Domino’s Pizza over 6,000%, Amazon over 3000%, Apple just shy of 1,500% and Google just over 600%. [Insert scratching record sound here.] You might notice that one of these companies is not quite like the others!

Let’s talk pizza

The Domino’s story is great. At the end of 2008, Domino’s was threatened by declining sales and distressed franchisees. For starters, it realized its pizza just wasn’t good anymore. Domino’s fixed that (and being partial to pizza, I must admit it’s now pretty tasty), but to accelerate winning customers back, the company recognized that data was a huge asset and decided to embrace digital transformation.

Digital transformation for a bigger piece of the pie

So, in recent years, Domino’s has been finding all the digital ways possible to allow you to order pizza with minimal human effort. Fast Company named Domino’s one of its “Most Innovative Companies of 2017,” in part because of its “zero-click” ordering app that, when opened, automatically sends in the customer’s preloaded preferred order after a 10-second countdown, not to mention its cloud-based AnyWare app that lets users order from their Samsung Smart TV, PlayStation 4, Amazon Echo and even their car (using Ford’s Sync service).

Get this — you can even tweet a pizza emoji via Twitter or open a chat on Facebook Messenger.

All in all, Domino’s offers at least 10 ways to order pizza online. The company now gets more than 60% of its orders through these various digital platforms. However, Domino’s isn’t just leading the way in ordering innovations. The company has also partnered with Ford to test autonomous delivery vehicles that also feature an actual oven. There is even a wedding registry for Dominos — you couldn’t make this stuff up! (And where was this when I got married?!)

As a result, the Domino’s Pizza share price has since increased over 6,000% — more than a bunch of other foundationally high-technology companies. The company is now worth $12 billion and went from having a 9% share of the pizza industry pie (pun intended) to 17% today, recently surpassing its biggest rival, Pizza Hut.

Let’s not forget, this is a pizza company. So, if you think you can’t or shouldn’t digitally transform, think of Domino’s!

Key to this new mindset is the speed at which you can build and release software. Think about it — modern software companies are releasing features many times a day, globally.

This quote from James McGlennon, CIO of Liberty Mutual and a Pivotal customer, sums it up well: “One of the things we’ve learned is that if you can’t get it to market more quickly, there is no doubt that the market will have changed.”

Cloud-native as a key enabler

I believe that the concept of cloud-native is a big foundational enabler for this necessary scale and agility. There are different interpretations of what cloud-native means out there, but here are some key attributes, borrowed from the Pivotal website within the Dell Technologies family:

• • DevOps is the collaboration between software developers and IT operations with the goal of constantly delivering high-quality software that solves customer challenges. It has the potential to create a culture and environment where building, testing and releasing software happens rapidly, frequently and more consistently.
  • Continuous delivery, enabled by agile product development practices, is about shipping small batches of software to production constantly, through automation. This means that organizations can deliver frequently, at less risk and get feedback faster from end users.
  • Microservices is an architectural approach to developing an application as a collection of small services. Each service implements business capabilities, runs in its own process and communicates via HTTP APIs or messaging. Each microservice can be deployed, upgraded, scaled and restarted independent of other services in the application, typically as part of an automated system, enabling frequent updates to live applications without impacting end customers.
  • Containers offer both efficiency and speed for deploying individual microservices, but they can of course be deployed via other means as well.

Platform independence

A primary tenet of cloud-native is platform-independence so you’re not reliant on one infrastructure, especially a public cloud that can get very expensive when the data meter really gets humming. Teams retain the ability to run apps and services where it makes the most business sense — without locking into one vendor’s cloud.

However, don’t let the “cloud” in the name fool you — the term “cloud-native” is about how software is built and deployed, not where it’s run.

Tune in for my next blog, which will talk about how I like to say that we’re in the “AOL stage of IoT,” which leads to a paradigm I like to call “Pi and the sky”. In the meantime, I’d love to hear your comments and questions.

Keep in touch. Follow me on Twitter @defshepherd and @DellEMCOEM, and join our LinkedIn OEM & IoT Solutions Showcase page here.

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