When Google bought Nest, a maker of digital thermostats, for $3.2 billion just a few months ago, it was a clear indication that digital transformation and connection are spreading across even the most traditional industrial segments and creating a staggering array of business opportunities and threats.
The digitization of tasks and processes has become essential to competition. General Electric, for example, was at risk of losing many of its top customers to nontraditional competitors—IBM and SAP on the one hand, big data start-ups on the other—offering data-intensive, analytics-based services that could connect to any industrial device. So GE launched a multibillion-dollar initiative focused on what it calls the industrial internet: adding digital sensors to its machines; connecting them to a common, cloud-based software platform; investing in software development capabilities; building advanced analytics capabilities; and embracing crowd-based product development. With all this, GE is evolving its business model. Now, for example, revenue from its jet engines is tied to reduced downtime and miles flown over the course of a year. After just three years, GE is generating more than $1.5 billion in incremental income with digitally enabled, outcomes-based business models. The company expects that number to double in 2014 and again in 2015.
Karim R. Lakhani is a Professor of Business Administration at the Harvard Business School and one of the Principal Investigators of the Laboratory for Innovation Science at Harvard (LISH). He specializes in the management of technological innovation in firms and communities. His research is on distributed innovation systems and the movement of innovative activity to the edges of organizations and into communities. He has extensively studied the emergence of open source software communities and their unique innovation and product development strategies. He has also investigated how critical knowledge from outside of the organization can be accessed through innovation contests. Currently, Professor Lakhani is investigating incentives and behavior in contests and the mechanisms behind scientific team formation through field experiments on the Topcoder platform and the Harvard Medical School.
Marco Iansiti, David Sarnoff Professor of Business Administration, heads the Technology and Operations Management Unit and the Digital Initiative at HBS.
Professor Iansiti is an expert on digital innovation and transformation, with a special focus on strategy, business models, and new product development in high technology industries. His research studied innovation and operations in both firms and firm networks. He examined the strategy, business models, and innovation processes of a variety of organizations including Microsoft, Facebook, IBM, Hewlett Packard, Wal*Mart, AT&T, Dell, Amazon, and Google, among many others. He is the author or coauthor of more than 100 articles, papers, book chapters, cases, and notes, including “The Ecology of Strategy” (with R. Levien) and “Digital Ubiquity” (with K. Lakhani) which were published in the Harvard Business Review. His second book The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability (also with R. Levien), published in August 2004 by HBS Press, was selected as one of the 10 best business books of the year by Strategy and Business. His latest book One Strategy: Organization, Planning, and Decision Making (Wiley Press, 2010) was written with Steven Sinofsky.