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Philip Evans - "How Data Will Transform Business (Summary)

Philip Evans whole talk centered on the present expansion of business models and
as well as his views as to how the enormous data will have some bearing on upcoming
businesses. He gave emphasis to the nullity that Bruce Hendersons and Michael Porters
theories regarding business strategies will bring in the future. It was his argument that from
the irrelevancy of these theories, vast data will emerge as the new instrument that will
transform-business.
Bruce Hendersons idea articulated that the more we do of something,
disproportionately the better well get. And therefore he found a logic for investing in such
kinds of overwhelming mass in order to achieve competitive advantage

Michael Porter agreed to hendersons though he qualified it that businesses have


multiple steps to them . they have different components and each of those components
must be driven by a different kind of strategy a company or business might be advantaged
in some activities but disadvantaged in others . formed the concept of value chain

Invalidated first is transaction costs there are really two components to transaction
costs one is about processing information and the other is about communication. These are
the economics of processing and communicating. Communication costs have actually been
falling even faster than transaction costs these falling transaction costs have profound
consequences because if transaction costs are the glue that hold value chains together and
they are falling, there is less to economize on

One thing that doesnt get much attention how is that model of colossal sharing
across all of those kinds of databases compatible with the business models of institutions
and organizations and corporations that are involved in this business today? If your
business is based on proprietary data, if your competitive advantage is defined by your data,
how on earth is that company or is that society in fact going to achieve the value thats
implicit in the technology? They cant

Technology is driving the natural scaling of the activity beyond the institutional
boundaries within which we hve been used to thinking about it and in particular beyond the
institutional boundaries in terms of which business strategy as a discipline is formulated

The plummeting of transaction costs weakwns the glue that holds the value chains
together and allows them to separate the polarization of scale economies towards the very
smallallows for scalable communities to substitute for conventional corporate production
the scaling in the opposite direction toward things like big data drive the structure of
business towards the creation of new kinds of institutions that can achieve that scale

Big science these kind of transformations render the traditional premises of


business strategy obsolete they drive us into a completely new world they require us to think
very fundamentally differently about the structure of business and it makes strategy
interesting again

Philip Evans talk summary: (though the video is absolutely worth watching)

1. Premise of business strategy rests on increasing returns to scale and the value
chains dependence on viable transaction costs (value chains glue)

2. Transaction costs are a function of processing information and communication


cost. Communication costs are plummeting rapidly.

3. Existing stock of digital data will increase 100 fold by 2020, resulting in a ten
thousand fold increase in number of visible patterns. Massive increase in data volume is
driving down communication costs at a ridiculously fast rate.

4. Example: Mapping the Human Genome in the year 2000 took 10 years and 200
million usd, the same can be done today for 1,000 usd. Imagine the retail level applications
when this figure drops to 100 dollars and 2 days processing time.
5. The plummeting of transaction costs weakens the glue that holds value chains
together, and allows them to separate. The polarization of scale economies towards the very
small allows for scalable communities to substitute for conventional corporate production
(Britanica to Wikipedia)

6. The scaling in the opposite direction, towards things like big data, drive the
structure of business towards the creation of new kinds of institutions that can achieve that
scale. But either way, the typically vertical structure gets driven to becoming more
horizontal.

7. If we were to look, for example, at the energy sector, where all the talk is about
how households will be efficient producers of green energy and efficient conservers of
energy, that is, in fact, the reverse phenomenon. That is the fragmentation of scale because
the very small can substitute for the traditional corporate scale.

8. This means that we need to think about strategy as the curation of these kinds of
horizontal structure, where things like business definition and even industry definition are
actually the outcomes of strategy, not something that the strategy presupposes.

9. Thus we need to work out how to accommodate collaboration and competition


simultaneously. We need to accommodate the very large and the very small simultaneously.
And we need industry structures that will accommodate very, very different motivations, from
the amateur motivations of people in communities (think Wikipedia) to maybe the social
motivations of infrastructure built by governments, or, for that matter, cooperative institutions
built by companies that are otherwise competing, because that is the only way that they can
get to scale.

10. These kinds of transformations render the traditional premises of business


strategy obsolete. They drive us into a completely new world. They require us, whether we
are in the public sector or the private sector, to think very fundamentally differently about the
structure of business, and, at last, it makes strategy interesting again.

Customer is King is the fundamental apostle of marketing and sales function in any
given business organization. Marketing & sales are always based on some basic principles:
understanding customers, designing products and services according to the customer
needs, delivering the quality product and building trust. From the very early stages the basic
concept of marketing remained the same i.e. all activities should be customer centric and
result oriented.

As a marketer we have to satisfy the customers by bridging the gap between the
available products and services and their current needs. From show more content

In the words of Gartner, big data can be defined as -

Big Data is high-volume, high-velocity, and/or high-variety information assets that


require new forms of processing to enable enhanced decision making, insight discovery and
process optimization

Todays data crunching world offers every business the opportunity to translate Big
Data into big sales. The term "big data" doesnt just refer to the data itself but it also refers to
the different competencies, challenges and capabilities associated with storing, managing
and analyzing such huge data sets. Big data allows and enables marketing professionals
have closer look at the customer and consumer.

We can thus enlist how big data will impact the future of sales and marketing:

1. Improved Business Models, Products and Services: Manufacturers now use data
captured when consumers use their products to improve upon their existing offerings,
thereby creating new and improved models that benefit the consumer and push them to buy.
2. Customer engagement: It can help the marketers not only in knowing who your
customers are ,but also where theses customers are , what they want , how they want to be
connected and when .

3. Customer retention and loyalty: It can help the marketers to analysis what attracts

Businesses need to compete in the marketplace to satisfy customer needs by creating


unique value for the customer. When companies create value for the customer, they
are rewarded with future business opportunities. Companies that fail to create value
for customers, or do it less efficiently than the competitors, will be less profitable and
may eventually go out of business. According to Bruce Henderson, the founder of
Boston Consulting Group, all competitors who persist over time must maintain a
unique advantage by differentiating over all others. Managing that difference is the
essence of long-term strategy.

The most successful companies in the world today, such as Facebook, Google, Apple,
Nike, Procter & Gamble, and Toyota, have created enviable positions in the market
via differentiated product offerings that offer a unique value to the customer.
Competition is a necessary condition for developing strategy. Monopolies, that by
definition have weak or no competition, do not spend a whole lot of time and
resources to strategy development.

We live in an era of hyper-competition. Globalization has made the world a smaller


place, and businesses can leverage resources from all around the world to compete.
During the past many decades, businesses have focused on reducing costs via
outsourcing of non-critical activities to lower cost locations, as well as on realigning
their resources internally to deliver better value to the customer at a lower cost.
However, becoming more efficient in operations does not mean a business has a
strategic advantage over the others. Others are also trying to reduce costs and become
more operationally efficient at the same time. Thus operational effectiveness becomes
a necessary, but not sufficient, condition to perform well in the marketplace. Many of
the tools and techniques of operations management, such as Total Quality
Management, Supply Chain Management, Lean Operations etc. make a business more
competitive.

A business can surpass its competition only if it can establish a sustainable


competitive advantage, i.e. a difference that it can preserve. Competitive advantage
can emerge from many approaches, such as superior product design, high quality
reputation, supply chain management, novel ways of reaching the consumer such as
Amazon.coms web-only strategy or Dells direct to consumer strategy. All
competitive advantage is temporary, since as soon as a company achieves excellence
in one area, others will rush to copy its features, thus weakening its differentiation.
For example, Apple Macintosh was the first computer aimed at the mass market to
have a graphical user interface and a mouse. It was soon copied by IBM clones and
Microsoft, thus eroding Apples differentiation. Even today, Apple continues to lead
in user interface innovation, such as touch and gestures on iPhone, iPod Touch and
iPads. However, competitors such as RIM Blackberry, Nokia and LG have already
started copying this innovation.

Strategy involves deliberately choosing a different set of activities to deliver a unique


mix of value to the customer. For example, Amazon was an early mover in the e-
commence space and quickly established a unique position in the minds of the
consumer as a reputable vendor on the web. It did not have a brick and mortar store
presence. It stayed true to its web-only strategy while many competitors have moved
to a hybrid physical store as well as web presence.

Apple moved into the retail space as a way to reach its customers that were not being
served well by its distribution channel comprising PC retailers. Its move into retail
was widely criticized as doomed to failure because Apple had no retail experience.
Critics could point to the failure of Gateways strategy of company owned stores to
reach its customers. Apple defied conventional wisdom and focused on offering a
superior customer service experience, modeled on the quality experience of Four
Seasons hotels. Its retail strategy has been an outstanding success, leading to
establishment of 364 stores worldwide by early 2012, including the USA, UK,
Canada, Japan, Australia, Switzerland, Germany, Italy, France and China. Today,
Apple has the highest sale per square foot in the retail industry, beating even Tiffanys
that sells diamonds and jewelry. Microsoft tried to copy Apples retail strategy by
opening its own stores. As of early 2012, it only had 18 stores. Its future in retail is
open to speculation at the moment.

According to Prof. Michael Porter of Harvard Business School, a thought leader in the
field of corporate strategy, the essence of strategy lies in choosing to perform
activities differently than competitors. Apple has consistently outperformed its
competition by creating unique value through unique activities. Take iPods and
iTunes as an example. When iPod was introduced in 2001, it had modest sales. When
the iTunes store opened in 2003, iPod sales took off. Today, iTunes store sells more
music than Wal-Mart, and commands over 70% of all downloaded music. It had 27%
market share of all music sales in the US in 2010. Whereas many competitors such as
Microsoft and Google have tried to copy iTunes, they have not been successful in
mounting a challenge to Apple. Finally, Microsoft killed its unsuccessful Zune music
player after spending billions of dollars over several years trying to get a foothold in
the consumer market.

In France, they have a saying: Vive la difference (Long live the difference). It is true
in strategic thinking as well.
In the last 12 months there have been $76 billion dollars in social
business IPOs and more than $1.5 billion dollars in social business
acquisitions. LinkedIn, Facebook, BazaarVoice, Radian 6, Vitrue,
and Buddy Media are now all either part of large companies or have
become well-funded public companies in their own right.
Yet, with each major event the market finds itself doing some soul
searching. Doubts about either valuation or value creation hound
every conversation, and despite the attention lavished upon social
media by hundreds of millions of consumers and businesses alike
there remains a debate: are we engaged in mass delusion or mass
enlightenment?
Personally, I have never felt more certain that the naysayers are 100%
wrong. Here is why.
We are in the middle of one of the most dramatic shifts in the history
of the communications landscape. Cheap processing power,
ubiquitous network access, mobile computing, and the
democratization of the tools of self-expression have given almost
everyone the ability to share their thoughts and ideas for free,
worldwide. Through the trust and respect of your friends or followers,
network effects ensure that every idea has the potential to reach and
influence an unimaginably large audience.
Increasingly, the home of this activity is a collection of centralized
platforms that enable consumer interaction at greater volumes and
with less friction than was possible even 36 months ago. To no ones
surprise, once it became apparent that Facebook, Twitter and other
social networks were going to be viable consumer engagement
platforms, marketers began to salivate over the prospects of reaching
these enormous audiences with targeted and relevant messaging.
There was, and is, a problem however. The history of modern
marketing has, primarily, been the history of brand marketing. For
100 years marketers have sought to combine the best ideas, with the
best copy, and artwork to create objects that are magnets for
consumer engagement. Brands then seek out an optimal mix of mass
audience attention via magazines, radio, television and outdoor, place
their beautiful work product... and wait for people to show up in
stores. In aggregate this kind of activity resulted in a
$500,000,000,000 market for brand advertising in 2011.
What is shocking to anyone under the age of 30 is that the amount of
money spent on traditional brand advertising has not really changed
very much since the advent of the Internet. Despite all the upheaval of
the last three decades, just 10% of the worlds total marketing spend is
placed online. This is not because brand marketers are stupid, old, or
lazy. It is because over the last twenty years the Internet has failed
brand marketers at every turn. To put it simply, the Internet has
proven to be the perfect direct response marketing medium, but a
wasteland useless to any marketer that cannot sell their product
directly online. If Pampers, Coca Cola, and Nissan could have spent
more money in digital they would do so. They just never could. Until
now.
Enter Social.
For the first time since the Internet became available hundreds of
millions of consumers are consistently congregating in a single place.
At the same time, consumer behaviors are rapidly shifting toward an
ever more permissive model of sharing and privacy. Individuals want
to share their lives online. They want to interact with companies they
approve of. They want to tell their friends about the latest and greatest
piece of content they have found. The opportunity to unlock the $500
billion brand engagement opportunity online has finally arrived and it
has come in the form of social media. Facebook knows this and so
does Google. Brands that effectively unlock this opportunity will have
an unparalleled competitive advantage: they will be the first brand
marketers to succeed via the Internet. It will happen.
Social marketing, and more specifically authentic engagement at
scale, is proving to be the key to unlocking and achieving the brand
outcomes marketers are desperate to find in digital. As a result,
meaningful budgets are being allocated to social marketing and
engagement. Even GM, who famously pulled all their Facebook
advertising on the eve of the IPO, continued to spend three times its
ad budget on developing earned and owned engagement with
consumers via Facebook.
So whats wrong?
The single biggest issue is measurement. Without sound
measurement marketers lack the ability to judge the effectiveness of
their work and speak the language of CEOs, CFOs and CMOs around
the world. Unfortunately, sound measurement has been hard to
obtain in social at any price. Rather than correlating social
engagement to well-defined brand goals, many marketers have
attempted to justify spending in social by reporting on followers and
likes. Others have employed weak proxies like ad equivalency spend
or simply transposed the math from search and banner campaigns in
an attempt to attribute conversion.
These approaches diminish or entirely miss the true impact that
social engagement at scale has on brand-based business outcomes.
Trying to bolt on television or performance measurement models to
social just won't work.
Fortunately, after nearly half a decade and thousands of articles
calling for a return on investment in social marketing, weve finally
reached the point where we can stop uselessly calling for an ROI of
social media and get on with the business of measuring it.
How? Welcome to the era of performance brand marketing where
measurement of social engagement using big data will transform the
way brand marketers view the internet.
After collecting and analyzing the real time social engagement of over
30,000 brands, hundreds of millions of social accounts, and over 15
billion social signals a month through our Social Business
Index at Dachis Group, I've seen it. Ive seen clients eyes pop and jaws
drop when we show them the detailed information of their customer,
employee, and partner/vendor advocates worldwide. It. Is. Exciting.
Big data analytics finally allows marketers to identify, measure, and
manage what is positively impacting their brand. Social media activity
harvested from the entire open social web with technologies like
Hadoop, Cassandra, Mahout and Pig combined with advanced
analytic techniques like natural language processing, semantic
analysis, machine learning, and cluster analysis can reveal the true
consequences of marketing actions online.
These developments enable a whole new world of brand measurement
for digital marketers. Unlike most approaches to web analytics that
can only attribute directly measurable consumer action, big data
analysis of social performance offers campaign data that correlates
with impact on brand. For example, in Super Bowl XLVI we used big
data to analyze the actual engagementof all the Super Bowl ads during
the game. The traditional measure provided by USA Today AdMeter
suggested that Coca-Cola had done rather poorly, yet when we
examined the actual levels of consumer response and engagement
Coca-Colas was top of the charts.
The insights that these new measurement techniques creates must
then in turn inform campaign execution that helps brand engage
authentically at scale. The challenge is daunting. A typical brand's
extended social ecosystem of company, employee, partner and
advocate accounts ranges into the hundreds of millions of potential
unique contacts. The sheer number of people, accounts, and
permutations in the data make the opportunity to engage
meaningfully with that audience almost unfathomably large.
To reach the promise of authentic engagement at scale, many forward
leaning brands are beginning to coordinate these voices to amplify
and focus the brands identity. IBM is reported to have 30,000
employees authorized to tweet. New York Life supports and helps
coordinate independent insurance agents across the country.
Companies like Red Bull and Nestle drive world-class advocacy
programs. And Nokia runs a best in class influencer management
program to support and educate experts in the mobile space. The list
goes on and on.
This fundamental shift in marketing can only happen with the use of
big data to foster engagement at scale. The world of brand marketing
has shifted from brands communicating at people through mass
communications, to a world where brands are created, built and
amplified to communicate with people through a mass of
communicators.
Ultimately, big data will enable brand marketers to genuinely
understand, measure the impact of, and effectively targeted
investments against their efforts to engage in social; and thus allocate
meaningful brand marketing dollars to social engagement initiatives
amplified by paid media support. I believe that this impact will more
than justify a huge valuation of not only Facebook, but whichever
other social platforms are eventually able to offer brands not yet
another form of advertising, but the ability to truly engage at scale.