Digital Transformation Review 9: The Digital Strategy Imperative #DTR9

#DTR9
The Digital Strategy Imperative:
Steady Long-Term Vision, Nimble Execution
N°09SUMMER2016

The Digital Strategy Imperative:
Steady Long-Term Vision, Nimble Execution
CapgeminiConsulting’sEditorialBoard
@capgeminiconsul
www.linkedin.com/company/capgemini-consulting
Chief Executive Officer
cyril.garcia@capgemini.com
@Cyr_Garcia
Cyril Garcia
didier.bonnet@capgemini.com,
@didiebon
Senior Vice President
Didier Bonnet
Head of Digital
Transformation Institute
Jerome Buvat
jerome.buvat@capgemini.com,
@jeromebuvat
dti.in@capgemini.com
The Digital Transformation
Institute
www.capgemini-consulting.com
DIGITALTRANSFORMATION
INSTITUTE
#DTR9
N°09SUMMER2016

Contents
06
12
20
Editorial
Crafting a Bold and Balanced Digital Strategy
The End of Stability: Rethinking Strategy for an
Uncertain Age
Rita McGrath, Columbia University
A Portfolio Strategy to Execute Your Digital
Transformation, by Capgemini Consulting
30
40
Should You Become a Platform?
A Platform Strategy: Creating New Forms of Value in the
Digital Age
Marshall Van Alstyne, MIT/Boston University
Visa: The FinTech Giant Leading Digital’s Platform
Revolution
Mark Jamison, Visa Inc.

78
84
Working with the Startup Ecosystem
15 Startups to Watch and What Their Value Proposition
Can Teach Your Business
Brian Solis, Altimeter @Prophet
50
60
68
Executing Your Digital Strategy: Acquisitions/
Greenfield or Organic Growth?
GE: How an Industrial Leviathan became a Digital Giant
Beth Comstock, GE
Telstra: Securing a Bright Digital Future for One of
Australia’s Most Iconic Organizations
Jawwy: How a Saudi Digital Venture is Rewriting the
Telecom Rulebook
Subhra Das, Jawwy - From STC
The Rise of Innovation Empires Worldwide
Monty Hamilton, Telstra
By Capgemini Consulting and
Altimeter @Prophet

Digital Transformation Review N° 096
Strategizing in a Digital World
Introduction By Capgemini Consulting’s Editorial Board
Strategizing in a Digital World – Editorial
“How did you go bankrupt? Two
ways. Gradually, then suddenly.”
TheselinesfromErnestHemingway’s
The Sun Also Rises resonate in
an economic environment where
organizations face digital disruption
from agile young startups to
established tech giants. Companies
compete in a world where Facebook
Figure 1: The Great Reshaping of Industry Boundaries
has a bigger population than China,
Applehasmorecashonhandthanthe
US Treasury, and Amazon is making
rapid inroads into the consumer
goods sector, already boasting over
3,000 private-label products1
. The
average life span of companies in the
S&P 500 has declined from 61 years
in 1958 to about 20 years now2
.
Change is everywhere today. As
Figure 1 shows, industry boundaries
are being redefined, access to assets
is becoming more important than
ownership, and linear value chains
are becoming connected ecosystems.
This new environment requires a
strategic rethink. In this edition of
the Digital Transformation Review,
we examine the approaches that
organizations can take to crafting a
strategy for a digital age, focusing on
the following key questions:
1. How do you design a digital
strategy in today’s uncertain and
volatile world and understand
how much reinvention of the
organization is required?
2. Should your company become a
platform, or be a part of one?
3. What are the most successful
approaches to executing digital
strategy – acquisitions, partnerships,
Greenfield?
In addition to Capgemini Consulting’s
analysis, we spoke to a wide range of
experts on these topics, from CXOs to
academics and analysts, who offered
views from across the world, from the
US to Middle East (see Figure 2). The
acceleratingpaceoftechnologychange
is also examined through the ‘startup
corner’, where the next-generation of
digitaldisruptorsareprofiled.
Cost Leadership / Differentiation as
Weapons
Closed / Industrial Innovation
Consumption / Brand Control
Owned Resources / Assets, Erect Entry
Barriers, Lasting Competitive Advantage
Linear Industrial Value Chains
Sharp Industry / Category Deﬁnition
Product / Service Centric Model
Connected Digital Ecosystems /
Platforms
Blurring industry Boundaries /
Adjacency / LateralCompetition
Experience is Everything
Co-creation / Communities /
Collaborative Economy
Access, Loaned / Shared Assets / Scale
Effect is Advantage
Data Analytics / Optimization / Predictive
Open Innovation
(3rd
Party, Co-Creation, Crowd Sourcing)
Value is Primarily based on Assets
Value is Primarily based on Interactions
& Scale
SUPPLY-SIDE ECONOMICS DEMAND-SIDE ECONOMICS

Digital Transformation Review N° 09 7
DIGITAL TRANSFORMATION REVIEW
Figure 2: Guest Contributors to the Digital Transformation Review N° 09
Digital Strategy for an
Uncertain Age
The End of Stability.
We open the Review in
conversation with Rita McGrath,
Professor at Columbia Business
Schoolandanacknowledgedexpert
on strategy. Professor McGrath
explains why organizations need to
be nimble in an age of accelerated
change and disruption. However,
nimbleness does not signal any
decline in the importance of long-
term direction. As she says, “it is
actually more important than ever
to have a long-term strategy.”
A Portfolio Strategy.
Creating a digital strategy raises
significant questions. What level
of risk are we willing to take on
innovative new business models?
Can we deliver our digital strategy
in-house or do we need to partner?
Capgemini Consulting’s article
addresses these questions and
explains why we believe success
comes from managing digital
transformation as a strategic
portfolio. Leaders need to establish
a clear way forward in three areas
that we call the how, the what and
the why of digital strategy.
Should You Become a
Platform?
Building a Platform Strategy.
Having a great product and adding
new features to it iteratively is
not enough today. Marshall Van
Alstyne, co-author of “Platform
Revolution” and a research
scientist at the MIT and professor
at Boston University, believes
you need to be a platform and
that “Even a weak platform will
outperform a strong product every
time.” A platform is a combination
of rules and infrastructure that
adds ever-increasing value to
Marshall Van
Alstyne
Boston, USA
Rita McGrath,
New York, USA
Mark Jamison,
San Francisco, USA
San Francisco, USA
Brian Solis,
Melbourne, Australia
Monty Hamilton,
Subhra Das,
Saudi Arabia
Beth Comstock,
New York, USA

Strategizing in a Digital World – Editorial
all its users as usage increase, as
exemplified by the likes of Airbnb
and Uber. Globally, platform
companies have a market value of
over $4.3 trillion3
and companies
have upended entire industries by
harnessing the platform business
model phenomenon.
“If you generate network effects
and figure out how to generate
demand-side economies of scale
in your industry, then you will be
on track for one of these winner-
takes-all positions.” Professor
Marshall Van Alstyne
Visa: The Original Fintech
Platform Giant
Visa is probably one of the first
large financial industry players
to put its payment platform at the
very center of its digital strategy.
For Mark Jamison, Global Head
of New Product Development at
Visa Inc., “the winning models
in the market place are the ones
that build their business as a
platform.” The company has
also recently announced that it
is opening its platform to third-
parties, giving it access to fresh
ideas and perspectives. “There is
so much creativity and ingenuity
in the world that third parties
will come up with innovative
ideas in payments that we had
never thought of,” explains Mark
Jamison.
Executing Digital Strategy
GE: From Industrial Leviathan
to Digital Giant
GE has been in the Dow Jones
Industrial Index since the original
index was established in 1896.
But this venerable company has
also showed itself to be extremely
nimble and committed to
continuous transformation. In the
latestchapterofitsstory,beginning
in 2011, GE has embarked on a
digital transformation at scale. GE
is building a cloud-based platform
for the Industrial Internet, Predix,
and in doing so is creating both a
“network effect and an intelligence
effect”. GE has a billion dollar run
rate investment so far into its
digital initiatives and its ambition
is to get $15 billion in revenue by
2020. But these are still early days,
barely a third of the way into GE’s
digital transformation, says Beth
Comstock, the first female vice
chair of GE.
Telstra: Digitizing an Iconic Brand
Telcoshave,inrecentyears,struggled
with flat-lining revenues, increased
competition from over-the-top
players and poor levels of customer
satisfaction. In this environment, an
Australian telco stands out by virtue
of its rapidly increasing customer
satisfaction and an ambitious digital
transformation program. Telstra,
an iconic Australian company, has
embarked on this transformation
path through its digital unit, Telstra
Digital. Monty Hamilton, head of
Telstra’s digital operations, spoke
with us to outline how Telstra is
driving digital innovation in its
customer experience, crowd support
and startup accelerator.
Jawwy: Rethinking Telecoms for
the Digital Age
What happens when your customer
base wants a Facebook-like
experience from your traditional
business? If you are Saudi Telecom
Company, then you take that
challengehead-onandcreateadigital
telco.AsSubhra Das, CEO of Jawwy
– STC’s digital venture – explains,
“When you want to reimagine and
carve out a new experience, and do
that rapidly, you have no choice but
to go Greenfield.” We spoke with
Subhra Das to understand what
it takes to reimagine a traditional
telco from the ground up as a digital
service provider.
The Startup Ecosystem
Innovation Centers – Refreshed
Silicon Valley has held the
mantle as the world’s capital of
innovation for many years and
for many a good reason. However,
large organizations have come to
realize that no one geography has

The view from digital’s front-line
“The new formula of success is that you don’t do it all yourself – you have to know what you have to be
uniquely good at.” – Beth Comstock
“You can invest millions of dollars in technology but if you don’t have a culture that enables you to collaborate
across the organization, then nothing will change.” – Monty Hamilton
“We are building a new digital mobile operator model with the organizational DNA and agility of an internet
player.” – Subhra Das
“The importance of a long-term strategy is to give people something to hang on to and act as a broader guide
during times of uncertainty.” – Rita McGrath
“The pace of technology change dictates that we need to invest in people whose full-time job is to focus on
things beyond 12 months.” – Mark Jamison
“Start by asking ‘What is the minimum viable platform, what is the minimum interaction that’s going to create
the most value for your external users?’” – Marshall Van Alstyne
a stranglehold on digital talent.
Our updated research on corporate
innovation centers reveals that
Bangalore is now among the
top 5 locations where large
organizations have opened up new
innovation centers, with financial
services firms leading the field in
terms of new innovation centers
opened.
Brian Solis – Startups to Watch
A range of start-ups are challenging
the way the world works through
new technology, offering closed-tube
travel at speed of ~970 kmph and
wearable patches that continuously
monitor your bloodstream and
measures your metabolic activity.
Brian Solis, a Principal Analyst
at Altimeter, a Prophet Company,
offers the view from Silicon Valley
on some of the hottest startups that
everyone should have on their radar.
We live in a fast-changing world
where disruption has changed the
nature of corporate strategy and
sustainable competitive advantage.
Organizationshavetoaskthemselves
newquestionsandmakeadetermined
leap forward, even if that journey
contains significant uncertainty and
risk. Large companies are inevitably
tied to past successes, assumptions,
cultures and systems. But we hope
this edition of the Review helps
leaders understand how to make a
break from the past and begin the
creative disruption of their business.
For more information, please contact:
Didier Bonnet (didier.bonnet@capgemini.com, @didiebon)
Jerome Buvat (jerome.buvat@capgemini.com, @jeromebuvat)
The Digital Transformation Institute (dti.in@capgemini.com)
1. Bloomberg, “Got a Hot Seller on Amazon? Prepare
for E-Tailer to Make One Too”, April 2016
2. Fortune, “Why every aspect of your business is
about to change”, October 2015
3. The Center for Global Enterprise, “The Rise of the
Platform Enterprise”, January 2016

Crafting a Bold and Balanced
Digital Strategy

The End of Stability:
Rethinking Strategy for
an Uncertain Age
Rita McGrath
Professor at Columbia
Business School
R
ita McGrath, a Professor at Columbia Business School, is one
of the foremost experts on strategy and innovation. Her work
focuses on strategy development in uncertain environments and
her latest book is called The End of Competitive Advantage: How to Keep
Your Strategy Moving as Fast as Your Business. Rita McGrath has been
recognized among the Top 10 Most Influential Business Thinkers by
Thinkers50 in 2015.
Capgemini Consulting spoke to Rita McGrath to understand how
organizations should go about strategy development in an era of
accelerated change and disruption.
The End of Stability: Rethinking Strategy for an Uncertain Age

How Transparency is
Transforming Markets and
Organizations
We are seeing major changes
across sectors – industry
boundaries are getting blurred,
companies are co-creating with
consumers. In your opinion,
what are the major factors
reshaping industries?
If I were to pick one major shift,
I would choose the impact of the
transparency of information. The
transparency of prices, values
and information has enabled the
creation of markets for more and
more things that never could have
happenedbefore.Youhavemarkets
for all kinds of commodities which
means that access to assets rather
than ownership of assets is the key
thing.
With markets becoming more
transparent, what is the big
learning for businesses?
One of the big lessons that
companies need to learn is that
customers don’t care anymore
about what companies do. It is
a very difficult message for the
industry. Customers care more
about getting their own needs met.
They will go with the firm that
is more convenient, cheaper or
user-friendly and don’t care what
industry the company is from.
Financial services is a case in point.
Silicon Valley startups are taking
over parts of the bundled banking
model and offering just select
services. For instance, Prosper for
investing, TransferWise for funds
exchange and LendingTree for
mortgages. They are not replacing
banks, but replacing many jobs
that banks traditionally did. And
that is an important distinction.
Stick to Your Long-Term
Goals but Be Nimble
The technology landscape is
fast-moving and very uncertain.
Is it still possible to have a
long-term strategy for large
corporations?
I believe it is actually more
important than ever to have a
long-term strategy. The reason
for that is that people don’t do
well under conditions of high
uncertainty. People tend to be
paralyzed when things around
them appear to be out of control
and change very quickly. The
importance of a long-term strategy
is to give people something to
Customers don’t care
anymore about what
companies do.
It is actually more
important than ever
to have a long-term
strategy.
hang on to and act as a broader
guide during times of uncertainty.
Obviously, you will have to
adjust your strategy as things go
forward - you can’t just lay out the
strategies without paying attention
to your surroundings, but the key
is to have a point of view on the
future. Intel is an interesting case
of how badly things can go when
you miss the long-term strategy.
The market was moving from PCs
towards mobile devices and Intel
completely missed that market
transition. The result – Intel said
in April that it would lay-off
around 12,000 people or 11% of its
workforce.
Intel was a giant of the PC era.
What went wrong with their
strategy?
Intel was used to designing chips
for better speed and with higher
processing power. When they
were in a duopoly with Microsoft,
higher processing speed was what
sold computers. The processing
power really limited what you
could do with your PC. As
Moore’s law progressed there were

quantum improvements in speed
and capacity. Intel followed that
trajectory rather than working less
powerful, low power consumption
chips. Their assumption was that
they were making chips for devices
that would always have access
to an electricity supply. They
were never worried about power
consumption.
If you are a large organization,
how do you create a roadmap
that is nimble enough to adapt
to changes?
Amazon offers us a very good
example of a company that does
this in a smart way. According to
Jeff Bezos, CEO Amazon, “Lots of
people get all hung up on what is
changing in the world. I focus on
what isn’t going to change. No
customer will ever say I wish your
products were more expensive,
delivered slowly and wasn’t world
class.” When you flip that on its
head and look at it that’s brilliant.
What he is basically saying is,
“Let’s focus on innovations in our
long-term roadmap around what
isn’t going to change.”
The importance of a
long-term strategy
is to give people
something to hang
on to and act as a
broader guide during
times of uncertainty.
According to Jeff
Bezos, CEO Amazon,
“Lots of people get all
hung up on what is
changing in the world.
I focus on what isn’t
going to change. No
customer will ever say
I wish your products
were more expensive,
delivered slowly and
wasn’t world class.”
Can you share success stories
of companies that have been
able to stick to long-term goals
whilst being really nimble?
My favorite example is a 150-
year company called Schibsted
in Europe. Before the internet era
Schibsted was into traditional
media, TV, newspapers and movie
distribution. In the late ‘90s the
top management understood the
power of the internet and began
significant moves to convert their
paper-based classified advertising
business into a business of selling
classified ads on the internet. The
head of strategy of Schibsted at
the time said the internet was
made for classifieds and classifieds
were made for the internet. They
relentlessly worked to convert their
systems and structures over to the
internet-based model. Schibsted
was not afraid to cannibalize their
existing business and rewarded
senior folks who were able to
switch the customers from their
analog focus to their digital focus.
Today Schibsted is among the top
three players in the whole world in
classified advertising.
When you switch and look at the
mobile world we want phones
where the battery is going to
last for a long time. Intel missed
that inflection of going from a
stationary device where processing
speed was the dominant purchase
criteria to a mobile device where
low power was the dominant
criteria. And I think they made the
assumption that mobile was never
going to be as big a market as it has
subsequently turned out to be.

The End of Five-Year
Strategic Plans
Companies spend a lot of time
preparing their three or five-year
strategy plans. Do you see this
continuing in the longer run?
I think we need to be very careful
about what we are describing. A
strategy is not the same thing as a
strategic plan and a budget. If you
don’t have a very clear distinction
between strategy and planning
or budgeting, the budgeting and
planning activities drive strategy
right out the door. Planning and
budgeting have specific deadlines,
and it’s a very organized process.
We are getting away from this
notion of reviewing classic five-
year plans full of charts and
graphs with
immovable targets
that are basically budget
documents. We are moving
towards a process of developing
strategy that is more dynamic
in terms of inception and
implementation.
We don’t hear that many
companies nowadays
talking about Crowdsourcing
strategy involving the entire
organization. Do you think it
is still an important aspect of
strategy development?
It definitely plays a role. You need
to access ideas from the frontline
because that’s where interactions
with customers take place and
where the real information about
what’s going on in the market
exists. However to come up with a
strategy,someonehastoultimately
take responsibility. One of the best
approaches
to this that I
have seen was under
AlanMulallywhenhecame
into Ford. He initiated a weekly
Business Plan Review meeting
with all his senior executives. In a
lot of companies, senior executives
know about their own area, they
don’t know what’s going on in
other parts of the firm. The first
thing Mulally did was to break that
down. The meeting was mirrored
down at each senior executive’s
team all the way down to the
organization. When you mirror
the Business Plan Review meeting
all the way down the organization,
you get inputs at that level which
then get crystallized at the weekly
Schibsted was
not afraid to
cannibalize their
existing business
and rewarded senior
folks who were
able to switch the
customers from their
analog focus to their
digital focus.

The Winning Strategy for an Uncertain Age
Focus on What is Not Going to Change Stick to Your Long-Term Goals but Be Nimble
The Importance of a Long-Term Strategy
The importance of a long-term strategy is to give people something to
hang on to and act as a broader guide during times of uncertainty.
Should You Become a Platform?
… if the addition of extra users adds
value to what you are offering
… and if transaction costs are low
YES
Greenﬁeld, Acquisitions or Organic
Growth?
If you can’t change fast enough,
you buy. - Rita McGrath
You are not good
at innovation
you have
to acquire
but if you are not good
at innovation, it’s hard to
judge the value of acquisitions
The Innovation Dilemma
Delivers world class products quickly
Focus on innovations in a long-term roadmap
around what isn’t going to change
Cannibalized existing business
Rewarded senior folks for switching
customers from analog to digital
Now top 3 player in classiﬁed ads
Amazon Schibsted Media Group

meeting with Mulally. I think it’s
a very structured approach to
getting input from all across the
organization without having it
devolve into whoever shouts the
loudest gets heard the most. Some
companies like Swiss Re and IBM
use technologies to accomplish
some of this information
sharing. Employees are invited
to give strategy perspective on a
technology platform like enterprise
social media or video blogs.
Create a Platform When
the Network Effect Adds
Value to Consumers
Companies such as Facebook
and Airbnb have been
immensely successful with their
platforms. We are now seeing
large organizations developing
a platform strategy like GE
for industrial Internet or Visa
for payments. Do you reckon
all companies should become
platforms?
There is a school of thought that
says they should. Being a platform
is unavoidable if the addition of
extra users adds value to what
you are offering. For instance,
one person on Facebook has zero
value, a billion people on Facebook
has exponential value. But if you
are manufacturing office staplers,
you will unlikely need a platform.
If I buy an office stapler, it has a
certain value to me. The fact that
you have bought the same stapler
does not really add a lot of extra
value to me.
Being a platform is
unavoidable if the
addition of extra
users adds value
to what you are
offering.
The danger of being
a platform is you are
not really in control.
If you are
manufacturing
office staplers, you
will unlikely need
a platform. If I buy
an office stapler, it
has a certain value
to me. The fact that
you have bought the
same stapler does
not really add a lot
of extra value to me.
What are the advantages of a
platform strategy?
The objective of a platform is to
be the central place where other
organizations buy, sell, transact
and communicate because you get
a little bit of revenue off of each
of those transactions. The danger
of being a platform is you are
not really in control. If your user
community decides to go to some
other platform, there is not much
youcandotokeepthemtiedtoyou.
We have seen this in MySpace or
Friendster. So, platform strategies
are not without their risks.
Do you think there are some
sectors that are more conducive
to a platform strategy than
others?
Platforms flourish where the
transaction costs are low. If you
have high transaction costs, then
it’s going to be expensive for
each member to join and chances
of them doing that are low. But
if your transaction costs are low,
then the more membership you get
the better it is for the platform.

If You Can’t Change Fast
Enough, Buy
The routes to implementing
digital strategy are many. Some
companies are going Greenfield,
others are trying to transform
the core of their operations,
while others are acquiring firms.
What is the best approach to
implement digital strategy?
The classic answer is that if you
can’t change fast enough you
buy. The trouble with acquisition
relative to organic growth is it is
very expensive. Companies that
have survived their startup phase
are going to charge a hefty fee
to be bought by a large company
that hasn’t been able to innovate
for itself. There is a bit of a
conundrum where organizations
are under incredible pressure to
innovate while at the same time
most organizations are not good
at it. The dilemma is if you are
not good at innovation, you have
to do acquisitions. But if you
are not good at innovation, it’s
also very hard to judge the value
of the acquisitions. MySpace
would be a case in point where an
acquiring company bought them
and thought that it was going to
help them get into some massive
new opportunity, only to find that
they didn’t know how to manage
it and it fell apart. If you are in an
industry with too many players
then acquisition may be your best
alternative – you take out some of
the existing providers to help get
some clarity around the level of
rivalry and pricing.
The dilemma is if
you are not good at
innovation, you have
to do acquisitions.
But if you are not
good at innovation,
it’s also very hard to
judge the value of the
acquisitions.
Platforms flourish
where the transaction
costs are low.

If a company decides to choose
the path of acquisitions, how
should they go about integrating
an acquired company?
There are three kinds of archetypes
that companies pursue when
integrating acquisitions. The first
is the Cisco model. Cisco is quite
famous for their track record in
acquisitions where the acquired
company’s logo disappears and it
becomes Cisco within 48 hours.
That’s the kind of crash and burn
theory of acquisitions where
you buy the company and own
it completely. Some acquired
companies are fine with it, and
many aren’t. The second model
is to buy a company, but leave
it on its own and they let it be
independent. That is what you
do to get into a new market or
technology. You want to let it live
its life the way it is. Amazon and
Zappos is a perfect example of this
model. The third model is where
an acquisition gets merged with
a two-way influence between the
two company’s cultures. You want
a change of the culture of your
company by going through these
acquisitions. Nokia/Alcatel-Lucent
is a good example of such a model.
How can companies choose
which path to consider –
acquisitions, greenfield or
transformation?
Speed is definitely a key
consideration. Your ability to
integrate the potential acquisition
is another. You have to be careful
with acquisitions where there is
a huge cultural gap or where the
companies bring with them huge
liabilities. For example, when
Boston Scientific bought Guidant,
it was famously described as the
second worst acquisition ever
after AOL-Time Warner. Boston
Scientific hadn’t appreciated the
cultural gaps and legal liabilities
due to defective medical products
produced by Guidant.
What would be your key
recommendations to large
organizations on their shift to
digital?
The first thing is to get an
inventory of digital and non-
digital initiatives in innovation,
business development and product
portfolio.Youcan’tmakeintelligent
plans until you know where you
stand and most organizations are
not aware of where they stand.
There are bits of knowledge
spread all over the organization
that are not centralized. Step two
- organizations need to develop a
point of view about the future for
a five- to eight-year timeframe.
They need to introspect on the
big strategy questions like which
markets to enter, what customer
demographics to target and how
to improve or differentiate product
offerings. The third step is to walk
backward from that future and
ask what are the actions needed
to move to the envisioned future.
This is also called the ‘future-back’
strategy as organizations need to
envision the future and then work
backward into what needs to be
done today to deliver the future
vision.
Are there companies that you
admire and that have been
able to succeed their digital
transformation so far?
GE would certainly be one as they
have expanded their business into
the software and analytics domain.
Procter & Gamble has also done
some very interesting work around
innovation. Delta Air Lines is
starting to leverage digital for the
benefit of their customers. Ford
and the auto companies in general
are doing some really interesting
things. General Motors recently
bought a big stake in Lyft.

A Portfolio Strategy to Execute Your
Digital Transformation
By Didier Bonnet, Senior Vice President, Capgemini Consulting
Senior Executives in pretty much all
industries have now elevated digital
transformation to the top of their
strategicagenda.Andthey’rerighttodo
so. The risk of falling behind the curve
is so great that senior leaders are not
debating whether digital technologies
will affect their competitive position,
but rather how to conduct an effective
digital transformation and how fast it
canbedone.
However, an organization’s
determination to get on the front
foot with a bold digital strategy often
falters when it comes up against the
multi-dimensional complexity of the
questions it faces and the risks it must
manage. Should we prioritize short-
term improvements at the expense of
potentially larger strategic shifts? How
fast will our industry be disrupted:
months, years, or even decades? What
level of risk are we willing to take on
innovative new business models? Can
we deliver our digital strategy in house
or do we need to partner? The list goes
on.Seniorleadersarestrugglingtocraft
digital transformations that provide a
balanced approach between strategic
riskandspeedofexecution.
Part of the problem is that many
digital transformation roadmaps
are designed as if every digital
initiative has the same impact,
time horizon, or risk level. That
is not the real world. Success
comes from consciously managing
your digital transformation as a
strategic portfolio over time. This
requires addressing three areas in
an analytical and consistent way
(see Figure 1):
■■ The Why – Insight and
foresight about how the
competitive digital landscape
is affecting your industry and
your business. This is about
new sources of value creation
aswellasthreatstoyourcurrent
position.
■■ The What – Designing a
portfolio of initiatives that
will balance the need for
short-term improvements
with longer term strategic and
business model evolution and
allow you to respond within a
risk profile that you and your
stakeholders are comfortable
with.
■■ The How – The ability to
execute on your strategy at
the right tempo, balancing
risk with the need for speed,
and making the right trade-
offs between in-house and
external capabilities.
With a command of these
frameworks, leadership teams will
gain a common understanding and
language for how they will generate
value from digital transformation,
manage risk, and establish a robust
action plan to deliver business
results.
A Portfolio Strategy to Execute Your Digital Transformation
Should we prioritize
short-term
improvements at the
expense of potentially
larger strategic shifts?
The Why: High Stakes for the
Digitally Unprepared
Getting a clear picture of how
digitization will affect your industry,
organization, and competitive
position is a complex exercise. It is
about both offense and defense.
Offense is about understanding how
digital transformation can help the
organization create more value. Do
you understand how the customer
experience can be enhanced
through digitization? What step
changes in productivity are possible
through digitizing our operations
and connecting our workforce
efficiently? Can we disrupt our
industry or an adjacent industry
using our digital competencies?
Success comes
from consciously
managing your
digital transformation
as a strategic portfolio
over time.

Figure 1: Formulating and Executing Your Digital Transformation Strategy
How are my customers
evolving?
How is the competitive
landscape changing?
How fast will my
industry/ company be
disrupted?
How do I balance short
term improvements with
longer term strategic
advantages?
How do my organization’s
value chain and business
model need to be
reconﬁgured?
How do I balance risk
versus execution speed?
How do I acquire the
resources and capabilities to
execute digital strategy?
What is the balance
between in-house and
buy/partner
The How The What
The Why
Conversely, defense is about
understanding where your
organization’s vulnerabilities and
risk exposures are in this stage of
digital transition. How is digitization
impactingthecompany’svaluechain
or the business model it operates
in? How is it changing products,
services, pricing, or distribution?
Are there opportunities for new
entrants and lateral competitors
to disrupt the established business
model? Do we have the right skills
and competences to respond? What
is the likely time horizon for these
changes?
The forces at play are complex,
and you will not be able to predict
everything. But you can proactively
shape your digital transformation
program around three types of
scenarios:
■■ Digital trends where there is a
significant level of certainty.
For instance, if you are in
retail banking today, you can
safely assume that millennial
customers will demand a
seamless and intuitive way of
connecting with your services
in digital ways.
■■ Digital trends where there is a
strong likelihood. Once again,
with retail banking, it is likely
that your branch network will
reduce in size over time and/
or will be revamped to cater for
different needs of the digital
generation.
■■ Digitaltrendsanddiscontinuities
where there is uncertainty about
the outcome. For instance,
recent development in crypto-
currency could have a profound
impact on the banking world, be
it positive or negative.

The What: Balancing the Scope
of Your Digital transformation
With a clear picture of the digital
landscape, you are in a position to
program. As you design the program,
it is essential to frame your digital
initiativesaccordingtotheirimpacton
your current operations. As Figure 2
illustrates,twodimensionsarecritical:
■■ The breadth of reconfiguration
required within the current
value chain.
There are large pockets of value
that digital technologies can
help to unlock in your current
value chain. These days, pretty
much every core process and
Once the digital landscape has been
analyzed and mapped, you need to
program accordingly—tackling the
scope of the change needed and
the speed of execution that would
maximize value creation and/or
minimizetheriskofbeingoutflanked
or disrupted. Balance is key. Too
much focus on reconfiguring the
existing operations or the short-
term gains, and you might not get
the organization ready to face the
real digital threats. Too much focus
on the reinvention and you might
end up in constant discovery with
little impact, or misread the timing
of disruptions and increase the risk
profile of the transformation.
every function of the firm can
be reconfigured more effectively
using the power of digital
technologies. For example,
specialized technologies are
available today to automate many
of the end-to-end core processes
of an HR or a finance department.
The increasing availability
of customer and operational
data has also opened up many
opportunities for value creation,
such as hyper-personalization or
predictive maintenance.
■■ The level of reinvention necessary
in the core offering or business
model.
Digital technologies have also
opened up myriad opportunities
to fundamentally alter the way
your business is traditionally
conducted. This requires vision,
creative skills, and more often than
not, opening up your organization
to an ecosystem of innovative
partners that can support you in
this reinvention. Reinventing the
business model can be a “bet-
the-ranch” strategic move, such
as moving to a platform-based
model. GE, with its “industrial
internet”isagoodexampleofsuch
aradicalmove1
. Butitdoesn’tneed
to be a make-or-break play. Many
enhancements to your service
offering or business model can be
done without creating massive
shiftsandrisktocurrentoperations,
while still generating significant
businessreturns.
Let’s look at each dimension of the
portfolio in turn.
Digital Reengineering.
Some initiatives will have a narrow
scope within your value chain (e.g.,
a single function or process) and
will not fundamentally change
your existing offerings or business
model. Although reengineering has
had bad press, the opportunities
that digital technology creates to
reconfigure processes and functions
are numerous. Often there is a need
to virtually zero-base an existing
process and digitally reconfigure
it end-to-end. The focus is on
improving operational efficiency or
saleseffectiveness,orboth.Schindler,
a world leader in elevators and
escalators, provided its workforce
with access to real-time updates from
sensors embedded in elevators. It
helped them proactively respond to
outages and schedule service visits
efficiently, thus saving 40 million
kilometers of driving and preventing
4,435tonsofemissionsperyear2
.Lily
Pulitzer, a US-based fashion retailer,
increased its same-period sales by
close to 25% in 2014 by rolling out
mobile point-of-sale capabilities in
its stores3
. Some of these initiatives
will be harder than others depending
on the level of change management
required, but all should provide
a reasonably short time frame to
value. These initiatives are therefore
essentialportfoliocomponentstofuel
investment and demonstrate early
successes.

BUSINESS OFFERING / MODEL REINVENTION
VALUECHAINRECOGNITION
VALUE-CHAIN
TRANSFORMATION
Processes, people, systems, data
and organizational change
Core processes / multiple
Cross organisation boundaries
BUSINESS MODEL
REINVENTION
Core business model change
Ecosystem-based
Platform strategies
DIGITAL
RE-ENGINEERING
Zero-based digital redesign
Single process / function
End-to-end redesign
DIGITAL VALUE
PROPOSITION
Products and services
Data and analytics based
New economic model
BROADNARROW
LIMITED EXTENSIVE
Figure 2: Mapping the Digital Initiatives - The “What” of Your Digital Transformation Portfolio
Value-Chain Transformation.
These initiatives often cut across
organizational boundaries (e.g.,
functions or geographies) and
the change management can be
substantial. The risk profile and the
timetovaluearethereforegreater.US
retailing giant Macy’s launched an
ambitious omnichannel fulfillment
program4
to digitally locate and
make available for sale even the last
remaining item from a line of stock.
Macy’s conducted a pilot to test the
new fulfillment process on a limited
range of products and stores. Then,
with a massive transformation effort,
extended it across its supply chain
network. The company rolled out the
program to all of its 775 stores across
45 states in the US. Macy’s estimates
that the program helped it reduce $1
billion of inventory from its stores
that would otherwise have been
marked down or not sold. Value-
chain transformations are complex
endeavors that will invariably impact
processes, systems, data, people, and
organizations.
Digital Value Proposition.
Reinventing offerings or business
models need not be disruptive; it
can be about combining products
and services in new and innovative
ways, making better use of analytics,
designing new economic models,
or repackaging an existing offer.
Property and casualty insurer, Tokio
Marine, augmented its traditional
business by launching One-Time
Insurance in partnership with
mobile operator Docomo. The app-
based offer allows customers to

buy insurance in narrowly defined
periods (a day, a week) for lifestyle
events such as borrowing a car or
going skiing for the weekend. These
innovative services can be developed
in a reasonable time frame, as
they do not necessarily demand a
fundamental restructuring of the
existing value chain. The risk can
also be managed by using proof of
concepts and experimentation.
Business Model Reinvention.
Reinventingyourbusinessmodelis
not a decision you will take lightly.
It is by far the most challenging
of transitions. Organizations
will go down this path if they
are reacting to a major industry
disruption that is threatening the
business. Or having identified
a major opportunity, it can be
about deciding to proactively
disrupt the business or industry
before someone else does. Such
transformation will invariably
involve an external ecosystem of
partners, a substantial re-skilling
and skill acquisition exercise, and
more often than not, some surgery
on your current organizational
model. GE transformed itself
from an industrial equipment
manufacturer to a seller of
software and data-centric
services. GE’s vision is to be a top
10 software company by 2020. Its
digital business—GE Digital—grew
by 20% and generated revenues
of $5 billion in 2015 with plans to
grow this to $15 billion by 2020.
By the end of 2016, it is expected
to have 200,000 assets under
management, 100 applications,
and 20,000 developers5
.
The How: Executing at the Right
Tempo
Deciding what digital initiatives are
critical to face the new digital future
is important. Finding the right tempo
and means to execute are even more
critical. Why? Because balancing
speed, risk, competence building, and
financial capacity is difficult, and
they are all essential ingredients of a
winning digital transformation. The
digitaltransitionneedstobothprotect
profitable assets, while making the
successful transition to a new digital
ordigitallyenhancedbusiness.When
faced with executing on your digital
transformation strategy, you will be
confronted with competences you
do not yet possess; technology you
don’t know or own; ways of working
thatare notfamiliartoyourbusiness;
new untested business models; and
even cultural barriers that will have
to be overcome. It is a daunting task.
Executives need to focus on two
critical dimensions (see Figure 3):
■■ Time to Implementation –
Understanding the speed at
which each component of
your digital strategy needs
to be implemented. Speed of
execution will be driven by
GE transformed
itself from an
industrial equipment
manufacturer to a
provider of software
and data-centric
services.
external factors: the rate of
technological upheaval, the
paceofchangeinyourindustry,
andtheintensityofcompetition
from adjacent or brand new
players. But it will also be
strongly influenced by internal
factors: the current digital
competences you possess
versus those you need, how
suitable your organizational
model is versus what is required
to be competitive, and your
familiarity with the core
technologies underlying your
digital transformation versus
those you need to learn and
experiment with.
■■ Make/buy/partner – Assessing
your ability to execute with the
capabilities you currently possess
versustheneedtoaccessexternal
resources through acquisitions or
partnershipsiskeytosuccess.This
is a big decision that requires a
carefulanalysisoftimingandrisk
and its criticality will obviously
be linked with the competitive
pressuresyourcompanyisunder.

Time to Implementation
MAKE/INHOUSEBUY/PARTNER
RADICAL CORE
SIMPLIFICATION
Migration old / new
Core system / process replacement
Modernization / automation
GREENFIELD
“On the side” strategy
New architecture / processes
Simpliﬁed / segmented offering
EDGE
EXPLORATION
Open Innovation models
Corporate incubation
Proof-of-Concept / Sandbox / Agile
ACQUISITIONS/
PARTNERSHIPS
Acquire new business model
Build competences
Access critical technologies
LONGER SHORTER
Figure 3: Mapping the Execution Route – The “How” of Your
Digital Transformation Portfolio
Let’s look at each execution path in
turn.
Edge exploration.
When technologies are unproven
and benefits unclear, the exploration
route is appropriate. Building
incubation or innovation sandboxes
can allow you to test potentially
transformative technologies in a
controlled environment. This will
mean opening up the organization
to external parties such as start-ups,
incubators and universities. For
instance, CVS Health, operator of
Minute Clinics and one of the biggest
drugstore chains in US, has opened a
Digital Innovation Lab in Boston that
is intended to “be a source of new
ideasthatwilldrivethecompanyinto
the future”6
. One of the goals of the
Digital Innovation Lab is to connect
with start-ups that are developing
healthcare-related products and
services and to ensure CVS can be
an ideal learning lab for early-stage
companies7
.
This is a speculative approach,
but is a good way to mitigate high
costs of failure. However, it is
not a fast process, as identifying
promising applications takes time
in large organizations and scaling
up a successful pilot is a lengthy
process. James Patterson, Managing
Vice President and Head of Capital
One Labs, commented: “Creating
excellence at small scale is relatively
straightforward. Doing so at scale
is extremely hard. And that’s where
most innovation centers struggle.”8

26
He added, “That’s primarily because
you are involving a totally different
and expanded cast of characters to
get to scale compared to just getting
to pilot. It’s not good enough to just
have an idea and to get it in the
hands of a few hundred people.”
Radical Core Simplification.
Sometimes what needs to change
is more obvious but it requires a
radical overhaul of core processes
and underpinning technology. These
major business simplifications occur,
for example, when a cost base has
become unacceptably high or when
a technology platform has been
overtaken by much more nimble,
speedier, and easier-to-maintain
alternatives. In 2011, the UK’s
Lloyds Banking Group invested in a
four-year technology program that
involvedautomatingandsimplifying
complex manual banking processes.
These initiatives helped achieve
annual savings of £352 million, and
a 7% reduction in total costs. The
program reduced the number of
uniquebusinessprocessesfrom700to
just 23, helping to halve the number
of manual errors9
. These business
simplification exercises have one
thing in common: they are anything
butsimpletopulloff!Theirriskprofile
ishigh.Tosucceed,itrequiresupmost
leadership attention, strong internal
program management, and financial
commitment to stay the course as the
migration to the new core processes
can take years to implement.
Acquisitions and Partnerships.
When the competitive pressures are
so great that organic development
would take too long and put the
company at risk, acquisitions or
external partnerships become viable
options. Several reasons drive
this external focus. Your skill or
competencegapmightbetoobig,and
the skill set you need in short supply.
You may be facing a new business
model that is not culturally matched
to your traditional operations, and
in that case acquiring a company
for its innovative business model
might be the answer. In the case
where ownership of a technology or
platform can become a true source
of competitive advantage it might
make sense to go for a first mover
advantage by acquiring or licensing
the technology base outright. For
instance, since 2011, Walmart has
acquired nearly 14 start-ups to
boost its digital transformation. In
the process, Walmart gained crucial
access to talent and technology
know-how in data analytics, search,
mobile, advertising, and social
shopping10
. Acquisitions can also be
usedtosecureaninnovativebusiness
model. In 2014, BBVA acquired
“Simple”, a fully digital US bank
with no physical branches. Simple’s
digital-only model eliminates all
the fees associated with traditional
banking11
. Acquisitions are of course
risky in themselves, and digital
acquisitions are no different. They
can also be expensive. Wait too
long and the strategic importance
of the technology or the competence
set becomes obvious to all your
competitors—leading to a bidding
war. Acquisitions can also take
time to complete. However, in most
cases, it is a relatively shorter route
compared to organic developments.
Greenfield.
When simplifying the core business
provestoodifficultorlengthy,orwhen
a new digital culture is required to
succeed,companiesgoforaGreenfield
option. This is about building a new
and simplified operation “on the
side” of the core business—sometimes
branded differently. The aim is to
migratetheoldintothenewovertime.
The Greenfield option is attractive
as organizations can start with a
blank canvas, creating a company
that is digital from day one and with
a highly simplified offering and
operations. Essentially, this is about
buildingastart-upwithinalargefirm.
It requires a heavy dose of new talent
and competences, many from outside
the existing firm. It needs to be built
with specific customer segments in
mind.Italsorequiresstrongleadership
to protect the Greenfield business.
“Antibodies” from the parent business
often spring into action to work
against the new model, particularly as
cannibalization of existing business
lines will be inevitable. STC, the Saudi
Arabia-based telecom operator has
adopted such Greenfield approach.
STC recently launched a digital

operator, Jawwy, to target the digital-
savvy, young mobile consumers of
Saudi Arabia with a completely new
customerexperience.SubhraDas,CEO
of Jawwy, explained: “At Jawwy, we
are building a digital mobile operator
model with the organizational DNA
and agility of an internet player.”12
He
added,“Ourstrategyisnotaboutprice.
It is about designing and launching a
best-in-classcustomerexperiencethat
isfullydigitalend-to-end.”
Of course, none of these execution
routes are mutually exclusive. Many
companies hedge their bets by
pursuing multiple portfolio options.
For instance, some telcos faced
with a long timescale and uncertain
outcomesintheircoretransformation,
are both radically simplifying their
core operations as well as developing
Greenfieldoperations.
Think Portfolio!
In a constantly disrupted and
evolving digital economy, too
many organizations are designing
transformation roadmaps that are
static—not balancing strategic
and competitive risks with the
speed required for successful
implementation and business
results. Thinking dynamically
about digital transformation
execution requires an executive
reboot. To succeed, it is crucial
that senior executives turn their
ambitions and strategy into a
balanced portfolio of digital
initiatives, with short and
longer-term outcomes. They
alsoneedtomakesuretheyuse
the full panoply of execution
modelsavailabletocopewith
thepressuresandmagnitude
ofthedigitaltransition.
1. GE has been transforming itself from a manufacturing giant to becoming a digital master. Its Industrial Internet platform aims to bring together the
industrial network of connected machines, advanced analytics and people at work, to drive new levels of efficiency and productivity. The massive
scale of Industrial Internet is expected to benefit 46% of global economy, impact 100% on energy production and 44% on global energy consumption.
Likewise, GE’s Big Data platform Predix is at the heart of GE’s digital business, which is growing at 20% and amassing $5 billion revenues in 2015. For
more details on GE’s transformation, please see: https://www.capgemini-consulting.com/general-electric-and-its-digital-transformation
2. CIO, “CIO is pushing the right buttons”, November 2015; Apple.com, “Elevating service and safety with real-time data”, Accessed June 2016
3. Innovative Retail Technologies, “Lilly Pulitzer mPOS Increases Sales 24.5%”, June 2014
4. GlobalNewsWire, “Retail TouchPoints Announces 2015 Store Operations Superstar Awards”, October 2015
5. GE 2015 Annual Report
6. CVS Website, “CVS Health to Open New Digital Innovation Lab in Boston”, November 2014
7. The Boston Globe, “CVS to open tech hub in Boston”, November 2014
8. Capgemini Consulting, “Digital Transformation Review No. 8”, October 2015
9. Computer World, “Lloyds on track to reach savings target after back office consolidation”, May 2012; ComputerWeekly.com, “Lloyds customer
complaints plummet after automating manual processes”, June 2013
10. Company website
11. BBVA, “Simple, how a FinTech startup creates its business model in online banking”, April 2015
12. Capgemini Consulting, “Unlocking Customer Satisfaction: Why Digital Holds the Key for Telcos”, April 2016

A Platform Strategy:
Creating New Forms of
Value in the Digital Age
Marshall Van Alstyne
Research scientist at MIT and tenured
professor at Boston University,
Questrom School of Business
M
arshall Van Alstyne – a research scientist at MIT and tenured
professor at Boston University, Questrom School of Business – is one
of the world’s foremost scholars of information business models.
He co-developed the theory of Two-sided Networks, a major contribution to
understanding the impact of network effects.
Marshall is co-author of Platform Revolution (published March 2016), which
analyses how seemingly disparate companies, from PayPal to Alibaba, have
upended entire industries by harnessing a single phenomenon: the platform
business model.
Capgemini Consulting talked to Marshall to understand how these companies
are unlocking hidden resources and creating new forms of value.
A Platform Strategy: Creating New Forms of Value in the Digital Age

Every Company Can Be a
Platform
What is a platform for those
that are new to the concept?
A platform is a nexus of rules
and infrastructure that facilitates
interactions among a network of
users and third-party participants.
As users create value for other
users, a network effect expands the
community, unleashing the power
of a platform. Take Facebook,
AirBnB, Alibaba and Uber. These
seem like disparate companies,
but all have a strong foundation: a
platform business model.
Even a weak platform will
outperform a strong product every
time. If you are using a traditional
product strategy, just adding new
and better features won’t work.
This occurs because you won’t be
able to evolve fast enough with
just your internal team.
Executives often think of
companies like AirBnB as being
‘platform-born’. Do traditional
organizations even have a
chance given the radical change
that would be required to be a
platform company?
There is a huge variety of hybrid
business models. Traditional
companies can continue to operate
Even a weak
platform will
outperform a
strong product
every time.
the old business model and add a
platform business model on top.
It’s a mistake to think that you need
to transform the entire business
straightaway. One of the most
famous examples is Apple. It still
produces phones and, therefore,
it still has to manage traditional
product designs and supply chains.
That part of Apple continues to
operate as a traditional business.
But, Apple has added a platform
dimension. This includes the mobile
phone operating system iOS and the
iTunes market ecosystem.
Let’s say you are one of these
hotels and are competing with
AirBnB, what would you do?
One thing they could do is start to join
the platform and put their spare rooms
on AirBnB. However, they would then
become beholden to the platform in
the same way that publishers have
become beholden to Amazon, which
is a dangerous position to be in. The
other thing they could do is buy the
numbertwoplayerandscalethat,enter
a partnership with Intercontinental
and Marriott, or create an industry
consortium and share the capability on
Also, imagine if hotels
such as Marriott,
Intercontinental, or
Hyatt had added a
platform to their existing
business. There is no
reason they could not
have done this, since
the business models are
not in conflict. However,
they moved too slowly.

McCormick Spice – a
US-based company
that manufactures
spices and herbs –
thought, “How am
I going to build a
platform on salt and
pepper?”. In a brilliant
maneuver, they
added information,
taste recipes and
communities. They
effectively developed
a recommender system
and have become a
‘Netflix for food’.
a similar platform. Those are the kinds
of levers that they can try. Starting
from scratch as an individual player
wouldbedifficultatthispointbecause
AirBnBisjusttoofarahead.Inamarket
withnetworkeffects,incumbentshave
too few users bringing them useful
sourcesofsupply.
connecting your tennis racket, your
bike, your clothing, your watch, and
other apparel.
McCormick Spice – a US-based
company that manufactures spices
and herbs – thought, “How am I
going to build a platform on salt and
pepper?” In a brilliant maneuver,
they added information, taste recipes
and communities. They effectively
developedarecommendersystemand
have become a ‘Netflix for food’. The
platform allows them to even design
new consumer packaged goods,
expertise they can sell to packaged
goods manufacturers, grocery stores,
and even restaurants.
Prepare for a Winner-
Takes-All Market
What are the advantages and
risks of launching a platform
strategy?
In the Internet era we are seeing
a rise of giant firms that is
analogous to the conglomerates
of the industrial era, but for the
opposite reason. The industrial
era was driven by giant supply-
side economies of scale, leading
to huge market concentration.
This occurred in electrical utilities,
steel production, oil refining,
auto manufacture, railroads and
many others. These firms became
so large, they are the reason we
have antitrust law. In the Internet
era, we are seeing similar market
concentration. Google has 91%
market share of search in Europe;
Android represents 80% market
share in mobile; Microsoft has a
90% share in desktop operating
systems; Facebook has 1.6 billion
people on its platform; and Alibaba
has 70% of all logistics transactions
in China and 80% of all ecommerce
transactions. None of these firms
are known for having industrial
scale capital facilities. Instead, their
market concentration is driven by
and not supply-side -- that’s a giant
network effect at play!
Traditional
companies can
continue to operate
the old business
model and add a
platform business
model on top.
Besides Apple, are there
examples of traditional
companies that have adopted a
platform successfully?
My favorite examples are Nike
and McCormick Spice. Originally,
you might think of Nike as a
sports apparel or shoe company.
However, adding data sensors and a
communitywasaningeniousmove.
They developed the Nike FuelBand
to track health and sports activity,
which allowed groups to track and
improve their sports performance
together. Nike is now trying to
become the operating system for
sports gear and clothing. Whether
Nike succeeds, or a competitor like
Under Armour, this will be done by

Platform Firms are Becoming More Important in our Economy
Source: Van Alstyne, Marshall, “Platforms: How Change in Industry is Driving Change in Strategy”,
MIT Platform Summit 2015
Platform Firms Becoming More Important in Economy
MKTCAPWeightedPlatformFirms
Percentage of Platform Firms weighted by MKT CAP
(2001-2014)
% of top 20 firms by market cap since 2001
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014
35%
30%
25%
20%
15%
10%
5%
0%
@InfoEcon
If you generate network effects
and figure out how to generate
in your industry, then you will be
on track for one of these winner-
takes-all positions. If you are too
late, you lose the option to create
a platform because competitors
will have created one around
you. Then, you will have to then
bump up against their network
effects and you may be too late to
penetrate.
Besides a high-level strategy,
do platforms affect day-to-day
tasks for a company?
You must manage a company
in the Internet era differently
than how one used to manage a
company in the Industrial era.
Functions such as marketing,
strategy, logistics, finance, IT,
and human resources used to be
handled inside the firm, but now
must be managed with external
versions of these same activities
(see figure on the next page).
If you generate
network effects and
figure out how to
generate demand-side
economies of scale in
your industry, then
you will be on track for
one of these winner-
takes-all positions.

Take operations and finance as
examples. Marriott and Hyatt
have property that they own.
Airbnb doesn’t own property, but
property is traded outside the firm.
Finance used to value the assets
owned by the company. But how
are you going to value AirBnB or
Uber based on their assets if they
do not own them? Instead, you
must value the transactions that
third parties bring to the platform
as well as the feedback that
pulls more transactions onto the
platform. So valuation methods
must shift from owning capital to
attracting and husbanding capital.
Notice that Airbnb and Uber have
Network Effects & Inverting the Firm Changes…
@InfoEcon
Internal Employees 
External communities
Experts & Specialized
departments 
Crowdsourcing & Open
Innovation
Entry Barriers & Inimitable
Resources  Ecosystem
husbandry & Long Tail
Shareholder Value 
Stakeholder Value
Incorporate network effects
Back Office (ERP)  Front Office
(CRM)  Out-of-Office (Social & Big
Data)
Push  Pull, Outbound  Inbound Uber: biggest taxi company, no taxis,
Airbnb: biggest accommodations but
no real estate
Facebook: biggest media firm but
creates no content
Alibaba: biggest merchant but has
no inventory
Finance Human Resources R&D Strategy
Marketing IT Operations & Logistics
done something remarkable. They
have shed even the variable costs
of production. This allows them
to scale at a staggering pace.
If your industry is going to be
transformed by platforms, you are
going to have to understand these
complementary scales.
Network Effects & Inverting the Firm Changes…

Firms Should Fear Firms Outside their Immediate Industry
Isn’t afraid of... But should fear...
Delivery
Cars
Electronics
Watches
Broadcast
Publishing Houghton Mifﬂin
Harcourt
Mc Graw Hill
NBC CBS
Toshiba Philips
United States Postal
Service FedEx
Toyota Ford
Swatch Timex
Amazon
NetFlix
Nest (Google)
Facebook
Uber, Google
Samsung
Competition in your Blind
Spot
How does this change
competition for companies?
In the Internet economy, it can
feel like competition comes out of
nowhere. Swatch and Timex are
suddenlycompetingwithSamsung.
Ford is suddenly competing with
Google in self-driven cars or with
Uber in a way that they never
anticipated.TheUnitedStatesPostal
Service is used to competing with
FedEx and not Facebook. However,
it now finds itself competing with
Facebook because its core business
model is based on bulk mail for ads
and ads are vastly more effective on
Google and Facebook.
How do these new players keep
coming in and taking over an
existing business? Incumbents
keep looking at product features,
overlapping product features and
overlapping services, but that’s the
wrong way to view competition
in the Internet economy. The right
way to view competition is, “do you
have overlapping users?”. Consider
that it is far easier to add a product
to a platform than to add a platform
to a product. If an adjacent platform
can add your product or service to
its user base in a way that feels free,
you will be out of business. Amazon
sells Amazon prime, which is free
shipping. But then it’s easy to add
free video as well and cut into the
cable business. If the market is
“multisided,” meaning that it offers
manydifferentkindsofinteractions
across different kinds of users,
then it can give away one type
of interaction in order to provide

another one for free. For example,
LinkedIn facilitates professional-
to-professional interactions but it
charges recruiters for the recruiter-
to-professional interaction. This
clobbered Monster’s business that
focused on recruiting alone and had
a much smaller network. Players
inside the traditional industry will
probably be in the same position
you are, so it is easier to anticipate
their moves. However, it’s harder to
anticipate the moves of companies
coming from an adjacent platform.
It’s those firms you really have to
start worrying about.
What’s an example of a firm
using its platform to compete in
an adjacent ecosystem?
As another example, Alibaba’s
strategy team is starting to offer
microloans. They will be in a position
to offer microloans better than banks
because they can observe accounts
receivable, transactions history, and
howfrequentlypeoplepayforthings.
Not only will they be able to vet
loans in a new and interesting
way, but will also have a different
incentive structure. Traditional
lending institutions must make
money from the loan itself, but
Alibaba can make its money from
subsequent transactions. This means
it can afford a lower-priced loan
than a bank. By the time banks see
what’s happening, they are already
As technology becomes
more connected, the size of
overlapping users is increasing.
How can companies distinguish
which users they should cater to?
Look at who is closer to the
relationship. Apple is really good
at reaching customers through
AT&T systems. They took over the
customer relationship and then
multi-homed across both the Mac
and Windows operating systems
using iTunes. Apple built a layer
on top of the network and took
control of the relationship so users
affiliate with Apple more than
with AT&T. It’s really who gets to
control the customer interaction,
who can reach through and do
that in a better way. Those are
your biggest threats.
How can traditional companies,
such as telcos, ever enjoy as
strong a relationship with their
customers as firms like Apple?
They need to do a better job of
becoming more than just pipes
and tap the network effects
in their data. They need the
transaction data and preference
data for starters. For example,
telcos have some opportunities
because they already have
businesses and consumers on
board. Now the question is, “Can
we design marketplaces and
innovation ecosystems where
we are the market as opposed to
someone sitting on top of our
backbone?” Their problem is that
they have effectively been pushed
down the stack. They have been
commoditized and they need to
reach up through that stack and
see what kind of services that they
can provide closer to the customer.
Alternatively, they may be able to
participate by acquiring certain
existing platform companies,
operating over the top, and then
growing through them.
If an adjacent
ecosystem platform
can add your
product or service
to its user base in a
way that feels free,
you will be out of
business.
check-mated because it’s too late.
Alibaba will already be a dominant
player. It’s far easier for Alibaba to
add microloans to their transactions
platform than it is for banks to add a
transactions platform to their loans.
At that point, the banks wouldn’t
want in, because they won’t be able
to recover unless they can somehow
participate in the downstream
transaction ecosystem.

Embrace a Platform
Mindset Built on Fairness
and Community
How do you know which area
of your business could benefit
from a platform?
Start with your key value
proposition. In Lean Startup you
had a minimum viable product.
The exact analog here is your
minimum viable platform. What
is the minimum viable platform,
what is the minimum interaction
that’s going to create the most
value for your external users? You
need something that’s going to
attract people. From there, then
layer on further interactions to get
new data and create incremental
networkevents.Again,thisisusing
consumer data to create value
for other consumers. At the same
time, ensure that new interactions
add value rather than interfere
with existing interactions. As you
layer on new interactions, you
must address the intricacies of
each of those interactions with fair
governance of interactions taking
place on the platform. It’s very,
very complex.
What do you mean by
governance? Is an example of
governance, “I am Apple, I take
50% of all revenue of Apps
more or less?”
We like to define governance as
a combination of three things: 1)
who gets to participate, 2) how do
you create and divide value, and
3) how you resolve conflict. You
have highlighted one element of
it: do they keep 10%, 2% or 70%?
But participation and conflict
issues also matter. If firms always
decide in their own self-interest,
as opposed to deciding fairly
in the interests of ecosystem
partners, participants won’t
participate or invest.
My favorite example is Intel
Architecture Labs (IAL).
Intel created a
separate division
equal in stature
to its other product
divisions in order to
represent the voice
of ecosystem
partners.
Wisely,
this representative voice of
ecosystem partners meant that
projects launched by partners
couldn’t be killed or absorbed
by Intel. If you do not look after
the health of the ecosystem, or
manage cannibalization in such a
way that the ecosystem wins and
not just internal product divisions,
you won’t get ecosystem partner
investment. A platform strategy
fails if every time someone invents
something really valuable, the first
thing you do is take it away.

One of the biggest mistakes I see
firms make is asking, “How are
we going to monetize?” as the
first question instead of “What’s
the best platform design?”. If this
occurs, your monetization strategy
will put friction on your network
effects. Then, your competitor
will design a better platform, take
your users and then monetize
later. Rupert Murdoch made this
very mistake when he acquired
MySpace. He immediately
thought of ads, based on his
news experience, and he drove
users away, killing the platform.
MySpace has never recovered.
What skills do executives and
a workforce need to ensure
platform success?
It takes people skills in community
management. They tend to be much
moresociallyawareandunderstand
the interests of ecosystem partners.
When something goes wrong,
you fix it quickly and openly and
manage the external relationship
so that the community continues
to participate. To ensure platform
success, you have to be comfortable
managing without controlling and
that’s not traditional management
practice.
The Platform Revolution:
The Near Future for All
Industries
Is there any industry immune to
integrating platforms into their
strategy?
Most industries will be affected, but
the order of transformation will take
place in proportion to the amount
of value created by information and
by the external community. Media
and software industries are obvious
transformations. Services industries
will also follow. Even though there
is a lesser proportion of value that’s
being created by information and
by community, there are pockets
where a platform approach has been
valuable even in heavy industries.
One of the biggest
mistakes I see firms
make is asking,
“How are we going
to monetize?” as the
first question instead
of “What’s the best
platform design?”
What is the
minimum viable
platform, what
is the minimum
interaction that’s
going to create the
most value for your
external users?
The norm in traditional
managerial practices is if value
is seen, then try to take it
all. Why is this different for
companies with a platform
strategy?
Thesimpleargumentisthat5%ofa
trillion-dollar market is much more
valuable than 95% of a million-
dollar market. For example, SAP
and Salesforce explicitly think
about what percentage of the total
ecosystem value they take. It’s not
95%, it’s much lower. So the real
question is how much ecosystem
value does a firm create and what
governancemechanismsallowyou
to take value at a slow and steady
rate that keeps the ecosystem
healthy and growing. How do you
look after the ecosystem partners,
especially the small ones, so that
they continue to invest and grow?

To ensure platform
success, you have
to be comfortable
managing without
controlling and
that’s not traditional
management practice.
Do you need a long-term
vision, strategy and investment
program to integrate a platform
strategy? For example, General
Electric, a traditional appliances
company, invested in Predix,
its software platform, which is
seen as having great potential.
However, GE also invested for
four years in building a team of
1,500 software engineers.
Platform design is art. After
Johnson Controls built PANOPTIX
systems for buildings, they
eventually pulled back. They
weren’tabletoconvincedevelopers
to come and join their ecosystem.
There are a variety of different
failure points because it’s such a
complex problem with so many
different moving parts. You must
manage the cannibalization in a
There are pockets
where a platform
approach has been
valuable even in
heavy industries.
A good example is Red Lake Mine,
a mining company that is more
than 50 years old. The analysts
thought that its mines were maxed
out and its stock price began to
dwindle. The CEO opened up its
mining data and offered open
innovation challenges. A few
thousand people around the
world took on the challenge and
identified new veins of gold in
mines, tripling the amount of
extraction in the next couple
of years. One might imagine a
heavy industry as one immune
to platform transformation but
even here it is possible. Energy is
another industry that, despite its
huge capital costs, will undergo
platform transformation. In this
case, the need to manage spare
capacity and trade on production
surplus will force the transition.
judicious way. You must manage
the interactions among your
growing ecosystem partners. You
must manage value being created
externally and you must also
manage external quality control
and fraud prevention. That’s hard
and that’s not what firms are used
to doing. All these activities must
realign and adjust, and it’s a long-
term investment to get it to work.
Strategyinplatformsislikeplaying
three-dimensional chess. You have
to look at the strategic choices of
your ecosystem partners just as
much as you look at 3D choices
of your own platform internally.
Conceiving all those multi-party
interactions and getting it right
gets complicated and it’s not going
to happen by accident.

Visa: The FinTech Giant
Leading Digital’s Platform
Revolution
Mark Jamison
Global Head of New Product
Development at Visa Inc.
V
isa is a global payments technology company that connects
consumers, businesses, banks and governments. In 2015, the
company processed 112 billion transactions1
and $7.4 trillion
dollars’ worth of goods and services. Visa has built one of the world’s most
advanced processing networks, capable of handling more than 65,000
transactions per second.
Mark Jamison is the global head of new product development for Visa. His
role is to understand, prototype, test and commercialize new payments
and commerce capabilities. Prior to Visa, Mark’s roles include Global
Head of Customer Experience at BBVA and Chief Digital Officer at Capital
One Bank, where he was responsible for delivery of digital products, user
experience and design standards across all channels for Capital One Bank.
Mark was also the founder and executive leader of Capital One Labs.
Visa: The FinTech Giant Leading Digital’s Platform Revolution
1
As of March 31, 2016

Digital Transformation at
the Original FinTech Firm
What is Visa’s approach to
digital transformation?
Visa did not require as radical a
transformationasmanyothersinour
industry. Digital was already in our
DNA.WeliketosaythatVisawasone
of the original FinTech companies.
Since the 50s, we have been a
technology-based organization that
allows instantaneous transfer of
value anywhere in the world in near
real-time.VisaisalsoaSanFrancisco
headquartered company and digital
is part of our culture.
Another major digital initiative we
launched is the Visa Token Service
(VTS) – terminology for what
we consider to be a reinvention
of the account number. The
VTS replaces sensitive account
information, such as the 16-digit
primary account number, with a
unique digital identifier called a
token. The token enables payment
transactions to be processed
without exposing actual primary
account number details that could
potentially be compromised. For
instance, if I want to add my card
to Android Pay, they ping Visa
and Visa takes that card number
and passes them back a token
that represents that card number
with security and intelligence
built into that token. So, from that
point on, Android Pay can use the
token to enable transactions when
you buy things. But, if someone
were to steal that token, it will
be completely worthless. Issuers,
merchants, and wallet providers
can deliver secure mobile payment
applications, gain access to third-
party digital payment experiences,
or securely maintain cards on file
in order to offer their customers
safe ways to shop online and with
mobile devices.
You have already invested in
some FinTech companies like
‘Stripe.’ How is Visa working
with the FinTech ecosystem?
Visa’s mission is to ensure that every
Internet connected device, appliance
or wearable, can become a secure
place for commerce. And to do that,
collaboration with the ecosystem
is essential and comes in the form
of partnerships, investments,
acquisitions and collaboration.
We like to say that Visa
was one of the original
FinTech companies.
Collaboration with the
ecosystem is essential
and comes in the
form of partnerships,
investments, acquisitions
and collaboration.
Could you give us some
examples of the digital
initiatives you launched?
Let me start with Visa Checkout –
an initiative we launched to help
improve online purchase conversion
rates. We found there was a clear
need to make online buying easier.
Visa Checkout brings the simplicity
of the swipe to the online world so
customers can complete a purchase
with just a username and password.
Wehavehadalotofsuccessglobally
with this initiative.
We have set up innovation centers
globally where co-creation with
partners is the goal. We also have
an active team that evaluates new
ventures and decides if we want to
help guide or accelerate the venture.
We collaborate with the ecosystem
for rapid prototyping and testing
of new technologies and we have
made investments in a number of
companies. We have also invested in
additional companies such as Chain,
a San Francisco-based company
that is a leader in implementing
Blockchain infrastructure and
developing applications using the
Blockchain protocol.

The pace of
technology change
dictates that we need
to invest in people
whose full-time job
is to focus on things
beyond 12 months.
levers. Second, we explore new
technologies and utilize human-
centered design with the aim to
support solutions that could deliver
real benefits to people. Third, we
collaborate and experiment with
Visa’s technology, Visa Developer
Platform in particular, for rapid-
prototyping using Visa APIs and
SDKs. It’s a very applied process
meant to deliver tangible results.
When you cede
innovation to a small
group of innovators,
it is doomed to failure.
Innovation has to be
part of the DNA of
the company – it is
everyone’s job.
What is the rationale for
launching innovation centers
and what role do your centers
play?
The pace of technology change
dictates that we need to invest in
people whose full-time job is to
focus on things beyond 12 months.
Our global network of innovation
centers – in San Francisco, Dubai,
Singapore and Miami – are an
important part of our overall
approach to fostering innovation
with clients. The innovation labs
help us develop a point of view on
what the future might look like and
help us work back from there.
Our innovation centers focus on
three things. First, they engage
clients in a conversation around
where our industry is going and
help them understand the big
Many companies now have
innovation centers or labs.
How do you actually encourage
people in the business to
experiment and be more
innovative?
Many companies indeed have some
form of innovation group. A few
work and, frankly, most don’t. In
my experience, when you cede
innovation to a small group of
innovators, it is doomed to failure.
Innovation has to be part of the DNA

VISA & the Platform Revolution
A network capable of handling more than
65,000 transactions
per second
112 billion
transactions
VISA’s
new winning model=
From proprietary technology capabilities to a
platform open to third-parties
worth of transactions (FY15)
US$7.4 trillion
winner-takes-all
kind of models
Platforms are
Winning models
are the ones that build their
business as a platform
40 million merchants
around the world
Access to the world’s
largest payment
network
Interoperability with 13,700
ﬁnancial institutions
In 200 countries
The advantage of VISA’s platform
Why become an open platform?
Should companies become a
platform?
The Importance of a Long-Term
Strategy
YES if “you believe you can be a
platform for your industry like iOS or Android”
Successful companies understand the purpose
of their existence
ANDROID
iOS

The winning models
in the market place
are the ones that
build their business
as a platform.
Open Platform:
The Future of
Visa
Visa recently
announced
the opening
of its payment
platform to
third-parties and
developers. What is
the rationale behind
this move?
Let’s take a step back to understand
this.Thewinningmodelsinthemarket
place are the ones that build their
business as a platform. For instance,
iOS is a platform that other people
build apps on. Android is another
What is the value proposition
for the ecosystem?
The benefit when you build on
top of Visa’s platform is that you
get security, scalability and access
to the world’s largest payment
network. When you build to
these standards and access our
network, you can have immediate
interoperability with over 13,700
financial institutions in over 200
countries and over 40 million
merchants around the world. No
other company in this space has
the customer density, global reach
and scale that is available through
Visa’s open platform.
of the company – it is everyone’s job.
In our case, we have heavily invested
in methodologies like Human
Centered Design or Design Thinking
to help you rapidly prototype and
iterate your products with real
customers. It’s a powerful model and
we use this approach with clients and
across our entire company.
exampleofaverysuccessfulplatform.
Due to the network effect, it can be a
winner-takes-all kind of model. There
isonebigwinnerineacharea. Wewant
tobethewinnerofthepaymentsector
and create a standardized platform
for the payments community. Being
a key player in the payments space,
we are very well positioned to win the
platformgame.
Making proprietary technology
services and capabilities open to
third-parties is clearly a massive
shift for Visa. We believe this will be
a winning model.

There is one big
winner in each
area. We want to
be the winner of the
payment sector and
create a standardized
platform for the
payments community.
Making proprietary
technology services
and capabilities open
to third-parties is
clearly a massive
shift for Visa. We
believe this will be a
winning model.
How will you assess the success
of your platform strategy?
That comes down to a couple of
things. One is how many API-
related queries you are getting.
The second is to understand if
important clients are using our
platform. Customers always have
an alternative to do things the
old way or the new way. If we
build a better platform they will
all convert to this agile way of
consuming capabilities.
Instead of having to
build a bunch of new
capabilities themselves,
they can just consume
the capability using
our platform in a
relatively short time.
The value proposition for our
enterprise clients, such as banks,
is that they get the speed and
agility that comes with consuming
capabilities via formatted APIs.
Big enterprises have a hard time
keeping pace with changes in
their market place. So, instead of
having to build a bunch of new
capabilities themselves, they can
just consume the capability using
our platform in a relatively short
time.
Also, there is so much creativity
and ingenuity in the world that
third parties will come up with
innovative ideas in payments that
we had never thought of. This is
what successful platforms have
discovered. It will open up our list
of who our clients are to a whole
new universe of independent
software vendors.
Do you have any examples of
initial applications developed
after the opening of the
platform?
There is a really good example
that is in production today. We
collaborated with the Emirates
National Bank of Dubai (Emirates
NBD) for a challenge they faced.
Emirates NBD’s customers include
a lot of high net worth customers.
When those customers travel
around the world, they face
challenges in getting their card
accepted. For instance, fraud and
security rules decline transaction
from the same card in different
countries in a short time period.
It wasn’t a great experience for
the customers, so they integrated
a new capability we put on the
platform called Mobile Location
Confirmation. The consumer can
accept the option to ping their
phone when travelling. When

A Radical Re-Imagination
of The Business, Not
Incremental Steps
Do you think it is possible to
develop a long-term strategy in
an organization given the pace
of technology-driven change
today?
Of course it is possible. Successful
companies understand the purpose
of their existence. They really
understand what their purpose is,
the ‘why’, and they don’t get caught
upoverthelongterminthe‘what’. I
call it ‘freedom within a framework’,
a strategy that tells you where you
are going. It might not give you
every explicit step. In the world
that we now operate in, things are
changing so quickly that you really
can’t set an operating plan that goes
beyond a couple of years. But that
doesn’t mean that you can’t have
the processes in place that allow you
to adjust really rapidly over time to
make sure you get to the right point.
If you are driving from San
Francisco to LA at night, your lights
can only give you visibility so far
on the road - you can only see with
clarity so far in the near-term. But
you still have the confidence that
consistently following the path your
lights illuminate will get you to LA.
I think a platform
strategy makes sense
for companies that
have the belief they
can become the
industry’s leading
platform.
Customers always
have an alternative
to do things the old
way or the new way.
If we build a better
platform they will all
convert to this agile
way of consuming
capabilities.
Do you think every company
should become a platform?
I think a platform strategy makes
sense for companies that have the
belieftheycanbecometheindustry’s
leading platform. If you believe you
can be a platform for your industry
like iOS or an Android are for their
respective customers and partners,
go for a platform strategy. If you are
a developer, you will go where there
is distribution and scale.
There is so much
creativity and
ingenuity in the
world that third
parties will come up
with innovative ideas
in payments that we
had never thought of.
the customer is in Sao Paulo and
tries to buy something, we ping
the phone, and if the customer’s
phone is there in Sao Paulo, the
risk of it being fraud drops by a
significant magnitude and this
enables transaction approval. This
capability is in production, and we
are very happy with the success of
this application.

Could you name an organization
that you truly admire that
has succeeded in its digital
transformation?
BBVA has been a real visionary in
the banking industry. Francisco
Gonzalez, Chairman and CEO of
BBVA, has often publicly1
said that
BBVA will be the first bank in the
worldtobecometrulydigital.They’ve
made strategic and investment
decisions to achieve that vision
ranging from building a real-time,
single instance banking backend
to implementing a comprehensive
services-oriented architecture and
robust Big Data analytics. They
effectively built the infrastructure of
a modern technology company with
a large investment over multiple
years. It’s an incredibly impressive
feat to achieve.
What digital
transformation
requires is a radical
re-imagination of
your business.
1
Euromoney, “Digital banking:
BBVA’s González – The digital
banker”, September 2014
What would be your key
recommendations to big
organizations for initiating
digital transformation?
Be really bold in your thinking.
You won’t succeed if you make
incremental steps. It’s all about
looking at where the future is and
working backwards; not trying to
take incremental steps forward.
And that has implications for talent,
cultureandinvestments.Whatdigital
transformation requires is a radical
re-imagination of your business.

Executing Digital Strategy:
Acquisitions/ Greenfield or
Organic Growth?

GE: How an Industrial
Leviathan became a
Digital Giant
Beth Comstock
Vice Chair of GE
B
eth Comstock is the first female vice chair of GE. She leads the
organization’s Business Innovations unit, which seeks to accelerate
growth from new service models. Prior to her current role, Beth served
as GE’s chief marketing and commercial officer, and before that was President
of Integrated Media at NBC Universal, where she oversaw the company’s
digital efforts, including early development of hulu.com, Peacock Equity, and
acquiring ivillage.com.
GE is a highly diverse business and a venerable 140-year-old organization
that occupies a significant place in the US’ corporate history. How did this
corporate giant take such giant strides in its digital transformation to position
itself as one of the top ten software companies globally by 2020? Capgemini
Consulting spoke to Beth Comstock to understand more about GE’s strategy
for shifting from industrial leviathan to digital giant. Incubating state-of-the-
art technology, investments in startups, and strategic partnerships are some of
the ingredients GE has used to propel its digital transformation.

The Journey So Far
What have been the key
milestones in your digital
transformation journey?
We started our journey about five
years ago. We were already picking
up a lot of signals between 2008 and
2011 and understood that digital
disruption was going to impact the
industry in a big way. We started by
incubating digital expertise via our
technology group. We embedded
a software analytics team at our
global research center for example.
It was around 2013 when we
decided to meld the best of our
digital capabilities with the best of
our physical capabilities. Hardware
and advanced materials science
have always mattered a great deal
in our business, but we started
focusing on the intersection of
the two and began digitizing the
manufacturing process, not just
the things that we made. The vision
started to coalesce around a digital
transformation, from designing to
producing to shipping and in-the-
field services. Our biggest impact
today has been on our service
business because you are suddenly
selling everything as a service.
Where is GE now in its journey
towards a digital industrial
company?
This is a long journey for us. I think
we are about a third of the way
in our digital transformation. We
built an industrial-strength cloud
to power all of the data needs that
our industries are going to have.
We have really great use cases,
especially in the energy sector and
in transportation.
Can you give us an idea of the
level of investments you are
making in digital across the
business?
We have a billion dollar run rate
investment so far into our digital
efforts. And our goal is get $15
billion in revenue by 2020.
This is a long
journey for us. I
think we are about
a third of the way
in our digital
transformation.
We have a billion
dollar run rate
investments so far into
our digital efforts.
Can you share some examples
of digital initiatives you have
launched?
A great example is our “Digital
Wind Farm”1
, which connects the
embedded sensors and controls in
the actual wind turbine, providing
connectivity across multiple layers.
The blades of the turbine are able
to sense the environment. Using
technologiessuchasradarandlidar2
,
theyknowwherethewindiscoming
from and motors shift the pitch of
the blade to react to the wind. So,
the whole wind farm is orchestrating
and communicating and optimizing
for that specific environment, even
for microclimates that may be
different within the wind farm. They
are then able to send information
about the cost and the quality of the
energy being generated to the utility
company. This way, the utility can
plan to not use other energy sources,
such as coal or gas, when wind is
more efficient. It’s all done with
1
GE’s Digital Wind Farm is a comprehensive hardware & software solution comprised of GE’s customizable 2 & 3MW wind turbine products,
a predictive analytics software platform, and performance optimization controls technology that, over the course of a wind farm’s life, can
improve its energy output by up to 20% (as compared to an average, North American wind farm.) Source: https://renewables.gepower.com/
wind-energy/technology/digital-wind-farm.html
2
Lidar is a detection system which works on the principle of radar, but uses light from a laser

GE’s Predix Platform –
The Cornerstone Of GE’s
Digital Strategy
Predix is very much at the core
of your digital transformation.
Can you explain the concept of
Predix and why you want to
become a platform company?
Ifyouthinkoftherangeofindustries
thatGEisin–energy,transportation,
healthcare – you realize that some
of the basic capabilities are similar.
You want to connect your machines,
know how they are performing and
predict failure and maintenance.
That’s the vision.
To do that, we needed a platform
that would ingest, analyze, and
predict a vertiginous volume of
industrial data with the right kind
of security capability. It hadn’t
really been built at industrial scale,
so it needed to be.
Why did you decide to open up
your platform?
The more people that can be
building and contributing non-
confidential data to the stack,
the better the outcomes are. This
is why we have opened up our
Predix platform to our customers –
and even competitors – to enable
them to write applications on the
platform. We already have 11,000
developers at this stage.
We needed a
platform that would
ingest, analyze, and
predict a vertiginous
volume of industrial
data with the right
kind of security
capability. It hadn’t
really been built at
industrial scale, so it
needed to be.
Predix, our cloud-based platform
for the Industrial Internet, which
provides a digital infrastructure for
the wind farm, enabling collection,
visualization and analysis of unit-
and site-level data.
With Predix, we are
creating a network
effect and an
intelligence effect.
The more people you
have on the platform
contributing, the
smarter the whole
system gets.
So you wanted to create a
network effect?
With Predix, we are creating a
network effect and an intelligence
effect. The more people you have
on the platform contributing, the
smarter the whole system gets.
You mentioned technology
that’s industrially scalable.
How does Predix scale up with
increasing data volumes?
We have created the concept of a
“digital twin”, where we simulate in
the cloud every piece of machine we
make. As data comes in, the cloud
constantly runs simulations to make
the models that will one day predict
serviceneeds.Theywillpredictthings
before they become catastrophic or
before it costs a lot of money.

Digital Transformation Review 9: The Digital Strategy Imperative #DTR9

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