Interconnections, relationships and algorithms are defining the future of business, says Peter Sondergaard, senior vice president of Gartner Research.
Worldwide spending on Internet of Things (IoT) hardware is predicted to exceed US$2.5 million every minute in 2016, says Sondergaard, who spoke at the 2015 Gartner Symposium/ITxpo at the Gold Coast.
In five years, one million new devices will come online every hour. These interconnections are creating billions of new relationships. These relationships are not driven solely by data, but algorithms.
“Algorithms are where the real value lies. Algorithms define action. Dynamic algorithms are the core of new customer interactions,” says Sondergaard.
He advises: “Calculate the value of your algorithms, be an algorithmic business.”
Sondergaard cites companies that have done this: Amazon’s recommendation algorithm that keeps customers engaged and buying; Netflix’s dynamic algorithm – built through crowdsourcing – that keeps people watching; and the Waze algorithm that directs thousands of independent cars on the road.
“The algorithmic economy will power the next great leap in machine-to-machine evolution in the Internet of Things,” says Sondergaard. “Products and services will be defined by the sophistication of their algorithms and services. Organisations will be valued, not just on their big data, but the algorithms that turn that data into actions, and ultimately impact customers.”
Your business is transforming, he says. With digital, you must focus on algorithms and you must operate in a safe manner.
Technology is changing everything, says Gartner CEO Gene Hall. "CEOs are focused on digital businesses and winning CEOs need you.”
Read more: David Spaziani: CIO to Gartner executive
CEOs expect additional revenues from digital products and services to double in the next four years, says Hall, citing the results of their annual CEO survey.
CEOs in the [ANZ] region expect their organisation’s digital revenue to more than double in the next five years, from 14 per cent now to 32 per cent of total revenue.
“You are more important than ever, your CEO looks to you as a trusted ally,” says Hall.
At the same time, the CEO expects the CIO to be a guardian, operator and innovator, all at once.
The CIO as tech investor
Sondergaard also discusses the imperative of moving to become a digital business.
Digital business is when new businesses designed with both the physical and digital world are brought together, he explains.
As analogue revenues flatten, and decline for many industries, businesses are shifting to digital revenue from digital business. Global digital commerce is now over $1 trillion, annually.
In this environment, CIOs need to transform their leadership approach towards technology and investment; work with digital suppliers and create innovation competency.
“To accelerate the creation of a new digital technology platform, leading companies are acting as venture investors,” says Sondergaard.
“They are not waiting for current suppliers to build digital capabilities. Instead, they are investing in small technology startups. They are buying a stake in their future, guiding their direction.
“Even if you aren’t a CIO technology venture investor, the landscape for the technology buyer will change. If you are going out to buy products and services, you will need new capabilities that most Mode 1 suppliers don’t have, or are struggling to deliver.”
The new suppliers of digital platforms must be able to support fast-fail projects; in the cloud, on demand, and highly automated with short-term engagements and pay-as-you-go models; and provide real-time insights with advanced automation.
Sondergaard says leading CEOs have told Gartner that their digital revenue will increase by more than 80 per cent by 2020.
“Leading organisations are building their digital platforms now.”
Sondergaard, meanwhile, points out that digital does not compete with analog, “They work together.”
They achieve competitive advantage with growth organisations creating separate business units focusing on digital and separate from traditional business, he says.
They are running new ways of reaching the customer, and even acquiring technology companies and not waiting for existing suppliers to build their capabilities, he says.
So how will this impact the CIO role?
"If the most important thing you offer is data you are in trouble," he says.
"Big data is not where the value is. Sure, data is necessary, but it is transient by itself, it will not be transformative and your organisation may view you as the data keeper. But anybody can gather data today, anybody can store it.
"Anybody can hire somebody to do data analysis no matter how big the data set is.
“You must inventory your algorithms,” says Sondergaard.
He asks CIOs this question: What differentiates your business, what defines your key processes, your most important customer interactions?
"Someone in your organisation should be assigned this task. One place to start is to put your chief data officer not only in charge of data but algorithms."
Classify which algorithms should be private or public, he says.
“If it is fundamental to your business, keep it secret and protected. If it has value but is not a lynch pin of your business, you can license, trade or sell it, or give it away.”
Betsy Burton, distinguished analyst at Gartner, discusses the ‘economics of connections’, new ecosystems spawned by the rise of the Internet of Things.
“The greater the density of connections, the higher the value,” says Burton.
She says there are three steps enterprises can take with these: Give, take, multiply.
'Give' is exemplified by Tesla which shared its supercharger patent for free. Everyone adopting this technology means Tesla can grow its market.
“Every organisation has some information capability that is worth more sharing than keeping secret,” she says.
Start with data, and take one app so the customer or partner can access it, she states. “When you give, you open yourself up to new possibilities.”
'Take' means taking advantage of new resources. Ships, for instance, are measuring the temperature of sea water as part of work on climate change. People encourage citizen developers, she says.
“What sensors are out there you can tap into and show value?”
'Multiply' is having a goal to multiply the connections and move it into a tightly woven mesh of connections. “Every new connection has a potential value,” says Burton. “You become an economic platform and a launching pad for new ideas and innovations.”
“Design for inclusion to connect instead of exclusion to protect,” Sondergaard concludes.
Read more: 2016 CIO100 research commences
Send news tips and comments to email@example.com
Follow Divina Paredes on Twitter: @divinap
Follow CIO New Zealand on Twitter:@cio_nz
This article was published in the Spring 2015 of CIO New Zealand. Click here to read more.
Read more: Thriving in a data-intensive world
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.