Services, channels and experiences matter in old economy industries

old-economy-vs-new-economyIn my last post I spent some time examining the opportunities and challenges of innovating in an old economy industry – the railroad industry.

For some industries, especially those that are asset-light, innovation can seem so simple.  Creating another compelling feature, service or product on top of an already agile set of capabilities can be pretty straightforward.

For old economy companies with infrastructure, equipment and assets, trying to innovate can seem very difficult, because of the history you have to bring along, and because of the standards, platforms and ecosystems that define your value proposition.

So here’s where both asset light new economy companies (Uber, AirBnB, etc) and old economy, asset rich industries can find common innovation ground. 

They both will have the most opportunity innovating things other than products.  Tangible products and even intangible services that are treated like products must align to existing platforms and ecosystems. They must be compatible with third party solutions and products, unless like Apple you just force everyone to purchase new chargers and new ear buds every few years.  However, intangible opportunities abound for both asset-light and asset-heavy companies:  channels, services, customer experiences and data/information opportunities are ripe for change and innovation, and are far less bound by existing infrastructure.  Whether you are working in a highly scalable company with few assets or a relatively inflexible old economy company reliant on shared standards, fixed platforms and robust ecosystems, innovation opportunities are available – but not perhaps where you might normally think.

Tangible can be difficult / Intangible can be easier

As I wrote in my post about railroading, the amount of standardization and investment in infrastructure will stymie many types of innovation.  I used the example of a railroad car – conceiving the possibility of a multi-use car that could be configured for different loads.  This idea runs into a number of infrastructure, platform and ecosystem concerns relatively quickly when you consider the issues of loading and offloading the cars (highly specialized), the speed that trains can run (varies depending on the cars and loads), the issue of maintenance (cars often end up on other lines and are frequently maintained by other carriers).  While a configurable car might make sense to help scale up or down based on emerging demand, the issues associated with the platforms and ecosystems may restrict innovation.  Platforms and ecosystems are both a blessing and a curse.

However, companies like AirBnB or Uber can seemingly innovate at will.  They seem to come from nowhere and force changes on existing industries.  But note that in most cases they aren’t changing the core product or service. They are simply innovating on the margins.  AirBnB still must provide a reasonably clean, comfortable, safe and affordable residence.  In that they don’t have different requirements than the hotels they compete with.  What AirBnB did was to expand or innovate the channel, the business model and the experience.

Now, consider what GE is doing on its locomotives. 

GE is placing a number of sensors on its locomotives and using its Predix platform to capture and manage the data generated by the sensors.  Rather than changing the product (the locomotive) GE may be able to innovate based on the data it receives and the information it can create from that data.  Thus it can, in an old economy company burdened with rigid platforms and ecosystems, innovate in new ways.  With the data, GE may be able to provide on the fly reporting about maintenance issues or help reduce fuel consumption.  These insights keep the trains moving faster, longer with less cost.  Over time these insights may lead to better locomotive design.

The beautiful thing about adding sensors and capturing/managing data is that it has virtually no impact on the existing platform or ecosystem, but could create a new, higher level platform (a data platform as opposed to a rail platform) that increases information flow as opposed to goods flow.  This is one example of an innovation opportunity in an old economy industry that could appear stagnant and held captive by its platform and ecosystems.

Beyond data

What other innovation opportunities are possible in old economy industries?  When you consider the amount of assets, agreements, networks, relationships and infrastructure, innovation can seem daunting.  Whether we think of a railroad, with its fixed rails (and the enormous difficulty of laying new track) or a chemical company and its capital infrastructure, or for that matter almost any large, capital intensive industry, these firms and industries seem captive to the past investments, past channels, past relationships, past infrastructure.  But they can create new methods of innovation.

One of my favorite examples is Dow Chemical / Xiameter. 

For years, Dow created huge batches of chemicals that could only be sold or shipped in massive tanker cars on railroads.  Smaller firms that could not afford these quantities, or prototype plants that simply didn’t need these quantities struggled to obtain the chemicals and raw materials they needed.  So, Dow created Xiameter to provide these chemicals through different packaging and shipping arrangements.  Beyond making it easier to acquire and ship the chemicals, Xiameter also offers consultative help in using its chemicals, expanding the services it offers.  Here’s a nice, real world, B2B example of an old economy company innovating within and above its platforms and ecosystems by capitalizing on its knowledge (new services) and solving a customer problem (ordering, packaging, shipping) without any real change to its products.

What might emerge from this

As both old economy and new economy companies and industries realize the power of service, channel, experience and data innovations, entirely new platforms and ecosystems may emerge.  Where the railroads once had one fundamental platform – the rails – we could imagine other platforms – based on data for example – emerging as a secondary and perhaps equally important “platform” which would spawn a new ecosystem.  That ecosystem would emerge to compute, manage, append and report on the data and create information for the railroads, their suppliers and their customers.  Who builds and owns this platform?  GE is clearly making a move to establish itself either as a data provider to the platform or to recommend the platform itself.

In this emerging world, the company that owns and manages the data will be the one that eventually profits the most, because they will harvest data and insights which can be used to create new products or the data can be packaged and sold. These data platforms will drive a lot of insight and revenue and will have very little cost associated with them.

Perhaps we need a new “funnel”

Innovation for years has been represented by a funnel.  In the past the funnel suggested that you’d need a lot of ideas to create a new compelling product.  Perhaps we should think of the funnel in another way, where the narrow side of the funnel represents products and services, and the broader portion of the funnel represents channels, business models, data and experiences.  Thus, we can agree that in some industries the breadth of innovation opportunity appears limited for some types of innovation, but opportunities abound in factors that many companies and industries haven’t year explored.

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