In the early 2000’s, IBM Deep Blue was on the lookout for its next Grand Challenge. It had achieved an exhilarating win over chess grand master Garry Kasparov in 1997. But that was a game with deterministic outcomes where superior processing power gave Deep Blue a significant advantage over even a human grand champion. IBM needed a challenge commiserate with its Artificial Intelligence aspirations, and the wildly popular TV game show Jeopardy! offered just that challenge.
According to David Ferrucci, who headed up the IBM Deep Blue project, Deep Blue had to develop several AI innovations in order to compete against Jeopardy! world champions. Deep Blue, renamed Watson, had to parse, analyze, assess and interpret the Jeopardy question (which was often phrased in a humorous or wry way); query an metadata-enriched open domain of wide ranging information; identify, assess, and score candidate answers and then select the highest probability answer given the current status of the Jeopardy contest …all in about one second.
And in 2011, Watson defeated Jeopardy! champions Brad Rutter and Ken Jennings to win the $1 million grand prize. Ken Jennings, famous for winning 74 games in a row, borrowed a “Simpson’s quote “I, for one, welcome our new computer overlords” to acknowledge Watson’s great achievement.
At the same time that IBM was dominating the Jeopardy! world champions, the battle for internet search dominance was underway. In 2004, Google (35% market share) and Yahoo (32% market share) were the market leaders. Over the next decade, the web search battle quickly settled out with Google achieving a dominant 80+% market share position, and an even higher percentage of web search profits (see Figure 1).
By 2019, Google was leading the Search Ad Revenues with revenues of $36.B and 80% market share…just in the US!
While the battle for internet search leadership was still undetermined in the 2000’s, it would appear that IBM Watson had a “better search mousetrap” in answering questions with the speed and accuracy that would take Google a decade to realize. But IBM Watson did not move on that opportunity. IBM Watson did not leverage their AI-leading technology to dominant a market that would eventually be $48B in size by 2019. Why?
“When you change the way you look at things, the things you look at change.” - Wayne Dyer
Maybe the most important determinant of company survival in this age of rapidly evolving customer, technology, society and environmental changes is the “frame of reference” (frame) through which a company views their business.
Google did not have a product install base to protect, so they could view the internet search market opportunity via a “customer solution” frame. Google was free of the existing product frame shackles of yesterday to innovate and create new sources of customer value for tomorrow. Google did not have to worry about protecting a mainframe and RDBMS businesses and battling the corporate white corpuscles that were determined to consume any spend and attention not focused on defending yesterday’s glory.
So how do organizations manage against the risk of missing the “next big thing” when their current business frame is focused on protecting yesterday’s glory (their install base business)?
New digital technologies are emitting new sources of data (more granular, low-latency, real-time) that when combined with advancements in artificial intelligence, machine learning and deep learning, are uncovering new sources of customer, product and operational value. These customer behavioral, product performance and operational efficiency insights can be used to optimize existing business processes for today’s market share battles.
But how do organizations exploit these customer behavioral, product performance and operational efficiency insights to gain an advantage to successfully move into new markets? How do these new sources of customer, product and operational value fuel the digital transformation mandate and enabling companies to re-engineer their business and operational model? Welcome to the “3 Horizons” management concept!
The goal of “3 Horizons” management concept is to enable organizations to manage a portfolio of projects that support both current and future market growth. The 3 Horizons concept helps organizations to prioritize projects and allocate investments with the goal of sustaining the current business while investing in future businesses.
The 3 Horizons are comprised of the following stages:
Organizations need to embrace the Horizons approach in order to drive operational excellence within their existing businesses (Horizon 1) while re-engineering their business models to identify, codify and operationalize new sources of customer, product and operational value to create “smart” or digital entities in Horizon 2 and autonomous entities and environments to create new markets in Horizon 3 (see Figure 2).
Figure 2: 3 Horizons of Digital Transformation
To summarize the Agricultural Company example in Figure 2:
Organizations that hope to identify and exploit new business opportunities must “think differently” about identifying, quantifying and operationalizing the sources of customer value creation. The Digital Transformation Value Realization Map in Figure 3 provides a framework to help organizations more quickly spot, assess and act on new market opportunities.
Figure 3: Digital Transformation Value Realization Map
Figure 3 outlines the process to 1) map out the sources of value creation to 2) codify of those sources of customer value creation via advanced analytics (propensity models, behavioral scores, etc.) to 3) operationalize the sources of customer value to drive improved business and operation outcomes.
Two foundational concepts are mastering the 3 steps in Figure 2:
But now that you understand the sources of customer value creation, and you know how to codify and operationalize those sources of value, how do you leverage those insights to move into or even create new markets?
No blog would be complete without some sort of homework assignment. Let’s see how well you can complete the 3 questions below, and then I’ll compare your answers to those that my University of San Francisco MBA students come up with. Game on!
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