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Published by: Harvard Business Publishing
Originally published in: "Harvard Business Review", 2014
Revision date: 07-Nov-2014

Abstract

When Google bought Nest, a digital thermostat and smoke detector company, for USD3.2 billion just a few months ago, it was a clear indication that digital transformation and connection are reaching critical mass, spreading across even the most traditional industrial segments and creating a staggering array of business opportunities and threats. The digitization of tasks and processes has become essential to competition. General Electric, for example, was at risk of losing many of its top customers to nontraditional competitors - IBM and SAP on one hand, big data start-ups on the other - offering data-intensive, analytics-based services that could connect to any industrial device. So GE launched a multibillion dollar initiative focused on what it calls the industrial internet: Adding digital sensors to its machines, connecting them to a common, cloud-based software platform, investing in software development capabilities, building advanced analytics capabilities, and embracing crowd-based product development. With all this, GE is evolving its business model. Now, for example, revenue from its jet engines is tied to reduced downtime and miles flown over the course of a year. After just three years, GE is generating more than USD1.5 billion in incremental income with digitally enabled, outcomes-based business models. The company expects that number to double in 2014 and again in 2015.
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Abstract

When Google bought Nest, a digital thermostat and smoke detector company, for USD3.2 billion just a few months ago, it was a clear indication that digital transformation and connection are reaching critical mass, spreading across even the most traditional industrial segments and creating a staggering array of business opportunities and threats. The digitization of tasks and processes has become essential to competition. General Electric, for example, was at risk of losing many of its top customers to nontraditional competitors - IBM and SAP on one hand, big data start-ups on the other - offering data-intensive, analytics-based services that could connect to any industrial device. So GE launched a multibillion dollar initiative focused on what it calls the industrial internet: Adding digital sensors to its machines, connecting them to a common, cloud-based software platform, investing in software development capabilities, building advanced analytics capabilities, and embracing crowd-based product development. With all this, GE is evolving its business model. Now, for example, revenue from its jet engines is tied to reduced downtime and miles flown over the course of a year. After just three years, GE is generating more than USD1.5 billion in incremental income with digitally enabled, outcomes-based business models. The company expects that number to double in 2014 and again in 2015.

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