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I'm always confused about how organizations struggle to differentiate between technology investments that drive competitive parity and those technology investments that create unique and compelling competitive differentiation. Let's explore this difference in a bit more detail.

Competitive parity is achieving similar or same operational capabilities as those of your competitors. It involves leveraging industry best practices and pre-packaged software to create a baseline that, at worst, is equal to the operational capabilities across your industry. Organizations end up achieving competitive parity when they buy foundational and undifferentiated capabilities from enterprise software packages such as Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), and Sales Force Automation (SFA).

Competitive differentiation is achieved when an organization leverages people, processes, and technology to create applications, programs, processes, etc., that differentiate its products and services from those of its competitors in ways that add unique value for the end customer and create competitive differentiation in the marketplace.

Leading organizations should seek to “buy” foundational and undifferentiated capabilities but “build” what is differentiated and value-added for their customers. But sometimes organizations get confused between the two. Let's call this the ERP effect. ERP software packages were sold as a software solution that would make everyone more profitable by delivering operational excellence. But when everyone is running the same application, what's the source of the competitive differentiation?

Analytics, on the other hand, enables organizations to uniquely optimize their key business processes, drive a more engaging customer experience, and uncover new monetization opportunities with unique insights that they gather about their customers, products, and operations.

Leveraging Technology to Power Competitive Differentiation

While most organizations have invested heavily in ERP-type operational systems, far fewer have been successful in leveraging data and analytics to build strategic applications that provide unique value to their customers and create competitive differentiation in the marketplace. Here are some examples of organizations that have invested in building differentiated capabilities by leveraging new sources of data and analytics:

• Google: PageRank and Ad Serving

• Yahoo: Behavioral Targeting and Retargeting

• Facebook: Ad Serving and News Feed

• Apple: iTunes

• Netflix: Movie Recommendations

• Amazon: “Customers Who Bought This Item,” 1-Click ordering, and Supply Chain & Logistics

• Walmart: Demand Forecasting, Supply Chain Logistics, and Retail Link

• Procter & Gamble: Brand and Category Management

• Federal Express: Critical Inventory Logistics

• American Express and Visa: Fraud Detection

• GE: Asset Optimization and Operations Optimization (Predix)

None of these organizations bought these strategic, business-differentiating applications off the shelf. They understood that it was necessary to provide differentiated value to their internal and external customers, and they leveraged data and analytics to build applications that delivered competitive differentiation.

History Lesson on Economic-Driven Business Transformation

More than anything else, the driving force behind big data is the economics of big data – it's 20 to 50 times cheaper to store, manage, and analyze data than it is to use traditional data warehousing technologies. This 20 to 50 times economic impact is courtesy of commodity hardware, open source software, an explosion of new open source tools coming out of academia, and ready access to free online training on topics such as big data architectures and data science. A client of mine in the insurance industry calculated a 50X economic impact. Another client in the health care industry calculated a 49X economic impact (they need to look harder to find that missing 1X).

History has shown that the most significant technology innovations are ones that drive economic change. From the printing press to interchangeable parts to the microprocessor, these technology innovations have provided an unprecedented opportunity for the more agile and more nimble organizations to disrupt existing markets and establish new value creation processes.

Big data possesses that same economic potential whether it be to create smart cities, improve the quality of medical care, improve educational effectiveness, reduce poverty, improve safety, reduce risks, or even cure cancer. And for many organizations, the first question that needs to be asked about big data is:

How effective is my organization at leveraging new sources of data and advanced analytics to uncover new customer, product, and operational insights that can be used to differentiate our customer engagement, optimize key business processes, and uncover new monetization opportunities?

Big data is nothing new, especially if you view it from the proper perspective. While the popular big data discussions are around “disruptive” technology innovations like Hadoop and Spark, the real discussion should be about the economic impact of big data. New technologies don't disrupt business models; it's what organizations do with these new technologies that disrupts business models and enables new ones. Let's review an example of one such economic-driven business transformation: the steam engine.

The steam engine enabled urbanization, industrialization, and the conquering of new territories. It literally shrank distance and time by reducing the time required to move people and goods from one side of a continent to the other. The steam engine enabled people to leave low-paying agricultural jobs and move into cities for higher-paying manufacturing and clerical jobs that led to a higher standard of living.

For example, cities such as London shot up in terms of population. In 1801, before the advent of George Stephenson's Rocket steam engine, London had 1.1 million residents. After the invention, the population of London more than doubled to 2.7 million residents by 1851. London transformed the nucleus of society from small tight-knit communities where textile production and agriculture were prevalent into big cities with a variety of jobs. The steam locomotive provided quicker transportation and more jobs, which in turn brought more people into the cities and drastically changed the job market. By 1861, only 2.4 percent of London's population was employed in agriculture, while 49.4 percent were in the manufacturing or transportation business. The steam locomotive was a major turning point in history as it transformed society from largely rural and agricultural into urban and industrial.2

Table 1.1 shows other historical lessons that demonstrate how technology innovation created economic-driven business opportunities.

Table 1.1 Exploiting Technology Innovation to Create Economic-Driven Business Opportunities

This brings us back to big data. All of these innovations share the same lesson: it wasn't the technology that was disruptive; it was how organizations leveraged the technology to disrupt existing business models and enabled new ones.