An Unfinished Revolution

The business story of the 1980s and ’90s was, in large measure, the story of commoditization. Globally, in one market after another, companies large and small learned techniques for producing high-quality goods and services at competitive prices, and found they could compete with the most powerful and seemingly entrenched incumbents. Companies that successfully emerged from this upheaval were those that made smart business-design choices, enabling them to differentiate themselves in the minds of customers —even when their products and services were no longer unique.

Today, the explosion of digital information makes available a new array of strategic options, bringing within reach the Holy Grail of differentiation: the ability to offer all stakeholders a set of value propositions that no other company can match. These options include new ways to mine customer data, reach entirely new customer sets and leverage the creativity and energy of talent.

However, despite years of discussion about the value of information and the fact that information is most companies’ greatest asset (in 2001, for the first time, U.S. investment in information technology surpassed spending on traditional plants and equipment), few established companies have been able to differentiate themselves to that degree. As a result, although companies may use information to improve their own operations, few have been able to turn it into honest-to-goodness revenue.

Why have companies tapped only a tiny portion of the potential for their information to drive new growth? For one thing, managers often limit their thinking about information assets to computer systems and customer-relationship management databases. In fact, information assets encompass warranty information, transaction histories, technical knowledge, research results, point-of-sale data, equipment monitoring software and data, and a host of custom analytic tools. After the bursting of the dot-com bubble, some managers also tend to generally disparage ideas involving digital assets. Nonetheless, a thoughtless rejection of digital business is just as expensive as the thoughtless enthusiasm many businesses fell prey to in the late ’90s.

The experiences of two companies suggest, however, that there are a variety of ways to generate new growth using information assets.

GE Medical Systems: Capitalizing on Byproduct Information

General Electric is putting information assets to work in its GE Medical Systems (GEMS) unit. In 1995, GEMS was a $4 billion division that sold medical imaging equipment. Today, it is an $8.5 billion company comprising three business segments — health-care services, imaging equipment and information technology.

The transformation of GEMS started with a shift from analog to digital imaging. The company then realized that information created by its equipment was the key to addressing many of the most pressing priorities that hospitals face.

For example, GEMS developed a network that stores images digitally, creating a lucrative new market in software, systems design and ongoing support services. Now, GEMS products integrate data from various hospital departments, link its offerings to hospitals’ legacy systems and benchmark operational performance. For hospitals, it’s a way to achieve a tangible, positive return on their IT investments.

GEMS has more than quadrupled the size of its addressable market, with the IT division expected to grow 20% to 30% per year — all as a result of recognizing the relevance of byproduct information to the needs of customers.

Tsutaya: Using Customer Data To Create New Revenue Streams

Think of an insightful mega-Blockbuster store crossed with a local Borders Books and Music store, and you get a sense of how Tsutaya has taken Japan by storm.

Founded in 1985, Tsutaya has evolved from a small retailer into the leading renter of videos in Japan and one of the top retailers for music and books with $650 million in revenues, 1,100 superstores and a 31% market share. The company accomplished this by using its customer data assets to drive marketing and sales, tailoring customer offerings and creating information packages for sale to other companies.

By the early 1990s, Tsutaya had built comprehensive cus- tomer profiles from point-of-sale data, and responses to customer questionnaires, sampling and direct marketing. As its database grew, Tsutaya’s knowledge became more precise, moving from a general analysis of sales trends to insights into the behavior of individual customers.

Like other sophisticated retailers, Tsutaya initially used customer data to improve its demand forecasting, which allowed stores to increase sales in certain areas and reduce unsold inventory. Then in 1999, the company launched Tsutaya Online (TOL), a Web site that serves as a powerful communication channel between Tsutaya and its customers. Today, TOL is the most popular entertainment Web site in Japan.

The combination of Tsutaya’s rich customer data and the popularity of TOL has created a mutually reinforcing system that, like many information networks, becomes more potent the more it is used. Tsutaya captures data about customer preferences from every interaction in the store or on the Internet and crafts more closely tailored offerings and recommendations. This generates more interactions, more sales and more data, allowing the company to refine its offerings even further.

Tsutaya’s ability to capture and synthesize patterns of behavior helps people make better decisions in less time, translating directly into improved performance and value creation. No more buying costly inventories of CDs, DVDs or books on the basis of a merchandiser’s hunch; Tsutaya has hard data about customer preferences that guide smarter purchasing decisions, thereby improving the ratio of sales to invested capital, reducing out-of-stock problems and minimizing expensive return shipments of goods to manufacturers.

The company’s extensive customer database has also become the source of an entirely new business — the sale of its data and analytical support to companies that are developing marketing plans, new products and sales promotions. Clients include companies like beer maker Kirin, which is eager to fine-tune its marketing efforts.

As these cases illustrate, information assets are well-suited to the task of creating new, sustained revenue growth. Information is highly reusable at low marginal cost and can be customized and delivered remotely to customers quickly and cheaply. Today’s nascent information-based firms are merely the tip of the iceberg. The real potential lies with the treasure trove of information assets buried within most large, established companies and just waiting to be tapped.