Bringing an economics perspective to our big data and digital transformation discussions is more important than a traditional accounting or even information technology (IT) perspective. Therefore, Chief Data Officer’s background should be more along the lines of economics than IT.
Economics brings a forward-looking perspective on creating value (wealth). In fact, economics is defined as “the branch of knowledge concerned with the production, consumption, and transfer (capture) of wealth.”
It is this forward-looking perspective on the “production, consumption, and transfer (capture) of wealth” that should drive an organisation’s digital transformation initiatives, and as an example of how digital transformation is exploiting economics, we need to look no further than what is happening in the automobile industry.
Economics of an Electric Vehicle
As an owner of a money pit, maintenance nightmare internal combustion engine (ICE) vehicle, I’m well aware of how much it costs me whenever I need to get my car serviced — replace a starter here, or fix an oil leak there, or replace an alternator here. Electric vehicles (EV), on the other hand, have fewer complicated, inter-related, expensive-to-fix parts. For example, the motor in an EV contains about half a dozen moving parts, as compared to the hundreds of working parts in an ICE.
Once you buy an EV, there are many maintenance costs that you can wave goodbye to. For example, say goodbye to costs associated with transmissions (manual or automatic). And the lack of a transmission means that clutches, pressure plates, bearings, transmission or gear oils are unnecessary. Other traditional maintenance costs that an EV avoids includes engine, cylinder heads, gaskets, clutches and gear box, spark / heater plugs and plug cords, air intake filter, catalytic converter, exhaust pipe and muffler, timing belts, gas tank, filters (oil, air, fuel), engine oil & lubricants, radiator, coolants and fluids, starters, alternator and thermostats, carburetor, distributor assembly, fuel injectors, fuel pumps and fuel lines, O2 sensors, belts, turbo chargers, engine mounts, clamps, holders or connectors, fog checks…you get my drift.
In the article “Ford Pushes Key Marketing Message for Electric Cars: Lower Maintenance Costs,” Sherif Marakby, Ford’s Director of Electrification Programs and Engineering states: “When you have moving parts, such as the gears in a transmission or the pistons in an engine, you have maintenance. With an electric drive, there are very few moving parts. And in the Focus Electric, the only moving parts are the motor and the wheels.”
Over the life of the car, Focus Electric drivers also won’t need to spend time and money to:
- Replace five air filters at a cost of $24.95 each
- Have two cooling system flushes at a cost of $109 each
- Get one transmission service, $179
- Replace one drive belt for $130
- Buy and install one new set of spark plugs for $69.95
The 3 most expensive auto repairs (“4 of the Most Expensive Car Problems”) are avoided with an EV:
#1 – Blown engine. A blown engine can occur as a result of problems such as a broken connecting rod, a damaged valve, or leaking oil. If you need an engine replacement, a new one costs between $1,000 and $4,000 (or much more), depending on your vehicle, the type of engine, and the shop where you get your car repaired.
#2 – Transmission replacement. On average, you are looking at a cost of between $1,800 and $3,500 for a replacement. If you opt for a repair instead of a replacement, your cost is a bit lower. You can have a transmission or clutch repaired for between $1,000 and $2,000.
#3 – Head gasket. If you blow a head gasket, you are looking at a serious cost. Although a gasket itself is cheap, the labor costs are high. According to estimates by the Engine Guy, you should pay between $1,200 and $1,600 for head gasket repair.
The economics of owning an electric vehicle start to overwhelm the costs and hassles associated with owning a vehicle with an internal combustion engine.
The bottom-line is that economics of the electric car overwhelm the economics of an internal combustion engine (or hybrid engine), and in the long run the economics of the EV will win.
Yep, my next car will be an electric vehicle.
Data is NOT the New Oil. Data is the New Sun!
What does all this boring talk of economics of the automobile industry mean to an organisation contemplating digital transformation? If you want to be successful with your digital transformation, organisations need to master exploiting the economics of their data and analytics in order to drive the production, consumption, and transfer (capture) of wealth.
However, “Data is the New Oil” is a dated analogy used to describe yesterday’s business models; business models built on assets that wear out (depreciate), deplete and cannot be used simultaneously across multiple uses.
Instead, “Data is the New Sun” is a more relevant analogy to describe tomorrow’s digitally-transformed business models as the sun can power an infinite number of uses at zero marginal cost, never wears out (or depreciates) and never depletes!
At its heart, digital transformation is about economics: transitioning from yesterday’s “economics of oil” mentality (expensive to find, expensive to extract, expensive to transport, environmentally hazardous, depletes, messy, dirty and environmental costly) to embracing the modern “economics of the sun” (clean, never depletes, never depreciates and is readily available to fuel an infinite number of uses).
The “economics of the sun” are exactly like the “economics of digital assets” in that your digital assets (data, analytics and resulting customer, product and operational insights) never deplete, never depreciate and are readily available to fuel an infinite number of use cases.
Embrace the economics of digital assets and the “4 Laws of Digital Transformation” to guide your digital transformation:
Law #1: Digital Transformation is about innovating business models, not just optimising business processes
Law #2: Digital Transformation is about coupling digital technologies with digital assets in order to eliminate time and distance barriers in your business model.
Law #3: Digital Transformation is about leveraging superior insights to build new core competencies around customers, products and operational intelligence.
Law #4: Digital Transformation is about creating new digital assets around data, analytics and insights about your customers, products and operations.
Law #5: Digital Transformation is about predicting what’s likely to happen, prescribing actions and learning from the results faster than your competition (predictive intelligence).
So embrace your data and analytic digital assets to exploit the “economics of the sun” to drive the production, consumption, and transfer (capture) of wealth in your digital transformation.
In the long run, economics win. Period.
Originally published by Bill Schmarzo.
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