In forging their digital strategy, banks have focused too heavily on consumer companies such as Facebook and Netflix. They should, writes Brian Caplen, look instead at what GE is doing.

It is easy to get carried away with the FANGs – Facebook, Amazon, Netflix and Google. They have revolutionised consumer behaviour and (together with Uber, Airbnb, and so on) disrupted service and retail businesses.

But in reacting to the digital threat many companies – banks included – have merely overlaid online services over a legacy process. This failure to restructure is the reason why the new technology has not boosted productivity. As a result, wages have stagnated and populist discontent has risen in the US and Europe.

But all this is about to change. We are on the verge of an epoch-making era when core industries and businesses go digital and transform society. This period has been dubbed "the digital build out phase" by the authors of What to Do When Machines Do Everything and runs, they say, from 2015 to 2040. It follows a burst of innovation (1980 to 2000) and then a stall (2000 to 2015) from which we are just emerging.

Malcolm Frank, Paul Roehrig and Ben Pring, three Cognizant consultants, say: “Every previous industrial revolution has followed this same basic cycle of innovation bubble, stall and boom… what is starting to happen and does have the potential to raise all our boats is the application of Internet of Thing ideas to mission-critical parts of the economy, such as healthcare, transportation, and defence.”

Leading the charge is not a FANG but the oldest company listed on the New York Stock Exchange – GE. What GE is doing is using the data and analytics that come from the Internet of Things (sensors on all parts of its locomotives, jet engines, power plants) to build a 'digital twin' of every process and physical asset.

The idea is to improve both internal productivity as well as outcomes for customers by continuously making the equipment perform better and easier to maintain. GE has set up an open data analytics platform called Predix which can be used by third parties to analyse its data.

The aim, says GE CEO Jeff Immelt, is to be among the world’s top software firms with sales of services of $15bn by the 2020s. This way GE doesn’t lose parts of its business to Google or IBM.

So what can banks learn? First, long-established companies can make headway in the internet by building things themselves. They don’t have to wait for a fintech to emerge and then buy it. Second, the data is now the product or the service. Collect it from your customers but then use it to improve their lives by offering information on relevant goods and services related to their lifestyle. Third, it’s not all about technology; the entire organisation has to change.

In an interview with McKinsey, Mr Immelt said: “This is something I got wrong. I thought it was all about technology. I thought if we hired a couple thousand technology people, if we upgraded our software, things like that, that was it. I was wrong. Product managers have to be different; salespeople have to be different; on-site support has to be different. We’ve had to drill and change a lot about the company.”

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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