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Top of Mind Issues facing technology companies Industrial mash-ups: A disruptive new partnering form will accelerate innovation — again
Transcript of industrial mash-ups - EY - United StatesFILE/ey... · Top of Mind Issues facing technology...
Top of MindIssues facing technology companies
Industrial mash-ups:A disruptive new partnering form will accelerate innovation —again
2 | Industrial mash-ups: a disruptive new partnering form will accelerate innovation — again
“Industrial mash-ups are new kinds of alliances that will form, live and die very dynamically. New API-like interfaces to business functions are emerging to enhance industrial mash-ups by helping to drain the friction out of these fast-evolving business relationships.” Jeff LiuGlobal Technology Industry LeaderTransaction Advisory Services EY
We coined the term “industrial mash-ups” to describe this new form of dynamic and increasingly automated partnering. Industrialmash-ups will enable important benefits throughout the digitaleconomy. They will:
• Stand in for mergers and acquisitions, joint ventures (JVs) and other alliances (in certain instances)
• Accelerate innovations to market by enabling more collaboration with less dealmaking “friction”
• Enable organizations to migrate more rapidly to comprehensive, end-to-end solutions (a trend we call “stack to solution”)1
“At first glance, some may view these emerging new types of dealsmerely as alliances or JVs — but that is too narrow a view,” says Jeff Liu, Global Technology Industry Leader, Transaction AdvisoryServices, EY. “Over time, we expect these relationships to becomeincreasingly automated. That drives business friction down, whichwill, in turn, drive innovation up. We think of it as an emerging‘industrial sharing’ economy,” Liu notes.
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Conceptually, it borrows from the open source movement and internet “mash-ups” that are able to rapidly create new business value byincorporating specialized services via application programming interfaces(APIs). Applied to incumbent technology and tech-enabled companies, it will soon start a next wave of accelerated innovation — along with manyunlikely partnerships.
1 Stack to solution: go big or go home, EY, © 2014 EYGM Limited.
A powerful new way for businesses tocollaboratively innovate is beginning to emerge.
Industrial mash-ups spring from the same keyprinciples that are enabling sharing economybusinesses to start up rapidly and then scale justas quickly — so far, mostly for consumer goods and services.
But industrial mash-ups apply the following three sharing economyprinciples to business-to-business opportunities:
• Sharing services/data or property (i.e., capital assets) viaincreasingly automated methods
• Separating the original, or orthodox, value of a service or asset from potential new business value
• Integrating other organizations’ specialized services into your own solution (mash-ups)
Explains Liu: “Fundamentally, the sharing economy exists becauseof the idea that you can separate, or detach, new kinds of valuefrom an underlying physical thing. You’re able to use your car as a transportation service, or use your apartment as a hospitalityservice, because another organization has built an easy-to-use,automated transactional environment on the internet with newkinds of usage terms that depart from standard lease contracts.”
Through similar kinds of abstraction, industrial mash-ups enable theindustrial economy’s capital assets and processes to be monetizedin new ways not necessarily envisioned by their owners — just astechnology providers are often surprised by the unintended usestheir products serve once they are released. “Imagine factoriesparticipating in online marketplaces that create easy access to assetand business process information. Combine that with a relativelyfrictionless transaction environment within which to rent the use of those assets or processes, and an API-like interface to put themto use. Economic efficiency and productivity would spike, while thepace of innovation would accelerate — again,” says Liu.
The last of the three bulleted points above plays a key role inenabling sharing economy businesses to start up fast. Many of them begin as mash-ups that integrate someone else’s services asbuilding blocks, such as location and mapping services, enablingthem to get to market faster than if they had to build all thenecessary service elements themselves.
Industrial mash-ups are arriving at a criticaljuncture in the evolution of technology and fulfillan important growing need for tech companies.
Scale traditionally has been a competitive advantage in technology.In many cases, it will continue to be so. That’s why there has beenso much growth in big-ticket tech M&A in the last two years. ButM&A isn’t always the right answer. Increasingly, we see instances inwhich one company may possess a specialized strategic capabilityneeded by another, but overall, the combination lacks the necessarysynergies for a viable M&A deal. In addition, not all managementteams are adept at the nuts and bolts required to do large-scaleacquisition integrations, and the cost of unsuccessful M&A deals ishigh. Also, some deals are simply too large to contemplate from anoperational or financial perspective.
Further, the digital future being forged by cloud services, smartmobility, social media and big data analytic power will demand —and reward — agility and focus.
Consequently, tech and tech-enabled companies find they are inneed of a new way to foster scale across ecosystems of collaboratingpartners, each of which provides a particular specialization —including partners they might collaborate with in one marketsegment but compete with in another. Industrial mash-ups areemerging at exactly the right time to fill this growing need.
4 | Industrial mash-ups: a disruptive new partnering form will accelerate innovation — again
Scale traditionally has been a competitive advantage in technology.
Industrial mash-ups defined Industrial mash-ups emerge just in time
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2 “Apple and IBM Forge Global Partnership to Transform Enterprise Mobility,” Apple press release, 15 July 2014, © 2015 Apple Inc.
3 “Ericsson, Cisco Pool Telecom, Internet Savvy in Wide-Reaching Alliance; Companies estimate that alliance could add $1 billion in annual revenue for each by 2018,” The Wall Street Journal Online, 9 November 2015, via Factiva,© 2015 Dow Jones & Company, Inc.
4 “Johnson & Johnson Looks to IBM’s Watson to Predict Patient Outcomes,” Dow Jones Newswires Chinese (English), 27 September 2015, via Factiva, © 2015, Dow Jones & Company, Inc.
5 Ibid.
Industrial mash-ups are flexible andencompass manydisciplines.
Industrial mash-ups can make forunlikely partners
Early examples of industrial mash-ups have begunto appear.
Consider the long list of alliances that have been announcedrecently between companies once considered unlikely partners,including the Apple Inc.–International Business Machines Corporationalliance to bring IBM’s big data analytics capabilities to iPhone andiPad platforms for enterprise customers.2
Similar alliances have been announced between traditionalcompetitors such as Cisco Systems, Inc. and Ericsson, Inc.,3 as wellas non-competitors like IBM and Johnson & Johnson (in a deal thatalso includes Apple).4 In that mash-up, Johnson & Johnson plansto bring to market a mobile app that would be a virtual coach forpatients in a variety of circumstances. The app would leverageJohnson & Johnson’s clinical know-how and Apple’s user experiencedesign and link to IBM’s Watson for back-end cognitive computingand big data analytics intelligence.5
“These deals show that industrial mash-ups are about more thancollaborating in cases where an M&A transaction may not work,”says Liu. “Industrial mash-ups are very flexible — partners can bringspecific portions of their broader value propositions to the deal, andthen narrowly define deal parameters in a way that insulates otherareas of business.”
Internet of things (IoT) will driveindustrial mash-ups
Industrial mash-ups are likely to becomefundamental in the fast-emerging IoT.
“IoT ecosystems require so many moving parts, some of whichinvolve very different disciplines, that it would be a huge challengefor one organization to accumulate and manage all the necessaryassets through M&A,” says Liu.
In most industries, realizing IoT opportunities will require domainexpertise and customer relationships — in addition to multipletechnology expertise, including big data analytics, cloud services,wireless connectivity, software development, security and otherservices. It’s unlikely that any incumbent in any industry possessesall those resources or has the wherewithal to acquire them all — orshould. But via industrial mash-ups, virtual IoT solutions are likely to emerge from consortia of industry participants, each of whichbrings a portion of the needed capabilities or assets to the table.
6 | Industrial mash-ups: a disruptive new partnering form will accelerate innovation — again
Key attributes of industrial mash-ups
• Low friction: increasingly, interfaces make them relatively easy to create and dissolve.
• Dynamic: they form, live and die rapidly, as needed.
• Insulated: they let multiple organizations collaborate in one market segment while competing in another.
• Solution-oriented: they let ecosystems of partners come together to rapidly bring comprehensive business solutions to market.
• Abstracted: they separate potential innovative new value creation from underlying physical assets or business processes.
• Innovation accelerant: they drive innovation by enabling collaboration among partners that wouldn’t previously have come together.
• API-based: though this aspect is still nascent, continuously increasing automation will simplifyintegration and reduce partnering friction.
A near-future mash-up vision
In thinking through the implications of theindustrial mash-up concept, it is possible toenvision a future in which new companies emergeby tying together services from large networks ofsuppliers and customers to create new and moreagile products and services.
In such a vision, the basic unit of commerce may evolve intodiscrete factories and business processes built on the specialisttalents and insights of teams focused entirely on that element. APIs would proliferate across such industrial uses, enabling theautomation of access to the process as well as integration of theprocess with other processes.
We see this vision as a large opportunity for new kinds of valuecreation based on bringing together multiple pieces. It would lead to dramatic change in the way corporations are organized, in theway businesses and consumers access information and, therefore,in the way we see the world around us.
Lead the change to industrial mash-ups
We believe there is ample opportunity fortechnology companies to seek growth throughindustrial mash-ups.
You may identify valuable capabilities of other organizations to combine with your own capabilities to create new businessopportunities. And you can look within your own organization forstrategic capabilities you might offer to others (considering how toenable simplified access to those capabilities by automating them).
Far more complicated than identifying the opportunities, though, is the process of change and consensus required for boards andmanagement teams to pursue industrial mash-ups. That requiresshifts in strategic mindset, and an understanding of operationalleverage and weaknesses.
Further, no matter how visionary the concept, industrial mash-upformation will nonetheless still require real dealmaking expertise.Questions of governance, financial structure and reporting, alone,will demand significant negotiation. And financing and monetizationoptions will need to be explored.
So we counsel technology executives to act now to identifyindustrial mash-up opportunities and choose a course of action tounlock their value — before someone else takes the opportunity thatmight have been yours.
“We encourage corporate strategists and business development teams to consider how industrial mash-ups may help them create a solution and get it to market faster than organic development, or even faster than acquiring innovation.”Jeff LiuGlobal Technology Industry LeaderTransaction Advisory ServicesEY
Open systems, going mainstream for all industries
Industrial mash-ups are a newly emerging, mainstream form of partnering that can trace its lineage notonly to the sharing economy principles mentioned in the main narrative, but also to the computerindustry’s open systems movement of the 1980s.
A founding principle of open systems was that no matter howtalented your staff is, the vast majority of the world’s innovation willtake place outside your organization. Therefore, the more openlyaccessible your technology, the more broadly others could innovatearound it. And if more of others’ innovation incorporated your
technology, your organization would benefit. These principles led toa proliferation of free licensed software, APIs for access to free andpaid software alike and, today, the open source approach used bymany tech companies.
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Find out moreIndustrial mash-ups: a disruptive new partnering form will accelerate innovation —again is part of EY’s top-of-mind series of executive briefs providing deep-diveanalyses of various disruptive technology transformation themes.
For more information, or to discuss how industrial mash-ups might affect yourown organization, contact Jeff Liu, whose contact information is listed at theend of our report.
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This material has been prepared for general informationalpurposes only and is not intended to be relied upon asaccounting, tax or other professional advice. Please refer to your advisors for specific advice.
Name Telephone number Email
Technology sector contacts
Pat HyekGlobal Technology Industry Leader +1 408 947 5608 [email protected]
Jeff LiuGlobal Technology Industry Leader +1 415 894 8817 [email protected] Advisory Services
Winston ChungGlobal Technology Sector Team +1 415 984 7075 [email protected]
Channing FlynnGlobal Technology Industry Leader +1 408 947 5435 [email protected] Services
Dave PadmosGlobal Technology Industry Leader +1 206 654 6314 [email protected] Services
Guy WangerGlobal Technology Industry Leader +1 650 802 4687 [email protected] Services
Transaction Advisory Services (TAS) technology contacts
Ranjan BiswasIndia
Tim DuttererCo-Leader Technology, Parthenon-EY
Staffan EkströmGlobal Telecoms Leader —Transactions andTMT Leader, Nordics
David HedleyUS Technology M&A Leader
Neil HuttUnited Kingdom
Ben KwanTAS and TMT Market Segment LeaderGreater China
Simon PearsonUnited Kingdom
Barak RavidCo-Leader Technology, Parthenon-EY
Dr. Carsten F. RischGermany
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+1 415 984 7128 [email protected]
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