The Logic of Intelligent Business

Caifu Magazine | by CAIFU Magazine

Jianwen Liao, Chief Strategy Officer of JD Group

Throughout changing times, we can find that a whole era has evolved from the past one featuring "machines capable of working" to the one characterized by "machines capable of learning." The former is the First Machine Age that witnessed a 200-year industrial revolution, while the latter is the Second Machine Age, which is symbolized by the PC era beginning in 1980. The Second Machine Age, a supplement to brainpower, is during its early period.

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The first industrial revolution that happened 200 years ago significantly boosted the development of business civilization, while the Second Machine Age has just begun. What has been achieved over the past 37 years – from 1980 to now? In fact, we have constructed an infrastructure for future intelligent business, which bears three significant aspects:

• First, massive data.
• Second, a breakthrough in algorithm technology.
• Third, an increase in computing power and the reduction
of computing cost.

These three factors mark a new era – the emergence of the smart business era. What I am going to share with you is the changes it causes to business logic. As a professor who has taught at business schools for many years, I have been thinking about what changes will happen to business logic in the future. When reviewing many theories being taught at business schools, we can find almost all of them are based on the results of the industrial era. If intelligent business is believed to be changing all industries, then it indicates that intelligent business will fundamentally change our basic business logic.

From a business logic perspective, what on earth are we changing? First, you suddenly find that a simple product is transformed into a new model consisting of: product + data + content + service. The function of refrigerator is no longer just limited to freezing; instead, it can serve as an entrance for supermarkets to have access to household information in the future. The data about how items in a refrigerator are displayed can reflect individual demand. As a result, in the era of intelligent business, all products’ value will far exceed beyond their own physical properties. Accordingly, the business model will also change. Product transactions in the past are just a one-time transaction as their values lie in the transfer of their physical attributes. In contrast, in the future intelligent business era, the transaction value will transform into the value in use. The more the product is used, the more abundant the data will be available and the scene will be more clear. As a result, there will be more business value. You will suddenly find that for many smart business products, the transaction is just the beginning of commercial value and value in use, rather than the ending of the transaction value. For example, if GE sells its intelligent engine to users, then it will begin its supply of service.

Business models can also be analyzed from another perspective. In the past, businesses played a dominant role in creating value for users, while in the future it will be customers and businesses that jointly create value because at that time a customer's individual data itself will become part of the entire business model for creating value. What we are talking about today is a market for individuals, namely, a market of one. From now on, all of today’s sectors will be featured by increasingly finer particles in the future intelligent business age, such as precision medicine, precision agriculture and precision education. Such achievements are impossible during both the industrial age and the internet era.

When it comes to customer value, in the past it was individual value. The sale of a refrigerator used to be the transfer of the individual value. However, let’s assume that 10,000, 100,000 or even 1 million units of refrigerators are distributed in the 798 Art Zone (Dashanzi Art District) or Chaoyang District, Beijing all of a sudden – what changes will happen as a result? In this case, I can precisely keep track of how much eggs and vegetables are consumed in this area every day, thus turning individual value into group value. Likewise, we will further explain it with a temperature controller. After each household is installed with such a temperature controller, you suddenly find that the value of this temperature controller is no longer limited to solving the temperature control for each household because it has become the regional energy solution. Such solutions have known very well about the specific electricity demand of each household and the total demand of all households in this region for electricity. On such a basis, it can come up with a solution for the local electric power company and the real-time electricity consumption in this region. You will suddenly find that in the future smart business era, the individual value has become the group value, an achievement that is impossible during both the industrial age and the internet era.

Customer relationships have been transformed from a one-time transaction into a lasting relationship. In the future smart business era, the connection between product and customer is continuous, ubiquitous and always online. Today, the smartphone is the first intelligent product that is always online. In the future, other automated products will always be online. And this means that our relationship with customers is a lasting relationship instead of one-time trading one. Today, the above examples of both refrigerator and temperature controller show that such relationship has transformed a product’s physical attribute into a kind of data management. For example, the storage function of a refrigerator has become a health solution. Due to the development of data, cooperation across industries is developing at an unprecedented rate.

In regard to the changes in an organization in the era of industrialization, we clearly know that organizations are in various forms such as a functional system and a business division system. However, all of a sudden these forms in an organization transform into distributed platforms and small front desks. Take Uber as an example. With small number of staff, it can perform works for a whole city. The current sharing economy we are talking about is in essence of resources sharing, in which these organizations become virtual. With the front-end, individuals or businesses owning resources can be affiliated to a large platform, serving as front desks of the platform. As a result, an organization's collaborative costs will be greatly reduced, and in the future organizations will become extremely virtual. In this sense, fundamental changes are happening to products, industries, organizations, markets and competition.

On the whole, intelligent business is not only changing our lives, but also some of our industries. It is fundamentally changing our business logic.