 From Cambridge, Massachusetts, it's The Cube, covering MIT Chief Data Officer and Information Quality Symposium 2019, brought to you by SiliconANGLE Media. Welcome back to MIT CDO IQ, the CDO Information Quality Conference. You're watching The Cube, the leader in live tech coverage. My name is Dave Vellante, I'm here with my co-host, Paul Gill, and this is our day two of our two-day coverage. Jean Ross is here, she's the principal research scientist at MIT CISR, Jean, good to see you again. Nice to be here. Okay, what are all these acronyms stand for, I forget. MIT CISR. CISR, which we pronounce CISR, is the Center for Information Systems Research. It's a research center that's been at MIT since 1974, studying how big companies use technology effectively. So, and what's your role as a research scientist? As a research scientist, I work with both researchers and with company leaders to understand what's going on out there and try to present some simple succinct ideas about how companies can generate greater value from information technology. I guess not much has changed in information technology since 1974. So, let's fast forward to the big hot trend, digital transformation of digital business. What's the difference between a business and a digital business? Right now, you're hoping there's no difference for you and your business. Yeah, for sure. The main thing about a digital business, it's being inspired by technology. So, in the past, we would establish a strategy and then we'd check out technology and say, okay, how can technology make us more effective with that strategy? Today, and this has been driven a lot by startups, we have to stop and say, well, wait a minute, what is technology making possible? Because if we're not thinking about it, there sure are a lot of students at MIT who are and we're going to miss the boat. We're going to get Uber'd, if you will. Somebody's going to think of a value proposition that we should be offering and aren't and will be left in the dust. So, our digital businesses are those that are recognizing the opportunities that digital technologies make possible. And what about data in terms of the role of digital business? It seems like that's an underpinning of a digital business, is it not? The single biggest capability that digital technologies provide is ubiquitous data that's readily accessible any time. So when we think about being inspired by technology, we could reframe that as inspired by the availability of ubiquitous data that's readily accessible. Your premise about the difference between digitization and digital business is interesting. It's more than just a semantic debate. Do companies, now when companies talk about digital transformation these days, in fact, are most of them thinking of digitization rather than really transformative business change? This is so interesting to me. In 2006, we wrote a book that said you need to become more agile and you need to rely on information technology to get you there. And these are basic things like SAP and Salesforce.com and things like that. Just making sure that your core processes are disciplined and reliable and predictable. We said this in 2006. What we didn't know is that we were explaining digitization, which is very effective use of technology in your underlying process. Today, when somebody says to me, we're going digital, I'm thinking about the new value propositions, the implications of the data, right? And they are often actually saying they're finally doing what we thought they should do in 2006. The problem is in 2006 we said, get going on this, it's a long journey. This could take you six, 10 years to accomplish. And then we gave examples of companies that took six to 10 years. Lego and USAA and really great companies. And now companies are going, I know we really ought to do that. They don't have six to 10 years. They get this done now or they're in trouble and it's still a really big deal. So how realistic is it? I mean, you've got big established companies that got all these information silos as we've been hearing for the last two days just pulling their information together, knowing what they've got is a huge challenge for them. Meanwhile, you're competing with born on the web, digitally native startups that don't have any of that legacy. Is it really feasible for these companies to reinvent themselves in the way you're talking about? Or should they just be buying the companies that have already done it? Well, good luck with buying because what happens is that when a company starts up, they can do anything, but they can't do it to scale. So most of these startups are going to have to sell themselves because they don't know anything about scale. And the problem is the companies that want to buy them up know about the scale of big global companies, but they don't know how to do this seamlessly because they didn't do the basic digitization. They relied on basically a lot of heroes in their company to pull off the scale. So now they need to rely more on technology than they did in the past, but they still have a leg up, if you will, on the startup that doesn't want to worry about the discipline of scaling up a good idea. They'd rather just go off and have another good idea, right? They're perpetual entrepreneurs, if you will. So if we look at the startups, they're not really your concern. Your concern is the very well-run company that's been around, knows how to be inspired by technology, and now says, oh, I see what you're capable of doing or should be capable of doing. I think I'll move into your space. So this is the Amazon and the USAAs and the Legos who say, we're good at what we do, and we could be doing more. We're watching Schneider Electric, Philips, FerroVL, these are big, old companies who get digital, and they are going to start moving into a lot of people's territory. So let's take the example of those incumbents that you've used as examples of companies that are leaning into digital and presumably doing a good job of it. They've got a lot of legacy debt, as people call it, technical debt. The question I have is how they're using machine intelligence. So if you think about Facebook, Amazon, Microsoft, Google, they own horizontal technologies around machine intelligence. The incumbents that you mentioned do not. Now, do they close the gap? They're not going to build their own AI. They're going to buy it. Yep. And then apply it. It's how they apply it that's going to be the difference. So do you agree with that premise and where are they getting it? Do they have the skillsets to do that? How are they closing that gap? They're definitely partnering, but when you say they're not going to build any of it, that's actually not quite true. They're going to build a lot around the edges. They'll rely on partners like Microsoft and Google to provide some of the core. Yes, right. But they are bringing in their own experts to take it to the, basically, to the customer level. How do I take, let me just take Schneider Electric for an example. They have gone from being an electrical equipment manufacturer to a purveyor of energy management solutions. It's quite a different value proposition. To do that, they need a lot of intelligence. Some of it is data analytics of old and some of it is just better representation and dashboards and things like that. But there is a layer of intelligence that is new and it's absolutely essential to them by relying on partners and their own expertise in what they do for customers and then co-creating a fair amount with customers. They can do things that other companies cannot do. And they're developing a software, presumably a SaaS revenue stream as part of that, right? Absolutely. How about the innovators dilemma though? The problem that these companies often have grown up, they're very big, they're very profitable. They see disruption coming, but they are unable to make the change. Their shareholders won't let them make the change. They know what they have to do, but they're simply not able to do it and then become paralyzed. Is there a, I mean, looking at some of the companies you just mentioned, how did they get over that mindset? This is real leadership from CEOs who basically explain to their boards and their investors, this is our future. We are, we're either going this direction or we're going down and they sell it. It's brilliant salesmanship and it's why when we go out to study great companies, we don't have that many to choose from. I mean, they're hard to find, right? So you are at such a competitive advantage right now. If you understand, if your own internal processes are cleaned up and you know how to rely on the ERPs and the CRMs to get that done, and on the other hand, you're using the intelligence to provide value propositions that new technologies and data make possible. That is an incredibly powerful combination, but you have to invest. You have to convince your boards and your investors that it's a good idea. You have to change your talent internally. And the biggest surprise is you have to convince your customers that they want something from you that they never wanted before. So you got a lot of work to do to pull this off. Right now in today's economy, the economy is sort of lifting all boats, but as we saw when the .com implosion happened in 2001, often a breakdown gives birth to great new companies. Do you see that the next recession, which is inevitably coming, will be sort of the turning point for some of these companies that can't change? It's a really good question. I do expect that there are going to be companies that don't make it. And I think they will fail at different rates based on not just the economy, but their industry and what competitors do and things like that. But I do think we're going to see some companies fail. We're going to see many other companies understand that they are too complex. They are simply too complex. They cannot do things end to end and seamlessly and present a great customer experience because they're doing everything. So we're going to see some pretty dramatic changes. We're going to see failure. It's a fair assumption that when we see the economy crash, it's also going to contribute, but that's not the whole story. But when the dot-com blew up, you had sort of the internet guys that actually had a business model to make money and the guys that didn't, the guys that didn't went away. And then you also had the incumbents that embraced the internet. So when we came out of that dot-com downturn, you had the survivors, it was Google and eBay and obviously Amazon. And then you had incumbent companies who had online retailing and e-commerce, et cetera, who thrived. I would suspect you're going to see something similar, but I wonder what you guys think. The street today is rewarding growth. I mean, we got another near record high today after the rate cut yesterday. But the companies that aren't making money are getting rewarded because they're growing. Well, when the recession comes, those guys are going to get crushed and you're going to have these other companies emerge and you'll see the winners are going to be, those ones that have truly digitized, not just talking to talk or have transformed really and to use your definitions. That's what I would expect. I don't know, what do you think about that? I totally agree. And I mean, we look at industries like retail and they have been fundamentally transformed. There's still lots of opportunities for innovation and we're going to see some winners that have kind of struggled early, but not given up and they're kind of finding their footing. But we're losing some, we're losing a lot, right? I think the surprise is that we thought digital was going to replace what we did. We'd stop going to stores. We'd stop reading books. We wouldn't have newspapers anymore. And it hasn't done that. It's only added. It hasn't taken anything away. It could. I don't think the newspaper industry has been unscathed by digital. Nor has retail. Not unscathed, but here's the big challenge. If I could substitute, if I could move from newspaper to online, I'm fine. You don't get to do that. You add online to what you've got, right? And I think this right now is the big challenge, is that nothing's gone away at least yet. So we have to sustain the business we are so that it can feed the business we want to be and we have to make that transition into new capabilities. I would argue that established companies need to become very binary, that there are people that do nothing but sustain and make better and better and better who they are, while others are creating the new reality. You see this in auto companies, by the way. They're creating not just the autonomous automobiles, but the mobility services, the whole new value propositions that will become a bigger and bigger part of their revenue stream, but right now are tiny. So here's the scary thing to me. And again, I'd love to hear your thoughts on this. And I've been an outspoken critic of Liz Warren's, you know, attack on big tech. If they're breaking the law and they're really acting like monopolies, the DOJ and FTC should do something, but to me, you don't just break up big tech because they're good capitalists. Having said that, one of the things that scares me is when you see Apple getting into payment systems, Amazon getting into grocery and logistics, and digital allows you to do something that's never happened before, which is you can traverse industries. You used to have this stack of industries and if you were in that industry, you're stuck in healthcare, you're stuck in financial services or whatever it was. And today, digital allows you to traverse those. And so in theory, Amazon and Apple and Facebook and Google, they can attack virtually any industry and they kind of are. Yeah, they kind of are. I would certainly not break up anything. I would really look hard though at acquisitions because I think that's where some of this is coming from. They can stop the overwhelming growth, but I do think you're right that you get these opportunities from digital that are just so much easier because they're basically sharing information and technology, not building buildings and equipment and all that kind of thing. But I think there are limits to all this. I do not fear these companies. I think we need some laws, we need some regulations. They're fine. They are adding a lot of value and the great companies. I mean, you look at the Schneiders and the Phillips, yeah, they fear what some of them can do, but they're looking forward to what they provide underneath. Doesn't cloud change the equation here? I mean, when you think of something like an Amazon getting into the payments business or Google in the payments business, it used to be that the creating a global payments processing network, just going global was a huge barrier to entry. Now you don't have nearly that same level of impediment, right? The cloud eliminates much of the traditional barrier. Yeah, but I'll tell you what limits it is complexity. Every company we've studied gets a little over anxious and becomes too complex and they cannot run themselves effectively anymore. It happens to everyone. I remember when we were terrified about what Microsoft was going to become, but then it got competition because it's trying to do so many things and somebody else is offering Salesforce and others something simpler. And this will happen to every company that gets overly ambitious, something simpler will come along and everybody go, oh thank goodness, something simpler. Well, with Microsoft, I already argued two things. One is the DOJ put some handcuffs on them and two is Steve Ballmer wouldn't get his nose out of windows and then finally sat in the villa and made it. Plus they had a platform shift that went on. But this is exactly it. They won't make those kind of calls. Sure, and I think that talks to their legacy that they won't end up like Digital Equipment Corp or Wang and DG who just ignored the future and held on to the past. Well, I think a colleague of ours, David Michela wrote a book, it's called Seeing Digital and his premise was we're moving from a world of remote cloud services to one where you have, to use your word, ubiquitous digital services that you can access upon which you can build your business and new business models. I mean, the simplest example is Waze, you mentioned Uber, they're using cloud, they're using you OAuth in with Google Facebook or LinkedIn and they've got a security layer, there's an AI layer and all your slide on blockchain, mobile, cognitive, it's all these sets of services that are now ubiquitous on which you're building and so you're leveraging, he calls it the matrix to the extent that these companies that you're studying, these incumbents can leverage that matrix, they should be fine. Part of the problem is they say, no, we're going to invent everything ourselves, we're going to build it all ourselves and it's to use Andy Jassy's term, non-differentiated heavy lifting, slows them down but there's no reason why they can't tap that matrix and take advantage of it. Where I do get scared is the Facebooks, Apples, Googles, Amazons, they're matrix companies, their data is at their core and they get this. It's not like they're putting data around the core, data is the core, so your thoughts on that, I mean, it looks like your slide about disruption, it's coming, no industry is safe. Yeah, but I'll go back to the complexity argument. We studied complexity at length and complexity is a killer and as we get too ambitious and we're constantly looking for growth, we start doing things that create more and more tensions in our various lines of business, cause us to create silos that then we have to coordinate. I just think every single company that no cloud is going to save us from this, complexity will kill us and we have to keep reminding ourselves to limit that complexity and we've just not seen the example of the company that got that right, sooner or later, they just kind of chop them, you know, create. It isn't that inherent though in growth, I mean, just like big companies slow down, they can't make decisions as quickly. I haven't seen a big company yet that moves nimbly. And that's the complexity. What about AWS? They're a $40 billion company. They're like the agile gorilla. I mean, I think they're breaking the rule and my argument would be because they have data at their core and they've got that, it's a bromide but that common data model that they can apply now to virtually any business. You know, we've been expecting, a lot of people have been expecting that growth to attenuate. I mean, it hasn't yet, we'll see, but they're like $40 billion firm. It's a good example, yeah. So, we'll see. And Microsoft is the other one. Microsoft's demonstrating, you know, double digit growth for such a large company. It's astounding. I wonder if the law of large numbers is being challenged, so. Yeah, well, it's interesting. I do think that what now constitutes so big that you're really going to struggle with a complexity. I think that has definitely been elevated a lot. But I still think there will be a point at which human beings can't handle whatever level of complexity we've reached. Right, because even all this great new, to your point, cloud technology, there's going to be something better that comes along. Even, I think, Jassy might have said that if we had to do it all over again, we would have built the whole thing on Lambda functions. You know, not on, there you go. So now they've got their hybrid. Yeah, yeah, yeah, absolutely. Maybe it'll take another 10 years, but well, Jean, thanks so much for coming on to this. It was great to have you. I really find it dark. All right, keep it right there, everybody, Paul Gill and Dave Vellante. We're right back from MIT. CDOIQ, you're watching theCUBE.