CEO Daily: Thursday, July 30
Earlier this week, we cited a white paper from Tata Consulting Services on how the Internet of Things is transforming global business. I’ve now read it, and recommend it to everyone interested in the subject – which should include anyone running a bigger-than-a-breadbox business.
The first big takeaway: the Internet of Things is not some futurist’s pipe dream, but happening here and now. Tata found 26 companies that will spend over a billion dollars each on Internet of Things applications this year. That’s real money. It includes companies tracking their customers’ behavior through mobile apps; monitoring the flow of their own supplies and products; gathering real time data from sensors on how products are performing and whether equipment needs maintenance; and using digital cameras, sensors and other devices to track activities on business premises or elsewhere.
The second big takeaway: We’ve barely scratched the surface of potential applications, which eventually will create new products, increase revenues, improve productivity, disrupt business models, and change the way our economy operates. We are still babes in the woods.
I was particularly impressed by the paper’s ranking of “success factors” that determine how well a company will do in seizing the opportunities. As this newsletter has noted before, most of them involve people skills, not technical skills – making smart strategic choices about which technologies to adopt, creating the right corporate culture to allow for change, developing new processes to take advantage of real-time information. At the moment, our technological capabilities are clearly running ahead of human and organizational capabilities. (Related reading: our August cover story, Humans are Underrated.)
Many companies appear to be in the same fix we find ourselves in at Fortune. We have massive amounts of real-time data about how our digital products are being used by readers. But we’ve barely begun to turn that data into insights that we can use to rapidly refine our products and services. As at many big companies, the technology revolution is here; but management practices and workplace processes and culture are still rooted in the Ancien Regime.
More news below.
• Fed rate hike remains on the table
The central bank on Wednesday left its benchmark short-term interest rate near zero – for the 2,417th straight day WSJ notes – but dropped a few hints that it is near seeing enough improvement in the job market to prompt officials to raise the rate as early as September. But Federal Reserve officials also flagged concerns that inflation remains too low, which is making them a bit hesitant on the timing for the rate increase. WSJ (subscription required)
• Shell to cut 6,500 jobs this year
Royal Dutch Shell has announced plans to cut thousands of jobs and trim spending as it and other big oil companies deal with a prolonged period of lower oil prices, which has hurt profits at many of those firms. The move to cut spending comes after rivals BP and Total this week also announced plans to do so. Shell is also planning to dispose of more assets, as it pushes ahead with its proposed $70 billion deal for BG Group. Reuters
• Overcharging hurts Whole Foods
Shares of Whole Foods took a dive on Wednesday after the grocery store chain reported quarterly results that missed Wall Street's expectations. What was to blame? Sales growth slowed after a consumer affairs report found stores in New York City overcharged for prepacked foods by listing improper weights, resulting in negative press. Whole Foods apologized, but sales growth is still slow as of late July, so the retailer hasn't fully fixed its image problem yet. Fortune
• Clearer picture sought for Instagram
Facebook's shares have had a good run since the middle of 2013, as the social media company has reported healthy profit and sales gains as a strategy to increasingly lean on mobile has paid off. But analysts want to know how well Instagram is doing and they aren't getting an answer just yet. Since Instagram was Facebook's first big deal for a standalone product, it sets the tone for the way Facebook could eventually monetize more recent deals for Oculus VR and WhatsApp. Fortune
Around the Water Cooler
• IBM's Watson partners with CVS
IBM's data crunching service, which already works with Apple and Johnson & Johnson, has struck a new partnership with CVS Health – with the goal to use Watson to analyze patient data and improve patient care. Pharmacies have access to healthcare data and IBM claims that Watson technology could help them better understand a patient's overall health. Fortune
• Driverless cars could dent insurance industry
"The auto insurance industry is having its Napster moment." – That's Bloomberg's very quotable line about the potential of self-driving cars, which could greatly disrupt the business model for auto insurers like State Farm and Geico, as accidents could sharply decline. One observer estimated premiums could drop as much as 60% in 15 years as self-driving cars hit the roads. This all reminds us of a Fortune story that weighed in on another potential disruption: organ donation. Bloomberg
• Tesla turns to incentives
Tesla Motors, maker of costly electric vehicles, has introduced an incentive program to encourage owners to convince their friends to buy cars. CEO Elon Musk described the incentives as an effort to ascertain whether the company can rely on social marketing tactics more heavily and open fewer retail locations. But the incentives are very modest: a $1,000 credit to Tesla owners who make referrals, with the friend making the purchase getting the same amount off the price tag. Tesla cars range in price from about $70,000 to more than $100,000. USA Today