Getting Out What You Put In

In the Outcome Economy, data-driven decision-making reigns. By Robert J. Derocher | Summer 2017



There are bean counters, and then there are laugh counters. No, wait. I’m being absolutely serious. In Barcelona, Spain, the Teatraneu Theatre uses facial recognition technology to register each laugh and charges customers on a per-smile basis. The result? A 25 percent revenue increase over previous ticket prices, says Steven Tiell, senior principal at Accenture Labs in San Jose, Calif.

WELCOME TO THE WORLD OF THE OUTCOME ECONOMY.

“It’s no longer about selling products and services; it’s about selling more meaningful outcomes,” Tiell explains. “It upends long-held notions of how superior products and services are defined.”

Thanks to continued technological advances, companies no longer need to just sell a widget—or a service—and move on. Now, they can learn about the consumer who bought that widget and what they did with it, in the hopes of selling more widgets, making better widgets, and being more useful to consumers down the road. And that’s likely to mean more precise tracking, auditing, and financial analysis in the future as the global economy shifts towards more precise measurement of who buys what and why—and how it all works out in the end.

THE AGE OF DATA… AND THINGS

Helge Tennø, a technology consultant, writer, and speaker in Oslo, Norway, traces the beginnings of the Outcome Economy to GE Chairman Jeffrey Immelt’s discussions about the company’s cloud-based platform for the Industrial Internet, Predix, in 2014.

“GE could move to an economy where the business model was based on the measured output of their solutions,” Tennø explains. “Since then, there has been an emergence of smarter and smarter hardware—as in sensors, software as in AI (artificial intelligence), and machine learning—which has increased our ability to measure whatever.”

One of the keys to the acceleration of the Outcome Economy, according to Tiell, has been the ability among more companies to place that intelligent hardware where digital and physical worlds intersect, allowing companies to capture meaningful data that can generate information and insights into how customers use products and services.

And in this new technological frontier, the term “hardware” is not confined to the traditional computer lingo of servers, networking gear, and PCs, Tiell explains. How about getting feedback and information from your washing machine, the activity tracker on your wrist, nearby security cameras, or your office elevator?

“With this feedback loop, companies are, for the first time, able to have a quantifiable, end-to-end understanding of how their products perform—not just for their customers, but for their customers’ customers,” Tiell adds. “The Outcome Economy is defined by companies’ abilities to create value by delivering solutions to customers that, in turn, lead to quantifiable, measurable results.”

And that, in turn, brings a deeper understanding of what customers ultimately want from those products and services.

The concepts, collectively referred to as the Outcome Economy nowadays, are not entirely new, says Swaminathan Sridharan, John and Norma Darling Distinguished Professor in the Accounting Information and Management Department at the Kellogg School of Management, Northwestern University, Evanston, Ill. “Measuring data related to products and services delivered, customer behavior including customer satisfaction, and the efficiency of such operations at every link of the value chain is something we’ve been studying and practicing for several years now. The difference now is that companies are able to measure more precisely a greater number of such aspects throughout the value chain thanks to improved flow of information.”

The obvious benefit, he says, is more data, more quickly, which enables real-time decision-making to meet customer demands.

A GLOBAL REVOLUTION

In just a few short years, the Outcome Economy has picked up momentum across the globe. In Europe, Tennø credits Finnish companies and groups such as Siemens and Smart & Clean (a public-private partnership dedicated to improving environmental sustainability in metropolitan Helsinki) with driving interest and changing established mindsets.

“What we were basically saying was, ‘Get off of autopilot, you can measure anything,’” he says. “Don’t let that stop you from identifying new ways of finding and measuring what is important and valuable for your company, however.”

A 2015 report issued by World Economic Forum and co-author Accenture illustrates the growing potential for the Outcome Economy. “Agricultural companies now have the data necessary to calculate how many bushels of wheat can be produced on a given piece of farmland with a particular mix of seed, fertilizer, water, soil chemistry, and weather conditions. By combining analytics software with connected tractors, tillers, and planters, they can apply the precise mix of seed and fertilizer to maximize crop yield at harvest,” the report stated.

Tiell cites two other specific examples of successful outcome-driven programs that illustrate this new economic approach:

The City of Los Angeles has 7,000 smart parking spaces that communicate real-time parking conditions to smartphone apps, telling drivers where parking is available. These connected parking spaces have delivered tangible outcomes: Parking revenue increased 2 percent; average parking costs decreased 11 percent; and space utilization increased 11 percent.

Proteus Digital Health, billing itself as the world’s first digital medicine service, integrates a tiny, inert sensor in the pills it produces. The sensor acts together with a wearable device and mobile app to provide full “adherence transparency,” indicating to patients, healthcare providers, and payers when medication is taken or missed. Not only can the Proteus hardware-based system determine when patients take their medications, but it also can send alerts and reminders to patients if they forget to take a pill. What kind of economic impact might that have? A 2007 study by the New England Healthcare Institute estimated that missed medications cost $100 billion annually in excess hospitalizations alone.

“Delivering customer outcomes is a strategy for sustaining competitive advantage today,” Tiell contends. “It will be a turnaround strategy in the next few years, and a survival strategy beyond that.”

CHANGING THE FACE OF FINANCE

This new technology-fueled landscape is likely to mean a combination of old and new approaches to accounting and finance in the years ahead, Tiell and others say. Books will still need to be audited, finances analyzed, and information collected and disseminated, but just what’s in those numbers and how they’re analyzed is already changing, as is the finance approach behind them.

“There are new ways to accrue revenue, such as micro-payments, new commission-based roles, and ecosystem partners,” Tiell explains. “Similarly, raising capital has been upended. No longer are banks and capital markets the only options for financing new endeavors; crowdfunding or ‘customer-funded’ financing models are now as much a financial strategy as they are business and product strategies.”

The ready availability of more and more data also opens up possibilities for accountants—and potential pitfalls, Sridharan warns.

“Accountants have always been looking for ways of going beyond our traditional business boundaries,” he explains. “We now have quite a lot of data available. Now auditors can gain access to off-balance sheets, and more access to computer networks. I can foresee huge conflicts of interest. Do you want insurance companies to know some of this information?”

Tennø worries that companies may misuse the surplus of data to the disadvantage of customers—as well as their own employees. “The prerequisite for understanding the market is measurable data. However this leaves out troves of valuable data that gives insight and understanding, but is just not measurable,” he says. “With the Outcome Economy, we are trying to capture more data that can be measured, but also make sense of data that is important but not measurable.”

Tiell foresees “an ecosystem-driven digital economy” with increasing business/technology partnerships continuing to drive change. “In fact, one of the key trends we identified in the Accenture Technology Vision 2017 report is that to fulfill their digital ambitions, companies will need to take on a leadership role to help shape the new rules of the game,” he says.

While there still may be some ethical minefields, Sridharan agrees that the Outcome Economy will present opportunities for the accounting and finance industry, with versatility and technological literacy being important requirements.

“We can’t call ourselves by just one name—we’re not just accountants,” he says. “It’s a very exciting time to be a student of economics. And if you’re a practice manager, you better learn about what’s happening.”