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Big Data 10 Apr 2018

What is BeCoN Capital?

BeCoN is an acronym coined by PwC researchers to refer collectively to the three new forms of capital – behavior capital, cognitive capital and network capital – that they say in a report entitled ‘The Bionic Company’ are becoming increasingly crucial in the current economy.

The availability of a vast network of users with data on their behavior, linked to the calculation power in the shape of increasingly advanced algorithms is spanning a new driver of growth for companies.

To understand how this new business paradigm works and where it comes from, it is necessary to go back a couple of years to late 2016 when Amazon entered the auto parts retail business in the United States. The arrival of the new competitor was met with complacency by established brick and mortar competitors. They assumed customers would always want to have personal connection with the seller, rather than exclusively buying online.

No matter how well-founded their argument seemed, Amazon had the tools to prove them wrong. In first place, it built a network consisting of several manufacturers, including Robert Bosch and Federal-Mogul, and offered them substantially better economic conditions compared to those offered by physical retailers. That allowed it to outprice its competitors. On top of that, Amazon had another commercial advantage: Its unrivaled understanding of customer behavior, which allowed it to improve its offering, applying pricing algorithms to launch specific product sales.

As a result of this strategy, major auto retailers lost significant chunks of their market share to Amazon, as Miles Everson and John Sviokla, two PwC analysts, recount in their article. Everson and Sviokla use this case to explain the importance of the new three forms of capital that have become increasingly critical due to technological innovation: behavior capital, cognitive capital and network capital. The authors coined the term BeCoN Capital to refer to these three forms of capital collectively.

BeCoN Capital is the result of combining in a powerful network the data on consumer behavior with the knowledge required to leverage them by means of algorithms. According to Everson and Sviokla, companies capable of managing their BeCoN assets – what they call Bionic Corporations – will be have more chances of succeeding in the digital economy.  And in fact, some already have: PwC’s experts cite Apple, Alphabet (Google), Microsoft, Facebook and Amazon as the most obvious examples.

But there are other cases that are less evident. Some non-digital companies have already taken the steps to become a bionic company. In the industrial sector, for example, General Electric already builds sensors into its engines and turbines to generate high levels of behavior capital. It also uses algorithms to gather and analyze all the information to provide cognitive capital. Finally, all GE engines around the world are in touch with one another generating networking capital.  This approach has allowed it to improve its maintenance service, delivering high reliability at a very low cost. Furthermore, from a logistics standpoint, it doesn’t need to keep as many replacement engines parked around the globe. Also, this control system has allowed GE to roll out a new pricing system: The company sells engines not by the unit, but by the hour of use.

The authors of the report cite examples of companies in other sectors, such as venture capital and market analysis consultants that are gaining competitive advantages by properly building up and managing their BeCoN assets.

The article concludes that all companies need to start focusing on developing their BeCoN capital, much like they do with their human and financial capital. And to start, the authors set out three key questions that managers should ask themselves: What do you know about your customers’ behavior? How can you build a network that helps you increase and improve this knowledge? and What automated and algorithmic processes can you use? The future of incumbent companies lies in how they manage to answer these three questions.

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