Business Strategy Technology

Fusion Strategy: How Real-Time Data and AI Will Power the Industrial Future (Summary)

by Vijay Govindarajan & Venkat Venkatraman

How does a 180-year-old tractor company like John Deere transform into a cutting-edge AI firm? Not by trying to build everything itself. Instead, it fused its deep knowledge of farming with the expertise of tech startups to create fully autonomous tractors, turning its business from selling machines into selling outcomes, like guaranteed crop yields per acre. This is the new playbook for survival.

Stop Trying to Be a Tech Company; Be a Tech Partner

Industrial incumbents often fail when they try to build cutting-edge AI or data science capabilities from scratch. The fusion strategy argues they should instead partner with best-in-class startups who already possess this deep technological expertise.

Caterpillar, the heavy machinery giant, didn't try to become an AI leader overnight. It partnered with the predictive analytics startup Uptake. Caterpillar provided decades of machine data and domain knowledge, while Uptake provided the advanced AI platform, creating a system that could predict equipment failures before they happened.

Data is a Well, Not Just an Asset

Tech startups have powerful AI engines (the 'refinery') but lack access to the deep, proprietary, real-world data needed to make them work. Industrial firms are sitting on a massive, untapped 'well' of this data. The fusion connects the well to the refinery, creating immense value.

A jet engine manufacturer like Rolls-Royce collects terabytes of performance data from its engines on every flight. By fusing this data with an AI partner's analytics, they can offer 'power-by-the-hour' contracts, selling thrust and reliability instead of just engines, a business model impossible without this data fusion.

Build a Bridge, Not Just a Deal

A successful fusion requires more than a simple contract. It needs a dedicated, semi-autonomous team to bridge the massive cultural and operational gap between a large corporation and a nimble startup, protecting the new venture from corporate bureaucracy.

Mastercard created a 'Fusion Project Office' that operated outside its traditional business units. This team had its own budget and authority to work directly with fintech startups, allowing them to experiment and move at startup speed without being stifled by the parent company's risk-averse processes.

Aim for New Business Models, Not Just Efficiency

The true power of fusion isn't about making the current business 10% more efficient. It's about leveraging data and AI to create entirely new services and revenue streams that were previously unimaginable, fundamentally changing the company's business model.

Michelin, the tire company, uses fusion to move beyond selling tires. By embedding sensors in their tires and partnering with data analytics firms, they now sell 'miles-as-a-service' to trucking fleets, guaranteeing uptime and optimizing fuel consumption for a recurring fee.

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