96  Valuation of ESG and Digital Initiatives ­industry. However, genuinely new revenue sources can be hard to find and difficult to convince customers to pay for. Imagine you are sitting at home with an urge for some ice cream but don’t want to go out to the local convenience store. Ben & Jerry’s in the United King- dom has set up centralized ice-cream freezers where a delivery company picks up the ice cream and delivers it to the customer within a short time period. These centralized freezers generate ten times the volume of convenience store freezers—mostly additional sales, because without the convenient delivery, many customers would simply skip the ice cream. Or consider farm equipment manufacturer John Deere’s introduction of precision farming services. The company has created a data-driven service business that collects soil samples and analyzes weather patterns to help farm- ers optimize crop yields. Sensors in tractors and other machinery provide data for predictive maintenance, automated sprinkler systems synchronize with weather data, and an open-software platform lets third parties build new ser- vice apps.20 Then there’s one transportation company’s digital solution to help its cus- tomers improve fleet maintenance. That solution helped generate more than $10 million of additional revenue through software subscriptions and after- market parts sales.21 These new revenue sources can create value because they don’t involve just keeping up with the competition. In two of the examples, digital innova- tions created an overall increase in the revenue pool for the industry. In Ben & Jerry’s case, the overall consumption of ice cream increased. In John Deere’s case, a new product offering also increased overall demand. Better Decision Making  Finally, some executives are pairing the trove of data being generated and new advanced analytics techniques to enable man- agers to make better decisions about a broad range of activities, including how they fund marketing, utilize assets, and retain customers. Consider two examples. A maker of high-tech hardware implemented a partially automated solution to improve pricing for thousands of product configurations. Key features included configuration-based price benchmark- ing, analysis of price trends, and automated pricing recommendations with weekly updates of up to 200,000 price points for up to 20,000 products. A con- sumer products company used advanced analytics to improve the design of its planograms. A planogram is a model of how a consumer packaged-goods company allocates its limited space on retail shelves. It describes which prod- ucts will be included and how to display them. Analytics showed decision 20 J. Bughin, T. Catlin, M. Hirt, and P. Willmott, “Why Digital Strategies Fail,” McKinsey Quarterly (Janu- ary 2018), www.mckinsey.com. 21 M. Banholzer, M. Berger-de Leon, S. Narayanan, and M. Patel, “How Industrial Incumbents Create New Businesses,” McKinsey & Company (September 2019), www.mckinsey.com. Closing Thoughts  97 makers at the company that they could dramatically improve effectiveness. At the same time, they reduced the number of people required to design pla- nograms from ten to just two. Advanced analytics to improve decision making can generate additional revenues, reduce costs, or both. In the planogram example, the improvement can increase total customer spending by getting customers to upgrade to more profitable products. In this case, because the change involves only choices within the company’s product mix, the improvement can create value without necessarily inviting a competitive response. In other cases, the benefits may be diluted because competitors take similar actions, but the investment in analyt- ics still may create value by maintaining competitive parity. Closing Thoughts As executives and investors alike grapple with understanding the impact on business value of emerging environmental, social, and governance issues, as well as the competitive implications of digital technologies in all their forms, it bears remembering that these topics and the management responses to them will likely be fluid for some time to come. Still, as new as these topics may seem, existing valuation principles can help with framing initial responses and surfacing techniques for dealing with such challenges as they evolve. Companies will also do well if they concentrate on the specific areas that will have the greatest impact on the factors that create value.