Leading The Shift To A Digital Business With Determination

Carsten Linz

Part 6 of the “Leading through Digital Transformation” series 

Digital transformation is still a blurry topic of varied definitions and diverse mindsets – but a wealth of potential. Essentially, it is an organizational change that happens when new digital technologies are used to enable innovation and next-generation business models to gain, or regain, a competitive edge.

This view is very similar to how many small and midsize businesses perceive it – namely as a chance to adjust their processes and renew their customer experience. Some are even innovating their operating model or creating entirely new business models.

In a recent study “Digitizing IT: Catalysts for Growth,” The Economist Intelligence Unit (EIU) revealed that 63% of senior executives from companies with annual revenue between US$250 million and US$500 million consider digital transformation to be the highest or relatively high in strategic priority.

Of the top digital initiatives undertaken in the last three years, these ranked highest:

  • Addition of new customer-facing digital channels (61%)
  • Launch of new products or services made possible by digital technology (63%)
  • Promotion of digital collaboration among employees (57%)
  • Prioritization of digital marketing over traditional forms (50%)
  • Application of digital technology to improve internal operations (41%)

From a company-wide leadership perspective, 49% believe their IT department should lead (29%) – or, at least, take an active role (20%) – in managing business model change enabled by digital technology. Surprisingly, though, only 19% see management of business model change as the most critical success factor of their organization’s digital initiatives.

True digital transformation challenges the status quo

There are many cases of initiatives that digitize existing processes, but only a few are adding game-changing customer value. In fact, only 17% of respondents surveyed in the EIU study consider their digital initiatives over the last three years to be highly effective. It appears that many small and midsize businesses make the mistake of just automating what they have, instead of redefining current business processes – no matter if they are strategic for new revenue streams or will likely cease in a couple of years.

As the host of a recent SAP CIO Summit event in Frankfurt, Germany,  I had an inspiring conversation with Peter Gantner, CIO of MAPAL Group. Like many component parts (C-parts) suppliers, the precision tool manufacturer recognized a significant challenge two years ago: How can MAPAL remain relevant in the long-term when the digital quality of its products are becoming increasingly important, at least as important, as their physical qualities? Moreover, how can it ensure the long-term continuance of the company?

To address these concerns, the MAPAL senior management team decided to approach digital transformation holistically based on the three work streams:

  • Digital lean: Geared towards efficiency gains due to digitalization and internal process automation, this work stream includes all activities needed to secure interconnectedness and consistency for significant data throughput. Existing lean programs were integrated into this approach, as well a focus on generating high-efficiency results.
  • Digital twin: To create value-add and differentiating capabilities effectively, MAPAL created a digital twin of the real work stream – created and maintained just like the digital lean version. Aggregating all relevant information for technical descriptions and handling, as well as commercial and lifecycle data, helped evolve MAPAL into a data content provider on top of their traditional hardware business. The digital twin is the heart of the company’s digital strategy to significantly improve the production process. If the machine knows the ideal cutting speed of a tool, the workflow can be optimized towards cutting performance. If the machine is aware of the cycles a tool has already performed, the remaining operating distance can be predicted. The digital twin becomes the prerequisite for meeting the requirements of external partners and process contributors.
  • Digital services: This mindset focuses on the development and implementation of new business services through a platform business model. MAPAL developed an open, cloud-based approach for the efficient handling of their tools and tool-related digital services by building on the vast and growing volume of available master, process, and inventory data generated from every product. For example, the entire lifecycle of their inventory of tools can be tracked and optimized for performance through mobile devices. With this insight, operations managers can determine the best time to regrind their tools. Production site managers can also analyze how and why local production approaches differ from other company sites worldwide – such as which cuts lead to lower tool wear. As a result, best practices can be productized, shared, and rolled out across the globe with real-time machine data.

Lessons learned from MAPAL

There are many lessons we can learn from MAPAL’s digital transformation approach. First, technology investments should always enable the reimagination of business processes, operations, and business models. Second, strategies may call for better access to real-time, accurate insights; actionable decision-making; or streamlined processes; but ultimately, a scalable, reliable infrastructure is needed to power it all.

Digital transformation does not mean that a company must replace existing business operations entirely. Such a decision will only disrupt cash flow and upset customers. Instead, organizations must assess how emerging opportunities and risks can be addressed through agility, technology-driven intelligence, and ambitious innovation to pave the way to untapped incremental revenue streams and additional competitive advantage.

Based on my learnings from more than 150 CxO meetings on digital transformation each year, I can recognize a successful leadership pattern in a small and midsize business with the ambition to remain a champion over the long term. Separating digital leaders from digital laggards is the combination of making a strategic bet and executing with determination.

The changing role of the CIO

The challenges posed by digital transformation are opening the door for IT leaders to prove what they have known all along: Technology is the enabler, not the motivator. Moreover, as executives scramble to meet the demands of an increasingly digital present and future, the CIO’s value becomes even more apparent. According to the EIU survey, 44% of respondents cite that the ideal role for IT is to help devise and implement a digital transformation strategy.

The sole purpose of IT can no longer reside in the development, implementation, and maintenance of technology. Otherwise, the CIO and his team would only be regarded as a back-office role while others lead the company’s digital journey. By combining so generated technology expertise with the business side of the executive table, CIOs can provide valuable insights and ideas that enable the entire executive team to map the best course for revenue generation and proactive, disruptive innovation.

By embracing entrepreneurial and transformational leadership, CIOs have a unique reason to rise into prominence as they spearhead competitive innovation, create a unique value proposition for the brand, and set a clear road map that delivers the full promise of digital transformation.

To learn how your business can embrace the promise of the digital economy, check out The Economist Intelligence Unit’s recent report “Digitizing IT: Catalysts for Growth.” Be sure to check every Tuesday for new installments to our blog series “Leading through Digital Transformation,” to explore the various leadership roles in today’s growing small and midsize companies.

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Carsten Linz

About Carsten Linz

Dr. Carsten Linz is an entrepreneurial leader with more than twenty years of business experience and a proven track record for driving innovation, growth, and transformation. As the Business Development Officer at SAP SE, he repeatably leads the build-up and scale-out of new businesses. In his role as Global Head of the Center for Digital Leadership, Linz acts as an advisor to other CIOs and C-level executives by showcasing next-generation digital innovation and transformation approaches. He also serves as advisory board member, coaches CEOs of fast-growing companies, and is an active member of the investment committee of Europe’s largest seed stage fund. As senior lecturer, he teaches in executive education programs at top-ranked business schools, publishes books and articles in renowned journals, and is a sought-after keynote speaker. He supports social innovators as advisory board member of Social Impact Berlin.

What Every CIO Needs To Know About Trends In User Experience Design

Ivo van Barneveld

Part 4 in the “UX Design for CIOs” series

If designed well, conversational user interfaces offer many benefits to end users. Language is the most natural interface humans understand. Therefore, talking to a machine rather than entering specific commands facilitates a more natural user experience. It will take a user less effort to get familiar with an application as there is no need to get used to screens, navigation hierarchies, input fields, and buttons. Thanks to machine learning, applications will learn how to adapt to humans, rather than humans needing to adapt to applications.

Conversational user interfaces also save time. First, users do not need to download an application or navigate to a website to communicate with a company. Second, they can start a conversation right from a messaging app (like WhatsApp, WeChat) or digital assistant (like Siri, Alexa) – interfaces they know and understand. Third, being able to talk rather than type frees up your hands so you can multitask. And fourth, chatbots offer a 24/7 service availability – so users can engage with companies also after office hours.

Another benefit for users is the personal touch that conversational UIs can offer. Two-way communication gives a feeling of personal attention, even if the “person” at the other end is a machine. Natural language processing and machine learning keeps improving. Digital assistants get better and better at understanding the user’s intent and context. They can remember the user’s preferences and previous interactions like purchases, complaints and requests. This information is used to generate tailor-made answers and to make proactive suggestions. And the more digital assistants are able to understand humans, the more users will trust them – or even bond with them!

Big benefits for companies

By introducing chatbots on popular messaging services like WhatsApp, WeChat, and Facebook Messenger, companies can tap into an audience of billions of users immediately. Rather than spending effort promoting the use of an application or Web site, companies can easily reach their customers through existing messaging channels. For example, when KLM Royal Dutch Airlines announced to be first airline with a verified business account on WhatsApp, the CEO stated his motivation very clearly: “We want to be where our customers are and, given the 1 billion users, you have to be on WhatsApp.”

Another benefit of deploying chatbots and digital assistants lies within efficiency and cost. While it might take a couple of days or weeks to train a new employee, chatbots can be trained in hours – and they improve over time as they are fed with real-life input and feedback, thanks to artificial intelligence. Moreover, intelligent assistants can take over routine or low-level tasks so employees can focus on exceptions or high-level tasks – thus adding more value to the company.

And finally, conversational applications can be rolled out at scale, while still offering a personal, 1-to-1 experience to customers. An artificial intelligence system can talk to (nearly) an infinite number of users simultaneously, and learn what they want. On one hand, this will allow companies to strengthen their brand widely and consistently. On the other hand, this will lead to higher customer satisfaction and more business transactions.

In my next and last blog in this series, I’ll look at how to design a conversational user interface.

Find out more

If you’d like to learn more about conversational UIs and chatbots in general, I recommend subscribing to Chatbots Magazine on Medium. If you’d like to know more about SAP’s digital assistant, you can follow the blog posts about SAP CoPilot on Experience.sap.com. You can also follow me on Twitter and reach out to me if you’re interested in co-innovating with us, or joining our next planned customer engagement initiative.

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Ivo van Barneveld

About Ivo van Barneveld

Ivo van Barneveld is a passionate evangelist of innovations in user experience, mobile, and Internet of Things. His work focuses on the intersection of technology and business. He is currently a member of the UX Customer Office team in SAP Global Design, with the remit to drive adoption of SAP’s award-winning user experience, SAP Fiori. Previously, he worked at SAP as a lead consultant, supporting customers with planning and executing digital transformation strategies. Prior to joining SAP in 2012, he held several business development, account manager, and partner manager roles at Nokia and Layar, among others. Ivo holds a Master’s degree in Applied Physics from the Delft University of Technology, and is based in the Netherlands.

Crisis Communication: The Power Of Video During Uncertain Times

Paul Herdman

Nothing tests a global organization’s ability to communicate quickly and effectively like a crisis: a data breach, leadership scandal, terror attack, natural disaster, or even a major political event like Brexit. How companies deal with crisis impacts everything from revenue to customer satisfaction and even stock price—and in a time when these events have become a regular part of business, Global 2000 organizations are putting crisis management technologies at the very top of their investment lists.

Amidst all the recent uncertainty, video is quickly emerging as the most powerful and preferred corporate communication medium. Not only is video an authentic way to communicate; it is also accessible from almost any device stakeholders use to consume content. Forward-thinking organizations understand that video accounts for three-quarters of online traffic, and are now leveraging their enterprise video platforms as go-to systems for distributing information and connecting executives with company stakeholders in crisis situations.

The changing face of crisis communication

The fact is, today most crisis communications—even at Global 2000 organizations—are centered around mass email, corporate blogs, press releases, conference calls, and general word of mouth. These modes of communicating during a crisis will never disappear, but as primary methods, each offers an inflexible, impersonal, or delayed communication channel that cannot adapt to the chaotic and rapidly moving environment a crisis can create.

And even when no crisis is imminent, in large organizations, senior executives rarely have direct contact with the wider workforce. The name of the CEO may be well-known, but practical opportunities for face time in a dispersed enterprise encompassing thousands of employees across multiple locations are limited. As executives attempt to ensure everyone in the company is up-to-date on crisis-related action plans, traditional communication channels are creating a lack of overall employee preparedness.

The case for a video-centric crisis communications strategy

Decades of research have found that visuals are processed at hyper-speed by the brain. In fact, one researcher has estimated that watching one minute of video is the equivalent of hearing 1.8 million words. It is this foundational fact that makes video exponentially more effective when information is fluid. Not only does video allow the provision of real-time information, but it also offers both control over messaging and information security: two things traditional crisis communication methods cannot match. A short, real-time video can be created quickly and shared with everyone, or only with people who have the necessary security permissions—and at a higher level of impact, understanding, and retention.

Enterprise video also offers senior management a simple way to engage directly, enabling employees to see and hear from them versus their representatives. In addition, video offers a more personalized way of conveying a message, which results in increased retention and engagement. The bottom line is, when it comes to how a company deals with a crisis, video is the most effective medium to communicate, reassure, and demonstrate leadership to stakeholders.

Video crisis communication in the real-world

For a global organization, distributing effective company-wide communication is a challenge, even under normal circumstances. But in a crisis, lack of timely information and credible detail can fuel misconception, and allow rumors and misinformation to quickly take the place of facts.

What if executive teams could quickly produce brief videos that explain facts surrounding a crisis, give staff immediate instructions on what to do, and outline the company’s strategy for mitigating impact? In preparation for the UK’s EU referendum last summer, a large global bank shot two different videos to explain what a Brexit vote would mean for customers in both the In and Out scenarios, creating a readiness for questions and concerns regardless of the vote. Alternatively, a French bank chose to produce a PDF document. In both cases the content was business-critical, but which communication do you believe reached more people faster and more effectively?

A practical and reliable tool

Video is now an expected communication channel both in life and the digital workplace, and businesses are capitalizing on this shift by using video as a practical and reliable tool in corporate communications. When a crisis happens, video has an immediacy and emotional power that makes it perfect for disseminating facts, messages, and information quickly to employees and stakeholders.

In crisis situations, video also has the power to compel decision-makers to convey information in the form of a story— where, according to psychologist Jerome Bruner, it is 20 times more likely to be remembered. The fact is, people are engaged by video in a way that is simply not possible with voice, text, or still images. The first step toward acceptance within enterprises is to incorporate video into regular communications patterns. Only then can video communication become an effective way to disseminate information and engage stakeholders in a crisis.

For more information, please click here.

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Paul Herdman

About Paul Herdman

Paul Herdman is vice president at Qumu EMEA. Paul joined Qumu in 2015, bringing 20 years of experience in senior sales positions, primarily within the software industry, including vice president EMEA at a UK-based risk management startup and enterprise sales at Oracle and Stellent.

Email: paul.herdman@qumu.com
Twitter: @Qumu
LinkedIn: https://www.linkedin.com/in/paulherdman/

Tick Tock: Start Preparing for Resource Disruption

By Maurizio Cattaneo, Joerg Ferchow, Daniel Wellers, and Christopher Koch

Businesses share something important with lions. When a lion captures and consumes its prey, only about 10% to 20% of the prey’s energy is directly transferred into the lion’s metabolism. The rest evaporates away, mostly as heat loss, according to research done in the 1940s by ecologist Raymond Lindeman.

Today, businesses do only about as well as the big cats. When you consider the energy required to manage, power, and move products and services, less than 20% goes directly into the typical product or service—what economists call aggregate efficiency (the ratio of potential work to the actual useful work that gets embedded into a product or service at the expense of the energy lost in moving products and services through all of the steps of their value chains). Aggregate efficiency is a key factor in determining productivity.

After making steady gains during much of the 20th century, businesses’ aggregate energy efficiency peaked in the 1980s and then stalled. Japan, home of the world’s most energy-efficient economy, has been skating along at or near 20% ever since. The U.S. economy, meanwhile, topped out at about 13% aggregate efficiency in the 1990s, according to research.

Why does this matter? Jeremy Rifkin says he knows why. Rifkin is an economic and social theorist, author, consultant, and lecturer at the Wharton School’s Executive Education program who believes that economies experience major increases in growth and productivity only when big shifts occur in three integrated infrastructure segments around the same time: communications, energy, and transportation.

But it’s only a matter of time before information technology blows all three wide open, says Rifkin. He envisions a new economic infrastructure based on digital integration of communications, energy, and transportation, riding atop an Internet of Things (IoT) platform that incorporates Big Data, analytics, and artificial intelligence. This platform will disrupt the world economy and bring dramatic levels of efficiency and productivity to businesses that take advantage of it,
he says.

Some economists consider Rifkin’s ideas controversial. And his vision of a new economic platform may be problematic—at least globally. It will require massive investments and unusually high levels of government, community, and private sector cooperation, all of which seem to be at depressingly low levels these days.

However, Rifkin has some influential adherents to his philosophy. He has advised three presidents of the European Commission—Romano Prodi, José Manuel Barroso, and the current president, Jean-Claude Juncker—as well as the European Parliament and numerous European Union (EU) heads of state, including Angela Merkel, on the ushering in of what he calls “a smart, green Third Industrial Revolution.” Rifkin is also advising the leadership of the People’s Republic of China on the build out and scale up of the “Internet Plus” Third Industrial Revolution infrastructure to usher in a sustainable low-carbon economy.

The internet has already shaken up one of the three major economic sectors: communications. Today it takes little more than a cell phone, an internet connection, and social media to publish a book or music video for free—what Rifkin calls zero marginal cost. The result has been a hollowing out of once-mighty media empires in just over 10 years. Much of what remains of their business models and revenues has been converted from physical (remember CDs and video stores?) to digital.

But we haven’t hit the trifecta yet. Transportation and energy have changed little since the middle of the last century, says Rifkin. That’s when superhighways reached their saturation point across the developed world and the internal-combustion engine came close to the limits of its potential on the roads, in the air, and at sea. “We have all these killer new technology products, but they’re being plugged into the same old infrastructure, and it’s not creating enough new business opportunities,” he says.

All that may be about to undergo a big shake-up, however. The digitalization of information on the IoT at near-zero marginal cost generates Big Data that can be mined with analytics to create algorithms and apps enabling ubiquitous networking. This digital transformation is beginning to have a big impact on the energy and transportation sectors. If that trend continues, we could see a metamorphosis in the economy and society not unlike previous industrial revolutions in history. And given the pace of technology change today, the shift could happen much faster than ever before.

The speed of change is dictated by the increase in digitalization of these three main sectors; expensive physical assets and processes are partially replaced by low-cost virtual ones. The cost efficiencies brought on by digitalization drive disruption in existing business models toward zero marginal cost, as we’ve already seen in entertainment and publishing. According to research company Gartner, when an industry gets to the point where digital drives at least 20% of revenues, you reach the tipping point.

“A clear pattern has emerged,” says Peter Sondergaard, executive vice president and head of research and advisory for Gartner. “Once digital revenues for a sector hit 20% of total revenue, the digital bloodbath begins,” he told the audience at Gartner’s annual 2017 IT Symposium/ITxpo, according to The Wall Street Journal. “No matter what industry you are in, 20% will be the point of no return.”

Communications is already there, and energy and transportation are heading down that path. If they hit the magic 20% mark, the impact will be felt not just within those industries but across all industries. After all, who doesn’t rely on energy and transportation to power their value chains?

The eye of the technology disruption hurricane has moved beyond communications and is heading toward … the rest of the economy.

That’s why businesses need to factor potentially massive business model disruptions into their plans for digital transformation today if they want to remain competitive with organizations in early adopter countries like China and Germany. China, for example, is already halfway through an US$88 billion upgrade to its state electricity grid that will enable renewable energy transmission around the country—all managed and moved digitally, according to an article in The Economist magazine. And it is competing with the United States for leadership in self-driving vehicles, which will shift the transportation process and revenue streams heavily to digital, according to an article in Wired magazine.

Once China’s and Germany’s renewables and driverless infrastructures are in place, the only additional costs are management and maintenance. That could bring businesses in these countries dramatic cost savings over those that still rely on fossil fuels and nuclear energy to power their supply chains and logistics. “Once you pay the fixed costs of renewables, the marginal costs are near zero,” says Rifkin. “The sun and wind haven’t sent us invoices yet.”

In other words, zero marginal cost has become a zero-sum game.

To understand why that is, consider the major industrial revolutions in history, writes Rifkin in his books, The Zero Marginal Cost Society and The Third Industrial Revolution. The first major shift occurred in the 19th century when cheap, abundant coal provided an efficient new source of power (steam) for manufacturing and enabled the creation of a vast railway transportation network. Meanwhile, the telegraph gave the world near-instant communication over a globally connected network.

The second big change occurred at the beginning of the 20th century, when inexpensive oil began to displace coal and gave rise to a much more flexible new transportation network of cars and trucks. Telephones, radios, and televisions had a similar impact on communications.

Breaking Down the Walls Between Sectors

Now, according to Rifkin, we’re poised for the third big shift. The eye of the technology disruption hurricane has moved beyond communications and is heading toward—or as publishing and entertainment executives might warn, coming for—the rest of the economy. With its assemblage of global internet and cellular network connectivity and ever-smaller and more powerful sensors, the IoT, along with Big Data analytics and artificial intelligence, is breaking down the economic walls that have protected the energy and transportation sectors for the past 50 years.

Daimler is now among the first movers in transitioning into a digitalized mobility internet. The company has equipped nearly 400,000 of its trucks with external sensors, transforming the vehicles into mobile Big Data centers. The sensors are picking up real-time Big Data on weather conditions, traffic flows, and warehouse availability. Daimler plans to establish collaborations with thousands of companies, providing them with Big Data and analytics that can help dramatically increase their aggregate efficiency and productivity in shipping goods across their value chains. The Daimler trucks are autonomous and capable of establishing platoons of multiple trucks driving across highways.

It won’t be long before vehicles that navigate the more complex transportation infrastructures around the world begin to think for themselves. Autonomous vehicles will bring massive economic disruption to transportation and logistics thanks to new aggregate efficiencies. Without the cost of having a human at the wheel, autonomous cars could achieve a shared cost per mile below that of owned vehicles by as early as 2030, according to research from financial services company Morgan Stanley.

The transition is getting a push from governments pledging to give up their addiction to cars powered by combustion engines. Great Britain, France, India, and Norway are seeking to go all electric as early as 2025 and by 2040 at the latest.

The Final Piece of the Transition

Considering that automobiles account for 47% of petroleum consumption in the United States alone—more than twice the amount used for generators and heating for homes and businesses, according to the U.S. Energy Information Administration—Rifkin argues that the shift to autonomous electric vehicles could provide the momentum needed to upend the final pillar of the economic platform: energy. Though energy has gone through three major disruptions over the past 150 years, from coal to oil to natural gas—each causing massive teardowns and rebuilds of infrastructure—the underlying economic model has remained constant: highly concentrated and easily accessible fossil fuels and highly centralized, vertically integrated, and enormous (and enormously powerful) energy and utility companies.

Now, according to Rifkin, the “Third Industrial Revolution Internet of Things infrastructure” is on course to disrupt all of it. It’s neither centralized nor vertically integrated; instead, it’s distributed and networked. And that fits perfectly with the commercial evolution of two energy sources that, until the efficiencies of the IoT came along, made no sense for large-scale energy production: the sun and the wind.

But the IoT gives power utilities the means to harness these batches together and to account for variable energy flows. Sensors on solar panels and wind turbines, along with intelligent meters and a smart grid based on the internet, manage a new, two-way flow of energy to and from the grid.

Today, fossil fuel–based power plants need to kick in extra energy if insufficient energy is collected from the sun and wind. But industrial-strength batteries and hydrogen fuel cells are beginning to take their place by storing large reservoirs of reserve power for rainy or windless days. In addition, electric vehicles will be able to send some of their stored energy to the digitalized energy internet during peak use. Demand for ever-more efficient cell phone and vehicle batteries is helping push the evolution of batteries along, but batteries will need to get a lot better if renewables are to completely replace fossil fuel energy generation.

Meanwhile, silicon-based solar cells have not yet approached their limits of efficiency. They have their own version of computing’s Moore’s Law called Swanson’s Law. According to data from research company Bloomberg New Energy Finance (BNEF), Swanson’s Law means that for each doubling of global solar panel manufacturing capacity, the price falls by 28%, from $76 per watt in 1977 to $0.41 in 2016. (Wind power is on a similar plunging exponential cost curve, according to data from the U.S. Department of Energy.)

Thanks to the plummeting solar price, by 2028, the cost of building and operating new sun-based generation capacity will drop below the cost of running existing fossil power plants, according to BNEF. “One of the surprising things in this year’s forecast,” says Seb Henbest, lead author of BNEF’s annual long-term forecast, the New Energy Outlook, “is that the crossover points in the economics of new and old technologies are happening much sooner than we thought last year … and those were all happening a bit sooner than we thought the year before. There’s this sense that it’s not some distant risk or distant opportunity. A lot of these realities are rushing toward us.”

The conclusion, he says, is irrefutable. “We can see the data and when we map that forward with conservative assumptions, these technologies just get cheaper than everything else.”

The smart money, then—72% of total new power generation capacity investment worldwide by 2040—will go to renewable energy, according to BNEF. The firm’s research also suggests that there’s more room in Swanson’s Law along the way, with solar prices expected to drop another 66% by 2040.

Another factor could push the economic shift to renewables even faster. Just as computers transitioned from being strictly corporate infrastructure to becoming consumer products with the invention of the PC in the 1980s, ultimately causing a dramatic increase in corporate IT investments, energy generation has also made the transition to the consumer side.

Thanks to future tech media star Elon Musk, consumers can go to his Tesla Energy company website and order tempered glass solar panels that look like chic, designer versions of old-fashioned roof shingles. Models that look like slate or a curved, terracotta-colored, ceramic-style glass that will make roofs look like those of Tuscan country villas, are promised soon. Consumers can also buy a sleek-looking battery called a Powerwall to store energy from the roof.

The combination of solar panels, batteries, and smart meters transforms homeowners from passive consumers of energy into active producers and traders who can choose to take energy from the grid during off-peak hours, when some utilities offer discounts, and sell energy back to the grid during periods when prices are higher. And new blockchain applications promise to accelerate the shift to an energy market that is laterally integrated rather than vertically integrated as it is now. Consumers like their newfound sense of control, according to Henbest. “Energy’s never been an interesting consumer decision before and suddenly it is,” he says.

As the price of solar equipment continues to drop, homes, offices, and factories will become like nodes on a computer network. And if promising new solar cell technologies, such as organic polymers, small molecules, and inorganic compounds, supplant silicon, which is not nearly as efficient with sunlight as it is with ones and zeroes, solar receivers could become embedded into windows and building compounds. Solar production could move off the roof and become integrated into the external facades of homes and office buildings, making nearly every edifice in town a node.

The big question, of course, is how quickly those nodes will become linked together—if, say doubters, they become linked at all. As we learned from Metcalfe’s Law, the value of a network is proportional to its number of connected users.

The Will Determines the Way

Right now, the network is limited. Wind and solar account for just 5% of global energy production today, according to Bloomberg.

But, says Rifkin, technology exists that could enable the network to grow exponentially. We are seeing the beginnings of a digital energy network, which uses a combination of the IoT, Big Data, analytics, and artificial intelligence to manage distributed energy sources, such as solar and wind power from homes and businesses.

As nodes on this network, consumers and businesses could take a more active role in energy production, management, and efficiency, according to Rifkin. Utilities, in turn, could transition from simply transmitting power and maintaining power plants and lines to managing the flow to and from many different energy nodes; selling and maintaining smart home energy management products; and monitoring and maintaining solar panels and wind turbines. By analyzing energy use in the network, utilities could create algorithms that automatically smooth the flow of renewables. Consumers and businesses, meanwhile, would not have to worry about connecting their wind and solar assets to the grid and keeping them up and running; utilities could take on those tasks more efficiently.

Already in Germany, two utility companies, E.ON and RWE, have each split their businesses into legacy fossil and nuclear fuel companies and new services companies based on distributed generation from renewables, new technologies, and digitalization.

The reason is simple: it’s about survival. As fossil fuel generation winds down, the utilities need a new business model to make up for lost revenue. Due to Germany’s population density, “the utilities realize that they won’t ever have access to enough land to scale renewables themselves,” says Rifkin. “So they are starting service companies to link together all the different communities that are building solar and wind and are managing energy flows for them and for their customers, doing their analytics, and managing their Big Data. That’s how they will make more money while selling less energy in the future.”

The digital energy internet is already starting out in pockets and at different levels of intensity around the world, depending on a combination of citizen support, utility company investments, governmental power, and economic incentives.

China and some countries within the EU, such as Germany and France, are the most likely leaders in the transition toward a renewable, energy-based infrastructure because they have been able to align the government and private sectors in long-term energy planning. In the EU for example, wind has already overtaken coal as the second largest form of power capacity behind natural gas, according to an article in The Guardian newspaper. Indeed, Rifkin has been working with China, the EU, and governments, communities, and utilities in Northern France, the Netherlands, and Luxembourg to begin building these new internets.

Hauts-de-France, a region that borders the English Channel and Belgium and has one of the highest poverty rates in France, enlisted Rifkin to develop a plan to lift it out of its downward spiral of shuttered factories and abandoned coal mines. In collaboration with a diverse group of CEOs, politicians, teachers, scientists, and others, it developed Rev3, a plan to put people to work building a renewable energy network, according to an article in Vice.

Today, more than 1,000 Rev3 projects are underway, encompassing everything from residential windmills made from local linen to a fully electric car–sharing system. Rev3 has received financial support from the European Investment Bank and a handful of private investment funds, and startups have benefited from crowdfunding mechanisms sponsored by Rev3. Today, 90% of new energy in the region is renewable and 1,500 new jobs have been created in the wind energy sector alone.

Meanwhile, thanks in part to generous government financial support, Germany is already producing 35% of its energy from renewables, according to an article in The Independent, and there is near unanimous citizen support (95%, according to a recent government poll) for its expansion.

If renewables are to move forward …, it must come from the ability to make green, not act green.

If renewable energy is to move forward in other areas of the world that don’t enjoy such strong economic and political support, however, it must come from the ability to make green, not act green.

Not everyone agrees that renewables will produce cost savings sufficient to cause widespread cost disruption anytime soon. A recent forecast by the U.S. Energy Information Administration predicts that in 2040, oil, natural gas, and coal will still be the planet’s major electricity producers, powering 77% of worldwide production, while renewables such as wind, solar, and biofuels will account for just 15%.

Skeptics also say that renewables’ complex management needs, combined with the need to store reserve power, will make them less economical than fossil fuels through at least 2035. “All advanced economies demand full-time electricity,” Benjamin Sporton, chief executive officer of the World Coal Association told Bloomberg. “Wind and solar can only generate part-time, intermittent electricity. While some renewable technologies have achieved significant cost reductions in recent years, it’s important to look at total system costs.”

On the other hand, there are many areas of the world where distributed, decentralized, renewable power generation already makes more sense than a centralized fossil fuel–powered grid. More than 20% of Indians in far flung areas of the country have no access to power today, according to an article in The Guardian. Locally owned and managed solar and wind farms are the most economical way forward. The same is true in other developing countries, such as Afghanistan, where rugged terrain, war, and tribal territorialism make a centralized grid an easy target, and mountainous Costa Rica, where strong winds and rivers have pushed the country to near 100% renewable energy, according to The Guardian.

The Light and the Darknet

Even if all the different IoT-enabled economic platforms become financially advantageous, there is another concern that could disrupt progress and potentially cause widespread disaster once the new platforms are up and running: hacking. Poorly secured IoT sensors have allowed hackers to take over everything from Wi-Fi enabled Barbie dolls to Jeep Cherokees, according to an article in Wired magazine.

Humans may be lousy drivers, but at least we can’t be hacked (yet). And while the grid may be prone to outages, it is tightly controlled, has few access points for hackers, and is physically separated from the Wild West of the internet.

If our transportation and energy networks join the fray, however, every sensor, from those in the steering system on vehicles to grid-connected toasters, becomes as vulnerable as a credit card number. Fake news and election hacking are bad enough, but what about fake drivers or fake energy? Now we’re talking dangerous disruptions and putting millions of people in harm’s way.

The only answer, according to Rifkin, is for businesses and governments to start taking the hacking threat much more seriously than they do today and to begin pouring money into research and technologies for making the internet less vulnerable. That means establishing “a fully distributed, redundant, and resilient digital infrastructure less vulnerable to the kind of disruptions experienced by Second Industrial Revolution–centralized communication systems and power grids that are increasingly subject to climate change, disasters, cybercrime, and cyberterrorism,” he says. “The ability of neighborhoods and communities to go off centralized grids during crises and re-aggregate in locally decentralized networks is the key to advancing societal security in the digital era,” he adds.

Start Looking Ahead

Until today, digital transformation has come mainly through the networking and communications efficiencies made possible by the internet. Airbnb thrives because web communications make it possible to create virtual trust markets that allow people to feel safe about swapping their most private spaces with one another.

But now these same efficiencies are coming to two other areas that have never been considered core to business strategy. That’s why businesses need to begin managing energy and transportation as key elements of their digital transformation portfolios.

Microsoft, for example, formed a senior energy team to develop an energy strategy to mitigate risk from fluctuating energy prices and increasing demands from customers to reduce carbon emissions, according to an article in Harvard Business Review. “Energy has become a C-suite issue,” Rob Bernard, Microsoft’s top environmental and sustainability executive told the magazine. “The CFO and president are now actively involved in our energy road map.”

As Daimler’s experience shows, driverless vehicles will push autonomous transportation and automated logistics up the strategic agenda within the next few years. Boston Consulting Group predicts that the driverless vehicle market will hit $42 billion by 2025. If that happens, it could have a lateral impact across many industries, from insurance to healthcare to the military.

Businesses must start planning now. “There’s always a period when businesses have to live in the new and the old worlds at the same time,” says Rifkin. “So businesses need to be considering new business models and structures now while continuing to operate their existing models.”

He worries that many businesses will be left behind if their communications, energy, and transportation infrastructures don’t evolve. Companies that still rely on fossil fuels for powering traditional transportation and logistics could be at a major competitive disadvantage to those that have moved to the new, IoT-based energy and transportation infrastructures.

Germany, for example, has set a target of 80% renewables for gross power consumption by 2050, according to The Independent. If the cost advantages of renewables bear out, German businesses, which are already the world’s third-largest exporters behind China and the United States, could have a major competitive advantage.

“How would a second industrial revolution society or country compete with one that has energy at zero marginal cost and driverless vehicles?” asks Rifkin. “It can’t be done.” D!


About the Authors

Maurizio Cattaneo is Director, Delivery Execution, Energy and Natural Resources, at SAP.

Joerg Ferchow is Senior Utilities Expert and Design Thinking Coach, Digital Transformation, at SAP.

Daniel Wellers is Digital Futures Lead, Global Marketing, at SAP.

Christopher Koch is Editorial Director, SAP Center for Business Insight, at SAP.


Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.

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IDC 2018 Predictions: If You’re Not In The Cloud, You’re Isolated From Innovation

Susan Galer

IDC Research just released its top ten 2018 predictions, outlining why every company must operate like a digital-native enterprise. Frank Gens, IDC senior vice president and chief analyst, shared an expansive to-do list for CEOs, line-of-business and IT organizations during a webinar entitled, “IDC FutureScape: Worldwide IT Industry 2018 Predictions.”  His central message was that business is rapidly entering the Cloud 2.0 phase where public cloud is the best and increasingly only platform that every company’s ecosystem will use to hyper-connect industries for accelerated digital transformation journeys with technologies like AI, machine learning, IoT, augmented reality (AR), virtual reality (VR), and blockchain.

“Companies must re-architect operations around large-scale digital innovation networks, in effect becoming a new corporate species. We’re going to see a massive jump in the number of digital services and the pace of innovation. This is the ticking clock running inside the heads of CEOs in every industry, driving them quickly along digital transformation journeys,” said Gens. “Cloud everywhere for everything is what we’re likely to see over the next several years. Companies need to assess their cloud supplier’s ability to support an expanding range of use cases. If you’re not in the cloud, you’re isolated from innovation.”

These are IDC’s top ten 2018 IT predictions:

  1. By 2021, at least 50 percent of global GDP will be digitized, with growth driven by digitally-enhanced offerings, operations and relationships. By 2020, investors will use platform/ecosystem, data value, and customer engagement metrics as valuation factors for all enterprises.
  1. By 2020, 60 percent of all enterprises will have fully articulated an organization-wide digital transformation strategy, and will be in the process of implementing that strategy as the new IT core for competing in the digital economy.
  1. By 2021, spend on cloud services and cloud enabling hardware, software and services doubles to over $530 billion, leveraging the diversifying cloud environment that is 20 percent at the edge, over 15 percent specialized compute, and over 90 percent multi-cloud.
  1. By 2019, 40 percent of digital transformation initiatives will use AI services; by 2021, 75 percent of commercial enterprise apps will use AI, over 90 percent consumers interact with customer support bots, and over 50 percent of new industrial robots will leverage AI.
  1. By 2021, enterprise apps will shift toward hyper-agile architectures, with 80 percent of application development on cloud platforms using microservices and functions, and over 95 percent of new microservices deployed in containers.
  1. By 2020, human-digital (HD) interfaces will diversify, as 25 percent of field-service techs and over 25 percent of info-workers use AR, nearly 50 percent of new mobile apps use voice as a primary interface, and 50 percent of consumer-facing Global 2000 companies use biometric sensors to personalize experiences.
  1. By 2021, at least 25 percent of Global 2000 companies will use blockchain services as a foundation for digital trust at scale; by 2020, 25 percent of top global transaction banks, nearly 30 percent manufacturers and retailers, and 20 percent of healthcare organizations will use blockchain networks in production.
  1. By 2020, 90 percent of large enterprises will generate revenue from data-as-a-service, selling raw data, derived metrics, insights, and recommendations — up from nearly 50 percent in 2017.
  1. Improvements in simple (“low-/no-code”) development tools will dramatically expand the number of non-tech developers over the next 36 months; by 2021, these non-traditional tech developers will build 20 percent of business applications and 30 percent new application features (60 percent by 2027).
  1. By 2021, more than half of Global 2000 companies will see an average one-third of their digital services interactions come through their open API ecosystems, up from virtually zero percent in 2017, amplifying their digital reach far beyond own customer interactions.

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This article originally appeared on Forbes SAPVoice.

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