Why Analytics Will Be At Least 4 Times More Important In 2018

Timo Elliott

At the recent Gartner Data and Analytics event in Frankfurt, analyst Rita Sallam predicted, “Analytics will have an even bigger impact on society in the next twenty years than the Internet did in the last twenty.”

The incredible growth in machine learning and artificial intelligence, in particular, is set to remake every facet of today’s society and redefine every business process. But even without taking those sweeping changes into account, I believe that analytics will at least four times more important than ever in the coming year. Here’s why:

1. Faster innovation cycles

The core purpose of analytics has always been to support executive decision-making. According to Gartner, analytics remains the most important technology priority for companies around the world, as it has been for most of the last decade.

But decisions are more important than ever. In today’s fast-changing markets, the future belongs to agile companies that can adapt quickly. Having the right insights at the right moment, and being able to act on them – in other words, having effective analytics – is increasingly the difference between survival and extinction.

2. From a process-driven world to a data-driven world

In the world of analytics, we’re used to processes creating data that we can use for analysis. But now data is being used to create processes for digital transformation. In these new digital processes, the different steps are constantly changing based on real-time information and algorithms.

For example, think about customers buying products. In the old days, this was a fairly linear process: I might see an ad, say, then go to a store, and make a purchase. But now we live in a much more complex, omnichannel world. The most advanced companies are optimizing the end-to-end customer journey using real-time analytics at every point of interaction – steering customers to the best outcomes: “Is the customer profitable? Should we offer a discount? What other products might they be interested in?” And so on.

The result is that every customer is essentially following a unique, personalized process, powered by data and analytics. And these processes change automatically as the data changes, making them more agile and flexible, and more suitable for today’s fast-moving markets.

And it’s not just the customer experience that’s changing. All modern business processes, including human resources, logistics, finance, and manufacturing, are now constantly being adjusted and optimized, on the fly, based on real-time data. Analytics moves from being a process that is separate from “operations” to being an integral part of it.

3. Analytics is part of the products and services you sell

Companies are moving from selling products to creating experiences, and data is an essential part of that process. Whether it’s an estimate of how long your Uber will take to arrive, or the quality of a book recommendation from Amazon, or the ability to analyze your B2B invoices, data is increasingly a direct part of your customer experiences, and what you use to differentiate from your competitors.

This means that your product managers need to be able to experiment with data in new ways, testing and iterating these data-based experiences for your customers. This relies on your existing analytics platform, but it’s about using data for top-line growth rather than bottom-line efficiency, and requires more creative, flexible self-service than in the past.

4. Direct data monetization

It’s now easier than ever to monetize information in new ways, turning information more directly into income.

You have been gathering vast amounts of information to run your business better – but others may be able to benefit from that information, too. By aggregating, augmenting, and anonymizing information, you can sell it in new ways to new customers – creating new business models based directly on your data. Data from retailers can reveal deep insights about brand choices. Data from telephone companies can estimate footfall in front of retail stores. Providers of contingent labor can tell you the average salary differences between data scientists in Palo Alto and Bangalore.

What you should do next

Every single one of these trends raises the business importance of business analytics – and the need for higher investments.

  • It’s time to double down on analytics best practices – especially data quality – using these new opportunities to create the necessary business cases.
  • You should reach out to the innovation teams in your organization that are rethinking the end-to-end customer experience (and the internal processes needed to support that), and make sure you’re aligned on the new role of data.
  • Take the opportunity to do an inventory of your data assets, and identify a leader who can help investigate the new monetization opportunities.

We’d love to help

This post originally appeared on Timo Elliott’s blog and has been republished with permission.

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Timo Elliott

About Timo Elliott

Timo Elliott is an Innovation Evangelist for SAP and a passionate advocate of innovation, digital business, analytics, and artificial intelligence. He was the eighth employee of BusinessObjects and for the last 25 years he has worked closely with SAP customers around the world on new technology directions and their impact on real-world organizations. His articles have appeared in publications such as Harvard Business Review, Forbes, ZDNet, The Guardian, and Digitalist Magazine. He has worked in the UK, Hong Kong, New Zealand, and Silicon Valley, and currently lives in Paris, France. He has a degree in Econometrics and a patent in mobile analytics. 

The End Of Email Login Is Nigh (Possibly)

Branwell Moffat

Over a nice glass of Rioja in Barcelona in October last year, the ever-hungry Mike Timbers posed an interesting question to me: Why are we still using email addresses to log into websites? Maybe it was the wine, or the delicious tapas we were tucking into, but his question really got me thinking.

For a long time now, a customer’s email address has commonly been used as the unique username for their account on an e-commerce site. It is something that is most often unique to an individual, and we all have at least one of them.

Most of us have probably used websites that ask us to create a unique username, separate from our email address. This is incredibly frustrating and almost impossible to remember. Using a customer’s email address also makes sense, as it allows the merchant to send order confirmation emails and continue communicating with the customer through marketing emails.

So using a customer’s email address to log into an e-commerce website makes complete sense, then? Yes…maybe….not always….it really depends.

Email is still the undisputed king of digital communication. It can be accessed at work, at home, and on almost any device. Emails have subjects, can be sent to a group, be made to look pretty, and have files attached to them. Retailers send many billions of marketing emails to customers every year, and this is a vital part of their digital marketing strategy.

But isn’t it time we rethink whether it really is the best way of identifying an e-commerce user? The way we use technology to access the Internet has fundamentally changed in the last 10 years, but the way a user logs into a website has barely changed.

Generational changes

The way we communicate with one another differs across each generation. It has been said that kids these days do not use email. This is not entirely true. They do have email addresses and still use them for certain things, such as signing up to websites or receiving information from school, but they don’t tend to use it to communicate with one another.

For interpersonal communication they use SMS, Snapchat, What’sApp, Skype, Messenger, online games, or any number of other mediums, but email is too slow and not immediate enough. You can’t tell if someone is online, has read your last message, or is replying to your message.

It seems clear that, as the kids of today become the adults of tomorrow, the use of email for interpersonal communications will reduce further.

Complexity of email addresses

Many email addresses are easy to misspell. As the likes of Gmail, Hotmail, and Yahoo gain more and more users, new email addresses naturally become more complex in order to be unique. Even those of us with uncommon names struggle to obtain an email address that is short, concise, and simple to remember. The more complex it is, the harder it is to remember and spell correctly.

The other prevailing issue is that email addresses are not permanent. As you move companies or Internet providers, your email address may change. If you get a new email address, you are not likely to update every e-commerce website account you have. This results in a poorer user experience and also less value to the merchant of that email address.

Social

Most of us are a member of at least one social network, whether it is Facebook, Snapchat, Instagram, LinkedIn, or one of the many others that are available. An increasing number of e-commerce websites now allow users to sign in using a social media account rather than their email address.

The theory is that you can use one single login to authenticate yourself across multiple platforms. This can negate the need for a user to remember separate usernames and passwords, and also helps the merchant engage socially with the customer.

Mobile

The huge surge in the use of mobile devices for e-commerce should be one of the key drivers to considering a change to the way users log in. Typing on a mobile is harder than on a keyboard and more likely to lead to misspelling of an email address. A mobile phone is already a very secure device, and users access it through a pin code or even touch/face ID.

If a user is accessing your website via a mobile device, it should be possible to identify and even authenticate them directly from the device. If it is good enough for banking apps, it should be good enough for e-commerce. Apple touch and face ID do not currently allow authentication on a website, but it is surely a matter of time before they do.

Another important aspect of mobile usage is that everyone has their own mobile number. It is generally easy to remember and, crucially, very rarely changes. My mobile number has not changed in over 20 years, since my very first mobile phone.

Whenever you move networks, you take your number with you, and it is, arguably, a much better way of uniquely identifying yourself than your email address. Why not start using mobile numbers for e-commerce login as an alternative to email addresses? It is a lot easier for the customer to remember, is always unique, never changes, and still allows the merchant to communicate with the user.

Give users the choice

It would be a very brave (and possibly foolish) merchant who would completely abandon email login. Email clearly is here to stay, and a user’s email address still has marketing value to a merchant. However, users should be given a choice in how they identify and authenticate themselves to an e-commerce website.

There is a good argument to allow users to log in using a social media account or their mobile number in addition to their email address. At some point, I could envision using your mobile device to automatically authenticate a website user, using something like touch or face ID. I am a big advocate of user-centered design, and providing choices and making lives easier only leads to a better customer experience, and, ultimately, more sales for the merchant.

Learn more about Overcoming Digital Disruption In The Retail Industry.

This article originally appeared on The Future of Customer Experience and Commerce.

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Innovate Your Business Model With Conversational AI: Part 3

Ivo van Barneveld

Part 3 in the 3-part “Driving Innovation with Conversational AI” series

In the first two blogs in this series, we looked at the impact of injecting conversational AI into the value proposition as digital value drivers. Now, let’s explore how conversational AI can change the way you interact with your customers.

Unlike humans, chatbots operate 24/7, so your customers can engage with you any time they want. What’s more, as chatbots can pull information from many different sources and systems much faster than humans can, their answers and recommendations are more accurate and personalized. Many customers dislike calling a customer service agent: choosing the right option from a menu, waiting for the next available agent, explaining the problem or question, waiting for the agent to come back with an answer – that’s no longer acceptable in 2018! Instead, customers prefer to interact with brands as they do with friends: through conversations, getting a personalized experience, being able to continue on a previous thread. Chatbots offer just that.

Covering both high- and low-touch interactions

So let’s have a look again at the business model canvas, and this time inject conversational AI into customer relationships. The relationship could be very personal and “high-touch,” for example, when dedicated account managers build close relationships with their customers. Or it could be automated and “low-touch,” for example, through self-service tools with no personal interaction whatsoever. The paradox of conversational AI is that it covers both sides of this scale! It offers a personalized, contextual, 24/7 interaction, while being fully automated at the same time.

Chatbots can be used throughout the customer journey:

  • Evaluation: answering general questions about the product or service
  • Purchase: proposing the right product or service, suggesting related products or services (upsell), handling the transaction
  • Delivery: providing information about order status
  • After sales: providing tips and tricks, handling customer incidents

Thousands of brands already use chatbots in one or more of these phases. The Wall Street Journal offers a chatbot to deliver the latest breaking news, live stock market data, and other financial information. Expedia offers a bot for travelers to quickly see hotel options and move forward with a booking. And Tommy Hilfiger has a bot helping fashionistas choose clothes that match their style.

The conversational nature of chatbots make them very suitable for communication channels customers love to use: Facebook Messenger, WhatsApp, WeChat and Slack, and so on. Rather than trying to pull customers to your Web site or mobile application, with a chatbot, you can follow customers where they spend most of their time when engaging with others: messaging applications – and lower the barrier for engaging them with your brand. KLM President & CEO Pieter Elbers couldn’t have said it better when announcing KLM’s business account on WhatsApp: “We want to be where our customers are and, given the 1 billion users, you have to be on WhatsApp. With an account verified by WhatsApp, we offer our customers worldwide a reliable way to receive their flight information and ask questions 24/7.”

Expanding the exposure of your brand

The popularity of messaging applications is huge: combined, they have more than 3 billion users globally. That’s a reach you can’t get anywhere else! Offering your chatbot in these channels will give your brand exposure to new potential customers. In turn, new customers will lead to incremental revenues. An increase in customer satisfaction is another positive effect.

So we see how introducing conversational AI in the customer relationship propagates to the customer channel, customer segment, and revenue components in the business model canvas. But there is another effect: chatbots are often associated with reducing operating costs. Benchmark figures for call center pricing show that the average cost per minute for inbound customer calls ranges between $0.35 and $0.90. The cost of an API call to conversational cloud services such as Language Understand (LUIS) on Microsoft’s Azure platform, or Conversation on IBM Watson, is less than $0.01. Or, as stated in an SAP solution brief, the cost of resolving a ticket is $0.10 per ticket using chatbots versus $2.50 per ticket using a human agent. This means that you can service the same number of customers with fewer personnel.

Freeing up people for developing customer intimacy

And while this is great if your focus is on the bottom line, you could also use the freed-up resources for innovation. For example, you could create a new value proposition by focusing on customer intimacy. While chatbots perform high-volume but low-value tasks like providing order status, resetting passwords and so on, your customer service personnel will have more time to focus on high-value activities. These might include building personal relationships with customers (think private banking), handling complex issues and brand advocacy (writing blogs and how-to’s). These activities will positively change your value proposition, and with that, you can unearth new customer segments in the market!

Don’t wait, start now

There are of course many other examples of how conversational AI can impact your business model, including those focused on internal (employee) use cases:

    • improve employee productivity by achieving faster task completion
    • reduce time spent on administrative tasks
    • eliminate the need for end-user training for enterprise applications
    • access self-service tools
    • support decision-making
    • write meeting minutes
    • book travel
    • order products

These are ideal areas for gaining experience with conversational AI. All major software suppliers for systems of record offer a digital assistant to improve the user experience of your employees. SAP CoPilot is already available for SAP S/4HANA Cloud, and with planned support for natural language interaction for SAP S/4HANA on-premise systems in early 2018.

AI has reached a stage where chatbots can have a meaningful, engaging, and gratifying conversation with end users. The technology is available, the chatbot ecosystem is fairly robust, and users embrace it. So don’t wait, and start creating your first chatbot!

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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.

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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Human Is The Next Big Thing

Traci Maddox

One of my favorite movies of 2016 was Hidden Figures. The main character, Katherine Johnson, and her team of colleagues had an interesting job title: Computer. Here’s what Katherine said about her job: “On any given day, I analyze the binomial levels of air displacement, friction, and velocity. And compute over 10 thousand calculations by cosine, square root, and lately analytic geometry. By hand.”

That was the 1960s. It was amazing work, but work that took hours to complete – and something an in-memory computer could do in a fraction of a second today.

Just as in-memory computing transformed calculating by hand (and made jobs like Katherine’s much easier), digital technologies are transforming the way we work today – and making our day-to-day activities more efficient.

What’s the real impact of technology in today’s workplace?

We are surrounded by technology, both at home and at work. Machine learning and robotics are making their way into everyday life and are affecting the way we expect to engage with technology at work. That has a big impact on organizations: If a machine can do a job safely and more efficiently, a company, nonprofit, or government – and its employees – will benefit. Digital technologies are becoming increasingly more feasible, affordable, and desirable. The challenge for organizations now is effectively merging human talent and digital business to harness new capabilities.

How will jobs change?

What does this mean for humans in the workplace? In a previous blog, Kerry Brown showed that as enterprises continue to learn, human/machine collaboration increases. People will direct technology and hand over work that can be done more efficiently by machine. Does that mean people will go away? No – but they will need to leverage different skills than they have today.

Although we don’t know exactly how jobs will change, one thing is for sure: Becoming more digitally proficient will help every employee stay relevant (and prepare them to move forward in their careers). Today’s workforce demographic complicates how people embrace technology – with up to five generations in the workforce, there is a wide variety in digital fluency (i.e., the ability to understand which technology is available and what tools will best achieve desired outcomes).

What is digital fluency and how can organizations embrace it?

Digital fluency is the combination of several capabilities related to technology:

  • Foundation skills: The ability to use technology tools that enhance your productivity and effectiveness
  • Information skills: The ability to research and develop your own perspective on topics using technology
  • Collaboration skills: The ability to share knowledge and collaborate with others using technology
  • Transformation skills: The ability to assess your own skills and take action toward building your digital fluency

No matter how proficient you are today, you can continue to build your digital IQ by building new habits and skills. This is something that both the organization and employee will have to own to be successful.

So, what skills are needed?

In a Technical University of Munich study released in July 2017, 64% of respondents said they do not have the skills necessary for digital transformation.

Today's workplace reality

These skills will be applied not only to the jobs of today, but also to the top jobs of the future, which haven’t been imagined yet! A recent article in Fast Company mentions a few, which include Digital Death Manager, Corporate Disorganizer, and 3D Printing Handyman.

And today’s skills will be used differently in 2025, as reported by another Fast Company article:

  • Tech skills, especially analytical skills, will increase in importance. Demand for software developers, market analysts, and computer analysts will increase significantly between now and 2025.
  • Retail and sales skills, or any job related to soft skills that are hard for computers to learn, will continue to grow. Customer service representatives, marketing specialists, and sales reps must continue to collaborate and understand how to use social media effectively to communicate worldwide.
  • Lifelong learning will be necessary to keep up with the changes in technology and adapt to our fast-moving lives. Teachers and trainers will continue to be hot jobs in the future, but the style of teaching will change to adapt to a “sound bite” world.
  • Contract workers who understand how businesses and projects work will thrive in the “gig economy.” Management analysts and auditors will continue to be in high demand.

What’s next?

How do companies address a shortage of digital skills and build digital fluency? Here are some steps you can take to increase your digital fluency – and that of your organization:

  • Assess where you are today. Either personally or organizationally, knowing what skills you have is the first step toward identifying where you need to go.
  • Identify one of each of the skill sets to focus on. What foundational skills do you or your organization need? How can you promote collaboration? What thought leadership can your team share – and how can they connect with the right information to stay relevant?
  • Start practicing! Choose just one thing – and use that technology every day for a month. Use it within your organization so others can practice too.

And up next for this blog series – a look at the workplace of the future!

The computer made its debut in Hidden Figures. Did it replace jobs? Yes, for some of the computer team. But members of that team did not leave quietly and continue manual calculations elsewhere. They learned how to use that new mainframe computer and became programmers. I believe humans will always be the next big thing.

If we want to retain humanity’s value in an increasingly automated world, we need to start recognizing and nurturing Human Skills for the Digital Future.

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Traci Maddox

About Traci Maddox

Traci Maddox is the Director of the North America Customer Transformation Office at SAP, where she is elevating customer success through innovation and digital transformation. Traci is also part of the Digital Workforce Taskforce, a team of SAP leaders whose mission is to help companies succeed by understanding and addressing workforce implications of digital technology.