At SAP Hybris LIVE: Digital Summit, a panel of digital transformation veterans shared their experiences of implementing commerce solutions. Coming from industries as diverse as diesel engines, online groceries, and nutritional supplements, the five companies drew on their experience to provide some valuable insights.
The first hurdle was winning over the cynics. For Philip Murphy, head of digital center of excellence at Glanbia, a particular challenge was getting the rest of the company to buy into what could be major changes to the business. “It takes a bit to get people on board due to the high cost of investment, the big timelines, and [the fact that] a lot of senior stakeholders… don’t understand the complexity of what you’re doing. You’ve got to show them a vision of what the future could look like for the organization.” You also need to show what the commercial benefits of transformation will be – Glanbia’s CEO is a former finance director and wants to see a return on investment, after all.
Helle Pedersen Georgakis, senior project manager at MAN Diesel & Turbo, made the point that it’s important to not to sell the product, but the benefits, “What’s in it for me?” Her team also made great efforts to involve end users in the deployment of the new solution. “They were in it from the beginning,” said Georgakis, “and could see and help IT with what they should focus on. It was not an IT tool that was rolled out – it was a business tool.”
Panelists also shared their stories about what went well, and what didn’t, when they finally went live with their new commerce systems. For Erik Lindqvist, solution architect and project manager for e-business at Alfa Laval, the go-live date went without a hitch – it was the 18 months leading up to it that were hard. In fact, the journey leading up to deployment led to the final product being overly complex.
According to Lindqvist, “I think we may have listened too hard to all the nitty-gritty business demands that came to us from different directions. It led to that we customized the solution quite heavily and we still suffer from that… we should have started more simply, with fewer features.”
Of course, as Frank Niemann, vice president, software, at Pierre Audoin Consultants, said, “The notion ‘go live’ is a term from the past.” Digital transformation is about continuous innovation but, as Ulf Bonfert showed, it’s not easy to innovate while staying on top of your business.
The panelists were willing to share their experiences with this balancing act. Eberhardt Weber, founder and CEO of SAAS AG and Lieferladen.de, has a particular advantage. He runs a company that sells groceries online, as well as the software other groceries need to become an online business.
This puts his company in a position where it can try out new solutions on its own supermarket, then feed those that work back into the software side of the business. Weber is aware that this gives his company an unusual advantage: “I know it’s not so easy if you run a big enterprise, you cannot just try stuff out, but if you have the opportunity I would recommend to everybody… just do it.”
And the parting advice from the panelists to those companies about to undertake a digital transformation? “Start small, think big.” “No matter how well prepared you are, it’s never enough.” “Try things out! Make mistakes.” “It’s not going to be easy. Be resilient when things go wrong.” And finally, “There are more opportunities than threats.”
Regardless of your industry, how you manage vehicles presents a wide range of challenges that even seasoned veterans have a hard time grappling with. This could include a company that owns its own fleet of delivery trucks, or one that uses heavy equipment like excavators, or even mining companies with haul trucks. When you manage vehicles across a global network, you’ve got a seemingly infinite number of rules and regulations (that change on a regular basis) to worry about. You have drivers taking inefficient routes or operating under less-than-safe conditions, but you don’t know where they are. You don’t know the specifics of how. You don’t know why.
The Internet of Things offers many opportunities for industry professionals to address all of these challenges and more. As a concept, the IoT involves a series of “smart” devices that are all creating, collecting, and sharing data with one another at all times. This doesn’t just mean smartphones or smartwatches, either. Ericsson predicts that by 2018 there will be more IoT-connected devices in the world than there will be mobile phones. Business Insider predicts that by 2020 global manufacturers will invest an incredible $70 billion on IoT-powered solutions.
There’s a reason why manufacturing is expected to be the biggest IoT platform segment, with a total value of $438 million, by 2021. The IoT promises tremendous benefits to companies with moving assets – particularly for those in the mill products and mining industries. Mill products includes paper, metals, packaging, building products, cement, concrete, furniture, plastic products, and textiles.
Going beneath the data
Building your connected fleet or assets on the IoT is about more than seeing where your vehicles are at any given time. It’s about going deep into the data you’re collecting to uncover an essential narrative about your business as a whole.
This is particularly valuable in the mill products and mining industries. Knowledge of where products are in the transportation process can keep the supply chain running efficiently and customers satisfied by delivering on time – even with changes in schedules or project delays.
In the steel and paper industry, steel coils or paper rolls are easily damaged and require delicate handling, expert packaging, and proper storage. Using IoT technologies to track real-time location, process, and product characteristics throughout production and delivery offers tremendous value. This intelligence can support end-to-end root-cause analysis, including how often a coil was lifted, the acceleration and force applied to move it and put it down, and the temperature and humidity where it was stored and transported.
For most companies in these industries, fleet and transportation is a huge cost driver and often represents a large percentage of the cost of goods sold. Deeper analysis into transportation patterns can identify factors that improve speed or reduce maintenance (by predicting tire wear, for example) and generate direct, bottom-line benefits. Data on pedal position, speed, and velocity can give valuable insight on drivers’ safety and the types of decisions they’re making on the road. Patterns and trends that would have otherwise been undiscovered are now clear, allowing you to dramatically increase the safety of your drivers, reward drivers who are doing good work, and invest in training in those who aren’t. You can even make hiring or firing decisions based on this data, using an objective analysis to determine who is an appropriate fit for your fleet and who isn’t.
If drivers and their trucks are tracked in this way, each one can be assigned a score based on factors like safety and ability. You can identify, based on historical data, what conditions are more likely to be associated with increased accident risk; when taken in the context of an individual driver, you can make decisions that reduce accidents altogether.
In mining, many companies are already tracking tire pressure, wear, breaking, and other factors related to haul truck tires, which cost upwards of $20,000 each. Companies have reported millions of dollars in annual savings by predicting failure ahead of time, enabling companies to schedule maintenance or replacement and reduce downtime.
Even information like the total weight of a particular load or the G forces while in transit can all feed back into your business, maximizing your logistics strategy to allow your team to work “smarter, not harder” in the future. In industries that produce wood or building products, this type of information can be used to identify and reduce fraud. For example, a company hauling logs or other types of building materials can weigh a truck’s contents at pickup and again at delivery to ensure no theft has occurred.
Smart boundaries: Geofencing
Geofencing is another way to use data to track and improve your fleet or assets. Geofencing uses mobile devices to set up virtual boundaries, or “fences,” around designated areas. Vehicles collect and transmit location information over wireless networks to the company, enabling it to live-track fleet vehicles when they enter a physical job site or other designated or secure area. When a fleet truck or mobile worker crosses one of these geofences, the time and location is logged and sent as an email or pop-up alert to specified recipients. Geofencing can also be used to interact with a driver. For example, an alert can tell the driver exactly where to dock and when to enter, once the truck is close to its destination.
Creating the 21st century fleet with the IoT
In many ways, the advantage that the IoT brings to the mill products and mining industries is more than just creating and storing data. It’s about having access to that data in real time. It’s about empowering decision makers with accurate, actionable, and instant information they need to take the perfect step at the perfect time.
Mill products companies can collect, map, store, and analyze fleet and vehicle data at a moment’s notice. This can be used for everything from performing a driver safety analysis to reducing accidents. It can help organizations keep track of ever-changing rules and regulations, minimizing compliance issues.
However, the most important benefit of all is connecting your entire fleet together in a rich and meaningful way. At that point, a fleet becomes less the sum of a series of disparate parts spread out across the globe and more a living, breathing whole.
Convenience, affordability, and inclusivity will become the mainstay of innovations that take center stage in India in 2018, according to experts.
2017 saw the Indian economy make significant headway in technology deployment. Cloud-based transactions, artificial intelligence (AI), the Internet of Things (IoT), Big Data analytics, augmented and virtual reality (AR and VR), and blockchain became buzzwords across the country, thanks to the digital push by the Indian government, a flourishing startup ecosystem, and automation in the commercial space. India’s thrust in building a robust broadband infrastructure, coupled with its high mobile penetration, will boost technology adoption further. Sector-wise, game changers vary, and 2018 promises further disruptions.
Which technologies are likely to take the spotlight in 2018?
We reached out to 10 prominent leaders from across key sectors to assess contemporary technologies and predict the likely digital disruptions that await India in the coming year. Below is Digitalist Magazine’s projection for emerging technologies in 2018 and the key determinants of their adoption, based on these conversations.
“Aadhaar, IndiaStack, and GST all coming together will make a big difference to the country, provided we play our cards right.” -Pramod Varma, chief architect of Aadhaar, architect of IndiaStack, and a Digitalist 2017 award winner
The Government of India’s efforts, such as Aadhaar, Jan Dhan Yojana or “banking for all,” demonetization, Digital India, and the rollout of the goods and services tax (GST) regime, fueled technology adoption in the nation in 2017. The country made a start toward a Unified Payments Interface (UPI) for payments and digital lockers. 2018 is likely to see a broader adoption and impact of these initiatives. Two areas that will receive focus in the public space are education and healthcare.
Pramod Varma, chief architect of Aadhaar, the largest project of its kind to build a verifiable identity system in the country, architect of IndiaStack, and a Digitalist 2017 award winner, says, “The impact of Aadhaar, IndiaStack, and GST all coming together will make a big difference to the country, provided we play our cards right. Some of the technologies that were in the early or experimental phases in 2016 and 2017 will become mainstream in 2018.” Varma is bullish on the use of blockchain and a significant upgrade in cybersecurity in 2018 by India Inc. and the government alike.
Big Data and analytics are other key areas where the government has begun efforts. One instance is its reliance on geospatial analytics, which draws insights from satellite data using ML and remote sensing technology. Other scenarios where Big Data analytics can be applied are monitoring urbanization, authenticating income tax assessments, and even tracking internal migrations within the country. The technology is expected to evolve further and find deployments in governance at the grassroots level, such as in village and district-level administrations.
“Opportunity is in digitalizing physical assets and leveraging blockchain to ensure that transactions against those assets are done in a very secure manner.” -Ramanathan Ramanan, mission director, Atal Innovation Mission
The Digital India drive will open more opportunities for blockchain. Ramanathan Ramanan, mission director of Atal Innovation Mission, a Government of India initiative to promote innovation and entrepreneurship, prophesies, “Blockchain will be a big opportunity in India. The opportunity is in digitalizing physical assets and leveraging blockchain to ensure that transactions against those assets are done in a very secure manner. Whatever you can think of regarding assets can be digitalized today. For example, take land records and Aadhaar: How do you securely digitalize them?”
Is there a prescription for a winner technology in the public space?
“The key criteria for technologies is that they should belong to what I would call ASSURED inclusive innovation – where A stands for affordable, S for scalable, S for sustainable, U for user-friendly, E for excellence and D for distinctive or disruptive.” -Dr. Raghunath A. Mashelkar, research scientist and corporate consultant
Inclusive innovation is the need of the hour. Says Dr. Raghunath A. Mashelkar, a research scientist and corporate consultant who was formerly the director general of the Council of Scientific & Industrial Research (CSIR), “The key criteria for technologies is that they should belong to what I would call ASSURED inclusive innovation – where A stands for affordable, S for scalable, S for sustainable, U for user friendly, E for excellence, and D for distinctive or disruptive.”
“We are building the largest innovation center in the world. Of the eight pilots we prioritized, at least two will get into beta production this year.” -Sudin Baraokar, head of innovation, State Bank of India
2017 saw digitalization take the banking sector closer to the consumer with disruptive technologies such as Big Data, blockchain, AI, and the IoT leveraging cloud computing to change the face of business. In 2018, the industry will further reimagine processes by harnessing these technologies in the digital payments arena.
Blockchain, which thrives on collaboration and transparency, will emerge as the most disruptive technology for financial transactions in 2018. It is likely to find deployments across areas such as peer-to-peer lending and crowdsourcing. It can also help manage and enhance the economic inclusion index with minimal investments.
The successful start of the BankChain project in India, a Mumbai-headquartered collaborative banking initiative involving Indian and international banks, is a clear sign that blockchain technology is here to stay. BankChain aims at building banking solutions for a network of 22 banks in India and overseas and is widely acknowledged as a landmark project in the space. “We are building the largest innovation center in the world. Of the eight pilots we prioritized, at least two will get into beta production this year. Some of the areas we want to work on may not require a regulatory view,” says Sudin Baraokar, head of innovation at India’s largest public sector bank, State Bank of India.
Biometrics that allow recognition by iris, voice, and face, and enable wallet-free shopping with authenticated payments will be increasingly deployed with cloud and mobile technologies to widen the net of financial inclusion. Several startups are working with banks as well as independently to unlock the opportunity that this presents. E-commerce and healthcare providers will do well to piggyback on these efforts.
The hugely successful launch of the HDFC Bank’s chatbot EVA earlier this year (featured in the Digitalist Sept–Oct 2017 issue) is just the beginning for chatbots in India. Applications of AI and ML are reckoned to find more complex applications in chatbots to meet a broader spectrum of customized customer needs, including payments in 2018.
“Sharpening analytics will help us calculate the efficacy of certain chemotherapy regimens and the chances of exact matching of a drug with the patient.” -J. P. Dwivedi, CIO, Rajiv Gandhi Cancer Institute and Research Center
Technology in healthcare in India translates to deployments at both the back end and front end. Automation at the hospital and service-provider level is evident in hospital data centers, enterprise resource planning (ERP) implementations, disaster recovery centers, and backup facilities, as well as device-monitoring dashboards that ensure the smooth functioning of healthcare infrastructure and seamless tracking of patients.
In the area of patient services, electronic health records systems and improved queue management have enabled smoother service access. There have been exciting experiments with blockchain to enhance accessibility, convenience, and patient-centric medical care. Blockchain technology is being employed to allow hospitals to collaborate and make hassle-free health information exchange a reality. For instance, patient medical records will be accessible on a standard health information grid, enabling the patient to be mobile and access the records at any hospital or city.
J. P. Dwivedi, chief information officer at the Rajiv Gandhi Cancer Institute & Research Centre, one of Asia’s premier cancer care centers, confidently says, “Sharpening analytics will help us calculate the efficacy of certain chemotherapy regimens and the chances of exact matching of a drug with the patient.”
Wearable devices have been growing in adoption, with awareness levels increasing on fitness and health. The IoT will play a role in the evolution of wearable tools that will be more user friendly. In medicine, IoT and AI will also benefit remote delivery of health services and preventive care. Telemedicine, teleradiology, and teleconsultation, which are currently in primitive forms, will become more sophisticated in 2018.
Research in medicine will witness exciting advances, one instance being the arrival of Nano sensors capable of circulating inside the human body. The “Internet of Nano Things” is another area to look forward to, where connected nano things are able to store and transmit information from inside the human body, for research purposes.
“Connected shop floor or smart manufacturing will become a reality in at least some automobile companies.” -Vijay Sethi, CIO and head of CSR, Hero MotoCorp Limited, and a Digitalist 2017 award winner
Indian manufacturers are already using applications in AR and VR, AI, and robotics to provide better customer experiences and for process optimization. Chatbots used in the front end; industrial IoT and the digital twin concept used in driving operational efficiencies; and predictive analytics used in preventive maintenance and supply-chain innovation are a few examples of the massive digital disruption in the manufacturing sector.
2018 will see further maturing of these technologies as cloud-based technologies permeate into more areas. Blockchain could also find applications in manufacturing, such as vendors collaborating to serve customers better. The Tata Group and the Mahindra Group, among others, are actively exploring opportunities in blockchain.
Experiments in India spotlight on affordability and customization for the Indian environment to provide bottom-of-the-pyramid solutions and efficiencies in the supply chain all around. The Tata Group has an exciting innovation in this space. The salt-to-software solutions conglomerate has developed a technology to create a fuel cell with a low-platinum catalyst to power vehicles in the future.
Automobile industry insiders are looking toward AI to disrupt the sector further. Automobile manufacturing has been a mainstay in India, with the primary manufacturing companies taking pride in pioneering technology and process innovations in this industry. The digital twin project of Hero MotoCorp was a global first in the two-wheeler manufacturing segment. The availability of cost-effective IoT sensors is expected to further fuel the adoption of the digital twin concept with applications in smart asset management, as well as improving operational efficiencies for projects. Further explorations are underway at the Indian auto majors for driverless cars and bikes, e-cars, and even biofuel cars. However, some of these experiments may not translate to actual products on the road in 2018. Trials in electro mobility will lay the foundation for deployments in the next three to four years.
“Connected, smart vehicles and accessories will be in India next year, which means there will be data collected on the automobile, processed in real time, and feedback offered to users. In automobile manufacturing, a connected shop floor or smart manufacturing will become a reality in at least some companies,” says Vijay Sethi, CIO and head of corporate social responsibility at Hero MotoCorp Limited, the world’s largest two-wheeler motorcycle manufacturer based in India.
“AI and IoT will dictate trends in the paints industry in 2018.” -Manish Choksi, president, International, IT, HR and Chemicals at Asian Paints Limited and a Digitalist 2017 award winner
In manufacturing retail, AR and VR will become more disruptive, and more retailers will embrace these technologies to enhance customer adoption and experience. AI and the IoT will dictate trends in the paints industry, according to Manish Choksi, president, International, IT, HR, and Chemicals at Asian Paints Limited, a leading Indian paints manufacturer.
“In 2018, chatbots will become more user-friendly and will have the ability to respond to questions that are not necessarily framed for a machine.” -Dr. Gopichand Katragadda, Group CTO, Tata Sons Limited
In another case of technology serving the grassroots, unmanned aerial vehicles (drones) are increasingly employed in areas such as agriculture for spraying pesticides as well as in industry inspection. Voice recognition, image recognition, and natural language processing have all come of age to service needs at the bottom of the pyramid.
“AI will evolve into chatbots, which are smarter. In 2018, chatbots will become more user friendly and will have the ability to respond to questions that are not necessarily framed for a machine,” says Dr. Gopichand Katragadda, group CTO of Tata Sons Limited, the principal holding company and promoter of the Tata companies. Katragadda, tasked with driving technology innovations across 120 companies of the Tata Group, is leveraging design thinking apart from betting on AI and deep learning to drive business models and impact enterprise technology.
“90% of the technologies powering GIFT City have been sourced from Indian companies, a lot of them startups.” -Ajay Pandey, managing director and group CEO, Gujarat International Finance Tec-City Company Limited and a Digitalist 2017 award winner
This year, the government announced a list of 30 additional cities for development as smart cities, taking the count to 90, under its Smart City Mission. The government-backed project is implementing multiple technologies to bring the towns up to global standards in terms of improved quality of living and sustainable management. Smart cities call for an ecosystem of applications and technology to enable “smart” features such as intelligent lighting, smart water, power management, smart traffic management parking mechanisms, and many more.
Digital solutions based on AI, the IoT, blockchain, and robotics, as well as a combination of these technologies, are slated to fuel smart city projects. For instance, devices with intelligence and the power to communicate will help smart waste management, smart parking, and traffic management, and track the distribution and consumption of water and power supply.
AI and deep learning can power features like face recognition and be used to help study the consumer behavior within the cities. Companies like Bangalore-based eMudhra are also exploring ways to use blockchain in urban planning and governance, with potential implications for smart cities.
An innovative smart city in the works, Gujarat International Finance Tec-City Company Limited (GIFT City) will pioneer features such as an automated waste collection system (AWCS) and segregation plant and a single IoT-based Command Control and Communication Centre (C4) to monitor and manage city infrastructure. The district cooling system is the first implementation for commercial use in India. Features under trial include geofencing, which uses GPS to define geographical boundaries.
According to Ajay Pandey, managing director and group CEO of GIFT City, and a Digitalist 2017 award winner, 90% of the technologies powering the project have been sourced from Indian companies, many of them startups.
“There is activity across apps using data, automation, and AI. Voice-assisted apps will see an upgrade in 2018.” -Kapil Bharati, co-founder and CTO of Delhivery
The logistics industry has been on a technology adoption spree, combining the strengths of cloud computing, the IoT, and robotics to manage warehouse operations and track shipments and deliveries in real time. Automated storage and retrieval systems (ASRSs), radio frequency identification (RFID), GPS, cloud, and mobile are heavily in use to streamline operations. In 2017, the GST rollout led to an unprecedented increase in digitalization and faster transportation of goods for sectors across the board, and understandably in the logistics sector.
Expectations are rife for greater adoption of essential ML for higher automation and to assist in simplifying delivery mechanisms in 2018. Growth in the sector has also led to an upward spiral in applications using Big Data, automation, and AI. “There is a lot of activity across applications using data, automation, and AI. Voice-assisted applications will see an upgrade in 2018,” says Kapil Bharati, co-founder and CTO of Delhivery. For instance, you may not have to look at the screen to make decisions; instead you may be able to use your Bluetooth handset and give commands. This is an area where much work has been done by companies such as Google and Amazon.
Big Data and cognitive computing will be vital in laying the foundation for futuristic logistics systems. Interestingly, employers are increasingly looking at robots to protect against labor shortages during high demand. That robots improve the speed, accuracy, and productivity per square foot of warehouse space when e-commerce giants are reeling under rising rental prices is clearly in their favor.
The rise of e-commerce and demand from Tier 2 cities will lead to further collaborations between logistics players, and such models will be increasingly enabled by technology. Use of sensor technology that measures traffic flow, area-specific volume, and movement of people will grow in 2018.
Predictions: The top three technologies in India in 2018
Blockchain technology has several experts betting on it for collaboration and trust-based ecosystems across industries and government systems.
Artificial intelligence will find newer applications across sectors and in combination with digital twin technology among others.
Further evolution of AR and VR is expected to ensure increased use of mixed reality for more immersive experiences.
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 TheGuardian 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 TheIndependent, 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 TheGuardian. 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 TheGuardian.
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 TheIndependent. 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.
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.
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.
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.
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.
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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.