Physical Stores Still Relevant Despite Rise in E-Commerce

Chong Mock Seng

Retail is evolving quickly and there are many predictions about the store of the future. Some suggest the death of the brick-and-mortar model; others talk about a world where there is no checkout, no queuing – a world so smart that predictive technologies restock our necessities as they run out. But what’s the reality?

Despite the rise of e-commerce, online channels accounted for only 8.7% of global retail sales in 2016, and in 2019, 87% of retail sales will still occur in-store. So, while the discussion continues, most agree that the physical store is likely to remain, except that its focus will change – distinctly.

The store of the future: an experience hub, a fulfillment center

The store of the future will no longer focus on making a sale. Instead, physical stores that survive well into the future will change how they operate and service their customers. Stores will increasingly move from showrooms to playrooms where shoppers can experience products in a meaningful way. They will become experience hubs for consumers, allowing product immersion that eventually drives a purchase, online or offline. Ultimately, the retailers that win will be those that can leverage powerful yet subtle technology to offer inspiring physical experiences to shoppers, as well as moments that touch them, to result in conversions.

While the physical store will likely continue to play a key role, it’s also clear is that consumers will continue to increase their shopping online. This is especially so in Asia-Pacific, which will remain the world’s largest retail e-commerce market through 2020, with sales topping $1 trillion in 2016 and more than doubling to $2.725 trillion by 2020.

This gives traditional retailers an opportunity to capitalize on the biggest advantage they have over their online pure-play counterparts – the physical stores themselves. By transforming the store into one that blends physical and digital, a retailer can provide an evocative, experiential shopping journey as well as create a flexible fulfillment center. This enables retailers to profit from their investment in stores near where people live, work, and play.

The pressure is compounded by dwindling foot traffic in shopping malls, especially in the more developed retail markets. Many mall operators are proactively helping their retail tenants bridge the digital divide, transforming beyond mere “lifestyle centers” by exploring click-and-collect shopping, enhancing customer engagement experiences, and even experimenting with deliveries using drones. We’ll see more of these types of initiatives in the months and years to come and – in some cases – a reversal of the dwindling footfalls. Whether or not shoppers return to malls, one thing is clear: Retailers must innovate or fall to Digital Darwinism.

New technologies already transforming stores

We are already seeing today’s technologies influencing the store of tomorrow.

  • RFID: At the Rebecca Minkoff store in New York City, when a consumer walks into a fitting room, an RFID tag triggers an interactive touch screen that displays product images and makes other product recommendations based on what the consumer is trying on. The connected store concept has tripled Rebecca Minkoff’s expected clothing sales. Similar connected fitting rooms in Ralph Lauren’s Fifth Avenue flagship store in Manhattan gave the store a 90% customer engagement rate, beating the company’s expectations. These technologies allow retailers to discover information such as conversion rate per item, time spent in the fitting room, and conversion rate per fitting room visit. Data on items that are tried on but not purchased can help retailers optimize their merchandising strategy.
  • Beacon technology: Imagine a consumer walking into his local grocery store. His phone buzzes, but it’s not a text message; it’s a welcome message from the store, delivered through an app he downloaded two weeks ago and likely hasn’t used since. Around 90% of U.S. consumers use their smartphones while shopping in stores. In Singapore, 66% of consumers use their smartphones to search for local information. This provides a great opportunity for retailers to take advantage of the connection shoppers have with their phones. Target is testing beacon use cases. The value of in-store U.S. retail sales influenced by beacon-triggered messages in 2015 was $4 billion, which was expected to increase tenfold in 2016.
  • Mobile clienteling: Mobile clienteling offers consumers a feel-good, VIP experience that harkens back to the days when shop owners knew us personally. It allows retailers to engage consumers – one-to-one, in the moment – and streamline the shopping experience. Retailers also gain operational efficiencies when empowering employees with real-time access to information such as consumer profiles. Not only does this turn employees into strong brand advocates, it also enhances employee satisfaction. Clienteling keeps the physical store relevant because it makes it a delight for consumers to visit the store, even if retailers have a strong online presence. Burberry and Ulta Beauty are examples of companies successfully leveraging this technology.
  • In-store analytics. By tracking data points such as how many customers enter a store, when they come, where they go first, what they are browsing, how long they stay in an area, the shopping cart size, and more, in-store analytics can help merchants gain valuable, actionable insights. Not only that, retailers can also glean insights from their customers’ browsing and buying behaviors and then adjust inventory accordingly. Collated data allows retailers to measure conversions, enhance shopper-to-associate ratio, as well as understand whether queue times affected exit decisions. Ultimately it is about tracking consumer behavior in-store, but retailers must look ahead and incorporate all this data with that gleaned from other channels to understand the impact they have on one another.

For more, view this infographic on seven technologies making the store of the future a reality.

The winning formula

In essence, online and offline presences are complementary extensions of each other; online provides the hyper-convenience and offline provides the experiential engagement.

New, disruptive technologies and innovative methods have and will continue to emerge to help retailers enhance customer engagement. However, the winning retailers will be those that can amalgamate both online and offline presence into a seamless customer engagement channel. Otherwise, there is simply no way a retailer can effectively engage its more demanding and savvy customers.

SAP customers represent 98% of the top 100 most valued brands in the world. Catapult your retail business into the future with SAP solutions for retail.


Chong Mock Seng

About Chong Mock Seng

Chong Mock Seng is Retail Industry Leader of Southeast Asia for SAP. He has focused on retail, consumer products, and high tech manufacturing customers in the Asia-Pacific region and has a wealth of insights and practical experience through his myriad engagements in which he enjoys sharing with his customers in his current role as Retail IVE for Southeast Asia. He is most passionate about dialogues and action plans on transformative retail engineering in the disruptive digital era.

Five Strategies Shaping The Future Of Retail

Paul Dearlove

In January, I attended the National Retail Federation conference in New York City. This opened my eyes to the enormous disruption technology is creating in retail. To survive this disruption, retailers must rethink their game plan. If they don’t, their competitors will.

Here are 5 strategies retailers must consider to future-proof their success:

1. Attract customers with in-store experiences

Did you know that Nike’s New York store now offers customers an in-store basketball court? As customers play, cameras analyze their footwork and generate shoe recommendations.

By investing in such innovative, engaging experiences, retailers can bring their offline experience into the age of Brick and Mortar 2.0.

2. Enhance assortment planning with AI

What if retailers could know exactly what their customers wanted? Marketing and inventory management would be minimized, allowing retailers to invest in an engaging shopping experience.

By adopting AI-driven Business Analytics, retailers can understand exactly what their customers want. This allows retailers to right-size their operations, which involves establishing small outlets that stock exactly what local shoppers are looking for. By offering smaller, smarter product inventories, retailers will reap higher ROI.

3. Coach customers through their decision journey

Winning customer loyalty is a game, and consumers are coming to the field with more knowledge than ever before. They can spend hours researching reviews and comparing prices before coming to a decision. To convert consumers into customers, retailers must meet them at every moment of their decision journey.

In a way, retailers must approach this like the coach of a sports team. They must manage their customer’s game plan, guiding them towards their goal with advice at critical moments in their decision journey. This involves learning what each customer responds to andoffering them the best assistance on dynamic channels. That could include smart messenger bots on social media or in-store AR assistants.

4. Give customers a greater connection to products

Most customers want to touch products before they buy. To cater to this, consider digital twin technology. This technology can put virtual copies of products into the hands of consumers, including virtual changing rooms and 360-degree product shots. By bringing online shoppers closer to products, you can make them feel more secure about purchasing online.

Customization can also bring customers closer to products. By connecting customers to the manufacturing process through drop shipping and 3D printing, retailers can get closer to offering customers their perfect product.

5. Simplify shopping at every stage

In today’s complicated world, consumers are starving for simplicity. To stand out from the noise, retailers should offer simpler access to their products and services. By optimizing supply chains, retailers can offer customers simple same-day delivery. Through conversational AI, retailers can allow customers to order products with one word. By embracing simplicity, retailers will grow sales.

It’s important to remember that this isn’t retail’s first cycle of change. As with every other cycle, the retailers that survive will be those that transform themselves before disruption forces them to change.

For more on digital disruption in the retail industry, see The New Retail Reality: Moving Beyond Sales.


Paul Dearlove

About Paul Dearlove

Paul Dearlove is General Manager - Retail, SAP ANZ based in Sydney. As a former professional athlete, Paul has a keen focus on high performance and believes there are many skills that can be transferred to the corporate environment.

How To Humanize Marketing In The Age Of Artificial Intelligence

Rushenka Perera

Marketing is not something you do at people. It’s something you do for people. More importantly, it’s something you must do for the individual instead of the masses.

Automation and AI help us market with a more focused view of the individual, and at scale, as everyone is NOT the same. Subsequently, marketing should serve us as individuals instead of cookie-cutter consumers.

To this end, how can we leverage AI to humanize our marketing? Below are five ways to respect individuality using robots.

Make it resonate with our human side

This comes first because it should guide every aspect of our marketing. The best advice for this is: “Don’t tell me about your grass seed, talk to me about my lawn.” In other words, don’t use AI to inundate consumers with statistics about your stellar company. Instead, use it to start an honest conversation about what they value in life. So how do you start that conversation?

Start development with human skills

I’ve written before about the growing personalization of artificial intelligence. As technologies like conversational AI become more important, you must ensure your development team understands human interaction. And yes, marketing needs to talk to IT! You simply cannot survive with IT experts that don’t interact with their audience. To succeed, you must educate your IT and marketing workforce in skills such as active listening, empathy, and imagination.

Learn exactly who you’re talking to

According to media analyst Brian Solis, people use their phones 1,500 times a week. Why wouldn’t they? Mobile media makes us feel connected and empowered. It’s the perfect medium for personalized marketing. With the mountains of data mobile devices create, you have no excuse to not understand your consumers. What are their goals? Where are they going? How is their lawn looking?

Of course, it can be difficult to pull the profile of a person from that pile of data. However, machine learning can draw insights from this information. By integrating machine learning with marketing personalization, you can increase engagement enormously.

Provide personalized services

Marketing is about starting a conversation, so speak to your customer as an individual. To achieve this, invest in conversational AI assistants. As more individuals access services through assistants like Siri, you must secure your brand voice in this space.

Use the data we mentioned above to make your “voice” appealing to your customer. This is much easier when your developers have social conversational skills.

Above all, ensure your consumers can access your offerings without repeating themselves. After that, you must recommend further products and services using the language they’re most likely to respond to.

Engage with communities

As you connect individuals to your organization, they’ll seek out others your brand aligns with. Though you should market to individuals, you must remember that we’re all social creatures. This means you must cater to communities that form around your company.

To grow your communities, use social media monitoring to uncover influencers that can recruit more members. From there, assign AI to engage members and incentivize their participation. Finally, deploy machine learning to manage your growing community.

As you can see, artificial intelligence is an (ironically) effective way to bring humanity back to your marketing.

Visit SAP marketing to learn how SAP technologies can help you engage customers in every interaction across digital marketing channels.


Rushenka Perera

About Rushenka Perera

Rushenka is Head of Marketing at SAP ANZ.

Hack the CIO

By Thomas Saueressig, Timo Elliott, Sam Yen, and Bennett Voyles

For nerds, the weeks right before finals are a Cinderella moment. Suddenly they’re stars. Pocket protectors are fashionable; people find their jokes a whole lot funnier; Dungeons & Dragons sounds cool.

Many CIOs are enjoying this kind of moment now, as companies everywhere face the business equivalent of a final exam for a vital class they have managed to mostly avoid so far: digital transformation.

But as always, there is a limit to nerdy magic. No matter how helpful CIOs try to be, their classmates still won’t pass if they don’t learn the material. With IT increasingly central to every business—from the customer experience to the offering to the business model itself—we all need to start thinking like CIOs.

Pass the digital transformation exam, and you probably have a bright future ahead. A recent SAP-Oxford Economics study of 3,100 organizations in a variety of industries across 17 countries found that the companies that have taken the lead in digital transformation earn higher profits and revenues and have more competitive differentiation than their peers. They also expect 23% more revenue growth from their digital initiatives over the next two years—an estimate 2.5 to 4 times larger than the average company’s.

But the market is grading on a steep curve: this same SAP-Oxford study found that only 3% have completed some degree of digital transformation across their organization. Other surveys also suggest that most companies won’t be graduating anytime soon: in one recent survey of 450 heads of digital transformation for enterprises in the United States, United Kingdom, France, and Germany by technology company Couchbase, 90% agreed that most digital projects fail to meet expectations and deliver only incremental improvements. Worse: over half (54%) believe that organizations that don’t succeed with their transformation project will fail or be absorbed by a savvier competitor within four years.

Companies that are making the grade understand that unlike earlier technical advances, digital transformation doesn’t just support the business, it’s the future of the business. That’s why 60% of digital leading companies have entrusted the leadership of their transformation to their CIO, and that’s why experts say businesspeople must do more than have a vague understanding of the technology. They must also master a way of thinking and looking at business challenges that is unfamiliar to most people outside the IT department.

In other words, if you don’t think like a CIO yet, now is a very good time to learn.

However, given that you probably don’t have a spare 15 years to learn what your CIO knows, we asked the experts what makes CIO thinking distinctive. Here are the top eight mind hacks.

1. Think in Systems

A lot of businesspeople are used to seeing their organization as a series of loosely joined silos. But in the world of digital business, everything is part of a larger system.

CIOs have known for a long time that smart processes win. Whether they were installing enterprise resource planning systems or working with the business to imagine the customer’s journey, they always had to think in holistic ways that crossed traditional departmental, functional, and operational boundaries.

Unlike other business leaders, CIOs spend their careers looking across systems. Why did our supply chain go down? How can we support this new business initiative beyond a single department or function? Now supported by end-to-end process methodologies such as design thinking, good CIOs have developed a way of looking at the company that can lead to radical simplifications that can reduce cost and improve performance at the same time.

They are also used to thinking beyond temporal boundaries. “This idea that the power of technology doubles every two years means that as you’re planning ahead you can’t think in terms of a linear process, you have to think in terms of huge jumps,” says Jay Ferro, CIO of TransPerfect, a New York–based global translation firm.

No wonder the SAP-Oxford transformation study found that one of the values transformational leaders shared was a tendency to look beyond silos and view the digital transformation as a company-wide initiative.

This will come in handy because in digital transformation, not only do business processes evolve but the company’s entire value proposition changes, says Jeanne Ross, principal research scientist at the Center for Information Systems Research at the Massachusetts Institute of Technology (MIT). “It either already has or it’s going to, because digital technologies make things possible that weren’t possible before,” she explains.

2. Work in Diverse Teams

When it comes to large projects, CIOs have always needed input from a diverse collection of businesspeople to be successful. The best have developed ways to convince and cajole reluctant participants to come to the table. They seek out technology enthusiasts in the business and those who are respected by their peers to help build passion and commitment among the halfhearted.

Digital transformation amps up the urgency for building diverse teams even further. “A small, focused group simply won’t have the same breadth of perspective as a team that includes a salesperson and a service person and a development person, as well as an IT person,” says Ross.

At Lenovo, the global technology giant, many of these cross-functional teams become so used to working together that it’s hard to tell where each member originally belonged: “You can’t tell who is business or IT; you can’t tell who is product, IT, or design,” says the company’s CIO, Arthur Hu.

One interesting corollary of this trend toward broader teamwork is that talent is a priority among digital leaders: they spend more on training their employees and partners than ordinary companies, as well as on hiring the people they need, according to the SAP-Oxford Economics survey. They’re also already being rewarded for their faith in their teams: 71% of leaders say that their successful digital transformation has made it easier for them to attract and retain talent, and 64% say that their employees are now more engaged than they were before the transformation.

3. Become a Consultant

Good CIOs have long needed to be internal consultants to the business. Ever since technology moved out of the glasshouse and onto employees’ desks, CIOs have not only needed a deep understanding of the goals of a given project but also to make sure that the project didn’t stray from those goals, even after the businesspeople who had ordered the project went back to their day jobs. “Businesspeople didn’t really need to get into the details of what IT was really doing,” recalls Ferro. “They just had a set of demands and said, ‘Hey, IT, go do that.’”

Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants.

But that was then. Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants. “If you’re building a house, you don’t just disappear for six months and come back and go, ‘Oh, it looks pretty good,’” says Ferro. “You’re on that work site constantly and all of a sudden you’re looking at something, going, ‘Well, that looked really good on the blueprint, not sure it makes sense in reality. Let’s move that over six feet.’ Or, ‘I don’t know if I like that anymore.’ It’s really not much different in application development or for IT or technical projects, where on paper it looked really good and three weeks in, in that second sprint, you’re going, ‘Oh, now that I look at it, that’s really stupid.’”

4. Learn Horizontal Leadership

CIOs have always needed the ability to educate and influence other leaders that they don’t directly control. For major IT projects to be successful, they need other leaders to contribute budget, time, and resources from multiple areas of the business.

It’s a kind of horizontal leadership that will become critical for businesspeople to acquire in digital transformation. “The leadership role becomes one much more of coaching others across the organization—encouraging people to be creative, making sure everybody knows how to use data well,” Ross says.

In this team-based environment, having all the answers becomes less important. “It used to be that the best business executives and leaders had the best answers. Today that is no longer the case,” observes Gary Cokins, a technology consultant who focuses on analytics-based performance management. “Increasingly, it’s the executives and leaders who ask the best questions. There is too much volatility and uncertainty for them to rely on their intuition or past experiences.”

Many experts expect this trend to continue as the confluence of automation and data keeps chipping away at the organizational pyramid. “Hierarchical, command-and-control leadership will become obsolete,” says Edward Hess, professor of business administration and Batten executive-in-residence at the Darden School of Business at the University of Virginia. “Flatter, distributive leadership via teams will become the dominant structure.”

5. Understand Process Design

When business processes were simpler, IT could analyze the process and improve it without input from the business. But today many processes are triggered on the fly by the customer, making a seamless customer experience more difficult to build without the benefit of a larger, multifunctional team. In a highly digitalized organization like Amazon, which releases thousands of new software programs each year, IT can no longer do it all.

While businesspeople aren’t expected to start coding, their involvement in process design is crucial. One of the techniques that many organizations have adopted to help IT and businesspeople visualize business processes together is design thinking (for more on design thinking techniques, see “A Cult of Creation“).

Customers aren’t the only ones who benefit from better processes. Among the 100 companies the SAP-Oxford Economics researchers have identified as digital leaders, two-thirds say that they are making their employees’ lives easier by eliminating process roadblocks that interfere with their ability to do their jobs. Ninety percent of leaders surveyed expect to see value from these projects in the next two years alone.

6. Learn to Keep Learning

The ability to learn and keep learning has been a part of IT from the start. Since the first mainframes in the 1950s, technologists have understood that they need to keep reinventing themselves and their skills to adapt to the changes around them.

Now that’s starting to become part of other job descriptions too. Many companies are investing in teaching their employees new digital skills. One South American auto products company, for example, has created a custom-education institute that trained 20,000 employees and partner-employees in 2016. In addition to training current staff, many leading digital companies are also hiring new employees and creating new roles, such as a chief robotics officer, to support their digital transformation efforts.

Nicolas van Zeebroeck, professor of information systems and digital business innovation at the Solvay Brussels School of Economics and Management at the Free University of Brussels, says that he expects the ability to learn quickly will remain crucial. “If I had to think of one critical skill,” he explains, “I would have to say it’s the ability to learn and keep learning—the ability to challenge the status quo and question what you take for granted.”

7. Fail Smarter

Traditionally, CIOs tended to be good at thinking through tests that would allow the company to experiment with new technology without risking the entire network.

This is another unfamiliar skill that smart managers are trying to pick up. “There’s a lot of trial and error in the best companies right now,” notes MIT’s Ross. But there’s a catch, she adds. “Most companies aren’t designed for trial and error—they’re trying to avoid an error,” she says.

To learn how to do it better, take your lead from IT, where many people have already learned to work in small, innovative teams that use agile development principles, advises Ross.

For example, business managers must learn how to think in terms of a minimum viable product: build a simple version of what you have in mind, test it, and if it works start building. You don’t build the whole thing at once anymore.… It’s really important to build things incrementally,” Ross says.

Flexibility and the ability to capitalize on accidental discoveries during experimentation are more important than having a concrete project plan, says Ross. At Spotify, the music service, and CarMax, the used-car retailer, change is driven not from the center but from small teams that have developed something new. “The thing you have to get comfortable with is not having the formalized plan that we would have traditionally relied on, because as soon as you insist on that, you limit your ability to keep learning,” Ross warns.

8. Understand the True Cost—and Speed—of Data

Gut instincts have never had much to do with being a CIO; now they should have less to do with being an ordinary manager as well, as data becomes more important.

As part of that calculation, businesspeople must have the ability to analyze the value of the data that they seek. “You’ll need to apply a pinch of knowledge salt to your data,” advises Solvay’s van Zeebroeck. “What really matters is the ability not just to tap into data but to see what is behind the data. Is it a fair representation? Is it impartial?”

Increasingly, businesspeople will need to do their analysis in real time, just as CIOs have always had to manage live systems and processes. Moving toward real-time reports and away from paper-based decisions increases accuracy and effectiveness—and leaves less time for long meetings and PowerPoint presentations (let us all rejoice).

Not Every CIO Is Ready

Of course, not all CIOs are ready for these changes. Just as high school has a lot of false positives—genius nerds who turn out to be merely nearsighted—so there are many CIOs who aren’t good role models for transformation.

Success as a CIO these days requires more than delivering near-perfect uptime, says Lenovo’s Hu. You need to be able to understand the business as well. Some CIOs simply don’t have all the business skills that are needed to succeed in the transformation. Others lack the internal clout: a 2016 KPMG study found that only 34% of CIOs report directly to the CEO.

This lack of a strategic perspective is holding back digital transformation at many organizations. They approach digital transformation as a cool, one-off project: we’re going to put this new mobile app in place and we’re done. But that’s not a systematic approach; it’s an island of innovation that doesn’t join up with the other islands of innovation. In the longer term, this kind of development creates more problems than it fixes.

Such organizations are not building in the capacity for change; they’re trying to get away with just doing it once rather than thinking about how they’re going to use digitalization as a means to constantly experiment and become a better company over the long term.

As a result, in some companies, the most interesting tech developments are happening despite IT, not because of it. “There’s an alarming digital divide within many companies. Marketers are developing nimble software to give customers an engaging, personalized experience, while IT departments remain focused on the legacy infrastructure. The front and back ends aren’t working together, resulting in appealing web sites and apps that don’t quite deliver,” writes George Colony, founder, chairman, and CEO of Forrester Research, in the MIT Sloan Management Review.

Thanks to cloud computing and easier development tools, many departments are developing on their own, without IT’s support. These days, anybody with a credit card can do it.

Traditionally, IT departments looked askance at these kinds of do-it-yourself shadow IT programs, but that’s changing. Ferro, for one, says that it’s better to look at those teams not as rogue groups but as people who are trying to help. “It’s less about ‘Hey, something’s escaped,’ and more about ‘No, we just actually grew our capacity and grew our ability to innovate,’” he explains.

“I don’t like the term ‘shadow IT,’” agrees Lenovo’s Hu. “I think it’s an artifact of a very traditional CIO team. If you think of it as shadow IT, you’re out of step with reality,” he says.

The reality today is that a company needs both a strong IT department and strong digital capacities outside its IT department. If the relationship is good, the CIO and IT become valuable allies in helping businesspeople add digital capabilities without disrupting or duplicating existing IT infrastructure.

If a company already has strong digital capacities, it should be able to move forward quickly, according to Ross. But many companies are still playing catch-up and aren’t even ready to begin transforming, as the SAP-Oxford Economics survey shows.

For enterprises where business and IT are unable to get their collective act together, Ross predicts that the next few years will be rough. “I think these companies ought to panic,” she says. D!


About the Authors

Thomas Saueressig is Chief Information Officer at SAP.

Timo Elliott is an Innovation Evangelist at SAP.

Sam Yen is Chief Design Officer at SAP and Managing Director of SAP Labs.

Bennett Voyles is a Berlin-based business writer.

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

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Survey: Four Ways Machine Learning Will Disrupt Your Business

Dan Wellers and Dirk Jendroska

We are entering the era of the machine learning enterprise, in which this subset of artificial intelligence (AI) capabilities will revolutionize operating models, shake up staffing methods, upend business models, and potentially alter the nature of competition itself. The adoption of machine learning capabilities will be limited only by an organization’s ability to change – but not every company will be willing or able to make such a radical shift.

Very soon, the difference between the haves and the have-nots of machine learning will become clear. “The disruption over the next three to five years will be massive,” says Cliff Justice, principal in KPMG’s Innovation and Enterprise Solutions team. Companies hanging onto their legacy processes will struggle to compete with machine learning enterprises able to compete with a fraction of the resources and entirely new value propositions.

For those seeking to be on the right side of the disruption, a new survey, conducted by SAP and the Economist Intelligence Unit (EIU), offers a closer look at organizations we’ve identified as the Fast Learners of machine learning: those that are already seeing benefits from their implementations.

Machine learning is unlike traditional programmed software. Machine learning software actually gets better – autonomously and continuously – at executing tasks and business processes. This creates opportunities for deeper insight, non-linear growth, and levels of innovation previously unseen.

Given that, it’s not surprising that machine learning has evolved from hype to have-to-have for the enterprise in seemingly record time. According to the SAP/EIU survey, more than two-thirds of respondents (68%) are already experimenting with it. What’s more, many of these organizations are seeing significantly improved performance across the breadth of their operations as a result, and some are aiming to remake their businesses on the back of these singular, new capabilities.

So, what makes machine learning so disruptive? Based on our analysis of the survey data and our own research, we see four primary reasons:

1. It’s probabilistic, not programmed

Machine learning uses sophisticated algorithms to enable computers to “learn” from large amounts of data and take action based on data analysis rather than being explicitly programmed to do something. Put simply, the machine can learn from experience; coded software does not. “It operates more like a human does in terms of how it formulates its conclusions,” says Justice.

That means that machine learning will provide more than just a one-time improvement in process and productivity; those improvements will continue over time, remaking business processes and potentially creating new business models along the way.

2. It creates exponential efficiency

When companies integrate machine learning into business processes, they not only increase efficiency, they are able to scale up without a corresponding increase in overhead. If you get 5,000 loan applications one month and 20,000 the next month, it’s not a problem, says Sudir Jha, head of product management and strategy for Infosys; the machines can handle it.

3. It frees up capital – financial and human

Because machine learning can be used to automate any repetitive task, it enables companies to redeploy resources to areas that make the organization more competitive, says Justice. It also frees up the employees within an organization to perform higher-value, more rewarding work. That leads to reduced turnover and higher employee satisfaction. And studies show that happier employees lead to higher customer satisfaction and better business results.

4. It creates new opportunities

AI and machine learning can offer richer insight, deeper knowledge, and predictions that would not be possible otherwise. Machine learning can enable not only new processes, but entirely new business models or value propositions for customers – “opportunities that would not be possible with just human intelligence,” says Justice. “AI impacts the business model in a much more disruptive way than cloud or any other disruption we’ve seen in our lifetimes.”

Machine learning systems alone, however, will not transform the enterprise. The singular opportunities enabled by these capabilities will only occur for companies that dedicate themselves to making machine learning part of a larger digital transformation strategy. The results of the SAP/EIU survey explain the makeup of the evolving machine learning enterprise. We’ve identified key traits important to the success of these machine-learning leaders that can serve as a template for others as well as an overview of the outcomes they’re already seeing from their efforts.

Learn more and download the full study here.  

 


Dan Wellers

About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Dirk Jendroska

About Dirk Jendroska

Dr. Dirk Jendroska is Head of Strategy and Operations Machine Learning at SAP. He supports the vision of SAP Leonardo Machine Learning to enable the intelligent enterprise by making enterprise applications intelligent. He leads a team working on machine learning strategy, marketing and communications.