3 Ways Digital Transformation Can Protect Your Business

Shelly Dutton

Tightening of the U.S. monetary system. Europe’s struggle with the refugee crisis and rising debt. Financial instability in China. Global political instability. For anyone reading these headlines, 2016 is gearing up to be anything but boring and predictable. But is it really as bad as we think?

In a recent story in The Atlantic, James Pethokoukis, Dewitt Wallace Fellow of the American Enterprise Institute, expresses a different take on what’s happening. “Perhaps what’s happening is that we’re really bad at measuring the effects of technological progress, especially in the digital economy,” he theorized. Pethokoukis argues that innovations can take a considerable amount of time to impact productivity. Just like it took years, decades even, for factories to determine how to manufacture mass quantities efficiently, it may take years for recent advancements – such as Big Data, cryptocurrency, and the Internet of Things – to transform the world on a broad scale.

However, this realization is not convincing CEOs to set aside plans for such digital transformation. In fact, IDC predicts that two-thirds of Global 2000 enterprises will put digital transformation at the center of their corporate strategy by the end of 2017. Meanwhile, 80% of smaller companies will likely be dragged into digital transformation because of these larger businesses.

Why are so many enterprises relying on digital transformation to move forward? Simply put, it can be a protective layer that cushions the impact of a downturn – whether fueled by speculation, a misunderstanding of standard economic indicators, or real monetary constraints. Here are three of IDC’s 2016 predictions that provide some clues into how.

Prediction #1: 65% of large enterprises will shift their focus from resources, labor, and fixed capital to digital mastery of relationships, operations, and intangible capital.

This is not to say that cost containment of resources, labor, and fixed capital is no longer concern – it’s just not the only one. Senior executives are quickly realizing that relationships with customers, employees, and the entire business network; operations; and intangible capital (such as brand perception) are equally, if not more, important.

Considering that the average life expectancy of a Fortune 500 company has declined from around 75 years half a century ago to less than 15 years today, it’s easy to see how technology is accelerating a business’ lifespan. However, companies with staying power can build a brand reputation that makes customers feel invested, trust, and secure – even during lean, economic conditions.

Prediction #2: 80% of B2C and 60% of B2B companies will create immersive, authentic, omni-experiences for customers, partners, and employees by 2018.

Business-to-business (B2B) and business-to-consumer (B2C) companies with advanced omni-experience capabilities can study the entire ecosystem to learn from every customer interaction and take those lessons to the next deal over and over again in an iterative cycle. Although this capability is ingrained in the retail industry, every business – no matter the industry and size – needs to better understand customer preferences and needs, factors that trigger purchase patterns, and activities that have proven to improve sales revenue and profitability.

Prediction #3: 75% of the Global 2000 will deploy full, information-based, digital twins of their products, services, supply network, sales channels, and operations.

The combination of the digital economy with economic volatility can create an environment that is incredibly fast-paced, high-risk, and operationally lean. And for business, any error or design flaw can spell disaster. This is where digital transformation can become a catalyst for product innovation and lifecycles.

With a digital twin of a product or service, companies can avoid costly quality issues or rework because performance, processes, updates, and errors can be modeled before they occur in the physical offering. Thanks to the Internet of Things, digital twins can live well beyond the initial launch because embedded sensors and data flowing to and from a business’ system can enable performance tracking, usage monitoring, and predictive analytics of potential risks and opportunities for optimization.

Will digital transformation safeguard your company from an economic downturn? It all depends on you on how you take advantage of it. Check out Bill McDermott’s advice on the Timeless Truths in a Digital Age. Simple is key.  


Can The Social Enterprise Reshape Big Business?

Perry Manross

At the Social Enterprise World Forum (SEWF) 2016 in Hong Kong last week, hundreds of social enterprises, corporates, and policymakers from across the globe convened to advocate and debate the role of social enterprise (SE) in our future economy. One statement that latched on to me was this:

Corporates should make social enterprises their role models.

This wasn’t from a social enterprise; this was from PwC Network vice chairman Richard Collier Keywood. Yes, a corporate that makes a living delivering outcomes for corporates.

The fundamental question: Can commercial organizations really subscribe to this statement? Obviously, PwC does. But how realistic is it for publicly listed organizations to adopt the principles of a social enterprise? And how advisable?

First step: Come to an understanding of what social enterprise really is. The prevailing perception I’d distilled from admittedly limited exposure is that the social enterprise sector comprises a band of idealists bent on disrupting business as usual, favoring social impact over profit. In other words, while corporates do well, social enterprises do good.

I knew going into the Forum that this understanding was simplistic, but more importantly, by the end of it, I realized it was just plain wrong. Social enterprises have to be much more entrepreneurially savvy than corporates to simply stay alive. Social enterprises have to do good and do well. They need to return social impact and stay in business. Oh, and their goods and services need to be as strong, and probably stronger than those of traditional businesses.

Take corporate MacDonald’s – each year they return billions in profit and still the pangs of hundreds of millions. DC Central Kitchen – one of the social enterprise speakers at SEWF in Hong Kong – on the other hand, returns much more modest profits but also serves nutritious meals to scores of disadvantaged communities, integrates local farmers into its supply chain, and provides employment opportunities for formerly incarcerated talent.

It’s a far harder gig than most realize. While the mainstream start-up crowd laments their long hours and crusades for venture capital, social entrepreneurs sleep even less and rely financially on debt or slower organic growth, as most VCs conveniently see social enterprise as “not our sweet spot.” And that’s just “starting up,” to say nothing of “staying up.”

A new understanding value and success

Can corporates be expected or expect themselves to do well and do good and at the same time deliver shareholder value? After listening to the trials and tribulations of scores of social enterprises at SEWF, my take is: not quite yet, but very soon.

From taking in the content at the SEWF, the fundamental challenge I see is that SEs need a larger, more knowledgeable and more committed ecosystem backing them – an ecosystem with some alternative if not divergent thinking about the what “value” and “success” mean.

Generally speaking (as the social enterprise scene is vastly different across markets) when it comes to engaging SEs, VCs are reluctant, governments are timid, corporates are often clueless (including myself), consumers are indifferent and shareholders can be adamantly opposed.

The ecosystem necessary to catapult the social enterprise sector into the mainstream has been conditioned for decades if not for centuries to understand success as revenue, share price, monetary return, growth, and market share. Not until a new, shared understanding of return – based at least in part on social impact – becomes standard will the greater required ecosystem mobilise to scale the social enterprise sector. VCs and shareholders will need to reimagine return, governments their citizen services, corporates their business models and consumers what it means to have a delightful experience. No mean feats.

Yet we know this is coming. There is momentum – what customers and employees are demanding of an organisation is rapidly evolving. Corporates are already mobilising – if not to become more social-enterprise-like, at least to directly support them by recruiting them into their supply chains, providing mentors and volunteers and advocating their causes.

SAP, for example, has been engaging social enterprises worldwide through its Social Sabbatical programs, where top talent from across its global operations team up to inject expertise into promising social start-ups.

Not for profits are also scaling their enablement of social enterprise. In the UK, for example, contributions from charities to incubate or scale social enterprises went form 17% of spend to 38% in just two years.

But for the corporates to reimagine success, social enterprise can’t be just a CSR program. This has to be a COO, CFO and CEO program – integrated into the culture, vision, mission, and strategy of an organization.

Big, bold statements

As established as the social enterprise sector is – decades, really – in most markets it hasn’t scaled, and until our measures of success change it won’t reach its potential.

I think we’re still grappling with awareness; hence this post and others to come. I’m no “thought leader.” I’m on a journey to understand, and I hope the stories I share will entice others not so experienced in the social-enterprise sector to join me. More importantly, I hope those who are experienced in this space will comment, correct, guide, and inspire me and others to learn more and build that better understanding.


This story also appeared on the SAP Community Network.


Perry Manross

About Perry Manross

Perry Manross is Head of Global Corporate Affairs for SAP Australia and New Zealand.

Digital Disruption In The Business Process Management Industry

Tanmay Agarwal

Digital technologies—including mobile, analytics, social media, IOT, robotic automation, machine learning, AI, natural language processing and generation, virtual data warehousing, digital security, intelligence augmentation, cloud, and SaaS—combined with deep domain understanding of the business, is driving unprecedented disruption and transformation in nearly every industry.

All of these factors are not powerful enough to spur disruptive change on their own, but they can make a significant impact when they come together in the right proportions. The results can range from the complete transformation of an existing product or service line to creating an entirely new industry.

Although digital technology adoption across industries has been widely discussed, the business process management (BPM) industry has been slow to gain momentum in adapting to the full impact of digital transformation.

Here are a few observations on what’s plaguing digital deployment in the BPM industry:

  1. Too much granular data, but limited clarity and creativity in defining business problems.
    Most senior leaders and large organizations are grappling with defining the right problem statement and subsequently, translating large amounts of available data into appropriate answers. It’s truly a case of “water, water everywhere, but not a drop to drink.” Most large organizations today have petabytes of consumer data but are unable to articulate specific problems and make effective use of that data to address them.
  1. Expectations for quick ROI instead of opportunities for possible disruption.
    Organizations sometimes choose a quick fix over a long-term, far-reaching disruption of customer experience or 10X improvement. Steeped in traditional evaluation measures, organizations remain averse to change, with a complete lack of ability to innovate and take calculated risks. More often than not, disruption or transformation is primarily driven by a creative idea that challenges the status quo or provides a radically different way of doing the same thing with technology and analytics as mere enablers. Organizations that achieve this level of disruption, in my opinion, are led by exceptionally strong visionary leaders. And while the culture may be widely different, the crux of the dissimilar strategies – such as Jeff Bezos’ Amazon, Elon Musk’s Tesla Motors, and even Dion Weisler’s HP – is driving innovation and demonstrating the willingness to drive futuristic change to achieve success.
  1. Disconnectedness among those who understand business process, technology, and analytics.
    It is not unusual for someone who is adept in statistical modeling doesn’t understand the business context of the data being evaluated. An organization may have data scientists who work on projects, but what value do they bring if they do not solve a real business need? The same is true for technologists who can eloquently detail the advantages of natural language processing but cannot understand how it can be applied to business processes, operations, products, or services.

Organizations should therefore consider three things to overcome these challenges:

  1. Talent: Hire and coach (upskill) the right people who bring domain and business process depth, have a basic understanding of digital technology, and can connect the dots.
  2. Design-thinking principles: Enable problem-solving by redefining the outcome and considering customer experience.
  3. Culture-driven innovation: Establish an organizational structure that looks at driving next-generation thinking in the business.

The BPM market is gaining a fair amount of traction in robotic automation (RA), which includes automating repetitive manual tasks. The focus on RA is not just about ROI, but more about driving accuracy and reliability. While RA is now being augmented with machine learning and autonomic computing, it is yet to scale.

However, more than the maturity of the technology, the limiting factor lies in the business mindset to reimagine outcomes and use technology and analytics as mere enablers. Once BPM companies recognize this fundamental truth, they will benefit from the advantages of intelligent operations.

For more insight on managing a successful digital transformation, see Leading The Shift To A Digital Business With Determination.




Tanmay Agarwal

About Tanmay Agarwal

Tanmay Agarwal has 23 years of experience in manufacturing, finance, supply chain, and analytics in the consumer goods industry. He has worked with leading clients including Unilever, Kimberly Clark, RPG Group, and Genpact in various operational and strategic roles at a leadership levels. His visionary thinking, discomfort with mediocrity, results-oriented mindset, and passion and desire to improve and always challenge the status quo has seen him drive significant business impact and build and develop leaders over the years in various roles that he has played. He has won multiple recognitions in his career including the Unilever Chairman’s Award, Unilever Directors Award, Global World Class Finance Award, Genpact-Platinum Award, and, more recently, Top 25 Digital Thought Leaders in India award from SAP.

Customer Experience: OmniChannel. OmniNow. OmniWow.

Jamie Anderson, Volker Hildebrand, Lori Mitchell-Keller, and Stephanie Overby

The lines between the digital and physical customer experience today are largely artificial. Customers shop in retail stores with their devices at the ready. They expect online-like personalization and recommendations in the aisles. They’re looking for instant gratification and better sensory experiences from digital channels. It’s an omnichannel world and companies must figure out how to live in it: delivering a superior customer experience regardless of the entry point.

Luxury fashion brand Rebecca Minkoff, for example, opened its first three retail stores with the intent of taking customers’ best online experiences and bringing them to life. “In the past, you had this brick-and-mortar experience, and you had the online experience,” says company president Uri Minkoff. “There were such great advantages and efficiencies that emerged with shopping online. You could get recommendations, see how something should be styled, create wish lists, access user-generated content. In the store, it was still just you and the product, and maybe a sales associate. But [unlike online] you had all five of your senses.”

Rebecca Minkoff’s new stores still stimulate those senses while incorporating some of the intelligence that online channels typically bring to bear. Each store features a large interactive screen at the entrance, where customers can browse products or order a beverage. Shoppers can interact with salespeople or they can make purchases on a mobile app without ever talking to a soul. Inside a fitting room, RFID-tagged merchandise is displayed on an interactive mirror, where customers can request new sizes or the designer’s recommended coordinates (a real-life recommendation engine).

The company has found that 30% of women ask for additional items based on the recommendations. It has also sold three times more of its new ready-to-wear line than it anticipated. “We were an accessories-dominant brand,” says Minkoff. “But we’ve been able to build this direct relationship with our customers, helping them with outfit completers and also getting a better sense of what they want based on what’s actually happening in our fitting rooms.”

Each piece of technology adds to the experience while capturing the details. Rebecca Minkoff’s integrated systems can remember a customer’s previous visits and preferred colors and sizes, and can enable associates to set up a fitting room with appropriate garments. On the back end, the company gets the kind of visibility into in-store conversions once possible only in digital transactions. “The technology gives us the ability to create the kind of experience each customer wants. She can shop anonymously or be treated like a VIP,” says Minkoff.


Build Around a Big Idea

Rebecca Minkoff’s approach is a bellwether. It’s not enough simply to provide continuity or consistency from one channel to another. Customers don’t think in terms of channels, and neither should companies. Rather, it’s about defining the overarching experience you want to deliver to customers and then building the appropriate offline and online elements to achieve that intended outcome.

As more goods and even services are commoditized, companies must compete on the experiences they create (see The ROI of Customer Experience). That means coming up with a big idea that drives the design of the customer experience. “Every great experience needs to have a theme,” says Joe Pine, consultant and coauthor of The Experience Economy and Infinite Possibility: Creating Customer Value on the Digital Frontier. “That’s the organizing principle of the experience. It’s how you decide what’s in and what’s out.”

For example, Rebecca Minkoff serves as an image consultant to its Millennial customers, who expect personalization, recognition, and tech innovation, using a mix of online and offline techniques. To stand apart, companies must come up with their own unifying idea and then integrate data and systems, rework organizational models, and rethink key strategic metrics and employee incentives in order to integrate the physical and digital worlds around that idea.

Here are some examples of companies that have created a theme-driven experience using online and offline elements.

Nespresso: Imparting a Sense of Luxury

At the most basic level, Nespresso is a manufacturer of coffee and coffee machines. But the company has successfully turned what it sells and how it sells it into a very specific type of experience. Nespresso strives to impart a feeling of quality, exclusivity, even luxury in a host of ways.

sap_Q316_digital_double_feature3_images2The company has created the Nespresso Club, which maintains direct relationships with thousands of customers. Its customer service centers are staffed by 1,000 highly trained coffee experts who don’t just push products but offer advice and guidance as a sommelier might do with wine. Its 450 retail stores (up from just one Parisian in 2000) are called boutiques; the largely inventory-free showrooms are built around tasting and learning.

Online, the focus is on efficiency and service. Customers who prefer digital interactions can order through the web site or mobile app, which offers the option of courier delivery within a two-hour window. The company also recently introduced a Bluetooth-enabled coffee machine, which when paired with a smartphone app, can track a customer’s usage, simplify machine maintenance, and as Wired pointed out, enable remote brewing.

Success didn’t happen overnight, but today Nespresso is one of Nestlé’s fastest growing and most profitable brands, according to Bloomberg.

QVC: Using Online to Complement the Experience

The theme that has driven television-shopping giant QVC’s customer experience for decades has been “inspiration and entertainment.” Traditionally that was delivered through the joy of spontaneous discovery while watching the channel.

Matching that experience online has been difficult, however. At a digital retail conference in 2015, QVC’s CEO explained that in the past the company had failed to deliver the same rich interactions online that it had developed with its TV audiences, according to Total Retail. So the company decided to rethink its use of digital tools to focus on complementing the experience it delivers through TV screens, according to RetailWire.

For example, after enticing TV viewers with products, QVC introduces the next step in the buying journey—“impulse to buy”—in which viewers are spurred on with televised countdown clocks or limited merchandise availability. Online, the company has been experimenting with second-screen content (for instance, recipes that compliment a cooking product being sold on TV) to further propel purchases. The QVC app features the same item that is on-air along with a prompt that reveals all the items featured on TV in recent hours. On Apple devices equipped with Touch ID, customers can check out in less than 10 seconds with the fingerprint-enabled “speed buy” button. The third phase—“purchase and receive”—is complemented by a simple and reliable online browsing and purchasing platform. The last stage—“own and enjoy”—is accompanied by follow-on e-mail communication with tips on how to use products.

Last year, the company reported that 44% of total QVC sales came from online channels (up from 40% in 2014), and nearly half of those were completed on a mobile device. In fact, QVC is currently the tenth largest mobile commerce retailer in the United States, according to Internet Retailer.

Domino’s: Focusing on Speed and Convenience

sap_Q316_digital_double_feature3_images3Domino’s Pizza built a fast-food empire not necessarily on the quality of its pies but instead on the experience of getting hot food delivered quickly. What started out as a promise to deliver a pizza within 30 minutes to customers who phoned in their order is now a themed experience of efficient food delivery that can be fulfilled a number of ways. Domino’s AnyWare project enables customers to order pizzas from their TV, their Twitter account, their smartwatch, or their connected car, for starters. The Domino’s app features zero-click ordering functionality: Domino’s will start fulfilling the usual order for customers who opt in 10 seconds after opening the app.

Domino’s Australian stores are piloting GPS tracking whereby employees begin working on an order only when the customer enters the “cook zone”—a dynamically updated area around a given store that results in the customer arriving to a just-prepared order. The tool builds upon previously developed GPS-based technology for tracking delivery drivers, according to ZDNet. And the company that came up with the corrugated pizza box and the Heatwave Bag to keep pies warm is now building the DXP—a delivery car with a built-in warming oven. All in the name of the fast- and hot-food delivery experience.

Mohawk Industries: Using Social to Streamline Customer Interactions

Mohawk Industries grew to become a US$8 billion flooring manufacturer by relying on customers to visit its dealers’ retail locations to see, touch, and feel the carpet, hardwood, laminate, or tile they planned to purchase.

sap_Q316_digital_double_feature3_images4Today, instead of waiting for customers to find Mohawk, it has redesigned its experience to find them. It has adopted new technology and reworked its sales processes to reflect that new focus. The company’s 1,200 sales representatives have access to a 360-degree view of each customer, complete with analytics and sales tools on their tablets, enabling them to capture and follow through on leads generated through social media engagement.

By analyzing online discussions in real time, representatives can jump into the conversation and help customers find the product they may be searching for and direct the consumer to a retailer to finish the sale. In one episode, a woman was posting about her interest in a particular leopard rug on Twitter. Mohawk’s team surfaced the tweet, passed it on to a channel partner who contacted the woman and closed the sale within two minutes. Today, the company boasts an 80% close rate on sales started and guided in social media and has made $8 million on 14,000 such social leads. Mohawk Industries expects an increase of $25 million in sales year-over-year, thanks to its new customer-centric approach.

Customer Experience Design: Where to Begin

Developing a unique, valuable, and relevant customer experience that combines the best of offline and online capabilities is a huge undertaking. All corporate functions, including marketing, customer service, sales, operations, finance, and HR as well as product or business lines—all of which typically have competing metrics and agendas—must buy into the experience and collaborate to make it happen. And the ideal mix of digital and physical components will vary by company. But there are some best practices to get companies started on their own journeys.

Start at the Top

Without leadership buy-in, changes will not happen. “Customer experience is not a feature, it’s not a shiny button. It’s a concept that sometimes is tough to grasp. But we believe that if done right, it will keep customers loyal. And so we put a lot of effort into it,” says Kevin Scanlon, director of total customer experience at tech company EMC. “That’s why having that top-down support is paramount. If you don’t have it, you’re spinning your wheels. It’s going to give you the resources, the focus, and the attention that you need to design that consistent experience.”

To demonstrate its commitment, every VP and above at EMC has a customer experience metric as part of their quarterly goal.

Begin with the End in Mind

Companies can take a page from the design-thinking approach to product development, starting with the experience they want customers to have with their company and then putting in place the people, processes, and systems to make that happen across various touchpoints. Uber didn’t start by buying 1,000 cars. It started with a completely new customer experience it wanted to deliver—straddling the digital and physical—and then built the organization around that. Uber ultimately leveraged people, process, and technology to bring that to life, but it started with a unique customer journey.

Design for the Customer, Not the Company

sap_Q316_digital_double_feature3_images5To date, most corporate processes have been designed for internal efficiency or cost savings with little consideration for the impact on the customer. Companies that want to design for consistent experiences have to reexamine those business processes from the customer perspective. In order to deliver a standout and consistent experience, enterprises must bring together an assortment of data from a variety of systems—including POS transactions, mobile purchases, call center activity, notes from sales calls, and social media.

The average retailer has customer data in more than a dozen different systems. But it’s not just the front-end customer-facing systems that need orchestrating; back office systems and processes, from your supply chain to fulfillment to customer service, must be designed to deliver the intended experience. For example, Nespresso has to orchestrate a number of back-end and front-end systems to offer customers premium courier delivery within two-hour windows.

Put Someone in Charge

Companies that are truly invested in creating integrated, standout customer experiences often create a centralized function that can bring together the people, processes, and technology to bring them to life. Sometimes there is a chief customer officer or head of customer experience. But unless these people are really empowered, they’re toothless.

EMC’s Scanlon is empowered. He heads up a function that has been transformed from focusing on product quality into a centralized customer experience center of excellence staffed with 60 full-time professionals. The center has translated into “more focus, more energy, more insight to our customers,” says Scanlon. “And we can deliver that insight to our internal stakeholders, which trickles down to our account teams and lets them have more meaningful conversations that benefit our customers—and benefit the company over time.”

Centralize Customer Data

Even if there is no central customer experience function, there needs to be a central data repository and analytics system: a digital foundation that everyone can use to improve their piece of that experience. EMC’s customer experience group has a data governance function that maintains a single source of customer truth. “They’re able to pull all relevant data sources into one location and get past the typical customer data challenges,” says Scanlon.

Invest in People

Companies that care about the customer experience invest in the people who deliver it. Human beings are the clearest signposts on the customer journey. Companies must hire the best, train for desired outcomes, and reward based on experience metrics: for being brand ambassadors and for going above and beyond on behalf of the customer.

sap_Q316_digital_double_feature3_images6Rethink Metrics and Incentives

One major bank was having trouble driving adoption of its online banking tools. The customers that used the tools loved them, but the tools weren’t getting traction. The problem? The branch managers had no interest in promoting digital banking. They wanted to drive as much traffic as possible to their physical branches because this was one of their key performance metrics.

The solution was to change the compensation approach in order to reward employees for the entire customer experience, including online banking adoption. Branch managers were measured on online and offline customer behavior in their regions. That became a single and critical KPI, and it boosted the desired behaviors and improved overall customer satisfaction.

Create a Single View of the Company

For years, companies have talked about the importance of understanding the customer. And that remains true, particularly when it comes to delivering a valuable customer experience online and off. But successful customer experience design is just as much about giving customers a clear understanding of the company through coordinated experiences that deliver on the brand’s theme and bring it to life in various ways in bricks and mortar, through devices, in online interactions, and everywhere in between. D!

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



Leveraging Digital Twins To Breathe New Life Into Your Products And Services

Thomas Kaiser

Are you familiar with the concept of the twin paradox? In physics, the twin paradox is a thought experiment in which one twin stays on Earth while the other travels in a spaceship at a high speed for a period of time. According to the special theory of relativity, the second twin will return home measurably younger than the first.

In a similar way, the concept of the digital twin can accelerate your business and breathe new life into your products and services.

But the digital twin isn’t just a thought experiment. Gartner lists digital twins as a Top 10 strategic trend for 2017. It’s part of a broader digital transformation on which IDC says companies will invest $2.1 trillion a year by 2019.

Already, smart companies are using digital twins to better understand operations, get closer to customers, and transform their business.

Connecting real and virtual

A digital twin is a virtual representation of a real-world product or service. That could be anything from a toaster to industrial machinery to complex processes. The virtual representation combines three types of information: business data, contextual data, and sensor data.

Business data covers information such as customer name, location, and service-level agreements. Contextual data includes details such as ambient temperature, humidity, and weather events. Sensor data involves things like machine speed, operating temperature, and vibration.

Sensor data is key because, while companies have been using digital twins for years, it’s only with the Internet of Things (IoT) that they’ve become cost-effective. Gartner predicts that 6.4 billion things will be connected this year, a 30% jump over 2015. By 2020, at least half of all new business processes will incorporate IoT – transforming live data into new value.

Drilling down on digital twins

How does a digital twin work? Let’s say you manufacture industrial drills. A digital twin can help you understand how customers use your drill. The goal is to continuously improve the product to increase customer satisfaction and identify opportunities for new products and services.

For example, you might discover that your drill malfunctions in certain situations. That can enable you to improve product design. Or it can let you help customers modify the way they use the drill to avoid problems.

Or, you might discover that customers use your drill not only to make holes but also to cut materials. That might lead you to develop a new product that’s purpose-built for cutting.

Or, maybe you discover that while customers want holes made, they don’t necessarily want to purchase and operate a drill. So rather than sell drills, you might offer a hole-drilling service. In other words, instead of charging customers for machinery they operate, you charge them for holes drilled by machinery you operate for them. Some SAP customers have been quite successful in making this kind of leap from products to services.

Digital twins across industries

Digital twins aren’t just for manufacturers. Insurers can apply digital twins in offerings like usage-based car insurance. Retailers can track how customers navigate the store and interact with products on the shelves. Cities can model areas for things like smart lighting. Ports can monitor weather, shipping traffic, containers, and trains and trucks entering and leaving.

Digital twins cover the entire lifecycle of an asset or process. In fact, they can form a foundation for an end-to-end, closed-loop value chain for smart, connected products and services, from design to production, from deployment to continuous improvement.

The promise of continuous improvement is why it’s increasingly important to integrate digital technologies into all products. As you leverage your digital twin to identify opportunities for new or better features, you can implement those improvements quickly and cost-effectively through firmware updates.

Implementing digital twins involves four steps:

  1. Integrate smart components such as sensors, software, computing power, or data storage into new or existing products.
  1. Connect the product to a central location where you can capture sensor data and enrich that sensor data with business and contextual data.
  1. Analyze that data on an ongoing basis to identify opportunities for product improvements, new products, or even new business models.
  1. Leverage these digital insights to transform your company — for example, by reducing costs through proactive avoidance of business interruptions, or by creating new business opportunities.

Of course, while those steps are easy to list, they can require significant effort to achieve. But digital twins are becoming a business imperative. Companies that fail to respond will be left behind. Those that embrace digital twins have the opportunity to better understand customer needs, continuously improve their products and services, and even identify new business models that give them competitive advantage.

Consumer demand for virtual reality is changing how businesses manage and operate. Learn how to transition From E-Business to V-Business.