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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.  

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Digital Transformation: Embracing The Art Of The Possible

John Graham

The 19th-century German statesman Otto von Bismarck said, “Politics is the art of the possible, the attainable — the art of the next best.” His term “art of the possible” survives to this day and is applicable to fields other than politics. The idea behind it is to avoid perfectionism in favour of making progress, rather than becoming completely paralyzed and resistant to change.

At SAP’s “Art of the Possible” event in Toronto, the focus was on digital transformation and how businesses can get started with actionable steps that take them beyond both complacency and the often seemingly insurmountable complexity of the modern enterprise. A recently released IDC and SAP Canada research report has given deeper relevance to the event’s name by revealing that only 17% of Canadian businesses have a solid digital plan in place, despite 96% acknowledging that they need one.

That doesn’t seem to make much sense, does it? That’s maybe because the reasons executives are putting their business’s survival at stake, be it knowingly or unknowingly, are many and complicated. For example, many medium-sized businesses may feel they don’t have the skills or necessary resources in-house to keep up with digital innovation, and would rather wait to see how it plays out. Larger businesses could be lacking the agility of a startup to make digital change happen across the organization. Or, with 67% of those surveyed reporting that they don’t see the digital economy having an immediate impact on their business, it could be the perceived lack of a competitive threat or any change in market share that lulls a business into technological stagnation.

Whatever the reason, “art of the possible” in this instance means businesses should begin to think practically about what digital means for them. They should question the key areas in which digital can bring the most tangible benefits or force a positive change in the business – whether it’s in core processes, customers, suppliers, employees, assets – rather than always approaching digital with the purely high-level mentality. Too often, that approach restricts digital adoption to a yes or no answer, and according to IDC, the decision in Canada up to now has overwhelmingly been no.

The aforementioned SAP event in Toronto was refreshing in that it featured guest speakers from companies that emphatically are embracing digital transformation. Let’s start with Under Armour, the sports apparel company set on creating the ultimate customer-first experience for athletes and health and fitness devotees through Internet of Things innovation.

It’s perhaps a sign of this sheer focus on delighting customers—taking the fusion of clothing and digital technology to a whole new place—that analytics and Big Data chief Phil Kim only once made reference to the manufacturer’s conventional product range. He preferred instead to explain how Under Armour has joined the likes of Google, Amazon, and Facebook as one of the major “math house” communities, with 165 million people around the world connected by billions of data points.

This is enabling the company to build data-based, personalized relationships with customers, be it through shirts and shoes connected to the cloud, fitness wristbands, or sleep-monitoring applications. Kim says this data must be used to drive value back to the customer, by figuring out what they want and need and ultimately making sure they are satisfied. He left the audience with the warning that Canadian businesses must embrace digital disruption to avoid being left behind, giving a few examples of where it’s already happened and expressing confidence that it will keep happening.

Perhaps more modest than what Under Armour is doing, but equally as innovative and relevant, is the story from McInnis Cement, the Montreal cement maker. With the young company still in startup phase and harbouring ambitions to become one of Canada’s leading cement companies, it needs to offer great value and service, reliable delivery, and consistent supply. Cement is nothing new, so those are the key factors of differentiation.

To get ahead, the company is using real-time information to monitor all aspects of supply chain and logistics, as well as focusing on running an airtight billing process. The goal is to remain super-lean, pushing systems design and management out to partners and vendors and letting them do the heavy lifting to save time and cut operating costs.

Under Armour and McInnis Cement may have very different versions of their own art of the possible, but both are approaching digital innovation with that mindset. It’s time all businesses do the same.

For more on how to help your business embrace digital innovation, see How To Answer The Question: “What Is Our Digital Strategy?”

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The Digitalized Insurance Value Chain

Geoffrey Weiss

The insurance industry is traditionally slow to innovate, and that’s a problem today. Today, more than half of all consumers research insurance brands online, especially using social media, before determining which one to contact for a quote. Yet 57% of all insurance companies have operating models that do not facilitate digital connectivity, and the majority of companies want to meet the needs of digital consumers but are not doing so right now. The key is in innovation of the insurance value chain.

How is digitization impacting every component of the insurance value chain?

Every aspect of the insurance value chain is impacted by digitization, from interactions with customers to underwriting and claims management. Those insurance companies already embracing digitization are finding outstanding success in many areas. They are seeing a more consistent and customized omnichannel experience delivered to customers. They are using social networks as tools for sourcing information and are able to offer real-time solutions including micro-insurance offers to meet specialized needs.

A key way to reduce costs is to automate the claims management sector of any insurance business. Moving toward a no-touch claim method minimizes costs while also offering better predictive and preventative tools. It also aids in reducing fraud and allows risk managers to better engage with customers instead of spending time behind paperwork.

Another impact is on underwriting. Insurers that successfully use digitization are seeing more speed, better accuracy, improved risk evaluation, and more refined risk segmentation. In short, it gets the job done faster and more effectively. Designing products is more efficient as well. In fact, companies can make better use of connected objects, new services, and fraud management tools. Then they can embed and test them with users. This allows for a streamlined approach to developing new products.

Real-time access is powerful: It allows companies to create a “fail early, fail often” strategy, lets them better find and access competitors, provides the ability to scale, and outlines threats.

Every sector of the insurance industry can benefit. More insurance companies are realizing the impact it can offer. But how?

Re-imagining business models and processes enables digitization

Your customers want to submit claims online. They want to compare policies online. Marketing, claims management, agency management, and much more can all be managed more efficiently using digital methods. How can your business move from its current state into the digital economy?

It takes a focused effort on changing existing business models and processes to achieve this goal. A key concern for many insurance companies is the changing digital economy. Customer demand is changing. New technologies are influencing the way businesses operate. New entrants in the market already making an impression digitally are playing a role. How can your business compete?

New, enhanced business models also play a role. Here are several examples: A digital lifestyle insurer is one that offers a customer-centric business model, putting the customer first. It offers customer profiling for better marketing. It enables omnichannel connectivity to link the business to its customers. And it allows for micro-segmentation, allowing the business to offer customized products based on individual needs.

Becoming a connected insurer will enable you to build a business that provides for your company’s needs across all devices. In today’s networked economy, offering this type of connectivity of services across all customer and corporate platforms is essential. A data-driven insurer is also a powerful business model as your organization collects and interprets data to better leverage risk. It transforms your business, shifting it from risk protection to risk prevention.

Selecting the right business model (or models) is essential. However, as your business incorporates these new business models, it becomes necessary to manage business processes. In short, you need to evolve many of the older, less efficient processes that are now being used. Engaging in new solutions spreads the benefits and value across the business.

Changing business processes

The potential changes are many. From digital customer management to risk management insurance, it’s easy to see the impact. Now, consider how to modernize processes.

With digitization, changes happen right away, including research and development. Insurers can adjust how they research and develop insurance products. For example, they have access to data on driverless cars. They can incorporate fitness-based health insurance programs. Insurers can offer products designed to meet individual needs. “Pay-as-you-behave” products are possible.

Customer engagement is another essential process change, perhaps because of the “Amazon Factor.” (In short, companies like Amazon set the bar high by creating outstanding engagement opportunities.) Other organizations like Uber and Netflix understand and implement this, but insurers consistently do not. However, customers expect similar access. They want personalized interactions. And they need easy-to-use tools. Digitization enables you to offer these things.

Part of effective customer engagement is offering a consistent user experience across all connection points. Customer interaction online and over the phone should be equal. Consumers want support on their smartphones. Another business process change lies in automation. Claims management is an excellent solution. It reduces costs and improves accuracy. Automation in underwriting can also meet customer needs for faster service. By automating services, insurers embrace the technology already at their fingertips.

What else can digitization do?

Digitization improves every component of the insurance industry: It improves customer retention. It aids in improving employee satisfaction. It reduces costs. It provides better insight. Across all aspects of the value chain, digitization becomes a powerful and highly effective tool. In a digital economy, insurance companies have access to powerful digitization tools.

Download our insurance white paper How Insurers Can Prepare for the Digital Revolution today to see what SAP has to offer. We will work with you to develop an insurance business that’s ready to meet the needs of the digital world.

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Geoffrey Weiss

About Geoffrey Weiss

Geoffrey Weiss is the insurance North America lead at SAP, providing industry thought leadership, strategic solution advice, and expert consultation to support customer co-innovation, enterprise transformation, and business process performance improvement programs. His background includes over 20 years of financial services experience spanning insurance, banking, and investments, building and delivering economic value add (EVA) transformational programs. He is active in market research and new industry trend research, and is based in Columbus, Ohio.

How Much Will Digital Cannibalization Eat into Your Business?

Fawn Fitter

Former Cisco CEO John Chambers predicts that 40% of companies will crumble when they fail to complete a successful digital transformation.

These legacy companies may be trying to keep up with insurgent companies that are introducing disruptive technologies, but they’re being held back by the ease of doing business the way they always have – or by how vehemently their customers object to change.

Most organizations today know that they have to embrace innovation. The question is whether they can put a digital business model in place without damaging their existing business so badly that they don’t survive the transition. We gathered a panel of experts to discuss the fine line between disruption and destruction.

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qa_qIn 2011, when Netflix hiked prices and tried to split its streaming and DVD-bymail services, it lost 3.25% of its customer base and 75% of its market capitalization.²︐³ What can we learn from that?

Scott Anthony: That debacle shows that sometimes you can get ahead of your customers. The key is to manage things at the pace of the market, not at your internal speed. You need to know what your customers are looking for and what they’re willing to tolerate. Sometimes companies forget what their customers want and care about, and they try to push things on them before they’re ready.

R. “Ray” Wang: You need to be able to split your traditional business and your growth business so that you can focus on big shifts instead of moving the needle 2%. Netflix was responding to its customers – by deciding not to define its brand too narrowly.

qa_qDoes disruption always involve cannibalizing your own business?

Wang: You can’t design new experiences in existing systems. But you have to make sure you manage the revenue stream on the way down in the old business model while managing the growth of the new one.

Merijn Helle: Traditional brick-and-mortar stores are putting a lot of capital into digital initiatives that aren’t paying enough back yet in the form of online sales, and they’re cannibalizing their profits so they can deliver a single authentic experience. Customers don’t see channels, they see brands; and they want to interact with brands seamlessly in real time, regardless of channel or format.

Lars Bastian: In manufacturing, new technologies aren’t about disrupting your business model as much as they are about expanding it. Think about predictive maintenance, the ability to warn customers when the product they’ve purchased will need service. You’re not going to lose customers by introducing new processes. You have to add these digitized services to remain competitive.

qa_qIs cannibalizing your own business better or worse than losing market share to a more innovative competitor?

Michael Liebhold: You have to create that digital business and mandate it to grow. If you cannibalize the existing business, that’s just the price you have to pay.

Wang: Companies that cannibalize their own businesses are the ones that survive. If you don’t do it, someone else will. What we’re really talking about is “Why do you exist? Why does anyone want to buy from you?”

Anthony: I’m not sure that’s the right question. The fundamental question is what you’re using disruption to do. How do you use it to strengthen what you’re doing today, and what new things does it enable? I think you can get so consumed with all the changes that reconfigure what you’re doing today that you do only that. And if you do only that, your business becomes smaller, less significant, and less interesting.

qa_qSo how should companies think about smart disruption?

Anthony: Leaders have to reconfigure today and imagine tomorrow at the same time. It’s not either/or. Every disruptive threat has an equal, if not greater, opportunity. When disruption strikes, it’s a mistake only to feel the threat to your legacy business. It’s an opportunity to expand into a different marke.

SAP_Disruption_QA_images2400x1600_4Liebhold: It starts at the top. You can’t ask a CEO for an eight-figure budget to upgrade a cloud analytics system if the C-suite doesn’t understand the power of integrating data from across all the legacy systems. So the first task is to educate the senior team so it can approve the budgets.

Scott Underwood: Some of the most interesting questions are internal organizational questions, keeping people from feeling that their livelihoods are in danger or introducing ways to keep them engaged.

Leon Segal: Absolutely. If you want to enter a new market or introduce a new product, there’s a whole chain of stakeholders – including your own employees and the distribution chain. Their experiences are also new. Once you start looking for things that affect their experience, you can’t help doing it. You walk around the office and say, “That doesn’t look right, they don’t look happy. Maybe we should change that around.”

Fawn Fitter is a freelance writer specializing in business and technology. 

To learn more about how to disrupt your business without destroying it, read the in-depth report Digital Disruption: When to Cook the Golden Goose.

Download the PDF (1.2MB)

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Our Government's Legitimacy Is In Danger

Hein Keijzer

It is a growing phenomenon: Governments are gradually losing support from their citizens. Citizens in European countries are also becoming disillusioned with their governments. This calls for a drastic improvement of the services provided to the most important and sole shareholder of the government—the citizen—because the government’s legitimacy is at stake.

Citizens’ confidence in government has been waning for some time now. There are reasons why populist and eurosceptic parties  have been gaining votes over the past years. The government must do everything within its power to win to rebuild confidence, and not just by fulfilling its basic tasks, because a feeble six can no longer save the parliamentary democratic system.

The victory of populist parties is the beginning of the end of the current democratic order. It is very likely that these parties will not participate in the government, because the other parties will mostly exclude them. As a result, the chasm between citizen and government keeps growing, creating a situation that reinforces itself and that holds very little chance of success in the future.

The base

We must return to the base to touch on the core of the problem. Western governments are complex bodies, but the basic idea behind them is rather simple: Citizens pay tax to a central, democratically elected system. In return, they expect basic services such as security, education, physical infrastructure, healthcare—and in the case of the Netherlands, dry feet, i.e. protection against water. It is not unreasonable to expect a western country to provide at least this bare minimum.

But this is where things is going wrong these days. Every country is dealing with at least one case in which the tax payers’ money is not allocated correctly. The Panama Papers is a recent example of this. The term cover-up often does not apply anymore, because civil servants are no longer even capable of hiding the chaos in a cover-up. These days the media are capable of making the content  of the cesspool available to the public in no time. A ministry that cannot manage its internal affairs has even more trouble proving its legitimacy to society.

The government must not only deal with organizational problems; mentality comes into play as well. Many governmental institutions see the taxpayer as such: a taxpayer with mostly obligations. This mindset need to change. It is time for a customer-centric approach: The citizen is the customer, and the customer is king. As is the case with the boardroom of a commercial party where shareholders cannot get away with mismanagement, the government should not be able to get away with mismanaging the assets of their sole shareholder: the citizen.

This approach requires a number of very strong measures:

1. Earnest use of apps and social media

In the past it was necessary to go to an office and make an appointment in order to communicate with the government. These days, social media allow for much more efficient communication. Governments can use apps and social media—potentially—to more quickly discover trends, indicate problems, and communicate with citizens. Now digital communication is mostly housed in separate departments. This is not sufficient for the much-needed model in which the citizen is the shining center of the services provided. Communication with the citizen should be at the core of the organization.

2. Make the policy completely transparent

Backroom politics and convoluted decision-making are no longer feasible. Citizens are entitled to the best possible access and information provision. The government has come a long way with open data, but is still very far from doing enough.

3. Clear communication

It is the duty of a good service provider to communicate clearly with its client. This also applies to the communication of the government with the citizen. Unfortunately, this fails all too often. Vague, official language and unclear wording are the order of the day. If a citizen does not understand the government, it creates a wedge. Civil servants should be forced to follow compulsory courses on clear communication on a B1 level. This is an official language level that is understood by the majority of the population and is effective to communicate messages in a clear way.

4. Smarter information linking

The government knows a lot about their citizens, but this information is not linked well or not linked at all. As a consequence, the government does not know anything about us at all. From a privacy point of view, this is of course not unattractive, but it is disastrous for the provision of good services.  The government cannot think with us if it doesn’t know who we are, if it doesn’t know our preferences and our problems. In order to achieve this, systems and an integral data policy must be connected, for one version of the truth. I provided a few examples of this in my previous blog.

Unfortunately these four points are still far from reality. This isn’t the first time that I have broached these problems. The communication between the government and the citizen is often very difficult. There are few apps, and the government uses social media in a very reactive way. It is not rare to only receive an answer after a few days. Smart connections between citizen data points are missing. Many governments are developing the majority of their IT solutions themselves, and barely believe that integration via standard solutions is possible. The government’s outlook is inward and doesn’t change, because there is barely any staff turnover.

Governments could follow the example of the Australian government, which started a digital transformation with a genuine Digital Transformation Office. Its primary focus is efficient and transparent service provision toward the citizen. Its motto: “Simpler, clearer, faster public services”—an easy but meaningful statement. It touches the core of what has to happen here as well.

The gap between government and citizens will not close on its own. A digital transformation is unavoidable if the government wants to stop the downward trend and not lose its legitimacy completely.

For more insight on digital transformation in the public sector, see Unlocking The Benefits Of Digitization For Governments.

 

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Hein Keijzer

About Hein Keijzer

Hein Keijzer is customer solution manager for the Public Sector Business Unit at SAP Nederland. After his education in Applied Economics and Public Administration, Hein worked for the Dutch Ministry of Finance, Budget Affairs directorate, and since 2000 at SAP. Connect with me on Twitter @heinkeijzer or <a href="https://nl.linkedin.com/in/heinkeijzer"LinkedIn.