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How Is Your Digital Transformation Going?

Iver van de Zand

If you haven’t read about the digital transformation last year, you might have had a wi-fi connection issue. Digital transformation is everywhere. Connected networks provide access to new (un)structured data. In-memory platforms provide the capabilities to process stunning amounts of information, and the Internet of Things allows us to connect and follow to almost any device or object.

Digital transformation is about the use of technology to radically improve the performance and reach of enterprises. Digital transformation is also about change and adapting to turn technological capabilities into transformation.

How are enterprises doing with digital transformation today? What are they focusing on, and where do they see opportunities? Time to write up a status of digital transformation and examine where are we today and what we can expect in the near future.

Digital transformation in 2016

To get a grip on where enterprises are with digital transformation and—more importantly—what they plan to do with it in 2016, I consulted briefings from IDC, Gartner, and Forrester. These are well-grounded and provide good insights. Here are some predictions from those insights:

  • The various initiatives on digital transformation within enterprises will be consolidated into one “digital vision” showing how their businesses will generate revenue by delivering new digital experiences.
    • Next year, it’s expected that 60% of enterprises that have a digital strategy will raise it to top priority and even assign an executive to oversee the implementation.
    • 67% of the Global 2000 enterprises will have digital transformation at the center of their corporate strategy in 2018.
  • Rising customer expectations will force business-to-business (B2B) enterprises to close the digital gap with business-to-consumer (B2C) enterprises (today B2C market segments are in the lead when it comes to digital transformation).
  • With 35% in 2018 (and 50% in 2020), IT budgets will shift onto the creation of new digital revenue streams. This will have a huge impact on HR, since access to talent at the right moment and place becomes a big differentiator.
  • Digital skills like mobile app development, business analytics (yoohoo J) and design thinking will become the “new normal” for software development.
  • Since this brings a greater reliance on IT and its budget, the IT’s budget for governance, risk, and compliance (GRC) staff will increase by 10% in 2017.
  • Interactive exploration of Big Data analytics becomes the foundation of digital transformation.
  • A successful adoption of digital transformation will lead to newly established data streams in and out of the organization and the monetization of them.
  • The growth engine of digital transformation will be the Internet of Things (IoT).
    • Greatly expanding the range of digital interactions between the consumer and the enterprise, 2018 will bring 22 billion (!) IoT devices driving the development of more than 20,000 new IoT apps.
    • The support for almost 6 billion connected “things” will create new business models for support services.
    • Even more dazzling, it’s expected that in 2020, 1 million new connected “things” will come online every single hour.
    • Competitive advantage will be redefined by IoT devices and by consumers interact with them.
  • Predictive analytics will continue to rise.
    • It’s expected that in 2018, at least 20% of all workers in some way will use automated assistance technologies for their decisions. These technologies are driven by new algorithms and predictive models.
    • By 2020, it’s expected that 5% of all economical transactions will have some automated software agents participating. These agents are outside human control.

Where customers see opportunities for digital transformation

It’s interesting to hear what customers see as opportunities as part of the digital transformation. Recent studies from IDC, Gartner, CapGemini, and Forrester showed that customers see three domains with opportunities taken from the digital transformation:

  1. Digitally transforming customer experience
  2. Digitally transforming operational processes
  3. Digitally transforming business models

Let’s sort these out a bit more.

Digital Transformation.2

Transforming customer experience

My customers see three areas of opportunities when digitally transforming their customer’s experience:

  • Customer understanding

The majority of the enterprises will use business analytics capabilities to better understand their customers. In-memory computing, Big Data and business analytics, and the closed-loop portfolio are just three examples of how they plan do this. Self-service BI also helps to quickly assess new sources of data and gain valuable insights. Other initiatives include more effective promotion of brands through digital media and further exploration of social media data and GEO-based data.

  • Top-line growth

Many enterprises plan to start using digital technology to enhance in-person conversations. The aim is to have applications that allow salespersons to have customer-tailored functionality and data that transforms the selling process into a better customer experience. One example is an app that has customer purchasing data embedded to provide more personalized sales.

  • Customer touchpoints

More digital touchpoints for customers prevents the necessary physical contact customers have with their suppliers. Governments are creating massive electronic desks, like portals that act like a landing zone for citizens to request information, and enterprises are providing media apps to help customers find interesting places in cities they visit.

Transforming operational processes

Though transformed customer experiences are more visible and probably more exciting, the opportunities to transform operational processes due to digital transformation cannot be underestimated. Here are some examples of where customers see opportunities to transform operational processes:

1. Process digitization

Digitalized automation of processes has many flavors, but they all aim to free up resources to focus on more strategic activities. Many examples can be found in the area of shortening and simplifying product development cycles.

2. Workers’ enablement

Separating work processes from work location while also transforming collaboration processes is something I have heard many times. This is obvious, since today’s cloud capabilities facilitate this transformation perfectly.

3. Enterprise performance management and the closed-loop portfolio

Transforming into a closed-loop portfolio for analytics and performance management is also on the list of opportunities customers see to transform operational processes. The availability of real-time insights at the highest-detailed level available – in a governed way – for all applicable people is a huge opportunity. It saves everlasting discussions on both the availability and the quality of insights.

Transforming business models

Applying the digital transformation brings new opportunities for digitalizing business models or even creating new ones:

1. Digitally modified businesses

Integrated and in-memory platforms are big facilitators for digitally modifying businesses. One obvious example is growing e-commerce platforms. But there are many more examples of how the Internet of Things (IoT) will radically change and modify business processes: A hotel group that uses IoT devices to check each room’s supply of toilet paper instead of sending personnel, or a tire company putting “connected things” in their tires to measure the tire condition, just to name a few. Huge opportunities are found in this space of business models.

2. New digital business

Digitally modifying businesses almost automatically implies finding new business models. Have a look at these examples from the finance & insurance sector, in which the modification of the business process is to use “connected things” to link to an insured object, but the new process is the partner network for preventive maintenance of the insured objects. Another example is the tire company mentioned about that applies a new business model to sell back (!) its IoT data to transport companies who can use the data to improve their maintenance and service.

3. Digital globalization

Enterprises are increasingly transforming from multinational to truly global operations. Digital technology, coupled with closed-loop analytics, allows businesses to gain global synergies while remaining locally responsive. These enterprises benefit from global shared services for finance, HR, and even core capabilities like manufacturing and design. Global shared services promote efficiency and reduce risk. They even promote global flexibility. One manufacturer can shift production around the globe with only a few days’ notice in response to interruptions or excess demand.

Digital transformation requires strong leadership to drive change. But it also requires a vision for what parts of the company you want to transform.

Companies in all industries and regions are experimenting with—and benefiting from—digital transformation. Whether it’s in the way individuals work and collaborate, how business processes are executed within and across organizational boundaries, or how a company understands and serves customers, digital technology provides a wealth of opportunity.

Want more insight on digital transformation? See 5 Digital Trends Changing Business And Enabling The Possible and visit discover.sap.com/hana.

Follow me on Twitter @IverVandeZand.

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Iver van de Zand

About Iver van de Zand

Iver van de Zand is a Business Analytics Leader at SAP responsible for Business Analytics with a special attention towards Business Intelligence Suite, Lumira and Predictive Analytics.

Smart Machines Create Markets For Cyber-Physical Advances

Marion Heindenreich

Today, industrial machines are more intelligent than ever before. These intelligent machines are changing companies in many ways.

Why smart machines?

Mobile networked computers were a key breakthrough for making smart machines. Big Data allows machines and computers to store information and analyze complex patterns. Cloud computing offers broad access to information and more storage.

These computerized machines are both physical and virtual. Some call them “cyber-physical” machines. Technology lets them be self-aware and connected to each other and larger systems.

Businesses change their approaches

Intelligent machines allow companies to innovate in many areas. For one, the value proposition for customers is evolving. Businesses now model and plan in different ways in many industries.

Makers of industrial machines and parts work in new ways within the organization. Engineering now partners with mechanical, electronic, and software staff to develop new products. Manufacturing now seamlessly ties what happens on the shop floor to the customer.

Service models are changing too. Scheduled and reactionary servicing of machines is fading. Now intelligent machines track themselves. Machines detect problems and report them automatically. Major problems or failures are predicted and reported.

A data mining example

One good industrial example is mining, which can be dangerous and difficult. As ores become scarce, the costs of mining have increased.

“Smart machines” started in mining in the late 1990s. Software and hardware let remote users change settings. Operators moved hydraulic levers from a safe distance. Sensors observed performance and diagnosed issues.

Data cables connected machines to computers on the surface. Continuous and remote monitoring of the machines grew. Over time, embedded sensors helped improve monitoring, diagnostics, and data storage.

The technology means workers only go underground to fix specific issues. As a result, accident and injury risk is lower.

New wireless technology now lets mining companies connect data from many mine sites. Service centers access large amounts of data and can improve performance. Maintenance is prioritized and equipment downtime is reduced.

Opportunity abounds

For companies the time is now. Today, mobile “connected things” generate 17% of the digital universe. By 2020 that share grows to 27%.

You might not be investing in this so-called “Internet of Things” (devices that connect to each other). But it’s a good bet your competitors are. A December 2015 study reported 33% of industrial companies are investing in the Internet of Things. Another 25% are considering it.

There are risks

This new dawning era of manufacturing is exciting. But there are concerns. Cyber attacks on the Internet of Things are not new. But as the use of intelligent machines grows, the threat of cyber attacks in industry grows.

Data confidentiality and privacy are concerns. So too are software and hardware vulnerabilities. Exposure to attack lies not just in the virtual space but the physical too. Tampering with unattended machines and theft pose serious risk.

To address these threats, industries must invest in cybersecurity along with smart machines.

Conclusion

The potential advantages of smart machines are staggering. They can reshape industries and change how companies produce new products and create new markets.

For more information, please download the white paper Digital Manufacturing: Powering the Fourth Industrial Revolution.

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Marion Heindenreich

About Marion Heindenreich

Marion Heidenreich is a solution manager for the SAP Industrial Machinery and Components Business Unit who focuses on solution innovations like Product Costing on SAP HANA and cloud solutions, as well as providing financial and business analysis for industry business strategy definition and business planning.

Mining Firms Turn To Tech

Ruediger Schroedter

Gone are the days in mining when assessments of potential dig sites meant lots of waiting for results. Gone, too, is the uncertainty on a mine job about where to go next.

For mining executives, recent advances in digital technology allow companies to make decisions at a rapid pace. Decisions that used to take days and weeks now can be done in minutes and hours.

With more information available faster, mining leaders reduce both short- and long-term financial risk. Data from across the enterprise inform decisions about buying and selling assets. Profitability should increase, driven by key technology advances.

Digging in to the data

There are two key drivers to this digital revolution. The first is the rise of the Internet of Things (IoT). The IoT consists of devices that are equipped with sensors, software, and wireless capabilities. These devices are connected to each other and can detect, store, and send data.

Bonus: Click here to learn more about Digital Transformation in Mining.

The second is the rise of Big Data, mobile, and cloud computing. Today’s mobile devices can track, send, and receive data from remote sites worldwide. Cloud computing stores billions of bytes of data at low cost. Big Data analytics programs take data coming from many different locations and systems and synthesize it. Those programs then better inform decisions by offering dashboards, metrics, and predictive modeling.

Robots are able to venture into hazardous areas and move material with remote human oversight. On-site mining data is sent via mobile phone to a cloud-based platform. For mining, the convergence of these technologies provides extraordinary possibilities.

Technology at play

The potential impact is significant. A recent report by McKinsey & Co. showed the use of advanced analytics in mining and related industries had a major impact. Firms using these programs to assess production areas increased their profit margins by 2-3 percentage points.

One mining company used so-called Monte Carlo simulations to reduce certain capital expenses. Monte Carlo simulations use complex algorithms and repeated random sampling to model possible outcomes. They’re frequently used in finance, biology, and insurance. The Mining Journal reported how the company challenged assumptions about a project’s capital needs. It took historical data on certain disruptions such as rainfall patterns. Then models of its mines were made showing the impact of flooding and rainwater. The data led to a new strategy that maximized storage capacity and handling across all its mines. Capital costs dropped by 20 percent.

18 Aug 2012, South Dakota, USA --- USA, South Dakota, Lead, View of open pit --- Image by © Bryan Mullennix/Tetra Images/Corbis

Buy or sell?

With so many variables at play, mining valuation is not for the faint of heart. Integrated data streams available at the discovery stage make for better informed purchase decisions.

Software programs today can take data to build and validate exploration models. These programs use 3D visualization and validated geophysical, analytical, and drill hole data. In turn, detailed 3D topographical models are possible.

Other programs assess historical, assay, and drilling data. This information creates viable scenarios for determining whether to buy or sell a site.

These tools use data consistently from one potential site to the next, allowing for forecasting of economic risk that is consistent across the organization. The firm today can use “real options valuation” to develop models of outcomes given changing economic conditions. With clearer information about potential risks, firms can decide whether to stage, sell, abandon, expand, or buy.

Anticipating, not reacting

Mining companies realize today that these analytic platforms and dashboards offer many advantages. Users have a clearer interpretation of the aggregated and analyzed data points from multiple areas. Using predictive analytics, mining decisions are made based on smart assumptions, not past historical information.

Robust software programs can generate reports almost instantaneously. Supervisors have on-site access to the analysis through a web browser or app. This data has many uses. Drilling managers save time and can make quicker decisions on next moves. Supplies can be ordered faster. Needed data for accreditation and compliance is immediately accessible.

Selecting the right sites

One example is assay analysis. Today, geologists do not wait weeks or months for assay results. Instead of off-site analysis, web-based applications deliver information much faster to inform decisions.

Robots are sending information about field operations, safety, needed maintenance, and drilling performance.  Some devices send the information themselves. In other cases, staff use mobile phones, tablets, or laptops.  This information and analytics in turn help with site selection. Integrating data from mine planning, ventilation, safety, rock engineering, and mineral resources improves overall forecasting.

Discovery, particularly of Tier 1 sites, is an increasingly costly venture for mining companies. Demand for many products is increasing while discovery rates are dropping. Mined product is of a lesser quality, particularly in mature mining locations. Many possible sites are in areas that are underexplored areas with difficult and deep cover.

The advanced technologies available today are contributing to rapid improvement in these discovery issues.

Prospective drilling

Consider the drill hole. To reduce costs in exploration, there needs to be enough rich information from the opening drill hole. It needs to be delivered in as close to real time as possible. Doing so lessens the risk of the second drill hole. Better information from the start helps improve vectoring. It provides better information about what mineral systems are being drilled.

This approach, called prospective drilling, is becoming increasingly used in mining. It employs drilling activity to map covered mineral systems. In turn, geochemical and geophysical vectoring can lead firms toward deposits.

Australia has invested heavily in this area. The Deep Exploration Technologies Cooperative Research Centre (DET CRC) has a singular vision: uncovering the future. Its core purpose is “develop transformational technologies for successful mineral exploration through deep, barren cover rocks.”

To get to that point, the DET CRC is borrowing a drilling technique from the oil business. Coiled tubing is paired with downhole and top-of-the-hole sensors. The informaton provides petrophysical, structural, rock fabric, geochemical, and mineralogical data all at once.

Conclusion

To meet increasing demands for new viable sites, and to improve efficient on sites, mining is changing. Using smart, connected products and robust data modeling, mining is being done faster, safer, and more efficiently than ever.

Join a LiveTwitterChat on digitalization in mining on May 4th from 10-11 a.m. EST: #digitalmining

The global mining and metals industry will come together to discuss how digital innovation is impacting the mining industry July 12-14 at the International SAP Conference for Mining and Metals in Frankfurt, Germany.  Don’t miss this opportunity to meet with world leaders and learn how your organization can become a connected digital enterprise.

Follow speakers and pre-event activities by following sapmmconf and @sapmillmining on Twitter

AA Mining and Metals Forum

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Ruediger Schroedter

About Ruediger Schroedter

Ruediger Schroedter is responsible for solution management of SAP solutions for the mining industry worldwide. He has spent more than 15 years in the mill products and mining industries and has extensive experience implementing SAP solutions for customers in these industries before coming to SAP.

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.

SAP_Disruption_QA_images2400x1600_3

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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How Disruption Will Cause The Insurance Industry To Change

Joe Pacor

Digital transformation is changing our world, and the insurance industry cannot sit idly and avoid these changes. It’s expected that the digital customer experience will drastically drive insurance profitability in the years to come. Over 50% of insured clients won’t recommend an insurer that doesn’t have digital interaction options. An overwhelming 61% of customers prefer to track their claim status digitally instead of contacting the insurance company or agency through more traditional means. It’s estimated that 79% of insurance executives recognize the need for innovation, but are having problems with daily operations. Over 60% see both opportunities and threats in the digital transformation process. At the same time, 74% of insurance executives feel they don’t have the necessary skills to drive the needed changes.

How does your company adapt to such a changing landscape? One common way approach is updating existing business models. Many companies have already been successful in driving digital transformation through a wide range of channels. Online-only insurance solutions and faster approval times are emerging in some companies. Others are turning to e-aggregator platforms to  keep their business afloat while changing company practices and assets to the digital economy.

Here are a few examples of promising companies and how they’re innovating to meet disruption.

Esurance

Esurance started in 1999 as an online-only business. With over five million customers, it has seen rapid growth since its beginnings. And because the insurer started out with a direct insurance digital approach, it is ahead of the game in terms of digital transformation since many competitors are still struggling to move away from their agency-based model.

Though it’s not available nationwide, it has become available in 43 states, which is still significant growth for a company that is not yet 20 years old. Esurance offers much lower rates, due to its direct insurance approach that cuts out many middleman expenses. As one of the first direct insurance companies, it is still catching up to competitors for customer service, but may very well be an example of future insurance company operations.

Haven Life

When it comes to fast approval, Haven Life has Big Data science down perfectly. This MassMutual spin-off claims it can approve most customers for new term life insurance in about 20 minutes. The company bases its decision on motor vehicle records from the state, prescription drug information, a customer questionnaire, and other data available to the company. The quick decision process will make the company much more popular among individuals seeking insurance policies under $1 million. As the system is based entirely online, it reduces agency costs significantly.

Moneysupermarket

In the UK, a newer e-aggregator platform helps customers compare prices and purchase insurance online. Moneysupermarket provides fast access to other online services as well. It was launched in 1999 as a digital-only solution that compares mortgage rates. In 2003, the insurance portion of the platform began with a mission to save at approximately 10 million households at least £200 through competitive shopping.

The company streamlines the process by having the prospect fill out a single form. That information is then used to pull quotes from multiple insurance companies. The prospects can compare the different policies to see which one is the best fit for their situation. They can then either select and purchase at that time or come back at a later time to finish the process. The company benefits by seeing additional sales at a much reduced cost compared to traditional marketing channels.

The role Big Data plays

Insurance businesses are also forming new business networks to provide a more tailored product to clients. As an example, State Farm and ADT provide a paired offering that protects connected homes through a single service. This helps customers reduce the number of businesses they must work with. At the same time, both companies benefit with increased business as customers turn to the network for simplicity.

Meanwhile, the Internet of Things is creating a new level of hyperconnectivity and data harvesting behind the scenes. Insurance rates currently based on a doctor’s visit will instead draw information from wearable devices, workout records, and pharmacy records. Rate reductions for self-driving cars will be based on the percentage of time the car is driven by a human versus driven autonomously.

With all these changes disrupting the industry, remaining flexible and connected makes all the difference. Is your company ready to meet the changes digital transformation is causing? If you aren’t, it is time to look at options to become more agile.

Learn more about how we can help you meet the challenges of disruption head on today. Please 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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Joe Pacor

About Joe Pacor

Joe Pacor is senior director, Industry Cloud Marketing-Insurance at SAP, responsible for driving the growth of SAP's value proposition as a technology provider, trusted business partner, and thought leader for the insurance industry.