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Redefining Products In The Digital Economy

Pradeep Amladi

One hundred and thirty years ago, on January 29, 1886, Karl Benz patented the gasoline-driven automobile. The car was born.

From the industrial economy to the Internet economy, each economic revolution has utilized technology advancements to drive major shifts in the way businesses operate and how people live and work.  The intersection of recent technology trends indicates that the world is again poised for another economic revolution… the Digital Economy.

This new reality is being powered by the unique convergence of hyperconnectivity, super-computing, cloud computing, a smarter world, and cyber security. Each of these technology trends have matured and hit scale at the same time, creating an environment ripe for business innovation.

Digital transformation has become a strategic priority. Finding new ways to connect the business with assets, customers, and suppliers has already led to the development of smarter products and new business models – for example, a snack food vending machine that anticipates and makes smart purchase recommendations to customers based on their profiles and historical purchase patterns. This same machine also gathers customer demographic information, such as age and gender, and passes it back to the vendor, who uses the information to make smarter inventory decisions, thereby increasing purchasing frequency and revenue.

Product transformation

New product and service offerings often provide much-needed differentiation in the marketplace and form the foundation for innovative business models, which is one reason behind a recent push for developing innovative “smart” products. While sensors have been embedded in large assets for many years, digital technology now has made them smaller and more affordable. To compete in the new digital economy, companies can start by taking an existing product or device created to perform a single function, and add sensors, allowing it to transmit and collect vast amounts of data. As a result, products are changing in several ways:

  • Intelligent and self-aware. First, embedding sensors in products can make them more intelligent and self-aware of their status so they can solve problems autonomously. For example, using real-time insight, mill machines can now self-diagnose failures and automatically trigger maintenance procedures.
  • Connected. Soon everything will be connected; every asset, supplier, worker, and stakeholder. This means products can work together to get jobs done more quickly and safely than ever before. For example, embedded sensors enable crane-to-crane communication on a construction site. When multiple cranes are moving in tight spaces, it’s important to keep them separated to avoid collisions. Intelligence-enabled cranes constantly transmit distance data to each other so multiple cranes can safely move containers or service the same area without collision. Product connectivity also opens up a world of possibilities for improving how products interact with the world around them including people and supply chains. As a case in point, take a look at a forklift. Cloud-based vehicle networks are already in development, which connect many types of smart vehicle-related products and services for an improved customer experience.
  • Products are becoming platforms:  We are now seeing products become platforms that drive impressive new services in ways that were not imagined when the products were first designed. Consider the way humanitarian relief operations crowd-source information in real time from smartphones after natural disasters.
  • Mass personalization. Companies can now manufacture customized products at the efficiency of mass production to give customers what they want, when they want it, while streamlining the supply chain. Using advanced digital technologies on the shop floor, manufacturers are able to automate production lines, thereby making it possible to quickly change configurations to adapt to the needs of specific customers. Harley-Davidson, for example, can build 1,700 bike variations on one production line and ship a customized bike approximately every 90 seconds (SAP Thought Leadership Paper, Internet of Things).

To meet the information requirements necessary to capitalize on the digital economy, companies must first digitize, connect, and collect data on all of their assets, suppliers, workers and stakeholders. They also need high-speed platform technology capable of quickly analyzing the data from multiple angles and combining internal content with external information. Finally, all information must be viewed in the right business context and with the customer experience in mind across all channels.

Early adopters

Early adopters of the digital economy are winning by growing shareholder and stakeholder value faster than their counterparts. 74% of U.S. and European retail, healthcare and manufacturing companies have already developed smart products (The Economist Insights). By proactively embracing the digital economy, these industry leaders are harnessing the power of real-time data analytics to develop the next generation of products that connect people and businesses in ways we are just beginning to understand.

IDC predicts the worldwide market for IoT solutions will grow from $1.9 trillion in 2013 to $7.1 trillion in 2020. The digital economy will allow companies to redefine who they are and where they want to go. Yet they must remain focused on the customer outcomes of their decisions.

For more on how the digital economy is transforming business, see Digital Transformation Is A Journey, Not A Destination.

This story originally appeared in the SAP Business Trends community.

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Pradeep Amladi

About Pradeep Amladi

Pradeep Amladi is SAP’s head of Marketing for Manufacturing and Energy and Natural Resources Industries. He has global responsibility for driving marketing for SAP's solutions portfolio in: discrete manufacturing industries (high tech, automotive, aerospace & defense, industrial machinery and components)as well as energy and natural resources industries (chemicals, oil and gas, utilities, mining, and mill products).

Transform Or Die: What Will You Do In The Digital Economy?

Scott Feldman and Puneet Suppal

By now, most executives are keenly aware that the digital economy can be either an opportunity or a threat. The question is not whether they should engage their business in it. Rather, it’s how to unleash the power of digital technology while maintaining a healthy business, leveraging existing IT investments, and innovating without disrupting themselves.

Yet most of those executives are shying away Businesspeople in a Meeting --- Image by © Monalyn Gracia/Corbisfrom such a challenge. According to a recent study by MIT Sloan and Capgemini, only 15% of CEOs are executing a digital strategy, even though 90% agree that the digital economy will impact their industry. As these businesses ignore this reality, early adopters of digital transformation are achieving 9% higher revenue creation, 26% greater impact on profitability, and 12% more market valuation.

Why aren’t more leaders willing to transform their business and seize the opportunity of our hyperconnected world? The answer is as simple as human nature. Innately, humans are uncomfortable with the notion of change. We even find comfort in stability and predictability. Unfortunately, the digital economy is none of these – it’s fast and always evolving.

Digital transformation is no longer an option – it’s the imperative

At this moment, we are witnessing an explosion of connections, data, and innovations. And even though this hyperconnectivity has changed the game, customers are radically changing the rules – demanding simple, seamless, and personalized experiences at every touch point.

Billions of people are using social and digital communities to provide services, share insights, and engage in commerce. All the while, new channels for engaging with customers are created, and new ways for making better use of resources are emerging. It is these communities that allow companies to not only give customers what they want, but also align efforts across the business network to maximize value potential.

To seize the opportunities ahead, businesses must go beyond sensors, Big Data, analytics, and social media. More important, they need to reinvent themselves in a manner that is compatible with an increasingly digital world and its inhabitants (a.k.a. your consumers).

Here are a few companies that understand the importance of digital transformation – and are reaping the rewards:

  1. Under Armour:  No longer is this widely popular athletic brand just selling shoes and apparel. They are connecting 38 million people on a digital platform. By focusing on this services side of the business, Under Armour is poised to become a lifestyle advisor and health consultant, using his product side as the enabler.
  1. Port of Hamburg: Europe’s second-largest port is keeping carrier trucks and ships productive around the clock. By fusing facility, weather, and traffic conditions with vehicle availability and shipment schedules, the Port increased container handling capacity by 178% without expanding its physical space.
  1. Haier Asia: This top-ranking multinational consumer electronics and home appliances company decided to disrupt itself before someone else did. The company used a two-prong approach to digital transformation to create a service-based model to seize the potential of changing consumer behaviors and accelerate product development. 
  1. Uber: This startup darling is more than just a taxi service. It is transforming how urban logistics operates through a technology trifecta: Big Data, cloud, and mobile.
  1. American Society of Clinical Oncologists (ASCO): Even nonprofits can benefit from digital transformation. ASCO is transforming care for cancer patients worldwide by consolidating patient information with its CancerLinQ. By unlocking knowledge and value from the 97% of cancer patients who are not involved in clinical trials, healthcare providers can drive better, more data-driven decision making and outcomes.

It’s time to take action 

During the SAP Executive Technology Summit at SAP TechEd on October 19–20, an elite group of CIOs, CTOs, and corporate executives will gather to discuss the challenges of digital transformation and how they can solve them. With the freedom of open, candid, and interactive discussions led by SAP Board Members and senior technology leadership, delegates will exchange ideas on how to get on the right path while leveraging their existing technology infrastructure.

Stay tuned for exclusive insights from this invitation-only event in our next blog!
Scott Feldman is Global Head of the SAP HANA Customer Community at SAP. Connect with him on Twitter @sfeldman0.

Puneet Suppal drives Solution Strategy and Adoption (Customer Innovation & IoT) at SAP Labs. Connect with him on Twitter @puneetsuppal.

 

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Scott Feldman and Puneet Suppal

About Scott Feldman and Puneet Suppal

Scott Feldman is the Head of SAP HANA International Customer Community. Puneet Suppal is the Customer Co-Innovation & Solution Adoption Executive at SAP.

What Is Digital Transformation?

Andreas Schmitz

Achieving quantum leaps through disruption and using data in new contexts, in ways designed for more than just Generation Y — indeed, the digital transformation affects us all. It’s time for a detailed look at its key aspects.

Data finding its way into new settings

Archiving all of a company’s internal information until the end of time is generally a good idea, as it gives the boss the security that nothing will be lost. Meanwhile, enabling him or her to create bar graphs and pie charts based on sales trends – preferably in real time, of course – is even better.

But the best scenario of all is when the boss can incorporate data from external sources. All of a sudden, information on factors as seemingly mundane as the weather start helping to improve interpretations of fluctuations in sales and to make precise modifications to the company’s offerings. When the gusts of autumn begin to blow, for example, energy providers scale back solar production and crank up their windmills. Here, external data provides a foundation for processes and decisions that were previously unattainable.

Quantum leaps possible through disruption

While these advancements involve changes in existing workflows, there are also much more radical approaches that eschew conventional structures entirely.

“The aggressive use of data is transforming business models, facilitating new products and services, creating new processes, generating greater utility, and ushering in a new culture of management,” states Professor Walter Brenner of the University of St. Gallen in Switzerland, regarding the effects of digitalization.

Harnessing these benefits requires the application of innovative information and communication technology, especially the kind termed “disruptive.” A complete departure from existing structures may not necessarily be the actual goal, but it can occur as a consequence of this process.

Having had to contend with “only” one new technology at a time in the past, be it PCs, SAP software, SQL databases, or the Internet itself, companies are now facing an array of concurrent topics, such as the Internet of Things, social media, third-generation e-business, and tablets and smartphones. Professor Brenner thus believes that every good — and perhaps disruptive — idea can result in a “quantum leap in terms of data.”

Products and services shaped by customers

It has already been nearly seven years since the release of an app that enables customers to order and pay for taxis. Initially introduced in Berlin, Germany, mytaxi makes it possible to avoid waiting on hold for the next phone representative and pay by credit card while giving drivers greater independence from taxi dispatch centers. In addition, analyses of user data can lead to the creation of new services, such as for people who consistently order taxis at around the same time of day.

“Successful models focus on providing utility to the customer,” Professor Brenner explains. “In the beginning, at least, everything else is secondary.”

In this regard, the private taxi agency Uber is a fair bit more radical. It bypasses the entire taxi industry and hires private individuals interested in making themselves and their vehicles available for rides on the Uber platform. Similarly, Airbnb runs a platform travelers can use to book private accommodations instead of hotel rooms.

Long-established companies are also undergoing profound changes. The German publishing house Axel Springer SE, for instance, has acquired a number of startups, launched an online dating platform, and released an app with which users can collect points at retail. Chairman and CEO Matthias Döpfner also has an interest in getting the company’s newspapers and other periodicals back into the black based on payment models, of course, but these endeavors are somewhat at odds with the traditional notion of publishing houses being involved solely in publishing.

The impact of digitalization transcends Generation Y

Digitalization is effecting changes in nearly every industry. Retailers will likely have no choice but to integrate their sales channels into an omnichannel approach. Seeking to make their data services as attractive as possible, BMW, Mercedes, and Audi have joined forces to purchase the digital map service HERE. Mechanical engineering companies are outfitting their equipment with sensors to reduce downtime and achieve further product improvements.

“The specific potential and risks at hand determine how and by what means each individual company approaches the subject of digitalization,” Professor Brenner reveals. The resulting services will ultimately benefit every customer – not just those belonging to Generation Y, who present a certain basic affinity for digital methods.

“Think of cars that notify the service center when their brakes or drive belts need to be replaced, offer parking assistance, or even handle parking for you,” Brenner offers. “This can be a big help to elderly people in particular.”

Chief digital officers: team members, not miracle workers

Making the transition to the digital future is something that involves not only a CEO or a head of marketing or IT, but the entire company. Though these individuals do play an important role as proponents of digital models, it also takes more than just a chief digital officer alone.

For Professor Brenner, appointing a single person to the board of a DAX company to oversee digitalization is basically absurd. “Unless you’re talking about Da Vinci or Leibnitz born again, nobody could handle such a task,” he states.

In Brenner’s view, this is a topic for each and every department, and responsibilities should be assigned much like on a soccer field: “You’ve got a coach and the players – and the fans, as well, who are more or less what it’s all about.”

Here, the CIO neither competes with the CDO nor assumes an elevated position in the process of digital transformation. Implementing new databases like SAP HANA or Hadoop, leveraging sensor data in both technical and commercially viable ways, these are the tasks CIOs will face going forward.

“There are some fantastic jobs out there,” Brenner affirms.

Want more insight on managing digital transformation? See Three Keys To Winning In A World Of Disruption.

Image via Shutterstock

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Andreas Schmitz

About Andreas Schmitz

Andreas Schmitz is a Freelance Journalist for SAP, covering a wide range of topics from big data to Internet of Things, HR, business innovation and mobile.

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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Digitization Of The Supplier Network: Grinding Away Competitive Edges

Kai Goerlich

Competitors with advanced digital capabilities are invading markets with new disruptive business models – and a range of new challenges across all industries. Prices are falling and changing quickly. Margins are thinning. Resources are increasingly volatile while the balance between supply and fast-changing customer demands are next-to-impossible to match. All the while, 30% of industry leaders are at risk of being disrupted by 2018 by a digitally enabled competitor, according to IDC.

Under these conditions, companies are beginning to ask whether their supply networks should be open to the digital world. Will they accept the risk of being copied and losing competitive advantage? Or will they secure their best practices in supply chain and logistics?

Using an analytical framework of 15 ecosystem factors, we compared traditional companies against digital newcomers. Our ad hoc study revealed that digitization influences business systems on several levels, but standard best practices are not one of them.

Network resiliency

In most supply chains, the hierarchical model is still living and prospering. Digital newcomers usually create a web-like structure across the entire business. While the traditional approach may guarantee price stability and quality, this web structure allows a much faster ramp-up and exchange of partners – making it more resilient to change.

Dependencies

In traditional networks, the business is likely evolving around mutual advantages. Very often, there are tight, symbiotic business connections with limited sets of partners. New digital networks are operating with an increased focus on leveraging opportunities. Plus, partners are encouraged to participate, widen, and promote the network – even if they do not directly contribute to revenue or profit margins.

Brand management

Web structures are especially attractive to companies that find it difficult to access traditional value chains. In general, classic supply chains cannot keep up with the speed of change nor deal with new and unexpected supply-chain partners in future digital networks. And as “new and unexpected” translate into “interesting and exciting” for consumers, companies may encounter significant branding issues.

Path dependency

Digital newcomers usually have a lower path dependency, such as mode of action. Unfortunately, this can be attributed to perspectives and business plans that are not based on decades of experience in one business. Of course, knowing a business for many years has its advantages as well – but only if knowledge is successfully transferred into the digital world.

A new way to operate

As pointed out in an earlier blog, digitization is proven to be a shortcut for some traditional processes and functions. In turn, embedding best practices into supply-chain and logistics processes and avoiding any transfer of knowledge as long as possible may appear to be an obvious solution. However, according to our findings, it might not be the best path to dealing with changes related to digital transformation.

While digitization may indeed wash away former competitive advantages, it also empowers companies to use their vast knowledge and connections to get on par with digital newcomers – on a new and different level. For example, most traditional best practices are now outsourced and can be easily applied as a service. But more important, instead of waiting to be disrupted by digitization, businesses can become as flexible as possible to enhance the customer experience and build loyalty.

For more on disruption without damage, see 4 Ways to Digitally Disrupt Your Business Without Destroying It.

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Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Idea Director of Thought Leadership at SAP. His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation.