Blockchain: A Better Future For Banking

Kris Hansen

Distributed ledger technology (DLT) may make several parts of the post-transaction banking process redundant. That’s an exciting prospect in an industry that spends billions on post-trade processing each year. However, there are several steps that must be completed before the industry is ready to begin using DLT to its full capacity.

Based on blockchain (the DLT that underpins bitcoin transfer), distributed ledgers are databases of transactions shared between the parties conducting those transactions. Moving to a single consolidated view of the truth eliminates the need to keep separate ledgers and to be constantly reconciling different versions of the truth across these views.

By separating the topic of DLT from the bitcoin use case, the technology can be used to model the transfer of any asset or commodity. The cryptography used to encrypt a transaction is secure and can be relied on, a necessity when trading bitcoin due to the anonymity of counterparties. As a result, it removes the risk of fraud, error, or dispute over the details.

DLT’s transparency may improve anti-money-laundering techniques by properly assessing ownership of assets without compromising data security and data protection. By engaging with DLT at an early stage and incorporating its concepts, along with the Internet of Things and cloud technologies, into the process of digital transformation, we can holistically work toward a vision of the new digital enterprise.

It sounds great, but it needs a lot of work. So far firms including Nasdaq and BNP Paribas have been able to develop business-to-client but not business-to-business offerings. The reason is that a lack of standards between firms is preventing the technologies from being joined.

Several consortia are in play with considerable backing from the industry, and each of these has the potential to develop one or more parts of what eventually becomes an industry solution. There is a massive opportunity to redesign and simplify processing in the industry back office, which has seen little automation, without building one legacy platform onto another. Concentrating on the use cases where all firms can find real value is the starting point.

To do that requires a good understanding of the business processes, technology, and regulatory regimes that impact the back office. Banks must engage in this analysis in order to contribute. The cost of capital is rising, business margins are falling, and the risks of disintermediation are increasing.

When approaching a change as massive as DLT, the industry will need to ensure that security and data protection are tightly wound in. Where the boundary between shared services and shared data is a fine line, it is incumbent upon the industry not to cross it. These parameters need to be resolved. By working together, the industry can collectively pull back from the position it finds itself in right now and develop a better future for customers, shareholders, and the business of banking.

With the banking industry in a state of flux, The Banker, in collaboration with SAP, has developed a timely video series titled “Digital Trends Driving Bank Innovation,” which included a video with Ruth Wandhofer, Global Head of Regulatory and Market Strategy, Citi, on Blockchain, Separating Reality from Hype.

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Kris Hansen

About Kris Hansen

Kris Hansen is senior principal, Financial Services for SAP Canada. He is focused on understanding the financial services industry and identifying new and interesting digital opportunities that create disruptive business value.

How To Profit From The Future Of Mining

Jennifer Scholze

Where is the mining industry going over the next few years? What will digitization do to the industry overall? How will mine workers adapt to these changes? Brian Fanzo and Daniel Newman, co-hosts of the S.M.A.C. Talk Technology Podcast, recently tackled that question. With guest Ruediger Schroedter, SAP’s Global Lead for Mining in the Industry Business Unit for Mill products and Mining, Brian and Daniel explored this dynamic industry. Here’s a brief look at what was discussed.

The state of the mining industry

Mining profitability is strongly tied to commodity price and efficiency. With lower commodity prices in the current cycle, mining companies are struggling to be profitable. Productivity and efficiency is the main focus. Portfolios are being streamlined to promote efficiency. The increased use of renewable energy systems has lowered demand for mined power sources such as coal or uranium. These companies’ livelihood is on the line. That’s where digitization can make a big difference to these businesses through improved efficiency and automation.

Trends and opportunities in mining digitization

The push for digitization is taking off in the mining industry because it employs technology to improve operations. Technology allows for operations to become more efficient, effective, and more productive. At the same time, it improves worker safety. It provides the option for mining companies to be proactive in the digital transformation process.

One area where mining is ahead of the curve is in autonomous driving. Ruediger said, “Technology-wise, in the last maybe 10 years or so, I think autonomous driving is probably one of the technology drivers here. Autonomous driving for trucks or other equipment is almost standard now.” He notes that it’s different than the autonomous vehicles being developed for highway use. Using autonomous vehicles helps improve efficiency in operations.

With this move towards automation, the focus has shifted from the vehicles to the workforce. Machine learning and sensors will help improve worker safety and health because these technologies enable workers to avoid hazardous areas. Vehicles and machinery can be operated autonomously or by remote control from a safe location. Sensors show what’s happening at the machine with no risk to workers.

Where edge-to-core meets mining and mill

All these aspects connect in edge-to-core computing, one area where mining is already very progressive. Technology is being increasingly used in harsh environments, where real-time data reduces connectivity pressure. This is most prevalent and profitable through the use of Internet of Things technology.

Mining involves heavy equipment, which must be reliable and operational when it’s needed. Breakdowns can cost thousands of dollars in lost productivity, repairs, and lost labor. Internet of Things sensors can provide data for analysis at the edge of the computing platform, enabling a closer focus on operations. Managers receive a notice only when a sensor reading or trend shows a failure is about to happen in a piece of equipment. This type of exception handling allows workers to proactively maintain that equipment to prevent a breakdown and shortening downtime. This takes one more level of unpredictability out of the equation. In an industry mired in uncertainty, this predictability helps promote better efficiency.

A new generation of mine employees

Digital transformation in the mining industry brings a shift in employee characteristics. The push for safety in what has traditionally been a dangerous industry is being counterbalanced by digital alternatives. Millennial employees have grown up with technology and connectivity in hand. This tech-savvy audience can now use that experience in the newly digitized mining industry.

In the podcast, Ruediger says, “Mining is characterized by an aging workforce, so they have to start looking into talent. And if you look into younger people joining the workforce, they’re all digital natives, so they are used to the iPhones. They’re used to having easy use of apps.” Mining companies are taking advantage of millennials’ comfort with digital technologies in several ways. Mining has traditionally been a dirty, heavy business, but digitization has helped move those jobs out of the mine through remote control centers. In addition, their understanding of digital systems means younger employees are easier to train and fully utilize this new technology.

Automation and machine learning

The overall theme in digitizing the mining industry is improved efficiency and automation, which frees up workers for more important tasks. However, machine learning may help improve automation even further. In the podcast, Ruediger cites the example of picture recognition, which can ensure that a customer selects the proper material or assigns it to the right contracts. This streamlines and automates the procurement process and helps to significantly reduce errors in the ordering process.

The mechanization and automation required in mining gives this industry great options in digitization. The impact of commodity pricing has already forced it into high efficiency. Autonomous vehicles and trains make it easier to automate mining operations. To address the aging workforce, tech-savvy Generation Z workers are being wooed by the technological aspect of digitization in the industry. Using Internet of Things technology will deliver better reliability in mining equipment, while machine learning helps automate the edge-to-core process.

But this is only part of the story. To learn more, check out this S.M.A.C. Talk Technology Podcast for more details with mining industry thought leader Ruediger Schroedter.

Hear the full podcast episode here. Learn how to bring new technologies and services together to power digital transformation: download The IoT Imperative for Energy and Natural Resource Companies. Explore how to bring Industry 4.0 insights into your business today: read Industry 4.0: What’s Next?

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Jennifer Scholze

About Jennifer Scholze

Jennifer Scholze is the Global Lead for Industry Marketing for the Mill Products and Mining Industries at SAP. She has over 20 years of technology marketing, communications and venture capital experience and lives in the Boston area with her husband and two children.

Data Is King, Software Is Queen, Partnerships Are "Gold"

Marina Simonians

Buzzwords like artificial intelligence (AI), machine learning (ML), the Internet of Things (IoT), blockchain, bots (robots and chatbots), and Big Data are everywhere. Everyone is talking about the data explosion emerging from these technologies. In this blog I’ll put a structure around this new era of software: Data is king, software is queen, and partnerships are gold.

Data is king

Today, many people say things like, “Data is king,” “Data is the new oil,” and “It’s all about the data.” What’s driving this data explosion?

Data growth is all about expanding data sources. We started with systems of records in IT and operational technology networks, then we added social media and social networks. Today the data explosion is accelerated with new sources of data like bots and IoT.

Voice-activated interfaces are impacting the way we interface with our computers, phones, TVs, and all software applications. Consumers are buying devices like Amazon Alexa and Google Home to interact through voice commands. Business users are demanding easy, voice-activated interfaces. Every word we speak into these voice technology devices goes into a database and is stored forever as anonymized data.

Software is queen

In the late 1980s, I was a Unix and network administrator. As a young woman with a recent computer science degree, I witnessed the beginning of the Internet revolution. We have already seen the impact of the Internet and the beginning of the information revolution and how it is dramatically changing our lives on a global level. We’re all connected and use the network via our computers, phones, and various devices including TVs and refrigerators. And it’s not just limited to the world of computer science geeks.

Today, I believe we are witnessing another revolution: The software revolution. This revolution is driven by the growth of data, in-memory computing, and the speed of cloud deployment. But the core of the software revolution today is defined through buzzwords like AI, ML, IoT, and bots. Most big or small companies, traditional independent software vendors (ISVs), startups, system integrators or value-added resellers (VARs), Global 2000 manufacturers, and Fortune 2000 companies are moving to build and commercialize software or services-based software.

Well, if “data is king,” then “software is queen.”

Partnerships are gold

In the changing landscape of data, platforms, and software, no single company can do it all alone anymore. All companies building software need to pick a database, some sort of analytics engine, in-memory technology, a cloud infrastructure, a platform, and a voice-activated bot partner.

We are now at a critical turning point. The new software innovations are creating new partnership opportunities. Selecting the correct technology partnerships is one of the key elements of success for any enterprise developing new applications to digitally transform in a world where data is king and software is queen. As software changes the world around us (much like the Internet did 20+ years ago), we need to invest in partnerships to expedite our digital transformation and win in this software revolution. Our collaborative innovation will keep us evolving today and ready us for what unfolds in the future.

Learn more about the importance of partnerships and why The Future Will Be Co-Created.

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Marina Simonians

About Marina Simonians

Marina Simonians is the Head of Global ISV GTM Strategy at SAP responsible for building new global ISV software driven initiatives for Big Data, AI/ML, Advanced analytics and IoT. With a passion for ecosystems she believes partnerships are most critical success factor in today’s software-driven market.

The Blockchain Solution

By Gil Perez, Tom Raftery, Hans Thalbauer, Dan Wellers, and Fawn Fitter

In 2013, several UK supermarket chains discovered that products they were selling as beef were actually made at least partly—and in some cases, entirely—from horsemeat. The resulting uproar led to a series of product recalls, prompted stricter food testing, and spurred the European food industry to take a closer look at how unlabeled or mislabeled ingredients were finding their way into the food chain.

By 2020, a scandal like this will be eminently preventable.

The separation between bovine and equine will become immutable with Internet of Things (IoT) sensors, which will track the provenance and identity of every animal from stall to store, adding the data to a blockchain that anyone can check but no one can alter.

Food processing companies will be able to use that blockchain to confirm and label the contents of their products accordingly—down to the specific farms and animals represented in every individual package. That level of detail may be too much information for shoppers, but they will at least be able to trust that their meatballs come from the appropriate species.

The Spine of Digitalization

Keeping food safer and more traceable is just the beginning, however. Improvements in the supply chain, which have been incremental for decades despite billions of dollars of technology investments, are about to go exponential. Emerging technologies are converging to transform the supply chain from tactical to strategic, from an easily replicable commodity to a new source of competitive differentiation.

You may already be thinking about how to take advantage of blockchain technology, which makes data and transactions immutable, transparent, and verifiable (see “What Is Blockchain and How Does It Work?”). That will be a powerful tool to boost supply chain speed and efficiency—always a worthy goal, but hardly a disruptive one.

However, if you think of blockchain as the spine of digitalization and technologies such as AI, the IoT, 3D printing, autonomous vehicles, and drones as the limbs, you have a powerful supply chain body that can leapfrog ahead of its competition.

What Is Blockchain and How Does It Work?

Here’s why blockchain technology is critical to transforming the supply chain.

Blockchain is essentially a sequential, distributed ledger of transactions that is constantly updated on a global network of computers. The ownership and history of a transaction is embedded in the blockchain at the transaction’s earliest stages and verified at every subsequent stage.

A blockchain network uses vast amounts of computing power to encrypt the ledger as it’s being written. This makes it possible for every computer in the network to verify the transactions safely and transparently. The more organizations that participate in the ledger, the more complex and secure the encryption becomes, making it increasingly tamperproof.

Why does blockchain matter for the supply chain?

  • It enables the safe exchange of value without a central verifying partner, which makes transactions faster and less expensive.
  • It dramatically simplifies recordkeeping by establishing a single, authoritative view of the truth across all parties.
  • It builds a secure, immutable history and chain of custody as different parties handle the items being shipped, and it updates the relevant documentation.
  • By doing these things, blockchain allows companies to create smart contracts based on programmable business logic, which can execute themselves autonomously and thereby save time and money by reducing friction and intermediaries.

Hints of the Future

In the mid-1990s, when the World Wide Web was in its infancy, we had no idea that the internet would become so large and pervasive, nor that we’d find a way to carry it all in our pockets on small slabs of glass.

But we could tell that it had vast potential.

Today, with the combination of emerging technologies that promise to turbocharge digital transformation, we’re just beginning to see how we might turn the supply chain into a source of competitive advantage (see “What’s the Magic Combination?”).

What’s the Magic Combination?

Those who focus on blockchain in isolation will miss out on a much bigger supply chain opportunity.

Many experts believe emerging technologies will work with blockchain to digitalize the supply chain and create new business models:

  • Blockchain will provide the foundation of automated trust for all parties in the supply chain.
  • The IoT will link objects—from tiny devices to large machines—and generate data about status, locations, and transactions that will be recorded on the blockchain.
  • 3D printing will extend the supply chain to the customer’s doorstep with hyperlocal manufacturing of parts and products with IoT sensors built into the items and/or their packaging. Every manufactured object will be smart, connected, and able to communicate so that it can be tracked and traced as needed.
  • Big Data management tools will process all the information streaming in around the clock from IoT sensors.
  • AI and machine learning will analyze this enormous amount of data to reveal patterns and enable true predictability in every area of the supply chain.

Combining these technologies with powerful analytics tools to predict trends will make lack of visibility into the supply chain a thing of the past. Organizations will be able to examine a single machine across its entire lifecycle and identify areas where they can improve performance and increase return on investment. They’ll be able to follow and monitor every component of a product, from design through delivery and service. They’ll be able to trigger and track automated actions between and among partners and customers to provide customized transactions in real time based on real data.

After decades of talk about markets of one, companies will finally have the power to create them—at scale and profitably.

Amazon, for example, is becoming as much a logistics company as a retailer. Its ordering and delivery systems are so streamlined that its customers can launch and complete a same-day transaction with a push of a single IP-enabled button or a word to its ever-attentive AI device, Alexa. And this level of experimentation and innovation is bubbling up across industries.

Consider manufacturing, where the IoT is transforming automation inside already highly automated factories. Machine-to-machine communication is enabling robots to set up, provision, and unload equipment quickly and accurately with minimal human intervention. Meanwhile, sensors across the factory floor are already capable of gathering such information as how often each machine needs maintenance or how much raw material to order given current production trends.

Once they harvest enough data, businesses will be able to feed it through machine learning algorithms to identify trends that forecast future outcomes. At that point, the supply chain will start to become both automated and predictive. We’ll begin to see business models that include proactively scheduling maintenance, replacing parts just before they’re likely to break, and automatically ordering materials and initiating customer shipments.

Italian train operator Trenitalia, for example, has put IoT sensors on its locomotives and passenger cars and is using analytics and in-memory computing to gauge the health of its trains in real time, according to an article in Computer Weekly. “It is now possible to affordably collect huge amounts of data from hundreds of sensors in a single train, analyse that data in real time and detect problems before they actually happen,” Trenitalia’s CIO Danilo Gismondi told Computer Weekly.

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials.

The project, which is scheduled to be completed in 2018, will change Trenitalia’s business model, allowing it to schedule more trips and make each one more profitable. The railway company will be able to better plan parts inventories and determine which lines are consistently performing poorly and need upgrades. The new system will save €100 million a year, according to ARC Advisory Group.

New business models continue to evolve as 3D printers become more sophisticated and affordable, making it possible to move the end of the supply chain closer to the customer. Companies can design parts and products in materials ranging from carbon fiber to chocolate and then print those items in their warehouse, at a conveniently located third-party vendor, or even on the client’s premises.

In addition to minimizing their shipping expenses and reducing fulfillment time, companies will be able to offer more personalized or customized items affordably in small quantities. For example, clothing retailer Ministry of Supply recently installed a 3D printer at its Boston store that enables it to make an article of clothing to a customer’s specifications in under 90 minutes, according to an article in Forbes.

This kind of highly distributed manufacturing has potential across many industries. It could even create a market for secure manufacturing for highly regulated sectors, allowing a manufacturer to transmit encrypted templates to printers in tightly protected locations, for example.

Meanwhile, organizations are investigating ways of using blockchain technology to authenticate, track and trace, automate, and otherwise manage transactions and interactions, both internally and within their vendor and customer networks. The ability to collect data, record it on the blockchain for immediate verification, and make that trustworthy data available for any application delivers indisputable value in any business context. The supply chain will be no exception.

Blockchain Is the Change Driver

The supply chain is configured as we know it today because it’s impossible to create a contract that accounts for every possible contingency. Consider cross-border financial transfers, which are so complex and must meet so many regulations that they require a tremendous number of intermediaries to plug the gaps: lawyers, accountants, customer service reps, warehouse operators, bankers, and more. By reducing that complexity, blockchain technology makes intermediaries less necessary—a transformation that is revolutionary even when measured only in cost savings.

“If you’re selling 100 items a minute, 24 hours a day, reducing the cost of the supply chain by just $1 per item saves you more than $52.5 million a year,” notes Dirk Lonser, SAP go-to-market leader at DXC Technology, an IT services company. “By replacing manual processes and multiple peer-to-peer connections through fax or e-mail with a single medium where everyone can exchange verified information instantaneously, blockchain will boost profit margins exponentially without raising prices or even increasing individual productivity.”

But the potential for blockchain extends far beyond cost cutting and streamlining, says Irfan Khan, CEO of supply chain management consulting and systems integration firm Bristlecone, a Mahindra Group company. It will give companies ways to differentiate.

“Blockchain will let enterprises more accurately trace faulty parts or products from end users back to factories for recalls,” Khan says. “It will streamline supplier onboarding, contracting, and management by creating an integrated platform that the company’s entire network can access in real time. It will give vendors secure, transparent visibility into inventory 24×7. And at a time when counterfeiting is a real concern in multiple industries, it will make it easy for both retailers and customers to check product authenticity.”

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials. Although the key parts of the process remain the same as in today’s analog supply chain, performing them electronically with blockchain technology shortens each stage from hours or days to seconds while eliminating reams of wasteful paperwork. With goods moving that quickly, companies have ample room for designing new business models around manufacturing, service, and delivery.

Challenges on the Path to Adoption

For all this to work, however, the data on the blockchain must be correct from the beginning. The pills, produce, or parts on the delivery truck need to be the same as the items listed on the manifest at the loading dock. Every use case assumes that the data is accurate—and that will only happen when everything that’s manufactured is smart, connected, and able to self-verify automatically with the help of machine learning tuned to detect errors and potential fraud.

Companies are already seeing the possibilities of applying this bundle of emerging technologies to the supply chain. IDC projects that by 2021, at least 25% of Forbes Global 2000 (G2000) companies will use blockchain services as a foundation for digital trust at scale; 30% of top global manufacturers and retailers will do so by 2020. IDC also predicts that by 2020, up to 10% of pilot and production blockchain-distributed ledgers will incorporate data from IoT sensors.

Despite IDC’s optimism, though, the biggest barrier to adoption is the early stage level of enterprise use cases, particularly around blockchain. Currently, the sole significant enterprise blockchain production system is the virtual currency Bitcoin, which has unfortunately been tainted by its associations with speculation, dubious financial transactions, and the so-called dark web.

The technology is still in a sufficiently early stage that there’s significant uncertainty about its ability to handle the massive amounts of data a global enterprise supply chain generates daily. Never mind that it’s completely unregulated, with no global standard. There’s also a critical global shortage of experts who can explain emerging technologies like blockchain, the IoT, and machine learning to nontechnology industries and educate organizations in how the technologies can improve their supply chain processes. Finally, there is concern about how blockchain’s complex algorithms gobble computing power—and electricity (see “Blockchain Blackouts”).

Blockchain Blackouts

Blockchain is a power glutton. Can technology mediate the issue?

A major concern today is the enormous carbon footprint of the networks creating and solving the algorithmic problems that keep blockchains secure. Although virtual currency enthusiasts claim the problem is overstated, Michael Reed, head of blockchain technology for Intel, has been widely quoted as saying that the energy demands of blockchains are a significant drain on the world’s electricity resources.

Indeed, Wired magazine has estimated that by July 2019, the Bitcoin network alone will require more energy than the entire United States currently uses and that by February 2020 it will use as much electricity as the entire world does today.

Still, computing power is becoming more energy efficient by the day and sticking with paperwork will become too slow, so experts—Intel’s Reed among them—consider this a solvable problem.

“We don’t know yet what the market will adopt. In a decade, it might be status quo or best practice, or it could be the next Betamax, a great technology for which there was no demand,” Lonser says. “Even highly regulated industries that need greater transparency in the entire supply chain are moving fairly slowly.”

Blockchain will require acceptance by a critical mass of companies, governments, and other organizations before it displaces paper documentation. It’s a chicken-and-egg issue: multiple companies need to adopt these technologies at the same time so they can build a blockchain to exchange information, yet getting multiple companies to do anything simultaneously is a challenge. Some early initiatives are already underway, though:

  • A London-based startup called Everledger is using blockchain and IoT technology to track the provenance, ownership, and lifecycles of valuable assets. The company began by tracking diamonds from mine to jewelry using roughly 200 different characteristics, with a goal of stopping both the demand for and the supply of “conflict diamonds”—diamonds mined in war zones and sold to finance insurgencies. It has since expanded to cover wine, artwork, and other high-value items to prevent fraud and verify authenticity.
  • In September 2017, SAP announced the creation of its SAP Leonardo Blockchain Co-Innovation program, a group of 27 enterprise customers interested in co-innovating around blockchain and creating business buy-in. The diverse group of participants includes management and technology services companies Capgemini and Deloitte, cosmetics company Natura Cosméticos S.A., and Moog Inc., a manufacturer of precision motion control systems.
  • Two of Europe’s largest shipping ports—Rotterdam and Antwerp—are working on blockchain projects to streamline interaction with port customers. The Antwerp terminal authority says eliminating paperwork could cut the costs of container transport by as much as 50%.
  • The Chinese online shopping behemoth Alibaba is experimenting with blockchain to verify the authenticity of food products and catch counterfeits before they endanger people’s health and lives.
  • Technology and transportation executives have teamed up to create the Blockchain in Transport Alliance (BiTA), a forum for developing blockchain standards and education for the freight industry.

It’s likely that the first blockchain-based enterprise supply chain use case will emerge in the next year among companies that see it as an opportunity to bolster their legal compliance and improve business processes. Once that happens, expect others to follow.

Customers Will Expect Change

It’s only a matter of time before the supply chain becomes a competitive driver. The question for today’s enterprises is how to prepare for the shift. Customers are going to expect constant, granular visibility into their transactions and faster, more customized service every step of the way. Organizations will need to be ready to meet those expectations.

If organizations have manual business processes that could never be automated before, now is the time to see if it’s possible. Organizations that have made initial investments in emerging technologies are looking at how their pilot projects are paying off and where they might extend to the supply chain. They are starting to think creatively about how to combine technologies to offer a product, service, or business model not possible before.

A manufacturer will load a self-driving truck with a 3D printer capable of creating a customer’s ordered item en route to delivering it. A vendor will capture the market for a socially responsible product by allowing its customers to track the product’s production and verify that none of its subcontractors use slave labor. And a supermarket chain will win over customers by persuading them that their choice of supermarket is also a choice between being certain of what’s in their food and simply hoping that what’s on the label matches what’s inside.

At that point, a smart supply chain won’t just be a competitive edge. It will become a competitive necessity. D!


About the Authors

Gil Perez is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Tom Raftery is Global Vice President, Futurist, and Internet of Things Evangelist, at SAP.

Hans Thalbauer is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Dan Wellers is Global Lead, Digital Futures, at SAP.

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

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

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CEO Priorities And Challenges In The Digital World

Dr. Chakib Bouhdary

Digital transformation is here, and it is moving fast. Companies are starting to realize the enormous power of digital technologies like artificial intelligence (AI), Internet of things (IoT) and blockchain. These technologies will drive massive opportunities—and threats—for every company, and they will impact all aspects of business, including the business model. In fact, business velocity has never been this fast, yet it will never be this slow again.

To move quickly, companies need to be clear on what they want to achieve through digital transformation and understand the possible roadblocks. Based on my meetings with customer executives across regions and industries, I have learned that CEOs often have the same three priorities and face the same three challenges:

1. Customer experience – No longer defined by omnichannel and personalized marketing.

Not surprisingly, 92 percent of digital leaders focus on customer experience. However, this is no longer just about omnichannel and personalized marketing – it is about the total customer experience. Businesses are realizing that they need to reimagine their value proposition and orchestrate changes across the value chain – from the first point of interaction to manufacturing, to shipment, to service – and be able to deliver the total customer experience. In some cases, it will even be necessary to change the core product or service itself.

2. Step change in productivity – Transform productivity and cost structure through digital technologies.

Businesses have been using technology to achieve growth for decades, but by combining emerging technologies, they can now achieve a significant productivity boost and reduce costs. For this to happen, companies must first identify the scenarios that will drive significant change in productivity, prioritize them based on value, and then determine the right technologies and solutions. Both Mckinsey and Boston Consulting Group expect a 15 to 30 percent improvement in productivity through digital advancements – blowing the doors off business-as-usual and its incremental productivity growth of 1 to 2 percent.

3. Employee engagement – Fostering a culture of innovation should be at the core of any business.

Companies are looking to create an environment that encourages creativity and innovation. Leaders are attracting the needed talent and building the right skill sets. Additionally, they aim for ways to attract a diverse workforce, improve collaborations, and empower employees – because engaged employees are crucial in order to achieve the best results. This Gallup study reveals that approximately 85 percent of employees worldwide are performing below their potential due to engagement issues.

As CEOs work towards achieving these three desired outcomes, they face some critical challenges that they must address. I define the top three challenges as follows: run vs. innovate, corporate cholesterol, and digital transformation roadmap.

1. Run vs. innovate – To be successful you must prioritize the future.

The foremost challenge that CEOs are facing is how they can keep running current profitable businesses while investing in future innovations. Quite often these two conflict as most executives mistakenly prioritize the first and spend much less time on the latter. This must change. CEOs and their management teams need to spend more time thinking about what digital is for them, discuss new ideas, and reimagine the future. According to Gartner, approximately 50 percent of boards are pushing their CEOs to make progress on digital. Although this is a promising sign, digital must become a priority on every CEOs agenda.

2. Corporate cholesterol – Do not let company culture get in the way of change.

The older the company is, the more stuck it likely is with policies, procedures, layers of management, and risk averseness. When a company’s own processes get in the way of change, that is what I call “corporate cholesterol.” CEOs need to change the culture, encourage cross-team collaborations, and bring in more diverse thinking to reduce the cholesterol levels. In fact, both Mckinsey and Capgemini conclude that culture is the number-one obstacle to digital effectiveness.

3. Digital transformation roadmap – Digital transformation is a journey without a destination.

Many CEOs struggle with their digital roadmap. Questions like: Where do I start? Can a CDO or another executive run this innovation for me? What is my three- to five-year roadmap? often come up during the conversations. Most companies think that there is a set roadmap, or a silver bullet, for digital transformation, but that is not the case. Digital transformation is a journey without a destination, and each company must start small, acquire the necessary skills and knowledge, and continue to innovate.

It is time to face the digital reality and make it a priority. According to KPMG, 70 percent to 80 percent of CEOs believe that the next three years are more critical for their company than the last fifty. And there is good reason to worry, as 75 percent of S&P 500 companies from 2012 will be replaced by 2027 at the current disruption rate.

Download this short executive document. 

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Dr. Chakib Bouhdary

About Dr. Chakib Bouhdary

Dr. Chakib Bouhdary is the Digital Transformation Officer at SAP. Chakib spearheads thought leadership for the SAP digital strategy and advises on the SAP business model, having led its transformation in 2010. He also engages with strategic customers and prospects on digital strategy and chairs Executive Digital Exchange (EDX), which is a global community of digital innovation leaders. Follow Chakib on LinkedIn and Twitter