How Blockchain Will Transform The Utilities Industry

Gavin Mooney

What is blockchain?

Cryptocurrencies such as bitcoin have been in the news a lot recently. One day it’s the currency losing half its value, another it’s the fact that bitcoin mining will one day consume all the world’s electricity, or maybe the idea that South Koreans are obsessed with cryptocurrency.

But amid all this coverage what is sometimes missed is the bigger story which is the technology behind it: blockchain. This is the exciting part that looks set to dramatically change the world around us and revolutionize how businesses operate.

In a nutshell, blockchain is a reliable, difficult-to-hack record of transactions – and of who owns what.

For more detail, there are some great explanations of blockchain in simple, easy-to-understand language. For example, this one by my colleague Dwayne DeSylvia, or this one by Jamie Skella.

Some of the most important characteristics of blockchain are:

  • Shared record book – the record of transactions is distributed among hundreds or thousands of computers all around the world. And they all have to agree on the details of every transaction that is added to the record book; otherwise, it doesn’t get added. This makes it reliable and secure and means that there is…
  • Trust – the whole community verifies the new transactions and reaches a consensus, rather than relying on a…
  • Middleman – there is no longer a central controlling entity. We have done away with the middleman.

Sounds good, but so what?

Blockchain may have originally been created for trading bitcoin, but its potential reaches far beyond cryptocurrencies.

Blockchain offers a way to verify the ownership of something digital, even if there are identical copies.

The implications of this are huge. The shared record book concept could include land titles, loans, identities, logistics manifests – essentially almost anything of value.

For example, imagine if when you streamed music, instead of paying a subscription to a content provider you were paying the artist directly. The artist no longer needs to register copyright and sign with a publisher, they just upload their music and it’s published through the P2P network, ready for everyone to browse. When a user decides to buy music, they make a payment that is visible on the blockchain, and the artist receives 100% of the revenue. This is the sort of thing Voise and Ujo Music are working on.

Logic that works on the “if this happens, then do that” principle can be used to automate the transfer of assets or currency between parties when certain conditions are met. (These conditions are known as “smart contracts,” but that’s not a great name.) For example, a logistics company could have a smart contract in place to say:

“If I deliver this product and receive cash at this location in a developing, emerging market, then trigger a supplier – many links up the supply chain – to create another item since the existing one was just delivered.” 

What about utilities?

There are already several examples of blockchain in utilities. Here are three:

  1. The much-talked-about Brooklyn microgrid is a demonstration project where citizens can buy and sell locally produced rooftop solar power from each other. In a similar vein, Perth-based Power Ledger offers a platform to track the generation and consumption of electricity. It is one of three finalists in Richard Branson’s 2018 Extreme Tech Challenge.
  1. BlockCharge is a working prototype for electric vehicle charging created by RWE and Using a similar principle to mobile phone roaming, it allows EV owners to charge their car via any charging station network and be billed for the energy used in a simple blockchain-based way. The EVs interact automatically with stations, and the electricity payment process is autonomous.
  1. Bankymoon has a novel approach to foreign aid. Their Usizo project enables international crowdfunding for African schools in need of financial aid. The schools have blockchain-aware meters installed so anyone from around the world can make a payment directly to the meter, helping fund the energy or water needs of the school without the need for a charitable organization in the middle.

Is blockchain suitable for me?

The sort of scenarios that benefit most from blockchain share these characteristics:

  • Multi-party – several participants, often spread across companies or industries
  • Multiple “writers” – if there is just one writer then a master/slave replication would suffice
  • Intermediaries can be made obsolete – we don’t want to get rid of a middleman if they add a lot of value
  • Need for transparency – to reduce risks, avoid fraud, etc.
  • Need for mutual control – since the blockchain network generates trust

Do you have a scenario that could benefit from blockchain? Come and try it out using SAP’s Blockchain-as-a-Service platform, which provides an easy way to experiment with the technology without the need for a large upfront investment.

Or join other customers and partners who are already co-innovating blockchain solutions with SAP.


Gavin Mooney

About Gavin Mooney

Gavin Mooney is a utilities industry solution specialist for SAP. From a background in Engineering and IT, Gavin has been working in the utilities industry with SAP products for nearly 15 years. He has had the privilege of working with a number of Electricity, Gas and Water Utilities across the globe to implement SAP’s Industry Solution for Utilities. He now works with utilities to help them identify the best way to run simple and run better with SAP's latest products. Gavin loves to network and build lasting business relationships and is passionate about cleantech and the fundamental transformation currently shaking up the utilities industry.

Very Soon We Won’t Trust Anything Unless It’s Backed By Blockchain

Susan Galer

Most people wouldn’t set foot inside a plane with non-certified parts, bring tainted food home to their family, or hire someone with false credentials on their resume. Time was when lack of knowledge kept consumers and businesses from authenticating stuff – be it equipment, supply chains, or documents. Now blockchain is starting to emerge as fraud fighter extraordinaire. I heard several experts talk up blockchain’s potential strengths during a recent SAP Radio broadcast of Startup Focus with Game-Changers, “Blockchain, Trust, and Startups,” hosted by Bonnie D. Graham.

Ethical, compliant supply chains

The panel was united on one point: every industry can benefit from blockchain’s foundation of digital trust. Peter Ebert, senior vice president of sales and business development at Cryptowerk, expanded on a conversation I had with him during an interview at SAP TechEd, where he demonstrated a blockchain use case that that helped the pharmaceutical industry better track drugs. During the radio show, he positioned blockchain as an incredible fraud fighter supporting ethical supply chains, as well as end-to-end visibility for regulators.

“If you buy anything…you want to make sure that there’s no child labor involved, that the raw materials were sourced in a fair way, that you are not paying for a counterfeit and think it’s the real thing,” said Ebert. “Many different laws in various industries demand to know from where was something shipped, when was it delivered or returned. Blockchain automates this trust that you need to store all these events with trust embedded.”

Safety in the skies

Drew Hingorani, CEO of AI-BlockChain, recounted how an airplane crashed when a maintenance crew member put a jackscrew in the wrong place.

“The lubricant didn’t recognize the jackscrew because the actual jackscrew that was supposed to go into that spot had a different composite. But if you track the jet engine parts, which is a use case we’re talking about currently, you can actually solve that problem using blockchain technology,” said Hingorani.

Fraud fighter extraordinaire

Ebert agreed that aerospace engineering was a compelling use case for blockchain.

“You have parts that are very expensive, being swapped out of one airplane into another, and then suddenly you have a part that didn’t come from where you thought it would come from. It doesn’t comply with the quality metrics that are required, and you find yourself with your loved ones sitting in a plane where, even if it’s just five parts, they are not what they are supposed to be. And that’s very scary,” he said.

Blockchain spots fakes anywhere

Ebert thinks the same authenticity scenarios are true for enterprise software. “We see things where you look at an image, you look at a video, and you hear somebody talk and you think you know who it is and it sounds and looks completely authentic but it isn’t,” he said. “The very foundations of our trust can be shaken by [other] technologies, and blockchain can come in and can automate this trust…at some point, you will actually not trust a document that is being presented to you unless it’s anchored in a blockchain somewhere.”

Trust in blockchain

Andreas Fichter, SAP Innovation Center Network, predicted blockchain’s eventual emergence as the new standard for trust, whether tracking documents, 3D printing, or any kind of digital asset across enterprises and in the consumer space.

“Paper is dead, and everything will be digitalized and there will be a new expectation when it comes to trust in those new digital records, and in how we conduct business,” he said. “Probably we’ll get to the point where people will say, why haven’t we done this before, or why was it so complicated before?”

With the right blend of blockchain and other emerging technologies, your supply chain can become a competitive advantage. Read The Blockchain Solution.

This blog was originally posted on the Medium Community under SAP Innovation Spotlight.


Why Blockchain Is Crucial For FP&A: Part 2

Brian Kalish

Part 18 in the Dynamic Planning Series

In my last blog, I described blockchain in some detail. Now I want to dive a little deeper and expand on the potential value that blockchain could hold for the FP&A profession.

Blockchain has the potential to streamline financial processes, such as contract enforcement, by integrating delivery and payment into the contract itself. Blockchain can potentially increase IT security, because of the unprecedented protection it offers against fraud and hacking. Blockchain will also potentially improve transparency by accessing accurate transaction data from across your company’s value chain.

It would be fair to describe the current state of blockchain uptake as exploratory. Organizations are researching, assessing the potential use and value, and having discussions with the executive team.

A distributed database with cryptographic security

Blockchain has the power to challenge many of the accepted norms of global trade, finance, and supply chain management, because it reinvents the basic building block of commerce, the ledger, for a digital, connected age.

A blockchain is a digital ledger – a distributed database that can be shared across a network of computers based in different sites and geographies. An identical copy of the ledger is held by all people participating in a blockchain network. Any changes to the ledger are reflected in just minutes or seconds, thus providing all involved with real-time information and the capacity to track trends.

The security of the information in the ledger is protected cryptographically, with the participants in the network agreeing on who can perform the appropriate functions within the ledger. For blockchain, its attraction is more than the algorithmic technologies that underpin it.

This technology makes it possible to transform the ability of the ledger to record, enable, and secure a huge amount of transactions. It could be used in multiple sectors, from financial services to tax collection in the public sector. In the future, FP&A may be able to leverage blockchain to increase IT security, manage extended value chains, and streamline contract enforcement.

Blockchains are considered highly tamper-proof, providing unprecedented protection from fraud, hacking, and unauthorized use. Instead of having to reconcile the internal system of record with information from suppliers and partners, FP&A will be able to pull data from multiple blockchains to create their system of record.

A programmable ledger that contains logic

A smart-contract feature means that the delivery and payment relating to the transaction can be integrated into the contract itself. With blockchains, the ledger itself is programmable and contains logic, freeing up human resources and capital to work on higher-value objectives. For example, there can be a rule that automates a payment upon the completion of a service.

Smart contracts would automate this process, which today involves a lot of manual steps and paperwork. This will work most of the time, where there aren’t disputes. What has yet to be designed is a mechanism for handling disputes in smart contracts. This topic will emerge as an important area of blockchain research in the future.

Ultimately, there will be hybrid contracts that blend the automation of smart contracts with the provisions for dispute resolution that exist in traditional agreements.

While blockchain technology is quite new, it is likely to play an important role in FP&A in the coming years. FP&A professionals should be anticipating how they are going to build the relevant competencies and skill sets.

FP&A professionals also need to start discussing the future of their system of record, given that organizations could move from working with a single, monolithic system of record inside the enterprise to working with many different systems.

We will be addressing these issues and more at the upcoming 2018 FP&A roundtables and conferences we are hosting in St. Louis, Charlotte, Atlanta, San Diego, Las Vegas, London, Boston, Minneapolis, Dallas-Forth Worth, San Francisco, Hong Kong, Jeddah, and many other locations around the world.

For more on this topic, read the two-part “Blockchain and the CFO” series and “When Blockchain Fulfills CFOs’ Paperless Vision.”

Follow SAP Finance online: @SAPFinance (Twitter) | LinkedIn | Facebook | YouTube


Brian Kalish

About Brian Kalish

Brian Kalish is founder and principal at Kalish Consulting. As a public speaker and writer addressing many of the most topical issues facing treasury and FP&A professionals today, he is passionately committed to building and connecting the global FP&A community. He hosts FP&A Roundtable meetings in North America, Europe, Asia, and South America. Brian is former executive director of the global FP&A Practice at AFP. He has over 20 years experience in finance, FP&A, treasury, and investor relations. Before joining AFP, he held a number of treasury and finance positions with the FHLB, Washington Mutual/JP Morgan, NRUCFC, Fifth Third Bank, and Fannie Mae. Brian attended Georgia Tech in Atlanta, GA for his undergraduate studies and the Pamplin College of Business at Virginia Tech for his graduate work. In 2014, Brian was awarded the Global Certified Corporate FP&A Professional designation.

Hack the CIO

By Thomas Saueressig, Timo Elliott, Sam Yen, and Bennett Voyles

For nerds, the weeks right before finals are a Cinderella moment. Suddenly they’re stars. Pocket protectors are fashionable; people find their jokes a whole lot funnier; Dungeons & Dragons sounds cool.

Many CIOs are enjoying this kind of moment now, as companies everywhere face the business equivalent of a final exam for a vital class they have managed to mostly avoid so far: digital transformation.

But as always, there is a limit to nerdy magic. No matter how helpful CIOs try to be, their classmates still won’t pass if they don’t learn the material. With IT increasingly central to every business—from the customer experience to the offering to the business model itself—we all need to start thinking like CIOs.

Pass the digital transformation exam, and you probably have a bright future ahead. A recent SAP-Oxford Economics study of 3,100 organizations in a variety of industries across 17 countries found that the companies that have taken the lead in digital transformation earn higher profits and revenues and have more competitive differentiation than their peers. They also expect 23% more revenue growth from their digital initiatives over the next two years—an estimate 2.5 to 4 times larger than the average company’s.

But the market is grading on a steep curve: this same SAP-Oxford study found that only 3% have completed some degree of digital transformation across their organization. Other surveys also suggest that most companies won’t be graduating anytime soon: in one recent survey of 450 heads of digital transformation for enterprises in the United States, United Kingdom, France, and Germany by technology company Couchbase, 90% agreed that most digital projects fail to meet expectations and deliver only incremental improvements. Worse: over half (54%) believe that organizations that don’t succeed with their transformation project will fail or be absorbed by a savvier competitor within four years.

Companies that are making the grade understand that unlike earlier technical advances, digital transformation doesn’t just support the business, it’s the future of the business. That’s why 60% of digital leading companies have entrusted the leadership of their transformation to their CIO, and that’s why experts say businesspeople must do more than have a vague understanding of the technology. They must also master a way of thinking and looking at business challenges that is unfamiliar to most people outside the IT department.

In other words, if you don’t think like a CIO yet, now is a very good time to learn.

However, given that you probably don’t have a spare 15 years to learn what your CIO knows, we asked the experts what makes CIO thinking distinctive. Here are the top eight mind hacks.

1. Think in Systems

A lot of businesspeople are used to seeing their organization as a series of loosely joined silos. But in the world of digital business, everything is part of a larger system.

CIOs have known for a long time that smart processes win. Whether they were installing enterprise resource planning systems or working with the business to imagine the customer’s journey, they always had to think in holistic ways that crossed traditional departmental, functional, and operational boundaries.

Unlike other business leaders, CIOs spend their careers looking across systems. Why did our supply chain go down? How can we support this new business initiative beyond a single department or function? Now supported by end-to-end process methodologies such as design thinking, good CIOs have developed a way of looking at the company that can lead to radical simplifications that can reduce cost and improve performance at the same time.

They are also used to thinking beyond temporal boundaries. “This idea that the power of technology doubles every two years means that as you’re planning ahead you can’t think in terms of a linear process, you have to think in terms of huge jumps,” says Jay Ferro, CIO of TransPerfect, a New York–based global translation firm.

No wonder the SAP-Oxford transformation study found that one of the values transformational leaders shared was a tendency to look beyond silos and view the digital transformation as a company-wide initiative.

This will come in handy because in digital transformation, not only do business processes evolve but the company’s entire value proposition changes, says Jeanne Ross, principal research scientist at the Center for Information Systems Research at the Massachusetts Institute of Technology (MIT). “It either already has or it’s going to, because digital technologies make things possible that weren’t possible before,” she explains.

2. Work in Diverse Teams

When it comes to large projects, CIOs have always needed input from a diverse collection of businesspeople to be successful. The best have developed ways to convince and cajole reluctant participants to come to the table. They seek out technology enthusiasts in the business and those who are respected by their peers to help build passion and commitment among the halfhearted.

Digital transformation amps up the urgency for building diverse teams even further. “A small, focused group simply won’t have the same breadth of perspective as a team that includes a salesperson and a service person and a development person, as well as an IT person,” says Ross.

At Lenovo, the global technology giant, many of these cross-functional teams become so used to working together that it’s hard to tell where each member originally belonged: “You can’t tell who is business or IT; you can’t tell who is product, IT, or design,” says the company’s CIO, Arthur Hu.

One interesting corollary of this trend toward broader teamwork is that talent is a priority among digital leaders: they spend more on training their employees and partners than ordinary companies, as well as on hiring the people they need, according to the SAP-Oxford Economics survey. They’re also already being rewarded for their faith in their teams: 71% of leaders say that their successful digital transformation has made it easier for them to attract and retain talent, and 64% say that their employees are now more engaged than they were before the transformation.

3. Become a Consultant

Good CIOs have long needed to be internal consultants to the business. Ever since technology moved out of the glasshouse and onto employees’ desks, CIOs have not only needed a deep understanding of the goals of a given project but also to make sure that the project didn’t stray from those goals, even after the businesspeople who had ordered the project went back to their day jobs. “Businesspeople didn’t really need to get into the details of what IT was really doing,” recalls Ferro. “They just had a set of demands and said, ‘Hey, IT, go do that.’”

Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants.

But that was then. Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants. “If you’re building a house, you don’t just disappear for six months and come back and go, ‘Oh, it looks pretty good,’” says Ferro. “You’re on that work site constantly and all of a sudden you’re looking at something, going, ‘Well, that looked really good on the blueprint, not sure it makes sense in reality. Let’s move that over six feet.’ Or, ‘I don’t know if I like that anymore.’ It’s really not much different in application development or for IT or technical projects, where on paper it looked really good and three weeks in, in that second sprint, you’re going, ‘Oh, now that I look at it, that’s really stupid.’”

4. Learn Horizontal Leadership

CIOs have always needed the ability to educate and influence other leaders that they don’t directly control. For major IT projects to be successful, they need other leaders to contribute budget, time, and resources from multiple areas of the business.

It’s a kind of horizontal leadership that will become critical for businesspeople to acquire in digital transformation. “The leadership role becomes one much more of coaching others across the organization—encouraging people to be creative, making sure everybody knows how to use data well,” Ross says.

In this team-based environment, having all the answers becomes less important. “It used to be that the best business executives and leaders had the best answers. Today that is no longer the case,” observes Gary Cokins, a technology consultant who focuses on analytics-based performance management. “Increasingly, it’s the executives and leaders who ask the best questions. There is too much volatility and uncertainty for them to rely on their intuition or past experiences.”

Many experts expect this trend to continue as the confluence of automation and data keeps chipping away at the organizational pyramid. “Hierarchical, command-and-control leadership will become obsolete,” says Edward Hess, professor of business administration and Batten executive-in-residence at the Darden School of Business at the University of Virginia. “Flatter, distributive leadership via teams will become the dominant structure.”

5. Understand Process Design

When business processes were simpler, IT could analyze the process and improve it without input from the business. But today many processes are triggered on the fly by the customer, making a seamless customer experience more difficult to build without the benefit of a larger, multifunctional team. In a highly digitalized organization like Amazon, which releases thousands of new software programs each year, IT can no longer do it all.

While businesspeople aren’t expected to start coding, their involvement in process design is crucial. One of the techniques that many organizations have adopted to help IT and businesspeople visualize business processes together is design thinking (for more on design thinking techniques, see “A Cult of Creation“).

Customers aren’t the only ones who benefit from better processes. Among the 100 companies the SAP-Oxford Economics researchers have identified as digital leaders, two-thirds say that they are making their employees’ lives easier by eliminating process roadblocks that interfere with their ability to do their jobs. Ninety percent of leaders surveyed expect to see value from these projects in the next two years alone.

6. Learn to Keep Learning

The ability to learn and keep learning has been a part of IT from the start. Since the first mainframes in the 1950s, technologists have understood that they need to keep reinventing themselves and their skills to adapt to the changes around them.

Now that’s starting to become part of other job descriptions too. Many companies are investing in teaching their employees new digital skills. One South American auto products company, for example, has created a custom-education institute that trained 20,000 employees and partner-employees in 2016. In addition to training current staff, many leading digital companies are also hiring new employees and creating new roles, such as a chief robotics officer, to support their digital transformation efforts.

Nicolas van Zeebroeck, professor of information systems and digital business innovation at the Solvay Brussels School of Economics and Management at the Free University of Brussels, says that he expects the ability to learn quickly will remain crucial. “If I had to think of one critical skill,” he explains, “I would have to say it’s the ability to learn and keep learning—the ability to challenge the status quo and question what you take for granted.”

7. Fail Smarter

Traditionally, CIOs tended to be good at thinking through tests that would allow the company to experiment with new technology without risking the entire network.

This is another unfamiliar skill that smart managers are trying to pick up. “There’s a lot of trial and error in the best companies right now,” notes MIT’s Ross. But there’s a catch, she adds. “Most companies aren’t designed for trial and error—they’re trying to avoid an error,” she says.

To learn how to do it better, take your lead from IT, where many people have already learned to work in small, innovative teams that use agile development principles, advises Ross.

For example, business managers must learn how to think in terms of a minimum viable product: build a simple version of what you have in mind, test it, and if it works start building. You don’t build the whole thing at once anymore.… It’s really important to build things incrementally,” Ross says.

Flexibility and the ability to capitalize on accidental discoveries during experimentation are more important than having a concrete project plan, says Ross. At Spotify, the music service, and CarMax, the used-car retailer, change is driven not from the center but from small teams that have developed something new. “The thing you have to get comfortable with is not having the formalized plan that we would have traditionally relied on, because as soon as you insist on that, you limit your ability to keep learning,” Ross warns.

8. Understand the True Cost—and Speed—of Data

Gut instincts have never had much to do with being a CIO; now they should have less to do with being an ordinary manager as well, as data becomes more important.

As part of that calculation, businesspeople must have the ability to analyze the value of the data that they seek. “You’ll need to apply a pinch of knowledge salt to your data,” advises Solvay’s van Zeebroeck. “What really matters is the ability not just to tap into data but to see what is behind the data. Is it a fair representation? Is it impartial?”

Increasingly, businesspeople will need to do their analysis in real time, just as CIOs have always had to manage live systems and processes. Moving toward real-time reports and away from paper-based decisions increases accuracy and effectiveness—and leaves less time for long meetings and PowerPoint presentations (let us all rejoice).

Not Every CIO Is Ready

Of course, not all CIOs are ready for these changes. Just as high school has a lot of false positives—genius nerds who turn out to be merely nearsighted—so there are many CIOs who aren’t good role models for transformation.

Success as a CIO these days requires more than delivering near-perfect uptime, says Lenovo’s Hu. You need to be able to understand the business as well. Some CIOs simply don’t have all the business skills that are needed to succeed in the transformation. Others lack the internal clout: a 2016 KPMG study found that only 34% of CIOs report directly to the CEO.

This lack of a strategic perspective is holding back digital transformation at many organizations. They approach digital transformation as a cool, one-off project: we’re going to put this new mobile app in place and we’re done. But that’s not a systematic approach; it’s an island of innovation that doesn’t join up with the other islands of innovation. In the longer term, this kind of development creates more problems than it fixes.

Such organizations are not building in the capacity for change; they’re trying to get away with just doing it once rather than thinking about how they’re going to use digitalization as a means to constantly experiment and become a better company over the long term.

As a result, in some companies, the most interesting tech developments are happening despite IT, not because of it. “There’s an alarming digital divide within many companies. Marketers are developing nimble software to give customers an engaging, personalized experience, while IT departments remain focused on the legacy infrastructure. The front and back ends aren’t working together, resulting in appealing web sites and apps that don’t quite deliver,” writes George Colony, founder, chairman, and CEO of Forrester Research, in the MIT Sloan Management Review.

Thanks to cloud computing and easier development tools, many departments are developing on their own, without IT’s support. These days, anybody with a credit card can do it.

Traditionally, IT departments looked askance at these kinds of do-it-yourself shadow IT programs, but that’s changing. Ferro, for one, says that it’s better to look at those teams not as rogue groups but as people who are trying to help. “It’s less about ‘Hey, something’s escaped,’ and more about ‘No, we just actually grew our capacity and grew our ability to innovate,’” he explains.

“I don’t like the term ‘shadow IT,’” agrees Lenovo’s Hu. “I think it’s an artifact of a very traditional CIO team. If you think of it as shadow IT, you’re out of step with reality,” he says.

The reality today is that a company needs both a strong IT department and strong digital capacities outside its IT department. If the relationship is good, the CIO and IT become valuable allies in helping businesspeople add digital capabilities without disrupting or duplicating existing IT infrastructure.

If a company already has strong digital capacities, it should be able to move forward quickly, according to Ross. But many companies are still playing catch-up and aren’t even ready to begin transforming, as the SAP-Oxford Economics survey shows.

For enterprises where business and IT are unable to get their collective act together, Ross predicts that the next few years will be rough. “I think these companies ought to panic,” she says. D!

About the Authors

Thomas Saueressig is Chief Information Officer at SAP.

Timo Elliott is an Innovation Evangelist at SAP.

Sam Yen is Chief Design Officer at SAP and Managing Director of SAP Labs.

Bennett Voyles is a Berlin-based business writer.

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


The Differences Between Machine Learning And Predictive Analytics

Shaily Kumar

Many people are confused about the specifics of machine learning and predictive analytics. Although they are both centered on efficient data processing, there are many differences.

Machine learning

Machine learning is a method of computational learning underlying most artificial intelligence (AI) applications. In ML, systems or algorithms improve themselves through data experience without relying on explicit programming. ML algorithms are wide-ranging tools capable of carrying out predictions while simultaneously learning from over trillions of observations.

Machine learning is considered a modern-day extension of predictive analytics. Efficient pattern recognition and self-learning are the backbones of ML models, which automatically evolve based on changing patterns in order to enable appropriate actions.

Many companies today depend on machine learning algorithms to better understand their clients and potential revenue opportunities. Hundreds of existing and newly developed machine learning algorithms are applied to derive high-end predictions that guide real-time decisions with less reliance on human intervention.

Business application of machine learning: employee satisfaction

One common, uncomplicated, yet successful business application of machine learning is measuring real-time employee satisfaction.

Machine learning applications can be highly complex, but one that’s both simple and very useful for business is a machine learning algorithm that compares employee satisfaction ratings to salaries. Instead of plotting a predictive satisfaction curve against salary figures for various employees, as predictive analytics would suggest, the algorithm assimilates huge amounts of random training data upon entry, and the prediction results are affected by any added training data to produce real-time accuracy and more helpful predictions.

This machine learning algorithm employs self-learning and automated recalibration in response to pattern changes in the training data, making machine learning more reliable for real-time predictions than other AI concepts. Repeatedly increasing or updating the bulk of training data guarantees better predictions.

Machine learning can also be implemented in image classification and facial recognition with deep learning and neural network techniques.

Predictive analytics

Predictive analytics can be defined as the procedure of condensing huge volumes of data into information that humans can understand and use. Basic descriptive analytic techniques include averages and counts. Descriptive analytics based on obtaining information from past events has evolved into predictive analytics, which attempts to predict the future based on historical data.

This concept applies complex techniques of classical statistics, like regression and decision trees, to provide credible answers to queries such as: ‘’How exactly will my sales be influenced by a 10% increase in advertising expenditure?’’ This leads to simulations and “what-if” analyses for users to learn more.

All predictive analytics applications involve three fundamental components:

  • Data: The effectiveness of every predictive model strongly depends on the quality of the historical data it processes.
  • Statistical modeling: Includes the various statistical techniques ranging from basic to complex functions used for the derivation of meaning, insight, and inference. Regression is the most commonly used statistical technique.
  • Assumptions: The conclusions drawn from collected and analyzed data usually assume the future will follow a pattern related to the past.

Data analysis is crucial for any business en route to success, and predictive analytics can be applied in numerous ways to enhance business productivity. These include things like marketing campaign optimization, risk assessment, market analysis, and fraud detection.

Business application of predictive analytics: marketing campaign optimization

In the past, valuable marketing campaign resources were wasted by businesses using instincts alone to try to capture market niches. Today, many predictive analytic strategies help businesses identify, engage, and secure suitable markets for their services and products, driving greater efficiency into marketing campaigns.

A clear application is using visitors’ search history and usage patterns on e-commerce websites to make product recommendations. Sites like Amazon increase their chance of sales by recommending products based on specific consumer interests. Predictive analytics now plays a vital role in the marketing operations of real estate, insurance, retail, and almost every other sector.

How machine learning and predictive analytics are related

While businesses must understand the differences between machine learning and predictive analytics, it’s just as important to know how they are related. Basically, machine learning is a predictive analytics branch. Despite having similar aims and processes, there are two main differences between them:

  • Machine learning works out predictions and recalibrates models in real-time automatically after design. Meanwhile, predictive analytics works strictly on “cause” data and must be refreshed with “change” data.
  • Unlike machine learning, predictive analytics still relies on human experts to work out and test the associations between cause and outcome.

Explore machine learning applications and AI software with SAP Leonardo.


Shaily Kumar

About Shaily Kumar

Shailendra has been on a quest to help organisations make money out of data and has generated an incremental value of over one billion dollars through analytics and cognitive processes. With a global experience of more than two decades, Shailendra has worked with a myriad of Corporations, Consulting Services and Software Companies in various industries like Retail, Telecommunications, Financial Services and Travel - to help them realise incremental value hidden in zettabytes of data. He has published multiple articles in international journals about Analytics and Cognitive Solutions; and recently published “Making Money out of Data” which showcases five business stories from various industries on how successful companies make millions of dollars in incremental value using analytics. Prior to joining SAP, Shailendra was Partner / Analytics & Cognitive Leader, Asia at IBM where he drove the cognitive business across Asia. Before joining IBM, he was the Managing Director and Analytics Lead at Accenture delivering value to its clients across Australia and New Zealand. Coming from the industry, Shailendra held key Executive positions driving analytics at Woolworths and Coles in the past. Please feel to connect on: Linkedin: Twitter: