The Future Belongs To Industry-Busting Ecosystems

Dan Wellers and Timo Elliott

The digital revolution has returned nearly absolute power to the customer – and that’s upsetting not simply legacy corporations, but long-held notions of business models, competition, and industry boundaries. As companies examine their customers’ journeys, they are realizing that they alone are not capable of optimizing them. The customer experience today transcends corporate and industry borders – and in order to transform them, companies must work with a much wider range of players than ever before. And, thanks to the advance of digital technologies that dramatically reduce the cost and effort required to connect and collaborate, they can.

Digitally native companies have been the first to explore this new world, where industry limitations serve little more purpose than maintaining an increasingly insignificant status quo. As pointed out in a recent McKinsey Quarterly article on the topic, one would be hard pressed to put a company like Amazon or Japan’s Rakuten Ichiba in a single industry box. After all, neither is simply an online retailer. Amazon is a cloud computing provider, a consumer electronics company, a grocer – just for starters. Rakuten Ichiba is a financial services company, a travel website, a social media provider, and a gaming company.

But legacy organizations, too, must look beyond their own walls – even beyond their own industries – to co-create their futures or risk losing market share to the other companies that do. They will have to take fuller advantage of digital advancements to combine the capabilities of multiple entities to develop not just new products and services, but new business models. A recent article in the Harvard Business Review says this shift is not only possible, but necessary, calling collaboration “the essential new secret sauce for startups and industry leaders alike.” A whitepaper sponsored by the World Economic Forum (WEF) goes a step further, arguing that “only operating models that support partnerships and platforms will survive in the future.”

A mere 3% of corporate leaders say their organizations have completed digital transformation projects across the enterprise, according to a recent survey of 3,100 global executives from the SAP Center for Business Insight. It may well be that the disruptive transformation required to meet ever-increasing customer demands is something companies simply cannot accomplish alone. The select few digital transformation leaders identified in the survey have successfully connected their customer-facing efforts to business processes across the enterprise and extended them to partners and suppliers. As a result, nearly all (92%) of have derived significant or transformational value from digital transformation in customer satisfaction and engagement, compared with 22% of others.

“By understanding the network-multiplier effect of platform-driven ecosystems, companies can digitally tap into the many networks of people who are working toward the same goals. They can then leverage these networks to drive sustainable growth in faster and economically smarter ways,” says the WEF report. Indeed, 81% of respondents to an Accenture survey believe that industry boundaries will dramatically blur as platforms reshape industries into interconnected ecosystems. By 2018, more than 50% of large enterprises – and more than 80% of the Global 500 – will create or partner with industry platforms, according to IDC.

Beyond partnerships to ecosystems

We will see the increasing formation of horizontal ecosystems built around experiences, such as wellness, mobility, or community, for example. Partnerships have long been an essential component of business. But when we’re talking about ecosystems, we’re talking about something more.

British ecologist Arthur Tansley first used the term “ecosystem” to describe the relationship between organisms and their environment in 1935. Nearly 60 years later, in a 1993 Harvard Business Review article, business strategist James F. Moore co-opted the word to describe the interconnected business world. “Innovative businesses can’t evolve in a vacuum,” he wrote. “They must attract resources of all sorts, drawing in capital, partners, suppliers, and customers to create cooperative networks.” Moore suggested that companies were not members a single industry but part of a business ecosystem in which they co-evolve “cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations.”

Moore was ahead of his time. But the complex and multi-faceted nature of digital disruption and transformation highlights the appeal of business ecosystems today. “Business ecosystems are not just the province of the digital businesses,” said Marc Strohlein, adjunct research adviser with IDC’s Research Network. “Traditional businesses can adopt ecosystem thinking to evolve partner networks into powerful systems that increase the breadth and value of products and services, grow audiences, build strong competitive strengths, and deliver continuous innovation.”

Customer-centric transformation

Digital transformation is really about providing new and better customer experiences. However today’s complex customer journeys are not easily optimized – spanning not only devices and channels, but also businesses and industries. Taking them to the next level requires the input, innovation, and cooperation of ecosystem partners. Consider the experience of travel, which takes consumers through a series of interactions with multiple entities across sectors – airlines, airports, ground transportation, retail, hotels, government entities – each with different approaches and incentives and few working in collaboration to improve the customer journey. In the future, these entities might band together to innovate and deliver an improved customer experience across those touch points.

Ecosystems can deliver products, services, and experiences that would be difficult, costly, or even impossible for individual businesses on their own. It’s their differences – and their combined ability to learn, innovate, and execute – that make them successful. And in a world of commoditization, that network effect can prove invaluable.

China’s Ping An insurance company is aggressively expanding beyond its sector under a CEO who says the company’s role is not simply to provide insurance products, but help customers improve their lives. Some 89 million people are using Ping An Good Doctor, a platform to connect with doctors not only for online appointment booking but to receive diagnoses and suggested treatments – complete with the ability to share pictures and video.

Roche Diagnostics is innovating in the connected healthcare ecosystem by partnering with SAP to develop not just another blood glucose monitor, but a diabetes management platform. The Accu-Chek View offering integrates a blood glucose monitoring with a wearable fitness tracker and a mobile app so that a diabetes patient’s vital signs and blood sugar level are not only monitored remotely but can be analyzed in relation to their physical activity. The app and its connectivity to caregivers can encourage better lifestyle choices and empower individuals to take an active role in their disease management, improving outcomes.

Tire maker Michelin has created an ecosystem involving training, telematics, and electronics providers to sell not wheels, but a mobility service to help fleet managers control costs and environmental impact.

The CEO of Japan’s Softbank has stated that, “by providing all manner of services and content on (our) platforms, we are aiming to create a comprehensive ecosystem that other companies will never be able to rival.”

Customer co-innovation

Companies are beginning to explore the benefits of business ecosystems, from smart city consortia to mobility efforts, and borders are sure to be redrawn. That’s also true for the boundaries between businesses and their customers. As businesses and the ecosystems they create and participate in deliver more complex and customized products and services, the customer will take a larger role in their creation.

The $20 billion dollar online gaming business not only connects customers with each other, but involves them in continuous development of their products. In 2014, Coca-Cola rolled out its do-it-yourself soda fountains, which enable customers to mix their own beverage concoctions, and has since launched countertop versions and a mobile app.

It’s not just happening in consumer goods, but in the B2B space as well, with organizations working ever closer to provide complex, customized solutions developed with – rather than simply for – customers. Home appliance and electronics maker Haier turned itself around by focusing on customer-driven innovation. The company even created an open innovation platform that enables 670,000 users to communicate with suppliers and other customers searching for new business opportunities. Packaging provider Weig has transformed itself from a product-centric industrial company to a digital industrial service provider that’s integrating partners into production. Weig’s customers are increasingly working with the company to co-invent the perfect materials for their needs.

How to build an ecosystem

Transcending historical conceits and constraints won’t happen overnight. It will demand new mindsets and capabilities, more open corporate cultures, new business processes to support sharing, and technology infrastructures to underpin new cross-business and cross-industry networks. But it’s clear that business ecosystems will be the sources of new value and disruptive innovation in the future.

Company leaders who want to be a part of this collaborative future should start by taking a hard look at the end-to-end customer experience, including the aspects that aren’t controlled by the company’s own organization. Such customer journey mapping can help identify other members of the ecosystem with whom the company might want to collaborate or partner. Future planning and foresight exercises can enable companies to determine not just who the key players are today, but where the valuable partners will be in the future and where it’s best to buy, partner, invest, or incubate.

Technology will play a significant role in enabling the ecosystems of the future. Companies that want to spearhead or join such ecosystems will aggressively adopt systems that encourage open collaboration among stakeholders and iterative innovation such as cloud technologies, APIs, and micro-services. They will also want to create or join the kinds of platforms that will underpin ecosystem development.

Finally, embracing the ecosystem approach to value creation will require new mindsets and disciplines. Many corporate leaders have gotten to where they are because they excelled at coloring inside the lines. Companies will need to make sure those in strategic positions have the requisite creativity, open mindedness, and experience with more disruptive development approaches such as design thinking to re-imagine business models, customer experiences, and corporate value.

Read the executive brief The Future Will Be Co-Created.


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About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Timo Elliott

About Timo Elliott

Timo Elliott is an Innovation Evangelist for SAP and a passionate advocate of innovation, digital business, analytics, and artificial intelligence. He was the eighth employee of BusinessObjects and for the last 25 years he has worked closely with SAP customers around the world on new technology directions and their impact on real-world organizations. His articles have appeared in publications such as Harvard Business Review, Forbes, ZDNet, The Guardian, and Digitalist Magazine. He has worked in the UK, Hong Kong, New Zealand, and Silicon Valley, and currently lives in Paris, France. He has a degree in Econometrics and a patent in mobile analytics. 

Integrated Cloud And Analytic Solutions Are Driving IoT Adoption Rates

David Parrish

The Internet of Things (IoT) offers enormous potential for discrete manufacturers. It can drive more top-line revenue by enabling new, differentiated products and services. It can also reduce bottom-line costs by streamlining production and predictive maintenance through asset optimization and inventory optimization. And, IoT can lower maintenance costs by up to 60% and inventory costs by up to 50% thanks to optimization.

Manufacturing operations spent $102.5 billion on IoT in 2016. But despite this significant investment, many discrete manufacturers are not sure how to bring all these different pieces together into a single platform. Integrated cloud and analytic solutions are solving this problem.

Integrated cloud and analytic solution benefits for manufacturing companies

By connecting things with people and processes, integrated cloud and analytic solutions empower Live Business in four important ways:

  1. Live insights – An integrated IoT network combines data retrieved via sensors with contextual information to deliver live, actionable insights.
  1. Future forward – Putting predictive analytics on top of this information enables businesses not only to analyze current and historical data but also to “consider the future.” Fully integrated IoT can predict future opportunities and recommend concrete actions your company can take to capitalize on these opportunities.
  1. Process optimization – More value is generated through IoT by optimizing business processes and leveraging insights provided by data from physical things. Process optimization typically results in cost savings and shorter processing times.
  1. New business models – Companies can efficiently run new business models that would not have been possible before. This includes usage-based pricing and Technology-as-a-Service (TaaS).

How integrated IoT solutions serve products, assets, and fleets

Technology investments, most notably in IoT, are critical components of digital transformation. These investments connect products, assets, and fleets.

  • Connected products – Also known as “smart products,” connected products are strategic priorities for industrial manufacturers as they enable new service-based business models and provide the opportunity to make aftermarket service far more efficient. Integrated cloud and analytic solutions make it possible for manufacturers and operators to leverage sensor data. For example, research and development teams can utilize data using digital twins of connected products from sensors and other Big Data sources. R&D can then use this data to support the development of more reliable and desirable products. This includes adding features to meet specific customer needs while eliminating unused or undesired features that are expensive to include and offer minimal customer benefit.
  • Connected assets – As companies move from a reactive to a proactive approach to maintenance, an end-to-end solution for predictive maintenance and a service to identify and resolve issues before they happen are critical. This service must span from condition monitoring and the identification of emerging issues via machine learning to procuring spare parts, scheduling, and executing service and maintenance. Connected assets meet these needs, enabling manufacturing companies to connect, monitor, and analyze customers’ assets as well as their own.
  • Connected fleets – By enabling connected fleets, you can track, monitor, analyze, and maintain all moving assets, wherever they are in the network. Connected fleets enable manufacturing companies with fleets of moving assets, like vehicles or forklifts, to collect live telemetry and sensor data. IoT can collect, map, store, and analyze fleet and vehicle data in real time through the integration of telematics, enterprise, and customer data. This data is then integrated into the core business processes to improve services and safety for operators, improve visibility to logistics, and provide better services for end customers.

Selecting the right integration option for your company

While analysts foresee a huge monetary potential through the IoT for manufacturers, companies are struggling to derive a firm strategy. With so many different options, it can be difficult to know where to begin. Implementing IoT does not start with technology. Companies must first clarify their core value chain and assess enterprise-wide options for value optimization through new business scenarios.

Your company should consider, for example, how connected manufacturing and predictive quality could minimize production costs. How could remote monitoring and predictive maintenance service agreements create new, aftermarket revenue streams? Finally, how could connected logistics ensure your company knows where everything stands in its supply chain, reducing safety stocks and minimizing costs? Once your company has answered these questions, your business can begin to consider platform partnerships.

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value by reading “Accelerating Digital Transformation in Industrial Machinery and Components.” Explore how to bring Industry 4.0 insights into your business today by reading “Industry 4.0: What’s Next?

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David Parrish

About David Parrish

David Parrish is the senior global director of Industrial Machinery & Components Solutions Marketing for SAP. Before joining SAP, he held various product and industry marketing positions with J.D. Edwards, PeopleSoft, and QAD going back to 1999.

Ready or Not, Here It (Rev Rec Standard) Comes

David McCann

The first financial statements required to present revenue calculated under the new revenue recognition standard will begin appearing in April.

That doesn’t mean, though, that all companies are “ready” to do so. That’s according to someone who is decidedly in the know: Christoph Hütten, chief accounting officer for the mammoth, Germany-based business software firm SAP.

Hütten played a key role in the development of the new international revenue recognition standard, IFRS 15 (which is nearly identical to the new ASC 606 under U.S. GAAP).

He served from 2009 to 2014 on the IFRS Advisory Council for the International Accounting Standards Board. During that time period, IASB issued two exposure drafts of the new standard and published the final rule. For the past four years, Hütten has been part of the Joint Transition Resource Group for Revenue Recognition, formed by the U.S. and international standard setters after the standard’s 2014 publication to answer questions and clarify uncertainties around its application.

Asked to characterize companies’ overall readiness to effectively deal with the standard, Hütten laughs. “I’ve had this conversation a few times before,” he says.

Answering the question is a matter of how one defines readiness, he notes. “Is a company ready to produce a revenue number, through manual processes and using thousands of Excel spreadsheets, that is materially correct for one fiscal quarter? Or is the company ready only when it can say it has a stable, sustainable process with much less manual effort?” [Editor’s note: SAP sells software that includes functionality for automating revenue-recognition processes.]

Most companies, Hütten adds, are ready to produce a revenue number for the first quarter. But a majority of those are using what he describes as “interim processes.”

Lots of companies have gone for a two-step approach, he says, setting new accounting policies first and then later applying automation to improve and stabilize processes.

Misjudging the complexity?

In the software industry, a majority of vendors, including SAP, today derive most or all of their revenue from customer contracts. Such contracts are what the new revenue recognition standards apply to. However, even in the software field, readiness for the new standard is a bit spotty, according to Hütten.

“Most [software] companies I’ve talked to are finished analyzing their most typical deal structures,” he says. “But we all know there’s not a high level of deal standardization in the software industry. There are lots of scenarios that don’t happen frequently, and I think companies will take a ‘cross that bridge when we come to it’ approach.”

Still, software firms do tend to be ahead of other companies when it comes to dealing with the revenue recognition standard.

“I see a lot of [non-software] companies underestimating it,” says Hütten. “They don’t see a big issue for revenue on the face of their income statement. But at some point, somebody will be looking at the very detailed disclosures that are required and realize they’re not prepared to make them.”

For that reason, Hütten advises companies not to judge the new standard’s importance by its impact on the revenue line in the income statement.

Also, he counsels, even companies that take the two-step approach described above should not delay implementing automation longer than necessary. Complying with the standard requires complex accounting with regard to, for example, the allocation of fees among the various deliverables stipulated in customer contracts, he notes.

“I fully understand climbing the accounting hurdle first,” Hütten says. “But I can only tell those companies not to think, ‘oh, we did OK manually for the first  quarter, so that will be sufficient for further quarters.’ That’s risky, especially if you have complicated customer contracts.”

Errors in financial statements could, of course, lead to companies having to file restated financials, which normally don’t sit well with investors. In the United States, if errors are egregious enough a company could be forced to admit a material weakness in controls over its revenue processes, under Section 404 of the Sarbanes-Oxley Act.

This article originally appeared on CFO.com and is republished by permission.

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David McCann

About David McCann

David McCann is deputy editor at CFO magazine and CFO.com.

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.
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Cloud Computing: Separating Myth From Reality

Misa Rawlins and Krishnakant Dave

Across industries, many enterprise leaders believe and understand that cloud computing is here to stay. Globally, public cloud services market revenue is projected to reach US$411 billion by 2020, compared with $260 billion in 2017, according to research firm Gartner, Inc. Cloud technology in all its forms—software, platform, or infrastructure as a service—is rapidly becoming essential to the needs of business today. With cloud computing, organizations can simplify IT, save costs, scale rapidly, drive standardization and user adoption, and start getting ahead of tomorrow’s needs when it comes to customer engagement, the supply chain, the workforce, a simplified finance function, and more.

Despite the short- and long-term advantages, some executives remain uncertain about the next steps or have lingering questions about the benefits of moving to the cloud. For many leaders, separating the cloud myths from the facts can prove daunting. Start here, with these insights that can help you bust big myths about the cloud and start moving confidently toward a cloud-enabled transformation of your organization.

Myth No. 1: Moving to the cloud is too costly. “Costly” is a relative term. The cloud can be costly – but costs should be weighed against benefit and return once requirements and migration plans are in place. Rapidly evolving business demands, for example, can dramatically alter cloud-related requirements. Meanwhile, new technologies are dramatically redefining the art of the possible with the cloud. Because migrating to the cloud is not a true “plug-and-play” proposition, and many enterprise leaders underestimate what a migration or implementation involves, some organizations can be surprised by the costs of a cloud transformation. Without a clear understanding of the potential benefits—without a clear business case for moving to the cloud—the focus on costs can overshadow the return on investment. Knowing the value that cloud solutions can bring—not just the costs—can help manage expectations.

Myth No. 2: The benefits of the cloud aren’t substantial enough. As vendors adopt a “cloud-first” stance for many solutions and product updates, organizations that move to the cloud may have a competitive advantage—no matter the size of the enterprise. Cloud solutions continue to offer abundant and increasing functionality. And with the help of an end-to-end solution provider, you can configure cloud solutions to the specific needs of your industry and your business. For larger organizations, rapidly deployable cloud solutions can help support growth or the unique needs of certain business units, such as new acquisitions or foreign subsidiaries, for example. For smaller organizations, the cloud can help you position your organization to tap new opportunities and tame growth challenges.

Myth No. 3: Cloud is too risky. All digital technologies and all business models come with inherent risk. In a hyperconnected world, no system is immune from cyber attacks, insider threats, data leakage, or related risks. No transformation project is a guaranteed success. Market changes, new competition, regulatory issues, and other factors can require you to change your cloud strategy overnight.

Because the risks are real, take advantage of resources and capabilities that can help reduce risk and ensure that your technology investments align tightly with clear business objectives. The maturity of the software goes a long way toward mitigating risk with cloud projects. You can add an extra layer of capabilities such as managed cloud services to provide active, hands-on oversight of cloud applications and infrastructure—helping you to avoid service interruptions and address issues proactively.

Myth No. 4: Cloud computing is still an immature technology. Like other evolving technologies, cloud is advancing every day. Those who wait for the next generation of cloud offerings may find themselves missing out on tangible benefits as competitors leverage cloud technology to sharpen their edge. Across industries, leading organizations are not waiting. Many view cloud technology as evolving but necessary, and they are leveraging it effectively today. Some, for example, are tightly integrating cloud software solutions to streamline supply chain processes, boost information transparency, and improve decision-making across the board—all the while tapping the cloud benefits of cost savings and scalability. Others are confidently turning to infrastructure solutions delivered and running solutions in a private or hybrid cloud. Still others are turning to cloud platform solutions to extend the power of existing applications, build modern analytics platforms, or support new Internet of Things business models. Turning the cloud to your advantage may depend less on the maturity of the technology and more on the power of your imagination.

Myth No. 5: Moving to the cloud will be easy. Cloud technology can help organizations streamline and simplify their IT landscapes and their business processes, reducing needs around capital expenses and infrastructure while helping to save costs. But migrating to the cloud requires more than simply plugging in technology. It requires an ability to address a host of considerations—data migration, the business-specific capabilities of solutions, change management, governance, systems integration, security, and more.

A cloud transformation is more than a plug-and-play project or a traditional system implementation. It requires progressive thinking and an ability to align technology with your business needs and processes— for today and for the future. Migrating to the cloud is a journey. Moving forward with the cloud will require a vision of your “to be” state—your destination—as well as a strategy for getting you there.

To learn more, and to find out what IDC thinks about the future of the cloud, please read this study that presents a strategic blueprint for enterprises on their digital transformation journey.

For more information on how to simplify innovation with cloud technology, learn more about SAP Cloud Platform.

Ready to reimagine the potential of the cloud? Contact us to get the conversation started.

Contact Krishnakant Dave at kdave@deloitte.com and follow him on Twitter: @kkdave

Contact Misa Rawlins at mrawlins@deloitte.com and follow her on Twitter: @misa_rawlins

www.deloitte.com/SAP

SAP@deloitte.com

@DeloitteSAP

This article originally appeared on Deloitte.com and is republished by permission.

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Misa Rawlins

About Misa Rawlins

As a senior manager and consultant in Deloitte’s SAP practice, Misa Rawlins enjoys helping her clients not only to figure out how to solve their current business problems, but also to envision how a modern cloud platform can transform their organizations moving ahead. Within the practice, she has specifically chosen to take a leadership role around the sales and delivery of SAP S/4HANA Cloud because she considers it the wave of the future. She has made it her mission to deeply understand this technology to better advise clients on what moving to a cloud infrastructure really means.

Krishnakant Dave

About Krishnakant Dave

As a principal in Deloitte’s global SAP practice, KK Dave is a consulting leader for Deloitte’s largest clients; part of the U.S. SAP leadership team where he spearheads Deloitte's cloud offerings; and leader of global go-to-market efforts in the wholesale distribution and manufacturing sector. In these roles, he assists clients in their business transformation journeys using the absolute latest SAP toolset, which presently comprises SAP S/4HANA, SAP Cloud Platform, and SAP S/4HANA Cloud, among other technologies.