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4 Ways Digitalization Is Transforming R&D

Thomas Ohnemus

Fully one-quarter of the world’s economy will be digital by 2020, forecasts a new report from Accenture. But that prediction doesn’t tell the whole story. Because increasingly, all business processes will be not only digitized – converted from analog to digital – but also digitalized – transformed in a way that blurs the physical and virtual.

Many organizations are struggling to respond. In fact, only five percent of companies say they’ve mastered digital transformation to the point of competitive differentiation, according to Forrester.

The challenge is especially acute for manufacturers. From innovation to production to logistics, manufacturers are seeing their operations revolutionized by digital technologies.

That starts with research and development. Here are four key ways digitalization is transforming R&D:

1. End consumers are more empowered

Technology has put consumers in the driver’s seat. Customers now have instant, constant access to information about products, quality, and pricing – for both you and your competitors. In the past, if you had established yourself as a leader in a region, the competition was at a disadvantage. Today, customers know how you stack up against rivals around the world, and your past market leadership is irrelevant. This isn’t just a problem for sales and marketing. It’s also a problem for R&D, which must respond – in as near to real time as possible – to changing customer demands. The good news is that technology is also the solution. For example, by designing smart products that leverage Internet of Things (IoT) sensors, R&D can capture usage data to understand customer desires and capture performance data to learn how to improve products rapidly.

2. Transparency is rewriting how manufacturers collaborate

Information access is changing the way manufacturers interact both internally and with suppliers. This is true for every function, but especially for R&D.

As R&D creates more smart products, the skills it requires are changing. The automotive industry is a case in point. Fifteen years ago, cars began to incorporate electronics such as engine-control systems. Today, electronics are where most automotive R&D is happening, and within 10 years, electronics will allow cars to pretty much drive themselves.

That dramatically changes how cars are designed. In the past, mechanical engineers led design efforts, and electronics were merely an add-on. Today, software development – with its very different requirements and design cycles – is integral to the process. In the automotive industry and in virtually every other industry, product design will involve new stakeholders who must work together in new ways.

3. Business models are growing more flexible

In the past, product designers worked for companies that sold products. But increasingly, manufacturers will sell not products but services. That affects R&D in fundamental ways.

A good example is a midsize SAP client that makes industrial air compressors. Some years ago it realized customers wanted not air compressors but compressed air. So it began offering compressed air as a service. Before this time, it designed and manufactured air compressors and then sold them to customers. Now, it designs and manufactures air compressors, installs them at customer sites, and then charges for the compressed air customers consume.

That new business model changes how R&D develops products. First, it needs to design in IoT sensors to monitor the compressors in real time and enable predictive maintenance. Second, it needs to optimize longevity and ease of maintenance. One way the company achieves that is by having engineers regularly spend time with field service to see firsthand how equipment is performing.

4. Business processes are becoming more customer centric

In fact, 83% of executives believe digitalization is driving a shift from supply-side economies of scale to demand-side economies based on interconnection with customers and partners, according to the Accenture report.

Manufacturers will have to be more connected to customers, because new business models will demand it. Take the air compressor customer. It hasn’t invested in a capital-intensive air compressor; it’s simply contracted for compressed air. At the end of the contract, there’s little disincentive to switching to a more attractive contract. The same will be true for many products across many industries.

How does that change R&D? Design cycles will have to accelerate to maintain competitive differentiation. For example, most carmakers update a car’s electronics only if the customer happens to come in for service. Tesla has upped the ante by sending new features and functions directly to the consumer through regular software updates. Don’t be surprised if its competitors start to follow.

Ultimately, the digital economy begins and ends with the customer. Customers are more empowered, so companies need to become more customer-centric. And nowhere is that more true than in R&D.

In my next blog, I’ll look at how digitalization is transforming manufacturing.

For more insight on the new customer-centric digital economy, see Customer Relationship Status: It’s Complicated.

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Thomas Ohnemus

About Thomas Ohnemus

Thomas Ohnemus is the Vice President, Solution Marketing, Customer Value Office, at SAP. He is responsible for driving the go-to-market strategy, messaging, and demand generation. Thomas has over 25 years’ experience in business software solutions and his PLM expertise has awarded him key management positions in consulting, product management, service, and global marketing. He holds a master’s degree in engineering, and lives in Germany.

Smart Machines Create Markets For Cyber-Physical Advances

Marion Heindenreich

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

Why smart machines?

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

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

Businesses change their approaches

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

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

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

A data mining example

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

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

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

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

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

Opportunity abounds

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

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

There are risks

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

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

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

Conclusion

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

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

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Marion Heindenreich

About Marion Heindenreich

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

Mining Firms Turn To Tech

Ruediger Schroedter

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

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

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

Digging in to the data

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

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

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

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

Technology at play

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

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

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

Buy or sell?

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

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

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

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

Anticipating, not reacting

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

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

Selecting the right sites

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

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

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

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

Prospective drilling

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

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

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

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

Conclusion

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

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

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

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

AA Mining and Metals Forum

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Ruediger Schroedter

About Ruediger Schroedter

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

How Much Will Digital Cannibalization Eat into Your Business?

Fawn Fitter

Former Cisco CEO John Chambers predicts that 40% of companies will crumble when they fail to complete a successful digital transformation.

These legacy companies may be trying to keep up with insurgent companies that are introducing disruptive technologies, but they’re being held back by the ease of doing business the way they always have – or by how vehemently their customers object to change.

Most organizations today know that they have to embrace innovation. The question is whether they can put a digital business model in place without damaging their existing business so badly that they don’t survive the transition. We gathered a panel of experts to discuss the fine line between disruption and destruction.

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qa_qIn 2011, when Netflix hiked prices and tried to split its streaming and DVD-bymail services, it lost 3.25% of its customer base and 75% of its market capitalization.²︐³ What can we learn from that?

Scott Anthony: That debacle shows that sometimes you can get ahead of your customers. The key is to manage things at the pace of the market, not at your internal speed. You need to know what your customers are looking for and what they’re willing to tolerate. Sometimes companies forget what their customers want and care about, and they try to push things on them before they’re ready.

R. “Ray” Wang: You need to be able to split your traditional business and your growth business so that you can focus on big shifts instead of moving the needle 2%. Netflix was responding to its customers – by deciding not to define its brand too narrowly.

qa_qDoes disruption always involve cannibalizing your own business?

Wang: You can’t design new experiences in existing systems. But you have to make sure you manage the revenue stream on the way down in the old business model while managing the growth of the new one.

Merijn Helle: Traditional brick-and-mortar stores are putting a lot of capital into digital initiatives that aren’t paying enough back yet in the form of online sales, and they’re cannibalizing their profits so they can deliver a single authentic experience. Customers don’t see channels, they see brands; and they want to interact with brands seamlessly in real time, regardless of channel or format.

Lars Bastian: In manufacturing, new technologies aren’t about disrupting your business model as much as they are about expanding it. Think about predictive maintenance, the ability to warn customers when the product they’ve purchased will need service. You’re not going to lose customers by introducing new processes. You have to add these digitized services to remain competitive.

qa_qIs cannibalizing your own business better or worse than losing market share to a more innovative competitor?

Michael Liebhold: You have to create that digital business and mandate it to grow. If you cannibalize the existing business, that’s just the price you have to pay.

Wang: Companies that cannibalize their own businesses are the ones that survive. If you don’t do it, someone else will. What we’re really talking about is “Why do you exist? Why does anyone want to buy from you?”

Anthony: I’m not sure that’s the right question. The fundamental question is what you’re using disruption to do. How do you use it to strengthen what you’re doing today, and what new things does it enable? I think you can get so consumed with all the changes that reconfigure what you’re doing today that you do only that. And if you do only that, your business becomes smaller, less significant, and less interesting.

qa_qSo how should companies think about smart disruption?

Anthony: Leaders have to reconfigure today and imagine tomorrow at the same time. It’s not either/or. Every disruptive threat has an equal, if not greater, opportunity. When disruption strikes, it’s a mistake only to feel the threat to your legacy business. It’s an opportunity to expand into a different marke.

SAP_Disruption_QA_images2400x1600_4Liebhold: It starts at the top. You can’t ask a CEO for an eight-figure budget to upgrade a cloud analytics system if the C-suite doesn’t understand the power of integrating data from across all the legacy systems. So the first task is to educate the senior team so it can approve the budgets.

Scott Underwood: Some of the most interesting questions are internal organizational questions, keeping people from feeling that their livelihoods are in danger or introducing ways to keep them engaged.

Leon Segal: Absolutely. If you want to enter a new market or introduce a new product, there’s a whole chain of stakeholders – including your own employees and the distribution chain. Their experiences are also new. Once you start looking for things that affect their experience, you can’t help doing it. You walk around the office and say, “That doesn’t look right, they don’t look happy. Maybe we should change that around.”

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

To learn more about how to disrupt your business without destroying it, read the in-depth report Digital Disruption: When to Cook the Golden Goose.

Download the PDF (1.2MB)

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Our Government's Legitimacy Is In Danger

Hein Keijzer

It is a growing phenomenon: Governments are gradually losing support from their citizens. Citizens in European countries are also becoming disillusioned with their governments. This calls for a drastic improvement of the services provided to the most important and sole shareholder of the government—the citizen—because the government’s legitimacy is at stake.

Citizens’ confidence in government has been waning for some time now. There are reasons why populist and eurosceptic parties  have been gaining votes over the past years. The government must do everything within its power to win to rebuild confidence, and not just by fulfilling its basic tasks, because a feeble six can no longer save the parliamentary democratic system.

The victory of populist parties is the beginning of the end of the current democratic order. It is very likely that these parties will not participate in the government, because the other parties will mostly exclude them. As a result, the chasm between citizen and government keeps growing, creating a situation that reinforces itself and that holds very little chance of success in the future.

The base

We must return to the base to touch on the core of the problem. Western governments are complex bodies, but the basic idea behind them is rather simple: Citizens pay tax to a central, democratically elected system. In return, they expect basic services such as security, education, physical infrastructure, healthcare—and in the case of the Netherlands, dry feet, i.e. protection against water. It is not unreasonable to expect a western country to provide at least this bare minimum.

But this is where things is going wrong these days. Every country is dealing with at least one case in which the tax payers’ money is not allocated correctly. The Panama Papers is a recent example of this. The term cover-up often does not apply anymore, because civil servants are no longer even capable of hiding the chaos in a cover-up. These days the media are capable of making the content  of the cesspool available to the public in no time. A ministry that cannot manage its internal affairs has even more trouble proving its legitimacy to society.

The government must not only deal with organizational problems; mentality comes into play as well. Many governmental institutions see the taxpayer as such: a taxpayer with mostly obligations. This mindset need to change. It is time for a customer-centric approach: The citizen is the customer, and the customer is king. As is the case with the boardroom of a commercial party where shareholders cannot get away with mismanagement, the government should not be able to get away with mismanaging the assets of their sole shareholder: the citizen.

This approach requires a number of very strong measures:

1. Earnest use of apps and social media

In the past it was necessary to go to an office and make an appointment in order to communicate with the government. These days, social media allow for much more efficient communication. Governments can use apps and social media—potentially—to more quickly discover trends, indicate problems, and communicate with citizens. Now digital communication is mostly housed in separate departments. This is not sufficient for the much-needed model in which the citizen is the shining center of the services provided. Communication with the citizen should be at the core of the organization.

2. Make the policy completely transparent

Backroom politics and convoluted decision-making are no longer feasible. Citizens are entitled to the best possible access and information provision. The government has come a long way with open data, but is still very far from doing enough.

3. Clear communication

It is the duty of a good service provider to communicate clearly with its client. This also applies to the communication of the government with the citizen. Unfortunately, this fails all too often. Vague, official language and unclear wording are the order of the day. If a citizen does not understand the government, it creates a wedge. Civil servants should be forced to follow compulsory courses on clear communication on a B1 level. This is an official language level that is understood by the majority of the population and is effective to communicate messages in a clear way.

4. Smarter information linking

The government knows a lot about their citizens, but this information is not linked well or not linked at all. As a consequence, the government does not know anything about us at all. From a privacy point of view, this is of course not unattractive, but it is disastrous for the provision of good services.  The government cannot think with us if it doesn’t know who we are, if it doesn’t know our preferences and our problems. In order to achieve this, systems and an integral data policy must be connected, for one version of the truth. I provided a few examples of this in my previous blog.

Unfortunately these four points are still far from reality. This isn’t the first time that I have broached these problems. The communication between the government and the citizen is often very difficult. There are few apps, and the government uses social media in a very reactive way. It is not rare to only receive an answer after a few days. Smart connections between citizen data points are missing. Many governments are developing the majority of their IT solutions themselves, and barely believe that integration via standard solutions is possible. The government’s outlook is inward and doesn’t change, because there is barely any staff turnover.

Governments could follow the example of the Australian government, which started a digital transformation with a genuine Digital Transformation Office. Its primary focus is efficient and transparent service provision toward the citizen. Its motto: “Simpler, clearer, faster public services”—an easy but meaningful statement. It touches the core of what has to happen here as well.

The gap between government and citizens will not close on its own. A digital transformation is unavoidable if the government wants to stop the downward trend and not lose its legitimacy completely.

For more insight on digital transformation in the public sector, see Unlocking The Benefits Of Digitization For Governments.

 

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Hein Keijzer

About Hein Keijzer

Hein Keijzer is customer solution manager for the Public Sector Business Unit at SAP Nederland. After his education in Applied Economics and Public Administration, Hein worked for the Dutch Ministry of Finance, Budget Affairs directorate, and since 2000 at SAP. Connect with me on Twitter @heinkeijzer or <a href="https://nl.linkedin.com/in/heinkeijzer"LinkedIn.