How Does Globalization Affect Resources?

Danielle Beurteaux

How do our global and very interconnected markets effect resource volatility?

The evidence points to increasing resource volatility as globalization grows, including in agricultural products. “The globalized world increases the pressure on resources, making even basic food volatile, and especially increasing the pressure on energy and metals,” says Kai Goerlich, SAP’s Idea Director, who led the research.

This research is based on World Bank data and converted into 2010 U.S. dollars for consistency. This is part one of a two-part series.

Top 10 resources and trends

1. Cotton

The top cotton-producing countries are India, China, and the U.S.

The cotton world had a bit of a shock last year when news came out that China was about to unload its massive cotton reserves, which sent prices down. But China didn’t actually flood the cotton market, and cotton production has also decreased somewhat, both of which reversed the price decrease.

The USDA also reports that production levels have recently decreased, particularly in West Africa. Demand from Pakistan increased because its own crop was damaged by pests – good news for India, which increased exports to Pakistan to make up the shortfall.

2. Maize

Maize, aka corn, makes up about a third of global cereal production, according to the World Bank. Maize production has increased over the past 20-odd years, mostly due to its increase as a crop in Asia. The Asian, Canadian, and Australian markets have had an effect on the U.S. Notwithstanding that areas of America’s Midwest are still known as the “breadbasket,” U.S. maize production is actually on a downward trend. It will be interesting to see if the Trans-Pacific Partnership, once (or if) signed will change that development.

3. Platinum

Platinum might be known to consumers mostly for jewelry, but the primary market for this metal is automotive. The majority of platinum comes from South Africa; Russia is the second largest producer. The World Platinum Investment Council is predicting that the metal’s market deficit will decrease this year because of the increased availability of recycled metals and less demand. However, others think the deficit is permanent and predict that platinum will return to its historical price above gold. Much of this depends on demand from global industry, particularly in China.

Here’s an example of the global nature of resources: South African mine workers’ union contracts expire in June. Labor disruptions would, obviously, affect the availability and price of platinum worldwide.

4. Crude oil

It was only recently that the price for crude oil fell yet again due to high inventories, global output, and less demand. What a difference a raging fire can make. The fire in Fort McMurray, Alberta, which began on May 1, has forced the evacuation of the town and the major oil producers have halted or shut down production. This sent crude oil prices back up to almost $50 a barrel, from $26 earlier in the year. Canada is the U.S.’s major supplier of oil.

5. Sawnwood

As with other wood products, there has been an increase in sawnwood production and demand recently, the biggest since the economic downturn post-2008, according to the UN’s Food and Agriculture Organization. There has been an increase in production in some European countries, in part because of recent wind storms that knocked down trees. Also, Europe is slowly reforesting, most dramatically in Ireland with a 52% increase in forested lands.

6. Lead

Lead is a valuable ore that is relatively simple to mine and has a high value, with a global market of approximately $15 billion. While production has slowed somewhat, it’s interesting to note that what’s referred to as the “secondary production,” which includes recyclables, is now almost at par with mined lead. In the U.S., most lead production comes from secondary production, and most of it is used for lead-acid batteries. And even though global stocks and production are decreasing, the price per ton is, too. One reason for that is the search and adoption of alternatives that are more environmentally friendly.

7. Sorghum

Sorghum is grain used mostly for livestock feed and ethanol products. The U.S. is the biggest sorghum producer, followed by Mexico and Nigeria.  Its benefits are that it’s relatively drought- and disease-resistant. But that hasn’t stopped the global sorghum market from experiencing a downturn in demand, driven mostly by China for animal feed. China was responsible for almost 80% of U.S. sorghum exports in 2014-2015. But now it looks like China’s government wants to import less and is using up some of its own stockpiles instead.

8. Sugar

A sweet tooth is about to get more expensive. There’s more sugar demand than supply for the first time in five years. This is good news for sugar producers; the price of sugar recently fell to below production cost. Weather conditions, particularly El Niño, have been a problem in decreasing sugar supply. The EU recently surveyed member states’ opinions on raising sugar supplies because the stockpile is heading to dangerous lows, with potential shortages as soon as this summer.

9. Meat and chicken

The world’s appetite for meat continues to grow. Again, China is driving consumption of chicken, sheep, and pigs, and Brazil takes the top slot for beef. Here’s some interesting data from the OECD about global meat consumption: yet again, China’s economic outlook and tastes are shaping global markets. A Chinese company recently purchased Brazil’s largest soybean producer – soybean is used as animal feed. The Australian government recently blocked the sale of a cattle station conglomerate to Dahang Australia, which is mostly controlled by the Shanghai Pengxin Group. The sale was for 2.5% of Australia’s agriculture land and 185,000 cattle.

10. Tea

It’s been a tough year for some tea producers. Assam, the state in India famed for its teas, has been affected by heavy rains and cool temperatures, which will have an negative effect on the “second flush” (second growth) teas. India is the world’s second largest tea producer (China is the largest; Kenya is third), and most of it is grown on Assam’s tea plantations. Heavy rainfalls, dry periods, and pests are all making tea growing a challenge. Tea is actually the second most popular drink worldwide – the first is water. As noted in this U.N. Food and Agriculture Organization report, tea is pretty picky about growing conditions, and there are only a few areas in the world where it grows well. Overall, tea production, exports, and consumption all grew, and the FAO predicts this trend will continue. However, climate change is a top concern of tea producers and could be the biggest challenge to established producing regions.

Industries are realizing the advantages of the Internet of Things and digital transformation at different speeds and on different scales. IDC reveals how in The Internet of Things and Digital Transformation: A Tale of Four Industries.

For more insight on digital transformation, join us at SAPPHIRE NOW and attend the session “Build Resilience into Digital Supply Networks by Using Live Business.”

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Do Australians Really Pay The Highest Power Prices In The World?

Gavin Mooney

The price of electricity is a hot topic in Australia right now, sparking acrimonious debate over who is to blame, not only in the murky world of Australian politics but also in online discussion groups and forums. I wanted to look past the polarized media headlines and try to dig out some facts for myself, and I have found it to be a complex and fascinating question with no clear single answer.

There is too much information for a single post, so this will be published in three parts as follows:

  1. A look at power prices in Australia compared to the rest of the world
  1. An explanation for the high power prices in Australia
  1. A look at what can be done about the high power prices in Australia

Is it really that expensive?

Yes, but it’s complicated.

To calculate a single value to represent the price of energy in an entire state or country, we need to make assumptions about what sort of retail offer consumers are on, what proportion receive concessions, the average annual household consumption, and the load profiles, which affect the price paid for customers on time of use tariffs.

Taxes vary from country to country and may or may not be included in the comparison. Excluding taxes means that the comparison shows the prices paid to the electricity industry, whereas including them means the comparison shows the actual prices paid by consumers.

There are also different ways to compare the data and not all of them present Australia as the most expensive in the world, but it’s right up there.

For example, this snippet from the Finkel Review, using data from the IEA’s Energy Prices and Taxes report shows that Australia ranks in the top ten at market exchange rates but is close to the OECD average at purchasing power parity (PPP) which is generally considered a fairer comparison. Analysis from CME Australia and MarkIntell in 2016 showed that, exclusive of taxes and at market exchange rates, Victoria, South Australia and New South Wales came out most expensive of all. However, when taxes were included, Denmark and Germany took the lead, joined by Italy and Portugal when PPP rates were used.

Nonetheless, in July 2017 the big three energy retailers in Australia increased their prices by up to 20% with South Australia and New South Wales hardest hit.

This has left South Australia with the most expensive electricity in the world, according to analysis from MarkIntell. Three times more expensive than the US and 50% more expensive than the UK. (It should be noted that South Australia Treasurer Tom Koutsantonis challenged these calculations, saying they were based on old data and “fundamentally flawed” assumptions.)

Another detail to note is that part of any electricity bill will include a supply charge to connect to the network, which is fixed regardless of how much energy is consumed. Therefore the more energy a household uses, the more the fixed supply charge is diluted and this brings down the cost per kWh. So the c/kWh comparison above favours countries such as the US where annual consumptions are higher (about twice as much as Australian households).

The cost of energy is now a major concern in Australia

The World Economic Forum Global Risks 2018 report put energy pricing as the leading concern for businesses operating in Australia within the next 10 years. Australia was the only country to rank energy price as its major concern. And according to a Choice survey, electricity bills are still the household cost item that concerns Australian consumers the most.

What is particularly disappointing for many Australians is that we used to have some of the cheapest electricity in the world. CME Australia director Bruce Mountain stated that when the National Electricity Market was formed in the late 1990s, Australia had the lowest retail prices in the world along with the United States and Canada.

Concern over electricity prices has been brewing for a while, with this 2013 government report and this 2015 article already looking at explanations for rising electricity prices.

So just how much have prices risen?

Various different figures have been mentioned recently, such as “183% in the last two decades” from senior researcher David Richardson or 72% from 2003-2013 from this government article or around 100% from 2006-2016 from a recent Australian National University report.

To get a clearer picture, the Consumer Price Index (CPI) from the Australian Bureau of Statistics provides objective data all the way back to 1980. The figures for the electricity component of the CPI, available on the Australia Bureau of Statistics website are plotted on the graph below and show a substantial increase, in particular in the last decade.

So we’ve confirmed that power prices in Australia are indeed among the most expensive in the world. Next, we need to establish why they have risen so much, in a country with vast coal and gas reserves and huge renewable energy potential. This will be covered in Part 2, stay tuned!

For more on energy as a resource in Australia, see Is South Australia The Epicenter Of Energy Innovation?

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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.

Beyond Spare Parts: 3D Printing And Machine Learning

Stefan Krauss

The concept of 3D printing isn’t a new one. In fact, it’s been around for more than 30 years – long before it became popular in consumer settings. In industries like automotive and aerospace, we call it additive manufacturing – the process of creating something new by layering materials, like plastic, metal, or concrete, using computer-modeled designs.

This approach is extremely versatile, allowing manufacturing teams to visualize large design projects through miniature scale models, design and create small runs of custom parts and equipment for customers, and prototype new products. As 3D printing speeds increase, Gartner predicts the 3D printing industry will be a $4.6 billion market by 2019.

Until now, the primary application for 3D printing in discrete industries has been prototyping new parts and equipment. But there’s significant room for expansion, especially in the efficient fabrication of spare parts.

Most discrete manufacturers are already producing spare parts, but few have adopted tactical 3D printing as an update to their process. The lead time currently required to create many spare parts can be both long and expensive, so the only way to ensure these parts are available to the customer in a timely fashion is to create and store them in advance. This process is inefficient and cost-prohibitive for the manufacturer – resulting in higher costs and longer wait times for customers. 3D printing provides a turnkey solution to this problem, and gives manufacturers the opportunity to supply their customers with high-quality parts, on-demand, when they are needed most.

Even more exciting, with innovations in other emerging technologies concurrently maturing, 3D printing is just the start of what manufacturers can do to enhance their production process for spare parts. While 3D printing certainly expedites creation, storage and delivery, it’s still a reactionary operation at its core. Instead of relying on customers to tell them when to print these parts, discrete manufacturers must transform their operations to think proactively – leveraging machine learning (ML) to solve maintenance issues before they occur.

As 3D printing capabilities grow, maintenance teams face a variety of challenges, including the number of parts that can be printed and increasing demand from customers for faster delivery. Regardless of these challenges, their goals remain the same: to ensure that parts are available and shipped to a customer in a timely fashion. As such, it’s critical that manufacturers evolve to meet this demand by incorporating machine learning into their process.

Machine learning technology identifies, analyzes, and monitors nearly infinite amounts of data, allowing it to provide a real-time status of processes and machinery. When implemented in a discrete manufacturing setting, teams can use ML to analyze the life remaining on a specific part or piece of equipment, and flag system failures before they happen. Similarly, when synchronized with a predetermined replacement schedule, ML can help proactively identify when it’s time for a customer to replace their parts – thereby avoiding unplanned downtime for machinery that would otherwise need to be taken out of service.

Manufacturers could combine this predictive maintenance with their ability to 3D print spare parts efficiently to become full-service vendors for their customers. Those who do so will not only serve as true leaders in spare parts manufacturing, but also in customer service.

With technology disrupting nearly every type of enterprise business model, customers are demanding more, and have higher expectations than ever before. They expect materials on time and on-hand when they need them, and they expect their suppliers to adjust accordingly. Discrete manufacturers producing spare parts must meet this demand by incorporating 3D printing, in conjunction with ML, to help quickly deliver high-quality spare parts to customers ahead of demand.

Manufacturers who can take advantage of ML to predict when equipment and parts will fail, then subsequently employ 3D printing to proactively print and ship replacement parts ahead of these failures, will enjoy significantly reduced spare parts costs and delivery times, and higher customer satisfaction.

For more on implementing advanced technology to your business processes, see Managing Digital Disruption Requires The Right Strategy And Mindset.

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Stefan Krauss

About Stefan Krauss

Stefan Krauss is the general manager for Discrete Industries at SAP. Together with his team, he is responsible for the integrated management of the industries Aerospace & Defense, Automotive, High Tech and Industrial Machinery & Components – spanning development, solution management, sales and marketing, value engineering, partner management, services and support. The mission of this unit is to deliver industry cloud solutions that help SAP customers sustainably innovate and grow their business, operate safely, and develop their people.

More Than Noise: Digital Trends That Are Bigger Than You Think

By Maurizio Cattaneo, David Delaney, Volker Hildebrand, and Neal Ungerleider

In the tech world in 2017, several trends emerged as signals amid the noise, signifying much larger changes to come.

As we noted in last year’s More Than Noise list, things are changing—and the changes are occurring in ways that don’t necessarily fit into the prevailing narrative.

While many of 2017’s signals have a dark tint to them, perhaps reflecting the times we live in, we have sought out some rays of light to illuminate the way forward. The following signals differ considerably, but understanding them can help guide businesses in the right direction for 2018 and beyond.

When a team of psychologists, linguists, and software engineers created Woebot, an AI chatbot that helps people learn cognitive behavioral therapy techniques for managing mental health issues like anxiety and depression, they did something unusual, at least when it comes to chatbots: they submitted it for peer review.

Stanford University researchers recruited a sample group of 70 college-age participants on social media to take part in a randomized control study of Woebot. The researchers found that their creation was useful for improving anxiety and depression symptoms. A study of the user interaction with the bot was submitted for peer review and published in the Journal of Medical Internet Research Mental Health in June 2017.

While Woebot may not revolutionize the field of psychology, it could change the way we view AI development. Well-known figures such as Elon Musk and Bill Gates have expressed concerns that artificial intelligence is essentially ungovernable. Peer review, such as with the Stanford study, is one way to approach this challenge and figure out how to properly evaluate and find a place for these software programs.

The healthcare community could be onto something. We’ve already seen instances where AI chatbots have spun out of control, such as when internet trolls trained Microsoft’s Tay to become a hate-spewing misanthrope. Bots are only as good as their design; making sure they stay on message and don’t act in unexpected ways is crucial.

This is especially true in healthcare. When chatbots are offering therapeutic services, they must be properly designed, vetted, and tested to maintain patient safety.

It may be prudent to apply the same level of caution to a business setting. By treating chatbots as if they’re akin to medicine or drugs, we have a model for thorough vetting that, while not perfect, is generally effective and time tested.

It may seem like overkill to think of chatbots that manage pizza orders or help resolve parking tickets as potential health threats. But it’s already clear that AI can have unintended side effects that could extend far beyond Tay’s loathsome behavior.

For example, in July, Facebook shut down an experiment where it challenged two AIs to negotiate with each other over a trade. When the experiment began, the two chatbots quickly went rogue, developing linguistic shortcuts to reduce negotiating time and leaving their creators unable to understand what they were saying.

Do we want AIs interacting in a secret language because designers didn’t fully understand what they were designing?

The implications are chilling. Do we want AIs interacting in a secret language because designers didn’t fully understand what they were designing?

In this context, the healthcare community’s conservative approach doesn’t seem so farfetched. Woebot could ultimately become an example of the kind of oversight that’s needed for all AIs.

Meanwhile, it’s clear that chatbots have great potential in healthcare—not just for treating mental health issues but for helping patients understand symptoms, build treatment regimens, and more. They could also help unclog barriers to healthcare, which is plagued worldwide by high prices, long wait times, and other challenges. While they are not a substitute for actual humans, chatbots can be used by anyone with a computer or smartphone, 24 hours a day, seven days a week, regardless of financial status.

Finding the right governance for AI development won’t happen overnight. But peer review, extensive internal quality analysis, and other processes will go a long way to ensuring bots function as expected. Otherwise, companies and their customers could pay a big price.

Elon Musk is an expert at dominating the news cycle with his sci-fi premonitions about space travel and high-speed hyperloops. However, he captured media attention in Australia in April 2017 for something much more down to earth: how to deal with blackouts and power outages.

In 2016, a massive blackout hit the state of South Australia following a storm. Although power was restored quickly in Adelaide, the capital, people in the wide stretches of arid desert that surround it spent days waiting for the power to return. That hit South Australia’s wine and livestock industries especially hard.

South Australia’s electrical grid currently gets more than half of its energy from wind and solar, with coal and gas plants acting as backups for when the sun hides or the wind doesn’t blow, according to ABC News Australia. But this network is vulnerable to sudden loss of generation—which is exactly what happened in the storm that caused the 2016 blackout, when tornadoes ripped through some key transmission lines. Getting the system back on stable footing has been an issue ever since.

Displaying his usual talent for showmanship, Musk stepped in and promised to build the world’s largest battery to store backup energy for the network—and he pledged to complete it within 100 days of signing the contract or the battery would be free. Pen met paper with South Australia and French utility Neoen in September. As of press time in November, construction was underway.

For South Australia, the Tesla deal offers an easy and secure way to store renewable energy. Tesla’s 129 MWh battery will be the most powerful battery system in the world by 60% once completed, according to Gizmodo. The battery, which is stationed at a wind farm, will cover temporary drops in wind power and kick in to help conventional gas and coal plants balance generation with demand across the network. South Australian citizens and politicians largely support the project, which Tesla claims will be able to power 30,000 homes.

Until Musk made his bold promise, batteries did not figure much in renewable energy networks, mostly because they just aren’t that good. They have limited charges, are difficult to build, and are difficult to manage. Utilities also worry about relying on the same lithium-ion battery technology as cellphone makers like Samsung, whose Galaxy Note 7 had to be recalled in 2016 after some defective batteries burst into flames, according to CNET.

However, when made right, the batteries are safe. It’s just that they’ve traditionally been too expensive for large-scale uses such as renewable power storage. But battery innovations such as Tesla’s could radically change how we power the economy. According to a study that appeared this year in Nature, the continued drop in the cost of battery storage has made renewable energy price-competitive with traditional fossil fuels.

This is a massive shift. Or, as David Roberts of news site Vox puts it, “Batteries are soon going to disrupt power markets at all scales.” Furthermore, if the cost of batteries continues to drop, supply chains could experience radical energy cost savings. This could disrupt energy utilities, manufacturing, transportation, and construction, to name just a few, and create many opportunities while changing established business models. (For more on how renewable energy will affect business, read the feature “Tick Tock” in this issue.)

Battery research and development has become big business. Thanks to electric cars and powerful smartphones, there has been incredible pressure to make more powerful batteries that last longer between charges.

The proof of this is in the R&D funding pudding. A Brookings Institution report notes that both the Chinese and U.S. governments offer generous subsidies for lithium-ion battery advancement. Automakers such as Daimler and BMW have established divisions marketing residential and commercial energy storage products. Boeing, Airbus, Rolls-Royce, and General Electric are all experimenting with various electric propulsion systems for aircraft—which means that hybrid airplanes are also a possibility.

Meanwhile, governments around the world are accelerating battery research investment by banning internal combustion vehicles. Britain, France, India, and Norway are seeking to go all electric as early as 2025 and by 2040 at the latest.

In the meantime, expect huge investment and new battery innovation from interested parties across industries that all share a stake in the outcome. This past September, for example, Volkswagen announced a €50 billion research investment in batteries to help bring 300 electric vehicle models to market by 2030.

At first, it sounds like a narrative device from a science fiction novel or a particularly bad urban legend.

Powerful cameras in several Chinese cities capture photographs of jaywalkers as they cross the street and, several minutes later, display their photograph, name, and home address on a large screen posted at the intersection. Several days later, a summons appears in the offender’s mailbox demanding payment of a fine or fulfillment of community service.

As Orwellian as it seems, this technology is very real for residents of Jinan and several other Chinese cities. According to a Xinhua interview with Li Yong of the Jinan traffic police, “Since the new technology has been adopted, the cases of jaywalking have been reduced from 200 to 20 each day at the major intersection of Jingshi and Shungeng roads.”

The sophisticated cameras and facial recognition systems already used in China—and their near–real-time public shaming—are an example of how machine learning, mobile phone surveillance, and internet activity tracking are being used to censor and control populations. Most worryingly, the prospect of real-time surveillance makes running surveillance states such as the former East Germany and current North Korea much more financially efficient.

According to a 2015 discussion paper by the Institute for the Study of Labor, a German research center, by the 1980s almost 0.5% of the East German population was directly employed by the Stasi, the country’s state security service and secret police—1 for every 166 citizens. An additional 1.1% of the population (1 for every 66 citizens) were working as unofficial informers, which represented a massive economic drain. Automated, real-time, algorithm-driven monitoring could potentially drive the cost of controlling the population down substantially in police states—and elsewhere.

We could see a radical new era of censorship that is much more manipulative than anything that has come before. Previously, dissidents were identified when investigators manually combed through photos, read writings, or listened in on phone calls. Real-time algorithmic monitoring means that acts of perceived defiance can be identified and deleted in the moment and their perpetrators marked for swift judgment before they can make an impression on others.

Businesses need to be aware of the wider trend toward real-time, automated censorship and how it might be used in both commercial and governmental settings. These tools can easily be used in countries with unstable political dynamics and could become a real concern for businesses that operate across borders. Businesses must learn to educate and protect employees when technology can censor and punish in real time.

Indeed, the technologies used for this kind of repression could be easily adapted from those that have already been developed for businesses. For instance, both Facebook and Google use near–real-time facial identification algorithms that automatically identify people in images uploaded by users—which helps the companies build out their social graphs and target users with profitable advertisements. Automated algorithms also flag Facebook posts that potentially violate the company’s terms of service.

China is already using these technologies to control its own people in ways that are largely hidden to outsiders.

According to a report by the University of Toronto’s Citizen Lab, the popular Chinese social network WeChat operates under a policy its authors call “One App, Two Systems.” Users with Chinese phone numbers are subjected to dynamic keyword censorship that changes depending on current events and whether a user is in a private chat or in a group. Depending on the political winds, users are blocked from accessing a range of websites that report critically on China through WeChat’s internal browser. Non-Chinese users, however, are not subject to any of these restrictions.

The censorship is also designed to be invisible. Messages are blocked without any user notification, and China has intermittently blocked WhatsApp and other foreign social networks. As a result, Chinese users are steered toward national social networks, which are more compliant with government pressure.

China’s policies play into a larger global trend: the nationalization of the internet. China, Russia, the European Union, and the United States have all adopted different approaches to censorship, user privacy, and surveillance. Although there are social networks such as WeChat or Russia’s VKontakte that are popular in primarily one country, nationalizing the internet challenges users of multinational services such as Facebook and YouTube. These different approaches, which impact everything from data safe harbor laws to legal consequences for posting inflammatory material, have implications for businesses working in multiple countries, as well.

For instance, Twitter is legally obligated to hide Nazi and neo-fascist imagery and some tweets in Germany and France—but not elsewhere. YouTube was officially banned in Turkey for two years because of videos a Turkish court deemed “insulting to the memory of Mustafa Kemal Atatürk,” father of modern Turkey. In Russia, Google must keep Russian users’ personal data on servers located inside Russia to comply with government policy.

While China is a pioneer in the field of instant censorship, tech companies in the United States are matching China’s progress, which could potentially have a chilling effect on democracy. In 2016, Apple applied for a patent on technology that censors audio streams in real time—automating the previously manual process of censoring curse words in streaming audio.

In March, after U.S. President Donald Trump told Fox News, “I think maybe I wouldn’t be [president] if it wasn’t for Twitter,” Twitter founder Evan “Ev” Williams did something highly unusual for the creator of a massive social network.

He apologized.

Speaking with David Streitfeld of The New York Times, Williams said, “It’s a very bad thing, Twitter’s role in that. If it’s true that he wouldn’t be president if it weren’t for Twitter, then yeah, I’m sorry.”

Entrepreneurs tend to be very proud of their innovations. Williams, however, offers a far more ambivalent response to his creation’s success. Much of the 2016 presidential election’s rancor was fueled by Twitter, and the instant gratification of Twitter attracts trolls, bullies, and bigots just as easily as it attracts politicians, celebrities, comedians, and sports fans.

Services such as Twitter, Facebook, YouTube, and Instagram are designed through a mix of look and feel, algorithmic wizardry, and psychological techniques to hang on to users for as long as possible—which helps the services sell more advertisements and make more money. Toxic political discourse and online harassment are unintended side effects of the economic-driven urge to keep users engaged no matter what.

Keeping users’ eyeballs on their screens requires endless hours of multivariate testing, user research, and algorithm refinement. For instance, Casey Newton of tech publication The Verge notes that Google Brain, Google’s AI division, plays a key part in generating YouTube’s video recommendations.

According to Jim McFadden, the technical lead for YouTube recommendations, “Before, if I watch this video from a comedian, our recommendations were pretty good at saying, here’s another one just like it,” he told Newton. “But the Google Brain model figures out other comedians who are similar but not exactly the same—even more adjacent relationships. It’s able to see patterns that are less obvious.”

A never-ending flow of content that is interesting without being repetitive is harder to resist. With users glued to online services, addiction and other behavioral problems occur to an unhealthy degree. According to a 2016 poll by nonprofit research company Common Sense Media, 50% of American teenagers believe they are addicted to their smartphones.

This pattern is extending into the workplace. Seventy-five percent of companies told research company Harris Poll in 2016 that two or more hours a day are lost in productivity because employees are distracted. The number one reason? Cellphones and texting, according to 55% of those companies surveyed. Another 41% pointed to the internet.

Tristan Harris, a former design ethicist at Google, argues that many product designers for online services try to exploit psychological vulnerabilities in a bid to keep users engaged for longer periods. Harris refers to an iPhone as “a slot machine in my pocket” and argues that user interface (UI) and user experience (UX) designers need to adopt something akin to a Hippocratic Oath to stop exploiting users’ psychological vulnerabilities.

In fact, there is an entire school of study devoted to “dark UX”—small design tweaks to increase profits. These can be as innocuous as a “Buy Now” button in a visually pleasing color or as controversial as when Facebook tweaked its algorithm in 2012 to show a randomly selected group of almost 700,000 users (who had not given their permission) newsfeeds that skewed more positive to some users and more negative to others to gauge the impact on their respective emotional states, according to an article in Wired.

As computers, smartphones, and televisions come ever closer to convergence, these issues matter increasingly to businesses. Some of the universal side effects of addiction are lost productivity at work and poor health. Businesses should offer training and help for employees who can’t stop checking their smartphones.

Mindfulness-centered mobile apps such as Headspace, Calm, and Forest offer one way to break the habit. Users can also choose to break internet addiction by going for a walk, turning their computers off, or using tools like StayFocusd or Freedom to block addictive websites or apps.

Most importantly, companies in the business of creating tech products need to design software and hardware that discourages addictive behavior. This means avoiding bad designs that emphasize engagement metrics over human health. A world of advertising preroll showing up on smart refrigerator touchscreens at 2 a.m. benefits no one.

According to a 2014 study in Cyberpsychology, Behavior and Social Networking, approximately 6% of the world’s population suffers from internet addiction to one degree or another. As more users in emerging economies gain access to cheap data, smartphones, and laptops, that percentage will only increase. For businesses, getting a head start on stopping internet addiction will make employees happier and more productive. D!


About the Authors

Maurizio Cattaneo is Director, Delivery Execution, Energy, and Natural Resources, at SAP.

David Delaney is Global Vice President and Chief Medical Officer, SAP Health.

Volker Hildebrand is Global Vice President for SAP Hybris solutions.

Neal Ungerleider is a Los Angeles-based technology journalist and consultant.


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

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Death Of An IT Salesman

Jesper Schleimann

As software shifts from supporting the strategy to becoming the strategy of most companies, the relationship and even the sales process between the vendor side and the customer side in the IT industry is subsequently also undergoing some remarkable changes. The traditional IT salesman is an endangered species.

I recently had the pleasure of participating in a workshop with one of Scandinavia’s largest companies to create new business models in the company’s operations business area. As an IT vendor, we worked with the customer in an open process using the design thinking methodology—a creative process in which we jointly visualized, defined, and solidified how new flows of data can change business processes and their business models.

By working with “personas” relevant to their business, we could better understand how technology can help different roles in the involved departments deliver their contributions faster and more efficiently. The scope was completely open. We put our knowledge and experience with technological opportunities in parallel with the company’s own knowledge of the market, processes, and business.

The results may trigger a sale of software from our side at a point, but we do not know exactly which solution—or even if it will happen. What we did do was innovate together and better understand our customer’s future and viable routes to success. Such is the reality of the strategic work of digitizing here on the verge of year 2018.

Solution selling is not enough

In my view, the transgressive nature of technology is radically changing the way businesses and the sales process works. The IT industry—at least parts of it—must focus on completely different types of collaboration with the customer.

Historically, the sales process has already realized major changes. In the past, you’d find a product-fixated “used-car-sales” approach, which identified the characteristics of the box or solution and left it to the customer to find the hole in the cheese. Since then, a generation of IT key account managers learned “solution selling,” with a sharp focus on finding and defining a “pain point” at the customer and then position the solution against this. But today, even that approach falls short.

Endangered species

The challenge is that software solutions now support the formation of new, yet unknown business models. They transverse processes and do not respect silo borders within organizations. Consequently, businesses struggle to define a clear operational road. Top management faces a much broader search of potential for innovation. The creation of a compelling vision itself requires a continuous and comprehensive study of what digitization can do for the value chain and for the company’s ecosystem.

Vendors abandon their customers if they are too busy selling different tools and platforms without entering into a committed partnership to create the new business model. Therefore, the traditional IT salesperson, preoccupied with their own goals, is becoming an endangered species. The customer-driven process requires even key account managers to dig deep and endeavor to understand the customer’s business. The best in the IT industry will move closer to the role of trusted adviser, mastering the required capabilities and accepting the risks and rewards that follow.

Leaving the comfort zone

This obviously has major consequences for the sales culture in the IT industry. Reward mechanisms and incentive structures need to be reconsidered toward a more behavioral incentive. And the individual IT salesperson is going on a personal journey, as the end goal is no longer to close an order, but to create visions and deliver value in partnership with the customer and to do so in an ever-changing context, where the future is volatile and unpredictable.

A key account manager is the customer’s traveling companion. Do not expect to be able to reduce complexity and stay in your comfort zone and not be affected by this change. Vendors should think bigger, and as an IT salesperson, you need to show your ability for transformational thinking. Everyone must be prepared to take the first baby steps, but there will definitely also be some who cannot handle the change. Disruption is not just something you, as a vendor, deliver to a customer. The noble art of being a digital vendor is facing some serious earthquakes.

For more on how tech innovation is disrupting traditional business models, see Why You Should Consider Disrupting Your Own Business.

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Jesper Schleimann

About Jesper Schleimann

Chief Technology Officer, Nordic & Baltic region

In his role as Nordic CTO, Jesper’s mission is to help customers unlock their business potential by simplifying their digital transformation. Jesper has a Cand.polit. from the University of Copenhagen as well as an Executive MBA from Copenhagen Business School.