5 Supply Chain And Digital Economy Myths Debunked

Richard Howells

The digital economy is presenting businesses with myriad opportunities. But to capitalize on these prospects, companies must be willing to adapt, particularly in regard to how they manage their existing supply chain operations.

While people are finally beginning to recognize the potential benefits that come with the digital economy, too few companies are digitizing their operations in an effort to thrive in this dynamic environment. In fact, according to SAP research, 71% of organizations consider their digital maturity levels to be in the “early” or “developing” stages.

Given that fact, it’s entirely possible that people still don’t fully grasp the importance of transforming their existing business models and processes to succeed in today’s digital economy.

Below are five statements related to the digital economy and supply chain that many people believe to be true – and an explanation on why they are, indeed, false.

Myth #1: Your existing supply chain is sufficient to help you thrive in the digital economy

“To win in the digital economy,” says Hans Thalbauer, senior vice president of extended supply chain at SAP, “we have to reimagine how we design, plan, make, deliver, and operate our products and assets.”

Companies must put themselves in a position to develop environments in which they can access and manage data and processes in real time. This requires transforming your traditional supply chain into a digitized, extended supply chain, one that enables your business to be more connected, intelligent, responsive, and predictive.

By reimagining your existing supply chain, you can deliver superior customer experiences and increase revenue. In fact, companies that adapt to the digital world are 26% more profitable than their industry peers, according to MIT Sloan research.

Myth #2: Customers aren’t willing to pay for better experiences

Today’s customers crave a new type of experience. Omnichannel solutions can provide this, enabling buyers to discover a product online, research it on a mobile device, and purchase it in a retail store.

Given that these capabilities exist, your company needs to ensure it can deliver on the omnichannel fulfillment promise. To achieve this, the different channels must be able to support the development and/or delivery of goods, based on each individual customer’s preferences.

Customers are so eager for a better purchasing experience, 86% of them are willing to pay more money to get it, according to a 2014 American Express and Ebiquity survey.

By reimagining your existing supply chain and transforming it into a digitized, extended supply chain, you can gain the real-time insight you need to enable customer-centric processes and truly satisfy your buyers.

Myth #3: Customers love mass-produced products

Each and every one of your customers is wholly unique. So it’s no surprise that buyers are increasingly seeking out products that are customized to their individual preferences and needs.

Forty-two percent of consumers are interested in technology to customize and personalize products, and 19% are willing to pay a 10% price premium to individualize products, according to a Deloitte research study.

This growing demand for product customization is challenging companies considerably. Traditionally, supply chain organizations merely had to manufacture and/or ship full pallets of identical goods. Now, they’re tasked with delivering a lot size of one.

To support your customers’ growing desire for individualized products, your business must transform how it designs, produces, and delivers goods and services. It must embrace the latest technologies, harnessing the power of the Internet of Things (IoT), 3D printing, and other cutting-edge innovations.

By adopting a digital supply chain and smart manufacturing techniques, you can enable greater connectivity, responsiveness, agility, and reliability, empowering you to better meet your customers’ demands for individualized products.

Myth #4: Businesses can’t benefit from the sharing economy

The sharing economy revolves around the sharing of human and physical resources. Generally, consumers love it. Businesses, on the other hand, view it with great skepticism, wondering how it can actually benefit their companies.

At the heart of the sharing economy lies connectivity. When everything is connected, you can collaborate like never before.

Through the sharing economy, you can better link your organization with manufacturers, logistics service providers, and other partners. This larger business network enables companies to capitalize on their partners’ resources, expand their reach, innovate, and improve customer service.

Taking full advantage of a connected enterprise of companies requires putting an extended supply chain at the core of your operations. This allows you to have greater visibility into various customer, supplier, manufacturer, and other insights, ensuring you can improve decision making and respond to in-the-moment changes and demands.

Networked businesses, according to McKinsey & Company, are 50% more likely than their peers to be market leaders.

Myth #5: You simply cannot overcome resource scarcity

Resources are declining globally. Raw materials such as water, minerals, oil, and gas are becoming increasingly difficult to obtain. Human talent is also growing scarcer, as employees lack the requisite skills to manage the data that comes with running digitized, extended supply chains.

Today’s organizations need to begin building sustainability into their business processes. From a talent perspective, companies can achieve this a number of ways, from deploying a contingent labor force to replacing certain roles with robotics. To combat resource scarcity, manufacturers must start doing more with less, leveraging alternate sources of energy and reused or recycled materials.

Finally, another key to ensuring your organization is run in a sustainable manner is to emphasize safety and risk management. Protecting your staff from harm and your resources from damage go hand in hand with your company’s long-term success.

The truth about prospering in today’s complex digital economy

Now that you’ve read a few myths about the digital economy and supply chain, here’s an undeniable truth: Digital transformation is the only tried-and-true way to survive and thrive in today’s dynamic new environment.

Whether providing a superior customer experience, delivering the individualized products your buyers yearn for, or overcoming resource scarcity, only digitization can ensure you possess the capabilities necessary to realize your greatest business goals.

Download this free white paper, Digitizing the Extended Supply Chain, to further explore how your enterprise can combat complexity and accelerate growth in today’s complex digital economy.

Dispel more myths on the supply chain and digital economy, join us at SAPPHIRE NOW in Orlando, Florida from May 16 – 18th, 2017. Check out some of our digital supply chain sessions here and add it to your agenda today! 

Follow the conversation on @SCMatSAP and #SAPPHIRENOW.

This blog was originally published on SCW Magazine

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About Richard Howells

Richard Howells is a Vice President at SAP responsible for the positioning, messaging, AR , PR and go-to market activities for the SAP Supply Chain solutions.

Four Ways Technology Is Shaping The Future Of Transportation And Supply Chain

Thierry Morin

As mature and developing economies are looking to increase their competitiveness in the global supply chain through significant investments in infrastructure, Australia is currently examining how its “investment in the freight network can boost the nation’s prosperity and meet community expectations for safety, security, and environmental amenity.”

Working with leading businesses and public services organizations across the globe that either manage or oversee transportation and supply chain operations, SAP has been at the forefront of technology-driven change that drives better business outcomes.

Here are some examples:

  • Smart traffic management: To better manage enormous traffic volume (10,000 taxicabs, 7,000 buses, and 1 million private cars), the city of Nanjing, China, has implemented a smart traffic system that ingests and enriches continuous data streams from transportation systems across the city to predict status, influence traveler behaviour, and provide recommendations for planning, resulting in improved patronage and on-time performance for public transportation, average speed during peak periods, and average commuting times.
  • Smart port communities: To cope with increasing traffic volumes (up to 40,000 truck arrivals daily) and no possibility of expansion, Hamburg Port Authority leverages a logistics platform that consolidates data from various sources (e.g., vehicles) to communicate with the port’s various stakeholders, resulting in shortened driving times (up to 5,000 hours saved per day) and better planning for port stakeholders.
  • Predictive maintenance: Operating a fleet of nearly 30,000 moving assets that move over 2 million passengers each day, Italy’s railway operator Trenitalia has established a dynamic maintenance model that analyzes sensor data and monitors equipment behavior remotely to decrease maintenance and service costs (eight percent to 10% reduction expected), while boosting availability and reliability of service for passengers.
  • Connected safety: To prevent road accidents, such as the one that killed 14 bus riders in Japan in January 2016, SAP and NTT have built a solution – currently being tested by Keifuku Bus Company – that estimates drivers’ fatigue level by analyzing their vital signs (e.g., heartbeat, nervous system responses) fed through a sensor-equipped vest and combines that data with vehicle-related data. Predictive capabilities can thus help transportation companies identify potential danger before accidents occur.

What do these case studies tell us about the keys to value creation, both at a microeconomic and at a macroeconomic level?

  1. Data is the new oil: Every government organization or business (e.g., logistics service providers, manufacturers, retailers), every person (e.g., workers, consumers, citizens) and soon every “thing” (e.g., vehicles, containers, linear assets) will be connected. With Big Data technologies becoming more and more affordable, organizations are now able to leverage timely, meaningful, and actionable insights to make best-informed decisions and ultimately improve outcomes – be it in terms of customer service, cycle times, or productivity and efficiency.
  1. Networked collaboration amplifies value creation: As shown by the smart traffic management and smart port communities concepts above, the key to maximizing efficiency from an end-to-end perspective is to intelligently connect people, things, and businesses across the value chain – which is enabled by cloud-based networks and applications.
  1. Technology strategies need to be constantly revisited: The sophistication and affordability of digital technology are soaring, enabling businesses and public services organizations to more easily experiment with potential use cases and assess technological feasibility, business viability, and human desirability. At the same time, the pace of mass adoption and the transformative impact of each technology are becoming harder to predict. Hence businesses, governments, and policymakers need to adopt an agile stance on technology if they are to extract the most value from it.
  1. Countries can derive a competitive advantage in the same way companies do: Becoming a data-driven country is key to competing at an international level, just as data-driven companies are keeping an edge over their competitors by making informed, timely, forward-looking decisions. Similarly, a country can learn from the way companies approach innovation through the concept of “bimodal IT.” At a country level, this can translate into quick wins through opportunities that relate to clear-scoped, well-defined problem statements on the one hand, and lay the foundation for holistic value creation by addressing the interconnectivity challenge across the value chain on the other hand.

In summary, two key learnings can be applied at a country level: First, there is a need for an approach that is both holistic and differentiated (“two-speed” concept), allowing the capture of quick wins while laying the foundation for an integrated, digitized national supply chain. Second, infrastructure of the future does not have to be bigger but smarter – in other words, the focus should be placed on data-intensive rather than capital-intensive assets.

If you would like to assess your own organization’s digital maturity, take the free 10-minute Digital Transportation & Logistics Readiness Assessment.

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Thierry Morin

About Thierry Morin

Thierry Morin is helping companies in the Services industries become digital enterprises. As a member of the Industry Value Engineering at SAP team in Australia and New Zealand, he works with the broader sales and services teams to inspire customers and enable them to identify and realise value from digital innovation.

The 3D-Printed Future Needs A New Supply Chain

Denis Kefallinos

The future landed in my living room around May 12, when we bought our son a 3D printer for his birthday. I had been thinking about buying a 3D printer for some time, but hadn’t gotten around to researching brands, models, and capabilities. As a hands-on engineer, chainsaw rebuilder, home renovator, and general gearhead, the idea of concocting a design, sketching up a drawing, and building it comes to me naturally. But 3D printing is different.

While visiting a childhood friend on Vancouver Island, I noticed a peculiar device in his office. “Is that a 3D printer?” I asked. “Yes, and it’s the best one out there for the money,” he answered. Translation: my trusted friend had already done the research legwork. Excellent! The next week I ordered the same model from Amazon for $300. The printer comes as a kit, and one afternoon my son and I spent six hours putting it together on the dining room table. Sure, we could have bought a complete version, but I felt it would be good for my son to understand the device as he follows in the footsteps of his parents in studying mechanical engineering.

Once we had the printer built, we couldn’t wait to test it. After turning it on and warming it up, we connected the printer to the PC via USB. From CAD software, we exported a drawing to a slicer program. The slicer takes the design and slices it into hundreds of horizontal layers, creating the flow path for the print head. The slicer program then uploads the .gcode file to the printer, and it’s ready to start printing. Layer by layer, the melted plastic filament is laid out and the design materializes.

As our very first design began taking shape on the printer’s platform, I sat there and pondered the implications. Being an engineer-turned-enterprise software professional, I was always conscious of the intersection of the physical, human, and digital planes. No doubt about it, 3D printing will alter our working world. Not only work, but supply chains as well. It wasn’t long ago that someone said, “companies don’t compete, supply chains do.” With 3D printing, it’s time to change that mantra again.

Supply chains compete, and so do ideas

Enterprises can always come up with a great design, but that great design is compromised in the marketplace if the supply chain isn’t there to support it. Suppliers, production, transport, warehousing, distribution, and retail channels are part of the competitive arsenal, and they all need to be in sync.

With this printer sitting in my living room (and presumably millions of living rooms), the supply chain changes. In my unique case, I only need one – correction – two, supply chains. One supply chain for plastic filament, and another for ideas (or designs).

Ideas are not subject to the same constraints as physical supply chains. Ideas move instantly, and there are factors that influence the harvesting, production, refinement, distribution, and performance of ideas.

For an enterprise, an idea may take shape in a design-thinking session or in a customer focus group. It may result from a warranty claim or service ticket, from a manufacturing defect, or from a need to reduce costs. There are limitless sources for ideas.

Now more than ever, enterprises need to put significant energy into driving good, practical ideas from their “idea supply chain.” Enterprises will need to gather data from millions of people (or their IoT-enabled printers) to gauge feedback on designs and respond rapidly. Social media helps people quickly praise or criticize products to a wide audience, but currently that product is at the end of a very long supply and design chain. If the future enterprise is one that sells customers a 3D printer file with a single-use digital right, the ideas and designs will be critiqued. Competitors will launch competing ideas to try to gain market share; no need to wait for the competing product to hit the shelf.

Without the need for a manufacturing and distribution network, next-generation idea enterprises need to ramp idea-management capabilities to compete. In the 3D-printed future, the company that provides its customers with the timeliest idea will be the one that wins.

What’s different in the 3D printed realm

Earlier I said I was no stranger to designing and building, and that this 3D printing realm was different. Here’s my opinion on what’s on the horizon:

  1. The machine builds it. No getting your hands dirty! Upload the file, push the button, and go. As a hands-on builder, it’s cool to let the machine do the work.
  1. Instant gratification with value chain disruption. I dream it, or I need it, and I make it. For example, I need a new light switch cover in the hallway. I’m going to ask my son to measure it up and print a replacement. Now an OEM with a supply chain that sources plastic and has molds and injection-molding machines, employees, warehouses, trucks, and retailer relationships is going to feel that decision. I wouldn’t mind paying that OEM for a single-use digital file holding a tested and proven design.
  1. Instant digital feedback and affinity. The opportunity for designers to learn whether their design worked is amazing. For example, after I print the light switch cover, the 3D printer can send a signal back to the OEM that the print job is complete. Allowing an hour delay after the conclusion of the print, a text message from the OEM would prompt me for my feedback on the design: Am I satisfied? Enter a score – from 1 (bad) to 5 (good) – and hit reply. Feedback will be tracked in real time and displayed on the OEM website for other potential customers to see. I may allow myself to be contacted via an anonymous email alias to provide a reference to a prospective customer. For my trouble, I will get 10% off my next design purchase. As a repeat customer, I might be invited to a virtual design review or to be a beta tester.
  1. New business processes with mandatory digital transformation. In the traditional supply chain, processes such as procurement, manufacturing, quality, testing, packaging, warehousing, and distribution will be impacted by 3D printing. Other business processes will be enhanced or newly created – particularly around design acceleration, customer quality and feedback, customer design collaboration, royalty management, digital rights, and more. These will be digital-only processes.
  1. Enterprise valuations continue to evolve. More emphasis will be put on a company’s investment in R&D and enabling technology as a leading indicator of market opportunity. Traditional logistical value-add streams of buy-make-move-store will have less impact. This already happened over the last few decades with the outsourcing of manufacturing, and 3D printing is poised to bring the next evolution in the enterprise valuation model.

While I am seeing the future from my living room, I’m certain enterprises are seeing it from their boardrooms as well. Physical supply chains will continue to exist, but digital idea-based supply chains are about to rise. I am curious to see how enterprises, particularly OEMs, respond to the 3D printing phenomenon.

For more insight, download the free eBook 6 Surprising Ways 3D Printing Will Disrupt Manufacturing.

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Denis Kefallinos

About Denis Kefallinos

Denis Kefallinos is Head of Presales at SAP Canada.

Primed: Prompting Customers to Buy

Volker Hildebrand, Sam Yen, and Fawn Fitter

When it comes to buying things—even big-ticket items—the way we make decisions makes no sense. One person makes an impulsive offer on a house because of the way the light comes in through the kitchen windows. Another gleefully drives a high-end sports car off the lot even though it will probably never approach the limits it was designed to push.

We can (and usually do) rationalize these decisions after the fact by talking about needing more closet space or wanting to out-accelerate an 18-wheeler as we merge onto the highway, but years of study have arrived at a clear conclusion:

When it comes to the customer experience, human beings are fundamentally irrational.

In the brick-and-mortar past, companies could leverage that irrationality in time-tested ways. They relied heavily on physical context, such as an inviting retail space, to make products and services as psychologically appealing as possible. They used well-trained salespeople and employees to maximize positive interactions and rescue negative ones. They carefully sequenced customer experiences, such as having a captain’s dinner on the final night of a cruise, to play on our hard-wired craving to end experiences on a high note.

Today, though, customer interactions are increasingly moving online. Fortune reports that on 2016’s Black Friday, the day after Thanksgiving that is so crucial to holiday retail results, 108.5 million Americans shopped online, while only 99.1 million visited brick-and-mortar stores. The 9.4% gap between the two was a dramatic change from just one year prior, when on- and offline Black Friday shopping were more or less equal.

When people browse in a store for a few minutes, an astute salesperson can read the telltale signs that they’re losing interest and heading for the exit. The salesperson can then intervene, answering questions and closing the sale.

Replicating that in a digital environment isn’t as easy, however. Despite all the investments companies have made to counteract e-shopping cart abandonment, they lack the data that would let them anticipate when a shopper is on the verge of opting out of a transaction, and the actions they take to lure someone back afterwards can easily come across as less helpful than intrusive.

In a digital environment, companies need to figure out how to use Big Data analysis and digital design to compensate for the absence of persuasive human communication and physical sights, sounds, and sensations. What’s more, a 2014 Gartner survey found that 89% of marketers expected customer experience to be their primary differentiator by 2016, and we’re already well into 2017.

As transactions continue to shift toward the digital and omnichannel, companies need to figure out new ways to gently push customers along the customer journey—and to do so without frustrating, offending, or otherwise alienating them.

The quest to understand online customers better in order to influence them more effectively is built on a decades-old foundation: behavioral psychology, the study of the connections between what people believe and what they actually do. All of marketing and advertising is based on changing people’s thoughts in order to influence their actions. However, it wasn’t until 2001 that a now-famous article in the Harvard Business Review formally introduced the idea of applying behavioral psychology to customer service in particular.

The article’s authors, Richard B. Chase and Sriram Dasu, respectively a professor and assistant professor at the University of Southern California’s Marshall School of Business, describe how companies could apply fundamental tenets of behavioral psychology research to “optimize those extraordinarily important moments when the company touches its customers—for better and for worse.” Their five main points were simple but have proven effective across multiple industries:

  1. Finish strong. People evaluate experiences after the fact based on their high points and their endings, so the way a transaction ends is more important than how it begins.
  2. Front-load the negatives. To ensure a strong positive finish, get bad experiences out of the way early.
  3. Spread out the positives. Break up the pleasurable experiences into segments so they seem to last longer.
  4. Provide choices. People don’t like to be shoved toward an outcome; they prefer to feel in control. Giving them options within the boundaries of your ability to deliver builds their commitment.
  5. Be consistent. People like routine and predictability.

For example, McKinsey cites a major health insurance company that experimented with this framework in 2009 as part of its health management program. A test group of patients received regular coaching phone calls from nurses to help them meet health goals.

The front-loaded negative was inherent: the patients knew they had health problems that needed ongoing intervention, such as weight control or consistent use of medication. Nurses called each patient on a frequent, regular schedule to check their progress (consistency and spread-out positives), suggested next steps to keep them on track (choices), and cheered on their improvements (a strong finish).

McKinsey reports the patients in the test group were more satisfied with the health management program by seven percentage points, more satisfied with the insurance company by eight percentage points, and more likely to say the program motivated them to change their behavior by five percentage points.

The nurses who worked with the test group also reported increased job satisfaction. And these improvements all appeared in the first two weeks of the pilot program, without significantly affecting the company’s costs or tweaking key metrics, like the number and length of the calls.

Indeed, an ongoing body of research shows that positive reinforcements and indirect suggestions influence our decisions better and more subtly than blatant demands. This concept hit popular culture in 2008 with the bestselling book Nudge.

Written by University of Chicago economics professor Richard H. Thaler and Harvard Law School professor Cass R. Sunstein, Nudge first explains this principle, then explores it as a way to help people make decisions in their best interests, such as encouraging people to eat healthier by displaying fruits and vegetables at eye level or combatting credit card debt by placing a prominent notice on every credit card statement informing cardholders how much more they’ll spend over a year if they make only the minimum payment.

Whether they’re altruistic or commercial, nudges work because our decision-making is irrational in a predictable way. The question is how to apply that awareness to the digital economy.

In its early days, digital marketing assumed that online shopping would be purely rational, a tool that customers would use to help them zero in on the best product at the best price. The assumption was logical, but customer behavior remained irrational.

Our society is overloaded with information and short on time, says Brad Berens, Senior Fellow at the Center for the Digital Future at the University of Southern California, Annenberg, so it’s no surprise that the speed of the digital economy exacerbates our desire to make a fast decision rather than a perfect one, as well as increasing our tendency to make choices based on impulse rather than logic.

Buyers want what they want, but they don’t necessarily understand or care why they want it. They just want to get it and move on, with minimal friction, to the next thing. “Most of our decisions aren’t very important, and we only have so much time to interrogate and analyze them,” Berens points out.

But limited time and mental capacity for decision-making is only half the issue. The other half is that while our brains are both logical and emotional, the emotional side—also known as the limbic system or, more casually, the primitive lizard brain—is far older and more developed. It’s strong enough to override logic and drive our decisions, leaving rational thought to, well, rationalize our choices after the fact.

This is as true in the B2B realm as it is for consumers. The business purchasing process, governed as it is by requests for proposals, structured procurement processes, and permission gating, is designed to ensure that the people with spending authority make the most sensible deals possible. However, research shows that even in this supposedly rational process, the relationship with the seller is still more influential than product quality in driving customer commitment and loyalty.

Baba Shiv, a professor of marketing at Stanford University’s Graduate School of Business, studies how the emotional brain shapes decisions and experiences. In a popular TED Talk, he says that people in the process of making decisions fall into one of two mindsets: Type 1, which is stressed and wants to feel comforted and safe, and Type 2, which is bored or eager and wants to explore and take action.

People can move between these two mindsets, he says, but in both cases, the emotional brain is in control. Influencing it means first delivering a message that soothes or motivates, depending on the mindset the person happens to be in at the moment and only then presenting the logical argument to help rationalize the action.

In the digital economy, working with those tendencies means designing digital experiences with the full awareness that people will not evaluate them objectively, says Ravi Dhar, director of the Center for Customer Insights at the Yale School of Management. Since any experience’s greatest subjective impact in retrospect depends on what happens at the beginning, the end, and the peaks in between, companies need to design digital experiences to optimize those moments—to rationally design experiences for limited rationality.

This often involves making multiple small changes in the way options are presented well before the final nudge into making a purchase. A paper that Dhar co-authored for McKinsey offers the example of a media company that puts most of its content behind a paywall but offers free access to a limited number of articles a month as an incentive to drive subscriptions.

Many nonsubscribers reached their limit of free articles in the morning, but they were least likely to respond to a subscription offer generated by the paywall at that hour, because they were reading just before rushing out the door for the day. When the company delayed offers until later in the day, when readers were less distracted, successful subscription conversions increased.

Pre-selecting default options for necessary choices is another way companies can design digital experiences to follow customers’ preference for the path of least resistance. “We know from a decade of research that…defaults are a de facto nudge,” Dhar says.

For example, many online retailers set a default shipping option because customers have to choose a way to receive their packages and are more likely to passively allow the default option than actively choose another one. Similarly, he says, customers are more likely to enroll in a program when the default choice is set to accept it rather than to opt out.

Another intriguing possibility lies in the way customers react differently to on-screen information based on how that information is presented. Even minor tweaks can have a disproportionate impact on the choices people make, as explained in depth by University of California, Los Angeles, behavioral economist Shlomo Benartzi in his 2015 book, The Smarter Screen.

A few of the conclusions Benartzi reached: items at the center of a laptop screen draw more attention than those at the edges. Those on the upper left of a screen split into quadrants attract more attention than those on the lower left. And intriguingly, demographics are important variables.

Benartzi cites research showing that people over 40 prefer more visually complicated, text-heavy screens than younger people, who are drawn to saturated colors and large images. Women like screens that use a lot of different colors, including pastels, while men prefer primary colors on a grey or white background. People in Malaysia like lots of color; people in Germany don’t.

This suggests companies need to design their online experiences very differently for middle-aged women than they do for teenage boys. And, as Benartzi writes, “it’s easy to imagine a future in which each Internet user has his or her own ‘aesthetic algorithm,’ customizing the appearance of every site they see.”

Applying behavioral psychology to the digital experience in more sophisticated ways will require additional formal research into recommendation algorithms, predictions, and other applications of customer data science, says Jim Guszcza, PhD, chief U.S. data scientist for Deloitte Consulting.

In fact, given customers’ tendency to make the fastest decisions, Guszcza believes that in some cases, companies may want to consider making choice environments more difficult to navigate— a process he calls “disfluencing”—in high-stakes situations, like making an important medical decision or an irreversible big-ticket purchase. Choosing a harder-to-read font and a layout that requires more time to navigate forces customers to work harder to process the information, sending a subtle signal that it deserves their close attention.

That said, a company can’t apply behavioral psychology to deliver a digital experience if customers don’t engage with its site or mobile app in the first place. Addressing this often means making the process as convenient as possible, itself a behavioral nudge.

A digital solution that’s easy to use and search, offers a variety of choices pre-screened for relevance, and provides a friction-free transaction process is the equivalent of putting a product at eye level—and that applies far beyond retail. Consider the Global Entry program, which streamlines border crossings into the U.S. for pre-approved international travelers. Members can skip long passport control lines in favor of scanning their passports and answering a few questions at a touchscreen kiosk. To date, 1.8 million people have decided this convenience far outweighs the slow pace of approvals.

The basics of influencing irrational customers are essentially the same whether they’re taking place in a store or on a screen. A business still needs to know who its customers are, understand their needs and motivations, and give them a reason to buy.

And despite the accelerating shift to digital commerce, we still live in a physical world. “There’s no divide between old-style analog retail and new-style digital retail,” Berens says. “Increasingly, the two are overlapping. One of the things we’ve seen for years is that people go into a store with their phones, shop for a better price, and buy online. Or vice versa: they shop online and then go to a store to negotiate for a better deal.”

Still, digital increases the number of touchpoints from which the business can gather, cluster, and filter more types of data to make great suggestions that delight and surprise customers. That’s why the hottest word in marketing today is omnichannel. Bringing behavioral psychology to bear on the right person in the right place in the right way at the right time requires companies to design customer experiences that bridge multiple channels, on- and offline.

Amazon, for example, is known for its friction-free online purchasing. The company’s pilot store in Seattle has no lines or checkout counters, extending the brand experience into the physical world in a way that aligns with what customers already expect of it, Dhar says.

Omnichannel helps counter some people’s tendency to believe their purchasing decision isn’t truly well informed unless they can see, touch, hear, and in some cases taste and smell a product. Until we have ubiquitous access to virtual reality systems with full haptic feedback, the best way to address these concerns is by providing personalized, timely, relevant information and feedback in the moment through whatever channel is appropriate. That could be an automated call center that answers frequently asked questions, a video that shows a product from every angle, or a demonstration wizard built into the product. Any of these channels could also suggest the customer visit the nearest store to receive help from a human.

The omnichannel approach gives businesses plenty of opportunities to apply subtle nudges across physical and digital channels. For example, a supermarket chain could use store-club card data to push personalized offers to customers’ smartphones while they shop. “If the data tells them that your goal is to feed a family while balancing nutrition and cost, they could send you an e-coupon offering a discount on a brand of breakfast cereal that tastes like what you usually buy but contains half the sugar,” Guszcza says.

Similarly, a car insurance company could provide periodic feedback to policyholders through an app or even the digital screens in their cars, he suggests. “Getting a warning that you’re more aggressive than 90% of comparable drivers and three tips to avoid risk and lower your rates would not only incentivize the driver to be more careful for financial reasons but reduce claims and make the road safer for everyone.”

Digital channels can also show shoppers what similar people or organizations are buying, let them solicit feedback from colleagues or friends, and read reviews from other people who have made the same purchases. This leverages one of the most familiar forms of behavioral psychology—reinforcement from peers—and reassures buyers with Shiv’s Type 1 mindset that they’re making a choice that meets their needs or encourages those with the Type 2 mindset to move forward with the purchase. The rational mind only has to ask at the end of the process “Am I getting the best deal?” And as Guszcza points out, “If you can create solutions that use behavioral design and digital technology to turn my personal data into insight to reach my goals, you’ve increased the value of your engagement with me so much that I might even be willing to pay you more.”

Many transactions take place through corporate procurement systems that allow a company to leverage not just its own purchasing patterns but all the data in a marketplace specifically designed to facilitate enterprise purchasing. Machine learning can leverage this vast database of information to provide the necessary nudge to optimize purchasing patterns, when to buy, how best to negotiate, and more. To some extent, this is an attempt to eliminate psychology and make choices more rational.

B2B spending is tied into financial systems and processes, logistics systems, transportation systems, and other operational requirements in a way no consumer spending can be. A B2B decision is less about making a purchase that satisfies a desire than it is about making a purchase that keeps the company functioning.

That said, the decision still isn’t entirely rational, Berens says. When organizations have to choose among vendors offering relatively similar products and services, they generally opt for the vendor whose salespeople they like the best.

This means B2B companies have to make sure they meet or exceed parity with competitors on product quality, pricing, and time to delivery to satisfy all the rational requirements of the decision process. Only then can they bring behavioral psychology to bear by delivering consistently superior customer service, starting as soon as the customer hits their app or website and spreading out positive interactions all the way through post-purchase support. Finishing strong with a satisfied customer reinforces the relationship with a business customer just as much as it does with a consumer.

The best nudges make the customer relationship easy and enjoyable by providing experiences that are effortless and fun to choose, on- or offline, Dhar says. What sets the digital nudge apart in accommodating irrational customers is its ability to turn data about them and their journey into more effective, personalized persuasion even in the absence of the human touch.

Yet the subtle art of influencing customers isn’t just about making a sale, and it certainly shouldn’t be about persuading people to act against their own best interests, as Nudge co-author Thaler reminds audiences by exhorting them to “nudge for good.”

Guszcza, who talks about influencing people to make the choices they would make if only they had unlimited rationality, says companies that leverage behavioral psychology in their digital experiences should do so with an eye to creating positive impact for the customer, the company, and, where appropriate, the society.

In keeping with that ethos, any customer experience designed along behavioral lines has to include the option of letting the customer make a different choice, such as presenting a confirmation screen at the end of the purchase process with the cold, hard numbers and letting them opt out of the transaction altogether.

“A nudge is directing people in a certain direction,” Dhar says. “But for an ethical vendor, the only right direction to nudge is the right direction as judged by the customers themselves.” D!

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


About the Authors:

Volker Hildebrand is Global Vice President for SAP Hybris solutions.

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

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

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How Artificial Intelligence Will Transform Tomorrow’s Digital Supply Chain

Alina Gross

Artificial intelligence (AI) may sound futuristic, but it’s a real-life breakthrough that exists in the present. Anyone who interacts with an online search engine, shops on Amazon, owns a self-parking car, or talks to voice-powered personal assistants like Siri or Alexa is using AI.

AI is a field of computer science in which a machine is equipped with the ability to mimic the cognitive functions of a human. An AI machine can make decisions or predictions based on its past experiences, or it can respond to entirely new scenarios. When given a goal, not only does it attempt to achieve its objective, it continuously tries to improve upon its past performance.

Revolutionizing the digital supply chain

Within five years, 50% of manufacturing supply chains will be robotically and digitally controlled and able to provide direct-to-consumer and home shipments, according to IDC Manufacturing Insights. Additionally, 47% of supply chain leaders believe AI is disruptive and important with respect to supply chain strategies, per a 2016 SCM World survey. With that in mind, 85% of organizations have already adopted or will adopt AI technology into their supply chains within one year, according to a 2016 Accenture report.

Supply chains need AI to aggregate their mass amounts of data. In the supply chain, AI can analyze large data sets and recommend customer service and operations improvements while supporting better working capital management. As corporate systems become more interconnected, providing access to a wider breadth of supply chain data, the opportunity to leverage AI increases.

Let’s look at the potential benefits of using AI to link transportation data with order data:

A logistics enterprise ensures the delivery of a product within two days. With AI, the carrier can view past performances from shipping a similar product on a specific day, using a particular route, which reveals there’s a 25% chance the order will arrive in four days, not two. This information supplies customer service and supply chain professionals with proactive alerts of potential fulfillment challenges.

To take this a step further, AI could also compare historical shipping data to the customer’s requested delivery date to provide recommendations on whether this particular carrier’s performance meets requirements, or if you need to consider a different logistics enterprise that is 15% more expensive, but 25% more likely to deliver the product on time.

Step by step to a more efficient supply chain with AI

There are many opportunities to use AI throughout the supply chain, from buying raw materials/components and converting them into finished products to selling and delivering items to customers. Supply chains can also use AI to end repetitive manual tasks and begin automating processes. This can enable companies to reallocate time and resources to their core business, and other high-value, judgment-based jobs, by using AI for low-value, high-frequency activities.

In an AI-driven selling platform, chatbots can manage many of the sales, customer service, and operations tasks traditionally handled by humans, including interacting with buyers, taking orders, and passing those orders through the supply chain. In warehouse operations, AI-capable robotics and sensors can enable organizations to enhance stacking and retrieval, order picking, stock-level management, and re-ordering processes.

Amazon is currently combining automation with human labor to increase productivity by using robots that can glide quickly across the floor to rearrange items on shelves into neatly organized rows, or alert human workers when they need to stack the shelves with new products or retrieve goods for packaging. And Logistics company DHL is using AI and automation to create self-sufficient forklifts that understand what products need to be moved, where they need to be moved, and when they need to be moved.

Supply chain companies see a path forward with AI

Leveraging AI is an important next step for supply chain companies looking to lower costs and improve productivity. It can enable your organization to spend less time on repetitive processes, such as planning, monitoring, and coordinating, and focus more on innovation and growth.

AI still needs careful monitoring, however, as well as experienced and knowledgeable logistics and operations professionals to ensure it’s being used to its maximum potential.

For more on how AI and advanced tech can help boost your business, see Next-Gen Technology Separates Digital Leaders From The Rest.

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Alina Gross

About Alina Gross

Alina Gross is currently pursuing her BA in international business at Heilbronn University. She plans on deepening her knowledge by adding an MA in international marketing. During her six-month, full-time internship at SAP, she has focused on marketing and project management topics within the field of supply chain, especially around event management and social media.