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Live Product Innovation, Part 3: Process Industries, IoT, And A Recipe For Instant Change

John McNiff

In Part 1 of this series, we looked at how in-memory computing affects live product innovation. In Part 2, we explored the impact of the Internet of Things (IoT) and Big Data on smart connected products. In Part 3, we approach the topic from the perspective of process industries.

Digital this, connected that. Smart whatsits and intelligent doodahs. Those of us who talk about IoT are often reminded that not every manufacturer makes products per se. But IoT isn’t only about the addition of sensors to products. The principles of live product innovation are equally relevant to process manufacturing.

In fact, the “data refinery” offers the potential to manage the Internet of everything — including traditional Big Data sources in tight conjunction with business processes. If your products are food, packaged goods, or chemicals, the promises of live product insights are still compelling. It’s only the data sources and dimensions that are different.

Live and compliant

The complexity of regulatory compliance in process industries continues to grow — whether you’re talking about the U.S. Food and Drug Administration, the U.K. Food Standards Agency, trade embargoes, or hazardous substance management. And compliance isn’t getting any simpler to manage across jurisdictions and industry sectors.

What’s more, customers increasingly demand shortened delivery cycles and highly targeted or even personalized products. That means you can no longer wait till after you formulate a product and release a recipe to determine whether you can actually sell it. You need instant visibility, whether you’re talking about nutritional safe levels assigned by a particular region for food products or volumes of hazardous substances for supply and transit.

But that’s the advantage of live, compliant product innovation. It enables you to perform analytics on previously disconnected data. And it allows you to manage real-time embedded processes across previously disparate systems.

Product data is everywhere

In our last blog we explored the advantages of smart connected products — the ability to link everything from initial product concepts through downstream product delivery. Now let’s apply that to process manufacturing.

Let’s say you see two factors coming together for the SoySnak product you sell in North America and Asia. Your sales data shows that American consumers want 10Kg packages, while Asian customers prefer smaller multipacks. At the same time, your compliance database alerts you that new regulations on salt levels are about to go into effect in several of your target markets.

You want to respond before the regulations are implemented, for several reasons. You’ll need to update recipes, specifications, labels, and packaging. You’ll need to inform your suppliers, manufacturers, quality planners, financial controllers, logistics providers, and retailers. And you’ll need to get the replacement product into the affected markets, with auditable compliance with salt level requirements. Otherwise, you risk producing a large quantity of unsellable inventory.

This example shows us several things:

  • Insights must be as instant as possible.
  • Those insights might come from a variety of sources that your R&D folks didn’t previously have real-time access to.
  • Your products must be localized to a very granular level.
  • Even a minor change affects everything from recipes to packaging specifications, costs of materials, regulatory reporting, logistics providers, retailers, and on and on.

And that leads us to several conclusions:

  • Product data isn’t mission-critical only to R&D. It’s linked to every downstream business process.
  • A live, compliant, and collaborative environment, with the ability to instantly adapt to change, is a business requirement.
  • To achieve that requirement, product data must be part of business processes.
  • The platform the R&D team relies on must be linked to downstream platforms, and it must allow you to leverage and act on real-time insights.

Digital product innovation platform

Of course, the streaming of sensor data from connected things is still relevant in process industries. But for process manufacturers, the most important use cases are more around traceability, supply chain logistics, and product innovation. At some point, data from connected goods will allow new models that more tightly couple the supply chain with innovation cycles.

But a live and compliant product innovation platform achievable today. The question is whether you’ll get there before your competition does.

Come to SAPPHIRE NOW 2017 in Orlando, Florida from May 16 – 18th, 2017, and check out my session “Boost Visibility into Operations for Connected Products with SAP Leonardo” on Tuesday, May 16th, 2017 from 1-1:40 p.m. in Business Application BA324, or check out our R&D sessions.

Follow the conversation on @SCMatSAP and #SAPPHIRENOW.

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John McNiff

About John McNiff

John McNiff is the Vice President of Solution Management for the R&D/Engineering line-of-business business unit at SAP. John has held a number of sales and business development roles at SAP, focused on the manufacturing and engineering topics.

4 Steps To Revolutionize Your Industrial Manufacturing [VIDEO]

Conor Brophy

For generations, we have lived in a mass production society. Imagine a world where a 50,000-square foot warehouse, once filled with products and inventory as far as the eye can see, now sits empty. Inventory has shifted to a new location: the cloud. Products are now manufactured, or “printed,” on-demand and delivered to the location where the demand exists.

UPS and Fast Radius are two innovative companies with a shared vision for the future of manufacturing. Fast Radius is UPS’s partner in 3D printing and a pioneer in on-demand manufacturing. UPS is a global leader in logistical services. Together, these two companies are teaming up and leveraging IoT technology in order to rewrite the rules of manufacturing.

The digital supply chain

“[There] are problems that [manufacturing] companies have been trying to solve for decades. How do I make my inventory management more efficient? How do I match the supply of product that I’m making with the actual demand?” said Rick Smith, co-founder of Fast Radius, at the Fast Radius facility in Chamblee, Georgia.

To answer these questions, we must take a step back and look at the big picture. Over the last 100-plus years, conventional manufacturing has been based on a simple equation: “The more things you make, the lower the cost of each of those things,” according to Rick Smith. This equation presents problems in cost and infrastructure when considering factory build and maintenance, tooling and molds, and piles of excess inventory. Instead of asking how to simply make this process more efficient, UPS and Fast Radius are taking a step further by enabling a digital supply chain.

Simplifying industrial manufacturing in four easy steps

1. Design

The first step towards on-demand manufacturing requires a seamlessly integrated solution for collaboration. Fast Radius is leveraging a distributed manufacturing solution to virtually collaborate with customers and ensure design specifications and the correct level of certifications are met. This platform is the digital workshop where designers and engineers, on both sides, can make sure a printed product will be the same as one produced on an assembly line.

2. Internet of Things (IoT)

UPS is using an IoT platform which specializes in making machines smarter and drives end-to-end digital transformation. A distributed manufacturing solution, sensors, automation, robotics, and 3D printers feed massive amounts of data processed within an IoT portfolio, enabling more dynamic data leading to seamless customer experiences.

“It’s really an ecosystem of technologies that work together. It’s not just one thing, it’s many things that are working together,” said Alan Amling, VP of strategy at UPS.

3. 3-D printing

3D printing is the third step in the process to set forth on-demand manufacturing. After taking the world by storm, the technology continues to evolve every day. “Traditionally with printing, you would be stuck with a very limited amount of materials. You could replicate some of the harder types with traditional methods, but with the new technologies and new materials coming to market, you can almost replicate any kind of production,” said Rick Smith.

4. Logistics

Finally, a designed, printed product must do one last thing: Get to the customer. How? By leveraging UPS and its areas of logistical expertise. Simply box it up and slap on a UPS Next-Day Air sticker. The customer will receive the part within 24 hours of initial purchase.

By harnessing the power of an IoT platform, UPS and Fast Radius are quickly revolutionizing product manufacturing. They have streamlined the process of design, IoT, 3-D printing, and logistics to create a seamless customer experience. The impact to manufacturers, to businesses, and to individuals will undoubtedly be disruptive. Watch the video below to learn more.

Effective IoT connectedness requires a unifying foundation. SAP has addressed this need by introducing the SAP Leonardo portfolio, an innovative IoT solution portfolio designed to help organizations digitally transform existing processes and evolve to new digital models. Learn more by downloading an SAP Leonardo brochure, reading about real-world use cases, attending our flagship event Leonardo Live this summer, visiting sap.com/iot, and following us on Twitter at @SAPLeonardo.

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Conor Brophy

About Conor Brophy

Conor Brophy works with the SAP Global Marketing Customer Storytelling team as a content specialist. When he is not writing about stories of "Run Simple," he enjoys golf, hiking and spending time with his fiance, friends and family.

Devices for the Digital Economy: Frugal Innovation

Danielle Beurteaux

Basic Utilities

Millions of people around the world still lack consistent access to the basics of modern life. They also lack resources to build conventional infrastructure in order to obtain essentials such as water and a consistent supply of electricity. Enter frugal innovation—a process for simplifying complex technologies so they are less expensive to produce and operate. Two startups have devised affordable systems that give people access to essential utilities.

Waterpoint Data Transmitter

About 780 million people, mainly in rural locations, don’t have indoor plumbing. Instead, they rely on hand pumps to access groundwater. Sooner or later, these hand pumps break and often aren’t fixed due to lack of parts and know-how. By some estimates, one-third of pumps aren’t functioning at any given time.

OxWater, a startup launched from Oxford University, has a solution that incorporates basic cell phone technology. The Waterpoint Data Transmitter is a monitoring device that communities deploy to track pump usage. If a pump stops working, a local, trained repair team receives a notification to fix it. The device also provides predictions of which pumps are likely to break and reports low water levels. A pilot project in Kenya showed a dramatic reduction in repair times, from an average of 37 days down to just two.

Quad

Solar power has become an important technology for people living in off-the-grid rural environments. But once the sun goes down, or during spells of cloudy days, the solar panels may not generate enough electricity. That often means a return to inefficient and unsafe solutions, such as kerosene lamps for lighting.

Azuri Technologies has developed a simple, independent system that enables solar users to adapt the amount of power they use according to the amount of energy they generate. The Quad is a small wall-mounted unit that’s wired to a solar panel that comes with a USB port for mobile phone charging. The system uses the company’s HomeSmart technology to monitor local weather patterns and learn consumers’ energy usage. Then, based on available energy, it automatically regulates the amount of power used for lighting (by, for example, adjusting brightness) and battery charging.

A 5-watt system costs about US$156, which users can pay off weekly using a mobile money account. Once they own the unit, they can generate power at no cost. Since its launch in Kenya in 2011, 90,000 Quads have been purchased in 12 African countries.

Digital Rescue

Preventing disasters and delivering aid when they do hit are difficult in isolated locations, where there aren’t enough services that enable quick reaction. Complexity and cost can also keep aid from reaching its targets. These startups are using frugal technology in imaginative ways to issue alerts of impending problems and deliver help to people in need.

Pouncer

Disaster relief is an uphill race against the clock. Whether responding to a natural disaster, war, or famine, aid workers must assemble and deliver supplies, navigate around natural obstacles, avoid thieves, and stay safe. Windhorse Aerospace has developed POUNCER, a disposable drone, to address these problems.

Designed for takeoff from a C-130 Hercules military transport plane and guided using a built-in GPS, POUNCER can be launched from up to 40 kilometers from its destination, with a landing accuracy of within 7 meters. The drone can carry enough food and water rations for 50 people. What’s more, every part is reusable and disposable. For example, the frame, which has a 3-meter wingspan, can be used for shelter or burned for fuel (Windhorse is meanwhile looking to develop an edible frame). Because the entire unit is designed for on-site use, there’s also no cost or peril involved in recovering it from the disaster area.

Lumkani

Many of the world’s poor live in shacks that are built very close together, and they lack electricity. As a result, they rely heavily on open flames for light, heat, and cooking, creating a high risk of fire. But conventional smoke detectors can’t be relied on in places that are already smoky. One devastating fire in Cape Town, South Africa, prompted a group of local university students to design a fire detection device specifically for these environments.

The Lumkani detector is a small wall-mounted unit that runs on batteries and, instead of being triggered by smoke, detects fires by monitoring temperature increases. The detectors use basic radio frequency technology to link all units within a 60-meter radius to a mesh network, which enables early warning alerts for the surrounding inhabitants. The $7 device also stores GPS coordinates, sends warning texts to residents, and can self-monitor the operating health of the whole linked system. Lumkani is working on a way to send real-time data to local emergency response units.

Data at the Digital Frontier

Do you own the land you’re farming? When will the next rainstorm hit? These are basic questions, but for some people living in emerging economies, they’re not so easy to answer. Startups are using clever designs and simple interfaces to provide the information that rural communities need to thrive.

FarmSeal

For millions of small landowners around the world, verifying a legal claim to their land is a complex, expensive, and practically insurmountable process. And without documentation that proves that they own their land, protecting their property rights is nearly impossible, as is getting loans to expand their land holdings and businesses.

Landmapp, based in Amsterdam and operating in Ghana, has developed a mobile platform to make mapping and filing claims accessible to small landowners. The company educates farmers about property rights and then, for a small fee, uses its own platform to record and legally validate land ownership. Landmapp uses geospatial technology and cloud data on a tablet, meaning they don’t need fancy and expensive surveying equipment. FarmSeal, Landmapp’s first product, serves farmers; the company is also launching HomeSeal, for homeowners, and CropSeal, for sharecroppers and landowners. The startup’s platform incorporates local government, legal, and traditional community agreements, and is customizable for different locales.

3D-Printed Weather Stations

Weather data drives numerous economic and public safety decisions. But in many countries, a scarcity of weather stations means no data about vast geographic areas. Unfortunately, conventional weather stations are expensive, costing upwards of $20,000 per unit. In emerging economies, governments and rural communities don’t have the resources or training to buy and maintain them.

At the nonprofit university consortium University Corporation for Academic Research, researchers are leveraging 3D printing to fill the weather gap. They’ve devised a weather station that local government agencies can install in rural communities. The units use off-the-shelf, basic sensors, store data on a small computer, and run on energy generated by a single solar panel. The local agencies have 3D printers to create other parts, including the frame and wind gauges, which can be easily customized or replaced.

The cost? About $300. And beyond letting communities know when, for example, rain is on the horizon, the unit can also be a first alert for natural disasters, like floods.

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

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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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Small And Midsize Businesses Have The Capacity To Drive Europe’s Future As A Digital Superpower

Katja Mehl

Part 10 of the “Road to Digital Transformation” series

Representing 99.8% of all companies throughout Europe, small and midsize businesses have tremendous power when it comes to impacting the region’s economy. One innovation at a time, they’re transforming entire industries, propelling emerging industries forward with adjacent offerings, and even supersizing a favorite childhood toy to make living conditions better for the poor and homeless. But perhaps the greatest evolution is found in the growing adoption of technology among firms.

According to the IDC InfoBrief “The Next Steps in Digital Transformation: How Small and Midsize Companies Are Applying Technology to Meet Key Business Goals with Insights for Europe,” sponsored by SAP, 35.4% of all European firms feel that their adoption of digital technology is either advanced or well underway. Germany and France are great examples of countries that are embracing advanced business networks and automation technology – such as the Internet of Things – to boost productivity and computerize or consolidate roles left empty due to long-term labor shortages.

Despite the progress made in some countries, I am also aware of others that are still resistant to digitizing their economy and automating operations. What’s the difference between firms that are digital leaders and those that are slow to mature? From my perspective in working with a variety of businesses throughout Europe, it’s a combination of diversity and technology availability.

digital transformation self-assessment

Source: “The Next Steps in Digital Transformation: How Small and Midsize Companies Are Applying Technology to Meet Key Business Goals with Insights for Europe,” IDC InfoBrief, sponsored by SAP, 2017. 

Opportunities abound with digital transformation

European companies are hardly homogenous. Comprising 47 countries across the continent, they serve communities that speak any of 225 spoken languages. Each one is experiencing various stages of digital development, economic stability, and workforce needs.

Nevertheless, as a whole, European firms do prioritize customer acquisition as well as improving efficiency and reducing costs. Over one-third of small and midsize companies are investing in collaboration software, customer relationship management solutions, e-commerce platforms, analytics, and talent management applications. Steadily, business leaders are finding better ways to go beyond data collection by applying predictive analytics to gain real-time insight from predictive analytics and machine learning to automate processes where possible.

Small and midsize businesses have a distinct advantage in this area over their larger rivals because they can, by nature, adopt new technology and practices quickly and act on decisions with greater agility. Nearly two-thirds (64%) of European firms are embracing the early stages of digitalization and planning to mature over time. Yet, the level of adoption depends solely on the leadership team’s commitment.

For many small and midsize companies across this region, the path to digital maturity resides in the cloud, more so than on-premise software deployment. For example, the flexibility associated with cloud deployment is viewed as a top attribute, especially among U.K. firms. This brings us back to the diversity of our region. Some countries prioritize personal data security while others may be more concerned with the ability to access the information they need in even the most remote of areas.

Technology alone does not deliver digital transformation

Digital transformation is certainly worth the effort for European firms. Between 60%–90% of small and midsize European businesses say their technology investments have met or exceeded their expectations – indicative of the steady, powerhouse transitions enabled by cloud computing. Companies are now getting the same access to the latest technology, data storage, and IT resources.

However, it is also important to note that a cloud platform is only as effective as the long-term digital strategy that it enables. To invigorate transformative changes, leadership needs to go beyond technology and adopt a mindset that embraces new ideas, tests the fitness of business models and processes continuously, and allows the flexibility to evolve the company as quickly as market dynamics change. By taking a step back and integrating digital objectives throughout the business strategy, leadership can pull together the elements needed to turn technology investments into differentiating, sustainable change. For example, the best talent with the right skills is hired. Plus, partners and suppliers with a complementary or shared digital vision and capability are onboarded.

The IDC Infobrief confirms what I have known all along: Small and midsize businesses are beginning to digitally mature and maintain a strategy that is relevant to their end-to-end processes. And furthering their digital transformation go hand in hand with the firms’ ability to ignite a transformational force that will likely progress Europe’s culture, social structure, and economy. 

To learn how small and midsize businesses across Europe are digitally transforming themselves to advance their future success, check out the IDC InfoBrief “The Next Steps in Digital Transformation: How Small and Midsize Companies Are Applying Technology to Meet Key Business Goals with Insights for Europe,” sponsored by SAP. For more region-specific perspectives on digital transformation, be sure to check every Tuesday for new installments to our blog series “The Road to Digital Transformation.”

 

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Katja Mehl

About Katja Mehl

Katja Mehl is Head of Marketing for Europe, Middle East, and Africa at SAP.