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The Top Reasons Why The Maker Movement Will Be The Next Renaissance

Kai Goerlich

Trying to give customers exactly what they want can be a big mistake. Manufacturers spend billions of dollars on market research and product development to deliver a diverse mix of goods with a variety of options on a mass scale.  But, in the end, they are still often guessing at what an individual customer really wants. It’s an expensive, sometimes futile endeavor that can backfire badly.

Dell Computers—once the corporate poster child for mass customization—had to pull the plug on its make-to-order model, saying it had become “too complex and costly”.  German luxury carmaker Maybach offered an extensive array of models and long list of options. But Daimler lost $439,000 on each car sold and ultimately discontinued the entire line. And more choice isn’t always what customers want. When Procter & Gamble trimmed many of its product lines, including reducing the varieties of Head & Shoulders from 26 to 15, in an attempt to cut costs related to product complexity, its market share increased.

What had gotten lost in these cases was the feeling for what customers really wanted. But what would happen if customers could design and produce their own products?

Avi Reichental, CEO of 3D Systems, says in his TED talk: “My grandfather was a cobbler. Back in the day, he made custom-made shoes. I never got to meet him… But I did inherit his love for making, except that it doesn’t exist that much anymore. You see, while the Industrial Revolution did a great deal to improve humanity, it eradicated the very skill that my grandfather loved, and it atrophied craftsmanship as we know it… But that’s all about to change.”

Makers shake up manufacturing

maker_movement_imageOver the last decade, the quickly growing maker movement has enabled individuals and start-ups to bypass traditional industry to invent and produce bespoke goods on-demand. Make-it-yourself technologies such as 3D printing have been advancing exponentially. And thanks to hackerspaces that democratize access to high-end production tools, and new crowdfunding and online retail options, individuals can take product ideas from concept to funding to production to market on their own.

And that movement is poised to go mainstream. Consider:

  • The inaugural San Francisco MakerFaire in 2006 attracted 65,000 DIY enthusiasts. Last year, 130,000 attended along with another 85,000 in New York.
  • Today, there are 1,100 hackerspaces around the world giving people access to the tools of productions from computer numeric controlled machines to 3D scanners and giving birth to such maker start-ups as payment processor Square.
  • Peer-to-peer ecommerce site Etsy’s revenue has nearly quadrupled in as many years from $525 million in 2011 to $1.9 billion in 2014.
  • Crowdfunding has advanced from begging family and friends for seed money to the lending campaigns that generated $11.08 billion in 2014. The World Bank predicts the market will grow to $93 billion by 2025.
  • The 3D printing market will quadruple to $12 Billion by 2025. In just three years, at least seven of the world’s top 10 retailers will be using such additive manufacturing technology to generate custom stock orders with entirely new business models concurrently being built on the technology, according to Gartner.

We’re on the cusp of a major breakthrough in manufacturing innovation. As the Computing Community Consortium pointed out last year when announcing its maker conference: “Today’s emerging ‘Manufacturing Renaissance’ is radically different” from those before, and “is more akin to the introduction of major transformative technologies such as the printing press, the programmable loom, and the computer itself.”

A confluence of technological and sociological shifts are converging that will turn the advances of the industrial revolution on its head. At the center of this shift are individuals. Today most products are designed for manufacturers – to make production easier. In the near future, products will be designed for—and by—individuals. This will not only shake up the manufacturing sector but will transform the way we live, work, and create.

A renaissance of creativity, craftsmanship, and community

That transformation has begun to take place in pockets of existing businesses already. Coca-Cola introduced the Freestyle fountain, giving soda buyers the ability to create their own singular concoction from more than 100 different flavors. NikeID enables individuals to put their personal stamp on sneakers, either online or in retail customization studios.Mars has an entire business unit dedicated to customized candies and products called Mars Direct. Hershey partnered with 3D Systems to create the CoCoJet 3D Printer, capable of printing custom designs in dark, milk or white chocolate.

But, soon, such customization will be the norm as individualization becomes a matter of changing a line of code rather than retooling an assembly floor. You’ll be able to 3D print a hamburger, a hearing aide—or a house (to be assembled with the help of some handy drones) to your individual specifications. And individuals will be able not only to personalize products. They will be able to dream up, design, and produce them.

Today, innovation is tucked away in the R&D departments of corporations. Funding is provided by corporate finance mechanisms. Production takes place a world away in a factory. Twenty years from now, it will take place in your neighborhood. Products that used to require economies of scale from a centralized factory will be produced locally. As 3D printing continues to accelerate and come down in price, more goods will be produced at or near their point of use.

Creative subcultures will flourish as individuals collaborate on ideas, funding, and production. Some may flock to cities and towns where these subcultures will thrive. Others may take advantage of increasing connectivity to work together virtually. Either way, the result will be a resurgence in creativity, craftsmanship, and community.

Let the customer customize

For companies to remain relevant in this make-for-me future, they will have to rethink their business models.

Of course, some commodities will always be commodities. You don’t need to put your own spin on nuts and bolts. Goods that require massive scale, speed, and efficiency will be mass-produced, and manufacturers will continue to squeeze every ounce of cost and efficiency out of those supply chains.

Everything else, however, will be able to be customized to the individual. Today, complexity is the enemy. It’s difficult and costly. Thanks to 3D printing, product complexity will become free—and therefore advantageous. And mass customization could overtake mass production.

Today, roughly 80 percent of shipments are finished products and 20 percent are raw goods. In the future, the inverse will be true.  Instead of making products, corporations will come up with basic frameworks giving people the power to put it together as they wish.

As production is decentralized, and goods are individualized, the value proposition for companies will radically change.  It will not be that you produce something that delivers value, but that you have the knowledge of how to produce it—and in myriad ways.

As a result, IP and design will be the most important corporate assets of the future. Instead of designing, manufacturing, and delivering products, companies will design and deliver IP. Companies that own and leverage the rights to products and services—rather than those that manufacture, sell, or distribute them — will flourish.

Remodel Customer Relationships

Such a radical shift will bring challenges:

  • Manufacturers will have to figure out how the quality controls in their large, centralized factories can translate into a distributed and individualized production environment. Physical quality control will shift to digital quality control as the number of partners involved in the process balloons.
  • With a supply chain that is more distributed, is local, and works in real time, companies will need to approach customer service and standards for safety, quality, traceability, and social responsibility in new ways.

Manufacturers cannot simply wait while these issues are sorted out by someone else. The changes required to compete in this near future will take time, investment, and commitment.

Companies that want to remain relevant will have to be willing to cannibalize their existing business models and reorganize around the individual. They will have to figure out how to let their customers customize.

Download the Executive Brief: Makers Shake Up Manufacturing

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To learn more about how exponential technology will affect business and life, see SAP Digital Futures.

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Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Idea Director of Thought Leadership at SAP. His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation. Share your thoughts with Kai on Twitter @KaiGoe.

Transform Or Die: What Will You Do In The Digital Economy?

Scott Feldman and Puneet Suppal

By now, most executives are keenly aware that the digital economy can be either an opportunity or a threat. The question is not whether they should engage their business in it. Rather, it’s how to unleash the power of digital technology while maintaining a healthy business, leveraging existing IT investments, and innovating without disrupting themselves.

Yet most of those executives are shying away Businesspeople in a Meeting --- Image by © Monalyn Gracia/Corbisfrom such a challenge. According to a recent study by MIT Sloan and Capgemini, only 15% of CEOs are executing a digital strategy, even though 90% agree that the digital economy will impact their industry. As these businesses ignore this reality, early adopters of digital transformation are achieving 9% higher revenue creation, 26% greater impact on profitability, and 12% more market valuation.

Why aren’t more leaders willing to transform their business and seize the opportunity of our hyperconnected world? The answer is as simple as human nature. Innately, humans are uncomfortable with the notion of change. We even find comfort in stability and predictability. Unfortunately, the digital economy is none of these – it’s fast and always evolving.

Digital transformation is no longer an option – it’s the imperative

At this moment, we are witnessing an explosion of connections, data, and innovations. And even though this hyperconnectivity has changed the game, customers are radically changing the rules – demanding simple, seamless, and personalized experiences at every touch point.

Billions of people are using social and digital communities to provide services, share insights, and engage in commerce. All the while, new channels for engaging with customers are created, and new ways for making better use of resources are emerging. It is these communities that allow companies to not only give customers what they want, but also align efforts across the business network to maximize value potential.

To seize the opportunities ahead, businesses must go beyond sensors, Big Data, analytics, and social media. More important, they need to reinvent themselves in a manner that is compatible with an increasingly digital world and its inhabitants (a.k.a. your consumers).

Here are a few companies that understand the importance of digital transformation – and are reaping the rewards:

  1. Under Armour:  No longer is this widely popular athletic brand just selling shoes and apparel. They are connecting 38 million people on a digital platform. By focusing on this services side of the business, Under Armour is poised to become a lifestyle advisor and health consultant, using his product side as the enabler.
  1. Port of Hamburg: Europe’s second-largest port is keeping carrier trucks and ships productive around the clock. By fusing facility, weather, and traffic conditions with vehicle availability and shipment schedules, the Port increased container handling capacity by 178% without expanding its physical space.
  1. Haier Asia: This top-ranking multinational consumer electronics and home appliances company decided to disrupt itself before someone else did. The company used a two-prong approach to digital transformation to create a service-based model to seize the potential of changing consumer behaviors and accelerate product development. 
  1. Uber: This startup darling is more than just a taxi service. It is transforming how urban logistics operates through a technology trifecta: Big Data, cloud, and mobile.
  1. American Society of Clinical Oncologists (ASCO): Even nonprofits can benefit from digital transformation. ASCO is transforming care for cancer patients worldwide by consolidating patient information with its CancerLinQ. By unlocking knowledge and value from the 97% of cancer patients who are not involved in clinical trials, healthcare providers can drive better, more data-driven decision making and outcomes.

It’s time to take action 

During the SAP Executive Technology Summit at SAP TechEd on October 19–20, an elite group of CIOs, CTOs, and corporate executives will gather to discuss the challenges of digital transformation and how they can solve them. With the freedom of open, candid, and interactive discussions led by SAP Board Members and senior technology leadership, delegates will exchange ideas on how to get on the right path while leveraging their existing technology infrastructure.

Stay tuned for exclusive insights from this invitation-only event in our next blog!
Scott Feldman is Global Head of the SAP HANA Customer Community at SAP. Connect with him on Twitter @sfeldman0.

Puneet Suppal drives Solution Strategy and Adoption (Customer Innovation & IoT) at SAP Labs. Connect with him on Twitter @puneetsuppal.

 

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Scott Feldman and Puneet Suppal

About Scott Feldman and Puneet Suppal

Scott Feldman is the Head of SAP HANA International Customer Community. Puneet Suppal is the Customer Co-Innovation & Solution Adoption Executive at SAP.

What Is Digital Transformation?

Andreas Schmitz

Achieving quantum leaps through disruption and using data in new contexts, in ways designed for more than just Generation Y — indeed, the digital transformation affects us all. It’s time for a detailed look at its key aspects.

Data finding its way into new settings

Archiving all of a company’s internal information until the end of time is generally a good idea, as it gives the boss the security that nothing will be lost. Meanwhile, enabling him or her to create bar graphs and pie charts based on sales trends – preferably in real time, of course – is even better.

But the best scenario of all is when the boss can incorporate data from external sources. All of a sudden, information on factors as seemingly mundane as the weather start helping to improve interpretations of fluctuations in sales and to make precise modifications to the company’s offerings. When the gusts of autumn begin to blow, for example, energy providers scale back solar production and crank up their windmills. Here, external data provides a foundation for processes and decisions that were previously unattainable.

Quantum leaps possible through disruption

While these advancements involve changes in existing workflows, there are also much more radical approaches that eschew conventional structures entirely.

“The aggressive use of data is transforming business models, facilitating new products and services, creating new processes, generating greater utility, and ushering in a new culture of management,” states Professor Walter Brenner of the University of St. Gallen in Switzerland, regarding the effects of digitalization.

Harnessing these benefits requires the application of innovative information and communication technology, especially the kind termed “disruptive.” A complete departure from existing structures may not necessarily be the actual goal, but it can occur as a consequence of this process.

Having had to contend with “only” one new technology at a time in the past, be it PCs, SAP software, SQL databases, or the Internet itself, companies are now facing an array of concurrent topics, such as the Internet of Things, social media, third-generation e-business, and tablets and smartphones. Professor Brenner thus believes that every good — and perhaps disruptive — idea can result in a “quantum leap in terms of data.”

Products and services shaped by customers

It has already been nearly seven years since the release of an app that enables customers to order and pay for taxis. Initially introduced in Berlin, Germany, mytaxi makes it possible to avoid waiting on hold for the next phone representative and pay by credit card while giving drivers greater independence from taxi dispatch centers. In addition, analyses of user data can lead to the creation of new services, such as for people who consistently order taxis at around the same time of day.

“Successful models focus on providing utility to the customer,” Professor Brenner explains. “In the beginning, at least, everything else is secondary.”

In this regard, the private taxi agency Uber is a fair bit more radical. It bypasses the entire taxi industry and hires private individuals interested in making themselves and their vehicles available for rides on the Uber platform. Similarly, Airbnb runs a platform travelers can use to book private accommodations instead of hotel rooms.

Long-established companies are also undergoing profound changes. The German publishing house Axel Springer SE, for instance, has acquired a number of startups, launched an online dating platform, and released an app with which users can collect points at retail. Chairman and CEO Matthias Döpfner also has an interest in getting the company’s newspapers and other periodicals back into the black based on payment models, of course, but these endeavors are somewhat at odds with the traditional notion of publishing houses being involved solely in publishing.

The impact of digitalization transcends Generation Y

Digitalization is effecting changes in nearly every industry. Retailers will likely have no choice but to integrate their sales channels into an omnichannel approach. Seeking to make their data services as attractive as possible, BMW, Mercedes, and Audi have joined forces to purchase the digital map service HERE. Mechanical engineering companies are outfitting their equipment with sensors to reduce downtime and achieve further product improvements.

“The specific potential and risks at hand determine how and by what means each individual company approaches the subject of digitalization,” Professor Brenner reveals. The resulting services will ultimately benefit every customer – not just those belonging to Generation Y, who present a certain basic affinity for digital methods.

“Think of cars that notify the service center when their brakes or drive belts need to be replaced, offer parking assistance, or even handle parking for you,” Brenner offers. “This can be a big help to elderly people in particular.”

Chief digital officers: team members, not miracle workers

Making the transition to the digital future is something that involves not only a CEO or a head of marketing or IT, but the entire company. Though these individuals do play an important role as proponents of digital models, it also takes more than just a chief digital officer alone.

For Professor Brenner, appointing a single person to the board of a DAX company to oversee digitalization is basically absurd. “Unless you’re talking about Da Vinci or Leibnitz born again, nobody could handle such a task,” he states.

In Brenner’s view, this is a topic for each and every department, and responsibilities should be assigned much like on a soccer field: “You’ve got a coach and the players – and the fans, as well, who are more or less what it’s all about.”

Here, the CIO neither competes with the CDO nor assumes an elevated position in the process of digital transformation. Implementing new databases like SAP HANA or Hadoop, leveraging sensor data in both technical and commercially viable ways, these are the tasks CIOs will face going forward.

“There are some fantastic jobs out there,” Brenner affirms.

Want more insight on managing digital transformation? See Three Keys To Winning In A World Of Disruption.

Image via Shutterstock

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Andreas Schmitz

About Andreas Schmitz

Andreas Schmitz is a Freelance Journalist for SAP, covering a wide range of topics from big data to Internet of Things, HR, business innovation and mobile.

How Emotionally Aware Computing Can Bring Happiness to Your Organization

Christopher Koch


Do you feel me?

Just as once-novel voice recognition technology is now a ubiquitous part of human–machine relationships, so too could mood recognition technology (aka “affective computing”) soon pervade digital interactions.

Through the application of machine learning, Big Data inputs, image recognition, sensors, and in some cases robotics, artificially intelligent systems hunt for affective clues: widened eyes, quickened speech, and crossed arms, as well as heart rate or skin changes.




Emotions are big business

The global affective computing market is estimated to grow from just over US$9.3 billion a year in 2015 to more than $42.5 billion by 2020.

Source: “Affective Computing Market 2015 – Technology, Software, Hardware, Vertical, & Regional Forecasts to 2020 for the $42 Billion Industry” (Research and Markets, 2015)

Customer experience is the sweet spot

Forrester found that emotion was the number-one factor in determining customer loyalty in 17 out of the 18 industries it surveyed – far more important than the ease or effectiveness of customers’ interactions with a company.


Source: “You Can’t Afford to Overlook Your Customers’ Emotional Experience” (Forrester, 2015)


Humana gets an emotional clue

Source: “Artificial Intelligence Helps Humana Avoid Call Center Meltdowns” (The Wall Street Journal, October 27, 2016)

Insurer Humana uses artificial intelligence software that can detect conversational cues to guide call-center workers through difficult customer calls. The system recognizes that a steady rise in the pitch of a customer’s voice or instances of agent and customer talking over one another are causes for concern.

The system has led to hard results: Humana says it has seen an 28% improvement in customer satisfaction, a 63% improvement in agent engagement, and a 6% improvement in first-contact resolution.


Spread happiness across the organization

Source: “Happiness and Productivity” (University of Warwick, February 10, 2014)

Employers could monitor employee moods to make organizational adjustments that increase productivity, effectiveness, and satisfaction. Happy employees are around 12% more productive.




Walking on emotional eggshells

Whether customers and employees will be comfortable having their emotions logged and broadcast by companies is an open question. Customers may find some uses of affective computing creepy or, worse, predatory. Be sure to get their permission.


Other limiting factors

The availability of the data required to infer a person’s emotional state is still limited. Further, it can be difficult to capture all the physical cues that may be relevant to an interaction, such as facial expression, tone of voice, or posture.



Get a head start


Discover the data

Companies should determine what inferences about mental states they want the system to make and how accurately those inferences can be made using the inputs available.


Work with IT

Involve IT and engineering groups to figure out the challenges of integrating with existing systems for collecting, assimilating, and analyzing large volumes of emotional data.


Consider the complexity

Some emotions may be more difficult to discern or respond to. Context is also key. An emotionally aware machine would need to respond differently to frustration in a user in an educational setting than to frustration in a user in a vehicle.

 


 

download arrowTo learn more about how affective computing can help your organization, read the feature story Empathy: The Killer App for Artificial Intelligence.


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Christopher Koch

About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing. Share your thoughts with Chris on Twitter @Ckochster.

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In An Agile Environment, Revenue Models Are Flexible Too

Todd Wasserman

In 2012, Dollar Shave Club burst on the scene with a cheeky viral video that won praise for its creativity and marketing acumen. Less heralded at the time was the startup’s pricing model, which swapped traditional retail for subscriptions.

For as low as $1 a month (for five two-bladed cartridges), consumers got a package in the mail that saved them a trip to the pharmacy or grocery store. Dollar Shave Club received the ultimate vindication for the idea in 2016 when Unilever purchased the company for $1 billion.

As that example shows, new technology creates the possibility for new pricing models that can disrupt existing industries. The same phenomenon has occurred in software, in which the cloud and Web-based interfaces have ushered in Software as a Service (SaaS), which charges users on a monthly basis, like a utility, instead of the typical purchase-and-later-upgrade model.

Pricing, in other words, is a variable that can be used to disrupt industries. Other options include usage-based pricing and freemium.

Products as services, services as products

There are basically two ways that businesses can use pricing to disrupt the status quo: Turn products into services and turn services into products. Dollar Shave Club and SaaS are two examples of turning products into services.

Others include Amazon’s Dash, a bare-bones Internet of Things device that lets consumers reorder items ranging from Campbell’s Soup to Play-Doh. Another example is Rent the Runway, which rents high-end fashion items for a weekend rather than selling the items. Trunk Club offers a twist on this by sending items picked out by a stylist to users every month. Users pay for what they want and send back the rest.

The other option is productizing a service. Restaurant franchising is based on this model. While the restaurant offers food service to consumers, for entrepreneurs the franchise offers guidance and brand equity that can be condensed into a product format. For instance, a global HR firm called Littler has productized its offerings with Littler CaseSmart-Charges, which is designed for in-house attorneys and features software, project management tools, and access to flextime attorneys.

As that example shows, technology offers opportunities to try new revenue models. Another example is APIs, which have become a large source of revenue for companies. The monetization of APIs is often viewed as a side business that encompasses a wholly different pricing model that’s often engineered to create huge user bases with volume discounts.

Not a new idea

Though technology has opened up new vistas for businesses seeking alternate pricing models, Rajkumar Venkatesan, a marketing professor at University of Virginia’s Darden School of Business, points out that this isn’t necessarily a new idea. For instance, King Gillette made his fortune in the early part of the 20th Century by realizing that a cheap shaving device would pave the way for a recurring revenue stream via replacement razor blades.

“The new variation was the Keurig,” said Venkatesan, referring to the coffee machine that relies on replaceable cartridges. “It has started becoming more prevalent in the last 10 years, but the fundamental model has been there.” For businesses, this can be an attractive model not only for the recurring revenue but also for the ability to cross-sell new goods to existing customers, Venkatesan said.

Another benefit to a subscription model is that it can also supply first-party data that companies can use to better understand and market to their customers. Some believe that Dollar Shave Club’s close relationship with its young male user base was one reason for Unilever’s purchase, for instance. In such a cut-throat market, such relationships can fetch a high price.

To learn more about how you can monetize disruption, watch this video overview of the new SAP Hybris Revenue Cloud.

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