Why CFOs Are Rethinking The Cloud (And Why You Should Too)

Richard McLean

Part 1 of the 2-part series. Read Part 2.

The tide is turning in the minds of CFOs. As recently as 12 to 24 months ago, when I talked with finance leaders about cloud computing, I often met with some skepticism. Concerns about cost, fit, and risk to data were front of mind. But in the last 12 months, the feedback has been quite the opposite.

I recently had a meeting in Sydney with the CFO of a business in the healthcare industry. The company is already set to deploy an HR cloud application and is considering going to tender for an enterprise resource planning (ERP) system, with a preference for cloud-based, rather than on-premise, solutions. This scenario is quite typical today. In time, we are going to see more and more businesses shift to cloud solutions, and research backs my assertion.

I read a study by IDC that looks at digital transformation and how small and midsize companies are applying technology to meet key business goals. In the Asia-Pacific region, decision-makers show an almost equal preference for on-premise and cloud solutions. The exception is China, which shows an overwhelming preference for cloud deployments.

Cloud versus on-premise application deployment preferences by Asia/Pacific country (%)

China Japan Korea Singapore
Prefer on-premise solutions in general 28.7 33.3 43.0 40.3
Prefer cloud solutions in general 56.0 35.3 42.7 42.3
No preference 15.3 31.3 14.3 17.3

 An unbeatable business case

It’s easy to understand why CFOs love the idea of cloud deployments; the business case is certainly there. The cloud brings opportunity for standardization and automation. By subscribing to a cloud solution and running on a cloud platform, you’re paying for a service that frees you from the IT burdens and business process complexity of the past, as there’s no infrastructure or customized software to maintain.

The big advantage, of course, is agility and access to ongoing digital innovation. By adopting standard solutions that are scalable, organizations can quickly meet business needs without the time or expense of implementing and customizing software. Plus, you don’t need to allocate your budget or people to building or maintaining a system. Licensing is relatively flexible, so users can be added easily as the business grows and changes.

There were, and still are, concerns around ensuring the security of data. Cybersecurity is a growing priority, and CFOs should consider the risk. But I find that many are concluding that it’s safer to trust cloud data center experts who have data security and providing state-of-art protection as a core aspect of their business model. Plus, as more and more companies adopt cloud technology, there are ample real-world examples and success stories that give them more confidence.

The importance of choice

Clearly, there has been a mindset change in respect to the cloud, not just within finance but within business in general. Businesses have accepted that the cloud is a viable and favorable solution to meet their needs. However, not everyone is ready to go all-in. Many companies prefer a hybrid landscape of cloud and on-premise solutions – and I think having this choice is important.

I believe we’ve always recognized the importance of choice at SAP. From the beginning, we have been agnostic in our go-to-market strategy. When the company first offered ERP applications, we let our customers integrate the database of their choice; we didn’t mandate that they use our data warehouse. We have a similar approach with the cloud. Companies can choose on-premise or cloud deployments of our applications – or both. SAP’s own internal landscape is running successfully as a hybrid environment. Why wouldn’t we offer our customers the same flexibility?

The bottom line is this: The cloud is quickly becoming the de facto deployment method for many businesses, and for good reason. It can be the catalyst for transformation to becoming a digital enterprise. But ultimately, you need to move at a pace and deploy technology in a way that’s right for your business.

 To learn how small and midsize businesses across the APJ region 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 Asia/Pacific,” sponsored by SAP. More great resources for CFOs are available now at the SAP finance page.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube

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Richard McLean

About Richard McLean

Richard McLean, regional CFO for SAP Asia Pacific Japan, oversees all key finance and administrative functions for field and regional headquarters, supporting more than 16,000 employees. He has more than 20 years of experience in senior finance roles with leading global companies across a range of industries, including financial services, investment banking, automotive, and IT. He joined SAP in 2008.

How Digital Twin Technology Is Transforming The Mill Industry

Kai Aldinger

Imagine a network of sensors in your mill products business that monitor the efficiency of each piece of equipment, enabling you to identify parts that are wearing out or failing by using just a tablet or laptop.

As the fourth digital revolution unfolds, digital twinning makes this scenario real.

What is digital twinning?

Digital twinning comprises several processes that come together to create a unique tool that benefits mill products companies. The process uses sensors, computers, and mechanical equipment to create a data map that represents the parts of a machine while it works. The map is the digital twin of the machine’s production status. For example, if you have an automated sawmill, the digital map would indicate the efficiency and status of all its moving parts.

The process of creating a digital twin uses sensors within a piece of equipment that feeds data to a computer capable of handling Big Data. The data tells a story in real time about the efficiency of the equipment as it operates. That’s the macro view of twinning.

The process, however, is not limited to a single piece of equipment; it affects your entire operation. A digital twin shows the efficiency of a machine as it works in real time and compares that information to the machine’s past performance. The outcome goes beyond predictive, showing managers not only when a machine will likely break down, but also what parts are likely to be involved.

Advantages of digital twinning

Instead of learning about problems and equipment failures after they happen, you can be proactive. For example, you might look at your tablet and notice that an edger’s drive motor is not turning the sawblades as efficiently as it should. You could then schedule maintenance and order parts before a serious problem, potentially resulting in lost revenue, happens.

How does digitizing operations add value?

Some of the greatest efficiency losses, especially concerning energy usage, in the mill industry, are due to equipment failure and breakdown. Much of the mechanical stress in mill products manufacturing comes from the environment in which the machines work. Twinning data shows you when components are beginning to fail and which ones need repair before the tool or machine breaks. This technology is not singular in vision; it digitizes the entire mill.

Consider the benefits of digital twinning across your operations: It provides data that lets you monitor the efficiency of every piece of equipment in real time. That knowledge allows you to manage the situation and maintain consistent operations. Currently, most mills’ maintenance systems work on a calendar basis or when an issue develops. Digital twinning enables you to schedule maintenance and repairs when they are needed rather than during a crisis.

Additional benefits

Already used in industrial applications such as machine design, digital twin technology can boost savings by reducing equipment downtime and improving the consistency of output. You will never again need to wait for parts; digital twinning allows you to order or 3-D print the parts you need before a machine is due for repair. The technology also goes beyond maintenance and efficiency, offering benefits in the areas of knowledge management, financing, appraisal, and asset management, especially in terms of the operating value of your mechanical assets.

How does digital twinning affect new ventures?

Twinning helps new ventures by enabling project mockups prior to investment. For example, NASA uses digital twinning to develop equipment that must function in extreme environments such as that on Mars. As a project development begins, planners can study scenarios to determine how best to design infrastructure. This process allows your team to overcome the challenges of the physical world while building a framework that improves efficiency and reduces costs.

These prospects are just the beginning of what we expect from digital twinning. As the technology continues to merge with advancements in IoT, machine learning, and other emerging technologies, industries in all sectors will benefit from real-time asset management and other capabilities.

Learn how to bring new technologies and services together to power digital transformation: download “The IoT Imperative for Energy and Natural Resource Companies.” Explore how to bring Industry 4.0 insights into your business today: read “Industry 4.0: What’s Next?

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A Modern Outlook On ERP Brings New Opportunities To Professional Services

Catherine Lynch

Part 5 of the “Intelligent ERP-Driven Industries” series

Businesses that fall under the professional services industry umbrella represent a diverse ecosystem and variety of daily challenges. But some central truths also unite them, including the need to attract and engage clients that increasingly demand the convenience and ease of today’s digital experiences.

As emerging technologies, such as artificial intelligence, machine learning, and blockchain, begin to shake up traditional practices, professional services firms are addressing client demands by rapidly developing new business models, including:

  • Outcome-based engagements: Customers pay for an outcome, not the work done to achieve it. Although the burdens of responsibility and risk are significant, businesses stand to gain more opportunity and higher profit margins if the customer’s request is delivered efficiently.
  • Increased use of talent networks: Greater reliance on contingent expertise and remote talent provides an effective staffing strategy from inside the company and across organizational boundaries. Work assignments flow through a lifecycle that includes financial processes such as payables, client billing, intercompany billing, and receivables.
  • Productization of services: As part of delivering projects efficiently, standardization of efforts and knowledge is prioritized when possible, leading to the automation of some processes.
  • Digital services delivery: Industry lines are blurring as many traditional consulting firms are offering digital services to clients and as some cloud services providers cater to the needs of professional services organizations.
  • Uberisation of services: Pockets of startups, such as legal firms, are kickstarting a wave of disruption by using artificial intelligence to automate many of the mundane, repetitive tasks previously done by young associates.

Although these emerging business models provide a variety of transformative opportunities, professional services firms are still constrained by their legacy ERP environments that, at the core, manage financials and related service delivery processes. As a result, firms cannot provide the level of real-time visibility, responsiveness, and flexibility needed to innovate and integrate new processes and offerings with the customer engagement experience.

Intelligent, cloud-based ERP unlocks constraints that hold firms back

As a first step towards digitalization, professional services firms should consider adopting an intelligent, cloud-based ERP platform as the digital core of their IT landscape. As the nerve center of the entire company, it provides everything needed to run as a real-time digital business – from end-to-end project management and workforce development to cash flow and expense processes.

By implementing a rock-solid, intelligent digital core to manage every aspect of the business, professional services firms can differentiate themselves with:

  • A real-time foundation: Built on a database designed to take advantage of the latest data-processing technology, a cloud ERP platform brings immediate transparency into real-time information. For example, by empowering organizations to confirm the time and expense dedicated towards a customer engagement, business leadership can fully understand project cost, revenue, margin, and work-in-progress position. Meanwhile, the financial controller can run a soft close that uses the same data. In essence, every decision maker can ask a question and find the answer with in-the-moment data made available immediately in the user experience.
  • An intelligent core: In the cloud, the business can take advantage of new digital technologies such as machine learning, predictive analytics, blockchain, and natural language processes by building them into the ERP platform quickly and easily.
  • A set of proven industry best practices: To make the best use of an intelligent ERP platform, firms can take advantage of end-to-end professional services processes and embedded best practices that can be applied as a fundamental part of the overall business system. They can, for example, create new projects quickly from templates to better standardize services or from scratch to offer unique and differentiated services.
  • A platform for continuous innovation: Since the technology is upgraded automatically on a quarterly basis, even the smallest firms can access the latest technology and capabilities to innovate new business models and increase process automation without disrupting core activities.

Accelerating growth while safeguarding against disruption

Professional services firms – regardless of size – are prone to disruption from their rivals and clients as long as digitalization is a mainstay in the global marketplace. By implementing an intelligent, cloud-based ERP system, businesses can help ensure that every function has the information and perspective it needs to accomplish ambitions for growth and optimized operations.

Check out how professional service providers are deepening their digital transformation with a next-generation ERP suite serving as a digital core. Access our library of keynote and session replays from the Intelligent ERP Industry Virtual Summit to hear from top customers and experts as they discuss how intelligent ERP, industry roadmaps, and implementation can guide your business throughout its digital journey.

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Catherine Lynch

About Catherine Lynch

Catherine Lynch is a Senior Director of Industry Cloud Marketing at SAP. She is a content marketing specialist with a particular focus on the professional services and media industries globally. Catherine has a wide international experience of working with enterprise application vendors in global roles, creating thought leadership and is a social media practitioner.

Hack the CIO

By Thomas Saueressig, Timo Elliott, Sam Yen, and Bennett Voyles

For nerds, the weeks right before finals are a Cinderella moment. Suddenly they’re stars. Pocket protectors are fashionable; people find their jokes a whole lot funnier; Dungeons & Dragons sounds cool.

Many CIOs are enjoying this kind of moment now, as companies everywhere face the business equivalent of a final exam for a vital class they have managed to mostly avoid so far: digital transformation.

But as always, there is a limit to nerdy magic. No matter how helpful CIOs try to be, their classmates still won’t pass if they don’t learn the material. With IT increasingly central to every business—from the customer experience to the offering to the business model itself—we all need to start thinking like CIOs.

Pass the digital transformation exam, and you probably have a bright future ahead. A recent SAP-Oxford Economics study of 3,100 organizations in a variety of industries across 17 countries found that the companies that have taken the lead in digital transformation earn higher profits and revenues and have more competitive differentiation than their peers. They also expect 23% more revenue growth from their digital initiatives over the next two years—an estimate 2.5 to 4 times larger than the average company’s.

But the market is grading on a steep curve: this same SAP-Oxford study found that only 3% have completed some degree of digital transformation across their organization. Other surveys also suggest that most companies won’t be graduating anytime soon: in one recent survey of 450 heads of digital transformation for enterprises in the United States, United Kingdom, France, and Germany by technology company Couchbase, 90% agreed that most digital projects fail to meet expectations and deliver only incremental improvements. Worse: over half (54%) believe that organizations that don’t succeed with their transformation project will fail or be absorbed by a savvier competitor within four years.

Companies that are making the grade understand that unlike earlier technical advances, digital transformation doesn’t just support the business, it’s the future of the business. That’s why 60% of digital leading companies have entrusted the leadership of their transformation to their CIO, and that’s why experts say businesspeople must do more than have a vague understanding of the technology. They must also master a way of thinking and looking at business challenges that is unfamiliar to most people outside the IT department.

In other words, if you don’t think like a CIO yet, now is a very good time to learn.

However, given that you probably don’t have a spare 15 years to learn what your CIO knows, we asked the experts what makes CIO thinking distinctive. Here are the top eight mind hacks.

1. Think in Systems

A lot of businesspeople are used to seeing their organization as a series of loosely joined silos. But in the world of digital business, everything is part of a larger system.

CIOs have known for a long time that smart processes win. Whether they were installing enterprise resource planning systems or working with the business to imagine the customer’s journey, they always had to think in holistic ways that crossed traditional departmental, functional, and operational boundaries.

Unlike other business leaders, CIOs spend their careers looking across systems. Why did our supply chain go down? How can we support this new business initiative beyond a single department or function? Now supported by end-to-end process methodologies such as design thinking, good CIOs have developed a way of looking at the company that can lead to radical simplifications that can reduce cost and improve performance at the same time.

They are also used to thinking beyond temporal boundaries. “This idea that the power of technology doubles every two years means that as you’re planning ahead you can’t think in terms of a linear process, you have to think in terms of huge jumps,” says Jay Ferro, CIO of TransPerfect, a New York–based global translation firm.

No wonder the SAP-Oxford transformation study found that one of the values transformational leaders shared was a tendency to look beyond silos and view the digital transformation as a company-wide initiative.

This will come in handy because in digital transformation, not only do business processes evolve but the company’s entire value proposition changes, says Jeanne Ross, principal research scientist at the Center for Information Systems Research at the Massachusetts Institute of Technology (MIT). “It either already has or it’s going to, because digital technologies make things possible that weren’t possible before,” she explains.

2. Work in Diverse Teams

When it comes to large projects, CIOs have always needed input from a diverse collection of businesspeople to be successful. The best have developed ways to convince and cajole reluctant participants to come to the table. They seek out technology enthusiasts in the business and those who are respected by their peers to help build passion and commitment among the halfhearted.

Digital transformation amps up the urgency for building diverse teams even further. “A small, focused group simply won’t have the same breadth of perspective as a team that includes a salesperson and a service person and a development person, as well as an IT person,” says Ross.

At Lenovo, the global technology giant, many of these cross-functional teams become so used to working together that it’s hard to tell where each member originally belonged: “You can’t tell who is business or IT; you can’t tell who is product, IT, or design,” says the company’s CIO, Arthur Hu.

One interesting corollary of this trend toward broader teamwork is that talent is a priority among digital leaders: they spend more on training their employees and partners than ordinary companies, as well as on hiring the people they need, according to the SAP-Oxford Economics survey. They’re also already being rewarded for their faith in their teams: 71% of leaders say that their successful digital transformation has made it easier for them to attract and retain talent, and 64% say that their employees are now more engaged than they were before the transformation.

3. Become a Consultant

Good CIOs have long needed to be internal consultants to the business. Ever since technology moved out of the glasshouse and onto employees’ desks, CIOs have not only needed a deep understanding of the goals of a given project but also to make sure that the project didn’t stray from those goals, even after the businesspeople who had ordered the project went back to their day jobs. “Businesspeople didn’t really need to get into the details of what IT was really doing,” recalls Ferro. “They just had a set of demands and said, ‘Hey, IT, go do that.’”

Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants.

But that was then. Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants. “If you’re building a house, you don’t just disappear for six months and come back and go, ‘Oh, it looks pretty good,’” says Ferro. “You’re on that work site constantly and all of a sudden you’re looking at something, going, ‘Well, that looked really good on the blueprint, not sure it makes sense in reality. Let’s move that over six feet.’ Or, ‘I don’t know if I like that anymore.’ It’s really not much different in application development or for IT or technical projects, where on paper it looked really good and three weeks in, in that second sprint, you’re going, ‘Oh, now that I look at it, that’s really stupid.’”

4. Learn Horizontal Leadership

CIOs have always needed the ability to educate and influence other leaders that they don’t directly control. For major IT projects to be successful, they need other leaders to contribute budget, time, and resources from multiple areas of the business.

It’s a kind of horizontal leadership that will become critical for businesspeople to acquire in digital transformation. “The leadership role becomes one much more of coaching others across the organization—encouraging people to be creative, making sure everybody knows how to use data well,” Ross says.

In this team-based environment, having all the answers becomes less important. “It used to be that the best business executives and leaders had the best answers. Today that is no longer the case,” observes Gary Cokins, a technology consultant who focuses on analytics-based performance management. “Increasingly, it’s the executives and leaders who ask the best questions. There is too much volatility and uncertainty for them to rely on their intuition or past experiences.”

Many experts expect this trend to continue as the confluence of automation and data keeps chipping away at the organizational pyramid. “Hierarchical, command-and-control leadership will become obsolete,” says Edward Hess, professor of business administration and Batten executive-in-residence at the Darden School of Business at the University of Virginia. “Flatter, distributive leadership via teams will become the dominant structure.”

5. Understand Process Design

When business processes were simpler, IT could analyze the process and improve it without input from the business. But today many processes are triggered on the fly by the customer, making a seamless customer experience more difficult to build without the benefit of a larger, multifunctional team. In a highly digitalized organization like Amazon, which releases thousands of new software programs each year, IT can no longer do it all.

While businesspeople aren’t expected to start coding, their involvement in process design is crucial. One of the techniques that many organizations have adopted to help IT and businesspeople visualize business processes together is design thinking (for more on design thinking techniques, see “A Cult of Creation“).

Customers aren’t the only ones who benefit from better processes. Among the 100 companies the SAP-Oxford Economics researchers have identified as digital leaders, two-thirds say that they are making their employees’ lives easier by eliminating process roadblocks that interfere with their ability to do their jobs. Ninety percent of leaders surveyed expect to see value from these projects in the next two years alone.

6. Learn to Keep Learning

The ability to learn and keep learning has been a part of IT from the start. Since the first mainframes in the 1950s, technologists have understood that they need to keep reinventing themselves and their skills to adapt to the changes around them.

Now that’s starting to become part of other job descriptions too. Many companies are investing in teaching their employees new digital skills. One South American auto products company, for example, has created a custom-education institute that trained 20,000 employees and partner-employees in 2016. In addition to training current staff, many leading digital companies are also hiring new employees and creating new roles, such as a chief robotics officer, to support their digital transformation efforts.

Nicolas van Zeebroeck, professor of information systems and digital business innovation at the Solvay Brussels School of Economics and Management at the Free University of Brussels, says that he expects the ability to learn quickly will remain crucial. “If I had to think of one critical skill,” he explains, “I would have to say it’s the ability to learn and keep learning—the ability to challenge the status quo and question what you take for granted.”

7. Fail Smarter

Traditionally, CIOs tended to be good at thinking through tests that would allow the company to experiment with new technology without risking the entire network.

This is another unfamiliar skill that smart managers are trying to pick up. “There’s a lot of trial and error in the best companies right now,” notes MIT’s Ross. But there’s a catch, she adds. “Most companies aren’t designed for trial and error—they’re trying to avoid an error,” she says.

To learn how to do it better, take your lead from IT, where many people have already learned to work in small, innovative teams that use agile development principles, advises Ross.

For example, business managers must learn how to think in terms of a minimum viable product: build a simple version of what you have in mind, test it, and if it works start building. You don’t build the whole thing at once anymore.… It’s really important to build things incrementally,” Ross says.

Flexibility and the ability to capitalize on accidental discoveries during experimentation are more important than having a concrete project plan, says Ross. At Spotify, the music service, and CarMax, the used-car retailer, change is driven not from the center but from small teams that have developed something new. “The thing you have to get comfortable with is not having the formalized plan that we would have traditionally relied on, because as soon as you insist on that, you limit your ability to keep learning,” Ross warns.

8. Understand the True Cost—and Speed—of Data

Gut instincts have never had much to do with being a CIO; now they should have less to do with being an ordinary manager as well, as data becomes more important.

As part of that calculation, businesspeople must have the ability to analyze the value of the data that they seek. “You’ll need to apply a pinch of knowledge salt to your data,” advises Solvay’s van Zeebroeck. “What really matters is the ability not just to tap into data but to see what is behind the data. Is it a fair representation? Is it impartial?”

Increasingly, businesspeople will need to do their analysis in real time, just as CIOs have always had to manage live systems and processes. Moving toward real-time reports and away from paper-based decisions increases accuracy and effectiveness—and leaves less time for long meetings and PowerPoint presentations (let us all rejoice).

Not Every CIO Is Ready

Of course, not all CIOs are ready for these changes. Just as high school has a lot of false positives—genius nerds who turn out to be merely nearsighted—so there are many CIOs who aren’t good role models for transformation.

Success as a CIO these days requires more than delivering near-perfect uptime, says Lenovo’s Hu. You need to be able to understand the business as well. Some CIOs simply don’t have all the business skills that are needed to succeed in the transformation. Others lack the internal clout: a 2016 KPMG study found that only 34% of CIOs report directly to the CEO.

This lack of a strategic perspective is holding back digital transformation at many organizations. They approach digital transformation as a cool, one-off project: we’re going to put this new mobile app in place and we’re done. But that’s not a systematic approach; it’s an island of innovation that doesn’t join up with the other islands of innovation. In the longer term, this kind of development creates more problems than it fixes.

Such organizations are not building in the capacity for change; they’re trying to get away with just doing it once rather than thinking about how they’re going to use digitalization as a means to constantly experiment and become a better company over the long term.

As a result, in some companies, the most interesting tech developments are happening despite IT, not because of it. “There’s an alarming digital divide within many companies. Marketers are developing nimble software to give customers an engaging, personalized experience, while IT departments remain focused on the legacy infrastructure. The front and back ends aren’t working together, resulting in appealing web sites and apps that don’t quite deliver,” writes George Colony, founder, chairman, and CEO of Forrester Research, in the MIT Sloan Management Review.

Thanks to cloud computing and easier development tools, many departments are developing on their own, without IT’s support. These days, anybody with a credit card can do it.

Traditionally, IT departments looked askance at these kinds of do-it-yourself shadow IT programs, but that’s changing. Ferro, for one, says that it’s better to look at those teams not as rogue groups but as people who are trying to help. “It’s less about ‘Hey, something’s escaped,’ and more about ‘No, we just actually grew our capacity and grew our ability to innovate,’” he explains.

“I don’t like the term ‘shadow IT,’” agrees Lenovo’s Hu. “I think it’s an artifact of a very traditional CIO team. If you think of it as shadow IT, you’re out of step with reality,” he says.

The reality today is that a company needs both a strong IT department and strong digital capacities outside its IT department. If the relationship is good, the CIO and IT become valuable allies in helping businesspeople add digital capabilities without disrupting or duplicating existing IT infrastructure.

If a company already has strong digital capacities, it should be able to move forward quickly, according to Ross. But many companies are still playing catch-up and aren’t even ready to begin transforming, as the SAP-Oxford Economics survey shows.

For enterprises where business and IT are unable to get their collective act together, Ross predicts that the next few years will be rough. “I think these companies ought to panic,” she says. D!


About the Authors

Thomas Saueressig is Chief Information Officer at SAP.

Timo Elliott is an Innovation Evangelist at SAP.

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

Bennett Voyles is a Berlin-based business writer.

Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.
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CEO Priorities And Challenges In The Digital World

Dr. Chakib Bouhdary

Digital transformation is here, and it is moving fast. Companies are starting to realize the enormous power of digital technologies like artificial intelligence (AI), Internet of things (IoT) and blockchain. These technologies will drive massive opportunities—and threats—for every company, and they will impact all aspects of business, including the business model. In fact, business velocity has never been this fast, yet it will never be this slow again.

To move quickly, companies need to be clear on what they want to achieve through digital transformation and understand the possible roadblocks. Based on my meetings with customer executives across regions and industries, I have learned that CEOs often have the same three priorities and face the same three challenges:

1. Customer experience – No longer defined by omnichannel and personalized marketing.

Not surprisingly, 92 percent of digital leaders focus on customer experience. However, this is no longer just about omnichannel and personalized marketing – it is about the total customer experience. Businesses are realizing that they need to reimagine their value proposition and orchestrate changes across the value chain – from the first point of interaction to manufacturing, to shipment, to service – and be able to deliver the total customer experience. In some cases, it will even be necessary to change the core product or service itself.

2. Step change in productivity – Transform productivity and cost structure through digital technologies.

Businesses have been using technology to achieve growth for decades, but by combining emerging technologies, they can now achieve a significant productivity boost and reduce costs. For this to happen, companies must first identify the scenarios that will drive significant change in productivity, prioritize them based on value, and then determine the right technologies and solutions. Both Mckinsey and Boston Consulting Group expect a 15 to 30 percent improvement in productivity through digital advancements – blowing the doors off business-as-usual and its incremental productivity growth of 1 to 2 percent.

3. Employee engagement – Fostering a culture of innovation should be at the core of any business.

Companies are looking to create an environment that encourages creativity and innovation. Leaders are attracting the needed talent and building the right skill sets. Additionally, they aim for ways to attract a diverse workforce, improve collaborations, and empower employees – because engaged employees are crucial in order to achieve the best results. This Gallup study reveals that approximately 85 percent of employees worldwide are performing below their potential due to engagement issues.

As CEOs work towards achieving these three desired outcomes, they face some critical challenges that they must address. I define the top three challenges as follows: run vs. innovate, corporate cholesterol, and digital transformation roadmap.

1. Run vs. innovate – To be successful you must prioritize the future.

The foremost challenge that CEOs are facing is how they can keep running current profitable businesses while investing in future innovations. Quite often these two conflict as most executives mistakenly prioritize the first and spend much less time on the latter. This must change. CEOs and their management teams need to spend more time thinking about what digital is for them, discuss new ideas, and reimagine the future. According to Gartner, approximately 50 percent of boards are pushing their CEOs to make progress on digital. Although this is a promising sign, digital must become a priority on every CEOs agenda.

2. Corporate cholesterol – Do not let company culture get in the way of change.

The older the company is, the more stuck it likely is with policies, procedures, layers of management, and risk averseness. When a company’s own processes get in the way of change, that is what I call “corporate cholesterol.” CEOs need to change the culture, encourage cross-team collaborations, and bring in more diverse thinking to reduce the cholesterol levels. In fact, both Mckinsey and Capgemini conclude that culture is the number-one obstacle to digital effectiveness.

3. Digital transformation roadmap – Digital transformation is a journey without a destination.

Many CEOs struggle with their digital roadmap. Questions like: Where do I start? Can a CDO or another executive run this innovation for me? What is my three- to five-year roadmap? often come up during the conversations. Most companies think that there is a set roadmap, or a silver bullet, for digital transformation, but that is not the case. Digital transformation is a journey without a destination, and each company must start small, acquire the necessary skills and knowledge, and continue to innovate.

It is time to face the digital reality and make it a priority. According to KPMG, 70 percent to 80 percent of CEOs believe that the next three years are more critical for their company than the last fifty. And there is good reason to worry, as 75 percent of S&P 500 companies from 2012 will be replaced by 2027 at the current disruption rate.

Download this short executive document. 

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Dr. Chakib Bouhdary

About Dr. Chakib Bouhdary

Dr. Chakib Bouhdary is the Digital Transformation Officer at SAP. Chakib spearheads thought leadership for the SAP digital strategy and advises on the SAP business model, having led its transformation in 2010. He also engages with strategic customers and prospects on digital strategy and chairs Executive Digital Exchange (EDX), which is a global community of digital innovation leaders. Follow Chakib on LinkedIn and Twitter