6 Trends That Are Changing Retail

Nicolas Zeitler

In order to succeed, today’s retailers have to offer a seamless shopping experience across all channels – and mustn’t lose track of their customers.6 trends in retail

You’ve waited 15 minutes for a sales person to show up, only to find out that the shoes you want are no longer available in your size. What now? You immediately pull out your smartphone, find the same shoes in the right size and color and even discover it is at a lower price in a competitor’s online shop. You quickly check over the reviews from other customers, and place your order. “Thanks anyway, have a nice day!” you say to the sales person. A fictious scene perhaps, but one that many are likely familiar with. It’s a perfect example of the kinds of challenges facing modern retailers.

“Today, customers have more power and choices than ever before,” says Matthew Healey, market analyst at Technology Business Research (TBR). What’s more, “Customers are becoming more and more spoiled, expecting the ultimate user experience in both online shops and local retailers,” says Kai Hudetz, managing director of the German Center for Research in Retailing (IFH) in Cologne. A recent study by Deloitte, called “Global Powers of Retailing 2013 – Retail Beyond,” even sees the retail industry “in the midst of a customer revolution.”

Retail congresses focus on Big Data

The agenda of the World Retail Congress, which is taking place right now in Paris (October 7 to 9), highlights how retailers are coming to terms with this newfound consumer power. The event will focus on payment technologies, investigate how retailers can connect with their customers using mobile devices either at home, on the go, or in the shop itself, and examine how Big Data technology can help retailers learn more about their customers. Big Data is also one of the topics of the SAP Retail Forum to be held at the same time in Dallas, Texas. It will likewise look at how retailers can offer their target audience a one-stop, integrated shopping experience across all channels.

1.  From Amazon to Zalando: Online business is putting pressure on retail stores

Ordering books, clothing, or wine over the Internet is nothing new. But e-shopping is changing the face of trade in a big way. According to the IFH, the share of fashion items purchased online in Germany surged from just under 5% in 2007 to nearly 17% in 2012. “The meteoric rise of online shops like Zalando was a wake-up call for all retailers,” notes Hudetz. For his part, Healey, from TBR, predicts that “Those who can’t keep up with retailers like Amazon probably won’t be in business for much longer.” The one industry that might be able to withstand this phenomenon for a while longer is the food industry. In a recent survey by KPMG, for example, only 21% of all consumers in Germany said they could imagine buying groceries over the Internet. The situation is similar in the United States, where foodstuffs had the lowest positive response rate compared to other goods segments.

Fear of self-cannibalization

Still, it is unlikely that most consumers will soon do all of their shopping exlusively online via tablet in the comfort of their own home. According to the “Trends in Retail Industry 2020” study by KPMG and the EHI Retail Institute, local retail stores will remain the first port of call for consumers in the foreseeable future. That being said, retailers would be well advised not to ignore the online trend completely. “A lot of retail stores are afraid they’ll cannibalize their business if they go online as well. But studies disprove this. And those who don’t do any business at all online will lose out in the end for sure,” says Mark Sievers, head of Consumer Markets at KPMG.

2.  Cross-channel trade: Order online, exchange in-store

But it’s not enough for a shop owner to simply set up an online ordering platform to boost sales. Customers expect a “dovetailing” of options, says Sievers. In other words, a one-stop shopping experience. Hudetz calls this the cross-channel approach – in contrast to multi-channel trade, where a retailer operates an online-only sales platform in addition to their stationary store location.

The difference in the two approaches is made clearer in Accenture’s “Seamless Retail” survey of 6,000 participants from eight countries including China, Germany, Great Britain, and the United States. Consumers expect to shop without barriers: four out of five respondents, for example, expected retailers to have the same assortment available in-store as in their online shops. And consumers want an absolutely seamless link between the online and offline worlds. In effect, the study described what’s known as the “Web rooming” phenomenon: 88 % of all respondents admitted they had surfed the Internet for products in the last six months but ultimately bought those products onsite in retail stores. The reverse behavior is also true: Consumers often try on shoes in the store, for example, and then order them online.

Silo mentality is an obstacle

The study by KPMG and EHI suggests that this consumer behavior is more likely to encourage traditional retailers to make a foray into the online world than prompt e-commerce retailers to open up conventional stores. But it is the kind of goods being offered that determines how well online and offline presence complement each other. A local store could, for example, serve “exclusively as a showroom, which is quite common in the United States,” notes Sievers. Customers seek advice or pick out products on-site – and then order online for home delivery. For Sievers, this is an ideal model for home hardware stores: “You go to the store for advice on what tools and materials you need for a certain project, but of course, you don’t want to drag around big bags of cement, so you order everything online and have it delivered to your home.”

Another customer, for example, might want to exchange a sweater she ordered on the Internet for one in a different color at a local franchise of the same retailer. Accenture’s survey of 60 global retailers, however, found that none were capable of meeting such customer needs and expectations in full. Internal silo structures often prevented them from offering their consumers a truly seamless shopping experience, Accenture said. Hudetz concurs, adding “A lot of companies do in fact adapt their structures, just not from the customer’s point of view.”

3.  Consumers visit local stores for advice and for a unique shopping experience

Retailers should keep precisely that in mind, the experts warn. The authors of the KPMG study call on modern stores to “appeal to all the senses of today’s customers and offer them tangible added value.” As for Sievers, his greatest wish is for a “shopping experience that is stimulating.” TBR’s Healey sees the situation as an opportunity rather than an obligation for shop owners: “The local retailer actually benefits from being able to offer more than just a product,” he points out.

For Sievers, it’s not so much service and advice that helps stationary stores get a leg up on online trade. Because in times of the Internet, where consumers can research products and read customer evaluations online, consumers often know as much if not more about a product than the sales staff in-store. Instead, Sievers believes stationary trade benefits from the ability to combine the products with certain services. He cites supermarkets that have things like integrated show kitchens and counters where pasta is freshly prepared on site. Or shoe stores that offer on-site repairs or extended warranties.

Emotional appeal at stores like Apple and Tiffany

In Matthew Healey’s opinion, shops that offer high-quality products while providing extra details that appeal emotionally to the customer are at least “a little immune” to the trend of online shopping. “Think of Apple stores or Tiffany jewelry shops – visiting a store is connected with far more emotional impressions than browsing online,” he says.

4.  Smartphones, tablets & co.: Mobile devices in-store

As an additional perk, shop owners could perhaps offer services for mobile devices, such as Google Indoor Maps, directly on-site. Customers can zoom in on a shopping center in Google Maps, for example, to find out where specific stores carrying a certain product are located, even in multi-level malls. Google Indoor Maps are currently available in a number of IKEA stores in Germany and in the United States. Another option, says Sievers, could be for retailers to send consumers special price offers via smartphone after they’ve been in the store for a certain length of time, or perhaps when customers are scanning product barcodes with their smartphone to display recipes or food allergy alerts for that product. Industry experts calls this approach “extended packaging.”

iPads as mobile terminals in the store

Other mobile devices are increasing in importance for retailers as well. iPads, for example, are ideal as mobile terminals in stores, explains Hudetz. For one thing, they allow customers to “shop autonomously”: If no sales person is available, the customer can simply check the iPad to see whether a certain size is available, or alternatively order the product in the retailer’s online shop. And secondly, sales staff can use the tablets as “sales assistants,” for example to present or demonstrate products that are not currently in stock.

5.  IT budgets on the rise

Retailers will need to exploit the possibilities of IT if they want keep pace with the changing demands of their customers. The retailers in North America that TBR spoke to are this year increasing their IT budgets by an average of 5% compared to 2012. The market expert is also expecting increasing IT budgets in other mature markets.

6.  Analytics: Staying on top of customers with Big Data

Figures released by TRB indicate that retailers spend roughly 9% of their budget on analysis software. The motive behind this: to collect and analyze data to find out more about their customers and their behavior. Amazon, for example, has been doing this for quite some time now, offering tailoring product recommendations based on a customer’s previous purchases. The practice has since caught on. Big Data platforms need to work hand-in-hand with CRM systems when evaluating customer testimonials in social networks, says Accenture. Completing the equation are the mobile apps used for online purchases: integrating these apps with the data services in effect creates a “data supply chain” within the retailer’s organization. The tricks and techniques used by big and long-time e-retailers are now slowly becoming mainstream, says Hudetz. “A lot of companies are only just beginning to understand the strategic value of analyzing customer behavior with Big Data. So Big Data is no longer just a subject matter exclusively for IT developers,” he remarked.

Optimizing cross-channel trade models

At the same time, he’s observed that retailers aren’t just using customer data to help market and sell additional products – they’re also using it to optimize their cross-channel trade models. Seeing as there’s no blueprint for efficiently meshing online and offline strategies, we’re sure to come across a lot of enterprising experiments soon.


Nicolas Zeitler

About Nicolas Zeitler

Nicolas Zeitler is a Senior Editor at fischerAppelt. His specialties include digital media, news writing, digital media, PR, publishing and online journalism.

Monetizing And Optimizing Content Distribution With Machine Learning And Blockchain

Catherine Lynch

A generation ago, media conglomerates tightly controlled content production and distribution, deciding when, where, and how content was consumed. That’s all changed. Gone are the days of linear television channels and a single-television household. Today’s consumers decide when and where to consume content across multiple platforms.

With the average attention span of an adult hovering at eight seconds, down from 15 seconds in 2000, the media industry is fighting for increasingly smaller slivers of consumer attention. Media companies need a solution for monetizing content and delivering the right content to the right consumer at the right moment. Advanced analytics, machine learning, and blockchain are three disruptive technologies that can solve the twin problems of volume overload and content monetization.

How advanced analytics and machine learning solve the “paradox of choice”

For media companies, consumers drive demand. It’s all about what they want, when they want it, and which device they want it on.

“We went from a very analog-driven, subscriber numbers rated world to a world where it’s about engagement, and about data, and about consuming the content when you want,” says Richard Whittington, senior vice president, Media Industry Cloud Solutions, in the S.M.A.C. Talk Technology Podcast.

Of course, if consumers can’t find they content they want, they can’t consume it. In a world with nearly infinite choices, consumers are increasingly paralyzed by the “paradox of choice.” This theory states that there is a tipping point for choice, a point where more choices cease to provide an advantage and instead become a hindrance. It’s akin to the feeling of mindlessly scrolling Netflix looking for something to watch, but not finding anything. One-third of consumers say that they frequently cannot find anything to watch, according to a Cord Cutting Survey conducted for Rovi.

Media companies are experimenting with new machine learning algorithms to better understand consumer behavior, preference, and social cues. With machine learning is it easier to utilize metadata through intuitive, creative applications, rather than simply recommending a movie based on genre or actor preference. For example, machine learning enables language processing for a deeper understanding of content based on mood, emotion or intensity. Coupled with social signals, such as a conversation on Facebook around a new movie, machine-learning powered content recommendations could boost viewer engagement, satisfaction, and loyalty. Relevancy and timing are paramount: media companies that can provide consumers with a perfectly curated shortlist may outperform the companies offering an endless list of options that miss the mark.

New monetization pathways with blockchain and machine learning

Since consumers moved away from physical products like CDs or DVDs, media companies have struggled to monetize their content. According to Whittington, blockchain offers a new path forward, addressing problems associated with rights management, payment, and distribution.

“Blockchain gives media companies the ability to track content and create events when content is consumed,” says Whittington in the S.M.A.C. Talk Technology Podcast. “For example, if I send you a football match to view, this will trigger an event that indicates that you consumed the match. Money is then paid to whoever owns the rights to that match, rather than having to go through the traditional controlled, linear model. Blockchain has the ability to turn the whole business model upside down.”

In addition to using blockchain to monetize content distribution and consumption, Whittington says machine learning may also play an important role in content monetization.

“We’ve always heard about product placement in shows,” says Whittington in the S.M.A.C. Talk Technology Podcast. “But [product placement] has never been able to be measured to such an extent with heat mapping and knowing exactly what people looked at, and did they notice it, and how long did they look at it for, and what is the value of those impressions compared to other media avenues that they might have put those dollars into. I love the example, for instance, of how can you use machine learning to say, hey, on this episode of ‘Modern Family’ we had this many times that we showed XYZ’s product and we’re going to charge you for this. If you don’t see any value in this company A, company B might. We can actually create competition there.”

Next steps: Gaining the first-mover advantage

The media industry has undergone a transformation from a distribution model to a direct-to-consumer model and continues to evolve at a rapid pace. By 2020, Gartner predicts that artificial intelligence (AI) bots, rather than humans, will manage 85 percent of customer interactions. There will be over 82 million US millennial digital video customers. As media companies grapple with the challenge of getting the right content to the right consumer at the right time, companies that proactively invest in advanced analytics, machine learning and blockchain will gain a critical first-mover advantage. These companies will be best positioned to turn data into insights, monetizing the delivery of the right piece of content at the right moment to the right consumer.

To learn more about how digital transformation is disrupting content distribution and monetization in the media industry, listen to the S.M.A.C. Talk Technology Podcast with Richard Whittington.

Hear the full podcast episode here. For more insight on digital leaders, check out the SAP Center for Business Insight report, conducted in collaboration with Oxford Economics, “SAP Digital Transformation Executive Study: 4 Ways Leaders Set Themselves Apart.”


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.

What Is The Future Of The Industrial Machinery Industry?

David Parrish

The industrial machinery and components (IM&C) industry is often on par with, or ahead of, other industries when it comes to using advanced technologies. For instance, this industry adopted the Internet of Things (IoT) long before many others had even heard of it. Currently, IM&C is adopting cloud solutions, as-a-service business models, and blockchain.

Current technology use cases in IM&C

Hosts of the S.M.A.C. Talk podcast talked to Ulf Guttmann, of SAP’s Industrial Machinery and Components Industry Business Unit, who explained how IM&C companies are by using new technologies that help them run their businesses better.

For example, consider smart products, which have embedded software and sensors that allow companies to send and receive product data. This data is being used with predictive analytics and machine learning. Guttmann said that modern technological capabilities have allowed companies to connect more machines and components. This helps them get more and higher-quality data to understand and improve their business processes.

Technology also allows IM&C companies to predict equipment maintenance needs so they can prevent problems that could lead to breakdowns. IM&C companies have also been experimenting with the equipment-as-a-service model, which works in a way that’s similar to software-as-a-service. Guttmann offered the example of Kaeser Compressors, which sells compressed air output as a service, with the compressors included in each service plan.

IM&C companies are also using cloud solutions, which Guttmann said enables them “to respond to the needs of the users, of their customers, of their suppliers, much faster than what was possible before.” They can have more flexibility and adapt to different needs by adding more applications to the cloud platform. This allows them to quickly change their solutions and applications to expand their businesses. They can also provide better customer service and compete better. If a customer expresses a need, the company is able to quickly change applications through the cloud platform. The customer can then easily access the changes.

A cloud platform also facilitates IoT within the industrial setting, which is known as the Industrial Internet of Things (IIoT). Linda Rosencrance explained in a TechTarget article that the industry is currently facing a challenge with using IIoT to move forward. The problem is that many “things” are not designed to properly connect with each other. She explained that “interoperability standards and common architectures are needed to connect these smart devices and machines.” Creating a standard system is proving difficult, but industry groups have started to work toward this effort. Rosencrance noted that standards should help create better data transfers between industrial machinery and devices.

Moving forward with blockchain

Something the industry has not yet adopted is blockchain, which is currently used in industries like banking. Guttmann says this technology could help IM&C companies track and trace products and components in a safe and secure way throughout their entire lifecycle while also helping them share this data within their network.

Blockchain will allow IM&C companies offer greater transparency of transactions within the cloud platform, explained Georg Kube in Digitalist Magazine. Also, he noted that IM&C companies will need to use new strategies and technologies to continue to stay relevant and competitive in the field. For example, he suggested a digitally enabled supply chain. He also recommended using a systems-engineering method for mechanical and other systems.

In an article in The Future of Customer Engagement and Commerce, Dietmar Bohn laid out some trends it expects to see in the industry by 2022. One prediction is that companies will make more aftermarket service revenue. This connects to the equipment-as-a-service model currently used. Another anticipated trend is to use machine learning in the planning and scheduling processes. Also, companies may transition to cross-industry networks to improve operations and using virtual reality within business operations.

Companies in the IM&C industry tend to use advanced technologies to continue improving their businesses and to meet customer demands. The industry is already using an equipment-as-a-service model and smart products. It is also using IoT, machine learning, and cloud solutions. Blockchain is expected to be the next technology to transform the industry. Nonetheless, IM&C companies will need to continue following new technologies to stay competitive.

Hear Ulf Guttmann’s full discussion of technology in the IM&C industry by listening to the S.M.A.C. Talk podcast.

Hear the full podcast episode here. Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value by reading Accelerating Digital Transformation in Industrial Machinery and Components. Explore how to bring Industry 4.0 insights into your business today by reading Industry 4.0: What’s Next?


David Parrish

About David Parrish

David Parrish is the senior global director of Industrial Machinery & Components Solutions Marketing for SAP. Before joining SAP, he held various product and industry marketing positions with J.D. Edwards, PeopleSoft, and QAD going back to 1999.

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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Survey: Four Ways Machine Learning Will Disrupt Your Business

Dan Wellers and Dirk Jendroska

We are entering the era of the machine learning enterprise, in which this subset of artificial intelligence (AI) capabilities will revolutionize operating models, shake up staffing methods, upend business models, and potentially alter the nature of competition itself. The adoption of machine learning capabilities will be limited only by an organization’s ability to change – but not every company will be willing or able to make such a radical shift.

Very soon, the difference between the haves and the have-nots of machine learning will become clear. “The disruption over the next three to five years will be massive,” says Cliff Justice, principal in KPMG’s Innovation and Enterprise Solutions team. Companies hanging onto their legacy processes will struggle to compete with machine learning enterprises able to compete with a fraction of the resources and entirely new value propositions.

For those seeking to be on the right side of the disruption, a new survey, conducted by SAP and the Economist Intelligence Unit (EIU), offers a closer look at organizations we’ve identified as the Fast Learners of machine learning: those that are already seeing benefits from their implementations.

Machine learning is unlike traditional programmed software. Machine learning software actually gets better – autonomously and continuously – at executing tasks and business processes. This creates opportunities for deeper insight, non-linear growth, and levels of innovation previously unseen.

Given that, it’s not surprising that machine learning has evolved from hype to have-to-have for the enterprise in seemingly record time. According to the SAP/EIU survey, more than two-thirds of respondents (68%) are already experimenting with it. What’s more, many of these organizations are seeing significantly improved performance across the breadth of their operations as a result, and some are aiming to remake their businesses on the back of these singular, new capabilities.

So, what makes machine learning so disruptive? Based on our analysis of the survey data and our own research, we see four primary reasons:

1. It’s probabilistic, not programmed

Machine learning uses sophisticated algorithms to enable computers to “learn” from large amounts of data and take action based on data analysis rather than being explicitly programmed to do something. Put simply, the machine can learn from experience; coded software does not. “It operates more like a human does in terms of how it formulates its conclusions,” says Justice.

That means that machine learning will provide more than just a one-time improvement in process and productivity; those improvements will continue over time, remaking business processes and potentially creating new business models along the way.

2. It creates exponential efficiency

When companies integrate machine learning into business processes, they not only increase efficiency, they are able to scale up without a corresponding increase in overhead. If you get 5,000 loan applications one month and 20,000 the next month, it’s not a problem, says Sudir Jha, head of product management and strategy for Infosys; the machines can handle it.

3. It frees up capital – financial and human

Because machine learning can be used to automate any repetitive task, it enables companies to redeploy resources to areas that make the organization more competitive, says Justice. It also frees up the employees within an organization to perform higher-value, more rewarding work. That leads to reduced turnover and higher employee satisfaction. And studies show that happier employees lead to higher customer satisfaction and better business results.

4. It creates new opportunities

AI and machine learning can offer richer insight, deeper knowledge, and predictions that would not be possible otherwise. Machine learning can enable not only new processes, but entirely new business models or value propositions for customers – “opportunities that would not be possible with just human intelligence,” says Justice. “AI impacts the business model in a much more disruptive way than cloud or any other disruption we’ve seen in our lifetimes.”

Machine learning systems alone, however, will not transform the enterprise. The singular opportunities enabled by these capabilities will only occur for companies that dedicate themselves to making machine learning part of a larger digital transformation strategy. The results of the SAP/EIU survey explain the makeup of the evolving machine learning enterprise. We’ve identified key traits important to the success of these machine-learning leaders that can serve as a template for others as well as an overview of the outcomes they’re already seeing from their efforts.

Learn more and download the full study here.  

 


Dan Wellers

About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Dirk Jendroska

About Dirk Jendroska

Dr. Dirk Jendroska is Head of Strategy and Operations Machine Learning at SAP. He supports the vision of SAP Leonardo Machine Learning to enable the intelligent enterprise by making enterprise applications intelligent. He leads a team working on machine learning strategy, marketing and communications.