Forget Consumer IoT—Industrial IoT Will Be The Revolution

Danielle Beurteaux

Recent big news in the IoT-sphere isn’t about intelligent toasters or sentient vacuum cleaners. It’s about the Industrial Internet of Things, which is about to blow us out of the water. Tom  Siebel, founder of Siebel Systems, recently renamed his latest company C3 IoT (previously known as C3, the firm focused on energy), with a broadened aim to provide enterprise-level software to a broader range of industries, from utilities to aerospace.

Computer maker Dell also recently launched an industrial IoT environment PC, and GE and Tata Consultancy Services partnered and will start off with GE’s industrial cloud, Predix, which GE launched last summer.

Research from Accenture claims that IIoT could increase GDPs in 20 economies by a total of $10.6 trillion by the year 2030 . That’s based on current IIoT investment trends; with more investment, the potential growth is even greater.

A white paper by IDC and sponsored by SAP, “IoT and Digital Transformation: A Tale of Four Industries,” looked at manufacturing, healthcare, retail, and consumer products and found that “business benefits from IIoT will be realized at different speeds and on different scales.”

They’re calling it Industrie 4.0 in Germany, but regardless of the name, getting from where we are today to a future of ubiquitous IIoT has some hurdles, according to Kai Goerlich, idea director of thought leadership at SAP. Will we be ready?

SAP: How will we make a living?

KG: The last digitization was largely driven by telecommunications. We could view mobility as the first wave of IoT. The difference now is the mobility connected people, and IoT is connecting everything into a large grid, mesh, whatever you want to call it. The danger is job loss. The World Economic Forum had a graph; in highly automated countries, job loss won’t be that high, about a 10% risk. But the U.S. has a 30 % risk. The U.S. is still relatively service heavy with many people in functions as compared to Germany, which has already automated a lot.

IIoT, or Industrie 4.0, in my opinion will lead to a total redefinition of how markets run and economic production without humans. Automation poses the risk that we automate so fast that society can’t adapt. It took us 60 years from the 40’s and 50’s to fully automate operations, and now within 20 years, we have the Internet and mobile. It’s really a very fast speed; within a short lifetime two or three revolutions and our systems are not fast enough to react to it.

SAP: Will business models change?

KG: IIoT is a big game changer for business models. We’re taking out some of the in-between process in the value chain with direct one-to-one consumer sales. The old economy was run on the old sequential value chain. Digitization completely wiped out the value chain.

SAP: How important are data and interoperability?

KG: On the good side, with more sensors in all devices, we could make more sense out of the world. If we can exchange data, have more data points, our picture of the world may be more real time and realistic than in the past. That needs interoperability—make things work together and data exchange and create insights.

The real money is where data is, you can already see this happening. All use cases are basically on the data level. It will be totally ambient; in 20 years everything will talk to us. IoT was invented around 2000, but it won’t be used for much longer. Industries are already defining it differently—remote maintenance, connected, etc.

IIoT will digitize physical assets and make everything connected. Estimates put savings at 50% of fixed assets costs, that’s a big sum. If you just take the top 10 companies in each industry, there’s a lot of money in it. A lot of savings in sharing products and lifecycle maintenance.

For more insight on how IoT is impacting real-world businesses, see The Internet Of Things And Digital Transformation: A Tale Of Four Industries.

 

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New Automotive DNA: How IoT Is Transforming The Automotive Industry

Uli Muench

Digital technology is transforming virtually every aspect of what it means to be an automotive manufacturer, OEM, or supplier. From autonomous cars to electric vehicles, the automotive industry is crossing the threshold of reinvention. This new automotive DNA is a paradigm shift for the industry, moving it away from the internal combustion engine, petroleum, and mechanical linkages and toward fuel cells, batteries, hydrogen, electricity, and electronic systems and controls. The use of new electronic-based architectures, systems, and software in vehicles creates new design challenges and opportunities.

At the same time, consumer-use models for vehicles are also evolving. For example, connected vehicles are creating new urban mobility opportunities such as vehicle sharing and usage-based insurance (UBI). Connected cars are generating massive amounts of data that can be monetized in other ways. The Internet of Things (IoT) is the powerhouse behind all the transformations.

This makes the automotive industry an especially compelling use case for how IoT is transforming discrete manufacturing to meet new market demands while continuing to achieve traditional business objectives. IoT is most impactful on four key value drivers in the automotive industry: design and ideation, service enablement, resilient lean, and product lifecycle revenue.

Design ideation

IoT makes it easier to manage the product lifecycle by accelerating product and engineering timelines. This results in a faster time-to-market and improved customer/product satisfaction. IoT helps reduce manufacturing costs by identifying non-value driving components and removing these components from future vehicles. Future design ideation opportunities include applying machine learning to past product performance information and using this information to augment the design and ideation process.

Service enablement

Today’s vehicles have at least 10 million lines of mission-critical software code, creating an enormous need for ongoing code management and service. Streamlined service enablement is the most common scenario for IoT in the automotive after-market. IoT is improving customer satisfaction via aftermarket quality assurance and upgrades, while also increasing revenue from aftermarket services.

Connected technology is making it easier for manufacturers not only to track product defects and maintenance needs, but also to communicate proactively with consumers about these service updates and notifications. Thanks to IoT, manufacturers have the luxury of pushing out software updates or even software upgrade offers. This is revolutionary as manufacturers seldom have any relationship with the end user.

Resilient lean

Process automation via IoT data and analytics is one of the top priority improvements for manufacturers. Factors pushing auto manufacturers to adopt a resilient lean manufacturing approach include shorter time-to-market cycles, rapidly changing demand, highly complex products, and processes, and increasing material considerations around light-weighting and 3D printing. IoT is enabling this adoption with real-time scheduling to meet changing demand and more efficient, flexible manufacturing processes—including material optimization.

Platform revenue

A virtual treasure trove of data including information on consumption patterns and preferences, demographics, and location usage is produced every moment a car operates. Manufacturers are turning to IoT and advanced analytics to gain insights from this data and create new revenue-generating opportunities. Key opportunities include increasing aftermarket revenue via upgrade and content monetization, and improving overall customer satisfaction through experience enhancements. Companies can leverage usage and engagement information to send content, such as paid software upgrades and infotainment, to the consumer.

Next steps: Selecting an IoT partner

As the new automotive DNA transformation demonstrates, today’s competitive market demands that manufacturers offer integrated products, services, and business models that enhance the customer experience. At the same time, manufacturers must also stay focused on traditional objectives including increasing uptime and throughput in the plant and closely managing operational costs.

Whether a scenario can be implemented today or on your roadmap for the near future, your business must get the right technology and IT infrastructure in place or risk being outperformed by the competition. When selecting the right IoT partner, your business should consider the following: integration, scale, ecosystem, and trust. Your IoT solution should allow you to integrate business systems, digital platforms, and industry clouds—ideally providing a common foundation for all three. IoT partner should be able to scale digital activities as your business grows and offer your company access to a robust third-party developer community to meet your evolving needs. Finally, your partner of choice should be willing to co-innovate.

The digital transformation in the automotive industry and across the entire manufacturing sector is well underway. Time is of the essence. Your company must act now to realize the tremendous value and competitive advantage offered by IoT, including new business models and new customer relationships.

Learn how to bring new technologies and services together to power digital transformation: download The IoT Imperative for Discrete Manufacturers: Automotive, Aerospace and Defense, High Tech, and Industrial Machinery. Explore how to bring Industry 4.0 insights into your business today: read Industry 4.0: What’s Next?

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Uli Muench

About Uli Muench

Uli Muench is Global Vice President of the Automotive Industry Business Unit at SAP.

Explore The Future Of Retail

Joerg Koesters

Today’s shoppers want personalized service. They expect an omnichannel experience where they can connect directly to retailers across social media, in-store, and through websites. They want to be able to see an Instagram photo of an outfit, click on a link, and have it delivered to their door within days. How can retailers compete in this market? It all comes down to digitalization. Creating better information access and providing on-the-go connectivity to consumers is critical.

Statistics and trends show shoppers are ready

Consumers today are ready to embrace a digital future. And, in many ways, they are already doing so. A survey from PWC.com shows that of 24,000 shoppers surveyed across 29 countries, 56% have shopped at Amazon.com and 47% own or plan to buy a wearable, connected device. More so, 39% of these shoppers are turning to social networks to gain insight and inspiration into what they purchase. Considering how important a connected retail experience is to consumers, retailers must take action to implement solutions.

Yet, many worry about costs. Over the last few years, we’ve physical retailers have seen less foot traffic in their stores as e-commerce grows by double digits. According to Fox Business, 24 large retailers have announced they are closed stores due to the industry’s overbuilt landscape. Simply, there are too many stores in some markets, making it harder to compete for shoppers. With so much uncertainty, investments need to be thoroughly researched. The connection of investment to business value needs to be made explicitly clear.

Digital investments allow retailers to build brand awareness, provide just-in-time services, and offer personalized interaction. It is these services and connection points that help retailers compete across the board. Take a closer look at some of the ways today’s consumers are demanding change and how retailers of all sizes can facilitate it.

Retailers are already poised to embrace digitalization, data analytics, and IoT

The good news is many retailers do not have to overinvest. Many of the technology components necessary to develop this type of connectivity are already in place. In a recent S.M.A.C. Talk Technology podcast, Oliver Grob, solutions manager within the Retail Industry Business Unit with SAP, expressed the same view. “You have cameras, you have interaction sensors, Bluetooth beacons, products which have intelligence techs on their RFID, and so many possibilities [that] what you can do and the level of insight into the retail business is dramatically raised compared to what retailers really know about their business.”

With this groundwork in place, retailers have access to the data they need to create customer-first decisions and services. Utilizing beacon sensors and the Internet of Things (IoT), retailers can gather a better level of insight into where consumers go when they enter a mall, what they buy, and what they desire. Applying advanced analytics to this sensor data can allow retailers to provide a better end result to virtually any customer who walks in the door.

Connecting with consumers through technology

Today’s connected shoppers are making it easier for retailers to provide instant personalized connections before, during, and after a physical shopping experience.  Grob says in the podcast, “Today we have smartphones all over the place that are connected all the time. They [shoppers] have GPS. So you have the possibility to sense what the customer is doing; what he is wanting. I mean, you can even start chatting with him on the spot. So you have the possibility to connect to the customer.”

Imagine a world in which a consumer gets help on the spot. The shopper visits a retailer and finds a pair of shoes to buy. But the shopper has a question. Instead of waiting for a sales associate, the shopper logs into an app, uses a chatbot to ask key questions, and makes a buying decision. What’s more, the shopper who doesn’t want to carry the shoes through the mall can push a few buttons on a smartphone and get the product delivered to their door.

Improving offerings to meet customer demand in advance with data

Data is critical throughout this process. With data, retailers are better enabled to make customer-focused decisions. They no longer need to manage that data either. Solutions are available to fill in that gap in real time. “You need to have the right things for the customer. You need to have the right answers, the right products, the right reaction, and the right time to deliver something. So to tackle this, of course, you need to analyze a lot of data. You need to know what is out there in the community, what’s hip, what Facebook likes, what Instagram likes, and all the social media,” continues Grob.

With this type of data, processed in real time by technology solutions, retailers can answer all of these questions and facilitate a strong sense of satisfaction from their shoppers. Buyers today have dozens of options for making a purchase. The companies that are able to stand out, solve customers’ problems, and – most importantly – connect with customers when they need and want that connection are the retailers that will flourish in a changing retail landscape.

Exploring the connectivity possible in retail is every company’s need

Achieving any of these goals takes connectivity and a dedication to innovation. It also takes partnerships with companies already creating positive results. Minimizing costs, personalizing service, and delivering incredible solutions at competitive prices are a possibility with innovations enabled by technologies such as machine learning, advanced analytics, and IoT.

Explore more of the ways retailers are transforming this industry with SAP.  Take a few minutes to listen to the full podcast from SAP’s Oliver Grob at S.M.A.C. Talk Technology.

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 Retail. Explore how to bring Industry 4.0 insights into your business today by reading Industry 4.0: What’s Next?

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About Joerg Koesters

Joerg Koesters is the Head of Retail Marketing and Communication at SAP. He is a Technology Marketing executive with 20 years of experience in Marketing, Sales and Consulting, Joerg has deep knowledge in retail and consumer products having worked both in the industry and in the technology sector.

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.

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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