The Digital Force Awakens (Part 2) – The Optimization Lever Strikes Back

Bert Schulze

Recently we discussed how the Digital Force Awakened (Part 1) and briefly had a look at the business fundamentals for a transformation of the digital core. Today we will look under the carpet of those business fundamentals and the value levers of companies.

From changing processes to changing business models

Today’s complexity unfortunately hinders an easy and fast transformation. To solve this we need to tackle that complexity, unburden employees and processes, and stem the digital transformation for the enterprise. The core business processes need to be redesigned and brought up to date. It is the only way for companies to deliver on the new promise that has been made to the market.

First of all I want to explain the very basic value drivers of a digitized core, which all lead to concrete use cases. By implementing a digitized core and leveraging the new environment, companies have to decide how much impact they want to see – at least as long as they are in good shape. There are many opportunities to change from digitalizing single processes up to transforming the whole organization and inventing new digitized business models and value chains.

Unfortunately, there is homework to do. Redesigning processes and leading the company into the digital age does not come for free. But the more (right) effort put into it, the more companies are able to capitalize on it.

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On the very left, we are operating tactically and opportunistically, so punctual adaption of new technologies may only ease some processes – often only for IT. If we move further to the right, whole process chains are being replaced with a digital equivalent and start influencing across all levels of an organization. Moving even more to the right, we start having actual strategic impact; we start influencing our business value with the transformation, and maybe innovate new business models which will finally disrupt the market to our favor and leave the competition behind by acquiring new market shares and segments.

Spending becomes investments and aren’t costs any more. And we differently measure success. New revenue streams are enabled as the way we run existing revenue streams is optimized. We improve the competitiveness of our company. In the end, however, we must leverage the opportunities with a digitized core, thus the transformational journey of the enterprise.

New optimization levers

But how can we actually measure the impact of a digitized core on the organization and justify its positive impact afterwards?

A framework has to be in place which can reflect the success and where use cases and applications are compared. Generally, there are three dimensions that drive and make organizational transformation measurable. Good old balance score card, welcome back.

These dimensions, as we already introduced last time, are: Efficiency, Effectiveness, and Agility.

So we think it is important that each value coming from a digitized core (we call them value levers) serves one of these dimensions. Each dimension is represented by three main value levers. This allows us to measure the impact on business outcome and organizational impact.

Let’s take a closer look at the dimensions themselves before we analyze each value lever in detail.

Increase efficiency

Efficiency can easily be described as “doing things right.” Simply said, as the fundamental definition of business, you achieve more output with the same input or the same output with less input.

As a first simple example, giving people the right information, better and faster analytics provided by a digitized core, makes decision making more precise and efficient.

Keep in mind, we are not talking about a profound status and comfort zone companies are in. We are talking about fast-changing markets and new competitors, perfectly settled to disrupt existing markets. Efficiency is not a nice-to-have option now as it was in a pre-digital world.

Increase effectiveness

In contrast to efficiency, effectiveness can be described as “doing the right thing.” This can be expressed in different ways such as reaching the goals you set, or by collecting all the resources you need to do so.

Put into practice, we could see more time for actual value-adding tasks – the right things – because many processes can be automated. Think of low to zero touch orders as a consequence of the new promise from a digital storefront. It is no option to improve the existing order processes by another 10%, it is about fundamentally redesigning an order process to manage the new expectations.

“Right things” can also be the new service models your customers have been waiting for, or a transition into a subscription model with your products.

Increase agility

The last dimension – agility – is a mix of flexibility and speed.

In an organizational context, this is the ability to respond fast to a change within the constantly changing environment. In other words, your processes are flexible enough to adapt to changes fast and improve service levels or other aspects of your business. In practice we can see faster deployment of new organizations or processes. Your entire company is a living organism. In inventory management, your stock is as well. The better you are able to run your IT in sync with the physical reality, the better you are.

Products can then be adapted and changed more flexibly according to customer needs and demand, which ultimately can increase things like your Net Promoter score. More flexible and easier to use processes lead to higher inventory throughput, lower security stocks, or a higher employee engagement.

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In the next blog within this series I will dive into the individual value levers of the three categories and give process examples. Stay tuned for Part III with examples for the new optimization levers.

Companies must engage with broad networks and rethink their supply chains in order to remain relevant in today’s business landscape. Learn more about Our Digital Planet: The Democracy of Collaborative Networks.


About Bert Schulze

Bert Schulze is VP Product Management & Co-Innovation SAP S/4HANA at SAP