Since the beginning of the 21st century, we have been experiencing a digital transformation that has affected all aspects of society and the economy – and it has only just begun, say experts.
The world has already witnessed three industrial revolutions, which brought disruptive leaps in industrial processes, resulting in significantly higher productivity. The first revolution improved efficiency through the use of hydropower, increased use of steam power, and the development of machine tools. The second brought electricity and mass production through the use of assembly lines. And the third and most recent revolution further accelerated automation by using electronics and IT.
The fourth industrial revolution is already on its way. This revolution is all about hyperconnectivity: the exponential growth in the interconnectedness of people, organizations, and objects. The Economist Intelligence Unit put it succinctly when it stated, “More than a technological trend, hyperconnectivity is a cultural condition to which businesses have no choice but to adapt.”1
We see it in the growth of social networks that connect hundreds of millions of people together. Business networks have also prospered, connecting their supplier, customer, and payment systems to seamlessly engage in commerce.
And now we are seeing the beginning of mass adoption of connected sensors and devices to the Internet, otherwise known as the Internet of Things (IoT). The IoT will connect our existing people and business networks to everything else, to become, in essence, the very fabric that supports the new digital economy. When you couple these changes with improvements in the network infrastructure, Big Data analytics, and smart applications, which are all connected by the cloud, you have entered the era of true hyperconnectivity.
Although some areas of the economy will see fast and disruptive changes, others will change slowly and steadily at a more evolutionary pace. In either case, there is no going back. The Internet is combining with intelligent machines, systems production, and processes to form a sophisticated network. The world is turning into a huge information system.
The Old Model: Business as a Machine
So if knowledge work, the traditional foundation of the modern business, is becoming a commodity that can be delivered at ever-decreasing costs, what does that mean for the future of business?
In the knowledge economy, the business was considered a machine. A machine typically has the following characteristics:
A driver or operator controls it
It requires maintenance; it gets fixed when broken
It works in the same way its entire life; eventually things change; the machine wears down, and a new one is built or bought
Companies tend to be similar. A company performs a certain function, so it’s designed and built to perform that function. This works well in a stable environment. But over time, things change. The company grows. New systems are needed. Demand changes. Customers want different products and services. So we need to redesign and rebuild the machine to serve the new functions.
Digitize and share excess capacity and competency to monetize capital expenditures on plant, equipment, and other capital-intensive investments.
To maximize return on engagement, upend traditional metrics, which are used to drive efficiency at scale to minimize cost per unit, and focus instead on agility at speed.
Digitize process and service capacity and functional competencies to optimize utilization and build new revenue streams.
The future of work in the digital economy will require CxOs, not just chief human resource officers, to manage increasingly dynamic, distributed workforces. As Millennials transition to becoming the main body of the global workforce, organizations will need to adapt to new ways of working. An increase in contingent labor, which is driven by Millennials’ demand to work simultaneously on multiple jobs, will change the employer-employee equation. The employer-of-choice status goes beyond recruitment and retention to fundamentally revolutionize the way people engage. The advent of next-generation digital business processes will require ongoing training and skills development:
Next-generation business processes will not only span multiple business areas to drive efficiency internally or across the business network but they will also connect to devices and enhance the customer experience. For a Live Business to succeed, multiple aspects of the business must deliver coordinated responses to changing customer needs to develop long-term relationships with customers. It isn’t enough to have a digital customer experience – a Live Business connects this digital experience through every facet of the company, from employees to partners to assets, to essentially deliver live processes across the complete enterprise.
Create Frictionless Solutions
Imagine parking your hybrid car in a parking garage in a space equipped with a fast charger. When you return later, you unplug your car, and the display on the charging station shows the amount of electric power you used and the total charge. As you leave your parking space, the payment is automatically processed through the prepaid e-wallet incorporated into your car’s in-dash electronics system.
As you leave the garage, the ramp display shows the parking fee, which the near field communication transmits to your car’s electronics and ultimately displays on your in-dash screen. You approve the purchase, which gets charged to your e-wallet, and you drive off.
When you log in to your bank’s account, your current car electricity usage, the corresponding charge, and a parking charge are automatically assigned to the appropriate category and displayed in your personal finance management tab, which compares your current period usage with historical usage. This is plotted against your monthly budgets to improve tracking. You also have an option to review how your detailed car expenditures compare to those of similar customers.
Since your bank also offers car insurance, you opted in to share your connected car data with your bank at the time you were approved for a car loan from the bank. Your bank monitors your driving habits, usage, average speed, and other relevant telematics data. Based on your car usage, the bank automatically adjusted your premium downward and notified you of the adjustment when you logged into your online bank account.
Your bank also knows that your regular 36,000-mile service is due next month. Given that your bank participates in the business network that connects small businesses and consumers, the bank presents you with a list of bank-approved and highest-rated car mechanics on social media that are close to your location, and gives you an option to contact the business to schedule an appointment. Based on live, predictive analytics, your bank also knows that you will need a loan to finance the service and offers you a short-term, low-interest loan to cover the service expense.
This example illustrates how banks can use digital technology to run simpler and faster, use live data and predictive analytics, and partner with business networks to offer frictionless customer solutions on any device, all while reducing cycle times. By doing so, banks are becoming an integral part of customers’ daily lives.
The business benefits of this scenario are significant: companies will see a higher return on assets; higher customer satisfaction, engagement, and loyalty; higher net promoter score; and new revenue streams.
Redefine Consumers’ Perceptions of Utility and Value
Appliance companies as well as new technology-enabled consumer electronics companies are disrupting the consumer durables segment by adding digital interfaces and sensors to previously analog devices. As a result, they are transforming consumers’ perceptions of utility, value, and control.
Adding digital interfaces makes appliances like washing machines easier to use, while also redefining consumers’ perception of utility and value.
For example, consumers used to clean clothes on the basis of two or three combinations of options – water temperature, fabric type, and cycle time. The consumer also had to determine which combination of the three would deliver the best results, depending on the clothing he or she planned to wash.
Now, consumers choose how to wash their clothes based on desired outcomes – deep clean, sanitize, quick wash, wrinkle free, and so on. The machine’s intelligence calibrates the variables to achieve those outcomes on the consumer’s behalf rather than the other way around.
Companies are also embedding sensors into their appliances. Web-connected sensors detect detergent use and consumption, enabling consumers to reorder detergent and fabric softener automatically as needed and adjusting volumes and package sizes to ongoing consumption and use. What if the connected clothing you buy from Under Armour connects to the washing machine to tell it how dirty it is?
Sensors also monitor water, energy, and detergent use to recommend ways to minimize and optimize energy consumption and waste. They offer options for managing appliances from mobile devices, as well as coordinating appliance use with other devices based on options, for example, to run during off-peak hours.
More practically, sensors are now also monitoring the “health” of the appliances, giving appliance makers the capacity to monitor age and wear and tear, predict maintenance, improve forecasting for replacement parts, plan for services delivery, and minimize the risks of warranty claims and other potential product-related liabilities.
Incremental investments in digital technologies enable:
Digital interaction with other appliances and things through standards-based platforms
Previously impossible avenues for consumer engagement
Live forecasting and planning based on actual demand from within the home
Low obsolescence and write-downs
Significantly reduced service cost and liability risk
How You Can Become a Live Business
We stated earlier that a Live Business is akin to a distributed organism with brains, eyes, and ears everywhere. In the modern enterprise, they are employees, suppliers, partners, customers, or assets. These connection points map directly to key functional areas in the organization. Historically, these areas have been serviced by different enterprise solutions that interact with core systems but, more often than not, run as silos – reflecting the machine-like enterprise characteristics common in the knowledge economy. We see different siloed solutions to handle our employees, partners/supply chain, assets, and customers. These four areas are set for disruption in the digital economy. In a world where everything is connected, a Live Business breaks down these silos, creating visibility across the enterprise that is now within our grasp.
This opens up an intriguing question: What does the enterprise architecture, which seamlessly connects these systems to deliver success in the digital economy, look like? Connecting your employee and customer solutions systems through a traditional back-end would limit the delivery of the groundbreaking scenarios we’ve outlined above.
What’s necessary is a platform for digital business that not only has the scale to run your core processes but is also hyperconnected-aware to allow it to act as the hub that links any part of your business processes together to enable a fluid, nimble, real-time digital business – a true Live Business.
Digital Transformation Is Not a Piecemeal Project
As long as digital transformation is carried out only at the front end, it will not provide a reliable basis for building a competitive advantage or withstand the rising competitive pressure.
The four areas of disruption will be subject to ever-changing influences that will place continuing stress on your core business. A Live Business is one that is based on a framework that can help you develop, manage, and execute your digital transformation strategy. Linking the quartet to a digital business foundation, or a digital core, presents us with a means to understand, embrace, and deliver on the promise of digital transformation.
SAP brings together the four fundamental areas of disruption that are central to the digital economy. By connecting them to a reimagined digital core, SAP Business Suite 4 SAP HANA (SAP S/4HANA), you can gain a platform for future business innovation. The digital core can act as the hub that links any part of your business process together to create a fluid, nimble, live digital business that adapts to an ever-changing environment, enabling you to lead in the digital economy.
Make a Choice
The digital economy will change even more in the next five years than it has in its first five. It will have more users (especially in developing markets), more mobile users, more users using various devices throughout the day, coupled with massive increases in devices autonomously connected to the Internet.
Businesses in particular need to make a choice. They can rise to the challenge of a new hyperconnected global marketplace and benefit from the expanded capabilities and higher growth rates that digital masters are already achieving. The alternative is to follow in the footsteps of such industries as music and publishing, which held on to outdated business models for too long and are now dealing with competitive environments that have been reshaped around them.
For those willing to think big, embrace change, move quickly, and organize differently, there are countless opportunities to reap the rewards of the digital economy in industries ranging from healthcare to retail and consumer goods.
By embracing the choice to be a Live Business, organizations will be able to respond dynamically – to learn and adapt in an uncertain, ambiguous, and constantly evolving environment.
Dinesh Sharma is Vice President, Digital Economy at SAP.
The Hyperconnected Economy: How the Growing Interconnectedness of Society Is Changing the Landscape for Business (The Economist Intelligence Unit, 2014), http://www.economistinsights.com/technology-innovation/analysis/hyperconnected-economy
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@Top Executive Research, Digital Economy, core narrative, Live Business, @Featured Research