The pace of digital innovation and transformation is increasing. Entire markets, including transportation, logistics and e-commerce, are being disrupted and reinvented everywhere, and each new innovation multiplies the potential for more.
Digital disruptors are not only changing targeted industries, they’re also sending ripple effects of innovation throughout the world. “Digital technologies are doing for human brainpower what the steam engine and related technologies did for human muscle power during the Industrial Revolution,” says IT researcher and author Andrew McAfee in a Harvard Business Review interview.
Most companies believe they are already reinventing their businesses through digital transformation. In a survey conducted by Altimeter Group last year, 88% of executives said as much. Yet most companies lack the basics for a successful transformation. Seventy-five percent of those surveyed by Altimeter Group admitted major strategic gaps, such as leaving the role of the customer out of their digital transformation strategy.
The four pressure points
Four inescapable trends are creating the pressures that shape today’s digital transformation:
1. The empowered customer
Whether your customers are Generation Z consumers or multi-national conglomerates, they all share one vitally important characteristic: each demands to be treated as a unique segment of one. You have no choice but to meet that expectation. Digital and mobile technologies mean that no matter where your customers are, your competition is always one tap away. Enterprises must be capable of delivering rich, real-time interactions and intelligently personalized products and services to each distinct customer, and do so efficiently at scale.
2. Competitive and regulatory pressures
Transparency is a necessary part of business today, and that means competitors and regulators alike can dissect any business process. Staying ahead of the former and meeting the standards of the latter requires operational excellence and accountability at every step in the value cycle. To keep pace, enterprises must develop a varied arsenal of low-touch and automated processes that can make intelligent business decisions based on customer demand and real-time market conditions.
More businesses today must be prepared to go global in order to remain relevant. Expanding into new markets can no longer be done effectively with costly, infrastructure-heavy international buildouts. Enterprises need a pay-as-you-go strategy with scalable capacity, which can be adjusted rapidly to meet market conditions in any region.
4. Technological progress
The tide of innovations and discoveries is unrelenting. Businesses must be agile enough to quickly adopt new strategies, and be steered by insightful, knowledgeable leadership that can sort winning inventions from dead-end novelties.
What a flexible digitized core can do
Withstanding these four inescapable pressures requires a flexible digitized core at the heart of every organization — one that can reinvent business processes not just every generation, but every day, if necessary. A flexible core, ready for the demands of today’s disruption, can be identified by three key characteristics: efficiency, effectiveness, and agility.
A digitized core increases efficiency by automating processes and distributing responsibility for customer insights across an intelligent business network. Consider how 3D printing is completely reinventing the concept of inventory. The digitized core makes it possible to move manufacturing much closer to the time and place of purchase.
The digitized core increases effectiveness by converting signals in business data into tangible action. That can mean anything from real-time demand forecasting that sends new production orders automatically, to intelligent financing that takes full advantage of global capital markets. A digitized core brings Big Data down to the size and scale needed to deliver valuable insights for everyday business practitioners. Since every enterprise must be ready to create value from data, the digital core itself must be rooted in data.
Finally, the digitized core increases enterprise agility by enhancing every stakeholder’s understanding of the entire business, elevating each employee’s view of the organization. This can empower sales to close deals with higher margin, and R&D to focus on projects with the greatest market potential.
Think like a startup
Today’s enterprises must be agile in order to survive. That means taking advantage of digital opportunities at every turn, even if it flies in the face of established convention. For instance, augmented reality can deliver a virtual showroom or guided maintenance instructions directly to a client site. If that sounds like something only a startup would do, that is not far from the truth. Digital transformation means every business must think and act like a venture capitalist, and a digital core is the surest way to adapt to these modern realities.
Even the most storied enterprises must be able to move with alacrity. “In a world of more data and less certainty, companies have to make decisions and respond to disrupters all the earlier and the more decisively,” McKinsey warns. Without a modern digitized core, even competing on the edges of a market will no longer be an option, as disruption squeezes out those with processes to inflexible to adapt. With a digitized core, an enterprise can disrupt an industry from the inside out.
In future posts, we will explain how to design a digital transformation and how to put that plan into action. For a sneak preview, take a look at how the digital business foundation of SAP S/4HANA is already delivering results.