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Digital Transformation, Part 3: The Building Blocks

Now more than ever, businesses need to have digital transformation in mind. However, digital transformation cannot be fueled only from IT– all lines of business and operational processes must be aligned.

"Information technology and business are becoming inextricably interwoven.  I don't think anybody can talk meaningfully about one without talking about the other" - Bill Gates.

This quote perfectly encapsulates the notion that technology and business can no longer be seen as two separate branches within every enterprise.  So it's hard to imagine that the quote is from 1999! 

Now, more than ever, businesses need to have digital transformation in mind.  However, digital transformation cannot be fueled only from IT – all lines of business and operational processes need to be aligned.  For example, marketing can benefit greatly from social and data analytics with a deeper understanding of the consumer's wants.  Armed with technology, businesses can take advantage of predictive marketing and provide enhanced customer service for an integrated experience.

As mentioned in Part 1 – Rapid state of change (see here) – we see four key building blocks of digital transformation that, taken together, can drive enterprises' shift to the new way of business: cloud, mobile, data, and networks.

Let’s dive deeper:

Series on #DigitalTransformation (3) – The building blocks

 

Cloud

The cloud is far more than a deployment model. Ultimately, it means freedom, efficiency and integration.  With the cloud, businesses can focus on their core missions with better collaboration and always up-to-date solutions.  It's scalable, flexible, and accessible. 

A collaboration study from 2012 by Knowledge@Wharton and SAP found that 85% of businesses believe that cloud computing will transform their business and/or industry, but 48% of those surveyed have minimal or no adoption of the cloud.  Even in 2012, the cloud was recognized as a critical element for digital transformation; we can only imagine the numbers have grown since.  But even though most businesses realize that cloud adoption is imperative, fewer have actually made the crucial move to cloud adoption.

Need more proof?  Look at the increasing role of LOB in IT investments.  IDC predicts that, "By 2016, 80% of new IT investments will directly involve LOB executives, with LOBs the lead decision makers in half or more of those investments.”

Interestingly, cloud adoption rates are higher for businesses in developing countries, since they have fewer legacy systems in place and thus have no processes to disrupt.  For them, integration or shifting to new systems is not necessary.  Although businesses in developed countries may be on top now, they must avoid the trap of simply "getting by" with legacy systems to protect their existing business.  Adopting the cloud, even as an extension to a working solution, is essential to do so. Ripping and replacing something that still works doesn’t entirely make sense, but transformation is best and fastest if you lead with the cloud.

Finally, the cloud delivers an innovation platform that connects different ends of the world.  Transforming a business and adopting an “as a service” delivery model often requires new ways to deliver, manage, and monitor.  With the cloud, this is possible.

Mobile

Mobile enhances and is inextricably related to the digital transformation.  It takes freedom and connectedness further by allowing for greater access.  Rather than having to haul your computer around, you can now achieve the same functionality with a tablet or smartphone.  Its role is growing, with an astounding 50 billion connected devices predicted for 2020. 

Currently, mobile applications are being adopted most quickly in large companies ($20+ billion) and manufacturing firms for functions like travel booking and expense.  Smaller companies ($100 - $999 million) focus on key areas to support their business, for example, expanding mobile recruitment and HR functions. (SAP

We can find examples of mobile usage in every industry.  In the retail world, employees can use tablets to show off products and check out customer purchases.  Customers now get to skip the line and make their purchases faster.  Doctors, like those working at the Charité University Hospital in Berlin, also benefit greatly from mobile devices.  Not only is using a tablet more convenient, but doctors can also now interact with patients in a less obtrusive way.  Gone are the days where they have to fuss with potentially outdated papers – they can now have instant, up-to-date patient information at their fingertips.  Everything is in one place, ready to go.

Data

Using the right data in the right context means smarter decisions, new opportunities, and ultimately, a big competitive advantage.  Big data is really BIG, with over 2.5 quintillion bytes of data being produced daily – but only a fraction of this really used. The rest serves little to no function as "dark data." Of course, this number will continue to grow, especially with the Internet of Things bringing in data from sensors and wearables.  Systems will be smarter, with airplanes, for example, communicating when their parts will need fixing, then self-scheduling fixing during downtime.

SAP has set a new Guinness World Record for the largest data warehouse at an amazing 12.1 petabytes. See more here.

But before any business tries to tackle this huge amount of data, it is imperative that they understand that it's about using the right data, not just big data.  Data needs to be productive.  To manage the enormous data streams, filtering and identifying signals is key.  Otherwise you’ll be stuck on the “dark data” side.

Google Flu Trends, for example, takes data that is already being produced and turns it into something useful.  By tracking flu-related search terms, Google manages to estimate the amount and location of flu circulation.  These signals allow health professionals to better respond and get a head start, thereby reducing the number of people infected.

eBay offers another great example of data usage.  In an effort to constantly improve its business processes, eBay employs about 5,000 data analysts to analyze consumer behaviors.  With over 50 petabytes of data, eBay's systems automatically filter out and select the best model, leaving its analysts to focus on connecting buyers and sellers.  By observing and comparing surges in search results, eBay can forecast products like the iPhone as far in advance as it would like, from a second to a quarter in advance.  The data contains valuable signals that drive insights, which can then be conveyed to eBay’s business partners. It doesn’t stop there: With enhanced signal detection, eBay is better equipped to track and solve errors.  Read more here.

 

eBay Insight: Early Signal Detection System from SAP UX Design Services on Vimeo.

Sadly, not every business out there can claim to be as data-savvy as eBay or Google.  In a study by Saugatuck, 60% of companies surveyed reported that they may not have the necessary skills to use big data, despite recognition of its importance.  Through 2017, data analytics will be a competitive advantage.  After 2017, data analytics will be a competitive necessity.

It's easy to see why, as leveraging even a small sliver of this data can lead to big business benefits.  The right data can enable better performance tracking, consumer understanding, and anticipation of future needs.  Finding patterns in the data can lead to insights, like suggesting phone cases to customers browsing new phones.

Networks

With over 1.3 billion people now on social networks, it's no surprise that networks play a large role in digital transformation.  Common examples include businesses using Twitter, Facebook, and the like as a means of customer service and engagement. 

Take for example the Sunglass Hut store in Times Square.  It ups customer engagement a notch by providing an interactive "Sunglass Bar."  There, customers share pictures of themselves wearing their sunglasses with their friends – a smart way to spread the Sunglass Hut brand while improving the customer experience. 

Businesses have much to gain using networks to connect with each other.  These networks have some serious clout – the Ariba business commerce network, for instance, has an annual transaction volume of $540+ billion and over 1.5 million connected companies.  That’s a lot of buying and selling opportunities that unconnected businesses are missing out on.  Networks can also be the platform for customers to share their experiences with your business or to access content and other services. 

By all means, networks should not be restricted to outside the enterprise – it is important that they also find a place within the enterprise.  As Doug Conant, former CEO of Campbell's Soup, once said, "To win in the marketplace you must first win in the workplace."  Within a business, sharing information unites the enterprise and can spark new ideas.  Information gaps across the business or the lack of an employee network are inexcusable in our digital world.  Lee Bryant from Postshift also stresses that the integration of internal and external networks is necessary.  Information obtained from social media interactions with customers needs to be conveyed to other lines of business: operations, customer service, R&D, etc. 

Businesses as a whole can be improved from internal-external collaboration.  Better co-innovation with customers may require some restructuring of the business (to be discussed in my next blog on the role of leadership in digital transformation).

Brian Solis sums this up quite nicely: “Businesses are no longer the sole creator of a brand; it is co-created by consumers through shared experiences and defined by the results of online searches and conversations.”  After all, who knows what consumers want, better than consumers themselves?  It's only natural for businesses to collaborate with their consumers, especially with networks available to help them do so.  For me it is clear – co-innovation leads to co-validation, so you need to embrace this concept to design your innovation.

Takeaway

With a focus on these four building blocks – the cloud, mobile, data, and networks – digital transformation is possible for all businesses.  The good news: the underlying technology for these building blocks is generally available today.  It's best to adopt these technologies early, as we are now living in a world where IT and business are increasingly interwoven. 

More importantly, these tools will enable new insights, new innovations, and new ways to interact within and beyond your business.  Even better, these technologies enable a few people today to achieve what you needed entire enterprises for in the past.  So don’t wait to get disrupted. Start your digital transformation today!

Up next: a look at the role of leadership in digital transformation

Follow us via @SAPCloud and @SDenecken.

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Digital Transformation, Part 4: The Role of Leadership

Digital Transformation, Part 2: What makes it disruptive?

Digital Transformation, Part 1: Rapid State of Change