When I talk with customers about the digital transformations happening all around us, they react in one of two ways. Not a single one is unaware that we’re living in unusual times, comparable to the Industrial Revolution or the Renaissance, where ideas and innovation change fortunes.
Customers’ reactions are mixed, though, about how their businesses should adapt to the digital transformations happening all around them. More than half don’t blink when they hear that 90% of the data was created in the last two years or that 212 billion things will be connected by 2020. These companies are exploring how to maneuver in this digital age and achieve digital transformation internally. But about a quarter of the executives see digital transformation as a future-oriented goal, a mission to accomplish years from now.
These business leaders are ignoring a mounting body of evidence that shows the digital economy is disrupting industries. And, they are at huge risk of being left behind because they are missing a strategy for transforming their business functions. What we see in these companies is not ignorance or a lack of imagination, but a slow, steady sinking that comes from being overwhelmed by complexity. Harvard Business review completed in depth research that outlines the business case for managing complexity (access the full report here).
The crushing feeling that comes from too much complexity is having an impact across all businesses. In fact, complexity is the greatest barrier to achieving digital transformation and unlocking the value of today’s digital economy.
When we looked into what’s happening within our customers’ businesses and talked with analysts, we found that businesses need a digital core to understand all the digital information that is moving in and out of the company because less than one percent of the data that exists in businesses today is analyzed and turned into business benefits. Data that should be creating business insights and opportunities is disorganized, distracting clutter.
The reasons why decision making is complex are twofold. First, management structures prohibit accountability and create distance between employees. Some large corporations have up to 20 management layers, which were added over the years through mergers and acquisitions, new product and services divisions.
Secondly, there’s no real-time single source of truth: Real-time data cannot be brought together in a meeting or decision-making context as it always needs to be extracted from different databases. The information business managers need right now is never available now. It’s put businesses into an 80’s time warp, where people have offline snapshots of different points in time and can only see glimpses of the business vs. the full picture.
The pains from complexity ripple throughout the organization across executives, line of business leaders, analysts and assistants. More than half of the world’s CEOs, 63 percent, want to simplify their business operations. They recognize that the processes they have are outdated, and the technology supporting the process need to be updated. Managers acknowledge that they waste 40 percent of their time on activities that will never make a Euro or a dollar.
For businesses everywhere, this complexity comes at an enormous cost, consuming incredible amounts of human and financial capital. Complexity has contributed to the world’s top 200 companies losing €237 BN in annual profits (10% of profits).
A Digital Core for Digital Transformation
The digital economy is real and it is here to stay. Businesses that aim to survive and thrive in the digital economy will need to become a technology business that provides a digital experience to their customers, partners, stakeholders and employees. In order for these organizations to become technology businesses they must reimagine their business based on real-time insights.
Companies can overcome complexity and drive business innovation with a digital core. A digital core empowers companies with real-time visibility into all mission critical business processes and processes around customers, suppliers, workforce, Big Data and the Internet of Things. This integrated system enables business leaders to predict, simulate, plan and even anticipate future business outcomes in the digital economy.
SAP offers a digital core to our customers and partners, this is SAP S/4HANA. SAP S/4HANA is the next generation business suite that enables companies to reinvent business models and drive new revenues and profits. The new suite is able to easily connect to people, devices, and business networks in real-time to deliver new value in the digital economy.
Many industry-leading companies have taken initial steps towards digital transformation but without a digital core they will not be equipped to lead in the digital economy. For example, automotive manufacturers with a digital core will be able to provide a digital experience along the value chain.
Starting with the end customer, a digital core powers a connected car to provide a personalized driving experience to drivers including services and offers such as fueling and parking options based on real-time contextual information. The connected car can even capture data that can be used to perform predictive analysis to discover hidden trends and gain insights into driver behavior and preferences. The same digital core can be used to optimize manufacturing, moving from batch orders to real-time manufacturing resource planning to always meet demand. Further, using information collected by assets and the Internet of Things the assembly line and ERP can be synchronized for increased cost efficiency and asset utilization. Finally, a digital core supports automotive companies to move towards predictive maintenance, using sensor data to instantly assess the condition of equipment and then predict breakdowns to proactively perform maintenance to lower maintenance and service costs. These digitally enabled experiences are only possible when there is real-time visibility and integration into all business processes.
Companies that lose the complexity that is weighing them down will be able to face the market disruption happening everywhere. When Amazon, Uber, eBay, 23andMe and others like them enter a market, everyone with market share has to be ready to compete or be left behind. Having a digital core such as SAP S/4HANA will drive the transformation needed to compete in today’s digital economy.