Digital Transformation — The Individual Revolution

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We are in the early stages of a major paradigm shift, which for now is called Digital Transformation.  What is Digital Transformation or DT?  If you have no familiarity, take heart. First, this DT is not delirium tremens, a medical condition of uncontrollable shaking.  Although there is considerable uncontrollable shaking occurring in the business world as it broaches this topic — and with good cause.  Second, you can find a great primer here by Estaban Kolsky, with help from Sameer Patel and Paul Greenberg.  Ray Wang also writes about this regularly.  All very smart guys.  I draw from them heavily, albeit on an informal basis.

 

This is a major change in the way we live and work.  So it has been slow to receive a common definition.

 

The basic realities underpinning this shift are clear to everyone.  Business is moving at a much faster pace today than it ever has.  That pace is increasing.  A recent study by CapGemini found that >70% of executives recognize pressure to digitally transform, coming from customers, competition and employees.  The same report cites a general self-assessment that enterprise the culture of innovation is inadequate; we’re too slow even though we’re moving as fast as we can.  We know that customers are more informed and empowered than ever before, so we are seeing the changes in sales and marketing first.  Customers shift allegiances quickly, based on their own understanding of the company.  Beyond this, however, we see the somewhat more muted pressures from employees and partners.  All of them demand to work with the same fluidity in which they live their digital lives.  That’s not an incremental change, that’s a transformation.

 

So with great respect to the more learned colleagues mentioned above, I offer a layman’s definition.  Digital Transformation is society’s evolution, enabled by technology, to relationships defined around the individual rather than the organization.

 

Let me break it down.

 

Society ” instead of “business” because this move is already well underway in our day-to-day lives and it covers much more than our business relationships.  If the majority of what you are doing – socially, commercially, even physically –  is not captured digitally today, it soon will be.  This is not limited to a demographic group; it crosses age, race, economic and geographic boundaries.  Forget the “Gen Y” distinction.  It distorts the issue.  See Constellation’s classifications of Digital.  We are all digital to some extent now, becoming much greater with time.  The fact that our lives are becoming seamlessly digital gives you the first strong inkling of why this is an imperative for the enterprise and why it is much bigger than a technology shift.  And the change doesn’t stop with us humans.  Every THING around us is participating.  Sensors, cameras, drones and an unending new array of devices are capturing the physical world in digital form.  Once it’s digital, it becomes part of the rushing river of data that drives new business models never before conceived, which are delighting customers.  Does that sound like your business?

 

 

enabled by technology ” because it is the maturity and general availability of networks, sensors, mobile devices, data stores, analytics tools and delivery via Cloud that makes it all possible.  The individual has always wanted the world on our terms.  Advances in the technology have made it possible to get it.   Has technology driven behavior change or simply caught up with our lifestyles?  Either way, the change is massive because it is happening in all facets of life.  This point should NOT be confused to mean a new technology is the answer to DT.  The tough part is the cultural, organizational change.

 

 

defined around the individual ” is the cornerstone of the paradigm shift.  This change is fundamentally about the evolution from generalized, largely static interactions to a focus on the dynamic individual; whether customer, employee, partner, stakeholder or citizen. In many respects, this is a continuation — though a radical acceleration — of a much larger societal trend we have experienced over a longer period.  For business purposes, we need to understand that models built around “B2B / B2C”, broad segmentations like “soccer mom”, Gen X, party affiliation, etc are quickly becoming outdated.  It is possible to know the individual in extreme detail, even as they change day to day.  How?  Because the individual is basically screaming their identity to the world daily.  Yes, social media is part of that.  But only a part.  A browser session leaves a trail of thousands of cookies and tags.  All our endless gadgets and services exist to define our digital identity, that’s how they get funded. Driving a car, watching TV, all of that contributes.  This is — and always has been — the premise of the Internet.  I tell you about me, you give me services that are useful to me.  (When government steps in and takes information we didn’t intend them to have, that’s a problem.)  “Who I am” is a highly fluid situation.  I am changing constantly so you better be able to move fast and stay very agile.  If your view of agility is an upgrade every 3-5 years, get ready to lose.  In this era, adaptation to the individual must be constant. That is extreme agility. (The primary driver of Cloud.) Now consider your hundreds, thousands or millions of unique customers and prospects who are also constantly changing. So, if you’re not an infrastructure provider, you have no business scaling to meet that volume on your own. (Secondary driver for Cloud)

 

 

rather than the organization ” is the reason DT is so tough.  Get used to the notion that we are in a shared process to create value.  The organization no longer dictates.  Collaboration or engagement, a model rather than a tool, is central to this process.  If you want engaged customers, you involve them in the creation of your offering.  (You develop mutual trust, a very difficult and valuable thing to do.  Go read Estaban Kolsky on this.)  This leads to extreme customization.  The organization creates the pallet of offerings based on their core differentiating value,  individual defines their particular wants/needs, organization delivers result – usually by leveraging a broader ecosystem.  Often the result is not a product but a service.  So sale of an auto becomes shared ownership or micro-renting (Zipcar et al), hotel accommodations become completely variable and peer to peer (AirBnB model), new projects are developed, funded and executed via crowdsourcing (Kickstarter and a dozen others).  Note that these may be new companies who have less baggage but they are disrupting well-established industries.  Google jsut announced the Ara phone, which will be modular to suit the customer’s preferences. Of course, the heart of the smartphone – its applications — have had nearly infinite variability since their creation.  That may be why we see smartphones as must-have devices at all economic levels with virtually 100% penetration through most markets.  A company can’t develop value as a monolith.  That’s too slow and resource intensive.  Employees, partners and customers must be fully involved in the process.  The traditional lines between customer, employee, partner and the enterprise are necessarily blurred.  Those used to a Command and Control environment or clinging to a business model based on regulation and tradition will struggle.  The benefit of established, large players is that they have extensive knowledge and experience… often locked in systems and individuals that are rapidly approaching retirement.  Without a change in culture, driven from the top, the old guard is in serious risk as Digital Transformation plays out.
 

 

The crop of companies disrupting all markets now have two common features — they are extremely agile and they revolve around their customer.  Agility can be designed but it demands a focus on core business and requires tough choices (What is core value vs what is ‘just the way we’ve always done it?) Of course, every company would like to believe they are customer-centric.  Just as every government claims to serve its people.  Nevertheless, there are despots in this world.  And while the tyrants are obvious, even among the most advanced countries we see dysfunctional government (ahem).  So it is with business.  No organization has “bloated process designed for an outdated business model” in their mission statement.  Still, that’s the hard reality of many companies today.  So just as the tyrants are getting nervous, internally-focused businesses should too.  The Individual Revolution has begun — and these people mean business.

Interview w SAP Community: Cloud, Digital Transformation and Career

SCN: Which industries/LoB are the most impacted by cloud computing and why?

 

TBW:    First, we need to understand Cloud in the context of a much larger change we are living through called Digital Transformation (DT).  In short, DT is a fundamental shift in the way we live and work such that the world is being defined around the individual, rather than the individual conforming to existing mass patterns. We increasingly live our lives expecting the world to adapt to our needs.  That’s because it has become a realistic expectation. This has implications far beyond technology, for example the acceleration of democracy movements globally.  Still, technology is the great enabler.  Things we used to do in the physical or analog world are now blurring into the digital world (how crazy is it that 3D printers are now a reality?).  Nest is my favorite example.  The networked thermostat is the hottest thing in Silicon Valley :).  Google recently bought them for $3.2 billion!  There are other networked thermostats, virtually all of them much less expensive and at least one provided by a dominant traditional brand in building automation.  But none of them understood how to make the thermostat revolve around the occupants needs like Nest did.  Apparently that’s worth billions.  If you need more evidence for DT than a 4 yr old thermostat manufacturer beating a 130 year old Fortune 100 company, don’t worry, there’s plenty.

 

Advances from sensors on everything (Internet of Things) to wearable tech (glasses, wristbands, clothes, etc) to global high speed networks to social media make DT possible.  Cloud is a very important part of that.  If you’re going to deliver the world to individuals as they expect, you better be able to move very fast and at extremely high scale.  There will be nine billion of us soon… and we’re a fickle bunch!  In case you have any doubt, delivering B2B is not fundamentally different than the demands of B2C — there’s a consumer at the end of every value chain.  There is no question that Cloud is the only way to keep up, no matter what business you are in.  We are in a transition period now, where there is legitimate debate about how to evolve to an all-Cloud world.  But make no mistake, Cloud is becoming the default model.  So much so that we won’t talk about “Cloud” as a distinct topic.  It’s just assumed, the same way network access is assumed.  No one is debating the value of high-speed access.  It’s just a question of what’s the best way to connect the whole world. And there are very few corners of the world that aren’t connected, for better or worse. Cloud’s going the same way.  So, in sum, every sector is impacted greatly.  It’s just a question of pace of adoption.

 

SCN:     How is the cloud changing your job or jobs in your company?

 

TBW:     Consistent with the DT trend, everything flows up from the end customer, who is driving incredible change throughout the value chain. Companies, particularly large enterprises, are lagging the consumer’s pace of change in this transition period.  As pace continues to accelerate, the impact on roles in the enterprise — and its partners/vendors — will be dramatic.  For consumers the move to cloud was largely incidental as a result of the great new services.  No one questioned the infrastructure behind “web mail” or thousands of new apps on their mobile devices.  They just embraced a valuable service they didn’t have previously.  The parallel will hold, with uneven delays, for the enterprise.  Enterprise concerns blocking the adoption of Cloud, while legitimate in their nature, are significantly overstated in practice.  Security, for example, is absolutely critical for any datacenter.  The notion that individual enterprises are more secure than major Cloud providers is… dubious at best.  Do security breaches happen?  Yes.  And they always will, unfortunately. The value of an enterprise trying to keep pace in that arms race does not hold up.  Most of the market understands this today.  Regulation has some catching up to do.  The direction is undeniable though.

 

Surprisingly, there are still many doubters with regard to Cloud, some of them in very influential positions.  That herd is thinning and increasingly migrating to a new pack of cynics; one which likes to play semantics in their definitions of “Cloud”.  They tend to throw many alternate definitions and flavors of Cloud around in an apparent attempt to create confusion while maintaining the status quo. I won’t take that on here!  Sufficed to say, “fighting it” is not a great career strategy.

 

Vendors and practitioners whose primary value revolves around core datacenter services need to be with Cloud providers who focus on Infrastructure or Platform as a Service.  There are a very select group of companies that will be effective as IaaS/PaaS providers, maybe 20 – 30 globally, because of the massive scale required to extract value.  Watch the progression as Cloud eats the IT stack. It’s turning each layer to commodity in succession to the point where only the IaaS/PaaS players can get value at extreme scale.  Meanwhile, the long-standing trend of function being pushed down the stack continues.  To illustrate: Storage, low end servers and PC’s are already heavily disrupted by cloud.  Major vendors have been pushed out of the market.  OS is long gone as a value driver.  What’s next? Well, it’s a moment of truth for database.  At the high end, we see application function delivered in the DB (e.g. analytics), which preserves its status as a platform, not just infrastructure.  At the low end, basic DB functionality has already been commoditized and is a feature of IaaS with little differentiated value.  It’s interesting to see how major DB vendors are straddling this line.  Some are pushing hard to be preferred Cloud infrastructure, thereby focusing their target on major Cloud providers.  Others are still prioritizing enterprise application infrastructures, which has a limited future.  For SAP, it’s critical to establish HANA not only as the platform of our Cloud but also a premier PaaS offering in itself.  “SAP: The Cloud Company, powered by HANA” is absolutely the right strategy.  So it follows that sellers who don’t understand how to make this relevant for their account are putting themselves and SAP in a rough spot!  The current enterprise IT ecosystem — including the thousands of enterprises and vendors/partners that serve them — has a major over-supply of “datacenter” skills.  There is only so much of that required in the coming era of full Cloud adoption.

 

 

SCN:     Which new job opportunities are being created?

 

TBW:     This will create some interesting dynamics over the next several years. Just as core services are being commoditized and delivered as standard Cloud infrastructure, more business-specific functions are being delivered as differentiating value on the top of the stack.  A major trend is the increasingly vertical nature of all offerings.  Horizontal services such as sales-force automation are no longer unique.  Delivering field sales tools for retail versus healthcare providers, for example, are very different propositions.  In the past, it was enough to say “it’s cloud, that’s a lot easier than on-premise, so get on board like everyone else.”  Some economics and operational issues made that an easy choice.  If a client wanted specialized function for their business, they had to go build that with a long services engagement.  Now, vertical CRM solutions are pushing hard into the space.  It’s no longer the client’s burden to build it out from a horizontal, generic package.  It starts out as a 90% fit with minimal customization required.  That’s a big opportunity for those with industry expertise, while the first generation cloud application vendors are feeling the heat to keep up.

 

The migration of custom services into standard function is occurring in several areas and creating huge value.  One of the most interesting, from my perspective, is the entrance of digital agencies.  As digital marketing takes off — projections have it at $120B spend in 2014, roughly 20% of total ad spend — we have seen a wave of companies rising to meet demand.  They are a mix advertising agency, media buying firm, consulting house and technology (always Cloud) provider.  Five years ago, it was exceptional for an enterprise to have a serious investment in a social/digital strategy.  Now, we find the emergence of a Chief Digital Officer, a kind of CIO/CMO hybrid, across the enterprise landscape.  Serving these needs, which are a direct result of DT, creates huge opportunity.  The question now is, Who will seize it?

 

SCN:     Are any jobs at risk?

 

TBW:     See above!  Yes.  We are living in a low growth economy with extreme change.  That has winners and losers.  My thoughts on the basic criteria are above.  Either you are leading in the direction of Digital Transformation or the market is moving away from you.  Fundamentally, you need to add value at the top of the stack rather than fighting the paradigm shift.

 

Who is impacted?  Everyone from the CEO to the recent graduate trying to break in.

 

How fast is this happening?  There is a commonly referenced statistic regarding the Fortune 500.  Since its inception almost 60 years ago, 82% of the Fortune 500 has changed.  Since 2000, 52% of the Fortune 500 has changed through bankruptcy, mergers or acquisitions.  Companies that once defined corporate America are gone or struggling to survive and it doesn’t take long to go from top of the market to dinosaur.  No one is immune to the risk of stagnation.

 

SCN:     Which skills do you need?

 

TBW:     Find your way to the top of the value pyramid, always closer to the customer.  For sellers, if you are focusing on ‘speeds and feeds’ or closing your deals by financial repackaging of maintenance streams, you’ve got a problem.  Cloud selling forces us to know the business impact of our work.  In early days of Cloud, the case was often made on a simple cost basis.  That’s not the message now.  The core of Cloud’s value is agility.  The speed with which we can constantly meet and exceed the needs of the business.  Of course that depends on us knowing those needs very well.  Pace of change is everything (insert evolution reference here).  So the critical skills come back to the things our best professionals have done all along: Understand your client’s business extremely well and guide them on the path of constant improvement.  Often, that means understanding your customer’s customer as well as you possibly can!

 

Q:     What are the education options?

 

TBW:     We have many.  All the traditional enablement tools are there.

 

I would encourage anyone to dive deep into the business they want to serve.  Fortunately, there are endless sources of information.  The fact is, our clients are telling us all about themselves all day through all the touch points we have.  Take the opportunity to listen, listen, listen to your potential and existing clients.  Live discussions are gold.  Make the absolute most of understanding what your client is telling you.  Social media is also an invaluable resource.  There’s no shortage of information available to you.  Dive in!