As digital and physical worlds become more intertwined, what impact does that have on companies? Who wins? Who loses? Software AG’s CTO Bernd Gross discusses one of the most powerful changes in business today: connectivity.
Mr. Gross, you say that connectivity is this decade’s biggest driver of change in business. What exactly do you mean by that?
The way software is being embedded into our world is completely redefining it and driving everything to be interconnected. Today, more than 5 billion people use a smartphone. They may seem to be connected, but that isn’t really the case. A mobile phone is simply an entry point to a collection of app data silos. One for your photo storage. Another for your local taxi service. Yet, another for your smart home. True connectivity within and between businesses, governments and communities, across the world, will change our lives radically.
Look at travel, for instance. Those processes are still pretty inconvenient, inefficient, and lack continuity. We have to wait around a lot. Your identity needs to be shown multiple times when we fly, pick up a rental car or check into a hotel. All that would be seamless if the world were truly connected. We could sign into a digital system once and then have immediate access to any service we need during the entire trip. Or at the grocery store. Who wants to stand in line to check out? I’d rather pick out my groceries, put them in bags and leave the store, like with Amazon Go. Registration and payment would happen digitally.
What should companies do to start offering these services?
They first need to define their digital business goals. This is challenging work. No one really enjoys taking a hard look in the mirror, but it’s worth the effort. A good example of exploiting this is with Octo. Octo started delivering vehicle telematics data analytics for the insurance sector more than 20 years ago. This time allowed it to build a huge database of more than 267 billion units of travel data—a veritable treasure chest. The acknowledgement of this allowed Octo to redefine its goals—its purpose—to create new sources of revenue and capture new customers. This transformation can only be successful if an enterprise has a clear picture of its purpose and how it relates to the digital world.
Will interaction with customers change?
Almost certainly. The new type of customer journey plays a key role in successful connected enterprises. We call it the connected customer experience, whereby digital and physical worlds unite, as I described in the travel and shopping scenarios. Another example is with the Dubai government, which is committed to improving the wellbeing and happiness of its citizens. This objective inevitably resulted in the simplification and digitalization of the historic complex paper-based processes within and between many departments. Through the transformation it is now far easier for citizens to perform normal everyday tasks, like registering a vehicle, renting an apartment, or buying property. Everything revolves around customer benefit in one seamless customer experience.
Let’s switch to the B2B sector where “digital business excellence” comes up frequently. That sounds somewhat clumsy. What does it really mean?
Business excellence has been the predominant corporate mantra for many a year, but the inherent focus on efficiency and effectiveness has typically been at the expense of agility and robustness. Truly connected enterprises, on the other hand, have embedded digital technologies into their core operations. Multinational grocery retailer Tesco, for instance, recognized that process visibility was essential to become leaner, fitter and better able to compete with smaller stores. I see this as the second biggest driver of connectivity. In essence, we are talking about Data-as-a-Service. Data is provided to users via cloud-based software tools, regardless of location or organizational structure. But it only becomes truly efficient when companies digitalize their business processes with partners, customers and suppliers from beginning to end and become part of the Internet of Things. This means supply chain processes can be automated. Digital twins can be established in manufacturing. And, production forecasts can be calculated in real time. The potential is huge, but most companies haven’t fully started taking advantage of all the possibilities yet.
Many companies—often small to mid-sized businesses—don’t know what’s feasible. Many of them introduced software-based resource planning through necessity and have never moved on from this point. They don’t have anyone driving the next step to connectivity and automation because everyone is thinking and acting in silos. Truly connected enterprises act differently. They move away from self-contained areas of responsibility and start thinking in cross-functional terms. They realize that innovation won’t be unleashed if data can’t flow freely throughout their business.
Isn’t it understandable though that companies shy away from examining such a fundamental change?
Sure, it will ultimately be a major transformation. And upper management, primarily the CEO, has to actively promote it. They will need to prove that change is what will make the difference. That doesn’t mean everything has to change from one day to the next. You should start out project-specific and be pragmatic going step by step. Start by rethinking your use of Excel, for instance. Excel is great! But on the shop floor, there are other tools that are far superior at capturing information, enabling better planning, suggesting more efficient production and ensuring greater auditability.
I often read and hear that there is no way for companies to avoid digital ecosystems. Is that really true?
It is in the mid- to long-term. Many companies continue to feel responsible for all of customer value creation. They are highly vertically integrated. Those who open themselves up will shape the future. In other words: you should digitally connect with partners who are able to innovate much faster than you in the specialized domains where you are not.
How does that work?
Let’s take an industrial equipment manufacturer, say global air compressor specialist Gardner Denver. This firm has a partner that provides a software application for its machines, known as iConn, which ensures uptime and performance. The industrial equipment manufacturer indirectly generates revenue from the software via its wide distributor network. In the consumer world we know this model well, from Apple’s app store and Amazon warehouses. But it only works if there is end-to-end digital connectivity across suppliers, contractors, service providers and partners.
It is hard for many companies to open themselves up to total transparency.
They are hesitant to share access to customers because they fear disadvantages. That’s a big issue. Promoting partner applications, and sharing in general, have always come easier to tech companies, who measure innovation cycles in weeks, than to industrial enterprises, where innovation takes years. But innovation cycles are getting shorter by the day. No one company can shoulder the customers’ need for continuous innovation by themselves. Innovative products and services will not be possible without digital partner ecosystems.
Our proven belief is that: Successful digital business is never done in isolation.