Customer Segments and Building Blocks of Digital Transformation
Interview with Sven Denecken, GVP Co-Innovation & Strategy S/4HANA, SAP SE
Follow Sven Denecken at @SAPCloud and at @SDenecken and follow Simon Schoop at @4advicenet and at @simscho on Twitter
Bonn/ Walldorf, February 13, 2015
We were very much inspired by a series of articles on ZDNet authored by Sven Denecken, Global Vice President Co-Innovation and Strategy S/4 Hana & SAP SE. To jump right into the world of digital transformation we asked Sven Denecken for his time for two interviews with us.
The first interview was led by Simon Schoop, the Managing Director of 4-advice. It is about the importance of data, network, cloud & devices for mastering the journey through the digital transformation with a focus on the building blocks and customer segments. The second interview, which will be Part Two of the Digital Transformation Insider, will focus on the role of leadership and innovation culture in today´s era of digital transformation. We hope you enjoy the interview and appreciate your feedback !
Simon Schoop: From your blog articles on digital transformation, we understood that everyone needs to be disruptive in order not to be disrupted by others. Are there any companies that are less affected and thus could maintain a leading market position without being on the forefront of the digital transformation ?
Sven Denecken: Many of the formerly most successful companies have disappeared (editor´s note: 52% of the Fortune 500 companies since 2000). Even Apple would have been in trouble in one of their core business models from the streaming music industry without the acquisition of Beats. The cloud has emerged as one key enabler for rapid development and business transformation, driving the subscription economy with consumerization and “as a Service” business models.
How do you rate the maturity of the different components that drive digital transformation (cloud , data, network and devices) ? Do you consider those as necessary or ample conditions for digital transformation?
Data is growing, but it´s more about the right data than the volume of data. Network related business is taking off lately which has to do with the change we see regarding the consumerization mentioned before. Devices or mobile is meanwhile a given – I saw a statistic that globally we got more mobile phones than toothbrushes. Per se, the smartphone has disrupted many businesses already.
Cloud is the wrapper and the innovation pace layer around these other building blocks. We need the right combination of all elements at the same time. When I see e.g. the collaboration of my colleagues with people or customers outside of my company, then cloud and networked applications are necessary to do so.
In your article series about digital transformation, you mentioned that the distance between the engineer and the end user is now dramatically reduced. Could you tell us an example (e.g. from SAP) what this has changed in the corporate organization?
That´s a great question. Traditional development models were made following a waterfall approach. Today, service orientation, design thinking and agile approaches allow us to iterate very fast. The fact that engineers get feedback fast and change their development accordingly, helps to be closer to the customer needs and innovate faster. The old segregation of duty in the waterfall is no longer there. Today, the engineers are rather involved like an architect at a much earlier point of time. The cycles of iteration allow us to be much faster to deliver innovation and also to course correct.
Traditional development models were made following a waterfall approach. Today, service orientation, design thinking and agile approaches allow us to iterate very fast. The fact that engineers get feedback fast and change their development accordingly, helps to be closer to the customer needs and innovate faster.
How do you suggest to engage the different types of people into the transformation journey ?
Service orientation and Design Thinking help to have the right teams with the right skillsets in place. This is where the rubber hits the road. We need the right set and mix of people. You need to bring together the right people and you need to give them the freedom to ideate. That helps a lot.
And how do you link typologies of people (by ages, by hierarchy, functions) with the digital proficiency categories ?
I believe that digital proficiency knows no age. Take myself, I am a digital immigrant for example. It´s the willingness to adopt. I think the digital balance is the important bit. People need to balance between the opportunities and risks of the Digital transformation.
Do you see a link between the the impact of the work environment (workplace, relations of internals with suppliers etc.) with adopting innovation ?
Working across internal boundaries and normal challenges of enterprises is key. To take the collaboration beyond the boundaries of a classical enterprise, to interact with young people, with people outside your current enterprise and network – this has proven to be the biggest impact on the success and creates transparency.
You mentioned Ray Wang´s segmentation approach with digital natives, immigrants, voyeurs, holdouts and disengaged people. You added the digitally balanced segment to it. How much overlap do you see between your new category of the digitally balanced versus Ray Wang´s segments ? Is it somewhere between digital immigrant and digital voyeur ?
By introducing the “digitally balanced” segment as eluded above, we wanted to express, that there is a middle ground between no-sayers and the instant adopters. They have a balance between taking a risk and putting their experience into work. They are digitally savvy but they weigh the costs and the benefits to decide on the direction of their digital initiative. They might be opponent at one time because they don´t see the value, but once you show the value, they become the best supporters.
The wish to try something new taking controlled risks and on the other side bringing the knowledge for the better. So you could place this segment between the immigrants and the voyeurs. There can be a change over time that some people might adopt to different categories.
What´s your gut feeling regarding the situation at SAP: How many of your employees fall into which category and do you have an idea on how much of the end users have which share of those six categories ?
Oh, that´s a very interesting question. So first of all, I´ve actually never done the maths but my very clear expectation is that you will always find people in every category. It´s about finding the right mix and hopefully you have enough people in the digitally balanced segment. That also reflects what we see in our customer and partner base, what you call the end users. Innovation sometimes comes from the differences. But more important innovation comes from looking at things from different angles of the distinct segments
I would like to challenge the statement of SAPs former co-CEO Jim Hagemann Snabe that „every company will become a software firm“. We do not believe that this applies for small companies below 100 employees, because concentrating on core capabilities might mean to not concentrate on software. And those little SMBs are an important part of the backbone of German industry. How much software company does a company need to be according to you ?
Before I come back to the statement, let me state one thing: More than 80% of SAP customers come from the midmarket segment. Of course SAP is also known for supporting large corporations with their complex processes and running 70% of the worldwide GDP is a big task too, of course.
Regarding the statement from Jim Hagemann-Snabe that every company will to become a software firm, I would like to say, that his statement was very pointed at the time it was made – in the context of this interview it could be translated to “every company will become a digital company”. Not just large, but also small companies have to think about how digitization will change their business, how can technology help me to improve my product or process and how can I cater to a subscription based business model, because I will no longer just provide a product, but a service.
In the forefront of cloud computing and the subscription economy, now leading into the networked economy where many players work together, specifically the SMB´s need to think about digitization. They need to be conscious of these changes and elaborate how they will be providing services in the future. They need to be clear on how to use technology and of course software to stay in business.
You mentioned that businesses need to disrupt themselves before others do. We believe though, that the large majority of businesses is not ready to do that – especially due to the lack of an innovation culture.
Do you agree and what do you recommend to those companies and how do you rate their maturity for the digital transformation ?
Unfortunately, I clearly tend to agree – specifically for companies who have a very limited view on market trends. Also, if their business is performing too well, they don´t look at innovation and for sure not into disruptive moves. Also, if they don´t have the infrastructure they struggle. But today you need 2 clever people and the use of cloud infrastructure to disrupt, where couple of years ago you needed entire enterprise infrastructure to do so.
The clear recommendation is: Look at what the network economy can bring you, which benefits can I get from collaborating with customers or suppliers. No matter if I am small or large: Many companies don´t think they need to transform because they believe they are offering something to their direct customers (B2B) – they will soon be disrupted, if they don´t step in the shoes of their customers, taking a B2B2C perspective.
Luckily in Germany, we have a very healthy DNA in SMBs and they often understand digital and constant transformation. Transforming is somethimes augmenting or adding a service – it´s not necessarily turning everything upside down.
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In part 3 of your digital transformation series, you are talking about the building blocks in more detail. One of the key takeaways is that digital transformation requires not only IT but also an alignment of business units and operational processes and you quote Bill Gates that IT and business cannot be considered separate matters anymore. From our consulting work at 4-advice we see though, that some industries, are not there yet. What do you say to customers who are not actually having the necessary IT resources to do anything in addition to mandatory projects such as introducing SEPA or to fulfill other regulatory requirements ?
Very simple answer on this one. I believe that technology is helpless if you don´t have the right people and ideas to leverage technology. So how do you use technology to transform and innovate? That said I think you need to leverage certain areas where standardization helps you to leapfrog – and cloud solutions are a very interesting area for achieving this. Also people in customers companies should work with partners, external advisors and also vendors like SAP in a co-innovation mode to progress faster.[/column]
I believe that technology is helpless if you don´t have the right people and ideas to leverage technology.
When you write about the building blocks, you are quoting a Saugatuck study which suggests, that data analytics are currently a competitive advantage but will only be a competitive necessity from 2017. Not every company sees it´s core competence today or in the future in data analytics. What do you suggest to those who aren´t a data analytics company in order to stay competitive from 2017 onwards ?
First of all, they need to look at the ability to look at how to include the ability not only big amounts of data, but the right data into their business processes. Tools are available, but the rubber hits the road when it comes to the right algorithms. Data scientists and data architects are the scarcest resource of the future. Packaged solutions, industry specific (vertical) solutions will be the only stepping stone on the way forward for customers who don´t have their own data analytics solutions and resources. It will not be enough anymore to be realtime, they will need to be predictive – and this is what we work on a lot at the moment to enable customers to also cover what if scenarios.
Thanks for your time ! We are looking forward to our next edition of the Digital Transition Insider with a focus on the role of leadership and organizational success factors such as innovation culture.
[Download the full article here (PDF):
Digital Transformation, Part 1: Rapid State of Change | Article series
Digital Transformation Series: The wrap | Article summary
Apple to Acquire Beats Music & Beats Electronics | Apple Press Info
Digital Transformation Video Series | Video series by SAP Cloud with Sven Denecken
More Publications by Simon Schoop | on 4-advice.net