Digital – with Impact

This is the third in my midsummer updates around cloud computing, renewables and digital transformations.

Over the last few months, I have been collaborating with my colleague, Brian Sommer as he works on a book titled “Digital with Impact”. Both of us saw the practice of Reengineering start off with much promise in the early 90s, only to lose steam in a few years. Companies bought into the false promise, encouraged by SIs, that packaged software available then would give them “best practices” and “reengineering in a box”. Many are still stuck with circa 1970 business processes and the on-going burden of those expensive systems. Both Brian and I worry something similar may be happening with today’s digital projects.

As Brian says “Today, digital isn’t simply a replacement for analog, spoken or other aspects of consumer or business activities. Digital in today’s business vernacular is about BIG change – not small changes at the margins.

Business leaders don’t need more encouragement to ‘go digital’. No, they need a path to define and achieve their transformational goals. That path comes in four phases: They survey the landscape and get quite educated on new technologies, competitive threats, new opportunities, etc. (SEE). Next, they synthesize this knowledge into a new to-be vision of the firm (THINK). Their next challenge is to make a frank assessment of how well their firm can complete this vision and what new resources or adjustments they will need to make (RECONCILE). Finally, these firms acquire the people, funding and more to make the change a reality (TRANSFORM). “

He is a firm believer that doing a software replacement with today’s cloud technologies is necessary, but usually inadequate for impactful digital projects. Most enterprise vendors have not kept up with new trillion dollar markets that have emerged in the last two decades, and do not have a big enough digital “vision”. Here are some examples of their myopia:

Products have became smarter with sensors and satellites and software. Who has largely driven this? Contract manufacturers like Foxconn, Flex and Jabil. Foxconn itself employs many times the staff large IT services firms do. Consumers have become increasingly digital and social. Who has largely benefitted from this? In sheer dollars, it is Google and Facebook. Cloud computing has taken off. Amazon and Microsoft have taken over infrastructure markets that were IBM and Oracle and HP’s to lose. Mobile computing took off. Who benefitted? Players like Apple, Samsung and Google. Industrie 4.0 and IOT took off to the benefit of large asset makers like GE and Siemens. Enterprise vendors have done little to verticalize. CIOs are doing their own modernization with micro-services. These vendors claim to be process experts – talk of “best practices”. Guess what, the next wave of process automation is being led by customers who are trying out drones and robots and RPA with specialist solutions – read Silicon Collar to see how little a role these vendors have played.

So, a bold digital strategy calls for assembling a broad team of vendors, not just pinning hopes on those who have done well in the past with back office processes or with IT infrastructure. 

It also helps to probe to see how vendors themselves are changing. Digital transformations at their customers significantly impacts their own product mix and business models - often traumatically. In the last few months I have had a chance to talk to two vendors – Cognizant and SAP - about their own digital transformations.

Rajeev Mehta, President of Cognizant, the outsourcing firm told me “We actually took our revenue guidance (to Wall Street) down in 2016. And we started seeing the impacts of our clients demanding, wanting to start looking at transformation. We started seeing our existing legacy footprint under threat."

That led to a revisit of their 2020 go-to-market strategy. That turned out to be fortuitous as an activist investor, Elliott Management started clamoring towards the end of 2016 to implement what they called a "Value Enhancement Plan".

I am working on a case study which describes the organizational, product mix and other changes at Cognizant, but one of the outcomes from their internal transformation is:

“Operating margins have improved steadily and the activist investor, Elliott Management divested their interest in Cognizant in May 2018, after a 50% jump in stock price just 18 months after they pushed for their reforms.”

I am working on a similar case study about the digital transformation at SAP. Christian Klein, COO and  member of the Executive Board of SAP SE, told me “we are tackling the whole value chain of SAP. We are looking end-to-end, so marketing, sales, finance, service and support, cloud operations, the cloud infrastructure. All of this has to work in harmony end-to-end. That's the first aspect of our transformation.  Next, we are infusing machine learning, IoT, predictive analytics, all this kind of new technology to also bring the intelligence into play to scale and to also get some synergies out of that.”

“It's about adapting business processes to the new digital age. It's about fixing the data architecture. Last, but not least, it's about change management, and taking the people with you because, at the end, everything that we do in the cloud, in system side impacts, in our case, our 90,000 employees and our 360,000 customers, so change management is a key aspect.”

Benni Blau on his staff shared with me details of ten projects they have internally worked on, and the success metrics they can show across marketing, sales, finance and other business areas.

There will be lot more on these and other case studies in Digital with Impact and SAP Nation 3.0 books in the next few months. 

Long and short. Don’t just do small d – digital. Do it with a broad team of vendors. And prioritize vendors who have been doing their own digital transformations and can actually show results from such efforts.