New IT Capabilities for Digital Transformation
In an age of disruption, organizations develop digital enterprise platforms to position themselves for success.
An IT department obviously plays a key role in enabling an organization’s digital transformation. Less obvious is how IT departments have to transform themselves first — a challenging process that involves fundamental changes to the way they think and operate.
Digital transformation ultimately is about rethinking the relationship between IT resources and business strategy, said Meredith Whalen, senior vice president with IDC, during a keynote address at CDW’s Summit on Modernizing IT Infrastructure for Digital Transformation. She noted that savvy organizations focus on three areas: experiential engagement, data monetization and digital business at scale.
Whalen identified Under Armour, a sports apparel company, as an organization whose digital transformation is well under way. Its February 2015 acquisitions of the social fitness mobile apps Endomondo and MyFitnessPal complemented its MapMyFitness and homegrown UA Record applications.
“They’ve invested almost $800 million in the health and fitness application space,” Whalen said. “As a result of that, they’ve now built out this community of 180 million users who are inputting information. So in real time, they can start to see how health and fitness trends are developing around the world.”
Under Armour is using that data to transform its products. “They know the average length of a run,” Whalen said. “They know how long their shoes hold out. They can start to do some really personalized, predictive and recommendation-oriented marketing to their customers. This is an example of how they’re transforming around the customer element.”
Transformation and Expansion
Heavy-equipment manufacturer Caterpillar is deep into another type of digital transformation, one that focuses on the Internet of Things (IoT). Every piece of Caterpillar equipment can feed data into a platform to enable capabilities such as identifying preventive maintenance needs before the equipment suffers a major breakdown.
For example, in March 2015, Caterpillar invested in Uptake, whose analytics platform helps customers monitor their equipment’s location, performance and efficiency. Uptake also gives Caterpillar’s platform strategy a bigger addressable market because it works with other manufacturers’ products as well.
“They want to be the platform that all of that information is running through,” Whalen said. “So they’re thinking about how do they evolve and reinvent themselves from a heavy-equipment manufacturer into an information-based company.”
BMW’s digital transformation also involves IoT-enabled platforms. For example, its i Ventures arm, which administers venture capital, has invested in mobile apps that help find and pay for parking spaces.
Why are so many businesses giving themselves digital makeovers? Because the alternative is becoming a dinosaur, said Joshua Fackrell, a consulting sales specialist with Hewlett Packard Enterprise, who also spoke at the summit. For major incumbents, digital transformation is a way to make themselves as nimble as a startup and thus capable of surviving and thriving amid big marketplace changes.
“Paleontologists know that following a mass extinction event, the smaller are better equipped to adapt and survive,” Fackrell said. “Think dinosaurs versus us tiny mammals. This is a very simple analogy for today’s enterprises. The companies that are started today tend to be smaller and more nimble. They are heavy on digital and light on analog — i.e., paper. They can move quickly and change with the times and adapt to the needs of their clientele.”
IDC has conducted surveys into why organizations engage in digital transformation. The company identified three major reasons, all of which cut across just about every industry. “Half said, ‘We’re trying to improve our customer experience, our customer engagement.’ That’s the Under Armour example,” Whalen said. “Forty-three percent said, ‘We’re trying to create competitive advantage.’ That’s what Caterpillar is looking at: ‘How do we create some information platform — we are the juggernaut there — that all the information flows through?’ The third one is trying to create new business models — where BMW is going.”
40%
The percentage of IT projects that by 2019 will create new digital services and revenue streams that monetize data
Source: Forbes, “Digital Transformation: Predictions For 2017,” November 2016
Avoiding Information Overload
The common denominator with all three objectives is that IT departments must transform themselves before they can help a broader organization transform.
Whalen identified IoT as an area where IT teams must take the first steps toward transformation. IT staff members have to get up to speed not only on the types of IoT sensors available, but also the options for analyzing and acting on that data. Otherwise, they can’t advise the rest of the organization about how to use artificial intelligence, machine learning, the cloud and other tools to translate data into actionable insights. This challenge is heightened by the massive amount of data flowing in.
“A yottabyte is a trillion terabytes, and we’re entering the yottabyte era with sensory data in IoT,” said Steen Graham, general manager for IoT ecosystem/channels with Intel, who also spoke at the summit. “There’s tremendous opportunity for us to learn how to monetize these new sensor-based data types and transform our businesses with that. But it’s really hard to do.”
For example, Graham said, a trucking company may want to use IoT solutions to minimize expenses and maximize customer satisfaction. The company can add sensors to drivetrain components on its vehicles to collect information about performance, as well as GPS to each truck and trailer to enable tracking. The IT department would play a key role by helping dispatchers and driver managers determine what to do with the data.
If a sensor shows, for instance, that a transmission’s temperature exceeds manufacturer thresholds, the system could be programmed to alert a dispatcher to get that truck into the shop before it suffers an expensive breakdown. But the system also should be tracking that transmission model. If overheating is common, the company can flag that in a quarterly report so purchasers can avoid buying trucks with that transmission. All of this helps the company save money through reduced maintenance.
Meanwhile, GPS enables real-time tracking, so dispatchers can update customers on delivery times. But that location information also needs to be stored and analyzed so that, for example, the company can identify roads where its trucks frequently drive below the speed limit. Those insights likely would enable it to find less-congested alternative routes, which minimize late shipments and maximize customer satisfaction. This also would save money because trucks aren’t wasting fuel sitting in traffic jams.
Mining Data for Diamonds
The trucking example also illustrates where data monetization comes into play. For years, businesses have amassed information about their customers to give themselves competitive advantages. Now they are increasingly looking for ways to monetize that data. For example, the trucking company could sell anonymized data about its vehicle speeds and routes to a city that can use it to determine where to expand roads.
Today, most businesses lack the ability to monetize data, according to IDC’s most recent CIO Sentiment Survey of 150 IT executives.
“At best, maybe a third of organizations said, ‘We have this capability,’” Whalen said. “It’s something you want to start to take action on.”
One way is to hire data scientists, but organizational leaders also must be able to tie data insights back to an organization’s strategies and goals.
“You can have the data scientist who is uncovering all these patterns,” Whalen said. “But you need someone sitting there who understands your business, who is able to say, ‘Aha! That is a diamond in the rough. If we took that, we could create something.’”
Goals for Digital Transformation
Experiential engagement represents a challenge for many organizations engaging in digital transformation. The concept goes beyond the omnichannel trend that began a few years ago, in which the goal was to provide customers with a consistent, seamless experience no matter which channels they used to interact with an organization. In retail, for example, omnichannel makes it easy for customers to browse, buy and get help whether they are using a store’s mobile app or website or shopping at a brick-and-mortar location.
“The new trend is this idea of experiential engagement,” said Meredith Whalen, senior vice president with research firm IDC. “The idea is that as a consumer, you’re living in both the digital and physical world. How do you move back and forth between those two?”
Customers often look through a physical retail store while simultaneously browsing the store’s website or app on a mobile device. But many retailers find themselves unable to maximize the benefits of this customer engagement.
“We listed all of these capabilities for providing that seamless engagement,” Whalen said. “How well are you able to enable innovation? How well are you able to enable agility, experimentation as it relates to the customer?”
“At best, 43 percent said, ‘Yeah, we have those capabilities.’ So the majority of organizations do not have the capabilities needed to really engage effectively with the customer.”
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