NEXT GENERATION IT STRATEGY - sapvod.edgesuite.netsapvod.edgesuite.net/btsummit/2014/pdfs/20120925... · Architecture Global Harmonization ERP roll-out Business Process Management

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METHODOLOGY | RESEARCH

In the beginning the question arises how an Information Technology (IT) strategy should be developed. – While IT strate-gies basically regulate the longer term deployment of information and commu-nication systems of a company, it is dif-ficult to define general rules for formu-lating them. In earlier times, companies usually followed a top-down approach: The organization strategy was derived from the corporate strategy, finally lead-ing to a suitable IT strategy. Ever since the e-Business euphoria emerged at the turn of the millennium, we have learned that it could also be the other way round: IT as a catalyst that sparks extensive changes in corporate strategy. Inspired by such experiences, the authors of this article developed the vision of the “Digi-tal Enterprise”; this term designates a company – irrespective of its history or its industry – whose IT plays a dominant role in the corporate strategy, i.e. where IT is used in internal and external opera-tions to create a competitive advantage. Therefore the IT strategy is the pivotal point in a Digital Enterprise and also in the transformation to becoming one.The aim of this article is to identify the opportunities for transforming business-es by taking advantage of new technolo-

NEXT GENERATION IT STRATEGYApproaching the Digital Enterprise

by Lars Gollenia, Axel Uhl and Claudio Giovanoli

gies like mobile connectivity, cloud com-puting, social media, and big data. First, we will outline the definition of strategies and the conditions under which IT strat-egies have previously been developed – and what future developments could look like. Then we will examine and illustrate the four above-mentioned technologies and highlight their potential for trans-formational innovation. This includes introducing the new “Digital Capability Framework” and a corresponding ma-turity model, which enable managers to identify the potential for optimization and to derive indications for the possible use of technology trends. We will then illustrate the technological possibilities for innovating business models and processes with examples from various industries. Finally, we will present an ex-ample of a methodology for developing the “next-generation IT strategy”.

Three Approaches for Developing IT StrategiesA “strategy” generally indicates the overall direction in which a company will move within approximately five years. This guideline should leverage and en-hance the strengths of a company to ensure the organization’s long-term sur-

Several trends, relating for example to technologies and society, lead to the de-mocratization of companies. This article shows how IT strategies – if built upon the convergence of those trends – enable a company to become a Digital Enterprise and to develop strong competitive advantages.

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vival. Figure 1 lists the questions that a strategy in general should provide an-swers for (Hammer 1988, 59-60). This also applies to IT strategy planning. Its purpose is to provide the applications as well as the information and communica-tion structures required to support the company’s business model in the best possible way. For this reason, the tasks of strategic IT management include en-terprise architecture planning (contain-ing application and data integration), long-term change management, project portfolio planning, and implementation planning.Figure 2 presents three possible ap-proaches for aligning IT and business strategies. As mentioned above, the classic procedure for developing an IT strategy is to derive it from the corpo-rate strategy and business organization. This is also referred to as “IT follows business”. However, if the technological

drivers are used as enablers to define a new business model and/or to enter new markets, the approach is called “IT as strategic enabler”. The business strategy and the business organization can then be derived from the IT strategy in an iterative process. An example of this is the e-Commerce company Ama-zon which was founded and organized in 1994 based on the strategy of using the internet as their distribution channel for books. “Innovate the IT” is the third ap-proach. It usually involves replacing an existing technology with a more modern one that is extra powerful in the sense of improved integration, higher perfor-mance, or greater security. One exam-ple is the replacement of host-based legacy systems in the banking sector with modern client/server architectures. Although the “Innovate the IT” approach generally has no or little impact on the business model, it must be coordinated

© 2012 SAP AG. All rights reserved. 1

Organization & Business Processes

Technology

Industry Drivers

Business Model

What are current and future industry and technological drivers? How do they affect the existing business model?

What are the technological requirements for the future business model? What are the weaknesses and opportunities of the existing technology

infrastructure? What adjustments need to be made?

What are the organizational consequences? What does the project portfolio look like? What do the cost / benefit analysis and the financial plan look like?

What is the vision for the digital enterprise? How should it position itself? What does the future IT strategy look like, and what are the action plans?

Developing a strategy provides answers to the following questions:

Fig. 1: Develop-ing a strategy provides answers to the essential questions (source: Adapted from Hammer 1988, 59-60)

Developing a strategy provides answers to the following questions:

- What are current and future industry and technological drivers?- How do they affect the existing business model?

- What is the vision for the digital enterprise? - How should it position itself?- What does the future IT strategy look like, and what are the action plans?

- What are the organizational consequences? - What does the project portfolio look like?-Whatdoesthecost/benefitanalysisandfinancialplanlooklike?

- What are the technological requirements for the future business model? - What are the weaknesses and opportunities of the existing technology infrastructure?- What adjustments need to be made?

AbstractEnterprises are strongly influenced by new trends like social media, cloud computing, mobile con-nectivity, and big data. Thus, beside business and IT issues, IT governance has to cope with the needs and requirements of stakeholders like customers and employees in order to establish com-petitive advantages through information technology. This article introduces a Digital Capability Framework to assess the potential for improvement and the readiness for transforming into a Digital Enterprise based on such trends, and it shows how to make most use of those opportunities.

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closely with the business departments in terms of risks, change management, etc.These three approaches ultimately rep-resent IT’s contribution to innovation in a company. The innovation potential is generally bigger with the second ap-proach, “IT as a strategic enabler”, which is why it is also referred to as “Innovate the business” (Brenner and Witte 2011, 45).Beyond the innovation potential, the benefit potential is clearly another in-teresting perspective. While the third approach, “Innovate IT”, leads predomi-nantly to efficiency gains in IT, the other two approaches lead to benefits primar-ily in terms of business. The second ap-proach called “IT as a strategic enabler” is expected to have the largest business benefit potential. In this case, IT is caus-

Fig. 3: The technological driver benefit matrix (source: Based on Ward and Daniel 2006)

ally responsible for the business benefits generated, such as increased revenue with a new business model. According to Ward and Daniel (2006, 88f.), the expected benefits can be fur-ther categorized using a portfolio method (see fig. 3). The authors suggest assess-ing IT projects by comparing their im-portance for the current business with their relevance for future business. This comparison results in four categories of information system investments:

− Strategic: Investments which are cru-cial to the success of the future busi-ness model. − High potential: Investments which could possibly be relevant in the fu-ture. − Key operational: Investments on which the organization relies in its day-to-day operations. − Support: Investments which are not critical, neither now nor in the future.

A well-conceived structuring helps a company to plan the focal points for fu-ture IT investments according to their an-ticipated business benefits; for details on the expected benefits see also the article “The Transformational CIO” in issue 2 of this journal, page 28.

The Evolution of IT Architectures The development of any strategy, includ-ing an IT strategy, must of course take into account what is happening in the ex-ternal environment in order not to miss


The Transformation Program Portfolio Matrix

Impo

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Importance to current business


However, IT can also be a strategic enabler for defining new business models. The business strategy and the business organization can then be derived from the IT strategy in an iterative process.

The classical approach to the IT strategy development is to derive it from the business strategy and business organization.

Innovate IT3

Existing technology is replaced by a more powerful and modern one in terms of improved integration, higher performance, and future security.

1 IT follows business 2 IT as strategic enabler

Text of approach 2

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Fig. 2: Three approaches for aligning IT strat-egy with business

http://360-bt.com/issue2_pdf/360_02_d_Methodology_Uhl_Gollenia_Muench_The_Transformational_CIO2.pdf



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opportunities and possible threats. This includes new technologies, manage-ment trends, industry drivers, and what the competitors do. A retrospective view over the last decades shows that the IT strategies chosen by companies seem to have followed three general strategic tendencies (see fig. 4).In the 1980s and 1990s, the main priority for companies was to integrate business processes, for example by implement-ing Enterprise Resource Planning (ERP) software for finance and controlling, lo-gistics, production, and human resourc-es. Achieving this integration by imple-menting integrated systems was hugely beneficial. The projects were mostly lo-cal implementations, though, following the decentralized make-up of companies which allowed their international subsid-iaries to operate more or less indepen-dently.As globalization increased, the attention shifted to efficiency improvements. The decentralized structures were suddenly perceived as “road blockers” and as ob-structing control and reporting process-es and as limiting transparency. Thus, companies started developing strategies which put emphasis on centralization. For IT, this meant developing consolida-


Local integrationClient-ServerArchitecture

GlobalHarmonizationERP roll-out

Business ProcessManagement (BPM) and Service Oriented Architecture (SOA)

Next Generation IT,becoming a Digital Enterprise

1980-90‘s 2000 2005 2012

Beschriftung rechte vertikale Achse weg

Axel RS 17.09.2012

Fig. 4: Evolution of IT architec-tures towards a Digital Enterprise (source: SAP)

tion strategies, i.e. to achieve global har-monization of processes, data, and sys-tems. From a technological perspective, the Internet offered an excellent base for the global harmonization projects, but they turned out to be complex, time-consuming and they cost a lot of money. The resulting IT systems on the one hand could ensure global transparency and a common quality standard in all countries. On the other hand, it was more difficult to take into account heterogeneous market requirements and different levels of mar-ket and organization maturity. Now every further system enhancement endeavor had to follow global processes and was therefore somewhat inflexible and cum-bersome. From a business perspective, IT was increasingly perceived as imped-ing the necessary adaptation to market dynamics and, consequently, as jeopar-dizing the success of a business. This re-sulted in an ever-dwindling acceptance of many IT departments.In around 2005, a new paradigm emerged which promised to be the savior in the di-lemma of global standardization versus dynamic adaptation: “service-oriented architecture” (SOA). Using predefined Web services, this architecture aimed at achieving the necessary flexibility and

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adaptability on the basis of the ERP sys-tem as the robust kernel. However, disil-lusionment soon followed the hype. Ser-vice-oriented architecture was simply not able to meet the inflated expectations: While simple Web services could quickly be integrated with ERP, offering some of the required flexibility, major changes to business scenarios were too complex for a Web services solution.Nowadays, while service-oriented ar-chitecture stays a relevant architecture component, a discernible trend away from centralized standards, and back to peripheral control, is emerging. The question arises: What paradigm comes next?

The Next Generation IT StrategyIn addition to the tendency back to de-centralization, new technological de-velopments and sociopolitical trends emerged, such as the individual need for freedom of expression. These develop-ments and trends can be described as democratization, where stakeholders gain more influence on business and IT. The interests of customers, business, and employees must be respected and taken into account more than before. In short, the technological and sociopo-litical trends influence the way the next generation of IT strategies should be built. In the following paragraphs we will therefore take up and briefly define the four technological developments mobile connectivity, cloud computing, social me-dia, and big data management; we will also show what opportunities and chal-lenges they present to IT.

“Mobile connectivity” is related to the usage of mobile devices and communi-cation technologies, like smartphones, notebooks, and mobile internet. Apart from opening up new channels to do busi-ness with customers, these technologies also enable employees to work from everywhere with a device. “Bring your own device” is another catch phrase in this context. Being accustomed to using trendy smartphones and tablets in their

private lives, modern employees also want to use their devices in the profes-sional context. Despite concerns about data security and the sometimes difficult integration into existing IT infrastructures (tablets and smartphones), as well as the laborious maintenance of many different device types, IT managers can no longer remain resistant to such wishes of their employees. If those wishes are not met, employees might become less produc-tive or move to a more open-minded em-ployer. Mobile connectivity also has the impact that IT and business are losing some control over hardware and data. Especially IT has to cope with a loss of authority concerning the selection of hardware, e.g. notebooks and mobile phones, to use within the company.

“Cloud computing” recently became the new way of delivering and charging for services and functionality. In principle, cloud computing can be defined as the application and use of IT products and services which are provided and main-tained through a network, for example, an intranet and/or the Internet. Instead of a completely internally driven IT envi-ronment, services will be provided by an external “cloud service provider”. Every-thing from e-mail, content storage, and applications (e.g. SAP SuccessFactors) to more complex computing and devel-opment platforms can now be accessed through a simple Web browser and de-livered through the cloud, eliminating the need for a local installation of end-user applications and high-powered client computers. For internal IT this means to give away some control over service areas, as it will no longer be provided through the IT department. For the busi-ness side cloud computing offers a high-er flexibility, as services can be ordered and delivered on shorter notice and paid as variable costs.

While there is no formal definition, “social media” can generally be understood as Internet-based applications that manage consumer-generated content. The social

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media contents include a variety of new sources of online information that are created, initiated, circulated, and used by consumers with the intent of educating one another about products, brands, ser-vices, and issues (Blackshaw and Naz-zaro 2006). Blackshaw (2006) describes the principle as “media impressions cre-ated by consumers, typically informed by relevant experience, and archived or shared online for easy access by other impressionable consumers”. The social media landscape includes a variety of ap-plications in the technical sense, such as social networking (e.g. LinkedIn), micro-blogging (e.g. Twitter), blogs, Wikis, and collaboration portals (e.g. MindMeister), which allow consumers to “post”, “tag”, “dig”, “blog”, and so on, on the Internet. For the most part, social media are out-side the sphere of influence of an IT de-partment but the business can use them to improve various processes. Social media open up the possibility of setting up new ways of corporate communica-tions with employees, customers and perhaps even suppliers. But it also offers the individual a chance to interact with all aspects of life in one place – from fam-


IT-Govern-

ance

IT-Govern-

ance

IT-Govern-

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IT-Govern-

anceIT B

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C

IT B

C

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Evolution of IT-Governance

Local Business Integration through

ERP, CRM

GlobalIT Standardization IT Agility Digital Enterprise

Local ERP, SCM, CRM, etc Global Systems SOA & BPMBalanced Governance:

IT – Business –Employees – Customer

Strong IT GovernanceBusiness Engineering

IT B

C

E

IT B

C

E

Customer

Employee

IT

Business

Legend:BPM: Business Process Management

SCM: Supply Chain ManagementSOA: Service Oriented Architecture

CRM: Customer Relationship ManagementERP: Enterprise Resource Planning

Digital Enterprise als 4. Titel

Axel RS 17.09.2012

ily, friends and neighbors to colleagues and customers – thus it diminishes the barriers between the employees’ working lives and their private lives.

The term “big data” denotes the handling and analyzing of large amounts of data, i.e. exceeding one terabyte. Processing and analyzing it means to derive informa-tion and new knowledge from it. Technol-ogies which facilitate the management of big data reinforce the role of IT because existing data analyses can be performed much more quickly, which, in turn, helps the business side perform by offering in-novation potential for the business model or processes. For example Business In-telligence (BI) reports can be enriched with an additional data layer to recognize hidden patterns – which can be used e.g. to create additional customer centric sales activities.

The Digital Capability Framework and Maturity ModelOver time, the distribution of influence of the key stakeholders on IT architec-tures changed repeatedly (see fig. 5): In the phase of local business integration,

Fig. 5: Evolution of IT governance and the influence of the four stake-holders

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IT and business had a similar share of influence; afterwards, in the centraliza-tion and standardization phase, IT grew stronger; then IT was forced by business to become more agile, i.e. to quickly adapt to new business requirements. Nowadays, new technologies and trends are driving IT towards a more holistic way of governing. To govern IT means to take into account the requirements of newly important stakeholders like cus-tomers and employees.To embrace these changes in the gov-ernance of IT strategies, SAP Busi-ness Transformation Services and the Business Transformation Academy jointly developed the “Digital Capability Framework” (DCF) which is visualized in figure 6. The aim of this framework is to help company managers analyze the potential of their company in order to leverage technical innovations and to reach their stakeholders. The term “Digital Transformation” used in the DCF means the transformation towards be-coming a Digital Enterprise by improv-ing one’s digital capabilities. The “Digital Capability Framework” consists of six

dimensions: Two “Digital Transformation Enabler” dimensions and four “Digital Transformation Goal” dimensions. We will start by outlining the “Digital Transformation Goals”:

− Customer Centricity: This goal in-cludes a strong focus on customer value and the best possible custom-er interaction with the business, for example, through digital marketing and intuitive “from-where-you-are” access to important information or processes. − Effective Knowledge Worker: This in-volves, for example, cross-functional and cross-country cooperation, a common culture with accepted val-ues and effective knowledge shar-ing, mutual learning, high employee productivity as well as decentralized decision-making processes. − Operational Excellence: This means bringing business processes to an industrialized level, avoiding inter-faces or integration gaps wherever possible, and having full transpar-ency regarding key service perfor-mance. It involves collaboration not

Fig. 6: The Digital Capability Frame-work (DCF)


Digital Enterprise Capability Model

DIGITAL ENTERPRISE Forward-looking,

customer-centric High speed of

transactions andservice

Short time-to-market, anticipating fast changes

Innovative and agile High support for

decision-making

Digital Enterprise MODELDigital Transformation ENABLERS Digital Transformation GOALS

1. Transformation Capability0 4321

2. Innovation Capability0 4321

3. Customer Centricity0 4321

4. Effective Knowledge Worker0 4321

5. Operational Excellence0 4321

6. IT Excellence0 4321

Text of DE

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only within the company but also with external partners and suppliers. − IT Excellence: Breakthrough tech-nologies which enhance the IT ex-cellence include real-time insight into important company data, stabil-ity, digital security, agility, and dy-namic plug-and-play functionality.

The framework’s two “Digital Transfor-mation Enabler” dimensions represent the underlying capabilities which have to reach a certain level before it makes sense to tackle a Digital Transformation.

− Transformation Capability: This is known as “Business Transformation Management”. It means the ability of

an organization to constantly reinvent itself and successfully turn innovative ideas into reality. − Innovation Capability: Successfully achieving continuous and long-term innovation presupposes certain con-ditions, including an effective inno-vation process, involving customers or thought leaders into the process, an open-minded company culture as well as an appropriate working envi-ronment.

An initial assessment of the “as-is” situ-ation of a company in each of the six di-mensions helps:

− to provide support when defining the best IT strategy approach (see fig. 2)

Fig. 7: The Digital Capability Maturity Model in-cluding an excerpt of the maturity level definitions of the dimension Customer Centric-ity (at the top)


Digital Capability Maturity ConceptsCustomer Centricity

Level 4Level 3

Level 2Level 1Level 0

Deficient Basic Defined Advanced Optimized

Systems

Silo basedMature, unconnected

systems, e.g. collection and billing Example: Visa,

MasterCard, Mortgage

New platforms and collection systems

Customer relationship systems

Real-time analytics Mobile apps and advertising Intuitive on the go

access

Customer Relationship

Product focused Customer relationship managers are identified and interact on a formal basis

Customer relationship management Customer Interaction

Center

Work with customer to solve immediate and long term issues Systematic customer

experience collection

Customer co-innovation

Advertising / Marketing

Departmental cost reduction

Product metrics Shared Services Risk-based operations

Online campaigns Profitability focus on

segments Channel integration Customer segmentation

Intuitive on the go access Customer profiling Personalized offering

and pricing Optimal balance

between complexity and individuality

Digital marketing Customer profiling Bundles combining

products, services, and knowledge

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− to derive measures for optimizing the IT strategy − to develop a road map for implement-ing the IT strategy − to monitor the progress of imple-menting the IT strategy − to provide internal and external benchmarking.

To support such an initial evaluation, the authors present the “Digital Capability Maturity Model” (see fig. 7) which com-plements the “Digital Capability Frame-work”. A manager can determine the “as-is”-, but also the “to-be” state (which can be achieved by using a new technology) on a scale of 0 to 4 with the help of this “Digital Capability Maturity Model”.

To sum it up, the “Digital Capability Framework” and the associated “Maturi-ty Level Analysis” are instruments to an-alyze the situation and potential in order to transform a company stepwise into a Digital Enterprise. In order to find appro-priate transformation measures, a clear understanding of the driver technologies and the related optimizing potential for a future business model or individual processes is needed. In the following chapters, the four above-mentioned key technologies for future IT strategies (see

fig. 8) are explained and illustrated in more detail with use cases, along with their potential to contribute to the four digital transformation goals and to inno-vation.

Mobile ConnectivityIn the employee context, connectivity means the ability to have flexible access to the company or external data neces-sary for productivity. In the past, data could usually only be accessed from with-in the company premises (“internal ac-cess”). With the increasing prevalence of Web technologies, employees now have access to company data via the Internet (“anywhere”), which facilitates e.g. work from home or at a customer’s site. Smart mobile devices offer further opportunities to optimize many business processes (“any service, anywhere, anyhow”). The enormous popularity growth of smart-phones is unparalleled. For example, the IDC forecast for 2010 underestimated the actual sales figures by approximately 50% (IDC 2008). Even now, in 2012, ap-parently more smartphones are sold than PCs. Mobile connectivity is undoubtedly becoming an important building block in any Digital Enterprise. The following ex-amples from different industries illustrate possible mobile business processes:


Convergence of Four Key Technology Driver

Social MediaConnectivity/ Mobility

• Smartphones outsell PCs

• By 2013, mobile devices will be the primary method of internet access worldwide

Big Data/ HANA

• Data volume for enterprise applications is doubling every 18 months

• HANA - in-memory database technology

Cloud

• Any access, any workload anywhere

• ~80% of new software in 2011 was available as cloud services

• Hybrid cloud solutions drive Total Cost ofOperations (TCO) and integration

• There will be 1.43 billion social network users in 2012

• In 2012, 63.2% of internet users will visit a social network at least once a month

Fig. 8: The four key technology trends (source: SAP)

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Two years ago, a pilot project was launched at Basel University Hospital which made it possible to take pictures of patients’ injuries using mobile devices and store them directly in the patient’s electronic medical records. If required, these images could be sent immediately to the senior physician’s smartphone, en-abling him to comment on them remotely or discuss them with the colleagues of the admissions ward. This reduces the legwork of specialists, the response times, and the consumption of paper, and the images are available for convenient viewing on mobile devices during subse-quent ward rounds.The Charité hospital in Berlin took things one step further. In a project with SAP, an “Electronical Medical Report Plat-form” was established to push the hospi-tal’s mobile strategy and to enhance ef-ficiency. The platform ensures a secure data access to the internal IT system and the delivery of information to mobile devices. Thus, a doctor can do his ward round with a tablet PC; while visiting each patient, the physician can access the individual medical record including information about vital signs, allergies, the medical history, surgery documents, X-Ray pictures, or medication plans. This makes the interaction with other medical employees easier, too, as all information and documents are available whenever needed. Furthermore, the platform also manages mobile devices, apps, and the associated contracts.Also the retail industry relies heavily on mobile connectivity. Examples are mo-bile payment processes in combination with near field communication (see also article on page 6), or the area of customer relationship management. One scenario could be as follows: Shoppers record the items with scanners on the shopping trol-ley; the data is then transmitted wirelessly to the cash desk. The cash desk transfers the data to the customer’s mobile device and debits the amount. Also marketing information from ERP systems, such as special offers, could be sent to custom-ers any time via a mobile app.

Customers sometimes use a neutral mobile app to compare prices of differ-ent retailers before deciding where to shop. Another potential, which has not yet been implemented, would involve managing customer loyalty programs completely via mobile apps instead of regularly shipping physical membership cards and account status updates by post.An impressive example is the innova-tion made by the “Tokio Marine Insur-ance”. This financial services company developed a platform to offer location-based products to its travelling custom-ers: As soon as the mobile app on the customer’s mobile device detects that the owner has reached a location where special insurance offers could be provid-ed (e.g. ski slopes, airport, golf course), the client automatically receives a suit-able insurance offer. A first promotion of the new app resulted in a 300% sales increase; mainly customers in their 30s and 40s decided to procure insurance on the same day – or in the evening of the day before – of the risky activity. From these examples it can be concluded that we are still far from appreciating the full potential of mobile apps.

Cloud ComputingAs mentioned earlier, cloud computing is currently a popular way of provisioning IT services. The cloud provider updates, manages, and maintains the services, so no additional financial or person-nel resources of the client are needed, since only costs which are determined by the effective use are charged (“pay-as-you-go”). To be more precise, the use of cloud services forms a paradigm shift from fixed to variable costs. High initial or investment costs are not required as no additional infrastructure – for exam-ple hardware, software, networks, and so on – has to be set up and maintained. In financial terms: The switch from Capi-tal expenditure (CAPEX) to Operational expenditure (OPEX) has a positive in-fluence on the financial resources and liquidity of a company; Capital expendi-

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tures are funds used by a company to acquire or upgrade assets like IT equip-ment. In contrast, OPEX occur as a re-sult of executing daily business opera-tions.Next to the benefits, there are of course also drawbacks. Data security is a fre-quently mentioned risk in the context of cloud services. As the data is no longer physically stored in and controlled by the company’s own data center, misuse, and loss of data have to be considered already when evaluating the service. Outsourcing data to a cloud is also a matter of trust. And it certainly comes with a certain political dimension, where political stability and data protection regulations are relevant. For example a country like Switzerland is in an ex-cellent position to offer attractive cloud services in the future, perhaps soon as-suming a role similar to the one in the banking sector.An interesting example of cloud services is the use of finance and controlling sys-tems in combination with a wide range of services. Suppliers of tax consulting and auditing services might provide fi-nance systems via cloud, meaning that the client enters bookings directly into the tax consultant’s or auditor’s own system. This simplifies the tax consulting or audit-ing processes and saves the client the expense of installing relevant software. A further example is associated with the

usage of Business Intelligence (BI) soft-ware and tools. If a company does not have a permanent need for using BI, it can obtain the needed service on de-mand from a cloud, use it, and terminate it afterwards. This can save a lot of costs because no maintenance and CPU run-time is needed. The BI services are only running when needed.

Social MediaSocial media platforms and technolo-gies, like Facebook, LinkedIn, and Twit-ter, play a huge role in further influencing companies. Besides socializing, social networks enable people, consumers, even activists, to join forces and exert considerable influence on the image and success of brands and companies. Con-sequently, IT strategies must now take into account those stakeholder groups and the relevant social media much more than they had to previously. Social media offer new and innovative ways to pro-actively communicate with various stakeholders, including employ-ees, suppliers, partners, and custom-ers, even across industry borders. Many companies have long since been active on social networks like Facebook or LinkedIn in order to disseminate informa-tion about the company or its products, using all available media, such as video streams, blogs, and discussion forums. Some companies even use social media interactively for innovation processes, involving the customers (perhaps also thought leaders) more in the develop-ment of new products and services. As an example of such “co-creation”, the insurance company Direct Line set up an “Ideas lab” to engage existing and potential customers in the development of a new app. During a four-week cam-paign using a new iPhone app, they asked Facebook users to pick features and choose the layout in order to deter-mine the best features and functionality. Several hundred users participated. The result was a new “On the Road” app, in-cluding a route planner and a “Help for accidents and claims” tool.

Key Learnings

► New technologies like big data, social media, cloud computing, or the ubiquity of mobile devices are rapidly increasing the requirements and influence of customers and employees concerning business IT.

► Strong transformation and innovation capabilities are crucial for becoming a Digital Enterprise.

► The Digital Capability Framework and its corresponding instrument Digital Capability Maturity Model are powerful tools to support management in analyzing the potential of technical innovations for their company.

► A six-step approach is recommended to create a transfor-mation plan towards a Digital Enterprise.

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Besides evaluating design or product al-ternatives, social networks can also be used for trend research. In the fashion business so-called “trend scouts” use social media platforms like Facebook or Twitter streams in order to spot new trends. The most promising trends are then taken up, produced, and offered as new and stylish fashion in the shops.The finance sector in particular uses so-cial networks in an attempt to regain lost confidence. Transparent and easy-to-un-derstand financial service products are presented and explained on social plat-forms. At the same time, consumers can provide ratings and add their own com-ments, which sometimes unveil risks that the company had not thought of.Some companies even develop entirely new business models based on social networks: Friendsurance, in co-opera-tion with Facebook, developed cheap insurance products relating to liability, legal protection, and smartphones. In the event of damage, minor claims are settled within the network itself (“shared risk”); the insurer is liable only for larger claims. The insurance premium is deter-mined depending on the actual damage incurred. This model is based on the

sharing of risk between the customer group and the insurer. As a result, a no-ticeable drop in insurance fraud, a posi-tive risk selection, as well as lower mar-keting and administration costs could be reported.Throughout the world consumers join forces with the help of social net-works, gaining immense power to ei-ther strengthen or destroy a company’s brand and image. This situation pushes certain companies to pro-actively man-age their image, like e.g. Lufthansa and Deutsche Bahn. The two companies an-alyze social media streams like Twitter in order to find out how customers react in the case of transportation delays and to derive proper response actions. They aim at avoiding comments which could have a negative impact on their image and at improving the communication to-wards customers.Table 1 gives an overview of different social media applications across differ-ent business functions.

Big DataAs one can easily recognize from the chapters on social media and cloud, the growth in the volume of data in terms

Business Function Application of Social Networks

Product development / Innovation ► Solicit ideas, opinions, and feedback to adapt existing and/

or develop new products and services.

Supply Relationship Management (SRM)

► Add a social layer to supply chain management ► Hire “virtual” contractors ► Build purchasing coalitions

Service delivery

► Enhance collaboration on projects and service engage-ments

► Co-create and share knowledge ► Collaborate on documentation

Customer Relationship Management (CRM)

► Listen to customer concerns ► Transfer support tasks to community ► Spread best practices ► Support and solve problems

Human Resources

► Promote company among potential employees ► Gather information on job candidates ► Train employees ► Tap into pool of “passive” job seekers through professional

social networks

Table 1: The perceived value of social networks along the value chain (source: Adapted from Cisco 2012)

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of private use and in the business field is a trend that will continue. Processing and analyzing such data requires know-how from various areas of expertise: statistical methods from mathematics, the know-how for interpreting the sta-tistics from finance and marketing, and knowledge about storing, administering, and using the data from IT. The six most important areas of application are listed below:

− Data integration: When data is inte-grated from different systems – e.g. existing customer information is supplemented by other sources of information –, cross-system analy-ses can be performed.

− Pattern recognition: Analysis meth-ods recognize patterns in datasets and can discover hitherto unknown dependencies between parameters, for example, when identifying credit card fraud or tax evasion (Ortega 2012). − Experimentation: The collected data allows companies to carry out ex-periments to verify hypotheses, e.g. about customer behavior. − Segmentation: Segmenting custom-er data is a marketing approach and provides the base to develop cus-tomized products and services. − Monitoring: Monitoring means ob-serving complex products or pro-

Mobile Connectivity Cloud Computing Social Media Big Data

Customer Centricity

► New mobile business channels to sell products

► Location-based specific offerings ► Enhanced customer experience

(shorter support response time)

► One standardized platform offering different channels of access between customers and company

► More agility to meet customer needs

► Customer participation in product development through online surveys and the exchange of ideas

► Faster support service response to customer

► Offerings can be customized depend-ing on sentiment analysis or social media analytics and are proposed directly to the client

► Faster analysis of customer prefer-ences and requirements.

► Quicker provision of products cus-tomized according to customers’ needs.

► Hidden patterns in customer be-havior are more likely to be detect-ed, analyzed, and used for market-ing purposes

Effective Knowledge

Worker

► Working independent of location and hardware

► Freedom of choice concerning working devices for employees

► Enhanced communication and col-laboration between virtual teams

► Higher availability of data from every-where thanks to a “centralized” cloud data storage

► Improved communication and coher-ence between members of virtual teams with the exchange and stor-age of information on social media platforms

► Improved client profiling allows more effective marketing activities

► More accurate knowledge manage-ment, thus employees can benefit from a better data and information retrieval

Operational Excellence

► Support for standardizing process-es

► More efficient cross-channel inter-action with third parties

► Mobile collaboration opportunities

► Faster implementation of new opera-tional requirements

► End-to-end monitoring to improve processes and services

► New opportunities for an enhanced and more personal collaboration with partners and suppliers

► Real-time analysis of big data amounts

► Faster variation detection in pro-duction or other processes

► Reports are created faster, in better quality and with higher accuracy

IT Excellence

► Increased security and standard-ization requirements

► Managing different platforms and technologies

► Less support activities

► Increased IT agility to respond faster to new business requirements

► Reduced time-to-market for IT ser-vices

► More focus on innovation projects

► New and higher security require-ments

► Faster solution delivery to internal clients

► Improved support activities

► Need for increased computational power and corresponding invest-ments

► Analysis of un- and semi-structured data

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cesses in order to identify problems and develop corrective measures in a short space of time. This applies to a vast field of possibilities: from com-plex production processes and IT to monitoring patients with heart prob-lems or diabetes. Examples of moni-toring are recommendation systems, which facilitate the cross-selling of new products to existing customers, or the placement of advertising on social networks such as Facebook and LinkedIn. − Expert systems: Based on e.g. im-proved reasoning procedures, expert systems can provide more semanti-cally accurate results on queries.

Whereas main memory prices dropped during the last years, data is no longer written directly to the database but stored in the CPU’s cache. By replacing disk storage with main memory storage, arith-metic computations can be accelerated enormously. SAP HANA is such a game-changing, real-time platform for analytics and applications. While simplifying the IT stack, it provides powerful features, like significant processing speed, the ability to handle big data, predictive capabili-ties, and text mining capabilities. When combined with artificial intelligence, such technologies can lead to totally new ap-plications concerning processes that have so far been largely reserved for

Mobile Connectivity Cloud Computing Social Media Big Data

Customer Centricity

► New mobile business channels to sell products

► Location-based specific offerings ► Enhanced customer experience

(shorter support response time)

► One standardized platform offering different channels of access between customers and company

► More agility to meet customer needs

► Customer participation in product development through online surveys and the exchange of ideas

► Faster support service response to customer

► Offerings can be customized depend-ing on sentiment analysis or social media analytics and are proposed directly to the client

► Faster analysis of customer prefer-ences and requirements.

► Quicker provision of products cus-tomized according to customers’ needs.

► Hidden patterns in customer be-havior are more likely to be detect-ed, analyzed, and used for market-ing purposes

Effective Knowledge

Worker

► Working independent of location and hardware

► Freedom of choice concerning working devices for employees

► Enhanced communication and col-laboration between virtual teams

► Higher availability of data from every-where thanks to a “centralized” cloud data storage

► Improved communication and coher-ence between members of virtual teams with the exchange and stor-age of information on social media platforms

► Improved client profiling allows more effective marketing activities

► More accurate knowledge manage-ment, thus employees can benefit from a better data and information retrieval

Operational Excellence

► Support for standardizing process-es

► More efficient cross-channel inter-action with third parties

► Mobile collaboration opportunities

► Faster implementation of new opera-tional requirements

► End-to-end monitoring to improve processes and services

► New opportunities for an enhanced and more personal collaboration with partners and suppliers

► Real-time analysis of big data amounts

► Faster variation detection in pro-duction or other processes

► Reports are created faster, in better quality and with higher accuracy

IT Excellence

► Increased security and standard-ization requirements

► Managing different platforms and technologies

► Less support activities

► Increased IT agility to respond faster to new business requirements

► Reduced time-to-market for IT ser-vices

► More focus on innovation projects

► New and higher security require-ments

► Faster solution delivery to internal clients

► Improved support activities

► Need for increased computational power and corresponding invest-ments

► Analysis of un- and semi-structured data

Table 2: Potential contributions (and challenges) of the four key technolo-gies (in columns) to the four Digital Transformation Goals (in rows)

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logic or the experience of experts. One possible application example would be limousine services in major cities; thanks to growing transportation demand, this is an attractive business model, but so far it has been limited by the availability of qualified dispatchers for the control cen-ters. These coordinators decide which driver is to be sent on which assignment, based on clearly defined decision param-eters. They take into account information like the limousines’ locations (provided by the Global Positioning System, GPS), the collection and drop-off points, traffic bottlenecks, and other pending assign-ments. Thanks to big data analysis tech-nology, all of this information can now be evaluated in real time and the assign-ments managed automatically. Further possible applications for the combination of Artificial Intelligence and real-time data can be found in the bank-ing sector when trading currencies or se-curities, or in the health sector in optimiz-ing patient care.

The Convergence of Technological DriversAfter the discussion of key use cases as-sociated with the four key technologies, figure 9 and table 2 give an overview of how these technologies can help im-prove the capabilities concerning the four Digital Transformation Goals Customer Centricity, Effective Knowledge Worker, Operational and IT Excellence. Nonethe-less, it is not the individual application of

each technology that opens up the most interesting possibilities for companies, but their convergence. The combination of the first two, resulting in the “mobile cloud”, is already a reality when mobile applications access and display central-ized cloud data on a mobile device, such as the iPhone downloading e-mails from the iCloud. Further services already ac-cessible via Web browser or lightweight application are social networks, online shopping, online gaming, and video con-ferencing. Other mobile cloud services will follow, and social networks will, no doubt, play a significant opinion-forming role in electing the best and most suc-cessful services. The volume of gener-ated data will continue to increase glob-ally. Big data management with real-time analytic tools will help to use this data to develop new and customized products and services or entirely new “real-time” services.There is no way around it. The future of IT definitely looks “smart”, “cloudy”, “social”, and “real”. To stay competitive, a com-pany ought to set to work on becoming a Digital Enterprise, starting now with elab-orating the suitable modern IT strategy.To properly plan the use of such new ap-proaches, technologies, and their com-bination, a few things have to be taken into account. The opportunities and risks have to be identified and assessed. Furthermore, enterprises should check their internal possibilities, feasibilities, strengths, and weaknesses; e.g. is the

Fig. 9: Example of how the four technologies can be mapped to the Digital Transfor-mation Goals

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Step 1: Digital Capability Assessment Step 2: Use Cases and mapping to DCM Step 3: Benefit Analysis

Step 4: Business Priority Assessment Step 5: Strategic Roadmap Step 6: Business Case Development

The Six Steps to a Digital Enterprise Transformation Plan

company ready for the implementation of such technologies, and which efforts have to be made to ensure readiness and a reasonable return on investment?The next and last part of this article will show how to integrate the Digital Capabil-ity Framework and the maturity analysis into a possible approach towards estab-lishing a Digital Enterprise Strategy.

Six Steps Towards a Digital EnterpriseSAP BTS and the BTA jointly devised a structured six-step approach (see fig.10) to developing a company-specific IT

strategy in order to become a Digital En-terprise. The key elements of this strat-egy are as follows:

1. The Digital Capability Maturity Model2. The Use Case Development 3. The Benefit Analysis4. The Assessment of Transformation ef-

fort and Business Priority5. The Development of the Strategic

Roadmap6. The Business Case Development

As a first step, the company’s capabili-ties with regard to becoming a Digital

Fig. 10: Overview of the six steps for the transformation towards a Digital Enterprise

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Enterprise need to be evaluated along the DCF (see also fig. 6). In the four goal dimensions, the current maturity level must be assessed, and possible “im-provement areas” identified. At the same time, the company’s ability to innovate and transform, i.e. the Digital Transfor-mation enablers, are analyzed by carry-ing out structured interviews with the re-sponsible managers of the business and IT departments.Based on these results, digital use cases for the new technologies and for selected process areas are developed (step 2 in figure 10). This usually results in a large number of possible optimizations.The further steps number 3 to 6 (see fig. 10) resemble well-known manage-ment methods: In order to evaluate the alternatives, one performs a benefit anal-ysis (step 3; see also fig. 3). The second dimension to check pertains to the es-timated transformation efforts and costs related to each use case. Based on the two estimates, a portfolio can be drawn (step 4). The most promising cases are obviously the ones that are easy to imple-ment while creating strategic benefits.To implement the top-priority projects, a strategic road map is then developed (step 5) while especially bearing the company’s current ability to transform in mind. BTM2 is recommended as the implementation method. As sixth and last step, a business case needs to be drafted in order to justify the investments. This includes calculating one-time and ongoing costs, describ-ing the benefits and associated risks as well as the input of technical and human change. The results are then visualized using a business benefit network.

SummaryAs we have seen, technology is becoming a very important key driver for transfor-mation. Mobile connectivity, cloud com-puting, social networks, and big data will continue to change the way we work and live. Key stakeholders – customers, em-ployees, suppliers, and business require-ments – are increasingly challenging and

influencing IT. Companies have to seize the opportunities and combine the huge potential of such technologies in order to start creating competitive advantages and become a Digital Enterprise.For the transformation path it is important to understand the innovation potential of these drivers and to assess and improve the company’s initial ability to transform and innovate. To support these tasks, we introduced the Digital Capability Frame-work as the starting point of a six-step procedure. Based on this, company-specific use cases must be developed. A benefit analysis, priority assessments, roadmaps and business cases light man-agers the way to creating a competitive advantage and to ensuring a success-ful business transformation. Overall, becoming a Digital Enterprise not only means to use fancy technologies, but it rather describes the successful handling of technological possibilities and how to use them strategically to reach a power-ful competitive position.

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Service

AUTHORSLars Gollenia is head of Business Transformation Services (BTS), the global man-agement consultancy organization of SAP. Previously, Lars held various management positions in the management consulting sector. Prior to his current role he was responsible for Business Consulting for EMEA. Lars has a graduate degree in Busi-ness Administration from the Friedrich-Schiller University of Jena, Germany, and he studied strategic and international management at the Harvard University, Boston.lars.gollenia[at]sap.com

Prof. Dr. Axel Uhl is head of the Business Transformation Academy at SAP. He has been a professor at the University of Applied Sciences and Arts Northwestern Swit-zerland (FHNW) since 2009. Axel Uhl received his doctorate in economics and his master in business information systems. He started his career at Allianz and worked for DaimlerChrysler IT Services, KPMG, and Novartis. His main areas of research are sustainability and IT, leadership, and business transformation management.a.uhl[at]sap.com

Claudio Giovanoli is research assistant at the Competence Center for Cloud Com-puting at the University of Applied Sciences and Arts Northwestern Switzerland (FHNW). Previously Claudio was working as Project Manager for IBM Switzerland. His interests are mainly the applicability of cloud computing and its workload areas, but also technology management. Claudio holds a Bachelor of Science in Business IT and a Master of Science in Business Information Systems.claudio.giovanoli[at]fhnw.ch

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► Blackshaw, P. (2006). The consumer-generated surveillance culture. Available from: http://www.clickz.com/clickz/column/1706163/the-consumer-controlled-surveillance-culture [Accessed 20.03.2012].

► Blackshaw, P., Nazzaro, M. (2006). Word-of-Mouth in the Age of the Web-Fortified Consumer. Consumer Generated Media 101, BuzzMetrics. Available from: http://www.nielsen-online.com/down-loads/us/buzz/nbzm_wp_CGM101.pdf [Accessed 20.03.2012].

► Brenner, W., Witte, C. (2011). Business Innovation: CIOs im Wettbewerb der Ideen, Frankfurt am Main: Frankfurter Allgemeine Buch.

► Cisco (2010). Social Media Cultivate Collaboration and Innovation. White Paper. Available from: http://www.cisco.com/en/US/services/ps2961/ps2664/CiscoServicesSocialMediaWhitePaper.pdf [Accessed 01.07.2012].

► Hammer, R. (1988). Strategische Planung und Frühaufklärung. München/Wien: Oldenbourg. ► Ortega, I. (2012). Big Data: Wissen als Wettbewerbsvorteil. Computerworld.ch. Available from:

http://www.computerworld.ch/businesspraxis/artikel/big-data-wissen-als-wettbewerbsvorteil-60002/ [Accessed 20.06.2012].

► Uhl, A., Gollenia, L.A., Muench, U. (2012). The Transformational CIO. 360 degrees – the Busi-ness Transformation Journal, no. 2, Oct 2011, 28-35. Available from: http://www.360-bt.com/issue2/flipviewerxpress.html [Accessed 20.06.2012].

► Ward, J., Daniel, E. (2006). Benefits Management: Delivering Value from IS and IT Investments. Chichester: Wiley & Sons, 88f.

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