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Today's pressure to “digitally transform” is building as established companies look to thwart threats from more aggressive competitors and new entrants in the market.
In the two well-publicized industries of taxi cabs and hospitality, Uber and Airbnb have wooed traditional customers away from incumbents, changing their respective industries forever and in some cases creating a new class of customers. These purely digital companies have short-circuited the slow and inefficient processes used by traditional companies and have provided more convenient and efficient services for customers.
We see this same pattern occurring everywhere, with real-time networks displacing the vastly more limited and disconnected alternatives. To take a very different example, Zwift, the online multiplayer cycling network, burst onto the scene and quickly dominated the market. Shortly after Zwift’s launch, a competitor shut down with its founder stating, “Zwift has sucked all the air out of the room.” This is the kind of rapid and devastating effect a digitally savvy company can have on stale incumbents in the market. But what constitutes a “digital transformation”?
Digital Transformation Defined
A digital transformation is not about incremental improvements achieved through kaizen or Lean practices or widespread cost cutting. It’s also not simply a new initiative around exploring or implementing a contemporary technology like artificial intelligence (AI), the internet of things (IoT) or blockchain. A digital transformation is a re-evaluation of the way a company does business in order to provide more value to customers economically, while achieving a much more integrated, focused, and agile footprint that is responsive to the market. It is envisioned and overseen by company leadership, injected into the culture, implemented at every level company-wide, and enabled by digital technology.
While digital transformation includes looking at new technologies and incorporating them when they support the strategy, it is as much about shedding old ways of thinking, non-productive processes, or even eliminating product lines, divisions, and subsidiaries when they don’t align with the new strategy. Sean Connelly, president and CEO of Conagra Brands, and leader of their successful digital transformation, slashed Conagra from an $18bn company to a highly focused $8bn company. According to PWC’s strategy + business magazine, Conagra Brands realized $300m in annual savings, and achieved over 40 percent growth in total shareholder return in just two years after embarking on the initiative. But not all transformations are this successful.
According to a Wipro survey, over half of senior executives say their companies are failing at 50 percent of their strategies, and 20 percent say their company’s digital transformation is a waste of time. Clearly, a digital transformation is not a simple matter, and there are countless reasons they can fall flat. One of the big reasons is the “digital” aspect of transformation. As an all-encompassing term, “digital” incorporates many different technologies that can quickly distract the focus from the important aspects and from creating the fundamental building blocks needed for a successful transformation.
Ruben Mancha, assistant professor of information systems at Babson College recently said, “Many CIOs who embrace shiny new technologies, including IoT, chatbots and other [AI] or machine learning [ML] tools, implement them piecemeal rather than building them into a cohesive platform."
A Foundation for Transformation
With the many possibilities of digital, it is doubly important to focus on, and establish, the cohesive platform Mancha mentions rather than chasing some of the useful but more peripheral digital technologies. Companies can consider the various technologies at a later time, and evaluate which will best support the company’s strategy and enhance value for the customer. They will need to carefully consider how each technology will connect and interact with other technologies to provide context, reinforce value, or supply new value.
But without a cohesive strategy and platform to integrate it all, failure is virtually guaranteed. This should include the whole business as well as trading partners. Looking at the supply chain for example, it does little to no good for a company to revamp itself and leverage new technologies only to have trading partners kick around spreadsheets and play phone tag. The performance of the entire supply chain will suffer. At the heart of a digital transformation is the customer, who cannot be optimally served if each trading partner is running systems in silos behind their firewall and sharing stale data with a select few trading partners.
For a supply chain to function optimally, all parties need to be connected, from the customer to the raw materials and everyone in between. Not only does this enable real-time visibility to events across the supply chain, it also allows partners to proactively address issues and collaborate to ensure the efficient operation of the supply chain. The only way to do this is to utilize a multi-party, or what Gartner calls, a multi-enterprise network.
Multi-Party Business Networks
A multi-party/multi-enterprise network is radically different to traditional enterprise resource planning (ERP) systems and to B2B networks. It is designed to support multiple companies on a single instance of software in the cloud. It is multi-party through and through, with a shared data model that supports master data management, and multi-party transactions and workflows. All entities on the network, including companies, sites, equipment, containers, and shipments, etc., are represented once on the network.
One of the telling differences between a multi-party network and any type of B2B or hub and spoke network, is that with a multi-party network companies only need to onboard to the network once. From there, they can connect to any and all other companies on the network with no further integrations required. This is possible because the connections between companies on the network are managed virtually, much like connecting to a new person on LinkedIn.
Another distinguishing feature of a multi-party network is that all companies are full and equal members with access to the same solutions and tools as everyone else. A supplier on the network serving a retailer can use the same solutions as its customer to manage its suppliers, as well as inventory orders, shipments and logistics. No company is a dead end or “orphaned node” serving only others. Each can transact and collaborate with its own constellation of trading partners.
Unlocking Value in the Enterprise
According to industry authority Lora Cecere, “90 percent of companies are not making progress on key supply chain metrics, such as cost, inventory, growth, and return on invested capital (ROIC).” This is largely due to an old enterprise-first perspective, and working within the constraints of siloed systems, since the only option is to incrementally optimize within functional silos rather than optimize across the entire network.
A multi-party network eliminates this constraint by connecting all participants in real time to a single, authoritative truth, enabling better data, better decisions, and better outcomes. Business partners share up-to-the-minute data, across the whole trading community. It enables them to plan and execute on the same platform, to make better decisions, proactively address potential issues, and work with trading partners in real time to resolve problems.
The network can include ML and intelligent agent technology, which is more effective because it runs on more complete and accurate data and includes all relevant factors and constraints from point of consumption to point of supply. For example, with full view to historical and near real-time demand, as well as to inventory, in-transit and logistics; artificial intelligent agents can create highly accurate order forecasts for all tiers, autonomously adjust them based on near real-time demand, and optimize inventory across all tiers. They can also prioritize shipments and optimize transportation to ensure the demand is met in the most intelligent and efficient way.
Companies can also use these networks to incorporate their legacy and next-generation technology, side-by-side. For instance, a network can help by coordinating processes across the network and across external systems. A network with a “tunable system of control” can also delegate processes (or steps in processes) to external systems and coordinate the end-to-end process. This means businesses can continue to use current systems to maximize their return on IT investments.
In essence, these multi-party networks serve as the coherent platform that combines disparate technologies — whether old or new, such as ERP, IoT and AI, and regardless of whether internal or external to an enterprise — to form a single authoritative truth that all parties can use to run their operations more efficiently.
Enabling Future Innovation
A multi-party network provides a clear and coherent picture of the market, the customer and all the way back to the sources of supply. Combined with historical and predictive analytics, executives get a global view of their business and partner performance, to enable better long-term decisions and help them adapt strategies to changing markets and conditions.
One of the less obvious benefits of a digital business network, is the potential for partnerships and collaboration in innovation. A connected community of trading partners, smart facilities and smart products, combined with powerful AI and ML to identify trends and uncover causes, means companies can learn a lot about how, why, when and where products and services are consumed. This can help companies identify customers’ unmet and future needs and enable businesses to improve their offerings.
As a result, trading partners can move beyond making, moving and selling products, to cooperating and innovating new products, services and business models, based on a better picture of the market, the customer’s needs and consumption patterns. The vast pool of knowledgeable trading partners is a rich source of experience and ideas on which to explore new innovations — from sales and marketing, to packaging and product design — that can lead to new products, services and business models.
A multi-party digital network facilitates this transformation from start to finish. It provides an ecosystem that shares real-time data from end customer through to supply. It accumulates data and insights to inform these kinds of strategic decisions. It can help in the execution too, enabling companies to quickly form virtual collaborative partnerships and communities that can plan, test and finally launch new ideas.
Thus, while digital transformation starts with sound strategy, a digital network can also inform strategy and serve as a robust platform for innovation, making it one of the most exciting frontiers of business today.
Nigel Duckworth is a senior strategist with One Network Enterprises.
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