The promises of the Internet of Things in enterprise and industrial settings have long been grandiose. By deploying smart devices, organizations have sought to launch new business models and transform how we manage everything from farms to cities to factories. It’s no wonder then that IoT ranked as a core technology in a recent SAP digital transformation survey. According to research from the German software giant, 76% of digital transformation leaders had invested in IoT technology. For other organizations, that percent was 52%.
While the majority of digital transformation leaders had made significant investments in technologies such as IoT and data analytics, SAP execs believe that it was easy to overemphasize the role of technology in such programs. “Our study told us that digital transformation is a leadership moment as opposed to a technology moment,” said Vivek Bapat, senior vice president, global head of marketing strategy and thought leadership at SAP.
“Technology is just one component of digital transformation,” Bapat added. And technology in itself is not the reason that most digital transformation projects don’t live up to their potential, he explained.
The SAP digital transformation research studied close to 3,100 companies across a wide range of businesses. Only a small group, 3% of the total, had established themselves as true leaders.
The reason for the low number is that true digital transformation is “incredibly hard,” as Bapat put it. But SAP has identified four traits in a digital transformation framework that set the leaders apart from the rest of the pack, with the top three items on the list being the toughest to pull off:
- Thinking of transformation as a continuous journey rather than an endpoint
- The ability to reinvent customer experience
- Fostering the talents needed to drive digital transformation efforts
- Investment in cutting-edge technologies
Executives deploying ambitious IoT initiatives — or other types of digital transformation programs — should be prepared to reimagine their entire organization if necessary, Bapat counseled. “This is not just another IT project; this is more about business model transformation,” he explained. “The results for companies that brought in IT to improve the efficiency of a single business function weren’t that spectacular.”
But companies embracing digital technologies such as enterprise-wide IoT projects don’t have to rip and replace all of their technology, Bapat stressed. “The question is: How do I run my existing system efficiently while quickly absorbing new technologies at scale?”
The most successful organizations identify new ways to serve customers and figure how technology can enable that. “We saw this same mindset across digital transformation leaders. In most cases, these leaders came up with an entirely different way of serving the customer through a different business model,” Bapat explained. “The focus on customer experience was a guiding principle for changing organizational functions and processes, whether the company was focused on the supply chain, manufacturing or something else.”
Companies with leaders that can guide business model change tend to have more success recruiting people with digital skills, Bapat said. “This can be a virtuous circle of talent: By attracting workers with digital skills, organizations tended to be better at driving new business model change,” he explained.
Not all business leaders, however, understand technologies like IoT and machine learning and the broader concept of digital transformation. “I think it is incumbent on the technology teams to help C-suite executives and board members understand the real potential of digital transformation to drive business model change.”
In the end, leaders are needed throughout organizations rather than only at the top because there is so much variability to digital transformation programs, Bapat said. “In our research, we saw that there isn’t necessarily a single recipe for how to drive digital transformation,” he added. “There is no one-size-fits-all approach. It really depends on the industry and the organizational setup and the leadership style.”