Kathy Gibson reports from SAP TechEd in Barcelona – Digital transformation shouldn’t be considered as a technology issue. In fact, it’s not even so much a business issue as it is a leadership challenge.
Dr Carsten Linz, head of the Centre for Digital Leadership and business development officer for SAP, explains that technology is simply an enabler for the business, but that the key challenge in digital transformation is a leadership issue.
The SAP Centre for Digital Leadership talks to customers about digital transformation and how the company’s leadership should tackle the issue.
“We encourage people to think about where their company is, with a focus on the leadership and strategy; and the desired end state within three years.”
For digital transformation to stand a chance of succeeding, it needs to be driven by the right leadership team. Studies show that CEOs see themselves in the driving seat, with the CIO as a major player.
“What we are seeing is the digital transformation is a board-level topic,” Dr Linz says.
But the leadership can’t continue as they are and expect the organisation to transform; there is a need for leadership teams to be reconstructed.
“There is new leadership coming up,” Dr Linz points out. “So there are lots of new career opportunities.”
To successful make a digital transformation, organisations need to look after their existing business while pursuing new business processes and opportunities.
Organisations are encouraged to become ambidextrous, Dr Linz says. “Ambidextrous organisations require two strong hands: one is for the day-to-day operation, managing and securing existing business to drive efficiency; the other is for entrepreneurial spirit, shaping the future and finding the next trajectory – it’s about effectiveness and changing the game.”
But there is danger inherent in how this model is implemented, Dr Linz says. “I don’t think it is an organisational thing. The two modes should be implemented from a leadership perspective that embrace goals, governance and culture.
“It is not about having two organisational entities, and it is not about setting up new organisational siloes.
“Digital transformation is supposed to be about breaking down siloes.”
Achieving true digital transformation isn’t easy. Looking at 200 digital initiatives, Linz observes the most of these have made changes only on the BPO level, taking existing processes and automating them
“Then we have seen a couple of projects where there has been business change, where organisations have redefined existing processes.
“But we have seen very few examples of organisations that have transformed their operations model. There are very few companies that have transformed the entire stack with business model change, value delivery and value creation.”
There are many reasons that companies have failed to make the wholesale changes necessary for digital transformation to take place, Dr Linz adds
But possibly the main reason lies in the corporate legacy. “The legacy is a key advantage for companies: they have an installed base and that has a value.
“At the same time, this legacy creates a stickiness to the existing business and processes.. This is the challenge that has to be overcome – to create autonomy.”
In many instances, companies embark on digital transformation and simple end up digitising the past, Linz explains. “They are simply putting digital icing on the cake: taking 20-year-old processes and digitising them.
“Organisations need to change the game in terms of new operating models.”
SAP itself is a good example of a company that has made a successful digital transformation.
“SAP as actually had two major transformations,” says Dr Linz. “We were a product-centric company and we moved to a platform company. And now we have a platform that allows others to innovate on top of our solutions.
“We didn’t only change our business model, but we changed the way we deliver it; and this created a major change in the monetisation mechanics.”
Together with these transformations, SAP also changed its corporate culture.

SMEs getting it right
Small and medium size companies tend to be leading the way in digital transformation, Dr Linz points out.
He cites the example of tool company Matal that makes sophisticated and high-precision tools for robotics.
“They have basically built a parallel world, where every physical tool is mirrored in the digital environment.”
This digital “twin” can be used for test-driving development of the tool without having an impact on the physical world, which makes optimising the manufacturing process a lot easier and more cost-effective.
“But is also a platform game, and the company has access to all the data points on the tool,” says Dr Linz. “This allows them to compare the data sets when the tool is in use, and they are able to figure out which is the best way to use the tool as well.
“So they are not only producing the tools more efficiently, they are also generating a best-in-class way to use their tools, which puts them in a position to provide recommendations to their customers on using the product in the most effective way.
“In this way, they have changed the business from being a product player to being a platform player.”

Harnessing data from space
Space exploration and observation generates huge volumes of data, and now those data can be put to use to help businesses make better decisions.
Through its partnership with the European Space Agency, SAP is converting petabytes of space data into usable formats, and making it available to organisations for their own use.
Dr Linz explains that SAP has built a micro-service that converts the big data coming in from the ESA into small data that allows organisations to use in making business decisions.
“So we are translating what is generally-available raw data into business logic and business fundamentals,” he says.
The micro-service is available to any user through the Hybris marketplace and they can then use it in their own applications.
“The idea is to productise that business logic to build use cases.”
Munich Re uses the data to compile information about wildfires, comparing historical data, monitoring and predicting fire to optimise its risk management.
The data is managed and stored on the SAP HANA platform, which allows for transactional and analytical processing to happen simultaneously. “This makes it very powerful and allows us to close the insight to action loop,” Dr Linz says.
“We feel that there are tons of opportunities for companies to use this data,” he adds. “In most of the meetings I have with CIOs, something pops up where this could be useful.”
Use cases for the data derived from the ESA have been identified in industries as diverse as oil and gas, utilities, driverless cars, smart city planning and digital farming. “There is a huge number of potential use cases.”
SAP on its own can’s possibly come up with all the user cases and solutions that would be relevant to this data, and Linz says the company is employing a partnering model to drive solutions.
“The ecosystem approach makes sense. We want people to come up with innovative use cases and build the applications.”
The ESA partnership is a great example of how the SAP HANA platform approach can help to drive new business opportunities quickly.
“We signed the agreement with the ESA in March 2016, and have delivered our first service – with a customer already using it – in November,” Dr Linz says.