Digital Transformation At Work: ERP Moves To The Cloud And The Rise Of The CDO

Digital transformation is the most pervasive force in business today and many large enterprises are struggling to adapt. After investing large amounts of capital on Enterprise Resource Planning (ERP) software or Best-of-Breed applications, the decision to migrate to the cloud is not easy.  Enterprises rely on existing systems to store and manage data from every stage of business, including manufacturing, sales and marketing, supply chain management, and human resources.  The largest vendors, which include SAP, Oracle, and Microsoft, have until recently failed to meet the expectations of the millennial generation. They also fail their customers by missing out on the benefits of the cloud: minimal capital expenditure, pay for usage, access from any device anywhere, and no software to install or upgrade.

The move to cloud computing has the potential to be a vast improvement over the legacy systems that permeate enterprises.  The on premise ERP systems can cost upwards of $10 million dollars to upgrade, as well as take eight months and potentially cost the CIO his job. Using the cloud, a new application can be turned on literally overnight with little to no cost or risk.

I still see the need for Best of Breed, however, the options have changed dramatically and new entrants located in the cloud warrant a closer look.  Business can use Workday for human resource management, Salesforce for customer relationship management, Box for storage, Google Apps for collaboration and productivity, and ZenDesk for analytics. Eventually these disparate systems, all accessed via the web, will have integration capability and work together.  And all of the data underneath these applications can live on google or hosting centers or an server farm.  While many of these options have gone mainstream, each enterprise has unique needs and needs to carefully select their ecosystem partners. Once they do, the cloud is built to scale from day one.

Moving an ERP to the Cloud is only one of the transformations happening within enterprises. According to a recent Economist article, “demands for digitization are coming from every corner of the company. The marketing department would like to run digital campaigns. Sales teams want seamless connections to customers as well as to each other. Everyone wants the latest mobile device and to try out the cleverest new app. And they all want it now.”  Social concepts and behaviors such as collaboration, feedback, and integrated profiles are now expected to be as part of an employee’s daily job.  These needs can now be met in the cloud due to rapid advances in processing power, storage capacity, and bandwidth. If you are the Chief Information Officer, what can you expect from this ‘digital tsunami”?

Among current executives, CIOs are the most attuned to the way technology is being applied throughout their industry. However, results from a survey revealed that only 43% of the top 500 CIOs said they were either effective or very effective at identifying areas where IT could add the most value.  This is not always their fault.  The majority of IT budgets are not used for innovation or supporting new business goals but for ongoing operations, maintenance, and security.  Businesses need a new position focused on digital innovation that captures additional value for the enterprise using tools such as crowdsourcing, web interfaces for consumer engagement, open innovation platforms, and social media.  These can all lead to powerful consumer insights since the cloud allows for unprecedented levels of data storing, mining, cleaning, and analyzing.

One scenario happening more often is for a CEO to hire a Chief Digital Officer – someone who seeks ways of embedding digital technology into products and business models. A CDO can also provide a big picture view of how social media and digital technology shapes business strategy. Gartner estimates that 5-6% of companies now have one.

While people might still believe they won’t get fired for buying IBM, it is also true that change can be swift and brutal to those who don’t see it coming.  If you wait until your competitors hire a CDO, you might be too late. Just look at “Research in Motion” that went from a cultural icon in the mobility market with its Blackberry device to an embattled company fighting for survival within just two years.  A CDO needs to stay on top of recent trends, which means the position is more likely to be filled by someone from the marketing department than IT.  The CDO also needs to be capable of leading a shift in culture and have the support of the CEO, since their work might involve overcoming resistance to change and claims that current systems cannot be abandoned.   Finally, more than just a new position is needed to transform a company into the digital age.  This person needs the power to make things happen. Companies can ask someone to innovate, but if they do not have the budget and supporting tools it can amount to nothing.

Dan Steinberg


‘eToro’ and the emergence of social trading

I recently visited the world headquarters of financial-tech start-up eToro, located in Tel Aviv, Israel.  eToro is the world’s largest online financial trading community designed to financially empower individual investors through a simple, innovative trading platform and an active social trading community.  Although it is still not legal in the United States, it has 3.5 million registered users that benefit from the collective wisdom of eToro’s community.  With $31.5 million in funding and $18 million of assets under management, eToro is successfully bringing social trading to the masses and disrupting the finance industry in the process.

“Finance has been enabled, but not disrupted yet by the internet.  It is ready for disruption,” eToro founder Yoni Assia told me during my visit.  “Consumer finance is a utility, but today most people don’t consume it as such.  Why? It is anti-social. The industry was built to serve the top 1%.  They use complex instruments that are lucrative, yet dangerous.”

The site offers CFD’s or “Contract for Difference,” that are agreements between a user and a broker to pay each other the difference between the price of an asset (such as Gold, US dollar, Apple stock, etc.) at the moment the contract is made and its later price when you decide to close the trade. This encourages more activity by the average small investor since they can buy as little as $10 of Apple, even if a share is selling for $500.  To generate revenue, eToro has transaction fees of .1% on stocks, .3% on ETFs, and 1% on bitcoin transactions.

Social Trading

eToro strives to be a community with “social trading.” When a user spots an interesting trader that they would like to keep track of, they can follow their activity. The most direct way to benefit is the ability to copy.  If a user spots a particularly promising trade in their live trading feed or by browsing through a trader’s personal profile, they can quickly open the same trade by clicking on “Copy”. However, if that same user spots a trader who is consistently profitable, then can also click on “CopyTrader” to start copying their trades automatically. Many users dedicate their entire account to recruiting traders to trade for them, building what is called a “people-based” portfolio.  A 2012 MIT study found that eToro members whose networks allowed them to cull from a wide range of strategies earned a 30 percent better return on their investments than members who never copied anyone else’s trades.

Wisdom of the Crowds

One of eToro’s biggest innovations is that at its core, the site reduces the information asymmetry that has helped consolidate power for a select few who work in the industry.  All financial data is now available and not just for people at Goldman Sachs. Exposure to what your fellow traders are doing in the financial market at any given time and why, gives users insights into market trends, innovative strategies, and trading ideas. On the eToro OpenBook, a users’ feed will update them immediately the moment someone opens a position, which, assuming they bought the stock at a low price point, will enable you to catch the opportunity at the “point of maximum opportunity,” as opposed to the “point of maximum risk” which is what happens when you try that persons success after the fact.

 Regulation 2.0

Regulation remains the biggest challenge for eToro and other finance 2.0 companies. Nick Grossman from Union Square Ventures wrote a blog about regulation 2.0 where he argues for a switch from making up-front decisions about an activity (i.e., peer-peer apartment renting or ride-sharing), like we do with regulation 1.0 and instead being more tolerant in the beginning.  This permissive approach can be accompanied by increased “accountability through transparency,” that the availability of huge volumes of data in real-time make possible.  Grossman also believes regulation 2.0 would theoretically be simple and cheaper to operate while allowing businesses like eToro to be explored without the fear of regulatory shut-down.

 Social Network Effects

While it took eToro 6 years to reach 50 million trades, they reached 100 million trades less than one year later. One way that eToro helps build their community is by focusing on “social stocks.”  These are the stocks for brands that people like to talk about including Facebook, Google, and Manchester United.  People are more likely to share their trades and comments about popular stocks on other social networks. eToro also uses gamification and recognition management tools to spur involvement. Top investors are highlighted and ranked based on their performance and how many people copy their investment strategy. One fireman with 6500 copiers and 133,000 followers has achieved almost hero status.

Financial Web Future

The future looks bright for eToro.  They have had no problem raising money, their CEO fits the mold of the visionary leader, and the awards and recognition keep coming.  Wired magazine recently said they were 1 of 5 companies in Israel to watch out for and that the next big thing is the “financial Web.” Fast Company, one of the leading business-technology magazines, featured them among the top 10 most innovative companies in the financial sector for 2014. A growing number of people are joining the eToro community and starting to blend social with finance.  Hopefully, more sensible regulation will emerge in the United States that allows us to start social trading.

Dan Steinberg

TEVA Pharmaceuticals Decides Against a Two-Sided Market Strategy

Last week I visited ‘TEVA Israel,’ the Israeli affiliate of TEVA Pharmaceuticals.  Teva is the largest generic drug manufacturer in the world and one of the world’s largest pharmaceutical companies.  They are responsible for 17% of medical scripts written in the US, and its drug Copaxone is the #1 MS drug in the world at $4b in sales/year.  TEVA Israel wants to be the innovation hub for TEVA Global.  As Dr. Roni Sholih put it, “TEVA Israel is an incubator for all of TEVA for finding ways to grow beyond just selling drugs.  If one of our companies grows big enough, then maybe corporate will want to take it to TEVA Global.”

Dr. Shiloh is the head of DDI+ at Teva, which stands for Drug-Drug Interactions Plus. It is a web based solution system for advising physicians how to treat patients consuming multiple medications. Drug-Drug interactions are one of the leading causes of death in the United States, and Teva’s current strategy for DDI+ is for it to be a valuable module within an electric medical record (EMR) system.

As currently positioned, DDI+ will be a one-sided market with TEVA providing doctors with information and doctors sending nothing back to them.  As I listened to Dr. Shiloh speak about the product, I wondered why they weren’t pursuing it as a two-sided market.  As more doctors adopt DDI+, Teva can receive valuable data about when and why doctors still prescribe a medication even when they are advised against mixing it with another drug their patient is taking.  Teva could sell that data to other pharma companies that want to better understand how doctors treat patients. Pharma companies could also use it to improve their ability to recommend drugs based on analyzing the data from DDI+.   With the likelihood of new blockbuster drugs becoming rare, these insights could be more valuable than ever to Pharma companies.  As currently positioned, DDI+ will not capture any of this data.

I assumed that a barrier to positioning DDI+ as a two-sided market was HIPAA regulations.  However, the problem here is not necessary with HIPAA since it would be possible to aggregate the data by removing a patients name, address, patient #, etc.  The concern is that this platform is built to integrate seamlessly into existing EMR systems and EMR systems by their nature are meant to track individual patients.  But wouldn’t existing EMR’s still want to know when and why a doctor who was alerted to a contra-indicated mix of drugs decided to prescribe them anyway?  DDI+ could make this type of reporting a default setting, thereby incentivizing doctors to record and share this data.

Doctors typically have only have 8 minutes to see each patient, leaving little time to research potential undesired consequences related to drug-drug interactions. With its improved user interface and more relevant and personalized data, DDI+ has the potential to both prevent doctors from prescribing contra-indicated drugs and to capture insights about when and why it happens any way.  However, TEVA seems content using it simply as a tool to help them promote their generic drugs.  At least as a one-sided market, DDI+ still has the potential to be an important tool to help doctors keep their patients safe.

Dan Steinberg

How Architecture Can Lead to Innovation

With everyone from tech start-ups to financial institutions trying to foster a more innovative workplace, it is important to consider how office design can shape culture.  During my recent visit to the Stanford Design School, I saw how an open floor plan can foster a more creative workplace environment.  One prominent example of this growing trend is the new Bill & Melinda Gates Foundation Headquarters in Seattle. In describing the impetus to build it, the New York Times notes that “private offices and expressions of hierarchy are of debatable value.  Less space per worker may be inevitable for cost-effectiveness, but it can enhance the working environment, not degrade it.  Daylight, lots of it, is indispensable.  Chance encounters yield creative energy. And mobility is essential.”

To better understand how office design can promote or inhibit innovation, I asked Tom Sieniewicz, a partner at NBBJ, the architectural firm that designed the Gates Foundation building for his opinion.  Tom is currently designing the much anticipated translational research and clinical facility in Boston that will collocate researchers and clinicians in order to break down the barriers between medical disciplines and help find the cure for diseases like Alzheimer’s.

“There is a movement to rush towards open space and tear down the walls, but I am already looking beyond that to ceiling heights as being another important factor that you can’t change once a building is designed.  Computational work is done better with lower ceilings. If you want a more humor-filled building with creativity, you want higher ceilings.”

Unless you can afford to build your office from scratch, you can’t change the height of your ceilings.  But is making your office floor plan more open worth the risk?  Yes and No, according to Tom.

“If you have a closed office you need 120 square feet for that employee to have what they need.  However, if you open it up, that same employee only needs 70 square feet of space. That frees up a lot of valuable shared space.  However, some buildings like the NBBJ Boston office are all open and many people feel that it is actually a very hard place to get work done.  For that reason, many of the partners of the firm find it important to have a personal study at home.”

One early example of creating an open floor plan involves Alfred P. West Jr., the CEO of SEI Investments, a financial services company with a market capitalization close to $6 billion.  In 1996, West built a brand new office that he admits was a deliberate attempt to make people uncomfortable to shake up the culture.  He noticed how his departments had turned to fighting each other for resources instead of collaborating as they had in the beginning.  According to West, the quirky environment of his new building “came from us wanting to encourage creativity and innovation….Today, you need more than Edison in the lab. If you go onto a trading floor, it’s open so people can communicate; they can share ideas. It was obvious this was a way to improve collaboration.”

Some of the more creative offices that I visited in Silicon Valley have white boards in every room, utilize moveable furniture, and place couches in the same room as desks, almost like a café.  One benefits of a thoughtful floor plan is the ability for serendipity.  In describing the Gates Building, the New York Times notes that “stairwells are positioned to land at hubs with coffee stations, copy machines and informal furniture groupings, so that employees from disparate departments can enjoy random meetings.”  86 percent called the Gates Building an “inspiring” environment, and 89 percent confirmed that it supports informal collaboration.

Office design is still a developing science, and some approaches might not work for everyone.  Siobhan O’Mahony, Professor of Strategy and Innovation at Boston University advocates for a balanced approach. “Offices need neighborhoods for heads-down work, and neighborhoods for heads-up work, and everybody needs assigned heads down space.”

Is the traditional ‘cubicles, corner offices, and meeting rooms’ framework no longer a viable option to inspire your workers to find the next great idea?  For many companies, coming up with their next big idea is critical, and the right office environment can be just what is needed for a breakthrough.

Dan Steinberg

The Power of 10x Thinking

If you take a current idea or product and make a 10 percent improvement then you might be a mild success, but will it succeed wildly or even change the world? 10x thinking is focused on making something at least 10 times better. This is sometimes called moonshot thinking in reference to the United States pursuit of putting a man on the moon. President Kennedy famously said that we choose to go to the moon not because it is easy, but because it is hard.

During a trip to Silicon Valley last month as part of my MS-MBA program at Boston University, I visited start-ups, venture capitalists, and established companies vying for a piece of the valley mystique. However, it was a visit to the colorful and impressive Google campus where I learned about the power of 10x thinking. In a recent Wired Magazine interview, Google co-founder Larry Page said that 10x thinking “requires rethinking problems entirely, exploring the edge of what’s technically possible…..incremental improvement is guaranteed to be obsolete over time. Especially in technology, where you know there’s going to be non-incremental change.” He goes on to say:

Another way to think of 10x thinking is how many people will the idea impact. Google won’t even consider making a new product or providing a new service unless it will be used by a billion people. Google has earned the right to speak loudly about 10x thinking since its portfolio includes an ever growing list of 10x ideas including the driver-less car, google fiber, and even side projects like scanning nearly every book ever published and giving readers access to it. Google Glass, the computer that resembles a pair of eyeglasses, is another example of 10x thinking. When it was first unveiled, nobody though it would do anything, according to Google CFO Patrick Pichette. But the idea of having voice-directed computer attached to your head, which frees up your hands, is clearly catching on, he says. “It’s going to morph into 17 different things in the next decade,” he says. “That’s the essence of 10x.”

It is not just Google where 10x thinking is taken place. At Wipro, a global IT consulting firm I visited, I heard about new and incredible ways that Drones could enter the commercial space. At Scanadu, I saw how smart phones could revolutionize how we monitor our own health. I met with the bank BBVA and discussed how Bitcoins have been a wakeup call that a disruptive force is entering their market. And as a student, I see how education is being affected by 10x thinking as MOOCs (Massive Open Online Courses), now offer free or low-cost, high-quality classes to hundreds of thousands of people.

Dan Steinberg

Economic Impact of the ‘Sharing Economy’

A recent research study from the Boston University School of Management helps us better understand the economic impact of the sharing economy. Focusing on the state of Texas, a group of marketing and computer science professors analyzed data from over 22,000 Airbnb stays from 2008 to 2013 and tax revenue data from over 4,000 hotels. They estimate that every 1% increase in Airbnb listings in Texas results in a 0.05% decrease in quarterly hotel revenues. Airbnb, an online marketplace that connects hosts with guests for short-term apartment rentals is now being used by over 50,000 renters per night.

This research adds some needed quantifiable date to the ongoing debate over the impact of the sharing economy. Proponents of Airbnb, which was founded in San Francisco in 2008, argue that a supply of inexpensive accommodations can increase tourism spending and be an overall net positive producer of new jobs. While Airbnb does generate demand that did not previously exist, there are costs involved with lowering the barrier to entry for online suppliers in relation to traditional suppliers. In Texas, the impacts are distributed unevenly across the hotel industry, with lower-end hotels and hotels not catering to business travelers being the most affected. These businesses have reason to be concerned as Airbnb continues its rapid growth and consumers increasingly see it as a better value than lower-end hotels.

The growth of Airbnb and similar services is getting a lot of attention, and there are efforts under way to slow it down. Cab drivers in Paris recently turned violent against Uber drivers, and New York Attorney General Eric Schneiderman issued a subpoena to Airbnb last October, demanding information on New York City’s 15,000 hosts and 25,000 listings. With so much at stake, this debate is not going to end soon.

Dan Steinberg