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 salesforce.com hosting centers or an Amazon.com 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 CIO.com 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

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‘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