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