March 2 by Elliott Yama

Evidence of digital transformation is all around us. Blockbuster, the movie rental chain, which was on Main Street in cities all across the country, filed for bankruptcy protection in 2010. It failed because of competition from a web-based, delivery service called Netflix. Uber, the ride hailing service that burst into our lives in 2009 is massively upending the traditional taxi and car-service business models. And, hotel chains around the globe are feeling the vacancies resulting from Airbnb, the online hospitality marketplace, as consumers rent rooms from ordinary people with a spare room or an unused ski chalet.

The common thread in these stories is a digital disrupter providing a channel that serves customers where, when, and how the customer wants to buy.

 

A C-Level Imperative

Forrester calls out an imperative for executives to embrace digital transformation, “In the age of the customer, your company must exploit digital assets in order to deliver world-class customer experiences and compete effectively. But moving the business from its traditional roots toward digital mastery requires the executive team to paint a compelling digital business vision

Gartner’s 2018 CIO agenda also emphasizes the importance of digitization of business functions for executives
1. Business Intelligence/Analytics
2. Digitization/Digital Marketing
3. Cloud Services
4. Mobility
5. Internet of Things
6. Customer Relationship Management
7. Artificial Intelligence
8. Enterprise Resource Planning
9. Infrastructure/Data Center
10. Automation

To meet these challenges head-on, companies have added a new leader to their executive ranks, the Chief Digital Officer (CDO), to work alongside the CIO and focus on digital transformation initiatives.

Today’s customer-first focus is moving CDOs and leadership teams alike to turn to a new type of software which touches items 1-10 on the above agenda to accelerate the digitization of business functions.

 

A New Generation of Enterprise Software

Business application software is characterized in three major waves by Gartner: Systems of Record, Systems of Engagement, and Systems of Intelligence.

The first wave, known as Systems of Record (SOR), centered on capturing, automating, and refining business processes. SOR applications include tools like Enterprise Resource Planning (ERP), Human Capital Management (HCM), IT Service Management, and Customer Relationship Management (CRM).

The first wave was on-premise architecture, that is, mainframe or client-server, and despite the advantage these systems their impact was limited because data access was limited to IT specialists. As a result, gaining insight from data was slow and expensive, and completely out-of-reach for the average business user.

The second, more modern wave are the Systems of Engagement (SOE). These primarily cloud-based applications incorporate elements which dominate consumer platforms like chat, social collaboration, gamification, and mobile-friendly design. The value of data in these second wave apps was unlocked as users gained easy access to data in a unified schema.

The third wave, which is still rapidly growing, are the “AI-First” applications, or Systems of Intelligence (SOI). These applications are data-fueled and AI-driven (through bots, Natural Language Processing (NLP), and Machine Learning) and infuse intelligence into the fabric of the daily lives of users. Specifically, they are conversational, meaning users speak to them instead of using a cursor, and they provide super-human capabilities to gain insight from data using embedded analytics and machine learning. Importantly, these capabilities are not a bolt-on feature rather, they are integrated as a first design principle.

Why is embedded AI important?

Because users are focused on solving a work problem or driving a business outcome; they don’t care what’s happening under the hood to solve the problem. They just expect it to be easy and work correctly.

None of the three waves are mutually exclusive – in fact, the enterprise business landscape is dominated by first wave applications which serve as a foundation for business processes. Second wave apps have been layered on top of this foundation to engagement but often at a price because they lack integration with Systems of Record apps and data.

The third wave spans this gap. It draws on the rich data locked in the Systems of Record and provides the usability of the Systems of Engagement with high value insight that was previously only imagined.

Jerry Chen, a cloud pioneer and investor at Greylock Partners, sees Systems of Intelligence as a source of differentiation and competitive advantage for enterprises. He illustrates the potential of this intelligence with a perspective from investment guru, Warren Buffet, on assessing business value: “In business, I look for economic castles protected by unbreachable moats.”

 

The New Moats: System of IntelligenceTM

Chen sees Systems of Intelligence as a key to staving off competition from digital disruptors. Why? Because the Systems of Intelligence provide the bridge between Systems of Record and the treasure trove of data held in the back office and the anytime, anywhere, anyhow paths that customers want to use to buy from you.

 

The Next Generation of Enterprise
The implications of these systems working together as a new software stack is profound.

And, it has direct impact on serving customers by accelerating and improving decision-making in the customer-facing front office. It updates and extends back office functions with new capabilities, financial and administrative layers, and connects everything in between, now called the Middle Office, which is absolutely essential for revenue making.

The Systems of Intelligence or an AI-first design middle office is critical for businesses attempting to digitize to serve customers where, when, and how the customer wants to buy and consume – and to fend off disruption.

 

Learn how your business can maximize revenue with Artificial Intelligence. Download the report from Harvard Business Review Analytic Services today.

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