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Businesses struggling to transition to digital era

Businesses are struggling to understand new technologies and the exponential process improvements they can enable, according to Ernst & Young partner Christoph Kilger

Most businesses are failing to grasp the opportunities of digital business models, according to Christoph Kilger, partner at Ernst & Young, Germany.

“Concerns around IT security are holding them back and many are still locked in a traditional, conservative way of thinking,” he told journalists in Stuttgart.

Kilger said another key challenge to making the transformation to the digital era is that businesses are struggling to understand new technologies such as machine-to-machine communication and machine learning, and the exponential process improvements they can enable.

Ernst & Young believes that smart, connected products are core to enabling new services and business models that will drive a market Cisco estimates will be worth $14.4tn a year by 2022.

“The value will come from being able to do entirely new things with new technologies. We are entering an era in which many technologies will combine to bring about something new,” said Kilger.

However, he pointed out that in some cases value will be created in one place and taken away in another, as has already happened with WhatsApp.

“WhatsApp was able to amass more than 400 million users in four years and will soon reach a billion, but an estimated £350bn has been lost in text message revenue as a result,” said Kilger.

Similarly Blockbuster has been replaced by Netflix, which is able to capitalise on its unparalleled understanding of viewing patterns.

“The replacement of businesses is being driven mainly by new technologies, and the result is a dramatic change in the composition of businesses,” said Kilger.

Ernst & Young predicts that new technologies will enable greater horizontal and vertical integration in businesses and business functions.

However, this is difficult for established businesses to adopt, which has led some to start working with startups to enable digital transformation.

“Startups and established corporations can leverage individual strengths and explore acceleration opportunities through collaboration. In the past, IT has been an enabler of business, but in the future IT will be part of business” said Kilger.

Ernst & Young predicts that all businesses will soon need chief digital officers to explain what it means to become a truly digital enterprise.

“IT will have to manage the whole technology stack, including software, connectivity layer, cloud, apps in the cloud and technologies enabling the internet of things [IoT],” said Kilger.

This, in turn, will create the need for companies to have access to data scientists to enable them to understand and benefit from all the data they are generating and collecting.

Bill Gates once said: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don’t let yourself be lulled into inaction.”

“The next 10 years will be important in terms of digital transformation. We will see a completely different world by then,” said Kilger. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

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