Digital transformation, big data, Internet of Things (IoT) – these are all phrases we often hear to describe what every business is committed to or has in the works. But is this digital transformation an overhaul that companies really need to invest in, especially in current market conditions?
Organisations across multiple sectors in the UAE and the wider oil-producing Gulf region have felt the squeeze amidst a tough macroeconomic climate of low crude prices, slower economic growth and tight liquidity from banks.
Interestingly, the plunging oil prices in 2014 is what has driven upward demand for global enterprise application software company SAP’s expertise and services across multiple sectors, even in the most hard struck oil and gas sector.
“You’ve got a massive drive of efficiency in the oil and gas sector – when the oil price in 2014 went down, a lot of oil and gas companies in our part of the world took the decision to be much more efficient and optimised when they had their challenges,” Gergi Abboud, senior vice president and general manager, SAP Middle East South, tells Arabian Business.
A will for efficiency, coupled with a public sector-driven culture of innovation, has followed on across the 25 industries covered by the German-headquartered publicly-traded corporation.
Implementation, however, is still a work in progress.
A study by SAP and Oxford Economics Digital Transformation Executive last year found that more than 84 percent of organisations saw digital transformation as critical and that more than three-quarters of the Middle East and North Africa’s digital-leading organisations would invest in big data and the IoT in 2018 to drive disruptive business competitiveness.
“There is hesitation, yes,” Abboud acknowledges when asked if companies are holding back on investment. However, it’s the hesitation that also drives them to look for ways to cut costs and unearth new revenue opportunities.
He explains: “Any business that’s going through a challenging time, or that forecasts weakness in the economy, will start to look at how to be more efficient, and will invest – either where they believe it will drive more efficiency and savings or where it will drive value to the customer, and hence more revenue. These are two areas where there’s no hesitation when it comes to any business in the region.”
However, according to the report, only three percent of organisations have actually completed digital transformation. The gap, Abboud says, lies in understanding how to align both digital and business transformation.
“Most of our customers see the value in digital transformation, but they’re figuring out how to embark on that journey so they can minimise and manage risk, and clearly identify the value they want to create out of these investments. And that is why there’s confusion sometimes, because they’re figuring out: do I start with digital transformation or business transformation?”
The answer, he says, is both. Organisations need to reinvent traditional processes to become digital businesses for which they need to understand what technology can actually deliver – which he says is where SAP’s experts can help with the process to avoid being left behind.
Traditional brick-and-mortar retail is a classic example of digital transformation opportunities that need to be understood correctly. The rapid growth of e-commerce alongside rising mall vacancy levels continues to challenge and intensify competition in the sector.
A Deloitte report quoting data from the Economist Intelligence Unit states that total UAE retail sales volume was down by 2.8 percent in 2017, which Deloitte said was driven largely by “declining disposable incomes as inflation outstripped wage growth”.
In addition to the drop in consumer spending, retail has also been hit by the growth in e-commerce across the region further intensifying competition between existing physical space competitors, making digital transformation an inevitable move for survival.
Global property consultancy CBRE said in a report earlier this year that 1.5 million sq m of new retail space will be delivered to the Dubai market over the next three years, adding roughly 50 percent to existing inventory. “If you’re going to mimic the real world into a digital world, then it becomes expensive because all you’re doing is building another space that looks exactly the same,” Abboud cautions.
Big data, social media and analytics makes it possible to tailor messages to each individual, he says on how these challenges can be overcome.
“This is the future for many reasons. Even with General Data Protection Regulation (GDPR) we accept or give consent to sharing our information. Using retail space, organisations can customise that experience. Brick-and-mortar stores are going through a major change, especially as more people are buying online. If retailers cater to online shopping, and combine it with transforming the physical space using technology, retailers will become much more competitive than businesses that don’t have physical space.”
For example, a consumer walking through a mall can receive recommendations based on demographic and pattern of shopping behaviour.
“If I was in a store and I bought shoes and then
I walked into another store, rather than recommending another pair of shoes they can then recommend a jacket that goes with it,” Abboud explains. “So it’s leveraging the analytics and patterns of what people of the same category and ethnicity and age like. It saves time and people rely on this. We are now used to this in the digital world but not in the physical world.”
Huge digital transformation is definitely on the cards for most of the region’s big malls and retailers, Abboud predicts. “Usually the consumer put pressure first on the business – so they’re all looking at how to drive a stronger digital experience.”
Meanwhile, the region’s banking sector also holds significant promise. “If you talk to any bank, one of the largest difficulties is launching and marketing a new product, because they have to change things across the systems to reflect the new product,” Abboud explains.
Digital transformation would allow the bank’s system to recommend a product based on the behaviour and accounting activity of a specific customer. “And so we don’t all get the same phone call,” he jokes.
Although a smaller region in comparison to other global markets, the Middle East and North Africa is high up on SAP’s map due to its “appetite to adopt the latest and greatest” technologies unlike more established markets that are bound by legacy.
It’s why the company opened its first cloud data centre in the UAE earlier this year, as part of its five-year $200m investment plan for the UAE. “It’s an economy in the making,” Abboud says matter-of-factly. “Most of the countries in the region have been building fairly advanced infrastructure because it’s all new, which makes it very attractive and interesting for us as a technology company.”
The SAP and Oxford Economics study found that more than 60 percent of all companies are investing in the cloud through 2019. SAP isn’t the only one looking to take a bite out of the cloud pie. Alibaba’s cloud division, Aliyun, opened its first cloud facility in Dubai in 2016, and earlier this year announced plans to build another. Amazon Web Services also announced last year that it was bringing infrastructure to the Middle East with an AWS Region opening in Bahrain by early 2019.
But Abboud is unperturbed. “Most of them are an infrastructure play,” he says. “So they’re data centres where they have capacity of computing, where you can rent that computing. But you still need an application to be able to automate a process. We’re the only company that offers the business application layer to the businesses on a local cloud in this part of the world.”
The company is already anticipating “more demand than the current supply” for its facility, especially with massive public-sector focus on adopting digital. And as an innovation partner for Expo 2020 Dubai, SAP is contributing to a digital platform that makes it possible to tailor experiences for the expected 25 million visits to the six-month-long event.
Abboud is also bullish on Saudi Arabia’s ambitious mega city projects such as Neom. “This is massive for us and the businesses around it because it gives you opportunities for the coming five to 10 years at least,” he says. Earlier this year, SAP strategically launched its first live SAP Public Cloud Data Centre in the kingdom as part of its four-year SAR285m ($76m) Saudi investment plan.
“These data centres are being built because we see strategic projects and a trend in building up digital societies and economies across the region,” the executive says. “The cultural shift they’re going through, for example with female drivers, gives an indication that the economy is moving in the right direction because culturally you’re empowering the full potential of that market to start contributing as a society.”
As part of its interest in the region, SAP is focused on nurturing the region’s talent and startup ecosystem.
The software giant is part of Dubai’s ambitious 10X initiative that seeks to forecast future trends and apply them today to reinforce the UAE’s profile as a hub for new innovation. In line with this collaboration, last year SAP announced it is planning to establish its Leonardo Centre – a global network of connected, physical locations – at the Dubai Future Foundation’s Area 2071, joining a global network in Bangalore, New York, Paris, and São Leopoldo. At the Leonardo Centre, customers, partners, startups and educational institutions can pilot solutions on the SAP Leonardo digital innovation system.
In addition, SAP supports startups in the region, complementing the ecosystem and incubators.
“If you look at our part of the world, there are many ambitious and technologically-savvy youth who are willing to take the risk in becoming entrepreneurs and launching startups with strong business ideas,” Abboud says.
“There’s government entities that are very much supporting these initiatives and there is enough liquidity. But you still see from a venture capitalist’s point of view, that there isn’t structure and an educated way of investment. It’s more of family businesses that are investing in or supporting these start-ups.”
The tech firm interviews startups and supports a select crop with ideas that can add value to SAP clients. The start-ups are provided with access to SAP’s platforms, technology and support to develop their ideas. “So it’s very early verification in their process,” Abboud explains.
If a commercially viable product is successfully developed, which has been the case with the programme globally, it is then pushed through SAP’s sales channels. Such an initiative, Abboud says, makes it possible for startups to hedge risk and sell under a big brand with a global client base to allow the product to scale quickly. “It complements incubators and it’s our way of contributing to the region,” he adds.
Abboud finishes his outline of the tech giant’s ambitious plans by returning to the question he himself posed earlier in the interview: do organisations start with digital transformation or business transformation?
“If you don’t understand the capabilities of the technology and what a digital transformation is capable of doing,” Abboud reasons, “then you’re missing on the opportunity.” aFor all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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