Cold War Lessons for Digital Transformation

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It was 1985, Ronald Reagan governed in the United States and Mikhail Gorbachev in the USSR. During the rough period, amidst the arms race, Reagan threatened to build a missile defense system which would leave the US immune to the Soviet nuclear threat. That threat was backed by the technological superiority of the US. The US Secretary of State was George Schultz, a former Stanford economics professor, who succeeded in establishing a close and trustworthy relationship with Gorbachev.

It was precisely because of this trust that Schultz began to lecture economics seminars to Gorbachev and his close associates. Schultz’s main argument was that the USSR was doomed to be left behind with regard to the developed economies of the West, due to the lack of freedom to move, emigrate, and therefore to learn and integrate the knowledge that was developing elsewhere. This would leave the Soviet model limited to the development it could achieve within its own borders and within its economic system. It is said that Schultz spent years conducting these seminars to Gorbachev and his advisors. The Soviet president was remarkably receptive to Schultz’s ideas, some of which were reflected in his book Perestroika. The rest of the story is well known, Gorbachev allowed the opening of the countries that were part of the iron curtain and the Soviet central planning system disappeared.

Digital transformation is becoming a major challenge for every organization. Until recently, technological development was basically the utilization of leading-edge technology; the path then to become a first-world company was the adoption of First World technological tools.

Sure enough.

Companies began to get rid of their legacy systems and purchase SAP. With this, they had the technological standard they were looking for and everything would be resolved. This worked well for a while; SAP was clearly superior, more versatile, and reliable than the systems it replaced.

The problem is that now companies can no longer find an answer to all their technological challenges wandering through SAP’s library. Like the USSR, they cannot expect that their technological aspirations and business strategies will be resolved by a single provider.

Why not?

For the same reason understood by Gorbachev: outside the restricted environment of the large provider that is SAP, a huge ecosystem for digital innovation is developing. Enormous and versatile. From companies that have created simple, friendly, and inexpensive applications that may be quickly deployed, to free open source applications. This ecosystem is an opportunity for companies that need quality, speed, and low costs. It is important and cannot be ignored without suffering losses that may come to be substantial.

The challenge faced by companies requiring digital transformation is an INTEGRATION challenge.

On the one hand, there is SAP (or its ERP) as a digital core. A sort of business process engine that should be a logistics and financial document integrator. In this sense, it is the first and central element of a company’s technological architecture in the digital economy framework.

There is however a second group of elements to integrate: the digital applications. As we said, there is a huge offer of new applications that share the feature of being uncomplicated (almost self- implementing), economical, and very user-friendly. So many in fact, that is possible to find tools that adapt to each company’s business from the very beginning, without having to resort to a mega application that does so through configurations and long deployment projects.

A third element, and probably the most strategic, is digital development, which is the company’s custom solution to its own business strategy and may be done in-house or commissioned to a technology partner for exclusive use. The opportunity arises then by the huge number of tools with easy and unexpensive access that public clouds are providing, enabling new developments to incorporate cutting-edge technology quickly and at relatively low costs.

The point is that all these elements must be integrated, which creates the need for a digital integrator who must ensure, through operational processes and its own developments, that the three layers – digital core, applications, and digital developments – operate within the organization in a transparent and integrated manner.

These are new times, but the need to efficiently incorporate the knowledge distributed around the world has been around for a long time.

At Novis we are developing a digital integration model to accompany digital transformation projects.

Feedback/discussion with the author, patricio.artiagoitia@noviscorp.com, Chief Executive Officer at Novis.

We invite all SAP clients to contact us to discuss their projects.