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Jan 21 2016

Digital enterprises require network transformation

By 2020, the digital enterprise will require much different information and communications infrastructures. A digital network transformation that embraces current and emerging technologies is needed to enable enterprises to compete in the digital economy. And this transformation will affect all industry sectors and enterprises:

  • Tourism
  • Real estate
  • Automotive manufacturing
  • Retail
  • Healthcare
  • Banking
  • Public sector

Digital economy creates need for change

Today’s enterprises are at an inflection point.

In the past, an enterprise might take 10 years to build a recognized brand with an efficient distribution channel network. Now a start-up creates its enterprise in an hour on a PC, designs cheap prototypes with 3D printers, finances product development with crowd funding, and has the world as its market. The Internet provides the distribution platform and marketing campaigns go viral on social media.

As a result, the delivery of traditional network services no longer works. Networks are being virtualized and services are becoming more flexible based on technologies, such as software-defined networking (SDN).

The 2020 digital enterprise

By 2020, the new digital enterprise will be characterized by a business focus on customer experience and networks with fewer physical assets. It will have to cope with digital economy and deploy innovative technologies rather than just react to them.

According to PriceWaterCoopers, the sharing economy market will reach $335 billion USD in 2025. By that time, digital enterprises will be characterized by minimal assets and fewer employees.

For example, Uber capitalization is currently at $40 billion USD, which is as much as Orange Group. But Uber is built on contract workers, not employees. And Airbnb has only 600 employees for a capitalization of $13 billion USD, which is as much as car manufacturer PSA Group.

Some characteristics of the new generation of digital enterprises include:

  • A more inclusive and more social way of working: Social networking technologies will be integrated into the workspace. There will be less hierarchy and employees will have more autonomy.
  • Flexibility and freedom: Employees will define their own working environments.
  • Smart objects: Technology will help employees understand where and when to be active and productive, and stay connected to each other in the moment. This will increase data connectivity — 20 times more information will be exchanged within 5 years.
  • A personalized and context-sensitive experience: By analyzing all available data in real time, companies will have a unique opportunity to provide a superior customer experience and create collective business intelligence.
  • More creativity: Enterprise success will evolve to be defined not just by money, but by employee commitment, community involvement, and sustainable development.

Digital network transformation needed

To survive in this new environment a traditional enterprise network must be digitized, diversified, and streamlined.

Digitize

Some B2B or B2C activities must be transferred to communities (professionals, small entrepreneurs, and users), over-the-top players, and digital platforms to let enterprises benefit from their innovation forces at low cost. As an example of a winning partnership, Spanish bank BBVA is applying a “buy not build” strategy with the acquisition of “big data” Spanish start-up Madiva and the digital bank Simple.

Diversify

Gartner1 predicts that enterprise architectures in 2020 will abstract industry boundaries: “CIOs need Enterprise Architecture with an outside-out focus that orchestrates across undefined ecosystems of customers and partners to enable complete open-business transformation.”

For example, Volkswagen leverages additional potential along the customer value chain by serving as a:

  • Car manufacturer with multiple brands
  • Bank for financing
  • Garage
  • Virtual service provider (GPS, telephony)
  • Vehicle insurer (assurance, theft protection)

Streamline physical assets

According to Roland Berger Strategy consultants, infrastructure accounts for 50% of IT/network costs. To streamline costs, digital enterprises must either in-source or outsource their IT/network infrastructure.

By outsourcing, digital enterprises can compete against other players in the new economy:

  • Outsourcing IT infrastructure to service providers or to the cloud enables as-a-service business models (SaaS, IaaS, PaaS) and provides more agility with fewer assets (e.g., Amazon AWS, OBS).
  • Transferring some B2B or B2C activities to digital platforms (e.g., Salesforce, IMS RAPPORT) reduces costs.
  • Creating alliances enables lateral diversification. For example, Google and Sanofi are partners in the e-health domain where they are looking for new ways to monitor and treat diabetes.

By in-sourcing, digital enterprises can build their network infrastructure and a private or hybrid cloud with dedicated datacenters. This allows enterprises to:

  • Maintain control over mission-critical services or sensitive data (e.g., RTE INUIT France IP/MPLS network)
  • Use new technologies, such as SDN or network functions virtualization (NFV) to ease network resource management
  • Build a private cloud for agile development and the ability to launch and test new services quickly

Digital network transformation opportunities

Enterprises can address the requirements of the digital economy by beginning the digital network transformation process today. They can become faster, more agile, and create open innovation with fewer physical assets and new ways of working.

According to OVUM’s super themes that reflect the changing technology landscape for 2015 (Ovum 2015 Research Agenda & Services), there are 8 steps enterprises can take to reach this goal.

  1. Modernize legacy systems

    Along the path to innovation, the digital enterprise should modernize its infrastructure to IP networks, platforms, and applications to enable the rapid delivery of business-centric services.

    This transformation can lead to consolidation of the network and data centers in-house with IP/MPLS, to outsourcing of the infrastructure to IT/telecom service providers, or to virtualization of physical assets in the cloud with NFV/SDN.

  2. Adopt cloud services

    The cloud is definitely the main element of change for the digital enterprise. By 2020, 62% of organizations say they will be running 100% of their IT in the cloud.

    Using SDN/NFV technologies, enterprises can restructure the cost of delivering bandwidth to small offices. This will enable the use of centralized data servers or a fully outsourced cloud approach.

  3. Build the modern workplace

    Enterprises should enable larger digital ecosystems and provide an extensive set of APIs with IMS or WebRTC, for example. This will expose data that powers communities and platforms and enable business apps and services that enhance the customer experience.

  4. Connect the physical world

    If enterprises go digital, the physical world will not disappear. Controlling the environment will become important and more Internet of Things applications are expected. For example:

    • Utilities: Installation of more smart meters and smart appliances (350 billion annual smart meter readings in 2013)
    • Healthcare: Deployment of remote health monitoring devices (95% of clinical data is now video)
    • Retail: High increase in the use of radio frequency identification (RFID) tags. Users will consume over 150 billion RFID tags during this decade. Retail consumption of RFID tags is growing at over 40% per year.
    • Automotive: Increasing installations of sensors in connected cars, which will deliver $17 billion US in 2018 to service providers (CAGR 25%).
  5. Manage security, identity, and privacy

    Cyber security is important for digital enterprises. Extra-large enterprise decision makers confirmed this in a survey conducted on behalf of Alcatel-Lucent by Penn Schoen Berland (PSB). Respondents ranked security 2nd behind ROI when asked to select up to 3 factors they considered the most important when evaluating a possible new technology solution.

    Figure 1. Most important factors when evaluating a technology

  6. Exploit business information

    Businesses that don’t invest in a big data network won’t be able to compete against cloud and big data innovators. Surveys show that 70% of enterprises have deployed or plan to deploy big data projects in the coming months. The top 5 sectors investing in big data are:

    • Telecom service providers
    • Transport
    • Tourism
    • Finance and banking
    • Electronics

    For example, Tesco, a multinational grocery supplier, generates more than 1.5 billion new items of data each month. The Walmart® warehouse now includes some 2.5 pentabytes of information, the equivalent of approximately half of all the letters delivered by the US Postal Service in 2010.

  7. Enhance the customer experience

    Surveys also reveal that 50% of enterprises rank the customer experience as the most important factor in their business strategy, followed by the product at 37% and price at 13%.

    Most customers in 2020 will be smart. They will know what they need and use social networks effectively. Ratings on car performance, retail pricing, and product quality will be part of their buying criteria. Therefore, winning customers will be about attracting them and keeping them happy.

    For example, 96% of new vehicle buyers today use the Internet to buy a car. Renault Nissan, the car manufacturer, launched an innovative on-line store that provides real-time price quotes. This service won the digital service Award 2015 from “Usine Nouvelle”, the number 1 B2B press group in France. With this service, Renault has multiplied the number of sales leads it generates by a factor of 10 versus a traditional car retailer. And it has logged a lead to sale transformation rate of 30%.

  8. Transform IT capability

    Enterprise IT must move from managing networks to managing the customer experience. This move will reposition the role of IT within enterprises. It will make IT a competitive tool of the new economy.

    In this move, CIOs will become Chief Data Officers (CDOs). And CDOs will need to know what drives the business, how business processes work, and how these all fit together. Since data and the application market’s place in the cloud is at the core of IT business, CDOs should understand cloud xaaS services and propose them to run business processes.

Enabling the digital enterprise

By taking these steps, enterprises can prepare themselves for a role in the digital economy of the future. In this future, machines and humans will interact for a better quality of life, and for a happy and healthy society. Digital enterprises will be more creative. Technologies will be a part of the solution, but the customer experience will be the driving force of all business.

Enterprises that adapt and undergo a digital network transformation will leverage technology for a future in which everything that can be connected to the Internet will be connected to the Internet. And they can take part in a future that is more inclusive, more participatory, and more social with a new way of working.

Enterprises are at an inflection point. Nokia is building networks with enablers that will support your digital transformation from now to 2020.

Our authors look forward to your questions and comments.

Footnotes

[1]Gartner. Industry 2020: Enterprise Architecture that Abstracts Industry Boundaries. March 26, 2015. https://www.gartner.com/doc/3015718/industry--enterprise-architecture-abstracts

About Gilbert Marciano

Gilbert is head of customer marketing at Nokia for Orange and France. With 20 years of international experience, he has a solid reputation for going beyond business as usual by turning market trends and customers' challenges into concrete opportunities. A strong innovator and all around nice guy, Gilbert is a regular speaker in various telecom industry panels. Talk to him about the Internet of Things, big data, network cloud, 4G/5G, smart cities, and 2020 enterprise services.