Digital Transformation
Digital technologies have recast business models and business value chains for over two decades, in almost every facet of work. The financial services, retail, media, entertainment and travel sectors have all been upended.
The burgeoning internet of things, along with technologies like edge commuting, materials science and even 3-D printing means that the industrial sector is likely to see the same upheavals as the commercial and services sectors have currently endured.
Those disruptions will prove uncomfortable and even destructive for some, yet the long-term benefits of digitisation are now much better understood.
“Article written by Andrew Birmingham, Editor-in-chief and Associate Publisher at Which-50.com”
In a report from Telstra called “Embracing the Digital Economy” the authors write, “Increased digitisation in Australia could add up to $90 billion to the Australian economy corresponding to 250,000 new jobs by 2025. The digital economy benefits are an Australia-wide opportunity that can have profound impacts for communities.” (https://www.telstra.com.au/business-enterprise/news-research/research/embracing-the-digital-economy)
Much more, faster
The first 25 years of disruption seem almost evolutionary compared to the huge acceleration of digital transformation since the global COVID pandemic upended the economy.
Bond Capital’s Mary Meeker — author of the famous annual “State of the Internet” report — predicted in April last year that the businesses which will weather the disruption best will be those that embrace the core tenets of digital business. They will rely on Cloud services, sell always in-demand products or products that make businesses more digitally efficient, they will be easily discoverable online and can serve customers with limited contact.
Later in 2020 McKinsey & Company studied the impact of COVID-19 on its corporate clients and reported that most had, on average, experienced seven years of transformation in just six months. Another way to think of that is that if you didn’t reform your business during those months you are now seven years behind your competitors!
The effect was even more pronounced in the Asia Pacific region, which saw an average of ten years worth of transformational work in just six months.
And while much of the focus was on the impact of the shift to work-from-home arrangements, the biggest impact was actually found elsewhere. The management consultants reported the largest leap in digitisation was in the share of offerings that are digital in nature — now at 55 per cent on average globally, up from only only 35 per cent before the pandemic began.
But this is not simply an issue for global enterprises. One of the extraordinary effects of the pandemic shutdown is that every community everywhere in the world was impacted at about the same time, creating a rare economic alignment requiring adjustments to businesses large and small.
According to McKinsey, the reason why every business no matter its scale or maturity has had to react is because the biggest inhibitor to digital transformation — the inertia of business as usual — was swept away.
BAU was simply no longer a viable option.
Take ecommerce, for instance. About ten per cent of Australia’s retail trade happened online pre-COVID, according to National Australia Bank. That ballooned in March 2020, simply because there was no alternative.
And it immediately created new problems.
Australia’s logistics sector was calibrated around single-digit or low double-digit online sales. It simply was not equipped to cope with an overnight shift to mass online trade.
And remember, that huge shift in consumer behaviour occurred when internal borders were closing and international travel was greatly restricted.
Customer service was likewise disrupted. Internal call centres in Australia were closed as staff were ordered home. Companies that relied on outsourced call centres overseas fared even worse in some cases.
Luzon province in the Philippines, which hosted call centres for many Australian businesses, shut down with less than 24 hours notice — leaving businesses to contend with how they could get their staff home from the office in the middle of a strict curfew. Taking calls from customers simply wasn’t the main concern!
The impact on call centres of the massive shift to work-from-home revealed the extent to which those businesses which took digital technology seriously suddenly had a massive advantage over those that didn’t. Companies that relied on Cloud-based software-as-a-service applications were able to migrate staff rapidly to home working arrangements.
Those who were late to the party struggled to adjust.
Measuring success
Digital transformation, like many business process reengineering projects, often suffers from the difficulty of proving the benefits.
BCG for instance, says that as few as 30 per cent of digital transformations deliver the intended business benefits. ( https://which-50.com/only-30-per-cent-of-digital-transformations-are-successful-bcg/ )
However, such statistics need to be taken with a grain of digital salt. These figures tend to reflect the original deliverables in the business case, and really represent a failure of planners to understand and define the long-term benefits.
McKinsey has identified five metrics leaders should focus on to determine success in digital.
These include:
The return on digital investments. Don't just look at the value of an individual project, but rather how an initiative supports your strategic organisational goal. Don’t try to fix everything at once, but focus on a critical process or a customer journey and then broaden out from there.
Percentage of annual technology budget spent on bold digital initiatives. Don’t starve your most strategic and bold initiatives with parsimonious budgets. And recognise that technology projects have changed — the days of big monolithic IT architecture is past, moving instead to best-of-breed tools, customer applications and what the technologists call micro-services (https://www.gartner.com/en/information-technology/glossary/microservice#:~:text=A%20microservice%20is%20a%20service,independently%20deployable%20and%20independently%20scalable).
Time to market for digital apps. Don’t boil the ocean. Instead, focus on the quick translation of ideas into tools for frontline use. Time to market for things like new analytics models or new application tools should be measured in months, not years!
Percentage of the leaders’ incentives linked to digital. Align management incentives to the organisation’s digital goals and make sure that incentives across departments do not work at cross purposes. Your technology chief needs to be involved heavily in product design and delivery and their incentives should be inked to things like new application builds, cycle time, and business value generated.
Top technical talent attracted, promoted and retained. Finally, and crucially, focus on attracting and retaining the best talent in areas such as data engineering and analytics, design and user experience, and core technology. And remember that the talent you need will change as your digital maturity improves. So the staff plan can not be a set-and-forget engagement.
Digital transformation is a super cycle that will last decades. Many companies are only part of the way in their journey.
Industry analyst Gartner, for instance, says that 87 per cent of senior business leaders say digitalisation is a company priority — yet only 40 per cent of organisations have brought digital initiatives to scale. And Gartner warns that the gap between aspiration and achievement is widening (https://www.gartner.com/en/publications/the-it-roadmap-for-digital-business-transformation).
The changes ushered in by the COVID-inspired acceleration are likely to prove sticky, according to Gartner, and consumers will continue to reward businesses that make the experience of being a customer simpler, faster and easier.
Article by Andrew Birmingham
