Sustaining Business Value With Digitization

December 25, 2019

A Roadmap For Digitizing Operations And Unlocking Hidden Value For Consumers In Their Buying Journey

Digitization For Process Transformation


When it comes to business transformation efforts, the adage, “fools rush in where angels fear to tread” holds true. The best example comes from digitization in contemporary practice, and no one is exempt. In the past five years alone, digitization efforts within some of the largest organizations in the world have at least one failed digitization campaign to look back on: Cooperative Bank’s digitization program spanned over seven years, and was eventually closed in 2013, after incurring a cost of GBP 300 million. Ford’s plans to introduce personal mobility via digitization resulted in a drop of its share price by almost 40%, and the resignation of its chief executive three years later in 2017. Digitization—despite being potentially the most important transformation effort in business today– is not a one-size-fits-all effort.

In fact, its progress isn’t necessarily unidirectional either. The difference between organizations that can successfully bring operational transformation through digitization versus those who cannot lies primarily in implementation. Designing a digitization roadmap for your organization helps you steer clear of statistically significant failures in the bid to digitization.

Step #1: Ascertaining The Need For Digitization The increased focus on digitization notwithstanding, not all businesses are cut out for digitization. In fact, in the “The Next Factory of the World: How Chinese Investment Is Reshaping Africa” author Irene Yuan Sun makes a case for quite the opposite. Citing “boring unsexy businesses” driving growth, she describes how a Chinese shoebox factory brought about a socioeconomic transformation in an African city, with pure manufacturing and no digitization. Even if detractors treat this as anecdotal evidence, digitization-led growth cannot be compared with the volumes of similar manufacturing-driven businesses.

The fact that captive centers in the global BPO industry have a growth forecast also goes on to prove that operational tasks are not necessarily being eliminated—they are merely being transferred to offshore locations of the same entity. According to another source, the global outsourcing industry—which includes shared services, BPOs and IT outsourcing, it set to grow to $971.2 billion by 2023. That’s a CAGR of 7.4% between 2019 and 2023. This way, the organization maintains the buoyancy of its revenue streams and global competitiveness. And most importantly, progressing this way ensures that all global tangents stay aligned to the same business mission. Also of consideration is expense: Digitization (and by corollary, automation) does reduce operational costs—by up to 50% in some cases. But again, it’s not a one-size-fits-all. In other cases, the cost of implementation is only marginally lower than expected gains from the effort.

In 2017, the International Data Corporation predicted that the cost of digitization would rise to $1.3 trillion by 2018, rising to $2.1 trillion by 2021. The catch? About half of the spend in 2018, $662 billion was dedicated towards enabling the transition of existing operations, due to the enterprise’s ‘digital impasse’.
Hidden Customer Value: Delayed differentiation to achieve competitive price.

Step #2 Operations and Digitization-Needs Assessment Managerial policy warns against the perils of treating symptoms instead of the disease. This advice, unfortunately, is difficult to put into practice. We often encounter organizations where the focus is on digitizing processes. The correct approach in this case would be to redesign systems to eliminate redundant processes instead of automating them. Financial services are a case in point: FinTech apps simplify the buyer journey by shortening transaction cycles and removing the complexity of paperwork. Data requirements are rationalized. And despite not demanding excessive user information, the applications achieve high-frequency transactions and process transparency on both sides of the buyer journey. Digitization in their case, adds ease and convenience to the experience.

By contrast, there have been banks who first converted their traditional pen-and-paper forms to online forms—asking for the same consumer data, and still conditioning the bank account opening process to the same delays and repeat verifications that existed in the non-digital process. Because of the banks’ highly top-down, centralized structure, data movement was restricted. The customer could not view account details in real time. Data visualization was an inflexible challenge, so it was difficult to spot compliance oversights. In the case of the Fintech applications, digitization was used to solve actual problems. In the case of the latter, digitization was a ceremonial add-on.

To avoid this in your own roadmap, start by asking: What is the problem digitization is supposed to solve? What will be different in the user’s experience after digitization? What will be better? What will change? How will the customer be brought on board with this change? These questions should ideally precede the questions related to process change. In other words, successful digitization depends less on existing capabilities, and more on an organization’s realistic assessment of how those capabilities need to be enhanced (or merely redirected) to meet emerging needs in the buyer journey.

The intersection between buyer pain-points and existing organization capabilities highlights the next part of the digitization roadmap: The core business offering.
Hidden Customer Value: Leaner processes

Step #3 Core Business Value As earlier illustrated, digitization and automation are not the same. One requires redesigning a process, the other that we compress a series of tasks into one job. By the same angle, not all operations contribute directly to business success. Many operational activities exist in part to support the ones that do feed into tactical or strategic priorities of the organization. Categorizing operations by tactical and strategic relevance is a critical part of the digitization roadmap. Decisions at this stage will be difficult to reverse, as they feed directly into the implementation stage.

Fortunately, even traditional business tools can be used to reach a reasonably accurate assessment: a. Develop flowcharts for each process, highlighting the decision stage.
b. Add approximate time consumed per process
c. Calculate the ratio of processes to decision
d. The higher the ratios, the more critical it is to redesign their operation(s) to eliminate redundant processes
e. If low ratios correspond to high levels of time consumed, the operation needs to be redesigned for automation.

Typically, low ratios will be more closely tied in with organizational direction, i.e. Core Operations.

If your organization follows the ABC Accounting approach, another way of categorizing operations is via the BCG matrix: Replace the products in the matrix with processes. This will determine the cost/benefit value of eliminating or compressing each operation.

The fundamental assumption behind digitization is that an organization is ready for renewal. By defining core expertise—or the essential ingredient for its competitive success, an organization will be empowered to invest in the inflection points that matter.
Hidden Customer Value: Shorter turnaround time and competitive offering that addresses actual customer pain-points.

Step #4 Degrees of Internalization Operations that support (but do not contribute to) the main function are unlikely to weigh in heavily on the buyer journey. But many considerations come into the picture before this side of operations can be compressed or eliminated altogether.

Feasibility: Consider feasibility beyond cost-benefit analysis. Think of it in terms of opportunity cost. What loss (direct or indirect) would the customer perceive if this process did not exist? If there is no tangible loss to the customer experience, and costs can be rationalized, one should proceed with eliminating the process from operations.

• Competitive advantage: Market leadership can assume many forms: It can be due to differentiation, first mover advantage, horizontal integration, or simply because of power brands. Digitizing operations will certainly deliver short term value. The challenge will be to regularly map the evolving buyer journey against the touchpoints of the new operation cycle. Areas of competitive advantage are not outsourced. So again, the feasibility analysis of digitized operations as a function of its contribution to the firm’s competitive advantage must be regularly measured.

Comparative advantage: Operating in fragmented markets can make operational decisions easier. Unlike competitive advantage—which marks you as a clear industry leader—comparative advantage suggests that you are only marginally better than several other distributed players in the industry. When operating in such markets, standardization and consistency matter more than differentiation. So it makes sense for firms to invest in digitizing the operations that support supply chain smoothing. For manufacturing concerns comparative advantage can grow into competitive advantage if digitization enriches operations with traceability and standardization. They become easier to monitor, provide users with much needed transparency and establish trust between both stakeholders.

• Data sensitivity has gained increasing importance, particularly in healthcare and financial services. Organizations need to now ensure that their outsourcing partners have the robust and secure infrastructure needed to protect sensitive data from system vulnerabilities.

Once leadership has established its position on the factors above, it can make quantifiably sound decisions on the degree to which each operation needs to be digitized.
Hidden Customer Value: Retention and brand loyalty

Step #5 Building A Digitization-Enriched Culture Management literature is generously populated with failed transformation efforts. More often than not, the failure can be attributed to an internal culture of resistance. Not addressing resistance is a recipe for sabotage. So although it’s the fifth item on the roadmap, the truth is, in many ways, creating or managing for culture is the first step in digitization. Equipping employees with the right skills is only part of the process. Overcoming their apprehensions with digitization is a much bigger, and harder part. Focus groups and depth interviews can sometimes be better at understanding the underlying issue than surveys, which some employees might perceive as an extension of the same impersonal experience they expect to continue with digitized operations.
Hidden Customer Value: Improved service levels. Omni-channel experience

Step #6 Creating The Infrastructure: Building the right infrastructure is about more than hardware. It’s about supporting capacity. According to the IDC, approximately $326 billion would be spent in 2018 towards “technologies supporting Omni-experience innovations”. The purpose of this technology is to truly create a unified customer experience, and that requires reshaping the interaction between products, stakeholders and customers. Reshaping could take one of many forms: Mass personalization, or reinforced standardization of the service experience, depending on what the product is, and how its target market interacts with it.

Capacity is a trickier issue in the wake of data privacy measures across the world. Infrastructure now also demands robust management of data—such that its acquisition, visibility, storage and transfer are both secure and transparent. To that, add the customer’s right to exercise data deletion. The challenge with this right is how it affects analytics: How do the predictive analytics change when customers exercise their right to be forgotten? In the age of cloud computing, how do organizations ensure the data deletion process is both secure, complete and uniform across all devices?

Unified Customer Experience does require walking a tightrope between data protection, user privacy and a completely seamless experience across devices. The digitization roadmap should emphasize the need for minimizing the collection of backend analytics. Customization need not be intuitive. Self-reported datapoints can be as diagnostic as those collected from behavioral analysis.

Infrastructure creation also requires making decisions centered on the kind of technology businesses want to invest in. It helps to revisit the ‘Why’ and the ‘How’ of the business here: Why do we want to digitize? What gaps do we expect it to fill? And what kind of technology will enable us to do that. So, for instance, for purely service-oriented firms, it makes sense to invest in cloud, Big Data and mobility. But for businesses keen to overcome the manufacturing-service-delivery gap, it makes more sense to invest in IoT, robotics, cognitive computing and artificial intelligence.

Hidden Customer Value: Omni-Channel Experience

Step #7 Structure Extensions: To reiterate, technology internalization is not digitization. To digitize operations, one has to rethink the buyer journey in terms of where digitization is needed, and what specific value it will deliver. One does not need to digitize each operation to have a successful transformation effort.

Having said that, rethinking the buyer journey also means extending the scope of one’s influence in the ecosystem. Digitization—as we have seen in the case of GE and Ford, isn’t just about a new process of getting results, but a new way of approaching the world outside the organization. Ergo, rethinking relationships with stakeholders.

In emerging economies, it is not uncommon to see organizations ‘adapt’ to digital trends by vertical and/or horizontal integration. The idea is: if we don’t have the agility or resources to execute digital transformation, let’s collaborate with a business that does. Again, this is not a one-size-fits-all. And integration efforts are not unidirectional: One organization discovered that outsourcing of its call center gave the service the speed and experience excellence it could not have achieved in-house. In the case of another large organization—an energy concern, using their own complaint center data to predict service levels across a region proved to be the right decision. For this, they acquired external data management capabilities. One B2C concern—a large consumer goods firm—decided it was easier to simply absorb a data science startup to enhance its own capabilities. Eileen Smith, IDC Program Director summed it well when she said, “While the investment strategies may differ from company to company, the objective remains the same: to reimagine and reconstruct the business to compete in the increasingly digital economy that’s platform-powered and ecosystem-enabled.”

Thinking in terms of ecosystems is important. Because it reminds us of two things: a) The fluidity of stakeholder interaction b) The buyer journey as a reaction to stimuli inside and outside the organization
Hidden Customer Value: Convenience and experience excellence

Step #8 Scaling Across: The larger the organization, the harder it can be to scale digitization efforts. In the case of manufacturing, especially, concerns like quality standards across borders, price controls and other externalities weigh in heavily on the degree of adaptation. Organizations undergoing such challenges would be advised to “scale small.” Instead of using one country as a digitization ‘pilot project’ and replicating the model globally, they should start by digitizing one process worldwide. This will educate future resource decisions, without the cost. Hidden Customer Value: Global Unified Customer Experience Journey

References: https://www.idc.com/getdoc.jsp?containerId=IDC_P32575
http://www.digitaljournal.com/tech-and-science/technology/the-cost-of-digital-transformation-to-reach-1-3-trillion-by-2018/article/510340
https://www.hellosign.com/blog/the-cost-of-digital-transformation

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