Digital transformation isn’t a luxury, it’s a necessity


18 Feb 20203.92k Views

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Innovation for innovation’s sake is not enough. Tata Consultancy Services’ K Ananth Krishnan discusses how companies can enact digital transformation more effectively.

The way we conduct business is changing. Digital technologies such as AI, machine learning, IoT and cloud computing have the potential to transform the way businesses structure themselves, develop new products and highly customise customer experiences.

This potential for change is widely known as ‘digital transformation’, but what does that really mean? Digital transformation is complex and while many business leaders have a clear idea of how they want their businesses to change, they are far less clear about the steps needed to get them to their destination.

It’s important to be realistic. Digital transformation is a journey in and of itself. It’s not just about creating a foundation of digital technology on which to build, it also encompasses company culture, structure and ways of working. In other words, changing how the business thinks, plans and gets things done.

‘In the digital era, shying away from innovation and experimentation is the real danger’

In today’s tech-driven economy, digital transformation isn’t a luxury, it’s a necessity. There’s widespread understanding that digital technologies are required to deliver the level of service and experiences that are now expected by the next generation of consumers, and investment in digital technology isn’t enough. This is illustrated in Statista’s estimate of the digital transformation market in the US growing to a total market revenue of more than $490bn by 2025.

There needs to be strategic purpose when leveraging new and emerging digital technologies. Innovation for innovation’s sake is not going to make a company competitive among its digital-driven counterparts. Because of this, there are four branches, or ‘behaviours’, of successful digital transformation that organisations must understand when making such investments. These four behaviours are: driving mass personalisation, creating exponential value, leveraging ecosystems, and embracing risk.

Recent studies have shown that a majority (82pc) of companies have adopted one to three of these behaviours, but only a sliver (9pc) of companies have successfully adopted all four. The majority (60pc) of those that have embraced all four transformative business behaviours expect more than 10pc revenue growth in the next three years.

Driving mass personalisation

Consumers increasingly expect a personalised experience across different channels. According to research from Walker, customer experience will overtake price and product as the most important brand differentiator for consumers by 2020. Understanding and investing in the technologies that help deliver personalisation at scale is the most important step.

Start with ensuring different systems and databases are fully connected and sharing the information required to create truly omnichannel experiences. Once this is done, you can bring more advanced technologies such as machine learning into play to leverage existing data to gain more actionable insights.

Creating exponential value

There is truth in the saying ‘every company is a technology company’. Digital technology enables businesses to develop their business models far beyond selling their core products and services, unlocking new revenue streams and expanded customer bases in the process.

This can be done by properly integrating internal systems, so data is shared effectively across the business. That data can then be used to develop new business models, such as offering products ‘as a service’ as opposed to one-off purchases or selling additional services on top of an existing product range.

Large businesses – those with annual revenues of more than $1.1bn – are especially strong at creating exponential value out of their data. With the right technology and internal processes to draw insights out of their data, businesses of any size should be able to find fresh ways of offering their customers new products or services, creating exponential value for their companies.

Leveraging ecosystems

The modern equivalent of the saying, ‘no man is an island’ is that no company exists in isolation. Digital technologies have allowed traditional industry domains to blur. For example, with the emergence of electric vehicles, the power industry is finding the auto industry in its sphere. Complementary service providers, dependents and disruptors are emerging across industry segments, so finding beneficial ways to leverage this wider ecosystem is a key to successful business transformation.

Technology start-ups have come to be an essential part of any industry ecosystem. Large banks are learning from fintechs, heavy engineering companies are bringing on start-ups that are working with sensors. Energy producers who once ruled the roost are competing with small energy producers and relying on trading algorithms to buy and sell. Airlines want to offer end-to-end services such as hotel and cab facilities.

Synergies must happen way beyond traditional supply chains. An open mindset and collaborative networks are required to plug quickly into adjacent ecosystems. Developing open APIs that allow third-party vendors more access to your business platform will encourage the development of an open ecosystem, enabling you to begin building new propositions and upsell opportunities.

Embracing risk

Of the four business behaviours of business transformation success, the most challenging for organisations is embracing risk. Nearly seven out of 10 businesses have not adopted agile working practices widely, which makes it challenging for them to embrace an innovation mindset.

It’s not hard to see why. In many ways, embracing risk goes against established management wisdom. However, in the digital era, shying away from innovation and experimentation is the real danger. Companies that fall behind in the race to innovate and offer new products at speed and scale are more exposed to disruption at the hands of a challenger brand.

Some businesses have already embraced the underlying working methodologies and technologies that will enable them to take greater risks. Agile working has been adopted by 70pc of digital transformation leaders and helps teams experiment with innovative new product ideas, while using relatively few resources and limiting risk exposure to the wider business.

Cloud technology, which 90pc of businesses plan to be using extensively by 2021, cuts down on limits to IT team capacity and enables businesses to rapidly scale resources up and down at a relatively low cost. This quickens turnaround times and increasing the ability to react to unexpected changes or opportunities across the business.

Transformation does not have to be intimidating. By focusing on the four behaviours, businesses will be able to direct efforts where they really count. Leaders of digital transformation are more likely to report strong financial performance, and this is a powerful demonstration of how technology, thoughtfully applied to change business behaviour, can put businesses in a strong position to not just keep up with competitors, but also become an industry leader.

By K Ananth Krishnan

K Ananth Krishnan is the EVP and CTO at Tata Consultancy Services, a multinational IT service and consulting company.