Governance Cliches #2 - Digital Transformation
Max Kraynov
Announcement: for those of you on Clubhouse - we’re got a Governance and ESG critical talk today, Friday 12 December 2020 at 19:00 Moscow time (in Russian). I’d love you to join - here’s the room link.
Part 1.
Let’s talk about Digital Transformation for some time. If you’re not allergic to this term by now, you either have thick skin, or are in the business of profiting from it, or both. This is arguably the most abused term in 2020 (maybe after SPACs, but I digress). The core statement of all consultants is that the COVID pandemic has greatly accelerated the digital transformation of companies.
There’s nothing wrong with this statement other than it’s a glorified way of shifting to the lower-transaction costs environment facilitated by software and/or robots. In many cases this is something that has been in the works for some time, but the right timing (i.e. the launch during the pandemic) can make up a good story and maybe a couple of speaking arrangements for those involved.
In a nutshell, DT means reducing human involvement in certain firm’s activities: customer service delivery, communication between supply chain members, data-driven decision making, monitoring and responding to the change in circumstances.
Customer service delivery: ATMs instead of bank tellers, online food ordering, curbside order pickup for online orders, electronic document exchange with the government, etc. Most things that have a touch point with live humans (on either side) can be optimized via software.
Digitizing supply chain relationships: as if it’s something new, it’s a no-brainer to have some sort of ERP responding to inventory shortages and automatically ordering the missing parts. It’s integrating different systems via APIs or API-like mechanisms.
Data-driven decision making: it can be anything ranging from predicting spikes in supply or demand and responding with hiring more people (e.g. delivery couriers), adjusting prices (FMCG), optimizing delivery routes based on the order volumes, prioritizing marketing spending based on the infection levels, etc.
Monitoring and responding to the change in circumstances: similar to the previous point, monitoring shelves and restocking them automatically (or at least making a noise when a popular staple is sold out) can make a break a retailer.
IT companies are having a good laugh when they hear that customer experience should be data driven. At the same time, companies with IT as a cost centre are scratching their heads about how to catch up with the general consensus.
DT can be internal and external: large firms are always on a lookout for prospective target companies to be acquired and integrated into current operations (external). Or they can build capabilities via either corporate acceleration program or if there’s a visionary in the company who hasn’t left for Apple / Google yet.
DT is a strange beast: one can make an account on Shopify and sell their wares immediately; creating an internal equivalent of Shopify definitely makes sense for larger companies, so on the surface is it indeed digital transformation. The trick is that first and foremost it’s the cost savings initiative, not the push for digital.
Let’s be clear here: as with the E component of ESG, DT is about either giving customers more value or (more often) reducing costs by eliminating overheads (which in the time of the pandemic can mean the difference between being above water and having to shut down). There’s absolutely nothing wrong with either, it’s just the nature of the statement that DT means innovation is quite misleading.
For some unknown reason many companies with several products talking to each other via APIs believe they’re building an ecosystem facilitated by DT, of course. It’s amusing to watch these companies’ attempts to create respectable customer value simply out of integrating their systems (I’m not even talking about reuse!). It kind of reminds me of 1999 when XML was the most promising technology to finally link all those data silos. Note to the Cx suite: if your DT consultant uses the word “ecosystem”, be careful and hold on to your wallet.
Let’s end this rant on a positive note. The deeper many companies dig into digital, the more they understand that they can’t go it alone. Law permitting, it makes more sense for supply chain members and even remote competitors (i.e., I do business in Russia, you do a similar business in Brazil) to consolidate some data for better decision making. Small data (even primary, i.e., internal to the firm) is often less useful than the “enriched” data from other sources – all of which are holding on to this golden goose egg without understanding the limitations of it.