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HOME NRI JOURNAL Taking on The Challenge of DX2.0

NRI JOURNAL

Innovation magazine that generates hints for the future

クラウドの潮流――進化するクラウド・サービスと変化する企業の意識

Taking on The Challenge of DX2.0

Shingo Konomoto, NRI President and CEO

Apr. 04, 2018

2017 was arguably the first year of Japan’s “Digital Transformation” (“DX”), which denotes the use of digital technology for business model reforms. Although NRI has increasingly engaged in DX-related consulting projects since around 2010, our clients’ subsequent IT investments have often stopped at the Proof-of-Concept or “PoC” stage. Yet in 2017, more of our clients in Japan began undertaking IT investment projects to tangibly achieve DX after their consultations. It’s not just a few intrepid companies but a wide range of enterprises that have started making DX-related IT investments, and there is a certain sense that a DX movement has now begun in earnest. This is a movement that has the potential to continue growing in the long term.

According to the “Corporate IT Trends Survey 2017” conducted by the Japan Institute Users Association of Information Systems (JUAS), 5.4% of respondent companies said that the digitalization of their business has “already been completed and has produced results”. If we add those who responded that they are “currently working on digitalization and verifying its effects” or are “looking into implementation”, that makes up just under 40% of the companies surveyed. Given this, one could say that true DX investments are still only in their infancy in Japan.
The Sloan School of Management at our joint research partner MIT has analyzed the effects of DX using two evaluation approaches. One of these is known as the “expense ratio improvement” approach. The point of this is mainly to see how a company’s costs can be reduced through digitalization, including activities such as streamlining operations using AI, analytics, and RPA (Robotic Process Automation), or radically reducing interim distribution margins using direct online sales. This type of project represents the mainstream of DX at present. The second approach has to do with improving “CX”. While CX literally stands for “customer experience”, it really refers to the strong bond of trust formed between the customer and a company’s brand during the multi-step process ranging from an awareness of services or products to their purchase, and even their evaluation. In that sense, CX could perhaps also be termed customer brand loyalty.
Digitalization is about enabling direct communication between a company and its customers using the internet. Even if you’re providing a thoroughly personalized, face-to-face service to your most highly loyal customer segment, if you want to efficiently enhance the loyalty of the broad customer base just below them, it’s best to go with digitalized measures that don’t require much human labor.
In fact, we used our “Insight Signal” (a tool for analyzing CX effects using single source data) to measure the effects of digitalization on CX for a certain consumer goods manufacturer, and when we looked at the effectiveness of digital promotion measures, mass media utilization, and store promotion in raising CX, the most effective means was digital promotion, followed by mass media and finally store promotion. Broadly speaking, DX is highly effective at enhancing CX.

Now then, why is CX receiving so much attention these days?

Every year, NRI conducts a consumer awareness survey with roughly 3,000 Japanese respondents. We’ve found that although Japanese consumers’ willingness to shop online and their actual frequency of online shopping have steadily grown, consumers are spending less time gathering information online before purchase in the categories of travel, information devices, and home appliances, in which online information gathering was once actively done. The “Surveys of 10,000 Japanese Consumers” that we conduct every three years has also found that “carefully considered consumption”—meaning that the consumer purchases a product after thoroughly researching it online—has been declining ever since the survey done in 2015. Conversely, nearly 70 of respondents answered that they’re “confused because there’s too much information” when trying to choose a product. In other words, consumers are feeling “selection fatigue” due to an overabundance of information, and are becoming more inclined to choose brands they trust and to which they’re highly loyal even though the brands cost a little more, rather than go around comparing products. This means that brand value and CX are becoming even more important than ever when it comes to product selection.

While companies obviously need to boost sales in order to achieve sustainable growth, in fact CX reforms will be indispensable to do so. A survey by MIT targeting several hundred companies across the U.S. found that 23% of companies have successfully used DX not only to improve their profitability but also to enhance their CX. While the differences in survey methods make it impossible to do a simple comparison, when we compare these findings to those of JUAS’ survey, it’s clear that DX in the U.S. is proceeding more rapidly than that in Japan.

With that said, what can we do to accelerate the growth of DX in Japan? NRI recommends that companies establish “DX labs” as one method. A DX lab is an organization formed from a “trinity” of planners (who propose business strategies and policies), IT engineers (who gather the necessary data and create a system to analyze it), and data analysts (who have mastered statistical methods and can develop the necessary insights for business based on the data). NRI proposes a scheme that involves building teams that will work together with customers in running these labs.

 

NRI Research Paper Knowledge Creation and Integration April, 2018

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