The advancement of digital technology is rapidly changing our lifestyles, businesses and society. Today, the ability to embrace digital transformation, or DX—leveraging digital technologies to improve productivity and enhance the value provided to customers dramatically—is considered crucial across industries as a key factor determining whether a company will flourish or flounder. We interviewed President Yasuaki Kuwahara and Vice President Hiroshi Tatematsu of KDDI Digital Design, a joint venture between KDDI and NRI that was formed to support corporate efforts to promote DX, about how DX may bring about corporate transformation.
Link to article on Part 2
Digitization Has Improved Productivity and Enhanced the Value of Customer Experience Drastically
――How come DX has garnered attention reasently?
Tatematsu: One reason is that improving productivity is an urgent issue for companies. The decline in Japan’s population, in particular the working-age population, which is the core of labor, is having a serious impact on sustainable economic growth. To fundamentally solve this social problem, we must use digital technologies to drastically improve work efficiency. Meanwhile, the environment for providing the customer experience (CX) is changing dramatically as well. Today, everyone has his or her own smartphone, and the advancement of IoT has connected a variety of things to networks. Not only will digital technology change the business way and how people work, it may also significantly change how Japanese peoplelive their lives.
Kuwahara: In recent years, consumers are seeing clear improvement in the accuracy of product recommendations. This has enhanced the customer experience (CX), thus leading to consumption. That is to say, along with the advancement of digital technology, big data use has grown into a full-fledged practice, and thus progress has been made with optimization, and the accuracy of predictions has been refined dramatically. With customers’ actual experiences, the value of DX is being recognized, and we are seeing real momentum.
DX Redefines Corporate Activity
―― When a company makes an IT investment, it needs to focus not only on cutting costs or improving efficiency but enhancing the value of CX as well.
Kuwahara: I think so. The value of “things” has been commoditized, preventing consumers from appreciating the advancement; on the other hand, when it comes to customer experience, or how “experiential things” inspire people, the sky is the limit. A shift is taking place from “defensive” IT investments—which have been used for improving efficiency and streamlining—to “offensive” IT investments, which include making services and products more attractive, thereby increasing customers, sales and profits. At the heart of this trend is CX. That is the trend today.
Tatematsu: It’s certainly important to make investments in what’s called business IT※1, collecting and analyzing more and more customer and market data for use in business. But this doesn’t mean it is okay to neglect conventional efforts to rebuild backbone systems, which are referred to as corporate IT※2. The volume and speed of input data have changed completely, making it necessary to change the internal PDCA cycle. That is to say, DX is redefining all aspects of corporate activity from service and business to operational processes and personnel. We need to use this perspective in rethinking corporate IT, which is built with the purpose of improving business efficiency and keeping operations steady.
- 1 Business IT: IT that contributes directly to business expansion, including digital marketing and Fintech.
- 2 Corporate IT: IT that contributes to improving in-house administrative matters, including large conventional back-office systems.
Deepen Technological Understanding Through PoC
――While companies pledge to utilize digital technology, they often don’t go beyond Proof of Concept (PoC).
Tatematsu: One reason is that the process of data collection and analyses, and organizations doing such work, end up being isolated. Companies may find a trend from an analysis of data they collected, but they don’t go beyond that, and the results are not used for actual business. Without hammering out a long-term scenario before conducting an analysis, it’s easy to lose sight of the objective and why a project is being carried out.
When you don’t have to make IT investments right away, it’s important to test out various digital technologies. Gain knowhow, and at a critical moment, use the optimal technology and be the trailblazer in carrying out reform. That’s what PoC is supposed to be.
Kuwahara: When you use PoC with the aim of enhancing CX, which leads directly to sales and profit, you need not only equipment but also a customer base and channels for measuring their reaction; but in reality, most companies lack a sufficient scale of these. Take a company that has been building contact points with customers mostly online. Even if it wants to establish a physical presence, it doesn’t have any physical contact, so PoC would be difficult. Likewise, even if a manufacturer wants to add service through IoT, it usually doesn’t do anything beyond selling and is not connected with customers, so it would have no means of measuring the outcome. In order to successfully enhance CX, you need an external partner that supplements aspects that you cannot cover with your own resources. Many companies are unable to find such a partner, or to utilize such a partner well.
KDDI×NRI Tie-up Yields Speedy and Single-Contact DX Strategy
――What kind of support does KDDI Digital Design provide to companies that have difficulty to move forward?
Kuwahara: What is absolutely necessary in achieving DX is a driving force for closely linking business and data analytics and examining them. In most cases, business models that companies have built will be destructed, and self-reform is extremely difficult, so a partner supporting DX will be essential. KDDI has a combined customer base of 50 million subscribers, both corporate and retail (including hundreds of thousands of corporate subscribers), and this forms a type of “economic bloc,” which helps us gauge whether a company’s envisioned model will be embraced and whether new value will be created. When we add this to NRI’s perspective as a consultancy and system operation expertise, we can get this cycle going more quickly and more realistically. With this partnership, we offer the best of the two companies.
Tatematsu: When a company collects and accumulates big data and analyzes it, it needs to address potential leaks and other risks. That is the area where NRI excels. It’s also important to share customer data that different business units across the company have. We are consultants that understand the unique dynamics and thinking of Japanese companies that go beyond merely introducing technology to change a business framework; we also tie that in with business. Customers can tap that capability of ours as well.
Nomura Research Institute, Ltd.
Corporate Communications Department