Jul. 02, 2018
Expectations for digital transformation or “DX” (a business model reformation utilizing digital technology) are on the rise. In fact, many companies have begun taking actions towards reforming their business models. At its heart, DX goes beyond merely reforming business management or operational processes such as procurement, production, and distribution, and is continually evolving in its applications for revolutionizing sales and marketing activities as well as actual products and services through the use of digital technologies.
Overcoming PoC Fatigue, and Elevating the Vantage Point of Your DX Targets
According to the “Survey of the Status of IT Use in User Companies (2017)” (the “IT Use Status Survey”) conducted by Nomura Research Institute (NRI), companies making the best use of DX for their products and services as well as their sales and marketing activities are enjoying the strongest performance results (net profit margins for the current fiscal year).
Nevertheless, it is apparent that there are a number of barriers involved whenever a certain company seeks to actually pursue DX, namely in the form of technology, human talent, internal collaboration structures, decision-making speed, and corporate cultural attitudes towards taking on new challenges. The most difficult of these barriers to break down might well be creating vectors for organizational reforms. Specifically, from the perspective of leading business entities with certain achievements, organization reforms entail sacrificing short-term gains and ultimately disposing their previous business approach, meaning there will likely be dissenting voices. And the larger the scale of the DX is, the more it will require medium-to-long term reforms, and the harder it will be to achieve meaningful results in a single fiscal year.
In pursuing reforms, it will be necessary to start small and create ways to give users (in-house) a tangible sense of the benefits. Yet undeniably, this will result in comments such as, “I tried lots of things, but nothing concrete came of it”, “It’s hard to assess the results”, or “It requires a lot of internal adjustments”, which are all signs of “POC (Proof of Concept) fatigue”.
The key to overcoming these challenges and pursuing DX in a way that offers visible results is not to limit your DX objectives to achieving mere departmental goals, but rather to dramatically elevate your vantage point, for instance by aiming to solve social issues. At the very least, the ones to enjoy the fruits produced through your company’s DX activities should be your customers. Making the beneficiary be society at large would be even better. The role of raising the vantage point for your company’s DX targets and aligning those objectives on the same vector as your company’s vision and direction truthfully belongs to the CEO.
Meanwhile, in addition to elevating your vantage point, you also need to break down the core of your plan for promoting DX. For example, the value of digital technology for your company could be to reduce the distance between you and your customers. Being able to properly create keywords or phrases like this will make it easier to organize your ground-level activities. The one responsible for coming up with them would be the CDO (Chief Digital Officer), CTO (Chief Technology Officer), or CIO (Chief Information Officer).
Management Must Invest Sufficient Time in Digital Technologies, and Hone its Insights for DX Investments
As I also stated at the outset, addressing the foundational themes of your business in the age of digitalization—such as enhancing the added value of your products and services—demands even stronger leadership compared to the previous shift toward an information society. That said, when it comes to the use of IT, management in Japan is still largely concerned with deciding on proposals, while managers who can personally suggest strategies for utilizing IT are in the minority.
DX-related investments require venturing into uncharted territory, and thus no matter how much you grapple with the idea on paper, the answer will oftentimes elude you. In that sense, perhaps we should consider DX investments not as ordinary IT investments associated with system revisions, but instead as something akin to investments in new business. After deciding on the appropriate business scale and policy, you first have to implement them. What comes next is to move towards your goal, racking up both successes and failures along the way. Most assuredly, this is why promoting DX requires strong leadership by the management.
To that end, management must take sufficient time to explore the nature of DX. However, compared to corporate management in the West, Japanese management has been found to devote relatively little time to studying digital technology. According to a survey conducted by Massachusetts Institute of Technology (MIT) in 2015 on leading companies mainly in the West (the “CIO Digital Disruption Survey”), executive committees spent 28% of their time on digital technology topics, whereas NRI’s IT Use Status Survey targeting Japanese companies with the highest sales rankings found that the executive committees of Japanese companies devoted only 5% of their time to digital technology issues. This disparity would seem to be extremely significant.
Japanese corporate management must dramatically raise its antennas to gain a richer view, without being bound by their companies’ traditional wisdom. Doing so will likely necessitate dedicating even more time to contemplating the use of digital technologies.
In our current age, DX can be thought of as a keyword for bringing management visions to life. DX needs to be used in digital strategies for realizing your management vision, rather than for making incremental kaizen improvements or technological developments. And in these efforts, the insight and the courage of top management are being put to the test.
NRI Research Paper Knowledge Creation and Integration May, 2018