Now that the Internet, smartphones, IoT, cloud services, and other digital technologies have become indispensable for business, efforts are underway to utilize these technologies for the business model innovation known as “Digital Transformation” (DX). However, few companies see the success with their DX efforts. We sat down with Masakazu Amamiya, President & CEO of NRI Digital, who is experienced in utilizing digital technology for business creation, and asked him how to ensure the success of DX initiatives.
Direct Connection with Customers Gives Rise to Business Model Innovation
Why are companies focused on DX right now?
One reason is that Internet technologies and services have evolved rapidly and now directly connect companies with consumers. For example, when consumers register online for shopping, a company can learn the specific information that people are interested in. By leveraging this kind of data, companies can now offer products that cater to individual consumers.
You can say the same thing about BtoB business. IoT directly connects companies with client companies through plant machinery and equipment, and therefore these companies now can manage equipment operating rates and the timing replacement purchase real-time using data. As a result, there is less need to distribute resources such as sales hubs and stocked warehouses across the country than before. By utilizing digital technology, manufacturers and other businesses can make their sales and after-sale service frameworks more compact and realize business models that are less cost-intensive.
The key to producing results through direct connections with customers lies in whether you can organize information that’s beneficial to customers—like where and how a product can be used—in an easily accessible manner and distribute that information appropriately. Providing valuable information leads to increased sales and greater resource efficiency.
The Importance of Utilizing Customers’ “Real-Time Information”, Rather Than Just Past Information
When you have direct communication with customers, it becomes easier to gather their “real-time information”. For a while now, it has been common to use past customer information that has been stored to offer optimal products. However, data from the past will not give you “real-time information” like “who wants this product right now?” or “what are people interested in now?” It is digital technology that makes this information available—specifically, the smartphones that are always by users’ sides play a large role. Utilizing features unique to smartphones now makes it possible for customers to be influenced or motivated at specific times.
Creating Products that Utilize the Specific Characteristics of Digital Technology
The realization of less cost-intensive business models by making direct connections with customers and increased sales utilizing customers’ “real-time information” are made possible by DX, which greatly contributes to increasing companies’ profitability. The next task for companies is to figure out what products to sell. Another key point of DX is how to utilize the characteristics of digital technology to create attractive new products and services that are appealing to customers and that previously did not exist.
There is a cosmetics manufacturer that is developing a unique cosmetics service for women. Using skin information captured by a smartphone camera as well as climate and mood information, it can dispense personalized cosmetics suited to conditions at any given time from a customer’s own device. This is truly a new product made possible only by digital technology that utilizes customers’ “real-time information”, and it could be called a new business model.
How to Reap the Benefits of DX
While DX is thought to play a large role in business growth, it is also a fact that many companies feel that it has not produced the results they expected. Why is that?
One reason is that they can end up focusing too much on increased sales, and neglect cost-cutting effects. Sales are an important indicator, but cost reduction is also a benefit of DX.
Sometimes PoC projects are carried out for the reason that they are intriguing, but it is essential to distinguish the scope of a project. In cases where a department pursuing DX creates a product sales site as a proof of concept, puts in place a chat service or other method for communication exchange, and provides the options of purchasing through the site right away or after discussion with a representative, it seems to have become difficult to gain on-site help because of the increased workload. There are many cases in which a PoC does not lead to an actual service, and recently “PoC fatigue” has become common parlance. DX requires many changes and innovations to existing organization. If DX is not pursued on a company-wide basis, the expected results may not materialize.
Efforts with Machine Manufacturers and NRI
One case study of DX is Technium, a joint enterprise established in January 2018 by NRI and machine tool manufacturer DMG Mori Seiki Co. Technium aims to support customers in DX by embodying the expertise of manufacturers in software and services and providing these through digital channels. NRI Digital supports the planning, development, and marketing for these services. Going forward, we hope to pursue many projects to create digital businesses together with customers.
Nomura Research Institute, Ltd.
Corporate Communications Department