As a result of changes in the market and in competition on a global level, all kinds of companies have become critically concerned about sustainable growth, and are finding themselves in dire need of coming up with new strategies. Given the situation, stories on digital technology are being reported in the media almost daily, and for companies, even more palpable than the innovative drive to undertake digital transformation (DX) is the sense of the risk incurred by not getting involved in it. According to the results of various surveys conducted throughout 2019, the percentage of Japanese companies engaged in DX has already reached between 50-70%, yet many of these efforts have consisted only of utilizing digitalized data as an extension of their extant technology, and there are few examples of operational process reforms that could rightly be considered innovations. And “business model reforms” using digital technology in the original sense of DX have been limited to efforts by a very select few leading enterprises.

Shifting perspectives from “goods” to “services” is the key to achieving DX

In terms of leading examples of digitalization, US auto manufacturer Tesla stands out. With its vehicles connected to a network and utilizing information obtained from onboard sensors, Tesla has produced very high-level automatic driving functions and safety performance. The steering feel and other aspects of the ride can even be customized to suit the driver’s preferences using the vehicle’s control panel. You can also use the network-based software update feature to keep your vehicle up-to-date, which means that with regard to a Tesla’s functional level, even the vehicle’s running performance will be better than before while you use it. This is the digitalization of goods in the fullest sense.
Toyota has taken things a step further, declaring its intention to transform from a company that makes cars to one that provided all manner of services involved in transporting people throughout the world. This is a “business model reform” that entails building new business platforms centered on connected cars.
The key to achieving DX lies in viewing things from a thoroughly customer-centric perspective, with the point at issue changing from what types of goods to create to what types of value and services to provide. Consequently, the way that companies build relationships with their customers and the players involved will change, and business models too will be greatly transformed. Creating ecosystems that transcend industries and business relations, as well as finding other ways to enhance your value as never before, and improving the quality of your traditional business assets, all while creating new value and processes from scratch—that is how you can produce big results. And digital technology is sine qua non for DX. Up to now, IT has been a matter of cost handling at many Japanese companies, but it has arguably come to be regarded more properly as an engine for growth.

The four hurdles that companies must overcome in pursuing DX

Companies looking to enact business reforms using DX must clear the following four hurdles.

(1) Creating systems with driving force

Many companies create organizations focused on individual businesses or operations based on successful past experiences, and let them have their own budgets and responsibilities. When a company creates a new organization with a mission to innovate, conflicts with its existing business can lead to situations where the old guard looks down on the newcomers or sees them as opponents. Yet conventional points of contact with customers and operational knowledge contain a great many hints for succeeding at DX. Choosing personnel with business leadership skills and an eagerness to drive innovation, as well as creating structures that also fundamentally involve those on the ground, will be the keys to success.

(2) Business designs that yield profits

It is vital to look closely at the assets in your existing business and to refine your thinking by adding in new concepts and ideas, but a company will not work to implement an idea simply because it is novel on its surface. The important thing is having business design capabilities for developing your ideas into businesses that are competitive and that also can be scaled up and yield profits.

(3) Highly agile business development scheme

In some cases, the practical potential or marketability of investments in new services or business models cannot be demonstrated, and there is nothing solid on which to base your decision-making, so the grounds for deciding one way or the other are not always clear. There are also many cases where a business will be in the red until a certain customer base or business scale is achieved. It is necessary to have a business development scheme for making decisions amid those circumstances, bringing concepts to market with a sense of speed, and coordinating the next step while ascertaining your users’ reactions.

(4) Removing IT limitations

With business and IT coming together more than ever before, companies need to develop their existing IT—including their backbone systems—to make them “DX ready” and flexible enough to prevent them from constraining business. Specific examples of this are switching to the cloud and adopting microservices.
It would be difficult to overcome such high hurdles with only your on-the-ground efforts and determination. Some may conceivably take the opposing view that while reforms are fine, the figures for existing business take priority, and as such, it is extremely important for top management itself to have a desire and a concept for business reform, and to give the orders. Further, rather than looking at it as a matter of making one major reform every 20 years that does away with your current operations, instead consider it, for example, a matter of discovering insights that will have a business impact using AI and applying them bit by bit to your business, or engaging in operation-related automation, optimization, and predictions, and other ways of steadily accumulating smaller reforms and creating conditions where these reforms are always happening somewhere in your company. In so doing, you will lay the groundwork for reforming your business, and this will also lead you to cultivate in-house personnel. Reforms require passion and patience.
NRI Group has accumulated experience and insights into DX activities as a strategic partner where consulting and IT work hand-in-hand. We have also possessed this kind of passion and patience throughout our history.