• The Essential Guide to Digital Transformation

Chapter 5

Why Digitization is Essential?

4 April, 2020
Digital technology has been roiling markets and disrupting companies for more than two decades, but despite that lengthy history, incumbents are still struggling to enact and deliver on digital transformations.
The first challenge is disruption; digitization is enabling new, disruptive models that aggressively compete with legacy models, putting material pressure on incumbents’ revenue and profit growth. As incumbents fight back with their own digital strategies, our research shows that they often trigger a second wave of competition, closer to the notion of Schumpeterian imitation where incumbents start themselves to innovate, sometimes aggressively, against the threat of entrants slashing yet more revenue and profit growth. Both waves of digital competition has taken out half of the annual revenue growth and one third of the growth in earnings from incumbents that have failed to respond to digital.
The second challenge is that, even when companies do launch transformations in response to competition, the results are often underwhelming. It is estimated that the average return on incumbent digital initiatives is below 10% — barely above the cost of capital. Besides the average, however, a large spread among firms in terms of their ability to sustain growth and generate a return from their digital investments.

What is driving companies to digitalize?

Communication Platform

Some firms have engaged to some degree in platform strategies, in an attempt to redefine their industry’s value chain so customers and suppliers can interact more directly and benefit from network effects. Platforms have the power to radically alter the way value is distributed in a value chain.

New Marginal Supply

Many firms were using digital technology to tap into previously inaccessible sources of supply at a marginal cost. Examples include the Swedish retailers H&M and Ikea, both of which are offering a online reseller options for their own customers, allowing them to sell used, branded products to one another.

O2O Products and Services

Many companies were using digital technology to create new products or services with digital features combination with mobile applications, typically to serve new demand with additional value to their customer. One example is P&G’s Oral-B toothbrush with Bluetooth-enabled digital guidance.

Rebundling and Customizing

A lot of companies are using digital technology to rebundle their products or services to better serve their existing customers. The paywall for news content erected by the New York Times where people can personalize reading lists and organize the content they read is a good example.

Digital Distribution Channels

Many firms invested in digital distribution channels, in an attempt to make it easier for customers to access their products or services. This include building an e-commerce platform or making integration with popular online shops. As online purchase are becoming a norm these days for many customer.

Cost Efficiency

Many companies were using digital to improve their cost efficiency, typically through automation or cost scaling. In an age where operational excellence is the norm, this strategy looks like it’s aimed at survival with lower overhead rather than creating a source of comparative advantage.

3 Popular Processes that can be Improved by Automation

Many businesses are now transitioning online in a bid to streamline the management and day to day running of operations. This shift is being powered by a new wave of technology that allows companies of all shapes and sizes to be more strategic and efficient. This trend is set to continue as more businesses understand the benefits of digitalisation and move to capitalise on them.

The Cloud

The role of technology in the workplace has changed dramatically. Cloud computing is technology that can help your company gain a competitive edge in the marketplace. The introduction of cloud computing has revolutionised how businesses operate, providing new levels of flexibility and access via remote working.
Cloud computing is the delivery of IT services online in the ‘cloud’. A growing number of businesses are adopting this application for their IT infrastructure. It is more secure – hosting your systems on remote servers protects your information, prevents data loss and allows for a more effective and protected storage solution. It is also more reliable with automated data backups and disaster recovery.

Workflow and Document Management

Another way to increase productivity is through automated workflow. This is a system that digitally produces, tracks and manages documents associated with your business processes.
Many businesses find they have large paper archives and countless boxes of old documents that are taking up valuable office space. Over the years it’s likely that the organisation and storage of these documents will fall into disarray, leaving a large paper trail of archived work.
Effective workflows are crucial; the more efficient, cost-effective and sustainable they are, the better prepared you will be for the future workplace. An improvement strategy will help manage your documents whether they are paper, electronic or digital.
There are many benefits to this; reduced costs, improved efficiency, security, which is especially important to those who must comply with rules around legal or sensitive data. You can control when, who and to what capacity certain people access documents, with a solid authorised paper trail.
Popular departments who benefit from this process includes digital mailrooms, recruitment, HR and finance management divisions. Essentially it allows you to manage your information, analyse current performance and optimise for continued improvement.
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Those who embrace these technical advancements into their business structure will thrive, those who don’t risk being left behind the digital revolution.

Data Capture

Intelligent data capture manages the process of capturing incoming information or data to your business, ensuring it is processed and documented efficiently.
Information coming into an organisation typically arrives in paper, fax, web or email format. With intelligent data capture solutions, information can be automatically classified, extracted, validated and shared with digital workflows or existing ERP systems.
There are many data capture technologies that organisations can incorporate into their processes, the most suitable will depend on the nature of the business. Digital pens, tablet or OCR intelligent document and image scanning are the most popular. The information gathered can then integrate with host systems and pre-defined databases – automating the process from start to finish.
When this process is digitalised and automated, it eliminates the human error factor and will increase data quality and accuracy. It also saves a huge amount of time, increases efficiency and productivity and lowers organisational and storage costs. It improves business processes and increases transparency internally.

Where the Digital World Meets the Physical World

Whether you’re a technologist within your company or an operational or business leader, you’re probably aware of several significant technology trends, including the internet of things (IoT). Often, IoT is described as a massive network of connected devices and sensors that transmit data via wireless and wired networks.
However, in enterprise and industrial environments, IoT can be viewed as the convergence of information technology (IT) and operational technology (OT) – or where the digital world meets the physical world. Most people know what IT is, but not as many are familiar with the term OT; it’s important to understand what OT is and why it’s converging with IT because this convergence creates both opportunities and challenges for businesses.

What is Operational Technology (OT)?

When most people think about the technology within their company, they think only about information technology (IT). The reality is that enterprise technology also includes operational technology (OT), especially in industrial firms. In fact, OT is often even more mission-critical than IT. OT incorporates all the physical infrastructure that underlies many businesses, including power plants, production lines, vehicles, locomotive and aircraft engines, HVAC equipment, oil & gas rig equipment, and many others. This infrastructure is made up of complex machinery and is increasingly being connected to networks.
Operational technology is relevant for most companies, but especially those in industrial sectors like manufacturing, oil & gas, utilities, service & repair, medical devices & healthcare, and real estate. These industries have physical assets residing in the real world (as opposed to the digital or virtual world) that need monitoring, maintaining, repairing, and optimizing.

Why are IT and OT Converging?

There are two primary drivers for IT/OT convergence: fundamental shifts in technology and operational business demands. On the technology front, these fundamental shifts in core technology have changed the foundation on which all IT initiatives are constructed:

The advancement of wireless networking, proliferation of smartphones and tablets, and emergence of new mobile interfaces (such as wearables and heads-up displays) are changing the primary computing device for many workers.

The increasing miniaturization of components has created the viability of putting sensors on virtually everything so machines and assets of all types can be connected to share data.

The ability to consume and process data at scale and access resources in an on-demand model allows companies to harness greater computing power.

The widespread use of big data and evolution toward artificial intelligence will create new insights from the data being collected and analyzed.

The other main driver for IT/OT convergence is the need for businesses to conduct their operations better, faster, and safer. The pressure on industrial companies to remain competitive means their operations need to yield greater productivity, with better visibility into core operations, asset optimization, improved service, and employee and environmental safety being ever-present demands. Increased digitization of industrial and field operations is often viewed as a means to solving these core business challenges; the terms ‘Industry 4.0’ and ‘the 4th phase of industrial evolution’ are often used to describe this trend.
The reality for companies is this: eventually, most, if not all, OT gets touched by IT. The digital world is meeting the physical world, and organizations must prepare for this new reality.

IT/OT Convergence is About People

It’s clear that emerging technologies – cloud computing, artificial intelligence, mobility, IoT, NFC and others – will continue to change the way work gets done. And although work is changing, there are still people – human beings – with jobs to do. Often, these are companies’ most critical workers: first-line workers who need technology that makes their work easier, better, and safer. The next wave of emerging technologies, including body-worn hardware and wearables, augmented reality, and artificial intelligence and voice assistants, is poised to create a new era of immersive first-line worker digital experiences.
This next generation of mobile worker experiences presents the opportunity for companies to realize improved operational efficiencies, better customer engagement, and enhanced revenues. But first, organizations need to understand how to harness these powerful digital technologies by aligning solutions with business objectives.

New IT/OT Challenges Require New Solutions

The intersection of IT and OT means enterprise IT must adapt their thinking to provide reliable, mission-critical solutions for industrial operations. This convergence presents organizations with new considerations and new challenges; tackling these challenges requires individuals within organizations to recognize disparities and adapt traditional approaches. IT needs to meet the needs of OT and vice versa.
Additionally, business technology leaders need to consider how operational initiatives intersect with digital technologies and new user interfaces such as wearables, heads-up displays, augmented reality, and others. And since IT/OT convergence represents the intersection of the physical and digital worlds, organizations must realize that the bridges between those worlds are often people – field workers, technicians, equipment operators, etc. The ability to create digital experiences that allow these front-line workers to interact with the physical world that surrounds them will be critical.

New Technologies Create a “Solutions Gap”

As with any new wave of technology, another challenge emerges for businesses. When new technology is created and introduced into the market, there’s typically a disconnect between the vendors who sell the core technology (such as hardware, software, or cloud services) and the enterprise customers who can benefit from them. While the technology itself is compelling and business leaders can see their potential in transforming their operations, a gap remains in terms of understanding how to effectively implement them in their organizations. We call this disconnect the “solutions gap.”
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