What Next in Digital Transformation?

Most enterprises today are serious about leveraging digital technologies to transform their business, be it for revenue growth, cost optimization, improved customer outreach/experience, or higher efficiencies. IT plays a pivotal role in this journey, for which enterprises have either appointed Chief Digital Officers or re-aligned their CIOs’ KPIs toward the same.

Despite doing this, many enterprises are still struggling to truly ingrain digital into their DNA. Digital initiatives are still treated as programs that run in their own silos, and are not really aligned with the organization’s growth strategy.

To make this alignment successful, CIOs and digital leaders must review the new digital reality and understand how is it different from the physical world. To understand this in more detail, we spoke to Sudhir Tiwari, Managing Director and Sagar Paul, Director Client Services and Strategy from ThoughtWorks.

Presented here are some insights from the discussion, which would really help enterprises decide the next course of action for their digital journey.

Indian Businesses are no Longer Insulated

For a long time, Indian CEOs felt that the market in India won’t change. That is now history, according to Sudhir, and the credit for the same goes to unicorn start-ups like Flipkart, Uber, etc.

Sagar illustrated this with the example of a large retailer who had around 3,000 stores. When the company went online, they merely treated it as their 3001st store because it was very hard for their leadership to think of it as something that was completely different. As a result, they continued to treat it as routine technology that IT has to manage. You can’t really compete with e-commerce giants like Amazon and Flipkart with such a mindset. “When Amazon spends 10-15 billion dollars on tech every year and this customer spends less than half a billion, how can they even keep up? So, conversations are very different today”, is what Sagar stressed on.

Traditional brick and mortar enterprises in India must understand this to remain competitive.

IT’s Role Has Changed to Fundamentally Disrupt the Business

Digital is a very different mindset and the biggest struggle digital leaders are facing is how to change the organization to live with this new reality.
--Sudhir Tiwari, MD, ThoughtWorks

IT was earlier used to help drive efficiency without really changing the core business, according to Sudhir. Today, forward thinking organizations see it as a means to fundamentally disrupt the business they’re in. “We’ve seen industries vanish for not recognizing this. Nokia and Kodak for instance, missed the boat”, he said.

Organizations must therefore recognize the true potential of digital and understand how IT should be leveraged for the same. What we’re witnessing in this space is nothing short of a revolution, and Sudhir aptly tags it as the fourth industrial revolution. Smartphones today for instance, have more compute power than what NASA had used to put man on the moon. That’s a lot of power in the hands of ordinary consumers. Industries who’ve recognized this potential and leveraged it are thriving. “Take Amazon for instance. They used to sell books and offered logistics services before they took it all digital”, Tiwari added. Today, they spend about USD 4 billion on R&D alone!

Your Next Competitor Could Come from Anywhere…and Fast

Another thing to understand, according to Sudhir, is to question what business is an enterprise really in. Why? Because in the digital world, competition could come from anywhere, and it could come up very quickly. Just look at how e-commerce disrupted retail, or how mobile wallets like PayTM have disrupted the financial services industry in such a short span of time. The key to their success is the speed with which they tap new market opportunities.

Traditional organizations can’t afford to follow their own pace to bring out new products and innovations. “Earlier, you could work at a plan and then had a year to roll out a product”, said Sudhir. But today, if you have the right platform, you could immediately go to market with ideas that are still at a nascent stage without testing them thoroughly. The testing and improvisation happens along the way based on market feedback. “It’s a very different mindset and people are really struggling to quantify it”, he added.

“How do you transform the organization to live with this new reality is something that keeps a lot of executives awake at night”, Sudhir added.

Digital is Not About Launching a New Digital Marketing Campaign

Organizations shouldn’t treat digital as just another technology to be leveraged to launch say, a digital marketing campaign for a new product. They must understand the bigger picture of what’s happening in their industry and how digital could completely disrupt their business. “Unfortunately, company boards are still two or three steps removed from how their industry is behaving today”, said Sudhir. To explain how, he quoted an example of how the automotive industry is transforming in the US. He said that about a decade ago, the sector would conduct hackathons just for fun. They thought that the outcome would at best be something that could be used in car infotainment systems. “It would be difficult for anyone for instance, to connect the engine control unit to the cloud”, he said.  Things however, are very different today, with driverless cars and autonomous vehicles being controlled from the cloud. “As a result, today there are more software jobs in Detroit than automotive itself!”, added Sudhir.

OpEx is the New CapEx

Whether it takes six months or two weeks to go to market with a campaign is definitely a KPI being used by some of our customers.
--Sagar Paul, Director Client Services and Strategy, ThoughtWorks

Another important thing to realize is that traditional IT buying is pretty much going away. “Earlier, 50% of a CIOs’s budget was used to buy hardware and software, which has pretty much gone away; The rest was used to buy ERP software, all of that also seems history”, said Sudhir.

The big question now is where’s the money being spent then? Sudhir says that in most digital era companies, OpEx has become the new CapEx. Companies are breaking up their big CapEx budgets into Micro CapEx and focusing on two months or a quarter at best. “They’ll park some money for digital initiatives and if they see resonance with customers, they’ll pump in more money”, he added. This naturally changes the way to look at RoI and other success metrics, which is the other thing to embrace in a digital journey.

Success Metrics are Different for Digital

With a micro-CapEx, you can’t really measure the RoI in two months, so according to Sagar, what matters here is customer relevance. You must keep a close watch on whether you’re seeing the first shoots of recovery or growth from an activity. “The moment you see initial customer resonance, the next micro-capex can be rolled out and over a period, as you get closer to your customer, you could end up getting to a much larger RoI than planned”, he explained.

This sounds nice, but how do you really justify such ‘two-month micro-CapEx’ based activities to your CFO? You can’t really tell him that there’s no RoI. According to Sagar, all plans need to be broken down and written in the book of accounts. “5-year plans should be broken down to annual plans and then into micro-CapEx units”, he said.

The new digital era will not use terms like KPIs to measure success, because things are different in the agile world. People who’re still caught in the old ways will face problems. What’s needed today is to measure the ability of an organization to quickly change themselves. “How quickly can an organization adapt to change will be a strategic ability, and those who have it will succeed”, added Sudhir.

Sagar further illustrated this with an example. “One KPI being used by some of our customers is how long it takes to go to market. Is it six months or two weeks?”, he said.

Digital Re-Defines Cost Optimization

There’s a huge difference between physical and digital when it comes to cost optimization. According to Sagar, the physical world looks at depreciating value of CapEx, whereas the digital world operates on OpEx, where doing cost optimization is much harder. So instead of measuring depreciation, it’s better to measure revenue and the cost of that revenue. “For instance, if you have a seasonal business, then you could be completely penny-wise and pound foolish if you don’t think of using Robotic Process Automation and Machine Learning (ML) to bring down the number of your contact center reps”, he explained.

Digital Has Several New Technologies to Look Forward to

There are several new technologies to look forward to in the digital world. Sudhir feels that Augmented/Virtual Reality will bring a lot of change in the way people interact and Sagar added ML to the list, due to its ability to augment human decision making.

Tech platforms are another area to look forward to, as they help engineer better and faster products. There is also a huge push in security, which is far beyond traditional application/network security, because of the growing number of devices and interactions happening on them. Another technology on the rise, according to Sagar are robots. These aren’t necessarily human replicas, but rather intelligent devices that could be programmed for a particular task, like drones or robotic arms in factories.

Fundamentally, Sagar sees two computational level changes happening that will aid all these technologies. First is of distributed computing, which lets you take the full power of cloud and makes sure that the whole network behaves as your infrastructure.

The second shift is of streams and how do you manage them. With the number of sensor based devices on the rise, there’s already a lot of data sitting in Hadoop clusters, NoSQL, etc. As more devices get added, they will start spewing huge volumes of data. It won’t make sense just to store them. The real value will come by processing such streams on the fly.

Other Interesting Reads:

The Digital Mindset, Part I: The Why, How and What of ‘Going Digital’ 

The Digital Mindset-Part II: On-ground View of Transforming Organizations

How Domino’s Pizza Achieved 50% More Profits in a Year

An Airport in Your Pocket-Bengaluru Airport’s Digital Journey

7 Digital Innovations That Changed the Fortunes of Domino’s Pizza

How Sathyam Cinemas is Clocking Big Business on their New Digital Ticketing Platform

Allied Irish Bank Goes Digital, Crosses 700,000 User Base on Mobile