The expert view: Where to target investment to digitally transform your business
19 July 2017 |
Digital transformation is a ubiquitous buzzword in modern business but what is driving it, what opportunities does it present and what are the obstacles? A group of senior executives from a range of industries gathered to discuss the topic at a Business Reporter breakfast briefing at London's Savoy Hotel.
There are new technologies coming that accelerate access to data and what we can do with it, said Julian Starr, of sponsors Brocade. History shows that new technologies are usually followed quickly by new business models and opportunities. The question, he said, is where to target investment.
There are multiple opportunities. One attendee, from the oil and gas sector, said his industry had used sensors to gather data for a long time but digital transformation can go further. Instead of simply gathering data, companies can fundamentally re-architect their processes.
Another attendee said that businesses should start using data to drive predictive analytics. For example, instead of estimating how long a pump is likely to last, companies can use data to predict when the pump will fail and taking preventative measures.
Digital transformation also unlocks new business models. Many companies are looking for ways to shift from selling 'widgets' to selling subscriptions. That means, for example, that an air conditioning company could give away its units and sell the subscription to the service, providing customers with data on usage, repairing equipment before a fault develops and regularly upgrading customers.
Most attendees agreed that the digital transformation process is largely being driven by customer demand. Customers want to manage their products online, said one attendee, from the insurance industry. Insurers have typically been behind banks in adopting online and mobile services but they are now catching up.
He added that most insurers now have so much customer data available that they should be able to provide an insurance quote without asking for more information. It's up to the industry to ensure that they have the systems to make this possible.
An attendee from the travel industry said that her customers want to self-serve, rather than wait to speak to a person on the phone. When they can manage their own booking, customer satisfaction increases. Continuing to meet customer expectations was a priority for the digital transformation project in her company, she said.
The opportunity, said a banking executive, is to offer "dynamic, personalised experience at lower cost". Digital transformation can remove the need for segmentation and put every customer in a unique segment of one. The millennial generation has forced many companies to reconsider their offer. Many bank branches have been closed, for example, because millennials do not want to use them.
In general, millennials show little brand loyalty but will happily share their personal data in return for a fast and cheap service. They have a large disposable income and are willing to spend online, something that has helped to create demand for new services. Nevertheless, other attendees warned, a large brand cannot build its business around one demographic.
Banks with older customers, for example, will still need to maintain a branch network of some kind.
Other attendees said that cost was also a driver of digital transformation. One said that his IT department runs at less than two percent of turnover, which is already low. The department was challenged to remove a further third of the cost and digital transformation was a way to accomplish that.
However, another attendee said that digital transformation does not always cut costs in the IT department. Moving to cloud services, for example, can sometimes raise IT costs, though it can remove costs elsewhere in the business by allowing staffing levels to be cut.
Although some attendees had mentioned new business models as one of the opportunities offered by digital transformation, few attendees said this was driving the need to transform in their own business.
The process is seldom without obstacles, however, and key among those is getting buy-in from the rest of the business. One attendee related how, when he worked for an ambulance service, his team had determined the ideal standby points for the ambulances using data but few in the service believed them. Instead, they preferred to rely on gut instinct and the way they had always done things. This kind of experience turned out to be a common one.
One way around this was to structure teams so that digital transformation is managed jointly, by IT and staff from elsewhere in the business.
Another obstacle is ‘shadow IT’ – the tendency for staff in other departments to buy cloud services or other technology without informing IT so that they can quickly get a project up-and-running. This can cause security risks and possible regulatory breaches and it also makes it hard to know how data flows through the organisation.
Even so, most attendees were resigned to that fact that shadow IT is hard to eliminate, primarily because of IT’s reputation as the department that says no. This has to change, said one attendee. IT’s priority should be to allow new technology, but manage it.
The looming arrival of GDPR – the European data regulation that comes into force next year could be viewed as a threat to digital transformation but most of those at the briefing believe it will be a positive influence.
“It gives you an opportunity to drive the conversation and will get digital transformation onto the risk register at board level,” one attendee explained. “That will be a huge step forward for many companies.”