My favorite hashtags: digital transformation, digital company, digital business, digital everything! I am all about digital, I live it and I breathe it. And then I have to make a bank transfer and have to fill in a bunch of paper forms and "sign here, here, here, and initial here please." Sigh!
We have been talking about digital for two decades, and there are still myriad obstacles to full digitalization of enterprises. We haven't even figured out bank transfers yet, not to mention electronic voting! There are real companies out there who haven't heard of machine learning! Half the reception desks in my home Taiwan still hand you a clipboard to sign in when you visit a company! When we delivered the final product of a government tender in 2017, we had to send 10 printed copies (close to 1000 pages!) along with the hard disk full of design data. On the other hand, some countries and companies have banned paper completely: if you want to become an Intel supplier or open an account with Citibank, they no longer accept paper documents.
A divide has opened and I am not talking about the one between rich and poor countries. Because let's face it, some poorer countries are more digital than many rich ones. Just think of American paper cheques vs Kenyan online banking. I am talking about the massive divide between digital and non-digital organizations, between those who get it and those who don't. And I have a message for those who don't: Sayonara, suckers!
I recently went to a conference on marketing in the machinery industry. The moderator of the panel asked me "how can we update our marketing strategies and bring them into the 21st century?" I asked if he had already connected with me on LinkedIn. He said: "Oh no, we don't allow our employees on LinkedIn. They could divulge sensitive information." I gave my little talk on inbound and content marketing and was mostly met by blank stares. At the end of the conference, I had to sign an attendance list. Pen on paper!
Around the world, organizations, governments, and companies are falling behind when it comes to digital transformation. Even in the US, the majority of companies are not keeping up. According to research from the McKinsey Global Institute, the U.S. economy operates at only 18% of its digital potential, and the sort of productivity gains that digital technologies should be enabling, are not showing up in the broader economy. For Asia, the figures are presumably worse. Very few countries have significantly better figures, usually due to the influence of trailblazing individuals or enterprises.
The Digital Divide
The digital divide is massive, and even though technology companies are doing slightly better, there are huge gaps in every industry. Those gaps are not about buying IT equipment, but about the adoption of digital processes and digitally enabling employees. One of our clients is a large electronics manufacturer of the latest gadgets and gimmicks, and yet their employees still punch in every morning on a 40-year-old machine and sign paper payment slips.
The reasons for digital backwardness are manifold; some of it has to do with government regulation, some of it with management. We can't influence government regulation, but we can listen to our clients. So we went and asked 200 companies what keeps them from adopting more digital business processes and digital marketing strategies, and how they use data to drive company culture. The results were shocking, but not unexpected.
74% of companies said that there was no pressure from management to change; 62% said management didn't understand digitalization; 55% said the transformation was too complicated and/or expensive, and a full 78% didn't know exactly what kind of processes could or should be digitized for greater efficiency.
Modernization and Digitalization go hand-in-hand
The process of modernizing a business to use new tools and technologies is key to digital adoption. Yet even in countries like the UK or Germany, most small and medium-size companies are lagging far behind. At the same time, savvy multinationals are pulling away from the pack and leaving everyone else in the dust. The results for the Mittelstand around the world will ultimately be disastrous. While Adidas is busy setting up fully digital, robotic manufacturing sites near customers, Asian manufacturers are wondering why their OEM business is shrinking year-on-year.
In summer 2017 we did a brand and marketing audit for a company that completely missed out on digitalization and digital marketing. It was one of two manufacturers of portable audio equipment of a specific type. In 2010, it had slightly higher sales than its digitally savvy competitor. In November 2017, it was acquired by the very same competitor, who had grown tenfold in the same period, simply by modernizing and adopting digital marketing strategies such as, in this particular case, Instagram, and introducing digital co-working tools throughout the enterprise.
Taiwan has a low birth rate and not enough talent for its many high-tech industries. Yet only 8% of companies surveyed actively use LinkedIn to look for and engage with potential candidates. The same companies that don't understand digital platforms for HR or marketing are also behind when it comes to the digitalization of other businesses processes.
Be Digital, or Be Disrupted
The threat of disruption due to lack of digital skills is very real. We handle the recruiting marketing for a big semiconductor company. During the development phase of our strategy, we asked 5000 students how they rated employment opportunities at various companies. 72% of students said they would not bother applying at a company without a professional LinkedIn profile because such a company was probably "not a great, modern, place to work." (A surprising 48% said they wouldn't even trust a company without an Instagram account.)
The next generation of employees grew up digitally native, and they don't trust companies that aren't digitally savvy.
If your company is older than ten years, it is probably not native to the cloud and has to deal with outdated IT infrastructure, legacy software systems, and, very often, inefficient, analog processes. When confronted with these facts, the most common answer we get from management is "why change when it works so well." See, that's the problem! Your competitors are increasingly lean, efficient, digitally native, and agile. They make much better use of their capital and delight their customers by engaging with them across multiple channels in the most resource and time-efficient manner.
For another client, we evaluated ten of their competitors - all in the CNC machining and injection molding business. The two companies with the highest growth rates over the past years were those who had implemented full digital submission of files, video conferencing and collaboration software, as well as digital invoicing and procurement. In fact, those two were the only ones growing since 2012.
If you don't digitize, you won't win new business, won't keep existing customers; you will be eliminated as a supplier to multinational companies who have embraced digital business processes and will fall behind the competition in every possible way.
There is simply no way of staying relevant without embracing digital transformation.
Disruption Starts with Digital
It seems that disruptive start-ups are everywhere these days, from agriculture to banking, from pharma to contract manufacturing. Before the emergence of cloud computing, the world saw around 2-3 billion-dollar companies emerge every year. Since the advent of cloud computing over 5 years ago, that number has grown to over 50 a year. That's a lot of unicorns threatening your existing business.
There is a reason sales of servers are going down, and the reason is cloud computing and fog computing. Yet in our survey, over 65% of company executives said they were "not familiar with the advantages of cloud computing" and 59% said they were not "ready to trust cloud computing services with their data." While data privacy and safety concerns are highly relevant, they also mask a tremendous ignorance when it comes to the latest computing platforms and services. Only 1% of responders had heard the term "fog computing" or knew what 5G would do for the Internet of Things.
Change is Terrifying, Change is Necessary
Yes, change can be terrifying. But change is not an option. Not only does redefining business models mean increased risk and a significant investment of time and money. it can also challenge the position of executives who are no longer willing to adapt to a changing business environment. Over 80% of companies in our survey said that "personnel issues are a significant obstacle to the modernization of business processes."
It doesn't have to be that way. Regular training courses or adoption of mentor principles (where an older exec is given a younger, digitally native, side-kick) are keys to keeping the organization relevant. Such innovations are a lot more important at the moment than trying to figure out which country to invest in or which machine to buy. Rather than choosing between three brands of server architecture, companies should think about how to replace antiquated IT infrastructure and move to more efficient cloud solutions.
Where to begin your digital transformation?
Digitalization changes the way your company appears to partners, customers, and suppliers. Their experience is key. The so-called UX/UI isn't just a design feature of an app, it is the entire interaction with your company. "Customer first" has become something of a cliché, but it is now more important than ever. With even more choice and an easy way to compare, the consumer has all the power. I personally removed all my accounts from one bank recently because I was fed up with the amount of paperwork they require for every single process.
Product digitalization is the second pillar of change, i.e. using technology to enhance your offer or service. That means virtual manufacturing processes, the adoption of digital document management, internet of things, remote management, and so on. All of this makes the production, distribution, tracking, warehousing and repairing of goods and services faster and more efficient.
Process optimization is the third pillar of digital transformation. It required the most coordination, the biggest changes, and, very often, the largest investment in new technologies. However, done right, process optimization can significantly cut the cost of dealing with all kinds of problems in the enterprise, from customer complaints to failure rates. One of our customers, YCS, is a Taiwan SME that improves efficiency in manufacturing by monitoring and controlling every part of the value chain, eliminating the need for time-consuming manual checks.
Process optimation begins with questioning everything you do.
Process optimation begins with questioning everything you do. How many people have to sign off on an order? Do we really need to fill in paper check-lists for every single control step? Who has a say in creating a new marketing strategy? What part of marketing can be handled more efficiency by artificial intelligence?
Start by asking all the teams in your organization to map out everything they do, and then search for elements that are unnecessary or redundant. A lot can be delegated to lower-level management if the right checks and balances are in place. At one of our clients, we found that a 200+ employee company had to get every single document signed by the boss, from the requisition order for brooms to the contract with the local health-care provider. Almost all the inefficiencies at that company could be removed by eliminating the outdated idea that a signature by a manager (who is probably not paying attention to what he or she is signing anyway) confers some kind of authority, or prevents fraud or misuse.
Digital adoption is a culture change
At the end, however, you can do all the customer experience and product digitalization you want; if you don't have employees who are behind the digital change, you will not be able to create an intelligent company.
Changing business processes means taking authority away from people and enabling others. It may be hard for older employees to accept that, but it is absolutely necessary for growth and competitiveness. Employee engagement is not just about improved collaboration or messaging tools, but involves creating a more efficient experience for everyone, from the doorman to the board members.
Read also: Employee Advocacy and Digital Marketing
Adoption of digital processes will allow you to move away from 9 to 5 (or rather 9 to 9 here in Asia) drudgery to more flexible work models and thus greater employee satisfaction. The more competitive your industry, the more important this employee satisfaction will be for retention and acquisition of talent. Many companies - especially in Asia - expect employees to be available on digital messaging tools even outside normal working hours, while at the same time completely failing to adopt digital processes that would allow said employees to become more productive. A whopping 94% of companies we surveyed said that "finding and retaining employees is the biggest challenge."
And then there is the infrastructure
Underpinning the entire digital transformation is, of course, IT. That means exploring and adopting the latest tools and making the best use of data. It makes sense for a company of a certain size to have someone on the team who looks for and evaluates the latest software solutions for every team or department.
Cloud and fog computing mean that managing your own hardware is a bad use of your time and resources. Most of what we used to do on our in-house infrastructure can now be done more efficiently and significantly cheaper with cloud-based tools. That means managers must understand data, data usage, privacy, data warehousing, and security issues.
A modern IT manager must understand what these mean and what they can do for your organization. IT departments are not there to maintain PCs, upgrade memory, or change printer cartridges. The must lead the enterprise-wide understanding of emerging technologies, platforms, and software solutions.
Machine Learning, AI, Big Data and Analytics
Finally, there is machine learning and artificial intelligence, big data and analytics. Machine learning is the grease that makes businesses successful. Data visualization is one of the most overlooked components. Many solutions are readily available in the cloud, and visually interpreted data about your sales, your clients, and your internal processes, will allow you to modernize much faster and more efficiently.
Artificial intelligence isn't just a buzzword for the future, it is changing the enterprise of today. Machine learning solutions should be incorporated today, in order to improve product development and customer experience. Read more about How to Start Incorporating Machine Learning in Enterprises. Machine learning is key to securing competitive advantage.
Digital transformation is a hot topic, but what it comes down to is simply staying with the ball. You can't stay competitive without digitalization, and you won't be able to recruit new people if you are not digitally savvy. Nobody wants to work for a dinosaur company, and no dinosaur company has ever won a prize for innovation.
Digital transformation is not something you do once, it is a continuous process and a complete change of mindset in the enterprise. Use corporate training to help your teams change, reskill where necessary, and change your employee's mindset. We don't just need to accept change, we need to love it. If you don't get started with it today, it's already too late. The sample principles of "continuous improvement" that guide manufacturers must be part of your entire corporate DNA.