How to extract value from digital3 min read . Updated: 03 Jul 2018, 12:32 PM IST
Going digital is much more than just about investing money in technology, sensors, apps, robots and Big Data
Digital adoption is generating significant excitement across the organization. The zest is warranted because digital can be truly disruptive if done well—and can yield significant improvements in business models, revenues, margins, customer service and supply chain efficiencies.
We see several approaches in play. A large heavy-industry manufacturing company, for instance, has embarked on multiple simultaneous initiatives—from advanced analytics to deploying sensors and robots—to develop a belief system around digital. On the other hand, an automotive firm has decided to develop its digital strategy before embarking on specific initiatives. However, regardless of the approach, implementation of digital initiatives is tricky.
Companies tend to put the “digital cart before the human horse". Going digital is much more than just about investing in technology, sensors, apps, robots and Big Data. Our assessment indicates that planning for the human aspect of digital infrastructure is lagging far behind the frenzy for digital investments, leading to discord, disuse and dissipation. There are three main gaps we see in extracting value from digital.
First, sharp focus on measurable outcomes and “human" business judgement is typically missing. For example, many firms equate digital initiatives with making apps and investing in sensors/robots, but do not think through how they will be used to drive outcomes.
Second, while proofs-of-concept (PoCs) are often done well, scaling up is usually not planned and executed carefully. This is a big gap. Many projects are done in different parts of the organization, generating interest and excitement; but without horizontal deployment, they do not achieve full potential. Human energy in the organization is thus not fully harnessed.
Third, capability building is rudimentary and handicaps application from the start. For example, a commodity producer invested in geo-analytic capabilities for its logistics team, may discover one year later that the plant logistics head never understood the one-time training imparted.
Three imperatives stand out. First, create measurable outcomes and track how digital is helping. These outcomes need not be only P&L (profit and loss) focused, but could have a broader balance sheet focus (both tangible and intangible). For example, an automobile manufacturer’s digital road map includes tangible metrics on safety, equipment utilization, etc. These outcomes should be used as lighthouses with strong drive and commitment from the top. Ensure leaders in digital teams have handled P&Ls in the past. This will ensure a sharp business lens is applied to the governance of digital initiatives. For example, a leading executive at a cement company was able to use analytics engines on top of Global Positioning System data and used various heuristics to narrow down specific routes with up to 40% cost inefficiencies built in.
Second, carefully plan and execute transition from successful PoCs to large-scale implementation. Use agile principles to experiment and scale up concepts that work. Iterate quickly and don’t fear failure. Create centres of excellence to codify and transmit lessons across the organization. Ensure continuous engagement and change management—create impact centres and structured change communication.
Third, plug capability gaps. Hire specific external talent where required. More importantly, invest in developing phygital (physical-digital) capabilities for your people, suppliers included. Be conscious that digital topics are new to an adult workforce and that principles of adult learning are very different from how children learn. Adults don’t learn unless they want to. Classroom trainings and conferences alone cannot suffice. Key principles of training people on phygital skill sets will revolve around continuous reinforcement, experiential learning (high relevance to everyday jobs), branded learning campaigns, teaching others and so on. Using digital technologies, firms can generate 4-6% extra revenue, 5-30% improvement in customer service and 2-4% Ebitda (earnings before interest, taxes, depreciation and amortization) improvement. However, this requires significant investment in human-centred capability. As with any other human change management effort, persistence is key. Getting initial movement will be difficult, but gains can be exponential.
Amit Ganeriwalla is partner and head of transformation practice (Asia-Pacific) and global head of supply chain, and V. Rangarajan is principal at the Boston Consulting Group.