In recent years, China’s business environment has changed at an unprecedented speed, and many traditional enterprises seem to be at a loss. Just like what companies in the United States experienced during the 1990s: Technological innovation is driving industries to switch from a pure product economy to a service economy. In a more open market, risks, uncertainties, and transformations become the new norm. Many enterprises have embarked on digital transformation to follow the digital economy trend — but only a few have succeeded.
A recent study by Accenture provided proof of this situation. At present, more than 80 percent of Chinese enterprises cannot figure out how to harness digital technologies for efficiency, more revenue sources, and business growth. At the same time, only 4 percent of Chinese manufacturers have unleashed the potential of digitalization through investment in technology.
Digital transformation of traditional enterprises is similar to a ‘second-time startup.’ Compared with smaller scale start-ups, digital transformation is more difficult for traditional enterprises that worry business failure will follow any attempt to start their transformation. We understand this anxiety, however, the following misconceptions can prevent enterprises from choosing the right time for transformation or adopting the proper approach, incurring even more difficulties for enterprises.
Misconception 1: Digital Applications Bring Quick Results
Chinese companies are generally enthusiastic about technology investment, and many believe that deploying new systems will bring immediate benefits. However, we find that operational improvements are not occurring in most enterprises. The causes are as follows: 1) Real transformation cannot be implemented overnight; 2) Many enterprises explore digitalization without a complete strategy. In most cases, they are making piecemeal attempts.
Based on a customer survey, Accenture found that Chinese enterprises attach great importance to digital construction on the production line but ignore planning and management. For example, regarding design, enterprises are not making the best use of digital technologies when launching new products or services. Only 8 percent of enterprises can deliver innovative services based on intelligent product terminals that collect user behavior data and feed Big Data analysis.
Enterprise leaders must understand that digital technologies are only an enabler. Digital transformation is not just ‘icing on the cake’ and each department should not pursue their goals independently. Instead, digital transformation needs to be promoted by the top decision-makers in the enterprise to make it a development consensus for the entire company. Digital transformation needs to be implemented by all organization units in an End-to-End (E2E) manner from strategies to the organizational structure to operations.
In my opinion, enterprises can conduct complete digitalization in three steps. First, digitizing channels to drive revenue growth; second, digitizing operations and processes to grow margins and net profit; and third, to digitize business models to increase revenue.
To become a digital enterprise, we need to pay attention to both external and internal dimensions. At present, many Chinese companies are seeking only one dimension for short-term benefits, which essentially misses the forest for the trees.
Misconception 2: Imitating Internet Companies Opens Up a New World
In the new economic environment, the Internet success favored by the capital market is spotlighted, and many enterprises are rushing to abandon their original industries to approach online or emerging business. However, using the Internet strategy as a ‘one for all’ solution instead of reflecting on the fundamental pain points of the business will be counterproductive. Moreover, haphazard investments will result in low returns and affect the R&D investments into the main business.
Let’s consider the example of a sports company in China that invested heavily in developing an eCommerce platform and multiple online channels. However, it failed to recognize problems in its core business, such as vague brand positioning, outdated offerings, backward inventory management, and inconsistencies between production and sales. As a result, the company’s normal operations fell into disarray and a large number of distributors were lost.
Traditional enterprises are not advised to explore new opportunities without a clear purpose. Exploring new driving forces does not mean abandoning the main business to build a new platform. Enterprises should implement transformation by using digital technologies to increase the profits of existing services and pursue growth by enhancing investment capabilities to achieve sustainable development. Traditional heavy-asset companies should make themselves ‘light’ by investing in software and services that contain more value. Enterprises can harness new technologies such as cloud computing, data analysis, and artificial intelligence to improve production and operational efficiencies, or seek professional services to create opportunities for business monetization.
For example, Schneider Electric has launched interconnection services based on real-time analysis and IoT platform solutions. In addition to improving existing productivity and saving costs, Schneider Electric can now respond better to the requirements from customers in the medical and dairy industries, and further explore potential value in predictive maintenance, asset monitoring, and energy optimization.
Misconception 3: Transforming Too Fast Will Lose Core Competitiveness
Many people believe that transformation is always chaotic, that enterprise performance will decline and basic businesses will be hindered. Therefore, many traditional enterprises are hesitant to make transformation decisions and respond slowly.
The facts are just the opposite. Accenture has analyzed 250 major transformation initiatives in more than 150 enterprises. The results reveal that high-performance enterprises benefited from better cost management, customer service, and greater profits during the transformation. Comparatively, excellent enterprises have adopted three to five times more transformation measures at a faster speed.
This is consistent with my observations over the years. Long-standing problems of poor management, inconsistent processes, and siloed operations are not caused by transformation. In fact, embracing digitalization has become a compulsory task for traditional enterprises and ignorance or piecemeal measures cannot work.
To improve the probability that an enterprise will be a transformation success, executives need to focus on strong leadership, powerful systems, streamlined processes, and clear vision with passion and motivation. Only with a clear top-down policy direction can enterprises motivate all employees toward digital transformation.
Moreover, in the transformation process, enterprises can make full use of digital technologies to optimize internal processes, improve employee skills, and implement decentralized decision-making and flexible grass-roots autonomy during broader and deeper organizational transformations.
During this time of disruptive change, traditional enterprises should be neither arrogant nor underestimate their capabilities. First, enterprises need to identify the three major problems that hinder success: Vague strategies, unclear models, and incompetent organizations. Then, enterprises should conceptualize a strategic vision and continuously innovate. Digitalization brings traditional enterprises new opportunities for growth. As a partner for enterprises undergoing digital transformation, Accenture encourages more Chinese enterprises to seize the opportunities provided by digital transformation and unleash more potential into the market.
Source: Harvard Business Review China