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DX factor: the vital elements of a digital transformation

Businesses have splurged on tech during the Covid crisis, but there are big differences between survival-driven ‘digitalisation’ and the genuine digital transformation that promises a lasting competitive edge 

“Playtime is over for digital transformation,” says Thierry Driesens, digital transformation officer at DHL Supply Chain. “The technology challenge is no longer about trying out digital innovations and seeing what works; it’s about achieving a strategic change that delivers enhanced financial performance and a better experience for customers and employees.”

Many companies have been forced to invest heavily in digital tech to solve the immediate operational problems posed by the Covid crisis, but much of that spending has been on enhancing or automating existing processes. Driesens’ advice is to not let that tactical expenditure distract from the task of reimagining business models and building a long-term competitive advantage through a true digitally enabled transformation.

“The world has changed around us. Covid-19 has disrupted things even further and faster. If your aim is simply to digitalise activities in a traditional way rather than transforming your operations, you’ll ultimately go out of business,” he warns. 

His belief is backed by evidence showing that the pandemic has forced companies in many industries to scale back their digital transformation (DX) ambitions. Although global spending on DX increased by 10% in 2020 to $1.3tn, according to research by the International Data Corporation (IDC), that represented a significant slowdown compared with the 18% growth recorded in 2019. 

IDC’s global research director for DX strategies, Shawn Fitzgerald, observes that many business leaders have, understandably, adopted defensive tactics during the pandemic. 

“They have been using tech to solve their firms’ urgent challenges while also conserving cash,” he says. “Despite the many bold statements we’ve been hearing about how the Covid crisis has been accelerating DX activities, much of what people are actually doing would be better termed ‘digitalisation’, rather than any broader strategic initiative that sets the foundation for a future digital enterprise.”

So how can business leaders determine whether their companies are still on the right path in this respect? Experts in the DX field can identify several hallmarks of a solid transformation strategy that set it apart from previous waves of digital investment. 

Much of what people are actually doing would be better termed ‘digitalisation’ rather than any broader strategic initiative that sets the foundation for a future digital enterprise 

Driesens, for instance, argues that firms seeking true DX will be following a comprehensive implementation “roadmap” designed to take them all the way from planning to large-scale execution. DHL’s own one is three years old, as the company works to fulfil its DX programme – to which it has committed £1.7bn – by 2025.

Its roadmap has included the roll-out of autonomous forklift trucks and robots, which already roam many of its warehouses, picking packages for shipment. The company has also adopted a cloud-based risk-management tool called DHL Resilience360, which helps customers to predict and mitigate possible supply-chain disruptions.

Fitzgerald agrees that the absence of a detailed roadmap is a warning sign. While many businesses have formed a clear vision of what their transformed state will look like, they have failed in most cases to translate this into practical steps. IDC’s research last year found that, while most mid-sized and large companies were intending to digitally transform themselves, only 27% had created any kind of roadmap for doing so.

Make DX a company-wide effort

DX agendas should differ markedly from previous rounds of digitalisation in another crucial way: while IT teams have typically led digitalisation efforts in discrete areas of the business, a true DX commitment must cover the whole organisation. 

That is certainly the view at Standard Chartered, as its group CIO, Dr Michael Gorriz, explains: “Our transformation goes beyond automating functions to achieve cost savings. This is about becoming a bank that’s customer-led, insight-driven, fast and connected. We are grabbing the opportunity to reinvent how we work and serve our clients.” 

That commitment translates to a £1.1bn annual investment in technology, but Gorriz stresses that the most crucial factor in the success of any DX effort is effective “integration between business and technology teams”. To this end, Standard Chartered has organised its teams into 1,000 “squads”, working to the principles of agile project management.

Lead from the top

Another hallmark of a genuine DX project is that it is driven by the whole leadership team, according to Driesens.

“Saying that the transformation is the job of the CIO simply isn’t going to work,” he argues. “Digital is no longer something that is done by the few. It needs to be part of the entire corporate culture.” 

He continues: “I cannot simply announce to the managers of a warehouse in, say, Singapore, that we’re about to instal robots that will change the work of hundreds of employees unless they already know that we’re going in that direction. That’s where you need a broader change-management plan from the top, which has to give people the necessary information in good time and convey to them a sense of excitement about the new way of doing things.”

Dimitris Mavroyiannis, group COO at Piraeus Bank, agrees that a key focus of any DX project is cultural change, which requires clear communication with employees at all levels, explaining how it will affect them.

“The biggest challenge is to be ready for constant change, so a transformational culture has to be embedded in the organisation,” he says. “There is an existential imperative to rethink business models, change cost structures and offer more relevant customer-focused solutions.” 

Mavroyiannis even goes so far as to suggest that the current DX wave may be seen as the “last full-scale transformation. After this, organisations will constantly need to rethink themselves and deliver change quickly and continuously.”

Make data the fuel of transformation

Many of the core technologies that enable DX – from artificial intelligence to big-data analytics – have the power to process vast amounts of information. Akira Mitsumasu, vice-president of global marketing at Japan Airlines, reports that these tools have helped his company to improve its customer service and so gain a competitive edge. 

“Our digital transformation is enabling us to consume much more data,” he says. “Operations data, together with information gathered from cabin crews and ground staff, has enabled us to identify key areas for improvement.”

Its One ID concept, for instance, combines customer data with the facial-recognition technology that airports have adopted to streamline the progress of passengers from the check-in to the boarding gate.

Big data is also beginning to generate big value at DHL, as Driesens reports. “We are only just starting to unlock the potential of what we’re learning from our warehouses, freight business, supply-chain operations and many more sources,” he says. “But we’re already seeing incredible insights that could help us to create value-added services for customers, from optimising their distribution networks to identifying the best locations for warehouses.”

As economies start to recover from the pandemic, the upshot for firms whose DX strategies are coming to fruition is clear, according to Driesens: “It gives us nothing less than an unfair competitive advantage.”