How far should UAE businesses go to embrace digital transformation?
Juan Jose de la Torre, digital transformation leader at IBM discusses the challenges ahead for businesses in 2016
Individuals and businesses alike are embracing the Middle East's digital revolution. Social networks and digital devices are now being used to engage government, businesses and civil society at a much larger scale than ever before.
At the same time, businesses in the region are undertaking their own digital transformations, rethinking what customers value most and creating operating models that take advantage of what's newly possible for competitive differentiation. According to IDC, the total market value for Internet of Things (IoT) technology and applications in the Middle East and Africa will increase from $5.81bn in 2015 to $7.03bn in 2016, with spending on areas like public cloud services expected to grow at almost six times the rate as the rest of the IT industry by 2019. In fact, today's surge in ICT spending by organisations across the region is predicted to topple $260bn in 2016 as those in the Middle East, Turkey, and Africa embrace digital transformation initiatives.
However, the challenge ahead for many businesses in 2016 is how fast and how far to go on the path to digital transformation.
In every industry, business leaders realise customer expectations have created tremendous pressure to change the way they set their strategies and run their organisations. Yet because they have to manage existing often traditional offerings and operations, new requirements to incorporate interactivity quickly are driving up operational costs.
The recent IBM study "Redefining Boundaries: Insights from the Global C-suite Study," found that entrenched business players are today being threatened by new entrants with completely different business models, as well as smaller, more agile players unencumbered by legacy infrastructure. Executives from the Middle East & Pakistan have once again put technology at the top of the list of external forces buffeting their organisation, with 91% of respondents from the region also planning to drive more digital interaction with their customers.
While business leaders have long used information technology to improve productivity and efficiency, what's new is that customers' "digital" expectations have also changed. People everywhere are using social networks for finding jobs and restaurants, making bookings, household management, and many other uses.
How can businesses best respond to this shift? And how can they do this cost efficiently, leveraging the newest information technologies as part of their overall physical operations?
We have found from our research and client experience that the strategic routes to transformation can be summarised by three basic approaches. The first focuses on an organisation's customer value proposition. The second approach looks more at transforming a business's operating model through the use of technology. The third approach combines these two, simultaneously using technology to transform your customer value proposition and also reorganising operations for delivery.
Path 1: Create and integrate digital operations first. Then address the customer value proposition to achieve full transformation.
Path 2: Enhance, extend or reshape the customer value proposition with digital content, insight and engagement. Then focus on integrating digital operations.
Path 3: Build a new set of capabilities around the transformed customer value proposition and operating model in lock-step.
Even companies in primarily physical industries will not start their digital transformation journey from "zero." Instead, most organisations in the Middle East are already finding ways to use digital information by providing interactive web sites and creating basic operating capabilities such as online channels or digital supply-chain tracking.
The best path for a particular company will of course depends on its strategic objectives, competitive pressures and customer expectations. In industries where the product is mostly physical, such as minerals and mining, companies may want to begin digital transformation with operations. In others, such as financial services where new revenue-based services can be offered online and through mobile devices, an initial focus on the customer value proposition can provide more immediate benefits. However, many companies and indeed entire industries need to redefine their customer value proposition and their operating models simultaneously.
Determining the best path to transformation - whether an extensive reshaping of the customer value proposition, a transformation of the operating model, or a combination of both -requires a thorough evaluation of four factors:
- Where products and services are on the physical-to-digital continuum in your industry
- Mobility and social networking adoption levels and expectations of customers
- Strategic moves by other industry players
- The degree of integration at every stage of the transformation - between new digital processes and legacy, physical ones
Transforming operations first, for example, builds customer alignment and efficiency. But if your competitors are interacting with customers in new ways, operationally-focused organisations may lose customer loyalty and in turn market share.
Conversely, moving too quickly to transform the customer value proposition may raise cost challenges if the new offering involves too much complexity. Too narrow a focus on customer value is also very likely to result in a one-time breakthrough rather than continuous innovation for greater customer value.
The bottom line is that businesses in every industry are under intense pressure to rethink both their customer value propositions and their operating models. Yet few if any value offerings or operations will ever be entirely digitised. Buildings and servers, as well as customers and employees, will always have physical requirements. Physical and digital processes need to be managed together without alienating customers or creating unnecessary levels of complexity. Whichever of these three transformation paths is right for your business, every industry is under pressure to change, and every organisation needs to have a plan in place.