[Digital Transformation] | Article – HSBC VisionGo

How to strategically lead the digital transformation of enterprises?
Management  ·    ·  12 mins read

[Digital Transformation]

How to strategically lead the digital transformation of enterprises?

Mr. Francis Ngai & Dr. Mark Lee

Continuous growth and progress is human DNA

In the process of continuous growth and progress, human beings are also constantly seeking transformation. From the perspective of historical development, both the country and the enterprise are constantly undergoing transformation, such as the change of state power, the withdraw and launch of enterprise products, and so on. However, in the past 10 years, due to the development of digital technology and the popularization of the Internet, the spread and application of new technologies have become more rapid, so people's sense of urgency for transformation has become particularly strong.

For current entrepreneurs, the application of technology is ubiquitous, and traditional enterprises are increasingly being impacted by new entrants. Large companies may also be defeated by new companies by means of technology, and new companies are growing faster than in the past, similar to the "Moore's Law" in corporate development.

The fundamental logic of enterprise transformation

All organizations are machines operating as a whole. Taking a big ship as an analogy, transformation is not simply repaired on the ship, but how to make the big ship enter a new channel or upgrade the big ship to a new aircraft carrier. From this perspective, transformation should avoid:

  1. Lack of overall architectural design, unable to find the goal of transformation. Of course, the overall architectural design is the first responsibility of every CEO or business executive. Transformation and change are highly consistent. Each transformation and change requires the firm will of the senior management, which has eliminated various conflicts of interest and made overall deployment.
  2. Following what others do, and there is no competitiveness after the transformation. In the beginning, the goal may be clear, but as the transformation progresses, you may forget your original intention later and become "seeking a doctor in a hurry," where opponents will imitate whatever they do, and new technologies will be eager to apply.
  3. Only the transformation of parts cannot make a qualitative change. Because of concerns about affecting key businesses, we started with simple and easy parts, but these changes are irrelevant, they are just icing on the cake, and may only serve as "a temporary solution rather than a permanent cure".
  4. The key engine is transformed, but other parts have not kept up. There are also many companies that start from the key engine, and strive to "cure the root cause first", but the key engine has increased, but the exhaust pipe has not been strengthened, but it is stuck. This is a typical "symptom of the dead gas throat."
  5. The ship turned, but the captain did not upgrade. The design and operation of the entire company have been transformed, but the Personnel who performed the new operations did not undergo transformation. That is, What we call " The Same Driver ", which the car has transformed from a normal car to a sports car, but the driver is still the original normal driver, and the sports car cannot give full play to its value.
  6. Indulge in past successes and lack confidence in new ships. Old employees have a great emotional dependence on the success of the past business. Since they are also confident enough in past experience, they hold the attitude of "refusing to transform " towards new changes and new uncertainties.

As entrepreneurs, in exploring the transformation of the enterprise, we need to rethink the fundamental business logic:

  1. What is the philosophy of enterprise existence? What kind of enterprise an enterprise wants to become is the primary mindset of entrepreneurs. Without this guidance, all transformations have no goals, and become " Following what others do ", " The Same Driver" or "Refuse to Transform".
  2. What is the way companies work? Enterprise transformation starts from the working method, and it is holistic, to avoid " a temporary solution rather than a permanent cure " and " symptom of the dead gas throat ".
  3. What is the world enterprise-facing? All transformations are to solve one or some problems we face in the world, that is, the contribution of social value, which is the key to the continued success of the transformation.

Three pitfalls of enterprise digital transformation

In the digital era, digital transformation is already imminent. However, in the process of transformation, especially in digital transformation, many companies will "see the trees but not the forest", or " rush up" everywhere. As a result, on the one hand, a lot of manpower and material resources may not be effective, and it may disrupt the original company's core competence and work rhythm, resulting in the collapse of the business.

In the process of promoting digital transformation, companies often have the following practices that are worth discussing:

  1. Creating small, independent units or startups within the larger organization, which is away from the core business. A Spanish telecommunications company headquartered in Madrid, but its transformation department is located in London. On the one hand, London has a sufficient talent pool, hires an independent CEO, and conducts in-depth research and experiments. For example, it tried 5G technology early and tried digital tools similar to WhatsApp. However, when it was further extended to Spain and the world, due to the lack of participation of relevant departments of the head office and little communication with the innovation department, it was unable to promote the transformation of various business departments of the company. As a result, the innovation department in London was closed three years later, and all transformed businesses were not implanted into the main business.
  2. Each department independently promotes digital transformation and works independently. In the face of uncertainty, many companies have tried to delegate authority to various departments to take the initiative to transform. There is a daily chemical company with many brands, and there are nearly 150 transformation projects operating in various companies and departments. However, these innovative transformations are basically independent and have no synergy. Each transformation is similar to an innovative company. In the case of decentralization, on the one hand, the company does not have consistent strategic goals, and each innovation is short-sighted and cannot support the company’s strategic transformation. On the other hand, these innovative companies are often not as focused as pure independent entrepreneurs and are generally in a weak competitive position.
  3. Leveraging digital technology to cut costs and improve efficiency, but there is no qualitative change. Of course, the improvement of the business through digital means is very valuable, but when competitors' transformation is not only to optimize the original business but to subvert and innovate, no matter how good the optimization is, they cannot face the competition. For example, the banking industry optimizes and automates the deposit and wealth management process, reducing a lot of manpower and improving efficiency. However, if the opponent is a virtual bank, basically no manpower is required, but AI, big data, and other automatic operation support. The typical impact in the industry is the Yu'e Bao launched by Alibaba, which quickly aggregates the fragmented funds of users to form the world's largest fund.

Regarding the above issues, we found in the survey of many managers in Hong Kong that more than half of companies are currently using digital technology for business optimization. Nearly 30 % of enterprises try to establish independent departments to promote transformation and innovation, and less use the "full bloom" approach.

The framework of enterprise strategic digital transformation

Facing the complex and changeable social and economic environment, the logic that entrepreneurs must first think about in the process of transformation is how to face the changes in the world, give the company a strategic goal facing the future, and improve competitiveness, so as to change the business positioning, value realization method, customer connection method, and personnel organization structure of enterprises. Harvard Business School professor Sunil Gupta found that companies should not isolate digital strategy from the company's overall strategy. Instead, they should integrate “digital-first” into strategy and apply it to every aspect.

One of the goals of enterprise digital transformation is how to face the challenges of the future, the essence of which is how to innovate business. The other goal is how to enhance the core competitiveness of the enterprise, and the essence is how to optimize and enhance the existing business. Many companies may talk about transformation and simply interpret it as "not breaking or standing", rudely revolutionizing existing businesses. Of course, if the current business can no longer survive, this kind of "nirvana rebirth" approach is forced. If this is not the case, this destructive transformation needs to be carefully evaluated and measured. Facing transformation, entrepreneurs usually have four types of practices: take the initiative, explore the market, and lead the transformation; respond passively, cater to the market, and be forced to transform; actively follow up, fight for the market, and imitate the transformation; meet the current situation, retain the market, and abandon the transformation.

Here, we mainly discuss how companies take the initiative in digital transformation, and consider the thinking framework under this transformation and reconstruct their digital leadership:

1. Re-imaging business: First, identify your industry or find new markets, such as moving from Hong Kong to the Greater Bay Area, or Southeast Asia; entering a new market requires new business models to support, and build new business processes, or develop new products to respond to the market.

As the famous Harvard marketing professor Theodore Levitt put forward in the 1970s, every company should know "what industry are you in? Will this industry in the future be the same as it is now?". For example, many people may think Amazon is a retailer, but its nearly 3.5 billion in 2017 was advertising revenue. It is also an advertiser, and online shopping malls may be a way to achieve advertising revenue.

In addition, you need to rethink your business model, creative value and capture this new value. Generally, model changes can completely change the entire industry. For example, iTunes, at $ 9.9 per song, broke the record industry that had to buy the whole disk at one time.

The current business model no longer exists independently but needs to link the entire industry ecology and even cross-industry cooperation. Therefore, the cross-border transformation has become a new breakthrough point, such as the cooperation between Dah Chong Hong and Ztore, and cooperation between TVB and Li & Fung in BigBigShop and OK store. TVB has moved from the film and television industry to the business supermarket industry integrating online and offline.

2. Re-evaluate value chain: Digital reconstruction from R & D, operation, distribution, etc.. On the one hand, the participants in the value chain have changed, and may no longer lead the entire value chain by themselves, but a more united ecological model. On the other hand, the value point of the value chain has also changed. Many supply chains may be digitally automated, instead of being competitive. The IBM survey found that more than two-thirds of managers believe that the epidemic has enabled them to advance specific digital transformations to ensure that business value can be realized and innovated. Among them, technology-oriented companies generally outperform other companies during the epidemic.

In the digital era, the diversification of user needs is particularly serious. Generally, an independent R&D department can no longer meet user needs very well. It is necessary to open up the vision of R&D and innovation from more channels, which is the so-called Open Innovation. For example, in addition to the R&D team that has been operating, ChowTaiFook has also built an incubation center platform to introduce and train new designers to design new products. On the one hand, they can help designers start their own businesses, and they can also introduce more design concepts and capabilities to assist Chow Tai Fook in R & D products and interactive innovation with users on the platform at the same time.

The impact of the epidemic on business operations is very huge. Many Hong Kong entrepreneurs have factories on the mainland. In the past, entrepreneurs would go to mainland factories every week or even every day. They always felt that they were not at ease if they didn't go to factories. However, under the epidemic situation, many entrepreneurs said that they were not as bad as they had imagined and even worked smoother. Because the entire enterprise operation is no longer in the offline supervision mode, but online, data online, and remote management. These technical means have been quickly integrated into the operation.

Regardless of supply and distribution, with the support of digital technology, the value chain can be re-divided. For example, a catering company in Hong Kong, whose frozen meat is supplied through suppliers, now takes the initiative to increase the price of the supply and hand over the thawing and cutting to the suppliers for processing at the factory. This is because he can clearly give the supplier the purchase quantity and time through data insight, deal with the thawing and cutting processes in low-cost factories, and optimize the whole supply cost. On the distribution side, a low-cost central kitchen is used for meal processing, and Deliveroo is introduced to assist in precise distribution.

3. Re-connect with customers: In the digital era, the way customers consume has also changed, and the way enterprises touch customers and provide services must be changed. Face-to-face transactions may become less and less, and the trust system and precise supply of off-site services have become especially important.

In the era of mobile internet and social diversification, the contact point of customers may be friends community of Facebook or online activities rather than TV advertisements, offline stores or exhibitions. The experience of friends or other customers is the foundation of trust. You can learn about it online, then back to offline, or back to online trading. The customer experience is made public, and the spread is faster and wider.

In the process of establishing a trust system, how to engage customers has become very important. For example, BMW in Hong Kong, it showroom is no longer simply a new car display but is used to hold executives seminars to introduce consumers with purchasing power by the management topics, so as to increase the guest contact mode and build trust.

In the past, simple customer experience channels can provide more precise insights. For example, in the case of a single channel in the past, how much revenue the investment in TV advertising can bring, and subsequent investment decisions become simple. However, at present, various channels are intertwined, and accurate data has become more difficult, but this requires accurate perception and insight. Mobile tools, AI, and cloud computing capabilities can assist in the processing of these massive and complex data.

4. Re-build organization: When entering the digital transformation, companies are constantly exploring new businesses, but traditional businesses are still very important, so the organizational structure needs to be restructured. At the same time, the operation of the new and old businesses is different, and the capabilities of the organization need to be adjusted accordingly. Moreover, in the new digital business, the changes in technology and customers are very rapid, and the rapid and continuous learning ability of the organization is especially important.

Future-oriented innovation needs to be associated with the current core business. The ideal state is that when the innovation transformation is gradually successful, it can be embedded in the core business to further assist the transformation of the core business. At the same time, we can use the core business capabilities to scale the innovation. It is commonly referred to as the " Dual-Mode Spiral Model".

Digital transformation is easy to fall into the dilemma of personnel capabilities. Especially, HR departments are often trapped in talent recruitment. In addition to the external introduction, the ability of personnel to build their own blood is also required. For example, in the past, the business process of standardized operations was automated, but the talents for management and realization of automation became a necessity, and how to transform the personnel became the key.

Digital transformation is a continuous process. It is different from the past implementation of IT system projects such as ERP and MRP. Project-based business is often the process of solidification, optimization, and re-solidification. Then personnel must constantly absorb new abilities and train new skills in this digital transformation process, so continuous learning needs to be provided from the organization to create a learning organization to support the promotion of transformation. For example, with the self-service learning and automated work platform built by IBM, employees can quickly grow from the platform and work directly through the guidance of the system.

Essential elements for leading digital transformation strategically

There is no universal routine and strategy for enterprise digital transformation, which needs to be carried out according to the enterprise's own industry, its own business characteristics and core competitiveness. For example, Sa Sa and Bonjour used to be street shops mainly patronized by mainland tourists. They are all very successful, and they have adopted different strategies in digital transformation. Bonjour has turned its experience and business structure into a sales platform, turning its sales staff online, and launching a KOL model. In addition to selling cosmetics, it can also sell other related products. Sa Sa mainly sells products through online channels. In addition to its own website, it also integrates into the ecology with the help of TVmall, BigBigShop, etc.

However, whether it is a manager or a third party assisting the transformation of the enterprise, the following five core elements must be fully considered during the transformation process:

  • Continuously strengthen leadership commitment: As a leader or even a department head, you need to understand the direction, design the architecture, and promote the transformation of every department and business. At the same time, you also need to show determination in investment, rather than just talking without investment.
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  • Continue to build a transformation enabler: In addition to introducing technology, business processes must also be optimized. The emergence of the Internet has had a great impact on the advertising revenue in TVB. Insight into the situation, tvb.com was launched as early as the late 1990s to extend the existing digital assets online to other countries. By about 2006, the total revenue of this business accounted for nearly half of the Group's total revenue. In the era of mobile internet, multi-channel and online shopping malls present them with very big challenges. They are gradually building new platforms to promote new businesses, such as BigBigChannel.
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  • Focus on promoting cultural change: Culture is the most fundamental guarantee for the sustainable success of an enterprise. All transformations need to start from culture. French telecom company Orange has shifted from a traditional typical business to a business model that integrates telecommunications and virtual banks. The first point of its transformation is people. It has changed from the staff and culture and strives to integrate talents with new technologies. More than 50% of the staff participated in the transformation, and finally, 150% of the digital channel customer growth was achieved, and 30% of the customer problems were self-service.
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  • Stability ensures the governance and management system: The transformation process will inevitably encounter many challenges and uncertainties, and management methods must be continuously adjusted accordingly. But this adjustment needs to be carried out around the goal of transformation and avoid "forgetting the original intention."
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  • Quick wins in the journey to success: Stage success is very important in the lasting process of transformation. If all problems are seen in the transformation process, then confidence will be eroded. Stage success is the most effective lubricant and stimulant to drive the transformation of the whole organization.

 

Mark Lee
Mark Lee
ASIA PACIFIC INSTITUTE FOR STRATEGY LIMITED
ASIA PACIFIC INSTITUTE FOR STRATEGY LIMITED