How India Inc. should think about digital transformation

For our purposes, we will define digital as a confluence of existing and emerging digital technologies which have a transformative impact on how a company designs, manufactures, distributes, and markets its products; how it engages with its customers; and how it manages its people.

Digital has become so prominent in business today due to the convergence of a number of distinct but related advances in digital technology and the sharp decline in their cost. These advances include the spread of high-speed internet; the penetration of cheap smartphones; the falling cost of sensors; the widespread use of digital and social media; access to cloud computing; and dramatic leaps in artificial intelligence and machine learning.

So how should business leaders think about digital?

From our experience working with companies across industries on the digital agenda, we have identified three aspects of how leaders think about digital that is holding them back.

Digital should be at the core, not the periphery

The first misconception about digital is that it is something occurring at the periphery of your business, leaving your strategy and business model largely untouched at the core.

We often hear how “only x% of sales in my category go through online” or that “it will take some time before things really change”.

As a result, digital is not seen as an overarching strategic priority. Instead, it is seen as something that can be put off until later, with responsibility often delegated to lower levels of the organisation or just to the IT department.

By treating digital as peripheral rather than something that strikes at the core, businesses fail to grasp the wholesale and fundamental change it is bringing about. Digital is nothing less than a revolution in the twenty-first century and its impact will be as dramatic as mechanisation, mass production and computerisation were in previous eras.

As a consequence, business leaders need to put digital right at the front and centre of their strategic discussions and carefully consider its impact on every strategic decision.

While companies that are digital natives will have digital written into their DNA, incumbent players should try to leverage every possible opportunity, whether in customer interactions, strategy review meetings, or daily workflows, to consciously make digital part of their company's conversation.

Digital requires a business lens, not a functional or technological lens

The second common mistake business leaders make about digital is to see it through too narrow a lens.

For example, many executives today see digital solely through a functional lens of say sales and marketing. As a result, they only envision it impacting how the firm takes its product or service to its customers. Consequently, companies will typically say they are 'doing digital' by developing a new app or shifting to online selling.

Just as common as the functional lens and equally narrow is the technological lens. This sees digital through the prism of the latest hardware or software solution. It is not uncommon to hear executives equate the implementation or extension of an ERP solution by their IT department with 'digitalisation'.

Without a doubt, these are all important and legitimate digital initiatives. Yet such a blinkered perspective fails to recognise the fundamental challenge digital poses to many companies' existing business models.

Instead, to think about digital from the right perspective, CEOs need to replace the functional or technological lens with the business lens. This widens the field of vision to see digital's potential impact on all aspects of a business.

A closer look through this business lens can give us a sense of how digital is already affecting business.

Industry structure

Firstly, the power of digital is now transforming the structure of many industries. For example, while e-commerce giants like Flipkart or Amazon have already transformed retailing, online marketplaces are now beginning to disrupt the structure of consumer product industries. New entrants into categories like consumer electronics such as Wyze Labs Inc. - a supplier of smart home cameras - directly source hardware without investing in costly manufacturing operations. They also cut out the wholesale and retail channel by solely selling online. Furthermore, they are able to create the kind of consumer confidence once restricted to major brands by leveraging the trust the Amazon brand has established along with the persuasive power of online customer ratings and reviews.

Value chain

Secondly, digital is today compressing or even inverting the traditional value chain in many sectors. Consumers can order online, direct from suppliers at the click of a button, enabling manufacturers to match production and distribution precisely with customer demand. In India, the staple category of milk has been dominated for many years by large cooperatives with a traditional distribution model and extensive retail footprint. Recently, however, a multitude of disruptive app-based players have gone direct to customers, delivering milk to their doorstep as and when they demand it.

Customer preferences

Thirdly, digital is transforming customer expectations across product and service categories; as digitally-enabled leaders set new standards for customer experience and personalisation. Consumers are increasingly used to the convenience of on-demand rides from Uber or completely customised clothing delivered to their home from the likes of eShakti.com. As a consequence, companies that fall short of such soaring consumer expectations will fall behind.

Organisation

Finally, digital is reshaping organisations by transforming the way we manage people and collaborate to get work done. Digital tools enable remote working between teams, while automated workflows render much of the traditional, middle-management activity of creating and delegating tasks redundant. Businesses that fail to organise for the digital world will struggle to keep pace with more agile competitors.

By applying the business lens to digital as we have done, leaders can begin to visualise the different ways it can impact their company and industry. 

Digital is always evolving, not static

The third common error in thinking about digital is to treat it as static rather than evolving.

Today, in all aspects of business, the need for agility and adaptivity is important, but when it comes to digital these attributes become critical. This is because digital technology is changing so fast that the output from traditional development cycles is redundant before it hits the market.

Given this accelerating pace of change, companies need to adopt an iterative approach that continually tests and learns. Constantly improving your digital initiatives as you gain feedback from the market, or as new technologies emerge.

This requires a change to a learning mindset as a rigid perfectionist approach to launching new digital initiatives will inevitably fail to yield results. However, the mindset shift is not automatic within companies. It requires consistency in communication, the right role modelling, acceptance of failures and reward for experimentation.

How can companies change their view of digital?

By placing digital at the core, applying a business lens, and adopting a learning approach, leaders can overcome the most common barriers to starting the digitalisation process.

To kick-start the process, companies should first bring together their top team and their functional heads with a clear focus on the digital agenda. During open and free-flowing workshops they can discuss and draw out diverse viewpoints and thoughts on digital from within the organisation. These discussions can be further enriched by examining how digital pioneers in your industry - in India or around the world - have leveraged digital to transform their business and gain an advantage.

For example, one major Indian consumer company saw digital as the domain of the marketing team. As a result, the company created digital initiatives only within this function. Through conducting a Digital Leadership Initiation and Visualisation Exercise (Digital LIVE) with the top team, the company's leaders came to realise the true implications of digital across their manufacturing, supply chain, and organisation - in addition to sales and marketing. This realisation led them to rethink their business strategy and place digital at the heart of their growth plans.

By developing a common view of digital's true importance, its scope, and the approach it requires, leaders can create a shared understanding of digital's criticality to their business success. A crucial first step in the journey to digital transformation that every Indian business must embrace.

This article was updated on 15th July 2020.