Digital Transformation for Chiefs and Owners. Volume 1. Immersion

This book is my vision of digital transformation. Additionally, our visions and opinions are shaped by our experiences and how we experienced them, what we thought, what we learned from them.

Until 2015, I did not expect to be so immersed in IT and management.

I often held organizational positions: I was the head of the school and sports school, deputy platoon commander at the military training center of my university, corps commander in the student operational squad, implemented various projects (project management is also a kind of management) and developed product strategies. However, with the management of IT-commands and the implementation of digital solutions I have never before encountered.

In high school, I didn’t burn much with computers either, but I loved literature, geography, history, algebra, geometry, biology and chemistry. At the university he received a chemical and technological education. Moreover, my first personal PC appeared at the age of 17 at the 1st year of the university. It was an ancient $200 miracle that worked every other time.

However, I’ve always been curious, looking for opportunities to work more efficiently and cost less, to structure work and use data to make quality decisions.

Gradually I sank deeper into the path. He first automatized weekly and monthly reports, then participated in the implementation of the asset management system, introduced a software package for collectors, analyzed digital projects in the Ministry of Energy…

For the time being, I have over a dozen different projects. Among them are the introduction of existing digital products in production, and the search for new management solutions. One of them I am working on right now.

What is digitalization, digital transformation?

The absolute majority of people, both representatives of production and business, and IT employees in production, do not distinguish between these two concepts. So, one of the most frequently asked questions is, how is automation different from digitalization and digitalization different from digital transformation?

In general, in the field of digitization, it is extremely important to remember one thing: it is not about technology, but about people and processes, about the ability to sit down and negotiate.

Let’s look at the classic definition of automation. It is an activity aimed at reducing the number and labor intensity of human manual labor in daily activities.

That is, automation proper is not always connected with IT.

Additionally, in the context of our topic, automation is the digitization and embedding of IT-technologies into existing processes, their acceleration due to the minimization of manual labor and the initial establishment of process management.

The key effect here is to accelerate processes and reduce the risk of human error.

Let us give examples:

– introduction of a «classical» ERP for resource management and planning or electronic document management systems that copy existing practices of «paper work» and often complicate the process;

– robotization and automation of routine operations (for example, RPA, which we will consider later).

Digitalization, on the other hand, is the introduction of digital technologies and systems, allowing to restructure business processes according to the principles of lean production and to make them more efficient and flexible, to start working with data and making decisions based on them. This process reduces internal costs and increases efficiency, allowing for competitive advantages within the existing business model.

That is, the key effect here – reduction of costs in the execution of processes, their improvement and creation of «flexibility».

Examples:

– implementation of enterprise management system with data warehouse, complex integration between IT-systems, optimization of business processes and use of end-to-end analytics and cross-functional indicators for decision making;

– Switch to cloud technologies and cloud services for the organization of work, using SaaS, PaaS, IaaS;

– Using blockchain contracts to exclude legal disputes between counterparties on complex projects.

Many experienced automators say digitalization is the conversion of data into units and zeros, and, of course, right… However, I propose to formulate definitions and look at everything from the standpoint of the answer to the question: «Why, to what?». That is, we share definitions based on the goals and objectives of the technologies.

This view arose because of the many automation projects seen, often limited to the translation of processes into IT systems. Meanwhile, the work grew more and more, and the processes did not change radically.

Additionally, digitalization is not always accompanied by automation. For example, the introduction of cloud-based document tools does not eliminate manual labour or automate processes. However, now you can work anywhere, you do not need to increase your server capacity, which reduces costs and removes restrictions. You don’t need to be in the office behind a working computer and invest in new equipment.

Another example is the use of the Trello board, which also does not automate anything by default, but allows you to rebuild the workflow, work more efficiently with information and be freer to work behind any device with an Internet connection. At the same time, the performance of the team sometimes increases by 40—50%.

Finally, I want to share the opinion of Peter Drucker, who in his book «Challenges of the XXI Century» gave a very good definition of the evolution of the term IT (information technology): previously there was a focus on T – technology, because they were our limiting factor, and the whole point was reduced to their development and implementation, as it gave advantages; now the emphasis shifts to the I – information, because you need to learn to process it with less cost, systematize, analyze and make decisions based on it.

As a result, automation is often about technology and digitalization is about information.

Perhaps now the difference between automation and digitalization should be clearer. However, what about the term «digital transformation»?

It’s a little more complicated than that, and arguing, arguing, and breaking copies is even more complicated.

Different sources interpret the term differently. For example: achieving operational efficiency and flexibility using digital technologies (Forrester Research); business model that allows you to create values and generate income (Gartner); attracting customers at any point of contact (Altimeter Group).

As you can see, there is no consensus and it is unlikely to appear soon.

At the same time, the term «digital transformation» is applicable in the context of one company or industry, but each of them in turn is an integral part of the digital economy.

What is this puzzle?

Roughly speaking, the digital economy is one in which all major transactions take place in a digital platform space that processes customer data and makes algorithmic decisions, reducing transaction times and the number of intermediaries.

If you, my dear reader, want to read all kinds of definitions, then use the QR code or the active link below.

Digital transformation

From the definitions above it can be concluded that digital transformation is a global restructuring of business and management systems, processes using the results of digitalization and automation to increase commercial potential and increase profits. Main «effects» of digital transformation:

– a multiplier reduction in processing costs (receiving, transmitting, processing, analyzing);

– change of organizational structure, functions, culture;

– creating new products and business models;

– actively using cross-sectional analytics for decision making;

– «direct» digital channels of communication with customers;

– development and testing of new products based on hypothesis research results.

That is, the key effect here – the creation of new personalized products for «target audience» in combination with multiple reduction of internal costs.

Examples:

– exclusion of intermediate stages from the chain «manufacturer – consumer»; direct communication and delivery directly to the buyer (e.g. through the use of Amazon, Aliexpress platforms, etc.);

– bringing a new product or service to the market (for example, making parts to individual order size) without the need for complex negotiations;

– moving to a new business model (for example, instead of selling chemical fertilizers, switching to pay for the treated area and the results achieved or a subscription model).

In the end, the essence of transformation is not to introduce some IT systems or to abandon paper, but to completely rebuild the business model and organizational structure. Some of the divisions will cease to exist, so the digital and classical business will always a priori compete for the future.

Stages on the Path of Transformation

We have defined the concepts and objectives of transformational change, and now we need to understand the way to go, what are its main stages?

First, let us look back and recall that digital transformation is the final step in the complex transformation of an organization. Thus, the main stages of complex transformation are: automation, digitalization and re-engineering of business processes, digital transformation.

In this case, the first and second stages may switch places (personally I consider this replacement the best option).

Consider these steps in more detail.

1. Automation, process conversion to IT

For example, electronic workflows often duplicate existing paper practices and only complicate the work. Without optimization, the process gets worse (those who worked in large corporations, probably faced with SAP or 1C systems).

Pros:

– acceleration of current processes;

– new ways to perform operations;

– process control may appear;

– integrates the work of less connected divisions and departments.

2. Digitalization

Rewriting, including with IT, active use of process optimization technologies. First, re-engineering techniques are applied to build optimal processes, and then they are translated into «digit».

Pros:

– optimizes the organization. structure and job responsibilities;

– simplifies processes and provides flexibility, reduces costs.

In addition, if you initially deal with digitalization, and only after this automation, you will save money, because when you re-invent processes, eliminate losses and implement the first digital tools, automation will be easier and cheaper, and the effect is higher.

A simple example. Now you have a process with a large number of agreements that you have decided to automate. We did a good deal of work, we spent money, everything works in the IT system, but the process is still the same as it was. You still have to wait for the key man to put his visa or delegate the task.

In the principles of lean production, all this is considered a loss – actions that do not create value for the end consumer, but increase the internal costs.

Additionally, there will be many such trials.

Additionally, if you initially think about how to simplify this process, do the simulation and selection of the necessary scenarios for automation, then you have to automate less, which is cheaper. And once again you don’t have to automate after optimization. That is, you won’t pay twice for solving the same problem.

3. Digital Transformation

I repeat a key point: unlike automation, TP does not focus on internal processes, but allows you to use new technologies for business and growth.

However, personally, when working with small and medium-sized businesses, I start with an analysis of the. structure. It often turns out that there is no clear and unified understanding of who does what, what is responsible for, what authority, responsibility, resources. Additionally, how do you work on business processes when everything changes weekly? What’s the point of introducing and automating something?

Below, in chapter 4, you will be familiarized with one case of restructuring and without system configuration. The result was paralysis of production and chaos. Now imagine that such changes are constant. There is more harm than good.

Business benefit

Well, we’ve discussed a few details, but I guess a large number of people still have some questions about why the hell would I? What’s in it for me? Explain on your fingers!». Let me try.

1. Increased efficiency and productivity

How: reducing transaction losses by simplifying and optimizing operational tasks and processes, increasing productivity (including eliminating duplication of functions), eliminating intermediaries (effective value creation) reducing transaction costs for obtaining information and services, simplifying the organizational structure.

Example: It is estimated that every year companies with about 1,000 employees lose an average of $1 million just because of duplication of previous work.

2. Increasing the turnover rate

How: reduction of contract execution time (acceleration of the process of purchase of own goods, acceleration and simplification of documents circulation, procurement processes, deliveries), introduction of new products and services on the market, introduction of direct communication and reduction of communication time with customers and clients.

3. Realizing the potential of staff

Such as: reducing the operational burden on repetitive and simple operations, increasing flexibility for staff, including attracting the most talented staff, including from other regions; reducing staff turnover.

4. Improving the quality of management decisions and responsiveness to changes

As follows: use of transparent and structured data for analysis and assessment, acceleration of information acquisition and processing, reduction of industrial risks (early detection of threats).

5. Unlocking new opportunities and diversifying sources of income

As: creation of new products and services, business models, creation and development of new markets, both in understanding the new niche in the economy of the current market, and expansion to new territories.

For example, contrary to the traditional model of working with the most profitable customers, you can attract a large number of small customers.

That is, we cover the part of clients that was previously unprofitable to include in the work because of too high costs for their support. Together, they can make even more money than the major customers.

Changing the business model with digital transformation

Let me give you an example from consulting. A good consultant will cost expensive: from $ 150 to $ 500 per hour depending on the industry, direction, qualification and type of client (legal or natural person).

As a result, we get 2 main restrictions:

– for a consultant as an entrepreneur: he is limited in his earnings by his time;

– for customers: to get the effect, you need to hire an expensive specialist, and not everyone can afford it.

What if the consulting company created a digital advisor? Mathematically describe experiences and best practices, build relationships and simulate possible scenarios, then form a neural network and through deep learning gradually develop it (more about this in the next part). Then the system, based on input data, will generate recommendations.

After all, in fact, this is how consultants work. Only a few of them are able to combine different tools and deviate from the rules to achieve results. Additionally, this too can be taught to the system.

How much do you think it would cost to have access to such a system? Even if 20—40 dollars a month, it would still be a multiple reduction of the entrance threshold.

As a result, we get:

– The consulting company can multiply its cash income;

– The customer gets a modern tool for reasonable money. So now he can try the service, and if he likes it, use it as a working tool, and if he doesn’t, it’s still far cheaper than a live consultant.

This example shows how the classic consultant service changes to a digital product that benefits everyone: the company reaches more customers and the customers themselves reduce their costs.

Additionally, it turns out that one company can serve, let’s say, not five customers for $1 million a month, but five hundred for $20 million a month. Moreover, this is one of the key areas of digital economy development.

Business Digital Competence

What kind of digital pathways can business do? What can be digitized for digital transformation?

The Boston Consulting Group introduced a matrix of competencies that companies need to become digital. It includes 6 areas:

– digital business;

– digital marketing;

– digital products;

– Digital Analytics;

– digital manufacturing (industry 4.0);

– new ways of working.

Let’s take a closer look at what these are and what kind of people they need.