Many enterprises are still concerned about how they can participate fully in a digital economy.
These days, it is hard to avoid the topic of digitalization when you read any expert commentary, business book, or newspaper headline. The benefits from technologies such as Internet of Things, Big Data Analytics, Robotic Process Automation, and AI-enabled chatbots are clear: Firms can save costs from automating manual processes, gain deeper, real-time insight into their customers, and rapidly scale their reach to new markets. Yet, many enterprises are still concerned about how they can participate fully in a digital economy.
Small and Medium enterprises (SMEs) are defined in Singapore as organizations with operating receipts of less than SGD 100 million, or employment of not more than 200 staff. SMEs account for almost half of Singapore’s GDP, 65 percent of all jobs in Singapore, and 99 percent of all enterprises here. With an average productivity yield of 30 – 50 percent from full digital transformation, our 219,000 SMEs have the potential to eventually contribute an additional SGD 65 billion to Singapore’s GDP.
We observe at least three stages of digitalization. Digitization involves converting manual or paper processes from analogue to digital form. While smaller retailers may still transact in cash and wholesale trading or law firms may still be using paper ledgers, many enterprises have already embraced CRM, Accounting, or POS software. Digitalization sees core operational processes and revenue lines enhanced by digital assets, such as with the introduction of IoT or eCommerce capabilities. Digital business transformation, in comparison, encompasses a fundamental shift where a firm’s strategy, customer interactions, and organization-wide culture is empowered by digital means.
For example, in a healthcare setting, digitization may simply refer to digital copies of diagnostic scans. Digitalization, such as with Electronic Medical Records, could help patients reduce redundant clinical tests when they visit different hospitals. Digital business transformation sees the introduction of new business models, such as remote robotic surgery that could improve a surgeon’s precision, throughput, and reach.
Yet, in our work over the past two years surveying over 1,000 enterprises in Singapore on their innovation initiatives, we see that less than two percent of innovation projects actually involved true digital business transformation. Our research surfaced three barriers to adoption that commonly arise, when executives look to the latest technological advances in driving their digital transformation, rather than start with clarity around their strategy first.
“No time, no budget”. While it is sometimes true that some organizations work with meagre budgets, we have learnt that some CEOs resort to such responses usually because they are simply not willing to make the time to explore the promise of digital transformation. Many find it difficult to keep up with emerging technologies, and it cannot be overstated that a responsible steward should certainly not be investing in a new system simply from a fear of missing out. However, a duty of leadership is to drive continual performance improvement and growth. It is therefore vital for a CEO to learn about the complete range of strategic possibilities that digitalization could offer to her organization, including a full vision of new possibilities of engaging with customers, accelerating market access, and tapping into fresh revenue streams.
System inertia. Business owners and technology vendors alike fear the costs of integrating legacy systems. Even if a digitalization project does succeed, enterprises are afraid of becoming hostage to a vendor, especially for the future upgrading costs of cloud systems. Even with government grants that support migration and training, enterprise decision-makers are still concerned about their total costs of ownership in the long-term, including systems maintenance and data governance. Without a complete cost-benefit analysis, some enterprises remain reluctant to even initiate a technical proof-of-concept, without first receiving assurances that their entire transformation process will be delicately cared for.
Limited absorptive capacity. Despite CEOS investing herculean efforts in change management, the challenge we most often come across still relates to people. High-performing organizations that work hard to achieve their key performance indicators usually leave little organizational slack, a necessary ingredient for staff to embrace change. Many organizations are rife with staff who (i) actively resist change because it conflicts with their own agendas; (ii) still remain in denial of change as they do not enjoy much personal incentive to innovate; (iii) know that digital transformation is imminent but do not know when or what to do about it; or (iv) are in despair as they do not have or believe that they could acquire the requisite digital skills. It could be wishful to expect all staff overnight to embody a “10 Cs” skillset that cannot be easily replaced by AI: Character, Creativity, Communication, Critical Thinking, Collaboration, Conceptualization, Cross-Cultural Awareness, Curiosity, Computing, and Citizenship. Instead, managers need to actively identify the specific tasks that will be made redundant and the remaining value-adding skills of each job, entirely re-design each job for digital business transformation, and secure relevant training and motivational pathways to transition each worker to her new job.
It is only when a leader develops a compelling view of what a digital future could mean, thoroughly assesses the full business case for digital business transformation, and actively plans, budgets for, and manages the human factor, that an enterprise can meaningfully accomplish its digital strategy.
This article first appeared in Singapore Business Review.