By Yasuki Okai, Executive Fellow, NRI
What is digitalization? Or what is its purpose?
Many people would be at a loss to answer if asked this question.
An experienced consultant might reply, “That’s a bad question. The purpose–and even the meaning–of digitalization depends on your business objectives.”
A cynic might reply, “Its purpose is obviously to strengthen competitiveness. Duh.”
I want to pose the question of digitalization’s purpose irrespective of business objective. And I would respond to the cynic by probing a bit deeper: “How exactly does digitalization strengthen competitiveness?”
Stock answers to the question of digitalization’s purpose include, among others, “cost cutting,” “improving customer experience (CX) and “upgrading business process quality,” all of which are often mentioned in the news and during seminars. However, they are also three different answers to the same question. If a question can be answered in such a variety of ways, it is likely the wrong question to be asking. What I am looking for is a single fill-in-the-blank answer: “Digitalization’s purpose is _______” or “Digitalization strengthens competitiveness by _______.”
I had come up with my own answer to the question, but last month I was speaking with the CEO of an IT consulting firm who said, “Digitalization is the pursuit of timeliness.” How simply put! Neither cost-cutting nor CX enhancement nor improvement in business process quality originated from digitalization. All three have long been ubiquitous. In terms of how they are affected by digitalization, the word “timeliness” seems right on the mark to me.
Let’s take cost-cutting as an example. One popular digitalization trend is reducing IT infrastructure costs by migrating from in-house servers to a cloud environment. Moving to the cloud may very well reduce costs in absolute terms, but what is sometimes forgotten is it also converts fixed costs to variable costs. Companies that have migrated to the cloud pay for server usage on an as-needed basis. “As needed” is essentially a synonym for “timely.”
I often hear reports of companies cutting personnel expenses using robotic process automation(RPA). The payoff from RPA is sometimes limited solely to personnel cost savings, such as when it is used to automate transaction confirmation processes in a financial institution’s back-office center, but RPA is a means of improving business process quality by automating small-batch, high-variation processes. RPA improves business process quality through realization of straight-through processing (STP that links two processes whose continuity was previously interrupted by manual quality checks. It is not a stretch to say that STP is another example of the pursuit of timeliness.
What about CX enhancement? With companies now making their services available to customers 24/7 through smartphone apps, “timeliness” seems apropos of CX enhancement also. Even when cost-cutting, CX enhancement or improvement in business process quality is the professed objective of digitalization, if we dig a little bit deeper, we find that they all are achieved by improving timeliness.
Another digitalization objective that has recently been garnering considerable attention is the strengthening of machine learning or analytics capabilities. It goes without saying that upgraded analytical capabilities support timely decision-making in the context of customer relationship management or KYC compliance. Again I feel the simple phrase “digitalization is the pursuit of timeliness” is spot on.
My own answer to the question of digitalization’s purpose was “to increase adaptability to the environment.” From a company standpoint, the environment includes its customers, the competitive landscape and market conditions. High adaptability to the environment means that a company can swiftly detect and analyze, and swiftly respond to, such environmental changes. What I wanted to say was that recent digitalization was intended to increase this adaptability to the environment.
Adaptability to the environment, however, is closely related to timeliness, as implied by my use of “swiftly” twice in the foregoing explanation of adaptability to the environment. Companies increase their overall adaptability to the environment by functioning in a timely manner. This is the relationship between timeliness and adaptability to the environment. They are two sides of the same coin.
That said, I must admit that “adaptability to the environment” is not as concise as “pursuit of timeliness.”
“The pursuit of timeliness” is the best definition of digitalization I have heard so far.