There’s been a lot of talk this year about digital transformation since the World Economic Forum in January popularised the term the “Fourth Industrial Revolution”.
With just about everyone looking for ways to credibly assure customers their business is now a “tech” business, digital upheaval presents challenges and opportunities to succeed and fail in equal measure.
A recent report from McKinsey and Co claimed that “digital optimisation can boost profitability by 20 to 30 per cent” in large enterprises. For evidence of that in Australia, look no further than the rise of pizza delivery chain Domino’s.
If only digital transformation were as easy as attaching your product to a drone.
For every sector which seems a natural fit for embracing the benefits and potential profit-taking the Fourth Industrial Revolution offers, such as finance, it’s not so clear-cut for those tied to traditional structures and customer bases, such as government.
So in August and September, Microsoft interviewed 30 C-suite executives, general managers and digital transformation leaders of Australian organisations, asking them to share their experiences to date with digital transformation.
Among those included from private and public sectors were leaders from Cricket Australia, CBA, Domino’s, Macquarie, Telstra, the Department of Immigration and Border Protection, KPMG and Webjet.
(All had a relationship with Microsoft in some form.)
Here is what Microsoft found.
The digital approach
Of all the new technologies leaders expected to affect them, three stood out – cloud computing, the Internet of Things, and artificial intelligence.
And while most would love to embrace them, sometimes internal conditions simply made it impossible to move as quickly as they’d prefer. Microsoft placed these organisations in the “Motivated but Constrained” camp.
Those organisations were often constrained by timid leadership or a lack of permission to push ahead, often only moving when forced to by customer expectations, cost control or fear of irrelevance.
The other camp – “Proactive and Embracing” – were those more able to pursue opportunities in the Fourth Industrial Revolution by “building entire systems to capture data and convert it into insights and intelligent action at scale”.
They were driven by a fear of being wiped out by the next startup, but had high ambitions for their own experience with digital transformation.
It was critical those organisations were “willing to tolerate risks and failures” and embraced three critical success factors:
- a strong leadership buy-in
- an entrepreneurial culture, and
- access to talent
Not surprisingly, all interviewees in the Proactive and Embracing agreed digital transformation was a high priority, while half of those in Motivated but Constrained camp agreed.
Some in the Motivated but Constrained camp actually strongly disagreed. We’ll get to those later.
The Fourth Industrial Revolution
All leaders interviewed saw the coming age of digital transformation as:
- a competitive necessity
- a significant opportunity
All expected its impact to increase and most had implemented a strategy to evolve. Half of the strategies outlined to Microsoft were undertaken in the past two years, but bigger companies in particular had realised already that while they felt a sense of urgency, rapid, reactive change was often more unhelpful than not.
Most began by trying to transform customer experience, but realised that engaging employees and optimising operations were an equally important part of a genuinely wide-scale digital transformation.
Above all, most “reported significant, measurable pay-offs that motivated forward momentum”.
Wayne McMahon, group chief information officer at Domino’s, said the group’s share price of more than $65 “is not based on product sales alone”.
“We have a high PE ratio because we’re seen, act and behave like a technology company. And so we have a tech company share price.”
While Michael Osborne, Cricket Australia’s head of technology, saw digital transformation merely as “a bit of a buzzword”.
“Organisations have been applying emerging and increasing technological capabilities for decades now, so to me it’s the next iteration of that”.
AUSSIE HOME LOANS and NSW DEPT OF EDUCATION
Ros Harvey, founder and managing director of the agricultural technology company The Yield, said, “When you are creating something completely new, there’s no road map. You are inventing every day.”
Many of the leaders Microsoft spoke to agreed with this, and it was the organisations which kept their strategy fluid which were seeing the best reults in the past two years.
While most were happy to question old models and experiment with new ones, few were actually prepared to act with a clear digital transformation strategy.
Of those experimenting with their structure, “digital feedback loops” were identified as essential. No longer does the business cycle begin and end with producing, shipping and selling a product.
Sensors, aftermarket services and customer feedback “secure buy-in for future initiatives, correct design flaws and pinpoint knowledge gaps”.
Those feedback forms, surveys and sessions you grit your teeth over as a consumer and employee pay big dividends for companies and, like it or not, that usually translates to a better product or service for you in the wash-up.
“On the monetary side, our budget has gone down by 20 per cent over the past 10 years,” Phil Sherwin, director strategy and architecture at the NSW Department of Education, said. “And we probably provide 200 to 300 per cent more services for a 20 per cent lower budget.
“This was a five year program of work and we injected a huge amount of transformation very quickly, and at the end of it we were two steps above everybody else and we could leverage that going forward.”
Some, like Aussie Home Loans, found success after they “literally turned every part of the business upside down in 12 months”.
“There wasn’t really much of a chance not to buy in, because the pace of change has been pretty substantial,” Aussie’s Richard Burns said. “If anything, the feedback has been, ‘Well, that’s been really empowering and exciting’.”
THE ROYAL EASTER SHOW and WORLDSMART
People have the power
“Engage” is a word you see a lot in Microsoft’s report.
From learning how to make your family days out easier to understanding your real problems with banking, the new era of digital transformation is rewarding those organisations which listen and act upon their customers’ need, quickly.
The obvious starting point to winning at that is establishing a direct communication channel. One that extends “beyond stores, calls centres and other traditional points of contact.
For example, you might turn up at the Royal Easter Show next year at 10am on Wednesday the 17th. Your phone, if all goes according to PR manager Cale Maxwell’s plan, should be able to tell you exactly what’s about to start and what’s going on closest to you and your family.
“It used to be IT saying, ‘Hey, this is what you can and can’t have’,” Silvano Tittoto from WorldSmart said. “But now it’s the business saying ‘You need to deliver this, and I don’t really care what happens here, just deliver it’.”
The ultimate test
Microsoft CEO Satya Nadella wasn’t kidding when he recently said he could help Cricket Australia (CA) sort out its team selection woes.
Anyone taking up the bat or ball for their state should know that their performance is now being measured far beyond the score sheets.
“Mountains” of performance management data is now available, and CA is working with Microsoft to put it to full use with a player performance (TPP) platform that “aims to supercharge player results”.
“We aim to unlock the insights buried in the data surrounding our athletes and make the data more actionable,” Osborne said. “Tailored not just for every individual player but also to take into account how each player responds to particular conditions and their role on the team.”
The technology now encompasses wellness reports, “readiness” for matches and “intelligent alerts that watch for specified issues and flag when intervention is required”.
MACQUARIE GROUP and PACT GROUP
Let’s talk about IT
It’s not just customer feedback that’s transforming Australian businesses.
Study participants said recent years had been marked by employees and managers showing a more willing approach to work with IT teams, dispelling the “basement dweller” stereotype that had plagued the industry for so long.
“Three years ago, IT was not seen as an enabler, but we’ve now pivoted to the point where every day teams are knocking on our doors asking for IT’s capability, support and insight,” Pact Group CIO Michael Ross said.
Social networking and collaboration tools such as Hipchat, Yammer and Slack have finally reached a stage in their evolution where they are now in demand, as opposed to the awkward, unpolished tools foisted upon employees by over-eager adopter managers in the past.
Interviewees said the increased ability to enable employees to work remotely gave businesses access to “unprecedented knowledge sharing” and “the ability to focus on high-value-added activities”.
More importantly, with that added flexibility comes happier staff, and better data to help companies increase engagement and retention.
Macquarie Group’s division director of workplace technology, Peter Harvey, said the company now widely uses “virtual hallways”, videoconferencing and Yammer to connect a team of 14,000 people as a “collection of small businesses” across 28 countries.
He said the company deliberately engineers what it calls “the bump factor”.
“We engineer and architect our workspaces so people inadvertently bump into each other,” he said. “We create central cafes, common stairways and kitchens on every second floor.
“Then, we complement that with the virtual bump. We are doing things like creating virtual hallways between locations and vibrant Yammer communities that create the same connections, digitally.”
You might have heard about the blockchain
Forget the technical details. All you need to know about blockchain is that it’s a system of checks and balances that ensures you get your money. It’s what makes people put their faith in bitcoin.
Webjet says blockchain can eliminate “between 5 and 10 per cent” of transactions in the global travel B2B market where the service provider doesn’t get paid.
In a 100 billion marketplace, that’s “10 billion dollars worth of transactions”, Webjet managing director John Guscic said.
Webjet has embarked on a six-month project with Microsoft to create a proof of concept and become the “world’s first” blockchain adopter in the hotel bookings sector.
By empowering its partners on the B2B side with the same technology, that could make Webjet a disruptive new business in its own right.
“(Blockchain) didn’t just benefit the Webjet environment, but it could assist every one of our partners in the supply chain to improve their efficiency,” Guscic said.
Festival of the sensors
It feels almost passé to talk about the “Internet of Things” right now, but the reality is, IoT is only just revving up as engineers and companies realise there’s not much in our lives that can’t be improved by constant monitoring.
Saving the world is noble, but saving it, working in tune with it and making a pile of cash because of that is a beautiful thing.
The Yield, founded in 2014, aims to use IoT to “help feed the world without wrecking the planet”.
Oyster farmer Justin Goc enlisted The Yield’s technology and Microsoft’s Azure machine learning and apps to monitor hyper-localised growing conditions. About a quarter of Australia’s $100m oyster farming turnover is lost due to sudden changes in salinity levels.
Tasmanian farmers at 14 sites using The Yield’s sensors to highly localise tidal, rainfall and runoff predictions don’t face that problem any more.
“Basically what that means for me is when I see trouble brewing, I now have enough time to start getting the oysters out of the water five hours in advance, when I used to just have five minutes,” Goc said.
It’s saving the Taswegians an estimated $1.6 million a year.
PACT GROUP and TELSTRA
On a scale of 1 to 7, this is where the 30 leaders placed specific technologies on the basis of their impact over the next five years:
Realistically, that’s probably more a measure of how much we understand about new technologies. Quantum computing in particular has the potential to upend the lot tomorrow, or it might take another 10 years.
But we’re all aware of the cloud and AI and VR and the much more comparatively well-defined directions they’re taking us in the immediate future.
One thing is guaranteed – the pace of change is only headed in one direction.
Pact Group is startlingly open about the pros of automation.
“We have a desire to become a lights-out manufacturing business,” CIO Michael Ross said.
“Therefore, with everything we work on, from the back office to the factory, there is an increasing focus on automation and robotics.”
Telstra’s digital enablement director Brent Southey is looking forward to the combination of great connectivity with products like HoloLens, robotics and virtual reality.
“I think there’s a world of opportunities on how we can apply these to help people in business, healthcare, education and entertainment that we are only just starting to discover.”
So what happens now to the other half? The “Motivated but Constrained” companies who didn’t think digital transformation was a high priority?
Or if they did, simply didn’t feel like they were in a position to crash the party.
For starters, here’s what all respondents identified as the top four hurdles any company has to jump if it wants to join the race:
But if you break it down into the two camps, the Motivated but Constrained companies say leadership and culture is the biggest issue they face.
(Which in itself says a lot about the availability of talent problems the Proactive and Embracing camp faces.)
But while “having a Vice Chancellor who is prepared to back augmented reality”, like Lynn Warneke at Deakin University has, is fabulous, not everyone can count on a boss to step into the void in an era where “ROI isn’t as clear as it has been in the past for more traditional IT”.
One respondent said at a cultural level, “the ability to create a sense of urgency is very difficult because people see transformation and the next word that flashes in their mind is threat”.
Most warned against “retrofitting digital transformation into traditional ways of working”.
If you’re ready to embrace digital transformation, learn to be comfortable with ambiguity, and make sure all the stakeholders know it’s change for the better.
Who would argue against a new revenue stream, or reducing waste expenditure?
Microsoft’s report finishes with some great questions to ask about how ready your company is for digital transformation, and a framework for success based on their findings.
It’s a fascinating read. You can download it here.
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