Like many new terms, “digital transformation” has a broad definition; however, across these various interpretations there is a broad consensus that it “refers to the changes associated with the application of digital technology in all aspects of human society”. That’s a very broad statement, and understandably so. In practice, digital transformation is often used these days to describe significant strategic initiatives that are taken on to enable a business to survive and thrive in the information age.
Businesses currently face a convergence of powerful technology trends. Headlines are awash with references to cloud computing, big data analytics, 3D printing and the likes of robotics, autonomous vehicles and drones. In just a few years the presence and impact of these technologies has grown and their performance has more than doubled.
Each of these technologies by themselves can disrupt an industry, but if you put them together in their now mature state, they represent the perfect storm for existing business models. It is this digital disruption that lies behind the growing trend in digital transformation. Organisations are having to change their existing business models for new infrastructure, platforms, processes, tools and talent to make sure that they continue to compete in the digital world.
In today’s globalised and outsourced industries it’s not enough to think of digitally transforming just one business entity. Digital transformation isn’t something that only happens within the four walls of a single business. The success of a global organisation depends largely on how effectively it can orchestrate a vast network of trading partners and suppliers to manufacture and deliver its goods and services.
If digital transformation is applied only to one single organisation within that network, it will fall short. The conclusion that an organisation’s success is no longer dependent solely on its own efforts terrifies many chief executives. Carrying out an internal review of a business’s own processes and then applying digital technologies is no longer sufficient. Nor is it enough to focus efforts solely on transforming how a business engages with its customers.
A lot of the discussion, debate and research on the topic of digital transformation has been more or less confined to these two categories. But there is another aspect of the process that is playing an increasingly important role in the global economy, and that, so far, has had little attention. A whole other chain of people and businesses need to be considered – the value chain.
This gives us three separate areas to consider if we are to develop a complete strategy:
1 Digital transformation inside a single organisation: for example, how digital technologies transform internal enterprise resource planning systems.
2 Digital transformation between organisations and their customers: for example, how digital technologies transform customer relationship management.
3 Digital transformation between organisations and all of their partners across the value chain.
Identify the weakest link
Success for a global organisation depends on how effectively it can orchestrate its supply chain network. A successful digital transformation addresses its partner value chain, including all the processes and information flows between those different partners. Digital transformation of an extended value chain is only as robust as the transformation of its weakest link.
Organisations need to take a holistic view of the ecosystem of partners, from raw material providers, manufacturing partners and suppliers, logistics and transportation providers, to retail and distribution channels. What happens between the individual parts of the network is just as, if not more important than, what happens inside each one. What happens between the parties is data access, data sharing, collaboration and network-wide analytics.
Eighty per cent of the data that a company needs to orchestrate its supply chain successfully comes from across its partner networks – outside the four walls of its business. Like any successful partnership, a key ingredient for success and continuity is trust in the information that is shared and exchanged. Relationships with external partners need complete, accurate and timely data. Without data, companies can’t have true insight and visibility, which can lead to missed opportunities. Organisations will be successful if they are able to collaborate in this way, with their network of partners working from the same supply chain information, which must be accessible and true.
A recent global study by Capgemini Consulting and GT Nexus explores the current and future state of digital supply chain transformation and reveals some interesting findings and expectations with respect to data accessibility. The study surveyed 337 executives from some of the largest global manufacturing and retail organisations in more than twenty countries around the world – largely from Europe and North America.
The key findings include:
l Today only 15 per cent of respondents say the majority of data from the extended supply chain is accessible to their organisation. In five years, expectations rise to 54 per cent.
l Today only 23 per cent of respondents say the majority of data from the extended supply chain is analysed and used for decision-making. In five years, expectations rise to 68 per cent.
l Five years from now, 95 per cent of respondents expect more processes with suppliers to be automated.
l Five years from now, 94 per cent expect to receive more real-time status updates from across the supply chain.
The study reveals a large gap between where organisations see themselves today on their joint digital supply chain transformation journey with their extended value chain partners and where they want to be in five years. In fact, 75 per cent of respondents say digital transformation of the supply chain is important, but a big gap exists between where companies are today and where they expect to be in just five years from now. Transformation initiatives within the enterprise pose significant challenges in themselves.
An organisation’s value chain can include hundreds of partners. For this reason, connectivity between partners, cross-company access to data, and the use of network-wide analytics become the key focus areas.
Technology is going to play a big part in how successful organisations can digitally transform. Respondents from the research project identified supply chain visibility platforms/tools, big data analytics, simulation tools and cloud as the biggest technology enablers of digital supply chain transformation. What is common to all these technologies is the use of information to provide insight into business decisions. Supply chain visibility provides real-time awareness of business processes. Big data analytics turns raw information into actionable insights, and the cloud is a technology paradigm that tears down barriers by creating universal accessibility to data.
Successful digital transformation for organisations that have started their journey can perhaps be envisioned in five years or more. That is a future where data flows freely between all parts of the supply chain and where data will be used to make stronger business decisions. The information exchange and connection between manufacturers, retailers and their suppliers will be far more collaborative and strategic than ever before. For those that are yet to start their journey, it’s going to be a real sprint.