Productivity

The Importance of Digital Transformation

Woitek Szymankiewicz, Closer Consulting

Three decades of official OECD studies show clearly that countries’ overall labor productivity growth is steadily falling (measured as Gross Domestic Product (GDP) per hour worked or per worker).

How can we explain this? In fact, it’s strange, because we have been witnessing the arrival and adoption of many digital innovations like robotics, the massification of PCs, the internet, access to broadband internet, increasing computing power, smartphones and more recently, technologies like Cloud Computing, 3D Printing, Big Data, IoT, Blockchain, Machine Learning, Artificial intelligence and many more.

Although this is a five-year-old study, the trend is clear, and some of these digital innovations were already started and adopted. It is puzzling, isn’t it?

At the same time, many surveys show that business leaders are convinced that those technologies have had and will have a drastic impact on their business and on the way they operate. They expect to enhance customer experience, boost enterprise efficiency and effectiveness. McKinsey predicts that through the combination of Artificial Intelligence, orchestration and robotic process, automation productivity will increase between 30% to 80%. These estimates were valid even before the recent Covid pandemic.

In fact, the coronavirus crisis has accelerated the adoption of these technological trends. It has forced many companies to speed up the push towards greater productivity and the shift to digital.

Back to the productivity paradox. So, which perspective represents the reality more accurately? Three decades of OECD statistics or the view of the business leaders?

While there are many different possible explanations for the productivity paradox, one common approach is the statement that not all companies are able to adopt those technologies fast enough and therefore are not able to reap those benefits in their favor. In fact, the same data, when analyzed more in detail, confirms just that. Frontier firms – more profitable, younger and more likely to patent and be part of a multinational group than other firms - both in manufacturing and services, are accelerating their growth, leaving competition far behind.

At the same time, new digital companies are born and create disruption across sectors. They are, from their inception, digital customer-centric companies, driven by data, totally cloud-based and set up with lean AI-enhanced business processes. Some don´t even rely on local workforce and talent since they operate 100% remotely. This scenario makes them agile, fast and highly adaptive to the needs of the customers. Personalized customer experience gives them leverage and a huge competitive advantage.

To keep up, traditional businesses must speed up their Digital Transformation initiatives, yet choosing and adopting the right approach is not an easy task. Where should you start? Should you target your business as a whole or a specific segment or department? Should you enhance existing business models and processes or disrupt them totally? Which technology is the right one for your business?

Many organizations starting their digital transformation journeys begin by focusing on customer experiences. They try to match the kinds of omnichannel, immediate, easy-to-use, personalized, and transparent interfaces that digitally-born competitors place at the heart of their strategies”, Neil Ward-Dutton, Vice-President, AI and Intelligent Process Automation European Practices at IDC states.

However, an end-to-end customer journey is not only delivered with excellence through a great personalized website or a compelling mobile app. Your internal processes serving the customer must be revised and streamlined in the first place. “You must transform yourself from the inside to be excellent”. This coaching statement is not just valid for human beings striving for excellence. It is also applicable to businesses.

Consider, for example, back-office operations and support operations that are typically crowded with people doing repetitive tasks relying on email and outdated legacy workflow systems. In these areas, intelligent task distribution systems, adaptive workflows, robotic process automation and artificial intelligence assistants are on the day’s menu.

In conclusion, while global productivity growth seems to slow down steadily on average, a closer look shows clearly that the most agile and innovative companies, the frontier firms, are accelerating their competitive advantage. To which one does your company belong? Are you leading Digital Transformation or still trying to catch up?

Closer has been supporting many leading companies through these challenging times. We will be glad to share our experience with you.

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