An cross-industry

insight into the

implications,
challenges &
opportunities
of digital
transformation,
trans
Yasir Mir
I.

Leaders across industries have taken note of the changing role of technology in
business, particularly over the past decade; though traditionally used as a tool
conducive to marginal efficiency, technology now plays a pivotal role in the provision of
goods and services. This growth in digitalization has been driven by a start-up culture in
the tech industry, characterised by a focus on innovation and disruption, and also the
widespread consumer adoption of e-commerce and mobile platforms.

Digital transformation is widely defined as the process of transforming business
activities by leveraging new platforms and technology. As consumer behaviour and
trends change, businesses must adapt and ensure they meet consumers' expectations.
Though digital transformation provides a wealth of opportunities and enables
scalability, a poor digital strategy carries the risk of deterring new customers and
alienating existing customers.

There is no established perception of what digital transformation: it takes many forms
across industries and companies. Many would consider the act of moving towards a
paperless organization as digital transformation, though in the best instances of
transformation, companies have used technology to innovate and disrupt their industry.

There are four components to address when a company goes digital: Strategy, People,
Processes & Technology. A digital strategy outlines the area in which the company is
going digital and the initiative proposed; a team with the right skills is required to
execute the strategy; business processes must be updated to incorporate the new digital
initiative and companies must consider which technology, platform, software and data
process will be most effective. Technological developments have created new ways of
connecting people, this has led to existing models being re-invented and new models
being developed.

Digitalization has affected the automotive industry at every stage of the value chain.
Companies such as Mobileye, Google and Tesla have been crucial to the development of
autonomous vehicles.

Traditional companies now rely on technology from new entrants into the market to
future-proof their goods and services. Mobileye produces sensors that can be supplied
to the manufacturers of self-driving cars and Google in particular have carried out
extensive research and development into the conversion of regular cars to self-driving
cars.

Tesla are disrupting the automotive industry by allowing customers to order online-
directly from the manufacturer. Traditionally the automotive industry relied on
dealerships to sell the vehicles, by cutting out the middleman and selling directly to
consumers, they gain greater pricing control and profit.

Digital technology has provided todays consumer with endless conveniences and this
has now spilt over into the automotive industry. The traditional concept of vehicle
ownership has been eroded, replaced by the concept of transport as an experience. New
entrants into the transport market such as Uber, Lyft and Zipcar are capitalising on a
changing trend in the industry, from a model of vehicle ownership to a usage based one.
This has been enabled by widespread adoption of smartphones and software
development with on-demand platforms connecting customers to drivers or cars. In the
case of Uber and Lyft, customers are connected to nearby drivers within minutes whilst
Zipcar connects customers to a network of cars, allowing them to pay for vehicle usage
on an hourly basis.

Transport in many cities is largely inefficient due to congestion and high levels of
population density, this can often result in negative externalities such as air pollution,
noise pollution and loss productivity. Optimising journeys can improve the standard of
living in cities and car-sharing means fewer cars on the road.

The digital revolution means companies that do not adapt to incorporate new
technologies risk becoming extinct, this is true in the automotive and transport industry
as it is across other industries.

In the finance industry banks are seeing their customers switch to online or mobile
banking. There has been a particularly sharp rise in the number of customers using
prepaid cards, managed through mobile apps. Monzo, a digital bank, is an example of
one of the banking industrys new players, though it has no physical branches,
customers can closely monitor their spending through the app.

Established banks also seek to capitalise on this new trend, American Express recently
expanded its range of services to include a prepaid bank card with a dedicated app,
AmEx Serve. This platform has a variety of tools to help customers manage their
money anytime, anywhere. Companies are becoming aware that consumers want to
manage their money conveniently and on the go, the digital response to this has been
money management apps, mobile banking and contactless payments.

Though digital transformation is the key to innovation in many industries, the
successful execution of initiatives requires extensive research and planning.

II.

The digital transformation of companies has resulted in vast amounts of data being
produced by consumers. Companies must capture consumer data effectively and learn
more about their behaviour, some of the best implementations of digital incorporate
user behaviour patterns into their service. An example of this being implemented is
Amazons product suggestions, whereby items are recommended based on previous
purchasing habits. Closely monitoring this data allows Amazon to set pricing fluidly
according to demand, maximising their revenue- and giving them a competitive
advantage over traditional physical retailers, who cannot make price changes in the
same responsive manner.

A key challenge for established firms trying to undergo digital is to ensure customer
data is kept secure (fact about cyber security), companies must earn and retain the trust
of their customer by being transparent and putting customers security first. A security
breach resulting in the loss of personal data would not only damage a companys
reputation, but would also likely result in legal and financial implications.

Recent heavy investment in new technology and start-ups is reminiscent of that in the
dot-com era, during which many companies secured investment and spent heavily
aiming to capitalise on the internet. Boo.com was an online fashion retailer launched in
1999, during the dot-com era. In just 18 months, the company spent $135million of
venture capitalist money. Boo.com had developed innovative features such as a virtual
sales assistant and a 3D view of their clothes modelled on a mannequin but this
software development came at a high cost, the monthly photography bill alone was said
to be over $500,000. This level of expenditure was not sustainable and the company
was being upheld by investors money; eventually Boo.com was liquidated. Though high
level of expenditure was a large part of the companys bankruptcy, customers also failed
to respond well to the technology. At the time, most customers had a dial-up connection
and the websites data-heavy content made it slow to load, resulting in a bad customer
experience.

Today, technology start-ups are following a similar business model: secure a high level
of investment, spend heavily on R&D and Marketing in the hope of innovating and
gaining market share. The challenge for todays companies to ensure technological
investment is not for vanity but rather seeks to improve their competitive advantage.
Many companies that have disrupted their respective industry have been consistently
operating at a loss since their inception. Their high valuation is based on long-term
revenue potential and if companies do not actualize this potential, investors will begin
to lose confidence resulting in devaluation of the company or in extreme cases,
bankruptcy.

III.

A KPMG CEO Outlook 2016 survey found that around 67% of US CEOs agree that the
next 3 years are more significant for their respective industry than the previous 50
years. The same survey established CEOs believe over the next three years,
technological and economic factors will have the greatest impact on growth.

Companies face challenges that centres around organisational inertia. Though
companies may feel pressure from competitors to innovate, CEOs and decision makers
at the executive level may feel uncomfortable adopting a radical digital strategy as this
would likely involve straying from a strategy that has proven to work well in the past.

Digital transformation initiatives in the physical space have often taken the form of self-
serve machines. HSBC now allow customers to deposit cash at a machine in their branch
and similarly, McDonalds have introduced self-serve kiosks in many of their
restaurants. Critics of these machines argue they are impersonal and reduce jobs;
companies face the challenge of balancing implementation of self-serve machines, with
employment of low-skilled workers. Failure to engage with customers and employees
on these issues can result in a backlash and damage to a companys reputation.

Though traditional organisations typically use the well-established waterfall approach,
many start-ups employ alternative frameworks such as Agile. An Agile approach is
iterative and result-focused; teams are self-organizing and work in short sprints
enabling them to be more responsive to change, innovative and adaptable.
Organisations that do not take an Agile approach must take steps to ensure employees
are in an environment conducive to innovation.

The key technologies expected to grow over the next two years are VR, Open Data,
Cloud Computing and the Internet of Things (IOT). Digital transformation has the power
to act as an engine for growth and to improve quality of life.

Opportunities exist for brands to engage or interact with consumers in new ways-
companies such as Catchoom in Barcelona are already using image recognition and VR
to create engaging interactive marketing campaigns.

Open Data from governmental bodies and other organizations allow developers to
build apps, potentially capitalising on a gap in the market. Transport for London (TfL)
recently announced they will be monitoring commuters journeys using the tubes free
Wi-Fi network. Capturing and analysing data in this manner can help TfL understand
how people use the transport network thereby enabling digital initiatives.

Digital transformation in some industries has suffered significant setbacks, Uber
suffered defeat in a regulatory battle with TfL, which in effect forces drivers to pass an
English test to obtain their license. Similarly, there has been dispute over whether Uber
drivers are self-employed or employed by the firm; as an employee, drivers would be
entitled to sick pay and annual leave thereby reducing profitability. There has also been
concern over Ubers interest in self-driving cars, with current drivers suggesting they
are simply placeholders until autonomous cars are commonplace.


Regardless of industry, companies must adapt to the new digital world and embrace
new technology that improves the provision of goods and services. Digital businesses
can enter a market and enjoy rapid growth due to the scalability associated with the
internet.



































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