Demystification of the Digital Transformation

Digital Transformation is more about Transformation rather than Digital

Apart from the fancy term, digital transformation is about everything an organization does to implement new technologies. It happens daily from the implementation of mailing services, document management systems, ERPs, sales software, warehouse management, palmar implementation, purchasing software are some of the simple aspects of the Digital Transformation.  Technology is available in almost every aspect of an organization and as solutions are implemented and further integrated with each other, that is where the magic happens… Inevitably, the company transforms; it transforms in behavior, goals, necessities and skillset required.  Therefore, it is not any more about digital rather than it is about transformation – specifically, business transformation. 

Aimed at a general business audience, this article demystifies digital, provides an overview of solutions, and offers a framework to help you understand their business implications.

The fine difference between risk-adverse and risk-takers

An interesting finding of this study refers to companies, which have embraced new technologies, tend to be more risk-adverse. This attitude demonstrates confidence making it obvious that digitally mature organizations have it (confidence) in their processes, in their data, and in their analysis and most importantly, they have confidence in their ability to transform as per new initiatives. (In economics and finance, risk aversion is the behavior, when the individual/organization exposes to uncertainty, with the attempt to reduce that uncertainty).

In Albania, if we analyze economic history we can conclude that the risk-takers, the ones who took the risk to establish and grow the organization to their actual stage, lead the top businesses. This could be the explanation that, especially in the past couple of years, we can see the introduction of top tire solutions in local organizations and in some of these cases; these solutions are from Ivy League ones.

Confronted with the uncertainty toward the market and mainly toward their own organizations, leaders in Albania tend to address the following issues with new technologies. (i)“Increase of control” is the keyword, followed by (ii) “Improve performance of existing processes” and (iii) “Support new process arising from growth”. In fact, there is also an underlying pattern of the (iv) “hope” that implementation of these solutions will standardize and improve existing processes and consequently would bring the organization governance to a new level. The latter in fact has revealed to be a dangerous approach. There is a fine difference between risk-adverse and risk-takers. 

Magnifying benefits vs magnifying issues

New solutions, especially ERPs have a “magnifying” capability. They magnify the benefit from streamlined processes adding value to the entire chain but on the other hand, they magnify the issues by creating critical risky situation for miss-structured processes.

Despite the fact that leaders tend to implement new technologies there is still friction within the organization which tend not to accept the transformation with “alibies” based on prudence due to uncertainty up to fraudulent cases.  For example when implementing a top-tier ERP Solution, the organization should aim to implement minimally the Finance/Accounting Module, Purchases Module and Sales Module with some basic Business Intelligence tool.

The general Albanian accountant attitude of transaction booking is usually done in batch model and ad-hoc (when reporting is needed). This attitude might derive from lack of resources as much as from inadequate job allocation. Locally developed applications which are widely used, allow the accountants to book and post these transactions at any time without keeping a log of them. Additionally, transactions can be deleted without leaving a trace in the system. (Of course, there are also explanations of such anomaly as the fact that such rights are limited by roles, but those will not be treated under this article). This kind of solution becomes handy when the organization is small but with the organic growth, automatically we have an exposure of tremendous risk for this organization.

A top-tier solution (at factory settings) requires a timely posting of transactions and each correction leaves a trace in the system. In front of such constraints, finance departments usually tend to request additional resources or they push toward intervention (customization) of the software as per the model they are used to work before. The later, requires some major changes (customizations) of the software logic, which in the end will result in much higher implementation cost than the ones budgeted. Moreover, if such changes happen, the organization misses the standardization of processes, which is the main mission of the ERP implementation.

Nearly the same anomaly happened when implementing purchases module. A purchases solution should assist the organization in defining the needs, create a purchase order, assign the order to one supplier and closing the loop with the supplies arrival (addressing all differences) and booking respectively in warehouse and in cash-management module. Thus, the software would enforce the organization to implement at least basic concepts such as purchasing contracts, warehouse management, and cash-management. On the other hand, in our country and peers, purchases are done in an ad-hoc basis via interpersonal communication mainly by phone and delivery differences are solved again through unstandardized processes. The same happens with the payment process where organizations struggling to adapt tend to not fully utilize software capabilities, missing this way the benefits from the huge investment performed.

When implementing a sales software together with the additional peripherals such as loyalty programs, palmar or online platforms the basic idea is to ease sales processes and collect as much as possible data that would supply detailed analysis of customer behavior which in itself leads to route optimization, increased service quality and ultimately new product development. In this aspect, in the Fast Moving Consumer Goods (FMCG) sector Albania, we have a huge anomaly. In a normal position, margins have a negative correlation with the volumes. Thus, from production to distribution and to the retailer the margins should increase in order to support the costs of each step and leave in the end some profit.

However, in our country, the higher margin lays on the distributors’ portion with an incredible distortion when compared to retailers. Obviously, this can be explained by the informality or by the customer behavior.  However, it is noted that distributors are not only more digitally mature than retailers are, but they are also pioneers in implementing new technologies.  On the other hand, retailers have not reached sustainable growth in order to restore the normal market conditions because they are incapable to define prices.  Our retailers tend toward selling the “product” whereas modern traders have a logical concept where they sell “Shelf Space”, “Customer Service” and “Data”. 

Data...Data...Data

If we would consider the entire chain and we allocate the four P of marketing in it, in a normal market, we would get: the (i) Product to the Producer, the (ii) Promotion to the Distributors, the (iii) Place to the Retailer and the (iv) Price to the Customer. The latter is an inevitable truth considering the facts that prices are defined by the supply-demand equation and in the FMCG today we have theoretically unlimited supply for a fraction of the global market, it can be deducted that the Demand setts the Prices. In such a condition, the retailer task should be to understand and address this demand and optimize shelf space and service to such a demand. Consequently, to understand this demand there is the need of the capability to understand “Big Data”. Big data relates on one hand with technology and on the other with specialized skill-sets. Thus, if retailers want to resolve the distortion that we are living actually in our small market, there is the need of investment in these two fields. 

Each aspect of the business is subject to new expectations, competitors, channels, threats and opportunities. Consumers’ needs are driving change and because of that, technology is constantly shifting. Today’s leaders actively manage the company’s journey to digital excellence by opening new markets over the clouds rather than over the counter. Digital markets.

However, few pioneers here in Albania have been able to “fly over those clouds” because of the myth of digital transformation leaving room for inexperienced new digital retailers to build new fast growing businesses which lacks terrestrial “know-how”.

Are we too busy to improve?

Digital tools are invading the business environment, provoking significant changes in the way we work, communicate, and sell. This has given rise to new opportunities and challenges, and has triggered the Digital Transformation of enterprises.

The myth is that digital technology is a young person’s game is in part true but only because of a single reason; there is no need to transform the Youth, as they are still being formed. 

Organizational transformation cannot happen organically, therefore, leaders within organizations are the ones that should be driving these changes. This is why when implementing new technologies leaders should not concentrate in the “digital” but effuse the “transformation” – as the part of their primary job description.