Bad times the best time for digital transformation: Gartner

• Innovation happening at IT depts, but not at the business level
• Dare to experiment, do not worry overmuch about ‘losing face’

 
IF there is a good time for Malaysian companies to start embarking on a digital transformation agenda, it would be this year, as economic growth is expected to slow down in 2016.
 
“The sad thing is that when economies go down, businesses get more defensive because there’s pressure on the bottom-line,” said Gartner research director Bard Papegaaij.
 
“Actually, this is the wrong approach – you should use that as a signal to get out of the water because it is getting too hot,” he said at a briefing in Kuala Lumpur on Jan 18.
 
According to Papegaaij, when a market shrinks, companies will usually try their best to defend their market position and even try to improve it. However, such a move is not viable.
 
“Ultimately, your market is dying. The other option is to move to a new market.
 
“Moving to a new market nowadays is actually more interesting than ever before, because most successful players today don’t move to another market, they create one,” he said.
 
Citing IBM as an example, Papegaaij noted that the company used to be a powerhouse in the mainframe business, and most of its products, software, and applications were all proprietary.
 
But IBM has since gone into open source software, and now has its cognitive computing technology, IBM Watson.
 
“One of the nicest things about Watson is that it is freely available. What IBM is doing now is that it is creating an ecosystem.
 
“Imagine anyone that needs artificial intelligence (AI) comes to IBM to plug it in – it gets so many other opportunities for collaboration out of the ecosystem,” said Papegaaij.
 
Papegaaij argued that an organisation’s digital transformation should go beyond its IT department – it should involve the overall business as well.
 
As far as Malaysian companies are concerned, he said that digital transformation and innovation are currently restricted to IT departments.
 
“I see a lot of innovation happening, more on the IT side than on the business side. The gap needs to be bridged – you need to get the business to dare to experiment,” he said.
 
This should include experimenting with new business ideas, new technologies, or simply new ways to improve efficiency via innovation.
 
“Google is going to dominate the car industry not because 10 years ago it said it will do that, but because 10 years ago, it said: ‘Would it be possible to do it? Let’s try anyway,’ ” said Papegaaij.
 
Set little experiments
 

 
While some may say that such strategies are easier said than done, Papegaaij believes that it would be possible to achieve if an organisation starts to embrace experimentation and failure.
 
“So which new business model is going to be a winner? This is actually where Malaysian CIOs (chief information officers) face a bit of a challenge.
 
“You have to experiment and fail. Culturally, it is difficult because it could appear that you are losing face.
 
“Instead, set it up as an experiment so that even if out of your portfolio of 10 experiments, eight fail, you still have two winners. People only need to see the two winners,” said Papegaaij.
 
“Don’t be too rigid. Don’t think you can think your way forward,” he added.
 
While Papegaaij said he is encouraged to see the Malaysian Government playing an active role in supporting innovation, he stressed that the Government needs to understand that sponsorship of innovation cannot be tied to return on investment (ROI).
 
“Sponsoring innovation cannot be guaranteed as far as ROI is concerned. You cannot say, ‘Innovate and I want to see the results.’
 
“You have to expect that some experiments will fail. We need to work on investing on pure innovation, and not just improvements,” he argued.
 
Your customer’s life story
 
The digital transformation agenda can be applied to all industries. In the plantation sector, for example, one can set up experiments to find out if you can use sensors to monitor soil quality or drones to monitor crop quality, among others.
 
“For banks, you need to stop pretending that you are necessary. Think about what would happen if banks were not necessary, because that’s where we are heading,” said Papegaaij (pic).
 
“Digitalisation is also about reaching a market that has never been tried before.
 
“For insurance companies, why don’t you find a way to insure uninsurable people? For a motorcycle company, is there a way you can have a cycle-upgrade programme like with an iPhone, where you can get a new motorcycle every six months?” he suggested.
 
One of the ways to address digital transformation is for the company to ask itself how it can be part of its customer’s life story, said Papegaaij.
 
“For example, my wife’s birthday is coming up, so what is my bank’s role with my wife's birthday?
 
“The immediate answer is that I pay for the gift using the bank. But think of the options and possibilities – the bank could suggest gift ideas.
 
“My wife has a credit card there as well, so it knows her buying behaviour and can warn me about buying a gift she has already bought. It could tell me that I am overspending, or could give me a funding option.
 
“When the item is bought, why doesn’t the bank keep the receipt instead of me, so that if it is the wrong gift, my wife doesn’t even need to get the receipt and she can just go back to the store to return it, and the bank can guarantee that it was bought legitimately.
 
“All these are options for banks to become part of their clients’ stories. If you become part of their story, chances are, your customers are less likely to go elsewhere,” Papegaaij added.
 
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