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Is digital transformation just a buzz phrase or is it a fundamental revolution rocking the very foundations of the global economy? John Kennedy investigates.
My inbox is fit to burst with missives from marketers and PR types extolling the virtues of digital transformation. Somewhere in New York, Chicago or LA, there is a Melissa, Melanie or Jordan who keeps threatening to ‘circle back’ on their previously ignored email.
I’m not really sure what this circling-back business is all about but I do sincerely hope no one gets hurt because my imagination is afire with tormented flacks spinning about the place and circling into walls, all because I never replied.
‘These digital technologies that we talk about – mobile, cloud, AI, IoT, blockchain and more – are creating unprecedented levels of industry dislocation and fundamentally changing business economics’
– PAUL MURPHY
But circle is a good metaphor because have we not gone full circle? I mean, I have always cheered on the advances in technology. In the 1990s, I grasped the relevance of e-commerce and felt instinctively that online commerce could be revolutionary in our lives. In the 2000s, I talked about vast digital marketplaces for businesses enabling new economies of scale. And, even after the dot-com crash, I stubbornly held on to the notion of e-business being a flag worth waving.
The iPhone appeared, apps popped on to smartphones, cloud came along and, once again, all the IDCs, Gartners and various experts were extolling the revolutionary impact of cloud. More hype? More marketing spin? Of course, I muttered to myself cynically. It’s all the same thing, it’s the compute continuum with new buzzwords applied. Wasn’t the cloud just mainframe computing gone full circle?
And then I found that I could not work without the cloud, that all my flights and hotels are automated as part of a global digital ecosystem, and even my local library is automated to remind me to bring back books.
Automate this
We are in the age of automation and tech just has a way of creeping up on you after all the marketing bluster has died down. I realised this when I checked into a Ryanair flight in Amsterdam with just a wave of my Apple Watch. Tech has invaded the very sinews of our lives.
Last December, I sat at a digitalisation conference in Dublin organised by Siemens, and the penny dropped. Digitalisation or business transformation, whatever you want to call it, isn’t just about transforming a set of processes through apps, APIs and servers; it is about transforming people, too, at every facet of the organisation.
This ‘digital transformation’ term beloved by marketers is pretty much a good way to describe the last 10 or 20 years of life.
“Back in the 1980s, as a young engineer, I got my first mobile phone, which was known as ‘the brick’,” recalled Siemens Ireland CEO Gary O’Callaghan.
“In the mid-90s, the first GSM phone came on the market and it was 1995 when the first text message was sent from phone to phone. We didn’t realise it then, but that was the genesis of what today is a multibillion-dollar social media business. It has been an amazing journey.
“In a few short decades, we have gone from ‘the brick’ to billions.”
I have written countless articles, however, about how Irish-based organisations are missing out on these billions by failing to automate, and failing to put e-commerce processing capabilities on their websites.
In a report by Buchele GmbH revealed at the digitalisation event, Siemens found that 29pc of businesses in Ireland have no defined strategy. While 43pc of firms have a defined strategy for portions of their business, less than one-third have a strategy for the whole of their organisation.
Shockingly, almost half of executives surveyed cannot identify a digitalisation project in their company’s medium-term plans. And, when it comes to implementing technologies, more than half are still in the initial planning phase.
So, if the digital transformation journey is a real one and not a fad, what is the big picture?
Define ‘customer success’
At a recent Tech Ireland-Bank of Ireland event on successful scaling, Gartner vice-president and invest analyst Sandra Notardonato pointed out that a general shift to business transformation is continuing apace. She noted that worldwide end-user IT spending will be up 3pc in 2018 to $4.1trn.
Meanwhile, Notardonato pointed out that Gartner’s CIO survey showed a 3pc increase in IT budgets, out of which 25pc is dedicated to digital initiatives.
“Automation is the most meaningful change to the IT services business model since offshoring. This new headwind will continue to pressure industry growth compared with historical averages,” she added.
Notardonato said that digitalisation is prompting a shift away from old-world IT models of long-term contracts and asset-heavy investments towards a more nimble world of standardisation, robotic process and intelligent automation, alternative delivery models, shorter-term contracts, co-innovation among companies, and increased R&D spend.
The linchpin of this evolution, from an infrastructural perspective, are platforms such as Amazon Web Services (AWS), Google Cloud and Microsoft, which have established themselves as infrastructure-as-a-service (IaaS) leaders. They in turn are powering the entire infrastructure of other born-on-the-internet companies. For example, Netflix runs entirely on AWS, while WP Engine runs on a combination of Google and AWS.
For software companies, entire business models and company orientations are shifting towards inbound selling and worshipping at the shrine of ‘customer success’.
As traditional software companies evolve towards software-as-a-service (SaaS) models, entire industries will do so, too, as the realisation dawns that keeping customers successful bolsters recurring revenues.
Bank of Ireland’s head of technology sector, Adrian Mullett, pointed out that this move to SaaS and digital transformation will help contribute to a 20pc growth in the Irish tech industry, with revenues of €3.5bn for 2018.
At Slush in Helsinki in December, Des Traynor from Intercom gave one of the best definitions of the customer success movement. “I worry for a lot of businesses who think having a great product is enough of a motive for people to spend money,” Traynor explained. “That used to be the case. The reality is, we are now moving towards this age of the customer relationship where, all else being equal, if you have a great product, someone else has too that is probably close to the same price, so you have to differentiate yourself by giving the customer a great experience.
“I think sales has gone through a renaissance in recent years. If you just build it, they might not come; and, if you just market to them and don’t try to sell the product, you might forget to make any money. There was a backlash against sales in the product-first era where you built it and then just layered on sales and marketing. But people want more and, in the era of selling digitally, the core has to be something good.”
The digital journey is changing entire industries in the same way that Amazon transformed commerce and computing infrastructure.
For all the giving out people do about airline Ryanair, for example, the company has revolutionised travel for generations of Europeans and has brought us closer together in ways we still don’t appreciate. It was therefore not a surprise when it emerged that Ryanair plans to close the vast majority of its data centres over the next three years and instead move its IT infrastructure entirely on to AWS.
In many ways, Ryanair fosters the ambition of becoming the “Amazon of air travel”, in the words of CTO John Hurley, and the move to cloud will transcend all elements of the business. The move is a core element of Ryanair’s digital transformation, involving the shift from legacy systems to cloud-based, innovative customer travel services by standardising on various AWS services, including AWS databases, analytics, machine learning and deep learning.
Hurley explained that the transformation, which could see AI and machine learning applied, will be transformative for everyone, from the pilot to the passenger.
“By rebuilding core applications, converting data into actionable insights and creating intelligent applications, we are putting the solutions in place to continue our leadership in the travel industry,” said Hurley. “Machine learning is hugely important to our growth, and we’re pursuing a variety of AWS machine-learning services, including Amazon SageMaker, to enhance customer UI experience and personalise the MyRyanair portal for every unique traveller.”
The intrinsic link in digital transformation? You
And that’s just it. In a world of billions of people carrying billions of smartphones – now the core computing device for the planet – getting to that sense of uniqueness for every customer is what will enable the mantra of customer success to become a core philosophy of business. At the heart of it will be automation and AI.
It’s not so much digital transformation as it is business transformation.
For mobile operator Three, that intrinsic link of smartphone and customer is a deeply personal connection. Three Ireland’s head of portfolio management, Jackie Glynn, explained: “For me, it is more than just digitising the shopfront, and needs to also encompass elements of the following: changing how companies reach customers, using technology to drive operational efficiency, using technology to reduce cost and overheads, and implementing big-data solutions to enable the digital business.
“All of the above will drive a fundamental change to the current business model that impacts every function of the company and results in changes to organisation structure, skills and capabilities, processes, and culture.”
As Glynn points out, digital transformation isn’t so much about a new technology per se, but a transformation of people and processes, too.
Yvonne Kiely, director of EY Ireland’s customer and digital team, and head of EY-Seren Ireland, added: “Digital transformation is about continuous improvement.
“It’s also about the new 4 Ps: purpose, planning, persistence and pace. Thinking about what digital can do for you and for your organisation, and how best to get that capability built and embedded in your team, area and business in order to create efficiency and ease, is what all transformation should deliver.
“Digital transformation is no different. It’s a capability that touches people, process, data, systems, technology and your customer. It’s about renovating what you have in order to make it right for the future. And, fundamentally, digital transformation is intrinsic to customer experience delivery. Bad digital capability across the organisation is bad customer experience outside of the organisation.”
So, is digital transformation just a fad? Not so, says IBM Ireland’s Paul Murphy. It’s not a set of buzzwords; it’s a fundamental shift transforming industries everywhere, from retail and banking to blockchain preventing contaminated food entering the family kitchen.
“Digital transformation is leading to improved business performance and much simpler user experiences.
“Digital technologies have altered how people and businesses interact. Today, we have smartphones that connect us to our family members in Australia as we share a live video stream from a birthday party in Dublin. Using the same smart mobile and cloud computing technologies, we can share all sorts of documentation with our colleagues, partners or clients around the world as we travel across our cities and towns.
“These digital technologies that we talk about – mobile, cloud, AI, IoT, blockchain and more – are creating unprecedented levels of industry dislocation and fundamentally changing business economics. To succeed in this disruptive digital transformation environment, organisations need to offer compelling new experiences, establish new focus, build new expertise and put smart to work.”
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