Role of Technology in Business Transformation – Part 1

Technology in this post refers to Information Technology unless any other context is specified.

In early 1990s, Jaithirth “Jerry” Rao was a celebrity CEO. Citibank India was regarded as a trailblazer, well… at least till the 1992 Harshad Mehta scam ravaged through their famed portfolio management scheme. Well before then, I read his interview in Advertising + Marketing magazine (not sure if it is still published in India). One of his statements caught my attention and has turned out to be right whenever I have looked at the role of technology in business and in organizations.

In business context, technology or automation are looked at as ways to cut costs. Most of the CEOs I speak to tend to take that view. That view also matches the general view, particularly when you look at the grim ‘Luddite’ view of technology. It is important to understand that the ‘Luddite’ view and the cost cutting view of technology are not the same, though they get treated like that. More on that at some other time. The moot point is whether organizations should adopt technology to cut costs as the primary end point?

In that interview, Jerry’s answer was ‘no’. His point was that technology does not lower cost and it is futile to implement it just for that purpose. What technology does is that it allows you to do things differently enough to build substantial business value. He used the example of automating the process of customer account statement generation (well, it was the early 90s, and the way to get your ‘account statement’ was to go to the bank, wait in a queue for an officer to be free and then stand around while she wrote entries by hand in your Passbook). The example might look primitive today, but it was a big deal back then.

I am certain that the reality is more nuanced than the stand Jerry took, there are situations where technology does lower costs, in the longer run for sure. The Luddite view is also not completely wrong. Evidence suggests that bulk of the US manufacturing jobs lost over last 40 years have been lost to technology and automation, not to free trade. But the basic point he made stays, a CEO must look at technology as a way to do things that you otherwise cannot do. And that makes technology a vital ingredient in a business transformation.

If you look at technology adoption in any industry, you would find that the cost cutting paradigm is not applicable in many settings. Take automotive industry as an example. If you look at a process through a cost cutting lens alone, take welding for example, the economics will not work out at least in India. A robotic welding arm would cost around €0.5m, and could replace 3 round-the-clock welders who would cost a maximum of ?3m a year combined. Add to that the cost of the welding station at ?1m. You might not recover even cost of capital in this scenario. But can you use a manual welding process instead? No, because the precision and the quality requirements have moved to a point where you cannot compete without an automated process anymore. Automation did not cut costs, but it improved quality and safety to the point where it cannot be done without automation. It is an improvement along a completely different dimension. What is true for physical manufacturing is truer for IT-led automation.

The examples are ubiquitous. E-commerce was supposed to succeed because the cost of selling online would trump brick-and-mortar on account of real estate. Despite that cost advantage, e-commerce has not made the supernormal profits it should have made if it were only about costs. In most of the cases, technology needs to be incorporated into your business systems and the overall costs might go up. Should you still do it? More importantly, if you are trying to rescue a sinking organization, to what extent can you rely on technology?

This is not a trivial question. Two decades back, ERP systems were all the rage. Many organizations assumed that implementing an ERP would transform their processes and by extension, their fortunes. By the late aughts, ‘failed ERP implementation’ was a thing. How many organizations were pushed to the brink in that process? I’m afraid the number is way higher than what the popular press captured. The worst affected were the ones that were already struggling and looked at the shiny new piece of technology as an easy path to transformation.

Technology is changing every business and its incorporation in business processes has become a matter of survival. In a transformation, you cannot ignore the role of technology. Given how central it has become to practically every business, it is important to get it right.

As I have said before, this is hard work. And ChatGPT will not answer it for you, at least not yet (for those who are curious, I tried but I couldn’t get anything better than ‘stock answers’ that give you 5 steps on how to choose or implement an ERP or how to set goals for implementation). Till GPT-8 (or 16) solves it for you, got to do it yourself.

Cost is probably the worst starting point. I am not aware of any cost-focused technology project that finished on time, within the budgeted cost and produced 100% of the benefits it was supposed to. My go-to question to address this has been – assuming adoption of technology will increase your cost base, what would technology enable you to do so as to create a much bigger benefit for the business overall? The implicit assumption here is that technology will not deliver a lower cost for your operations in their current state. Instead, it will allow you to do much more without a commensurate increase in costs, thereby improving your unit economics or overall business economics in the long run.

There is more ground to be covered on the role of tech in a transformation. But the core question remains the same. So long as you get this right, it is a vital tool in transforming a business.

?#transformation ?#leadership #technology

P.S.: I don’t know if Jerry remembers that interview or not. He went on to do many more things after his Citibank stint. Among other things, he founded Mphasis , a company I am biased towards because of it being a crown jewel in Blackstone’s India PE portfolio. I have never met Jerry, but if I ever do, I will thank him for the lesson he taught me more than 30 years ago.