Rough Seas of Digital Transformation

First published at Singapore Institute of Directors (SID) Q1 Bulletin Jan 2023

2022 has not been a good year. The outlook for 2023 looks equally stormy as many organisations continue to navigate valiantly through the rough seas. Many organisations have embraced technology to transform and adapt. Some have done so successfully, others less so. Leveraging technology well is not easy, but the results, if done well, are worth the arduous journey.

Digital transformation, digital adoption and digital innovation have been on the rise. Amidst the volatile, uncertain, complex and ambiguous (VUCA) environment, consumers have become more digitally savvy and companies more digitally dependent. Work-from-home and remote work and hybrid/virtual meetings have become prevalent, technology expenditure has increased.?

In this new world, there are three inescapable truths about digital.

First, everything that is default offline will become default online. Hyperconnectivity is transforming communities, linking devices, individuals, organisations, businesses and countries. Everyday objects, including running?shoes, lamp posts and even footballs, are getting connected. And connectivity technologies like 5G and Wi-Fi 6 are making connections easier and faster than before.

Second, every industry will be reimagined and redefined by technology. Digital transformation, led in the first wave by retail, banking and perhaps governments, will continue to extend the tsunami of change across all other sectors. It is not difficult to think of digital examples across sectors like the arts, agriculture and construction.?

Finally, everything that is fast will become even faster. In the world of technology, the slowest we will be is yesterday as speed of new technologies will continue to accelerate. Consequently, the speed of change influenced, impacted and enabled by technology will continue to accelerate. For example, ChatGPT (an advanced chatbot) took only five days to reach one million users.

Trends, trends, trends

Technology continues to be a double-edged sword where it will represent opportunities to disrupt and create new opportunities as well as produce obsolescence through non-competitiveness. Examples like Netflix, Grab and Amazon are easy case studies on how industry and competitive battle lines have been redrawn with the clever adoption of new technologies. Innovation and creativity are at the front line, and who dares wins. The barriers to entry for technology adoption are not as high as before, as new startup unicorns leverage new technologies to challenge incumbents for existing “red oceans” or new “blue oceans”. As unexplored marketplaces and unchartered waters become the new playing f ield, there is greater room for growth. However, it is not easy to determine which technologies will have the biggest impact as these trends evolve rapidly. The ability to observe, understand, sense-make and adopt?new technologies for any organisation requires a strong multifaceted understanding across digital, business and consumer behaviours. An awareness and sensitivity to geopolitical and regulatory shifts is also important.

One of the complexities in understanding such trends is that there are many views and expert opinions from analysts, researchers, academia, technology companies and industry watchers. Whilst there are potential areas of convergence of views, there are many shades of grey to decipher.

The second complexity lies in the non-linear nature of some trends, as there are frequent false dawns. For example, the start of artificial intelligence (AI) is attributed to a conference at Dartmouth College in 1956, which generated strong interest and funding at a rapid pace. However, disappointing progress led to AI “winters” of funding and support in the 1970s and 1980s as technology in this field wavered. The interest in AI and machine learning received renewed focus and investments from businesses and researchers in the 2010s, leading to the current advancements and adoption. Today applied AI and machine learning have become mainstream and well-adopted across multiple industries like digital marketing, customer service, online commerce, banking, etc.

The third complexity is the combinational impact of trends. Some technologies coming together could bring different dimensions that may not be obvious standalone. For example, whilst cyber security has become a mainstay in board discussions of enterprise risk management, the potential fusion of cyber trends with AI, quantum?advanced connectivity or other technologies could create new considerations and challenges to cyber resilience strategies.

Questions, questions, questions

Finding ways to leverage new technologies successfully is increasingly important both from a defensive as well as offensive perspective. A strong understanding of technology standalone is insufficient as the board will marry considerations of the business, the industry, clients, key stakeholders, and many others to string together a cohesive view.

Here are some possible questions for boards:

1. What is the potential impact of these trends on the industry/company? Would it be massively disruptive for the industry like what video streaming did to the cable TV business? Would this change the barriers of entry and boundaries of the industry like the encroachment of Airbnb into the hotel sector? Or perhaps could the trend create incremental?opportunities for higher productivity and cost optimisation like the adoption of simple robotic process automation?

2. Which parts of the financials would be most impacted? Would it increase expenses without incremental top-line impact like the growing spend on cyber resilience? Would it drive better total customer value and cost to serve through the use of AI for hyper-targeting, cross-selling and upselling?

3. Does it align with the current business model? How fast do companies have to react to leverage the opportunity or mitigate the risk? Digitally native companies (e.g. Fintech, Web3) could potentially be looking at months to react as change could emerge quickly. Others, like energy, resources, pharmaceuticals, might naturally have a longer runway to react.

4. What strategy should the business adopt? “First movers” will naturally need to invest?more in early innovation compared to “fast followers”, who will invest heavily once the weak signals turn stronger. There would potentially be a case to be a “last follower” in certain areas where spending in certain technology areas may benefit from spending less than the competition.

5. Does the company have the capabilities to leverage potential new technologies or to mitigate risks? Do these capabilities exist with the management, the board, the teams or partners? Does the company have a position of strength that could allow it to react faster and better? Is this a capability that it can quickly build if required? Or, is it a new muscle that will require significant effort to acquire? Actions, actions, actions Hope is not a strategy. Good boards are getting ready to jump into the fray with actions, if they are not already in the thick of digital transformation of their organisation. Whilst technologies and digital strategies present wonderful discursive topics for board debates,?many do recognise that actions are necessary as well. Actions for board to consider could include the following.

Possible Digital Transformation Actions

1. Digital as an always-on board agenda

Board agendas are getting more complex and complicated, whilst the quarterly hours get increasingly insufficient. However, as with all things important, time will find a way to appear for it. Keeping digital as an alwayson board agenda creates an always-on radar for potential opportunities and impact. An always-on agenda item creates new visibility and awareness of potential opportunities and challenges in the choppy seas ahead. The agendas could vary from industry sharing and business updates on technology to discussions on scenario planning. It will also signal to management and teams that this is important.

2. Increasing DQ (digital quotient)

There is sometimes a digital gap between boards, management and staff or clients. In more mature companies, one might have a digitally-aware board working with digitally-capable management and a digitally-savvy young workforce. This represents an opportunity to increase the digital quotient (DQ) in the board and leadership to better connect dots of opportunities and risks. There are many ways to skin this cat. Some have elected to onboard independent directors with strong DQs; a few have created a separate technology advisory panel to complement the main board; and others have deliberately created ongoing training and exposures for the board.

3. Build new muscles for speed and agility

The need for speed is increasing. Impactful change might creep up into any industry, quickly requiring a new nimbleness in companies. The quick growth and acceptance of the sharing economy necessitated many incumbents to reshape their operations and offerings. Kodak had years to react to the digital camera but did not; many will not have the luxury of years. Covid has created speed of adaptation and agility for many companies, a useful dress rehearsal for the next seismic shift. A few have created digital twins for experimentation and adoption; some have separate business units or special purpose vehicles in play; others have pockets of experimentation underway to better respond when required.

4. Innovation as an investment, not an expense

Even if one elects a fast follower or last follower strategy, innovation is still inevitably required at some parts of the organisation and strategy. If funding for innovation is viewed as an expense, it will be managed by variance to the spend. If innovation is viewed as an investment, it will likely be managed as a return on investment (ROI). Ringfencing resources for innovation with longer-term ROI targets would be increasingly necessary. With the current stormy economic outlook, committing to this investment would represent a classic Catch-22. In the longer run, most innovations will end with failure but will hopefully fuel a few pivotal successes from the investment. Hopefully.

Favourable winds amidst rough seas

Technology will define and shape the winners and losers of the Fourth Industrial Revolution. Singapore is increasingly recognised as a global technology hub. Many global technology companies have a presence here, together with the country’s vibrant tech startup ecosystem. Amidst the global shortage of tech talent,?Singapore is perhaps the tallest midget with a strong pool of digital talents supported by strong programmes by the government and educational institutes. Access to technology companies and talent creates a fertile environment for companies seeking to leverage digital well.?Borrowing from an old nautical blessing, “May fair seas and following winds chart the voyage of digital transformation.” Whilst the seas ahead may be rough, fair wind conditions in Singapore could make all the difference as businesses hoist their digital sails towards brave new frontiers.