The DX-Led Recovery: A Return to Optimism
According to a recent report by Statista, “worldwide spending on digital transformation (DX) technologies and services is expected to increase by 10.4 percent in 2020 to 1.3 trillion U.S. dollars, despite the challenges presented by the Covid-19 pandemic. Across different sectors, DX spending will see compromised yet still strong growth, ranging from eight to 13.8 percent.”
When I read that one word stood out: despite. Really? The pandemic has not only accelerated trends in digital transformation that were already happening but has introduced some new ones that we never saw coming. That is now evident in our everyday lives. The recovery will be digital, although in many areas of business, most notably procurement, the transformation will be bumpy. There’s been so much firefighting going on that some DX projects have been put on hold. That at any rate was one of the messages of our recent survey of CPOs in collaboration with IPG Consulting of Switzerland.
But to take an example that impacts our everyday lives: I can now pay for transit on the Washington Metro with my smartphone. Which is not only convenient, but is safe, being contactless. (Colleagues in Europe say they have had this facility for some time, but hey, we got there.)
Or another: many restaurants, being unable to serve in-house, or with customer numbers strictly limited by social distancing, now rely heavily on online orders. That will of course change as the pandemic is eliminated, but there will be no going back to the status quo ante. The enhanced digital presence will remain. The trend had already gained momentum in 2019 but one of the interesting new features of the change is that many restaurants now realize that they must have their own online ordering facility to control the relationship with the customer, rather than relying on third parties.
This means that digital is not just an add-on. It is determining the future business model. Which is what we mean by digital transformation.
Pre-coronavirus, nobody could possibly have foreseen the extraordinary upsurge in online shopping and streamed entertainment in the B2C environment, or the equally extraordinary upsurge in virtual meetings and even online trade shows in the B2B environment. Valued at $42 billion dollars, Zoom, which most of us had never heard of before Covid-19 and is just nine years old, has become the overnight poster child for digital transformation while the airlines are collapsing left right and center, not least because business travel has come to a halt.
Origins of the Term
Digital transformation will never reach a standstill. It is an ongoing process that has been going on for decades, it’s just the term that is relatively new, and it has been given an impetus in the popular imagination by lockdown restrictions. Back in the early years of this century thought leaders such as Geoffrey Moore developed the vocabulary of “radical business transformation”, “business network transformation”, “disruptive technologies” etc. and tech companies were quick to leap on the bandwagon.
More recently, in 2011, Cap Gemini launched the first edition of Digital Transformation Review and the term – which is now the buzzword on everyone’s lips, not just in corporate circles – entered public consciousness. Thus, it describes what has been going on in many areas of business for quite some time: for example, the internet of things and additive manufacturing. In fact, JAGGAER has now been in the business of the digital transformation in procurement for a quarter of a century. We launched as a company, and with our first digital applications, back in 1995.
Transforming Procurement from Source to Settle
The development of our cloud-based software-as-a-service (SaaS) offerings is a more recent phenomenon and has represented a major advance, bringing economies of scale through the secure shared tenancy model. There is no need to maintain procurement applications in-house. For our customers, this has been a major advantage in these difficult times, a point brought home to me when I was recently chatting to a friend who works in the accounts payable department of a major American construction company. I asked her how she was coping with remote working and the lack of face-to-face interaction. Her response left me amazed: “Oh, you know, it’s not so bad. I’m still going into the office to do the usual things like writing checks.” Yet many organizations around the world are still reliant on paper-based processes. In fact, our Procurement Performance Excellence survey revealed that only 9% of organizations have fully digitalized communication with suppliers, and 13% still rely entirely on paper and fax. There is still a long way to go.
Longstanding JAGGAER customers have been telling us that the ability to work remotely and without the need for any physical contact with paper or shared resources has been a major help in getting through the crisis. A leading higher education institution reported that JAGGAER had enabled them to dispose of 18 filing cabinets crammed with the records of sourcing events. All of the information about past and ongoing events is available online and accessible with a few clicks from anywhere with an internet connection. Right now, this relieves employees of the need to go into the office and eliminates the spread of infection.
This is more than simple digitization of source-to-settle applications to allow remote working, it has literally transformed the way the university does business, and in many different ways. The transformation is making an impact beyond the campus walls in the wider community. For example, it allows a larger and more diverse set of vendors to bid for contracts than was previously the case.
A More Sustainable Way to do Business
There are few silver linings to the dark cloud of Covid-19. But one of them is that it is forcing the pace of change in less developed areas of the world. In Africa, Kenya, Mauritius, Namibia and South Africa are the only countries where the share of online shoppers currently exceeds eight percent. Covid-19 is thought to be a potential catalyst for digital transformation and other positive economic developments. In more developed economies, the Covid-19 crisis is driving digital transformation in small and medium-sized enterprises. Technology, however, is only part of the solution; more important is education and awareness of how and where to apply it to ensure that digital transformation decisions and investments are appropriate to the needs of the business. Not every business needs a state-of-the-art website, but it may for example make sense to promote it through various digital channels and introduce integrated e-wallet services. Online software can help increase cashflow by making billing and payment easier and more efficient.
The coronavirus has exposed social and economic vulnerabilities. Unfortunately, this will mean some companies won’t survive, often through no fault of their own. But as the vaccination programs progress there will be an opportunity to invest not in the “new normal” but in the next normal. Customer roundtables hosted by JAGGAER have highlighted the need to reexamine supply chains to reduce risk and build greater resilience, for example through diversification. But digital transformation also offers the opportunity to address vulnerabilities in the broader operational model to make businesses more sustainable and resistant to unforeseen shocks. Investors and governments will increasingly promote businesses that are fit for purpose in the era of decarbonization, greater social inclusion, sustainable use of resources, demographic change and other mega-trends that many studies have already identified and which extend way beyond the current challenges.
What am I looking forward to most from DX? A return to optimism.