How Should Companies Tackle DX?

The COVID-19 pandemic has caused substantial damage to Japan’s economy. Existing businesses cannot expect to recover the demand they have lost due to COVID-19 by simply continuing to provide the same services as before.
Driven by a tailwind of changes in lifestyles and work, certain sectors of the economy have seen growing profits such as digital platforms, life sciences, and e-commerce. To survive in a post-COVID-19 world, large traditional companies with massive capital assets will need to recover lost demand while also generating new demand through digital business transformation; these should be positioned to produce sustainable growth.

Major companies often take a leading role in raising the digitalization level of all companies across a particular supply chain. These DX leaders share successful implementations of digital business process reforms with their fellow companies. This enhances the overall optimization of procurement, production, logistics, and sales processes; the entire supply chain benefits from greater profitability, lower environmental impacts, and less labor shortages. (See Figure 1)

Boosting digitalization across a supply chain can even benefit those outside of that supply chain: key factors for creating synergy can be uncovered through the analysis of data accumulated among collaborating companies. Initiatives like this are noted for their potential to change the structure of entire industries.

The development of applications, the primary interface for customer interaction, must maintain speed even in the face of the eventual renewal of legacy systems; in such a case, a staged approach must be facilitated for the transition. The companies at the forefront of DX have achieved a staged approach by building middleware interfaces that connect applications with legacy systems.

To overcome these barriers, companies must establish a team for digital innovation that is comprised of young personnel enthusiastic about reforming work practices and processes. These young personnel should be assigned to highly strategic themes focused on customer interaction and inter-company collaboration. To train subsequent generations of DX leaders, these teams should be operated under a philosophy that nurtures all members selected for the team, instead of reverting to the most capable members for the answers.

This digital innovation team should also involve the entire company to raise the level of DX literacy throughout the organization. This can accelerate efforts to achieve the original goal of digital business transformation.

DX initiatives can be guided to success by using a navigational chart that includes both the steps a company should follow and the vantage point from which executives in charge should lead. (Figure 2)

To draw up a grand design for DX, executives need begin by establishing a vantage point; they need to conceptualize, taking into consideration long-term societal and industrial megatrends, the ideal future for their company. This must include both the envisioning of work process reforms and the formulation of growth strategies for new businesses. Executives may find it helpful to imagine: how companies will collaborate using digital technologies, how interaction with customers could change, and what value will be offered to customers. The benefits of DX are enjoyed more by the whole supply chain than by individual companies. Digital business transformation has the potential to change the structure of an industrial sector and even that of entire industries.

The first step for a company as a whole is to define its digital business transformation in terms of its projected digitally-transformed state. Next, a backcasting process must be used to identify and analyze the differences between the company’s current state and its future digitally-transformed state, with goals for digital work process reforms to be set based on these findings. The focus needs to be on promoting data-driven initiatives, supplementing real-world business activities with digital technology. More specifically, the objective data generated through operations can be utilized in decision-making to enhance profitability and competitiveness of core businesses.

The company must also use its future digitally-transformed state to develop new businesses that fortify existing strengths. It is common for large corporations to lose their positioning despite leading the very innovations behind the formation of new markets, and organizational productivity must be improved in tandem with other initiatives by digitalizing decision-making processes. Companies must offer employees with sufficient care for physical and mental health and fortify information security—both issues laid bare by the spread of remote work due to the COVID-19 pandemic.

In proceeding along the way to successful DX, the executives and employees involved need to work from the same navigational chart, confirming and sharing the proper path from one strategic goal to another. This navigational chart doubles as a company’s DX Journey. No two navigational charts for DX are the same. Goals unique to each company must be set to achieve that company’s own definition of its future digitally-transformed state–naturally these initiatives should be in line with the company’s overall philosophy and growth strategy. The navigational chart is a big picture for all to stay on track.