The discussions in the business boardrooms today are dominated by two words – digitalization and digital transformation. Every company and business is looking into the prospects of digitalization or digital transformation to lead them to success.
The difference between the two terms is best understood by answering two pertinent questions:
- What does success mean for us?
- How can we measure it?
The definition of success is changing with the changing consumer expectations and growing business capabilities. The success metrics are measuring that success in terms of cost benefit of going digital or an ingrained and rapid change in behaviour.
For either of those measurement approaches, we would like to argue that your enterprise financial strategy has to be locked in like a guided missile. It needs to back the vision, technology, people and processes of the digitalization / digital transformation journey of the enterprise.
Digitalization is automating how work is done in an enterprise. It’s automating the operations and enhancing the digital skills of people to handle it.
- The primary question for digitalization is “How can technology help us do what we do better?”
- The primary metrics here are tangible time, cost, quality and customer scores.
- The primary strategy here is business efficiency.
- The primary structure here is business teams leading technology teams.
An enterprise can sanction many digitalization projects. Since the expenditure in technology can be gauged, the cost benefit analysis can be calculated by the finance function and the business heads in accordance with the performance metrics identified. Implementation of CRM’s, ERP’s and other automation tools are part of digitalization initiatives companies have done over the years.
For a legacy business, going through digitalization is almost like a second baby in the family. You have to continue to nurture the first one while getting to the basics with the second one. A legacy enterprise will have to run two parallel businesses for a while going through digitalization. The first one continues to support the up and coming till some maturity. A lot of executives lose their standing and position during this time of managing a legacy business and a digital business concurrently. The digital will take time to have a foothold and start yielding results. The financial strategy needs to back the technology strategy of the organisation in this scenario.
Is your financial strategy backing your technology strategy?
Digital Transformation, on the other hand, is not just about projects. It’s an ideology. To serve the customer.
- The primary question for Digital transformation is “How can technology help us create the best Customer Experience?”
- The Primary metrics here is intangible in nature of Customer Experience.
- The primary strategy here is business transformation and business model innovation.
- The primary structure here is business, technology, finance and marketing teams function as one.
For this to happen an enterprise needs to be customer focused from end-to-end. Of course, technology enables this as part of many digitalization initiatives. But, they are not stand alone. They are strung together by a collective thought process and vision to make life easier and more engaging for the customer. This means shaping customer behavior and expectations. This change in thinking and behavior enabled with technology forms digital transformation. Here, upgrading the product or technology will not be sufficient. Every element of the business needs to be transformed. It is a transformation where a lot more time, patience and investment is needed to bring about any observable change. That’s where a robust financial strategy is needed to back your technology strategy.
How far will finance go to support your digital transformation?
Especially since the primary metric we are looking at is ‘Customer Behaviour’ which is intangible and can’t be measured specifically.
A shining example of a financial strategy backing a technology strategy is Uber. With a current valuation of US$70Bn, it is the undisputed leader and case study of how digital transformation can have a profound impact on all the stakeholders.
Three Key Ingredients of Uber’s Digital Transformation
- Top Down Alignment
Uber was not just disrupting technology. They were disrupting consumer behaviour.
- From buying a vehicle to a consumption model for mobility
- From being wary of an unknown cab driver to trusting the cab driver
- From being used to waiting for a cab to having it on demand
- From making advance bookings of cabs to any time service
This would require significant investments in technology, consumer behavior, driver behavior, and company ethos. And their board and top leadership backed it. Their financial strategy wholeheartedly backed this vision.
- Financial Strategy backing their Technology Strategy
- Change in consumer behavior is not easy or quick. It has taken years of investment to change consumer behavior. UBER continues to lose money even today. It has raised a total of US$24.7 billion in 23 funding rounds over 10 years to support its ambitious strategy.
- A technology first vision had to be brought to life.
- Investments in platform services for Uber eats and logistics, in addition to their core of ride-hailing, are on the up with the introduction of autonomous cars, drones and freight services. This will be the future growth drivers for UBER.
- Relentless Dedication to Customer Centricity
- They understood the need, comfort, angst and patterns of the customer
- The business models, driver trainings and incentives, peak hour dynamic pricing were all geared towards singularly pleasing the customer
- Using technology to measure customer satisfaction
These three things are helping Uber sustain a consistent push. Even though they are bleeding as can be seen from their net losses in 2018 of US$1.8 billion, they continue to explore new business models and revenue streams. In their search to find that elusive profitability, their board, top leadership and financial strategy is fully backing them.
Is your financial strategy backing your digital strategy?
The Twimbit DigiFrame
In this frame we share with you the key focus areas and metrics that are part of Digitalisation or Digital Transformation. Finance, in conjunction with the top brass, technology and marketing functions can use this frame to design their telescopic and microscopic financial strategies. The DigiFrame can give a view of important initiatives that a company needs to undertake while focusing on the success metrics. This can help companies execute their strategies while being guided by a long-term vision of their business.
The Twimbit DigiFrame
It’s not easy to have an enterprise financial strategy backing your technology strategy to the hilt. Many legacy company boards struggle to go all the way and this has disastrous implications for the company. That’s why most companies don’t succeed in this regard. It is therefore important to have board that is ready to support your digital play. Many traditional businesses have made remarkable progress in their digital transformation. Adobe, Domino’s, Microsoft are all leading examples for us to learn and follow.
How do you rate the robustness of your enterprise financial strategy?
Will it see your technology strategy through?