Towards Successful Digital Transformation – Separating the hype from reality
Logistics and supply chains are integral parts of business operations in any industry, especially during an economic downturn. The transport and logistics industry, has seen several changes in business models in the last few years. The past two years has strongly focused the logistics industry to introduce innovative solutions to keep functioning despite many challenges.
Many organisations have had to adapt and implement new technologies to become more sustainable, flexible, and efficient. As various technologies emerge, it becomes increasingly difficult for organisations to understand what works for them and then implement the changes. The introduction of advanced supply chain technologies, has given organisations the ability to adapt to new imperatives of continuous innovations, customer centricity and agility.
Understanding what digitisation, digitalisation and digital transformation mean, is fundamental to guide an implementation and successfully achieving goals. To separate hype from reality, understanding the digital maturity of a supply chain is a starting point for an effective digital transformation.
In this article, Dr. Shereen Nassar, Global Director of Logistics Studies and Director of MSc Logistics and Supply Chain Management Suite at Heriot-Watt University Dubai, shares insights into the difference between digitisation and digitalisation in logistics and why digital transformation maturity matters.
McKinsey define “digital”, on “how companies run their businesses and less about any one process”. This definition can be further analysed to encompass three key areas, that include creating business value, optimising the processes which have direct effect on customer experience, whilst developing key capabilities that can support an integrated business initiative.
Although digital transformation is perceived as the use of technology to radically improve enterprise performance, it is important to understand the prerequisites that lead to true digital transformation. The adoption of technologies into business processes constitutes a limited component, when digitally transforming a business. This is because, the implementation of technology itself does not ensure creating additional value for the business, customer or other key stakeholders.
The success of leading companies in digital transformation is driven mainly by the focus on two key dimensions. Reshaping customer value propositions along with transforming their operations and processes using digital technologies that support greater customer engagement and collaboration.
Digitisation, Digitalisation and Digital Transformation
When discussing digital transformation, it is important to understand the meaning of commonly used key terminologies. Whilst digitisation, digitalisation and digital transformation are used interchangeably, there are considerable differences and understanding the distinction between these terms is fundamental.
Digitisation – is associated with the transformation from analog to digital – converting information, photos and records, into a digital format, like turning a physical photograph into a digital photograph. Cisco has defined digitisation as “the connection of people, process, data and things to provide intelligence and actionable insights enabling business outcomes”. Cisco highlighted the significance of data and processes but also to newly acquired knowledge in creating new value for the business and stakeholders.
Digitisation in logistics – Once converted, digitisied information, can be used to develop, restructure and simplify processes. This eliminates processes involving heavy paperwork, in-person meetings / interactions and missed actions. It also enhances speed, reduces transactional turnaround-time and significantly lowers operational costs. Faster and accurate digitised information will also reduce decision-making time, improve efficiencies of business management, build better suppliers and manufacturers networks, create streamlined sales and delivery processes. COVID-19 pandemic exposed the outdated systems and manual processes that are in need of an overhaul to keep up with market demand. As end-to-end transparency is the eventual goal for supply chain operators and customers, digitisation of processes forms the first step to achieving that goal. Furthermore, digitising processes increases visibility and delivers real-time insights into t, giving people along the chain full control.
Digitalisation – means the use and application of digital technologies, like big data, cloud, internet of things, virtual or augmented reality and artificial intelligence to processes and systems. This in turn creates revenue, improves/ replaces /transforms business processes and creates an environment for digital business, whereby digital information is at the core (change management and digital business culture).
Digitalisation in logistics – is the process of leveraging digitised data to improve business processes, efficiency and create new values through developing a new digital organisational culture. Manufacturers, distributors, and logistics operators are rapidly embracing suitable technologies to their processes as a way to become more, adapting to the competitive, support constant innovation and strengthen customer centricity in an ever-changing supply chain landscape.
Mastering the use of “big data” in logistics, can reduce inefficiencies in last mile deliveries, provide transparency to the supply chain, enhance deliveries timings, protect perishable goods and automate the entire supply chain. Whilst data gathering and data management is an Industry concern, leveraging digitisation is crucial to improve processes and service deliverables, that enhance company outcomes and benefits. Using GPS sensors to track locations, to using parking applications that showcase empty parking spots in delivery areas – digitalisation can effectively reduce the stress of last mile delivery.
By understanding the definitions of digital terminologies, digitalisation is the more comprehensive term focusing on optimising business operations by leveraging existing data streams with a clearer path to digital transformation. It has a wider focus and covers a larger scope on how business can digitally transform. The need for change management and creating a digital organisational culture and capabilities supported by digital leadership, is fundamental.
Digitisation and digitalisation both ultimately become part of an organisation’s digital transformation. Digital transformation can be described as a customer-oriented re-thinking of business methdology by leveraging data and technology. For digital transformation the question about which value a company can provide to customers under a new or revised business model, is the starting point and the centre for all considerations.
According to the World Economic Forum (WEF), there is USD 1.5 trillion of value at stake for logistics players and an additional USD 2.4 trillion worth of societal benefits as a result of digital transformation of the industry till 2025.
Digital transformation – Separate hype from reality
Efforts in Digital transformation are more focused on business optimisation, rather than on business transformation. Companies are not truly aiming at reinventing the way the business needs to evolve in a digital configuration, but merely target optimising existing structures and processes using digital technologies. This explains why many organisations struggle to succeed with digital transformation. It is basically due to an incomplete and lack of understanding of what true digital transformation processes really are.
Focusing purely on potential new technologies without establishing a comprehensive understanding of the business maturity level for which the business can benefit from digital technologies, spells failure. It was reported that 85% of executives state that digital maturity is critical to organisational success. Running a Digital Maturity Assessment has now become an imperative for successful digital transformation initiatives.
Digital Transformation in Logistics: Digital transformation maturity refers to looking at all digital processes of the supply chain during various intervals and analysing its effects across the organisation. It is to understand if the number of technological changes made and adopted make sense from a holistic perspective. While digitisation and digitalisation are working towards enhancing transparency, optimising revenue and simplifying processes, digital transformation maturity keeps tabs on the processes that work and those that do not work and need to be done away with. While the digital transformation journey usually involves the advancement of several operational capabilities, without a clear framework of how organisations can work towards achieving maximum benefits throughout the supply chain, it can be detrimental to their growth.
Supply chain digital readiness and maturity models
Several analytic tools to evaluate baseline supply chain management structures are available to support maturity assessments. In 2016 PWC introduced an Online Self-Assessment tool for supply chain digital maturity. It consists of four stages and seven dimensions. The tool has 33 questions in total that focus on related dimensions, with a few questions about industry, region, country and annual revenue to classify companies.
These dimensions incorporate digital business models and customer access. Digitisation of product and service offerings, digitisation and integration of vertical and horizontal value chains, data and analytics as core capability, agile IT architecture, compliance, security, legal and tax, and organisation, employees, and digital culture.
The post assessment Radar graphic gives a valuable high impact visual. The focus of the supply chain maturity level, should be on the ability to cope with complexity or to create complexity itself in an orderly fashion. Another digital readiness and maturity assessment model was introduced by Schumacher et al. (2016).
The model used nine dimensions and sixty-two maturity items in order to assess companies’ digital maturity levels. The chart visualising digital maturity in nine dimensions give a proportion of dimensions.
Source: Schumacher et al. (2016).
Successful Digital transformation – Slice the elephant (Think big, start small and scale fast)
For successful implementation of digital transformation, it is important that businesses need to think big, since this is a strategic decision and has a strategic impact on the business. Additionally, supply chain digitalisation is never a one-off exercise but rather a continuous effort. Therefore, organisations need to Plan a comprehensive transformation journey via a realistic implementation roadmap and waves.
In conclusion, the overall wellbeing of logistics organisations and supply chains is through assessing the need for change, as well as their maturity stage for successful implementation. It is imperative to adopt advanced digital technologies to build an enhanced, robust, and connected system; however, the way it is done, the business readiness level and the type of technologies used are extremely important. With economies on the bounce-back, logistics continues to be the backbone of modern society and with the need for a lean freight sector. The governments are recognising the fact that the usage of emerging technologies is key to a sustainable economy.