It’s been five years since digital transformation (abbreviated as DX) reached global mainstream consciousness. We owe it to technology vendors who hyped the term in their patently self-serving motives. What have we learned from the past and what prospects are in store for companies that will embark on DX? Let’s examine the evolution of DX over the years, globally and in the Philippine context.
Business executives especially in large enterprises learned about DX as early as 2009, primarily driven by technology vendors promoting their ware. Much of the understanding was centered on new emerging technologies, such as cloud computing, Internet-of-Things (IoT), big data analytics, and artificial intelligence.
In fact, when the buzz peaked in the years between 2014 and 2016, majority of the trade and academic literature authors spoke about these technologies as the main driver of DX. They described DX with such key terms as “integration of digital technologies,” “digitization,” and use of “digital platforms.” The financial services industry was the first to implement DX, primarily driven by changes consumer preferences brought about by the emergence of the tech-savvy generations.
But DX was in the spotlight in the same period, especially in Asia, when Singapore-based DBS Bank publicized its successful DX. It embarked on its DX journey as early as 2009 with the realization that customers are changing rapidly. In 2014, nearly every aspect of the way it operates and how it interacts with customers had been digitalized; and in 2016 and 2018, it received the “World’s Best Digital Bank” award from Euromoney.
In 2017, DBS was also the first bank to develop a measurement methodology to quantify the impact of digital transformation on its financial bottom-line, as reported by Euromoney. “Through this, it found that digital customers deliver a 27% return on equity against 18% for a traditional customer. They do 16 times as many self-led transactions, cost 57% less to acquire than traditional customers, and bring in twice the income, with 1.5, 2 and 3.6 times higher deposit, loan and investment balances, respectively.”
In the same token, Philippine-based UnionBank of the Philippines, Inc. started its DX journey as early as 2015. It invested 90% of its capital expense into digital transformation, as reported by The Asian Banker. “Transformation is focused on the same customers and experience,” UnionBank CEO Edwin Bautista said in the report. “Our latest quarterly results is 33% higher than last year’s. It is phenomenal and a lot of this is because we are able to do a lot of new things fast. The theory is, either you are able to increase your fee revenue but you will have to increase your cost. In this case, you have the revenue going up and the cost is moving down, which is short of counter intuitive to conventions.”
These banks became poster children of DX. The awareness and urgency among business leaders to transform digitally to address the changing business climate started to take center stage. That’s why a 2017 study of Microsoft revealed that in 32% of business leaders in the Philippines had a full digital transformation strategy while 43% were in progress with specific digital transformation initiatives for selected parts of their business. This was still at its infancy stage and progressing in a snail’s pace manner, despite the huge following of DX among global companies.
Notwithstanding its popularity, research reports conducted in the past couple of years revealed that 70 to 80% of enterprises who invested in digital transformation failed to realize any business value whatsoever from these efforts; and the biggest barrier is employee resistance to change and organization culture.
Suddenly in the last couple of years, CEOs of tech companies, academic and industry authors where singing the same song — that DX is not about technology, but about culture of the organization and mindset of the employees. Hence, DX should be treated as a strategic action that the CEO champions and considers execution and organization culture, rather than a functional IT strategy.
Hence, in our consulting work, writings, and industry talks, we defined DX in 2017 as “a strategic action to accelerate business processes, competencies, and business models to fully leverage on the changes and opportunities of digital technologies and their impact in a prioritized way.”
From 2017 to present, there has been numerous conferences and public fora that talks about DX. All of the large conglomerates as well as majority of medium-sized companies declared that they are undergoing DX. Despite this, only a handful have realized business gains from DX initiatives. This is evidenced by what we see and experience as consumers of banking, retailing, utilities, transportation, education, health care, and even government services.
There are two reasons why DX in our country is not progressing as fast. One is that business leaders do not treat DX as a strategic action, but rather a functional IT strategy. Companies implemented point solutions such as cloud computing, automation, and so on, that streamline functional processes, and trumpeted these as DX when in fact these were unintegrated systems that solve only specific company problems.
Second is organization culture which is embodied by the mindset of the business owners and leaders, as well as employee resistance to change. One aspect of this is the companies’ vision and mission, which are no longer aligned to what’s happening in the environment.
DX should be treated in a holistic manner — a set of strategic actions, execution, and organizational culture change.
Reynaldo C. Lugtu, Jr. is CEO of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is the Chairman of the Information and Communications Technology Committee of the Financial Executives Institute of the Philippines. He teaches strategic management in the MBA Program of De La Salle University. The author may be emailed at email@example.com.