In terms of the number of conflicting interpretations, the concept of the ‘digital economy’ has already surpassed ‘blockchain’ and ‘Big Data’. I would like to outline the most dangerous illusions associated with the digital transition of business processes; illusions that also have an impact on business, people and the state; and using real cases, to show how the digital economy actually works.
Myth No 1: the digital economy is information technology
The concepts of ‘information technology’ and the ‘digital economy have become nearly synonymous. However, the introduction of technology for the sake of technology is meaningless. The digital economy is created by business models, and technology plays the role of an instrument.
For example, Uber and Yandex.Taxi are undoubtedly technology companies. At the heart of their business, however, is first and foremost an advanced model of interaction between users and service providers that none of the traditional players in the passenger-transport market had before.
Even the biggest carriers at the time lacked the technological background and the ability to figure out a new concept for their service, to rethink their consumer value by taking into account the benefits provided by the digital era. As a result, consumers received a radical reduction in cost and improved service, while the profit centre moved to other participants in the business chain.
It happens that a completely traditional company might proactively digitise an important part of its business. A few years ago, for example the management of the Pyaterochka retail chain realised that their HR unit was not keeping up with the company's growth rate: about 70 per cent of resources was being spent on routine operations, while there was no opportunity to address critical challenges.
In response, Pyaterochka launched a digital HR transformation (Forbes: its IT partner was IBS, which is headed up by the author): transactional tasks, including the management of personnel records and of internal services, as well as mass recruitment were centralised and outsourced to a specially created HR factory.
The process of recruitment was reinvented from scratch and digitized immediately. Pyaterochka no longer has recruiters: in their place are operators working at the various stages of the hiring funnel, as well as robots that will gradually replace people. However, it is not the digital technologies themselves that are important, but the impact that they had on the business.
Digitisation provided the retailer with an HR base for its continuous expansion: if the company was hiring up to 8,000 new employees every month in 2015, then this figure reached 12,000-14,000 in 2017.
Myth No 2: the digital economy will make it possible to eliminate inefficiency in one fell swoop
There are quite a few companies operating in the Russian economy that have achieved a very high level of automation. Since they are competitive at the global level, their ability to draw on the latest developments to expand their business is beyond doubt.
For example, Cherkizovo is building a completely roboticised meat processing plant in Kashira. The X5 Retail Group has created a platform for the Uberisation of its cargo operations. Magnitogorsk Iron and Steel Works and Severstal are introducing machine learning and Big Data analytics.
Nevertheless, there are a lot of companies in Russia that have not even reached the stage of basic automation. To survive, they need to achieve a healthy level of technology and put together a modern process management system: automating resource management and customer relations, putting a budgeting system in place, digitising production and quality management, establishing a system for consolidated reporting and getting analytics off the ground.
This might sound boring, but all of this has to be done. Basic automation creates a modern business environment and management culture, establishing what is required of personnel. Without this foundation, it's pointless to introduce any technological innovation.
Myth No 3: the digital economy = virtual reality + machine learning
A single technology or a collection of them cannot be seen as a universal recipe even when they solve similar business challenges. For digitisation, in contrast to the previous stage of automation, there are no clear road maps. Every company and industry is going to try to find its own way, adapting their business models to a changing environment. Therefore, recommendations such as installing data transmitters on every piece of machinery across the board is not justified in business terms.
In my view, a more or less common trend for every business today is the formation of complex digital platforms and business chains that bring together numerous participants, giving them access to a huge pool of resources, customers or opportunities. In practice, this means that an organisation should structure its business processes and IT systems in such a way so as to gradually integrate them into the processes of its customers, intermediaries, suppliers and so on.
We can see examples of the formation of such digital ecosystems in numerous industries. In many countries, banks and mobile operators have been discussing a transition to common standards so as to create a common data pool that will allow them to build much more accurate customer profiles and ultimately to generate higher-quality offers.
Myth No 4: digitisation will mitigate the impact of a shortage of skilled labour
There is a belief that, by improving labour efficiency, digitisation will make it possible to mitigate the effects of negative demographic trends and the shortage of young, qualified personnel.
In fact, robotisation and the introduction of artificial intelligence will not so much lead to improvements in the efficiency of human labour, but rather to its gradual replacement by digitised processes. Moreover, support for, and the development of, complex systems and businesses require even more advanced specialists, such as engineers and skilled workers, and there is already a shortage of such people even now. Therefore, without the necessary social and education policies, digitisation brings with it rather the risk of deepening the structural problems that exist in the Russian economy. A large number of people employed in simple tasks will be laid off, whereas the competition for skilled personnel is only going to increase.
It should also be kept in mind that digitisation is gradually blurring the line between businesses: modern production industries often require the same digital skills as banking. As a result, the new economy is going to see fierce competition for personnel among all sectors.
Myth No 5: the 'digital economy' is a beautiful but empty phrase. The traditional economy will not fundamentally change over the next half-century
Ignoring the next stage of economic development based on the results of the technological revolution is short-sighted. Despite the myths and illusions, changes are in full swing. The problem is that it is very difficult to predict the actual course and timing of the digital transformation in a particular industry.
Today, our concept of passenger transport, media consumption, trade and entertainment industries has changed completely, and there are numerous other industries that are clearly just around the corner. Let's take a look at how American car dealers in many states have been trying to legally outlaw the sale of Tesla automobiles. Thus, a large sector of the old economy is aggressively protecting its profits: unlike a petrol-operated car, an electric car can easily be sold directly by the manufacturer and hardly requires maintenance through an intermediary.
Therefore, in my view, the leadership of every company should now focus primarily on two tasks. First, they have to get out of routines overloaded with management as quickly as possible. And in this area, there are practically no technological limitations right now: anything that can be identified and formally described (standardised) can be automated; it's a question of the correlation between the cost and the potential value to your business.
And second, the resources that are freed up should be used for ongoing analysis in a search for ways to maintain the consumer value of their product. This will require serious effort and time.
If, before, developing competitiveness was based on gradually increasing efficiency and the introduction of the best industry practices, then the development of the digital economy now is largely based on the cross-functional and cross-sectoral transfer of technologies and business models. Potential breakthrough ideas and technologies for your business today can be found in completely unexpected sectors of the economy.
General Director (CEO) of IBS
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