June 9, 2014

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Digitalization…the next game changer

The digital wave has arrived  

The new digital wave is rapidly crashing down on companies across industries, leading to new ways of doing business.  With the proliferation of social and mobile technologies as well as the introduction of a new generational force (Gen Y) in the workplace, a “Third Era of Enterprise IT” has begun, according to Gartner1. This shift from legacy driven traditional systems to completely digitalized enterprises is bottling a new phenomenon often referred to as “digitalization”.

According to Gartner, “The next ten years are set to become the first truly ‘digital decade,’ when digital technology will move to the forefront of finding new sources of value and creating new threats for the enterprise.”  

Does this spark the end for traditional enterprises?

Overtime, the IT function has shifted from a “systems of records” model focused on cost reduction, legacy migration, automation and standardization to a “systems of differentiation” model focused on integration internally as well as throughout the ecosystem1. After years of being a back-office function intended only to ‘keep the lights’ on for a business, IT is more and more often seen as a critical business partner.

Yet today we are beginning to see a new paradigm, a “systems of innovation” model comprised of disruptive technologies such as mobility, social media, analytics, and the cloud. These SMAC technologies are disrupting current business processes, while forming a new IT landscape.

According to Forrester, 2014, “SAP states that more than 80% of new license sales in recent quarters come from products that did not exist two years ago”, most of which leverage SMAC technologies.

To survive in this rapidly evolving era, companies need to discover how to integrate their traditional business processes with these new digital channels throughout the value chain.

“Born digital” vs. traditional enterprises

For companies like Google, Netflix, and Amazon, digitalization is at their very core. They were “born digital”, and are not restricted by legacy systems, business processes or traditional thinking. Right from the start, they could enable the integration of their online and offline channels and create innovative solutions.

One example is Amazon’s collaborative filtering, a process that compares each user’s online behavior with similar customers in order to personalize their offerings. This is a massive threat to traditional competitors such as Barnes & Nobles and K-Mart who are unable to offer this type of customer value due to their current legacy-dependent business model. By leveraging its analytical capabilities, Amazon is able to upsell customers more often, stealing revenue away from these traditional competitors.

The disruption that digital enterprises is having on traditional models is reinforced by Gartner; “by 2017, 1 in 5 industry leaders will have ceded their market dominance to a company founded after 2000.”2

In addition, Gartner states that “Digital business incompetence will cause a quarter of businesses to lose their market position by 2017.” 2

Companies that fail to migrate towards a digital model will struggle to compete.

Making the transition to being “reborn digital”

The main challenge for more traditional established companies is the cost and time to innovate. These companies have already invested heavily in their IT landscape, and their funds are tied up maintaining their current infrastructure. In order to compete, these companies must shift their strategies and significantly reduce their expenditure on traditional ‘systems of record’ like legacy systems in order to reinvest the savings in these new digital technologies. These players need a complete overhaul in their corporate and IT strategy to be “reborn digital”.

In particular, companies need to leverage these new disruptive technologies to create a competitive advantage.  One way is to optimize automated processes, integrating existing and new sources of unstructured data from all devices across platforms.  Using the notion of LEAN principles, companies have the ability to consolidate all of their data into a single, centralized database making useful information visible for all key stakeholders.

In addition, companies need to view their internal business processes from the outside-in, through a customer lense. Through the use of social search and social analytics, companies have the ability to visualize customers from each touch point and provide an omnichannel customer experience, making it seamless and personalized across all channels.

Furthermore, through the support of a decentralized structure of applications, companies can innovate across the board. Cloud technology enables companies to increase their scalability, while avoiding heavy investments in capital. Due to increased social collaboration, innovations are also being created through “inclusive contributions” meaning it is no longer about key decision makers, but all stakeholders—customers, partners and suppliers--as a whole. According to Gartner, variance is no longer a threat, but a key value driver.  Continuous innovation is critical for companies to respond in an uncertain environment.

What’s next?

The need for change is obvious. Traditional enterprises need to start taking steps towards a digital business model to remain competitive, and not just through the digitalization of certain functions or business processes, but through digitalization of the entire enterprise.  In particular, the critical need for application modernization as well as system integration is rapidly rising in response to continuously evolving technology.

In order to grow and compete in this fast-changing market, companies need to begin optimizing their applications portfolio in order to reach their target operating model. As part of this, companies must first assess their current IT landscape in order to modernize their portfolio and prepare their organization to move to the digital era.

Are CIOs ready for the digital transition?

According to the Gartner Executives Programs survey of more than 2,300 CIOs, 51% are concerned that the digital torrent is coming faster than they can cope and 42% don't feel that they have the talent needed to face this future1.

In addition, according to Forrester, while 74% of business executives say their company has a digital strategy, only 15% believe that their company has the skills and capabilities to execute on that strategy3.

Digitalization is changing how the game is played. How will you respond?

HCL can help

HCL is already facilitating the journey towards digitalization and can help transform your business to be “reborn digital”. HCL’s 8 week digital enterprise assessment determines enterprises’ digital readiness through analyzing the four main IT cost towers and their economic impact, as well as identifying the most relevant disruptive technology opportunities. All findings are then consolidated into a prioritized strategic roadmap providing a clear step by step guide towards digitalization.

For more information, contact integrated.applications@hcl.com.

1Gartner Executive Programs Executive Summary “Taming the Digital Dragon: The 2014 CIO Agenda”
2Gartner “Predicts 2014: Seizing the Digital Business Advantage” Dec 2013
3Forrester “The Future of Business is Digital, March 2014