Making your business digital. Reducing costs and increasing effectiveness
Digitalisation is an immense opening and challenge for our generation. It is revolutionising what we classically knew as the sphere of work, business structures and value chains, as well as improvement and market configuration.
The recent COVID-19 pandemic is a gloomy reminder of the significance and inevitability of digital technology for a large range of businesses and domains, such as health, retail, manufacturing or education.
According to Gartner, “digital business transformation is the process of exploiting digital technologies and the capabilities that support them to create new robust business model”.
The digital transformation though is based on organizational conversion, as it involves alterations in the way people work and think. Deloitte says “it is strategy, not technology, that drives the digital transformation”.
However, evidence from the EIB Investment Survey, a new report from the European Investment Bank, indicates that European firms currently lag behind in implementing digital technologies, particularly in the construction sector and the “Internet of Things” (IoT).
A significant number of prominent digital technology companies today are based in the United States or China. Apparently, the EU has been left behind in the digital services conversion marathon, but it might be capable to secure fronting positions in new races. It depends entirely on Europe ‘s ability to take advantage of the opportunities evolving from automation, artificial intelligence and other developing digital technologies. (The report relies on two unique sets of data: the EIB Investment Survey (EIBIS) 2019 and the EIBIS Start-up and Scale-up Survey 2019.)
In order to catch up with the digitally-advanced countries, the EU will need to create better framework conditions to support innovation and digitalisation. Policy action should develop measures on three levels to:
- fast-track the adoption of better management practices,
- improve the abilities of employees through training and
- easier financing of investments in digital technologies.
As EU firms are, on average, smaller than the ones in the US, makes it rather difficult to fast-track the adoption of digital technologies. Also, many old and small companies in EU do not consider investing in digital technologies. The policymakers should look into reducing market fragmentation (particularly in the service sector) and supporting fast growing small and young innovative firms, in order to balance the network effects.
Digitalization and digital tools have constantly confirmed their benefits for all types of business, either large or small. For example, digital tools can help eschew a complete economic halt for SMEs during the COVID-19 crisis. At such stage, the ability to go digital was vital and made the difference for many SMEs all over the world. The ones which demonstrated their ability to adjust their business model survived, but many others were not able to outlast.
Businesses vary in size, domain and level of experience. However, going digital is proven to be a significant advantage before, during and after COVID-19 crisis, irrespective of such differences. Digitalization and digital tools can facilitate cost reductions, standardization and automation of business processes and reduction of the dependence on manpower. Moreover, going digital will improve the industries’ effectiveness and understanding of consumer behaviours.
Some of the main reasons for a business to go digital are listed hereafter.
Digitalisation leads to better firm performance
Digital firms are likely to have higher productivity and better management practices than non-digital firms, are more innovative, grow faster and create higher paying jobs. Many small firms in the EU that do not take into consideration investing in digital technologies. The reason is that firms consider labour market regulations, business regulations and the lack of external finance as major obstacles to investment and that is further aggravating the delay in digital technology adoption.
Digital firms are more prone to grow and create jobs
Over the past three years, digital firms were more prone to hire new employees, in the EU as well as in the US, while a considerable share of non-digital firms have reduced their employment or remained stable.
Digital firms tend to have better management practices
An important factor in adoption of digital technologies is the firm own culture. A formal strategic business monitoring system is more often being used by the digital firms rather than non-digital companies, both in the EU and the US. Digital companies also are inclined to reward individual performance more often with higher pay – this difference is more significant in the US than in the EU. Also, digital firms are less frequently owned or controlled by their chief executive (or family members of the chief executive) than non-digital firms.
Digital firms tend to be more productive
The average labour productivity (turnover divided by the number of employees) is higher with digital firms than non-digital firms. This variation is particularly sizable in the US and is obvious in all sectors. Therefor we can say that digitalisation is associated with higher productivity.
Whereas many companies that do not have big IT resources concentrate their efforts on engaging SMAC (Social, Mobile, Analytical and Cloud) technologies, a true digital conversion means much more than just technology implementation.
Three key factors should be taken into account for a successful implementation of the digital transformation project: strategy, people and technology.
The Deloitte report “Strategy, not technology, drives the digital transformation” based on a study of digital utilization in companies, indicates that only 15% of companies that are in the early phase of digital deployment assert that they have a clear and coherent digital strategy.
Meantime, over 80% of the most advanced companies in the digital field have a well-defined strategy. Thus, the absence of a well-defined digital strategy is one of the main obstacles for digital transformation.
Outlining a strategy in the digital environment involves a combination of the use of conventional business analysis techniques (SWOT or PESTEL analysis, business model canvas, Porter´s Forces, etc.) with a wider vision of what technology and innovation signifies in a permanently changing environment where alterations occur at great speed and risk is inherent as there is no time for the traditional extensive expansion and analysing processes.
The success is attained by the companies when they start from a future vision of their business. This vision should be drafted taking into account the demands and knowledge of their customers, cost saving and increased efficiency, or even the elaboration of new services or thorough business models.
This vision should include changes that are needed or potential mainly due to the capabilities offered to us by technology. It should also take into account the other factors (political, social, economic, regulatory, environmental, etc.), but all these new needs will be enabled and responded to by technology.
Being different from each other, every business should prepare its own strategy, according to its objectives and capabilities. But the most important thing is, before undertaking a digital transformation project, to be aware that technology implementation is not the last stage, and that changes engaged in a digital transformation imply much more than the implementation of a software.
The strategy should also include tools for optimization and permanent development, which will allow constant evaluation of progress and make the necessary adjustments to achieve the objectives set. In this sense, it is very important to establish reference indicators, to ensure the success of the transformation.
Any transformation process within the companies is carried out by the people who are part of them. This factor is an essential one, as it may influence the success or the failure of the digital transformation processes. It is well known the fact that staff resistance to change, particularly in implementation of technological projects, is one of the main factors of failure.
There are three aspects to be taken into account when involving people in digital transformation projects, namely: leadership, capacities and empowerment.
• Leadership: If the leaders within the organisation get actively involved in the digital transformation, the chances of success are significantly higher. The inclusion of specific profiles with vast digital knowledge (e.g. Digital Director – CDO) could be an ingredient which increases the chances of success.
• Capacities: The development of the talent and skills of employees within the organization is another factor for success in the digital transformation. Therefore, it is essential to redefine roles and responsibilities in order to align them with the objectives of the transformation. Special attention should be paid to the integration of business with technology as well as to technological innovation.
• Empowerment: The digital transformation is basically a transformation of the entire organization. The company becomes more open and much more collaborative, so it is vital that employees also participate actively in the process.
In this process of change, it is also vital to set up smooth communication mechanisms that allow leaders to implicate all teams in the transformation, as well as facilitating bottom-up communication to make possible the participation of the entire company in the project.
In a process of digital transformation, the selection and implementation of the technologies that allow the strategy to be developed and the objectives to be achieved is an essential stage. The choice of technology depends on the processes you try to implement/optimize, to carry out the defined strategy.
Technology is only a support to convey the strategy, therefore the choice should go to the one that best fits the objectives of the company and could be implemented effectively.
Finally, it is important to include a component of innovation in the technological search. Perhaps the ideal solution for a given process does not yet exist, but the pace of technological development can easily make it possible quickly.
Alfredo Reche|Transformación Digital
The COVID-19 pandemic has forced the companies from retail, manufacturing and service providers to reassess their business models based on the norms of the traditional “in-person” & “social” setting.
Consequently, businesses started to understand the necessity of using a different, innovative “contactless” method of delivering their products and services, the alternative option to this being to shut down operations until the end of the crisis or- worse-closing down the business itself.
For SMEs the situation is more desperate, for sure, and they also had to rethink their business models in order to overcome the current crisis and similar future situations. Although many governments provided lately various types of support for SMEs, these are temporary measures and a digital transformation is the key for surviving the current and future crises.
The integration of SMEs digitalization high on the policy agenda, as they are a mighty factor for the economy, it allows SMEs to transform and compete on a bigger scale and reach global markets by doing business online.
The adoption of digital tools is particularly favourable for small and micro-businesses. However, there is a gap in digital tools embracing between large businesses and SMEs, mainly in E-commerce and cloud computing. Governments can and should address this gap by providing SMEs adequate programs for skill development, organizational change and process innovation.
Also, governments should be providing proper infrastructure to support B2B transactions and utilizing digital tools to upgrade public services like E-government portals, in order to facilitate licenses issuance and other services to SMEs.
On the other hand, significant tech companies like Google and Facebook can also have their share of support to make available for the digitalization of SMEs, by providing digital tools and solutions such as Facebook’s Marketplace and Instagram to support the transfer of SMEs businesses to go online.
Ultimately, SMEs need to reconsider and restructure their business, concentrating on the means for including all the necessary tools (social media, mobile connectivity, data analytics, cloud computing) in their business model. The digital transformation of SMEs must be incorporated into all aspects of the business, enabling them to deliver value to customers and to warrant business growth and thriving.
The development of digital economy, topped up with the current COVID-19 crisis, indicates very clearly that the future of the global economy will be based on digitalization. Cutting-edge technologies like blockchain, IoT, 5G, cloud computing, robots, AI, data science, together with the arrival of new digitalized business models, will drastically change the global economy.
SMEs are a cornerstone of the economic growth of most of regions of the world.
When confronting changes, SMEs should adopt digital technologies and foster digitalization. They should also gain knowledge from successful companies in M-commerce, sharing economy, IoT, NextGen modernization and other new business models and pursue opportunities to enhance their own added value in the trend of digitalization. SMEs should also surmount the scarcity of resources, lack of experience in the application of new technologies which will allow them to grow successful and achieve a wider market.
When planning to increase their growth and adapt to new market trends, all business organizations are counting on the digital transformation. Technology is a great ally when it comes to cutting unnecessary expenses and keeping the budget under control. The digital transformation combined with digital strategies, covers all the main business’ sectors, namely:
• In the operational sector, digital technology tools are used and integrated, as well as the transformation of processes, the digitalization of documents, the change in the data processing in the cloud, and the processes optimisation in general.
• In the strategic sector the way of working is significantly changing, getting focussed more on consumer needs, in order to make more confident decisions and create value solutions.
• The management aspect – the company’s business model takes advantage of the commercial and productive opportunities created by digital adaptation.
Companies are constantly seeking to improve the efficiency of their processes, and technologies allow their application in countless situations in the business world. The productivity improvement is generated in three ways:
1. Reducing time in the execution of processes.
2. Eliminating or substituting total or partial tasks within those processes.
3. By incorporating new functionalities that add value to the existing process.
The traditional productivity improvement in value of 3 to 5% per year, has been overwhelmed by digitalization, with demonstrated potential for cost improvements above 25%. Through process optimization, the improvements in labour costs in percentages are placed above 60%.
Initiatives like document automation, or digitalisation and cloud storage could offer advantages such as:
• Saving time spent on mechanical tasks.
• Optimize processes.
• Saving material costs.
• Immediate access to digital information from anywhere and at any time.
• Reduce the impact upon the environment.
One of the main objectives for every company is reducing costs. The ideal of the business world is to achieve maximum profit at the lowest possible cost. Also, the use of sustainable technologies helps to save money.
You can find below a list of key aspects in which a company can reduce costs:
• Installing software to centralize the entry of information from each area and making it available to the rest of the company in real time, have become the best weapon to make the right decisions to reduce costs.
• Betting on the cloud. There are cloud-based systems for safely storing the information, and that allows savings of up to 50% compared to traditional physical infrastructure management.
• The Internet of Things. By introducing the IoT, such systems can be implemented in which each machine has the capability to quantify and transmit all variables for analysis. This allows an anticipation on maintenance and decrease interruptions.
• Automate tasks and processes of each department so that management becomes smoother and more efficient.
• Reduce margins of error. Human errors incur some of the avoidable costs for the company. One of the resolutions of the company’s manager should be the reduction of such costs to minimum
• Managing inventories better, using appropriate software, will allow the company to increase the reliability of the inventory.
• Reduce machine and employee downtime. Breakdowns or errors in work orders can entail missing deadlines and diminished productivity and quality.
• Negotiate with suppliers. Technology can be used to generate and maintain databases for almost every aspect of the business: clients, orders, delivery time, etc., which enables the company to negotiate with national or international suppliers.
• Personnel costs. Manage the scheduling of interventions, thus avoiding additional costs incurred by unnecessary trips.
• Energy costs. The energy bill is one of the biggest expenses incurred by any company. Using the digital technology makes possible to comply with maintenance schedules and keep systems and equipment in optimal conditions.
• Manage payments and collections well. A good management software, having work order control tools embedded, will offer an accurate image of the budgets generated at any given time, without error.
• Stationery and administration. Technology is very useful in handling documents. Specific softwares keep the information classified and available, thus saving time and additional costs with stationery and personnel.
Executing and delivering successful projects implies a close collaboration between all the team members, with each of them mastering his/her duties. In case of blockage, the team members need to be able to communicate immediately with each other, instead of waiting for the formal meetings to be held.
Currently there are many software tools on the market which fulfil any collaboration needs.
For those who are new to collaboration tools, this guide may help them make the right choice for their business. But first, let’s refresh our basics and have a glance at what collaboration tools are.
Collaboration is a practice in which people work together to achieve a shared goal. In a business environment, this goal can be a project or an overall organizational objective.
Collaboration can be synchronous or asynchronous. Synchronous collaboration is when the sender and receiver are collaborating in real time (Video or audio calls and face-to-face conversations); asynchronous collaboration is when both the parties are collaborating, but not in real time (emails, discussion boards, and document sharing, etc).
Collaboration tools are software solutions that allow people communicate with each other to achieve a shared goal. Here are some benefits of using collaboration tools:
• Easy access to information: Various pieces of information (documents, files, folders, etc.) can be stored in a shared space, to which all team members have access. It proves very useful when a new member joins the team or when an existing member takes a leave or is replaced. All information is centralized and classified, so new members can come up to speed in no time, while the ongoing project doesn’t get impacted.
• Smoother communication: If help or clarifications are needed, the team members can communicate anytime. They can use live chat and audio or video calls to share information and data with their peers. This saves time, ensure smoother workflows, and make project collaboration straightforward, especially when you manage a remote team.
• Boosted employee productivity: If your team is dispersed or working remotely, such platform will be the bridge between all team members, regardless of their location. They will also get regular updates and notifications about the project progress. This will make them feel more bonded to and responsible for the project outcome, which will directly impact their productivity.
Common features of collaboration tools
Some common features of collaboration tools your business may benefit from are listed below:
• Communication: Provides functionality such as online chat, audio and video calling, and discussion forums to support synchronous and asynchronous communication.
• File sharing: Allows you to share files, documents, images, etc., with your team members. You can share them by emails or as attachments on chats.
• Document management: Allows you and your teammates to work simultaneously on documents in real time. All documents are saved in a central storage area, and you can give access permissions to members as required.
• Project management: Allows you to create project tasks and subtasks, set deadlines for them, and assign tasks to different members. This is a useful tool, which helps manage projects, track dependencies, and plan resources.
There are five popular online collaboration tools shortlisted hereafter (listed in alphabetical order) from Software Advice’s 2020 FrontRunners report for collaboration software.
ClickUp is a cloud-based project management tool which enables you to plan, organize, and collaborate on projects.
It allows you to create project tasks, and add team members to them. The teammates can comment on the tasks and tag their peers to request follow-up actions. They are also able to highlight and reply to certain parts of comments. This feature is useful when someone asks multiple questions on a comment or if there’s a lot of activity on the task. When a task is completed, a notification about this is received by all members.
Other collaboration features of ClickUp include:
• File sharing
• Gantt chart
• Product road maps
• Kanban boards
Dashboard view in ClickUp project management app (Source)
Google Workspace, formerly G Suite, is a cloud-based collaboration suite which includes the related applications such as Gmail, Google Meet, Google Chat, and Google Calendar.
The tools allow activities such as document sharing, live chat, and video calls to help remote workers collaborate in real time. For example, your team members could edit a Google document simultaneously. They can add comments to the document and share it with peers via email or Google Chat. They can also make calls to connect with others in real time. They can set up these meets beforehand and send invitations via Google Calendar or have an impromptu call on Google Meet.
Other collaboration features of Google Workspace include:
• Instant messaging
• File management
• Cloud file storage
• Shared workspace
Schedule of meetings in Google Workspace (Source)
Slack is a cloud-based team collaboration application which can be used for work-related purposes as well as for casual team interactions.
The application may be used to create dedicated chat channels for projects, team discussions, or even casual conversations. Your team members can connect in real time via text chat and audio or video calls. You could also use Slack to stay connected with clients who don’t prefer emails. You can invite them to join any Slack channel as a guest, without registration. You can even modify the privacy settings of channels to confirm that only authorized members have access to documents, images, etc.
Other collaboration features of Slack include:
• Email notifications
• @ mentions
• Screen sharing
• File and document management
Conversations on a channel in Slack team messaging app (Source)
Trello is a cloud-based visual collaboration tool used for project management and task management.
The online collaboration tool allows you to organize projects using visual project boards, called Trello cards. Every card represents a separate project, and within each card, you could create checklists of to-do items or tasks. You can add due dates, assignees, and comments to each task and keep a tab of progress. Your team members are able to upload documents and seek feedback on deliverables via comments within the cards.
Other collaboration features of Trello include:
• File sharing
• Workflow automation
• Activity logging
• Real-time notifications
Project view in a Trello card (Source)
Zoom is a cloud-based team communication application, offering solutions for several fields: audio and video conferencing, webinars, shared online workspaces, and more.
For everyday collaboration, you may use the tool’s meetings and chat features. With Zoom meetings and chat, you could make audio and video calls to collaborate with your teammates, either individually or in groups. The screen can be shared during calls and even allow others to write or annotate on your screen. You can also use the private chat box to exchange messages or share a file with any particular member during a group call.
Other collaboration features of Zoom include:
• Attendee management
• Drag-and-drop file sharing
• Reporting and analytics
• Call recording
Zoom meeting and chat on mobile app (Source)
In the process of digital transformation, the selection and implementation of the right equipment is a very important stage which can improve your processes, productivity, capacity to innovate and bottom line.
But in order to obtain the expected results from a major capital investment, you need to prepare an investment plan that addresses both your short- and long-term needs. By doing so, apart from saving time and resources, you will also avoid costly quick fixes. Your purchased equipment needs to fit in with your overall strategy.
The following tips may be of help for you to make the right equipment purchase.
1. Assess your business reality
It is essential to understand your objectives.
• Are you intending to increase productivity?
• Is this new equipment going to make you more successful in the marketplace?
• Would it help you stay ahead of your competitors?
• Is it possible that you upgrade instead of buying new equipment and still get better performance?
Make sure you have answered to these questions before you buy. Do not let yourself be influenced by aggressive marketing campaigns that make unrealistic claims.
2. Get an external point of view
Depending on the scale of your investment, it may be worth collaborating with an external consultant who would ensure you make a good use of your investment by helping you assess your real needs.
Initially, you should consider the important factors such as capacity, employee utilisation and current resources. The most common procedure is to prepare a cost-benefit analysis, which helps you rationalize your purchase and determine the pros and cons.
If you're in manufacturing, you may use an asset utilization ratio, which measures your ability to get best results from equipment and other assets. The assumption is that more efficient equipment will produce better results.
3. Invest in digital technologies
A 2017 survey of 960 Canadian manufacturers found that companies which adopted digital technologies acquired impressive rewards, including enhanced productivity, lower running costs and better product quality.
The main factor of productivity growth is the capacity to predict and avoid downtime, and to optimize equipment efficiency and maintenance.
Cost savings are generated by:
• real-time production supervision and thorough quality control to reduce waste and rework
• predictive maintenance to prevent expensive repairs and unplanned interruptions
• higher automation to save labour costs and improve quantity
• the use of 3-D printers to realise faster prototyping, dropping the cost of engineering and accelerating time to market
Meanwhile, improved quality derives from technologies such as real-time quality controls.
4. Create a technology roadmap
Rather than making isolated purchases, you should assess the overall needs of your business and plan for the long term. Preparing a technology roadmap at this stage could help.
A technology roadmap is a planning tool that brings in line your business objectives to long- and short-term technology solutions. It should help you get an idea about your current technological systems, set technology development priorities and should outline a timeline for the achievement of the new systems.
The first part to building your roadmap is to get a clear idea of what you are already doing and contouring your processes.
A process is a chain of activities or operations that must take place in a specific sequence to create value for the customer in the form of a product or service. Some example of operations include:
• Receiving and shipping merchandise
This exercise will help you understand what’s working properly and what’s not. It’s also an opportunity to assess your current technology, the data usage ways, and to identify any gaps your business may have in competencies or resources. Above all, this mapping your technology roadmap will help you identify investment openings to upgrade your customers’ journey—whether it’s by purchasing new equipment, new technology, or augmenting certain process.
5. Shop around for suppliers
The Internet provides access to a wide selection of specialized equipment companies, so take the time to assess and select. It is useful to check out newsletters targeting specific industries, and participate at trade shows where you can get some practical experience with equipment. Also, you may contact industry organisations for more information.
The decision should be made taking in consideration several aspects, beside price. Aspects related to post-sales service and a supplier's reputation are also very important, and so are references. If you're a loyal customer, you can request other facilities like better warranties or an extended customer service plan.
6. Keep training in mind
Very often, entrepreneurs don't take into consideration the time, money and resources needed to train personnel on new equipment. When employees take too much time to adapt to new technology or processes, you may end up with productivity declines.
If the equipment is new or has new characteristics, you should presume that employees will confront a training curve. It's essential to avoid such by safeguarding sufficient financial resources to overcome the resulting downtime. Obviously, some time will be needed to be allocated for training the employees, and still make sure that your operations are able to run at capacity.
7. Choose between buying or leasing the equipment
Purchasing empowers you to own the equipment as soon as the transaction is completed. Your company amortizes the cost during the lifespan of the equipment. It may be possible to get financing for an amount that exceeds the purchase price. BDC, for example, offers up to 100% financing for the cost of the purchase and the option of additional financing to cover the cost of installation, training and transportation.
Leasing or renting options may be appropriate for equipment that quickly becomes outdated or is needed for a short term only (a specific project). The payments for renting may be cheaper than the ones for purchasing the equipment, but in this case, you don’t own the equipment, and you will have to wait until the contract ends to buy it. Although the price you pay at the end of the contract may be lower than the initial purchase price would have been, however this option may prove more expensive in the long run.
8. Think safety first
A healthy and safe work environment implies that your employees and your company can be more productive, and this rule is applicable to your equipment and technology purchases as well.
It is your supplier’s responsibility to provide you equipment that can be used safely, but you are responsible for ensuring that your employees follow safety rules. To find out more information on this topic, visit Workplace Health and Safety, a site run by Human Resources and Skills Development Canada.
9. Keep it green
When purchasing equipment or technology, make sure that it's energy efficient. Apart from the operation cost savings, you'll also be contributing to the health of the planet. Make sure you find out information regarding the environmental impact of your new equipment and learn how to dispose your existing equipment in a way that reduces its effect upon the environment.
Digitalisation is an immense opening and challenge for our generation.
The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.