“Where do you start your digital transformation?”
I was able to answer this question by reviewing the experience and insights of executives from six companies that lead the Korean economy: Lotte Chemical, Delivery Hero (Yogiyo), SK Hynix, Hyundai Kia Motors, Daewoong Pharmaceutical, and Kolon Benit, which recently concluded its largest merger representing US$4 billion.
“Digital process innovation” was the common theme across these industry-leading companies, which include chemicals, online delivery, semiconductors, automotive, pharmaceuticals, and enterprise IT services.
Throughout the 1990s and the 2000s, management innovation projects, which ushered in the adoption of advanced business practices and increased competitive advantage, resulted in the implementation of enterprise resource planning (ERP) systems. The introduction of ERP, which brought about process optimization (management innovation) across all aspects of business, such as purchasing, production, assets, quality, sales, accounting, finance, human resources, etc., has now spread to small and midsize enterprises. And since the 2010s, digital transformation has been a catchphrase.
Companies have grown rapidly, thanks to process innovation with ERP as the core backbone system, along with extended systems such as customer relationship management, supply chain management, manufacturing execution systems, product lifecycle management, warehouse management systems, online purchasing, and so on. These systems have produced a huge amount of data, in many cases leading to the accumulation of similar data. This complexity caused inaccuracy in decisions and slow response to market demands. A new breakthrough was called for.
By digitizing all resources, processes, and services, companies can proactively connect them to cope with market demands and optimize current or new business models, while analyzing the outcomes at the speed of “in-memory” for the best possible decisions. They need digital transformation to make this possible.
We learned how executives representing different industries in Korea started their digital transformation. Each company has its own background, but the common task of building a digital core, which digitizes all aspects of ERP, was at the heart of it.
This two-part series follows six digital transformation stories that illustrate the impact of digitalization of enterprise resources, although each company has a different background about why it needed to innovate in the first place.
Robust digital core – Lotte Chemical
Lotte Chemical achieved the number-one position in the domestic chemical industry with 190 times growth compared to 1980 and operating profit of $2.5 billion (revenue of $16.4 billion) in 2017. Its new goal is to be in the Global Top 10 with 10% net profit by 2030.
Lotte Chemical has been diversifying its fuel around the world to minimize the risk of oil price fluctuations and acquired Samsung Fine Chemicals and SDI Chemicals. This laid the foundation for its growth.
To establish a globally competitive system, the company needed to build a new information infrastructure to integrate mergers and acquisitions, with a global single instance for ERP systems to support all activities taking place in a diversified global base.
At the heart of the digital core for next-generation growth was in-memory-based ERP. Ten core tasks – purchasing, production, equipment, quality, sales, accounting, finance, human resources, GRC, and chemical materials management – are powered by the new digital core, which took seven months to implement from April to November 2017.
The implementation of a next-generation ERP system unites exporting from Korea to 110 countries around the world.
As a result, key business performance has improved by 90.5%, and successful system upgrades have been completed with a significant reduction in downtime from 114 hours to 52 hours.
“Lotte Chemical has responded proactively to changes in the management environment. We have diversified our raw materials all over the world to ensure continued growth without being swayed by oil prices. We will make every effort to bring digital transformation aiming to be an intelligent enterprise, where digital core works as a core engine.” Jaesung Park, CIO, Lotte Chemical
Secret recipe for triple-digit growth – Delivery Hero (Yogiyo)
What is the secret behind Yogiyo’s three-digit growth? Yogiyo recently acquired the “Nation of Delivery” by investing $4 billion and became the largest player in the domestic-delivery app market.
Statistics show that one-fifth of Korea’s people use delivery services for their meals, and the delivery app’s annual payment has swollen to more than $6 billion. If 10 million users order three meals a day, orders will be rushed at peak times.
Yogiyo has seen a surge in usage of delivery apps since 2013 and began evaluating its core system that receives, processes, and settles orders as revenue grows. Considering the huge volume of orders that millions of users are placing at a peak time, real-time processing of large amounts of data was critical to ensuring that all processes are seamless end to end.
After six months of preliminary review, Yogiyo evaluated cloud auto scale-out systems that can be easily scaled up by fast volume-order processing and order explosion, and then decided on a new digital core.
“We don’t know when and how your business model will change. However, we need a system that can fit in to enable us to always deliver amazing experience to our customers.” Scott Choi, CFO, Delivery Hero Korea
Cloud: a tool for happiness – SK Hynix
What is the solution for a company that puts the happiness of its members first and foremost as its management philosophy?
By 2022, Generation X will become executives, and by 2027, the YouTube generation will start joining them. In 2037, people who are more used to watching than reading a book will be in leadership roles. But what infrastructure will make them all work happily?
SK Hynix noted that customers and employees using traditional corporate systems are unhappy, and found that the main reason is that they provide too much information from diverse sources that is too old.
Understanding that employees are running the company and keeping it alive, the SK Hynix management team has been thinking about how to build a system for them to maintain a long-lasting and successful company. As each member handles advanced machine learning and deep learning helps them do it themselves, the entire organization will be able to climb past the tipping point that is rapidly changing.
“This is a game where the first person wins unconditionally. Cloud is a happiness tool for future members, customers, and potential members, as well as current employees. I think that the one last thing our generation needs to prepare for is to consider adopting a happiness tool for people in the future.” Changrock Song, CIO, SK Hynix
Part 2 features the digital transformation stories of Hyundai Kia Motors, Daewoong Pharmaceutical, and Kolon Benit.
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This article originally appeared on SAP Story Hub and is republished by permission.