A Supply Chain Leader’s Dilemma: Digitization Vs. Transformation

Ajit Menon

I recently spoke with the head of supply chain at a major CPG organization, and knowing full well that he is starting the journey of digitizing the core, I asked him if he has built his benefits one-pager. He replied, “Yes, but we are looking for more.” This prompted my next question: What is your major contributor? His response: Inventory reduction.

This was not a surprise to me. Most leaders fail to recognize that unless you bring together all the elements of digitization the desired benefits will not be accrued, and they end up pandering to the naysayers who don’t support digitization.

Investopedia called 2018 “the year of retail bankruptcies,” but digital disruption is happening in every industry. And the reality is that no matter their field or industry, companies will either adapt or perish. So the challenge becomes finding all the elements that contribute to digitization.

Many enterprises are actively automating internal processes, such as selling, manufacturing, or finance. This automation, which is often also called digitalization, may not be true transformation, but it provides the digitalized foundation necessary for future evolution. Automating processes using digital platforms is necessary to convert manual effort into data. For example, automation to remove blocked invoices/GRs would save a lot of time and energy for big corporations.

Digital transformation may start with automation or digitalized platforms, but it’s far more complex and all-encompassing than just that. It fuses the physical, biological, chemical, and information worlds, creating massive new opportunities in every area valued by society. But as per McKenzie, 70 percent of digital transformations fail, and one key reason is that organizations don’t define and execute the right steps to take off and stay ahead. To make a successful digital transformation, companies need a clear roadmap to progress through five distinct stages. Only then can digital become the “living DNA” of the enterprise.

The five stages of digital transformation include the foundation mentioned above, along with the following:

At the siloed stage, individual functions or sections may start to use disruptive technologies to create new business models. For example, the manufacturing function may have made progress using the Internet of Things to drive major changes in the way they manufacture or manage logistics. Alternatively, a business unit within the enterprise may use technology to create a completely new business model, such as selling direct to consumer as opposed to via retailers. But these efforts are siloed: There is no overall company strategy driving transformation.

During the partially synchronized phase of transformation, the enterprise leader, owner, or CEO has recognized the disruptive power of digital technologies and defined a digital future state, and the organization itself has started rowing in the same direction. But the enterprise has not completed transforming to a digital backbone or new business models, nor has the agile, innovative culture become sustainable as the foundation was missing or incomplete.

A good example of this is GE’s digital transformation, which ultimately stalled at this stage. CEO Jeff Immelt defined his vision for a digital industrial future, and the entire firm started to move toward a single digital strategy. But the new digital business model never matured enough to develop strong roots. Companies that depend on a mix of old and new business models aren’t fully invested in a complete digital transformation, and are therefore incapable of fending off nimbler, digitally native competitors.

The fully synchronized stage marks the point where an enterprise-wide digital platform or new business model has fully taken root. But this is a one-time transformation. The company is still just one technology (or business model) change away from being disrupted. The only way to survive continuous disruption threats is to make digital capabilities and an agile innovative culture an ongoing, integral part of the enterprise, not a momentary shift. It’s not enough to be digitally optimized for the moment.

At the final stage, the transformation becomes fully synchronized and ongoing (in its DNA). The company maintains ongoing industry trend leadership because it is disciplined in constantly innovating and setting industry trends. It’s not just a market leader; it’s a disciplined innovator that is constantly leveraging digital: operating fully digitally, with a digitally savvy workforce, the ability to provide hugely personalized creative value to customers, and the most innovative business model in the market. This is when digital becomes part of the enterprise’s DNA.

Fortunately, my thoughts were well received, and my friend acknowledged that by asking his team to engage as well as implement my input for his company‘s digital journey. I am very confident that the companies that understand the roadmap can embark on a disciplined journey and attain true digital transformation.

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Ajit Menon

About Ajit Menon

Ajit Menon is a Principal architect at SAP, with nearly 25 years of experience in a global capacity, leading Fortune 50 organizations on business strategy, transformational design mapping, and innovation solutions. Ajit is a member of the SAP Business Transformation Services team, specializing in areas including SAP Supply Chain Management, business intelligence, SAP S/4HANA, the Internet of Things, and blockchain technologies as well as infrastructure lifecycle management, data archiving, business process modelling, and reengineering.