DX is one of the keywords in all industries and countries. DX is not only to be digitization and digitalization introducing the software in a time- and cost-effective way, but to transform company structure and to increase sales and develop new business. What is the challenge of DX? This time, I would like to see how Japanese companies are addressing DX.
Current progress of DX
According to research by the Japan Management Association, the proportion of Japanese companies working on DX has made great progress in the past 3 years, from 29% in 2020 to 56% in 2022. The movement to DX is very good, but some challenges also have been seen. What is the current position and issues of DX that Japanese companies are working on?
The movement to DX is very good, but we have also seen challenges. When comparing Japan and the United States, there are obvious differences. The US companies are addressing DX based on corporate-level strategy. On the other hand, Japanese companies are tackling department initiative level. As a result, DX of Japanese companies is limited to digitalization of some operations and productivity improvement of some departments. This means that the DX doesn’t lead to sales growth, new business development.
To summarise the current situation, the current DX of Japanese companies is at the stage of working on strengthening the base of the main business such as cost reduction and productivity improvement through digitalization. Therefore, in the future, they must shift the whole company level and business strategy to redefinition and transformation of the main business and innovation beyond the main business. In accordance with this shift, it is good to follow the strengthening of organisational capabilities and technology. The corporate strategy comes first, and the organisation and technology follow it accordingly.
World crisis and opportunities
Currently, the world is facing various crises such as supply chain problems, rapid inflation, shortage of human resources, and changes in consumer behaviour. However, we can turn this crisis into a great opportunity by DX. For example, we can increase corporate value by working on digital supply chains, investment decisions by AI, and improving employee engagement.
It is known that there was a clear difference in sales and revenue growth during the economic recovery period between companies that worked on corporate transformation by DX and those that did not during the recession after the Lehman shock. Therefore, it is important to take the moment as an opportunity and put DX into action while investing for the recovery period.
Factors to be growing companies
It is said that they have something in common between growing companies that regard corporate crises as an opportunity, and not. First of all, it’s the mindset of challenge and cultivation of corporate culture. This brings high goal setting and dreams to inspire employees. It is very important for management and employees to create this together and actually work on it. Secondly, the strategy for growth. There are three points of strategy. 1 Expansion of core business that is the source of sales, 2 Application and development of core business (new targets, countries, etc.), 3 Creation of new businesses. It is important to work on these three things with good balance.
Challenges in Japanese companies
Most Japanese companies start from implementation before making a corporate strategy. However, it doesn’t work if they don’t have the strategy. In order to succeed, it is necessary to interact tactics (implementation) and strategy with each other. First of all, establish a corporate strategy, and then prepare the implement tactics. Taking DX means improving tactics.
Key point to re-grow
First of all, it is the transformation of the main business. This is a project to use data to grow the key sales. The second is innovation beyond the main business, which means to create a new business. The third is organisational ability, which means to transform the main business and to create the necessary organisation for a new business development. Also it involves re-education for employees. The fourth is technology, which means how to shift from old technology to new technology. It’s essential to break away from situations completely relying on vendor companies and to be independent for in-house management.
Learn from top-level companies
Data utilisation method
First of all, it is the utilisation of data. Top-level companies use data not in a particular department but in total. To tell you more, 70% of top-level companies take advanced data analysis to obtain their own insights, and develop software to strengthen existing services and products. Furthermore, 50% of them use AI for decision-making.
Human resources
High-performance companies tend to have more executive people who are familiar with technology. (2.5 times higher than ordinary ones) This fact tells us the importance of digital education for upper management people. In addition, in terms of human resource management for digital technology positions, companies with good performance are more active in re-education of existing employees and recruitment from outside. These human resources can be successfully integrated into the organisation. However, most Japanese companies tend to hire those people for a particular department only and they don’t interact with other departments. For the entire DX, this traditional style should be transformed as well.
Technology
As for technology, it can be confirmed that high performance companies are utilising the public cloud, practising DevOps, and making the most of their Agile.
Summary
The current DX in Japanese companies is at the stage of a fundamental part of the main business such as cost reduction and productivity improvement by digitalization. Therefore, it is necessary to shift to the next stage: the corporate strategy to transform core business and innovation beyond the core. In accordance with this shift, strength of organizational capability including data usage and human resource and technology are required.
Comment