The Digital Imperative: The Opportunity Cost of Digital Inaction

Abstract

Businesses are always facing challenges, more so now in the current environment of economic uncertainty and rapidly changing technology landscape.  Different industries face their own unique set of challenges, with some common underlying concerns over cyber security, trade disputes, and spurious manufacturing facilities producing fraudulent products leading to brand tampering.

Making informed decisions about the technology that supports your business will always be a difficult proposition – and IT and business leadership teams need to keep pace.  The sense of urgency for creating and adopting a Digital strategy may be unclear to some. There are Digital Megatrends that are changing the dynamics of current business models. These megatrends represent opportunity.

For each of the Digital Megatrends listed below, ask yourself: does your company have a Digital Strategy that addresses the highly competitive nature of your industry?

What is the probability of significant medium to long term disruption to your business driven by competitors who are embracing the latest digital technology?

 

Potentially Millions of Dollars are Left on the Table by not going Digital! 

What is Opportunity Cost? Is Opportunity Cost relevant? Opportunity Cost (OC) may be defined as the value of a decision option given up to acquire or achieve another option.

Cost avoidance computes savings relative to expected future events and/or trends.  Cost Avoidance is integral to the concept of Opportunity Cost.  If we know a competitor is pursuing aggressive promotional and loyalty programs, it doesn’t take too much imagination to visualize market share erosion if no action is taken.

How do you quantify Opportunity Cost?

Answer: DRIVE Business Cases that enable you to achieve your strategic objectives. The Projects will involve Capital Spending and/or new or changed processes.  Use the Opportunity Cost quantified metrics to drive your Business Case.

In the example below, we identify a high opportunity cost if no action is taken to address competitive pressure.

Table I – Qualitative Opportunity Cost Table

 

Digital Megatrends are accelerating change

Emerging disruptive and powerful Digital Megatrends being driven by converging the advantages of new technologies to implement Digitization throughout the supply chain. Digitization will be driven throughout market ecosystems as companies adopt them. Digitalization is not optional, companies will digitize or be driven from the market. We see five megatrends to address:

I:   Digital eliminates Manual Processes

II:  Digital lowers Barriers to Entry

III: Digital drives Big and Fast Data

IV: IOT becomes Omnipresent

V:  Digital fulfills Millennials’ needs

 

Megatrend I: Digital Eliminates Manual Processes

Manual processes are slow, inefficient and costly. Digitized processes will eventually replace all manual processes. Regardless of the function, any process that requires a human to review, analyze, reconcile, and make corrections requires longer duration and effort relative to digital solutions. In most cases, a delayed Digital Transformation may lead to a slow, but steady margin erosion trend driven by your competitors, suppliers and customers in your market ecosystem.

The opportunity cost of highly manual processes is twofold.  Highly manual processes are slower at responding to business needs. If the business need is time sensitive (slow order confirmations, for example), this can easily translate into a competitive disadvantage. If you couple inefficiencies due to human errors with long decision cycles, then your business as a whole is very inefficient.

 

Megatrend II: Digital lowers Barriers to Entry

Digital lowers barriers to entry in virtually all markets, enabling Lot-Size-of-One marketing, selling, manufacturing, and distribution.  Lower barriers increase the probability of disintermediation in traditional industries via new business models (Uber concepts extending to fleet management, online prototyping and tooling, remote online engineering, etc.).  In fact, it is literally possible that a competitor in a basement can create new products, services, and models that can easily lead to new market segments previously non-existent.  The Digital Roadmap facilitates the process of internal communication and visualization required to reach the proverbial critical mass within the organization.

 

Megatrend III: Digital drives Big and Fast Data

Digital floods your business with an ocean of Big Data. This Big Data pool is full of golden nuggets of insight and patterns that can lead to Business Rule Induction, new business offerings, promotional cross-sell and up-sell, cause & effect relationships driven by On-Time Delivery, Order Lead Time, Price Elasticity of Demand sensitivity analysis, Product formulation/quality/shelf-life causal relationships, etc.  A Digital Core will support structured and unstructured data and enables real time alerts and Predictive Analytics processing that maximize responsiveness.  In other words, Big Data has evolved to Fast Data – the ability to trigger alerts and insights at lightning fast speeds.

 

Megatrend IV: IOT becomes Omnipresent

By 2020, IOT devices in use will be in the 30 to 75 billion range according to most industry analysts. New emerging 5G technology will complement existing 3G / 4G to support ultrahigh volume and frequency of wireless data updates from these IOT devices. The promise of IOT is the value of improving Customer Responsiveness performance by driving Customer Loyalty, supporting the “lot-size-of-one”, (e.g. personalization of the Customer Experience) and driving sustainable Customer Lifetime revenue. On the Operational Excellence front, IOT’s value can be justified by productivity improvement via elimination of waste and support of new processes, tapping Big Data to support Predictive Cost Avoidance and driving new business models within the Supply Chain.  The implication is clear. Most companies foresee benefit associated with an IOT Roadmap.

 

Megatrend V: Digital fulfills Millennials’ needs

The Millennial/Gen Y workforce ratio is growing.  Millennials favor technology and project oriented career paths relative to the Gen Y workforce. The latest issue of SAP’s online publication “The Digitalist” contains an article entitled, “New Leaders: The Rise of Millennials in Leadership Roles”, September, 2016.   The article states the trend towards Millennials owning leadership roles is growing at a brisk pace.  Our clients tell us the approach to Human Resources and Human Capital Management (Recruiting, Retention, Professional Development, Career Planning, etc.) requires a combination of policies and technologies to align with the needs of this important stakeholder group.

 

Summary and Conclusions

The Digital Imperative requires action via Business Cases that support implementation of a strong Digital Core required to not only confront and overcome the Digital Megatrends; but, by early adoption, leverage Digital Megatrend for competitive advantage. The concept of Cost Avoidance supports the ability to create Business Cases driven by the Opportunity Cost of Inaction. The opportunity cost of waiting to define and act on a Digital Imperative is very high. Companies that don’t have a digital strategy, roadmap, and implementation timeline will be at severe risk.

By Serge Ratmiroff, Supply Chain Transformation Services Director (pictured) and TK Subramanian – Supply Chain Transformation Services Director, Tata Consultancy Services.