The word “digitalization” has been a buzzword for some time now, so I want to get started on this post before I write about business strategies later on. I have a few points to make in this post, but I think the most important takeaway here is that having the right people is the most important aspect of any digitalization strategy.
1. Traditional corporates recognize the importance of digitalization, but have a hard time re-organizing themselves.
Traditional corporations built their business in the pre-internet age. They are giants in industries such as automotive, FMCG, retail and etc. Therefore, it is not a surprise that they have built their organizational structure in a non-digital way. Over the last decades, as the corporations grew in size, they have largely adopted a “silo” style of management with regards to their business functions. The functional departments such as marketing, operations, or finance work independently in silos for the large part with their own set of KPIs. Now, I’m not arguing that this type of organizational structure is ineffective, as they have been proven very effective in managing large companies. However, I question the value of this type of organizational structure in the digital age.
Back in 2014, when I was working with the sales/marketing VP of Volkswagen, we had a very interesting conversation about how he planned to change the structure of his teams. Instead of organizing by function, he wanted to re-organize them by project, and build “flat” teams. It certainly wasn’t a ground-breaking idea even back in 2014, but I thought it highlighted that large corporates recognized the importance of change at the highest level. However, change did not happen as he planned. To use a skyscraper analogy, it is a lot easier to build it if it’s built from the ground up with everything planned accordingly. But to add 20 floors to an existing building? That’s next to impossible. At this point for a traditional corporation to change its structure to become “flatter” like the internet companies who were born that way? Difficult.
2. Startups have the unique opportunity to build coordinated digital teams from the beginning
As I was reading the ‘Lean Startup’ book, my biggest takeaway from the book was the importance of having programming skills. The argument mentioned in the book is from the founder’s perspective, that a programmer can build any product from day one and gain the business skills along the way as needed, but business founders cannot make their own products at all. I think the same applies for startups in their effort to build the digital operations, especially with data. Today, data is used in all aspects of a business, from sales, marketing, operations, product development, to finance and etc. More importantly, cross-functional data analysis is greatly beneficial to solving the day-to-day business problems and it could be implemented by startups much more easily.
This is a real example of how functional managers should have the data skills to solve the day-to-day business problems. A while ago, the sales manager approached me (was in charge of operations) and our finance manager for a simple but critical question. A new customer wants to buy some of our products for a certain amount of money, to be paid up after 90 days. From the sales manager’s perspective, this is a slam dunk sale as he is incentivized to do so. However, I found it odd that this new customer, with the intention to re-sell our products in a certain area of the country, wants to purchase the slow-moving SKUs in that part of the country and for a rather large amount. This is where data science comes into business problem solving. By building a model based on the financial capabilities of all of our customers and their default rate, and in combination with specifically selling those SKUs, the model (with an 86% accuracy) predicted a default probability of 72% for our new customer. Not great.
Eventually, I worked with the sales manager to make the sale, but at a smaller amount of money and with better SKU selection based on his intentions. Almost more importantly, this whole process took me an afternoon to complete from start to finish, which is the speed we need to have in today’s business world.
3. What is the future of digitalization?
So what do I think is the future of business? I think we need business managers with digital and data skills, or programmers with business application expertise. We need people that can identify the correct business problems to solve, solve it with data, and implement it with technology. End to end capabilities. With the new generation of managers stepping up in an age where programming skills are as common as bike riding, we won’t have to think “digitalization” anymore because everything would have already been digitalized.