As we are still experiencing the direct impact of COVID-19 and the shift it forced companies to make, we are all adapting to the new reality. It may mean changing approach towards digital transformation and its priorities. Let’s explore substantial aspects of digital transformation nowadays.
Over the past few months we have been observing a very dynamically changing landscape of the world economy but also new social phenomena that suddenly occur in our everyday lives. What is more, our professional life now intertwines enormously with our private life and vice versa. Government actions aimed at controlling and possibly minimizing the effects of a pandemic such as ban on public gatherings, limited border traffic, quarantines, and social distancing definitely are necessary. Unfortunately, the side effects of these actions can bring enormous – and at the moment still difficult to predict – consequences in both economic and social dimensions, and their first symptoms can already be observed today.
Move to a virtual environment
If until now it seemed to us that the widely available model of remote work is only a distant vision and reserved for the IT industry, we have definitely been proven wrong. However, in the entire strategy related to the current transfer of everything possible to the virtual world, the main thing is to keep existing functional day-to-day life patterns and prevent their collapse as long as possible. However, we must remember that the current change is only a part of the future digital transformation. Nevertheless, the question whether this is a sufficient contribution to a significant acceleration of the digital transition, remains.
Just few weeks ago Microsoft announced an investment plan worth $ 1 billion, which aims to accelerate innovation and digital transformation for the development of the Polish Digital Valley. The foundation of this multilevel plan is to provide the national ecosystem of startups, entrepreneurs, companies and public institutions with access to secure enterprise-class cloud services.
As Jean-Phillippe Courtois, executive vice president and president, Microsoft Global Sales, Marketing and Operations explained, this investment will also provide strong support for the further success of Polish programmers, creating opportunities for the development of key skills for approximately 150,000 employees, partners and students.
We can see that we can expect a comprehensive and long-term qualification improvement program. As an outcome it should increase the competitiveness of Polish enterprises and private individuals on the market and to facilitate employees in Poland in successfully introducing innovations and implementing digital transformation strategies of their organizations using the cloud computing capabilities.
What is digital transformation?
The most common look at digitization seems to be its recognition as the automation of all kinds of business processes. In the first place, of course, we think of schematic and repetitive activities performed by appropriately programmed robots or dedicated software that are able to successfully replace people. Of course, as technology advances, e.g. artificial intelligence can already be seen introducing robotization to tasks that require creativity, interpretation, drawing conclusions and ongoing learning based on past experience.
On other hand you can also look at the concept of digital transformation a bit more broadly as a general transformation of certain patterns, business models or entire organizational cultures that will be able to adapt much faster to dynamically changing economic conditions or customer needs.
At NATEK, for over a year we have been investing in digitization of ERP systems called Zero Paper Project. Its main aim is to fully digitalise communication with our employees, candidates, suppliers and partners. In that sense we have been developing fully automated workflow for employee life cycle and document management, automated process for contract management and retention as well as data analytics. The project workload is estimated with 1200 mandays per month and shall come alive beginning of 2021. It will significantly reduce our operating costs and time efforts, moreover, we believe the digitalised processes will simplify and increase quality of communication for all parties.
Approaches to digitalization
In the era of omnipresent optimization, growing competition and the struggle for customers, digitization is seen as achieving competitive advantages as well as a way of reducing costs.
However, it is impossible not to mention the aspect which seems to be still marginalized. We must remember that, as with every change, there are also risks related to the broadly understood digital transformation process. Both on a micro and a macro scale.
Does COVID-19 drive our digital transformation?
Many companies are now wondering whether to accelerate or not their IT digital transformation. It is obvious that under current COVID-19 situation enterprises are struggling financially. Revenues are descending drastically, especially within small and medium sized companies, which most often results, unfortunately, with cost cutting policy.
As some of them have concluded it’s worth to also check the possibilities to shift their approach rather than just simply cutting project budgets or freezing them until situation will cool down, Digital innovative technologies and services are seen as long term strategies. They can provide an added value like costs reduction, additional revenues, processes effectiveness increase, headcount release for other tasks etc.
What can help companies is finding some kind of compromise, for example focusing on characteristics of cost classification for Opex (Operating Expenditures) and Capex (Capital Expenditures).
Visible benefits of digital transformation during COVID-19 pandemic
All digital transformation strategies are rather based on virtual and cloud solutions and we can already see that companies transferred to remote work model because of COVID-19 situation are coping with their day-to-day tasks much better in comparison to ones which didn’t implement it. But in this situation our cost will be treated as Opex and it can affect yearly financial results significantly.
In NATEK for the past 16 years we have been an eyewitness to the fact that the Central and Eastern European region has become one of the most popular outsourcing destinations, including outsourcing of IT services and resources. Many IT digital transformation projects are based on hybrids of internal resources as well as external contractors in many different available delivery models like staff augmentation, managed team or managed services.
Majority of our services are treated as Opex and are affecting financial results of the company. But what if we could spread them for a much longer period of time? Current law allows capitalization of outsourcing incurred costs if as an outcome we are creating any non-material and legal value which means that they may be perceived as investment – Capex. In this situation we can amortize created intangible and legal assets spreading the expenditure for a longer period just by changing the classification of the cost. As an effect, we will be able to start new projects or proceed with already existing ones to create additional value for the organization as well as optimize costs.
As we can clearly see all activities related to digital transformation, when properly conducted, can help increase the agility and resilience of organizations to cope with different types of problems (such as the one we are facing at the moment). But, like always, we have two sides of digital transformation and we can distinguish an appropriate approach, which of course can be very subjective depending on our own experiences, business areas represented or even our ideological mindset.
Don’t rush RPA
What’s crucial is that digital transformation is not about just digitizing in itself. It has helped many organizations evolve. For an example, let’s take RPA (Robot Process Automation) which analysts predict will allow to gain appx 22% cost reduction and 11% of revenue increase in the upcoming 3 years. On the other hand, 58% of executives declare they’ve started their automation journey but only 8% of them successfully deployed more than 51 automations and, according to EY (Ernst & Young) studies, 30-50% of RPA implementations still fails. There are many factors and barriers for that like: process fragmentation, IT readiness or data issues but many times digitization is not preceded by deep analysis of current processes. In other words, without proper preparation and analysis, we can digitize something what is already working bad or could work much more efficient.
In the last years we were able to observe that a lot of changes, which had already taken place on the labor market are being caused by digital transformation based on capital optimization rather than creating value.
Due to the pandemic situation more and more people are losing their jobs day by day and entire industries are hit hard e.g. tourism, transport, gastronomy, production, aviation just to name a few.
Of course, we can always say that at this moment some new business opportunities are being born too but obviously only for a very narrow part of whole workforce and sectors.
Not just capital optimization
We already know that the number of people made redundant because of the Coronavirus outbreak will be very high. Digital transformation focused on capital optimization, which of course now seems to be a chance to save many businesses, will increase the scale of reductions by eliminating jobs, and this will only worsen the economic and social situation. We need to start thinking about transformation based on creating value, building balanced business models – socially and economically – as well as creating spaces where people will find employment.
No acceleration without diversification
Many people who are currently calling for the acceleration of digital transformation, not only ignore the economic and social costs of introducing such changes, but often force arguments that it can be our only chance in the future. Such an approach increases potential risks instead of diversifying them.
In other words, transferring excessive activities to the Internet and their automation, and not their balanced development in the offline and online world, is nothing more than just “here and now” strategy and the survival mode.
It may therefore seem that a reasonable and balanced development of technology having in mind the multidimensional relationship of technology with various systems (people, social, economic system or the environment) is the direction in which businesses should go.
Mateusz Stawicki, Sales Manager
For over 10 years Mateusz has been consulting on customers key business areas, processes and outsourcing services.
He joined NATEK almost a year ago when he decided to shift his career path and connect previous experience strictly with IT services. He is responsible for business development by creating new market opportunities as well as strengthening relations with some long-term key customers.
Although his everyday life centers around Tricity, the international nature of NATEK allows him to run interesting and innovative projects not only within Poland but also across the globe.
Contact Mateusz via his Linked in Profile.
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