Digital transformation—or DX—according to IDC, is the continuous process by which enterprises adapt to or drive disruptive changes in their customers and markets by leveraging digital competencies to create new business models, products and services. Simply put, DX seamlessly blends “digital and physical business and customer experiences while improving operational efficiencies and organizational performance.”
This is the wave that Philippine companies are getting sucked into today. It has become a do-or-die decision for businesses in the Philippines, where migration to the digital is no longer just a concept, but a reality that should be accepted—the sooner the better.
Enterprises are now on the run to compete with disruptors in their markets, where digital-services providers are offering far greater ease and comfort of service for consumers.
In the global scale, retail stores and malls have been closing down around the globe as getting groceries, clothes and even medicines is now as easy as tapping icons on a smartphone, paying via electronic money, and waiting for the delivery guy.
Closer to home, disruption brought about by the digital economy has spilled over to all sorts of markets—from transportation, where taxis are competing against Grab and other providers of ride-hailing applications, to lending, where traditional brick-and-mortar banks have seen themselves partnering with digital financial-services providers PayMaya and G-Cash.
This has pushed competition in certain markets to higher levels, hence better services and lower prices.
In order to compete with these companies, businesses in the Philippines must undergo the so-called DX.
“It is grounded on five digital masteries: leadership, omni-experience, worksource, operational and information. This means that you need these pillars for you to move toward DX,” IDC Philippines Market Analyst Alon Anthony D. Rejano told the BusinessMirror.
In a nutshell, a company “transforms” once its leaders have been given the ability to develop and execute a vision for the company’s digital innovation with focus on developing interactive organizational and customer experiences in different channels.
“Others would define DX as simple as adopting new technologies—like getting a laptop—which is not,” Rejano said.
In the Philippine context, he said, his group has seen organizations marrying one to three pillars and infusing them into their business strategies and implement.
“These are mature organizations that are born on cloud or digital native, or those that need to migrate to DX to be more competitive in a hyper-disruptive market,” he explained.
But it is a different case for traditional brick-and-mortar businesses.
While the Philippines is treading on unfamiliar yet not uncharted territories, the country is on the right path toward digital migration and transformation, given that both consumers and enterprises have adopted the digital lifestyle and digital strategies.
“The Philippine market is on the right track as far as adoption and migration to DX are concerned. We have seen local organizations partnering with us to help them create a technology road map for the next two to five years,” Rejano said. “This, for us, is a good sign that organizations are acknowledging the need to transform.”
However, digital adoption has its own pace in the local market, he noted.
“Organizations need to see more successful use cases until they join the bandwagon. It’s not a matter of speed in adoption, but it is more about understanding the current business problems, crafting the right strategies, and executing their DX initiatives, which can take time, especially for organizations that are heavily regulated, traditional, and have less spending,” Rejano explained.
Shaking up business strategies, changing business decisions, shifting goals and objectives, may take about half a decade, he added.
“DX is a multiyear effort with specific goals and objectives around markets and customers, revenue, and profit growth. Of course, there should be a strong ecosystem that fosters relationships between end-user, service providers, and regulators,” he said.
Do or die
Rejano underscored the need for companies to undergo digital transformation, as competition in certain markets continues to heat up with the rapid growth of Internet-based companies.
“In this digital economy, it is imperative for every organization to transform; otherwise, they will be left behind. Business threats and ICT complexities are increasingly growing, hence traditional organizations can hardly keep up with them,” he said.
Digital transformation, he said, will also improve companies as a whole. It will aid in growing their bottom lines, as investments in new technologies and technology-based business decisions help streamline processes.
Accelerating DX also allows companies to reap the full benefits of their initiatives, and to address the invisible revolution brought about by the mass adoption of artificial intelligence.
“DX is no longer a theoretical topic; it is now an industry term to which organizations are adhering. DX is important to provide better customer experience, reinvent businesses and grow more profits using technologies, and help organizations find their place in the digital economy,” Rejano said.
Not apples to apples
For 2018, the whole world is expected to spend nearly $1.3 trillion in digital transformation technologies, including hardware, software and services, a 16.8-percent increase from the $1.1 trillion spent in the year prior, according to the Worldwide Semiannual Digital Transformation Spending Guide from the IDC.
Majority of DX spending for this year will go toward technologies that support new or expanded operating models, as organizations seek to make their operations more effective and responsive by leveraging digitally connected products or services, assets, people and trading partners.
The second largest DX investment area in 2018 will be technologies supporting omni-experience innovations that transform how customers, partners, employees and things communicate with one another, and the products and services created to meet unique and individualized demand.
Information will also be an important DX investment area as organizations strive to obtain and leverage information for competitive advantage through better decisions, optimized operations, and new products and services.
Rejano noted that the Philippines has “its own dynamics” in terms of DX, and cannot be compared apples to apples with any other country.
“However, we study technologies and look after organizations on their DX adoption, which is through Digital Readiness Assessment or Digital MaturityScape. So in terms of readiness, Philippine organizations are mostly at the second stage or what we call Digital Initiators,” he said.
These are organizations that have acknowledged DX as a success factor for the business, but most of them are in trial-and-error stage.
“I think other Asean markets, such as Malaysia, Thailand and Indonesia, are also at the same stage but nearing stage 3, which is Digital Adaptor [i.e., organizations are consistently using emerging technologies, and digital initiatives are considered as one of the strategic business goals],” he said.
Rejano explained that this is on the back of the growing e-commerce market in Indonesia, fintech in Thailand, and infrastructure players in Malaysia.
“Although it is encouraging to see many large organizations that have already digitally transformed their business, the Philippines still has a long way and more work to do from a cultural, regulatory and technological standpoint,” Rejano said.
Need for regulation
Rejano also noted the need for regulations and legislation on the ICT space, as this could help make DX much easier and bearable for companies.
“For the country to be on a par with the rest of the world, we need to have strong ICT regulations that benefit both end users and providers, excellent ICT skillsets and talents in high-valued services, and a market that promotes competition,” he said.
Today, the most advanced industries in the Philippines in terms of digital migration are financial services, telcos, retail, and utilities, trade and logistics.
For banking and financial services, the Bangko Sentral ng Pilipinas (BSP) has adopted a national strategy on digital finance, which aims to promote digital financial services such as mobile loans, wallets, and even insurance.
Good for the market
Migrating to the digital space is seen as a must for every country in the world, as the digital marketplace can pump in billions of dollars in revenues in the economy.
“In the Asean, I’d say we are in the middle pack. But, digital transformation is very important for competitive advantage,” Department of Information and Communications Technology Undersecretary Dennis F. Villorente said in a text message.
In the Philippines, the e-commerce industry alone is seen to make as much as $10 billion in 2025, according to Kantar Retail, double from its 2016 level of $5 billion.
According to Microsoft, by 2021, digital transformation will add an estimated $8 billion to the Philippine GDP, and increase the growth rate by 0.4 percent annually.
In its research, “Unlocking the Economic Impact of Digital Transformation in Asia-Pacific,” the company predicted a “dramatic acceleration” in the pace of digital transformation across Asia-Pacific economies.
In 2017 about 3 percent of the Philippine GDP was derived from digital products and services created directly through the use of digital technologies, such as mobility, cloud, Internet of Things (IoT), and artificial intelligence (AI).
“The Philippines is clearly on the digital transformation fast track. Within the next four years, we expect to see approximately 40 percent of the Philippines’ GDP to be derived from digital products and services,” Microsoft Philippines Managing Director Hans Bayaborda said.
The same study indicated that while 93 percent of organizations in the Philippines are in the midst of their digital transformation journey, only 7 percent in the entire region can be classified as leaders, which are companies that have full or progressing digital transformation strategies, with at least a third of their revenue derived from digital products and services.
In addition, these companies are seeing between 20 percent and 30 percent improvements in benefits across various business areas from their initiatives.
Villorente noted that the government is supportive of the digital initiatives and transformation endeavors of companies, noting some of the agency’s projects pertaining to connectivity.
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