São Paulo — You may have heard about Machine Learning, Metaverse, IoT or NFT. In technology, we often notice hype cycles, usually succeeded by gaps in expectations versus the practical reality of their applications.
Gartner has even created a simplification of this pattern with the “Gartner Hype Cycle.”
Beyond all the current fads, we need to understand how important digital transformation is in the economy. But in the end, what does it mean anyway?
We can date the beginning of “digitalization” back to 1958 with the creation of the first microchip. Over the decades, the world has been shifting from analog to digital.
But “digital transformation” is a much broader process than digitalization. It applies digital technologies to create or transform products, activities, and businesses. An easily understood example is digital marketing: We have transformed advertising blocks on a magazine page into a keyword auction on a Google page. In this new virtual format, your ad can be infinitely better targeted, at much lower cost, and more flexible over time.
Marc Andreessen has a famous phrase: “software is swallowing the world,” but I would complement it in a broader sense that “coding is swallowing the world”.
There is growing anxiety about this infamous “digital transformation”. Abrupt changes in the economy in the last two years, the result of Covid-19, accelerated this process and many companies felt unprepared for this new reality.
The first DX (Digital Transformation) projects started to gain relevance in the past decade. The estimated DX market in five years is US$2 trillion! However, a question that precedes the race for digital transformation is: what is the digital maturity of your company?
Some practical examples: I notice that many companies rush to hire data scientists in the hope that they will have brilliant insights with neural network algorithms, when in reality the company needs to better structure its data collection and the application of basic statistics would already bring great advances within the organization. Or development teams that discuss complex microservices structures, but the company’s website has basic UX flaws.
In this sense, many companies are in a rush for this digital transformation, when in fact they need to work on building the “building blocks” for it to happen sustainably. A recent McKinsey study indicates that Brazilian companies face major challenges in four common practices of digital transformation:
- Only 10% have a specific and aligned roadmap of initiatives for digital strategy;
- Data capture in a structured manner with a 360º vision for analytics. Only 12% of the companies execute this practice well;
- Necessary amount of talents trained for the digital business model. In 2020, the World Economic Forum (WEF) published a report on the future of work that reinforces this point: about 97 million new positions will arise in the coming years due to the new division of tasks between humans and machines. At the same time, about 85 million positions will disappear due to the increased influence of computers in our daily lives. A recent survey by Gartner also addresses this issue: about 1/3 of the skills required for a role in 2017 are no longer needed in 2021;
- Data-driven mindset with development of a culture of objective decision making. Mitigate the famous “guesswork” in the company’s strategic and operational decisions.
Therefore, we note that the first, and main, change for a successful digital transformation is the cultural transformation of the company.
An emblematic case in Brazil is Magalu. In 2015 the company was valued at around R$300 million. They started investing heavily in digital transformation. I remember the Q4 2018 results release where they quoted “while competitors open stores, Magalu opens APIs”. The digital mindset was latent and within a few years they reaped the rewards. Even after all the current correction, the company is one of the largest retailers in the world and is valued at over R$40 billion.
It is necessary that the leadership seeks, beyond any methodology or new software, a set of values that allow digital development in the workplace. With the right culture, the company will attract the right talents that will enable this change.
We can never forget that the main input of technology is “brain power”.
This text does not necessarily reflect the views of the editorial boards of Bloomberg Linea, Falic Media, or Bloomberg LP and their owners.
This article was translated by Andrea González