Digital transformation can upset people greatly

December, 2018

In the Media

Global executive search firm DHR International has presented a white paper that reveals best-practice cases from businesses that have successfully transformed into digital businesses, including Hong Kong and mainland examples of successful transformations.

Will Parkhouse, partner at DHR International, recently sat down with EJ Insight to share his views on digital transformation and the challenges it presents to businesses.

Below are excerpts from that interview:

EJ Insight: We have seen digital and other new technologies disrupting traditional business in many ways. How are businesses in Hong Kong and mainland China meeting the challenges of digital transformation?

Parkhouse: In our white paper this year, we focused on enterprises that actually looked at practical applications in approaching digital transformation from a technological viewpoint.

In Hong Kong and China, a lot of companies have looked at how digital firms like Alibaba and Tencent are fundamentally able to turn markets, like insurance and financial services, upside down in, say, 12 to 18 months. We’ve just opened the [Hong Kong-Zhuhai-Macao] bridge between here and the mainland; mobility will change and Hong Kong will become even more connected with mainland China. So barriers to entry for Chinese companies willing to come to Hong Kong are going to start dropping, and for companies here, they have to differentiate themselves against those organizations that are coming in.

I think that has forced organizations to know that the time for thinking about changing is over; you have to change. But they are looking at how they can do that, whether it is through services, or through partnership.

Q: What are the biggest failures of businesses in digital transformation?

A: The biggest failure of digital transformation is when the CEO, or the C-suite of the organization, does not have a unified purpose and message behind why they’re transforming. Digital transformation is an overall organizational strategy. It’s no longer just an IT problem or an operations problem, [the latter] was a silo approach.

One of my interesting findings is the difference in transformation of businesses in Hong Kong and Singapore. In Hong Kong, that has in general involved a lot of discussions about organizational change and cultural change in transformation. And on the other side, in Singapore, it was more focused on innovation, with organizations talking a lot more about how to approach new markets.

Q: Why is there such a difference?

A: I think Hong Kong has got a bigger history [of businesses], which whether it’s in terms of organization or IT infrastructure, they have had things built on top and on top of each other. From an organization and a hierarchical perspective, it’s much harder to unknit and to pull that apart, or to transform it.

Q: Are there any examples of successful transformations that should be highlighted?

A: An organization that’s been quite interesting in that area would be Asia Miles. There was the realization that the value of customer interaction doesn’t necessarily come from the selling of a core product or service, it could be something unsavory or something else.

Another example of innovation practice in Hong Kong would be online logistics platform GoGoVan. The way that they’re transforming is by adding more and more services. They understand that they can build up an incredible picture of how people move and apply that same picture to different products and services. So rather than just moving a bed or drawers, they start moving people, food, and add other different services to it.

Q: What steps should businesses nowadays take to kickstart digital transformation?

A: Businesses now need to re-engineer back from the customer and consider what the customer is looking for, and develop a product or service that the customer wants to buy. The whole area around omni-channel experience and everything about understanding what your customer journey is, is the biggest change that has happened.

Another big change happening, especially when we work with executives or businesses here, is this realization that [the customer] is no longer their age group anymore, they are the ones who are kind of in their 30s and 20s, like Gen Z and Gen Y. They need to understand how to connect with the next set of customers that they’re going to have – that drives changes.

Q: How should companies pick the direction in their digital transformation?

A: One point should be noted: digital transformation can upset people greatly. Take Hong Kong’s ubiquitous payment card Octopus card for example. I once talked with the company’s CEO Sunny Cheung about what are all the new applications they can use for their payment solutions. And he said, “Yes, but what about the older population in Hong Kong who find it hard to make that transition? We need to think about the social responsibility that we have as a company to those segments of the population, to make sure that they don’t get left behind?” And I thought that was a really interesting point that a lot of people forget about; it’s social responsibility. I think social responsibility is an important thing and … in Hong Kong especially, when we deal with the aging population, is something that businesses like Octopus do have a take on.

Q: We have seen traditional businesses in Hong Kong launch incubator programs. Can that strategy help drive businesses’ innovation and digital transformation?

A: I think incubator or accelerator programs have actually been very useful. It gave the businesses access to the ability of attracting new talent to the organization by differentiating themselves as well as having a different discernible market. The second benefit is it gives them access to new ideas and new businesses; they can either look to integrate that into their core business at some given point, or they can potentially look to sell it. It almost gives the businesses the ability to almost act like a venture capitalist. It’s been actually a very positive thing.

Think about Ping An (02318.HK). They set up a separate digital business whilst keeping their existing business, and over a given amount of time they’ll integrate the two of them. That will basically become a digital business. So it was a way of being able to transform without throwing the baby out with the bathwater and cannibalizing your existing revenue.

For a traditional company, it’s easier and more palatable for the management to have [a new business] as a standalone business. Because everything about digital and transformation can upset people greatly.

Q: On the people issue, how can the human resources strategy of businesses enable digital transformation?

A: Digital transformation is about cultural change. It doesn’t necessarily mean that we throw everyone out of the company and just hire loads of new people. It’s about how the whole organization adapts and works together to be able to drive change, and that needs existing employees and people as well as bringing in new people, new competencies to help fill the gap.

One important point is that for companies, you’ve got to be very transparent about the environment that you’re bringing people into. If you’re not Facebook, don’t claim to be Facebook and have a ping-pong table in the corner. That’s where you have issues surrounding retention, because the client hasn’t been transparent in terms of presenting what the opportunity is in the environment.

The other side is, if you are trying to attract that kind of talent and you are in a highly regulated market, you might find that taking people from a fast-moving e-commerce company might not exactly be the best skills match. Is that person going to understand what the challenge is going to be for them to overcome in terms of integration?

Q: From the employees’ side, what should they do to prepare for business transformation?

A: From an organization point of view, companies now like everyone to be digitally enabled, so they need to have an understanding of the digital direction of the business. Besides, the way that people are communicating inside businesses is changing as well. The whole area around organizational change actually comes down to communication: people are becoming much more capable communicators between different areas of the business rather than just in their own pocket.

That whole area of communication – listening, empathy, understanding different points of view – is going to become so much more important. And I think people seem to forget about that part of skillset because everyone seems to think that it’s given, whereas it’s not. Collaboration is another key competency that’s a given. An understanding of relationships and organizational structure with external alliances, say, understanding how you can work with Alibaba, or Tencent, or Microsoft, or how to work with any other company; organizational relationships are important.

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