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How digital technology can help firm shape operations

DIGITALFARMING

Summary

  • It is no secret that rapid digitisation is upending company’s’ operations, systems and entire business models.
  • Whether firms can both manage the risks and also reap the massive rewards that digital technologies can deliver depends significantly on the actions they take in five key areas.

It is no secret that rapid digitisation is upending company’s’ operations, systems and entire business models.

Whether firms can both manage the risks and also reap the massive rewards that digital technologies can deliver depends significantly on the actions they take in five key areas.

First, digitisation should enable managers to allocate a company’s capital and labour better – in real time. Efficient organisations regularly review and upgrade their operations in at least three ways: streamlining existing processes, adopting best practices from outside their firms and identifying the most productive use of their assets. Digital technology can enhance all of these activities.

Movie theater companies, for example, already deploy human capital based on real-time demand trends. In the United States, information about ticket sales and social-media reviews following releases on the East Coast will shape staffing decisions on the West Coast.

Similar approaches can be implemented (or enhanced) in a wide range of sectors, boosting efficiency and productivity. The benefits will grow progressively, as companies adjust their hiring practices to target candidates with the relevant expertise.

But, just as fast-growing stores of data can aid management teams, they also risk complicating the picture. Fortunately, digitisation can help managers to organise and collate data to enhance decision-making. This is the second key area.

Traditionally, management teams worked with far less information. Businesses tended to operate within one or few jurisdictions. And company decision-makers would hear the perspectives of a sub-set of stakeholders, such as shareowners (at annual general meetings or in smaller-group conversations) and employees (through internal surveys).

Today, firms increasingly operate across multiple jurisdictions, and hear from a much broader set of stakeholders – including customers and community members – especially through social media.

Public pressure is already forcing corporations to divulge more details about their products’ provenance, including working conditions, average wages, and environmental metrics, such as the quantity of water used and carbon dioxide emitted. With employees able to air their grievances on digital platforms outside the company’s purview – such as Glassdoor, Blind, and TheLayoff.com – there is nowhere for firms to hide.

In such an environment, managers must be able to organise and interpret data for themselves, identify broad economic, geopolitical, and social trends, and use the insights they glean to adapt their strategies quickly. To this end, they should foster productive engagement with all stakeholders and leverage digital technologies – and the data they provide – to root out inefficiencies, eliminate redundancies and simplify burdensome processes.

The third way organisations must apply digitisation is to enhance organisational flexibility in responding to external threats and opportunities. For example, trends underpinning de-globalisation – including protectionist policies, cross-border capital controls, and tighter immigration rules – may affect where and how companies sell their products, how they fund themselves and deploy investment capital, which talent pools they can tap, and how reliable their supply chains are.

Amid rapid social, economic, and cultural change, organisations need to build flexibility into their business models and operations. Digital technologies can provide that flexibility in a cost-effective way, reducing friction costs and mitigating downside operational risks, while enabling firms to trade, raise and deploy capital, and hire in a balkanised or bifurcated system.

Digitisation can also enable firms to tailor their offerings – and prices – to individual consumers. This is the fourth priority area.

If corporations design and execute effective digitisation strategies in these four areas, they will both boost revenues (by getting more goods and services into the hands of customers faster) and reduce costs (by streamlining hiring, manufacturing, production, and logistics processes).

Rethinking how to distribute the increase in profits resulting from digitisation is the fifth priority area.

Moyo is an international economist and author of four New York Times bestselling books