22 December 2021News
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"There is no Magic Button": How to Effectively Transform Your Business
The pandemic has given a significant boost to the digitalization of businesses and enterprises in regions of Russia. But the heightened interest in digital products requires transformation of the business models themselves, i.e. the very foundations of business management. Timur Kaidanny, Head of Innovations at ICL Services, moderator of the Skolkovo Moscow School of Management’s program Managing the Digital Transformation, winner of the federal competition for managers Leaders of Russia 2020, talks about digitalization trends and what you should pay attention to when planning digital strategies in an interview with BUSINESS Online.
«Business transformation is first and foremost a change in the business model»
— Timur, at ICL Services, you are responsible for digital technology. Tell me more about your role at the company.
— I head the Innovation Committee, but it’s not just about digitalization. At the committee, we decide how we can launch and support innovation activities both internally and for our clients. In this case, digital technology acts simply as a tool for achieving our goals.
— What are the current digital transformation trends? What industries are actively moving to the digital plane?
— First I would like to clarify what I mean by digital transformation. Business transformation is primarily a change in the business model, and digital transformation is a change in the business model using tools created using various digital technologies.
I would name three main trends. The first has to do with the fact that the concept of digital transformation is very vague. Companies actively buy different kinds of software, introduce it into their business activities and thus sincerely believe that they are already actively transforming themselves. But installing software by itself does not transform a company. It is important to use the product correctly, which is not always the case.
The second trend is the constant increase in budgets. Look at the number of digital transformation offers on the market. It feels like everyone is giving advise on this topic these days. Everyone wants a piece of the companies’ digital transformation budgets.
The third trend is the emergence of dedicated units within companies that deal specifically with the effective integration of digital technology in their daily operations. In my opinion, this trend gives a much better understanding of digital transformation and how to get the most out of it. Outwardly, this trend manifests as the dramatic changes in the IT labor market: there is a huge number of new digital technology job available at mining, industrial, retail, banking, and health companies. All those who used to see IT as an unpleasant but necessary process are now seeing technology as a way to extract new money from the market.
One of the key yet non-obvious players in the field of digitalization is our government. The level of digitalization that exists in our government office could challenge that of many large corporations. A good example of this is the Gosuslugi portal. I can assure you that very few countries in the world have anything similar in terms of quality.
— What trends do you think can be called long-term and be included in digital transformation strategies?
— Any strategy should take into account as many trends as a company’s analytical department can identify in the outside world. However, it should be noted that in my mind, a digital transformation strategy can’t exist on its own and must be an integral part of a company’s overall development strategy. Either a company transforms simultaneously with the implementation of digital products, or the whole idea is pointless and ineffective.
«Any change is a process initiated by people and for people»— Can you give some advice to companies that are just planning to digitize their processes?
— My first piece of advice is this: it is important not to forget that any change is a process initiated by people and for people. To get a visible effect from any digital products, it is necessary to change the existing system of relationships both inside and outside the company. There can be no effects on business when the supporting tools change, sometimes radically, while the processes and form of communication remain the same.
So it is necessary to properly plan the future state of the company. One must understand what will change in the existing system of relations inside and outside the organization and how. It is also important to be aware of the possible consequences along your entire business chain, and not just at the link where the tool will be applied.
The second piece of advice is to remember that there is no magic button. Business transformation is a highly time-consuming process that relies on the people who make up a company. Each team is unique, so you can’t take someone else’s experience and mindlessly copy it, hoping to get a significant result.
— Today it is becoming clear that digital transformation is not a project, but an ongoing process. What challenges do companies face on the road to digital transformation?
— I would put it differently. Digital transformation is a project that results in the birth of a company that can effectively adapt to rapid changes in the environment.
Today, people’s behavioral patterns are changing at a very rapid pace. The desire of companies to keep up with these changes is not a tribute to any trend, but a necessary response to emerging external circumstances. I didn’t invent the term VUCA World, but I am an integral part of it, as is ICL Services. So our own transformation into a business that responds to any changes in time is a prerequisite for business survival.
In the past, customer perceptions of a product did not change as quickly, and the surrounding world was not saturated with information. The Internet has opened up access to a large number of information, as well as new needs, desires, and activities. Transformation is now a prerequisite for businesses to be responsive and client-centric. And in order to hold the client’s attention as long as possible and gain knowledge about different aspects of their life, one needs an entire ecosystem of services, which means that transformation will be the only form of existence for companies.
I feel like transformation has always existed and will always continue to exist. It’s like evolutionary processes in the world around us:-they exist regardless of what we think about them. We are living in an era of change, of transition from the economic paradigm shaped by transnational corporations to that ruled by transnational platforms. This is why I see transformation as a project, the result of which is a changed business model that allows the company to continue to exist in the «new world». But this project is not quick: depending on the size of the company and the complexity of the chains of cooperation around it, it can take anywhere between two to three or ten to 15 years. Perhaps this is why we feel that transformation becomes an ongoing process.
One of the classic mistakes on the way to becoming an adaptive company is trying to apply the existing hierarchical form of management to new goals and objectives. This is often due to the fact that complex management systems are unable to change quickly: key decisions are made at the top, and the speed of information transfer from the bottom up is slow. In addition, there is the «broken phone» issue, when information reaches management in an altered form, losing all its original meaning along the way. To respond to changes in the world around you quickly, you need to delegate decision-making authority as far down the management chain as possible. I understand that such changes are not easy to accept, but today they are a necessity: without them, no transformation, including digital, can be initiated.
Digital transformation is the next evolutionary step that everyone will have to take, but not everyone will complete.
The ’’raw value" effect— This year, your company has won a medal at the All-Russian contest Exporter of the Year. Congratulations! Tell me about the state of exports in the high-tech sector today.
— Thanks a lot! This was the first time we took part in the contest, and right off the bat we we took second place in the High-Tech Exporter of the Year category in the Large Business subcategory. I believe that this result reflects the company’s many years of experience working with foreign customers around the world. We have been working with business partners on all continents for more than 15 years.
If we talk about the export of digital services in general, we should start by separating them into three categories, depending on maturity.
The first level is the export of competencies. The most basic scenario is when an employee in the exporting country replaces an employee in the importing country. Or, in other words, it is not the person themselves who is exported, but their working hours. This was the model used to build India’s IT miracle (India is considered the biggest IT outsourcing hub — ed.). And it is the model under which a huge number of IT specialists from countries with cheap IT labor still work today. For the Russian economy, this is not the most interesting scenario, because it contains a minimum of added value and therefore taxes. For example, taxes on the payroll of employees working for exports. ICL Services has conquered this level a long time ago.
The second level is the export of ready-to-use products and solutions. This model can be described as follows: the company internally monetizes the working hours of its employees by exporting finished «digital products». This applies to products that can function independently, such as those sold through a one-time licensing model. Or the company monetizes the running time of computing power, if we’re talking about «digital services». For the economy, this is a much more interesting scenario, as it involves the sale of highly processed products rather than «raw materials,» and these products often involve complex production chains with a large number of people. In this case, the amount of added value and taxes is disproportionately higher. ICL Services is also familiar with this business model, and we are now trying to make the next qualitative transition.
The third level is the export of technology. Or, in other words, the export of «raw value,» which can be packaged in a product anywhere in the world in the easiest and most accessible ways possible. On the surface it looks like a platform business model, with one of the most vivid examples being Uber, which has transformed the market for taxi services on a global scale. The creation of platforms that integrate real economy sectors is an extremely complex and time-consuming process, but the economic returns are maximized as well. The emergence of companies that have reached this level brings maximum benefit to the Russian economy as well.
— How does ICL Services transform business processses? Could you tell me more about it?
— This is precisely what my job is about. One of the best approaches to digital transformation is to build an effective data-management business function within a company.
I am currently implementing a similar project. Qualitative data collected at all levels and in all business functions allows us to link objective reality to any management layer, up to the board level. Proper collection, storage, and enrichment of data allows the most efficient use of different BI tools: you can be certain that a report generated by top management will be based on real data from a particular employee. Efficient data architecture and meticulous work on source documents solves the issue of timely information transfer upwards: as soon as new data appears in our storage, it immediately becomes available in all information systems of our company. We are currently working on the proper integration of data between our systems.
This also solves the issue of subjective interpretation of information at any intermediate level of management. Now every manager can have access to data in its original form.
«Here is a fact about European countries that will surprise lots of Russians»— How does your company help businesses go digital? Does ICL Services offer any technology?
— It is important to understand that when it comes to transformation, technology is always secondary and serves only as a tool. It is the activity, the business process that is of primary importance. Let’s say our clients use axes to cut trees. We offer them our chainsaws to reduce the time it takes to cut a single tree by a factor of ten and greatly increase the profits. It sounds simple, but alas, it doesn’t work that way. To sell a chainsaw to a client, you need to explain to them what it is and how to use it, as well as set up a training process for employees so that everyone stays safe. In addition, a chainsaw won’t work without gasoline, engine oil, and spare parts, so you need to arrange deliveries of those or create a separate unit within a client’s company that will deal with it. As a result, you’ll need to build a different system of relationships, because the introduction of chainsaws will radically change the external counterparties and with them the general processes of interaction. What becomes essential is the realization that it is not the tool that provides the opportunity to increase profits, but a change in the way we do business using that tool.
It is not enough to give the client a digital product, you need to teach them how to use it and help them adapt their activities in all aspects related to that product. This is the level at which we at ICL Services work with our clients. We can not only create a unique digital solution, like the hardware and software suite with self-service kiosks for Auchan, but also help to maximize profits from the solution through relevant changes to the client’s business processes. We always try to understand the client’s problems in order to create a product and service that solve them.
All digital product created by ICL Services are deeply embedded in our clients’ business processes, they don’t fuction independently. And the better we understand such processes, the more valuable and profitable an offer we can make. We don’t offer technology, we offer solutions to specific problems.
— In 2020, you won the federal competition Leaders of Russia and were included in the talent pool of the president of the Republic of Tatarstan. Your mentors were Rustam Minnikhanov, President of the Republic of Tatarstan, and Roman Shaikhutdinov, Deputy Prime Minister of the Republic of Tatarstan. What digital projects have you been able to implement?
— The project I am working on is my first attempt at full digitalization. It involves arranging interdepartmental interaction between several law enforcement agencies. Russia has a complicated system of interaction between various ministries and departments, because of which many regional organizations have to communicate at the federal level. My project was supposed to solve one of the issues with the existing system of relations between regional authorities.
— Given your vast expertise, can you try to predict in how many years digitalization will affect all areas of human life?
— To quote William Gibson, «The future is already here — it’s just not very evenly distributed.»
Digitalization is already affecting all areas of our lives. But we are often either not aware of something or are just not ready to let «digital assistants» into certain areas of our lives.
People in Russia still go to polyclinics and wait in lines instead of making an appointment with a doctor via Gosuslugi. And it’s not about age. I know older people who actively use digital services and young people who are not very active in the digital space.
And here is a fact about European countries that will surprise lots of Russians: in many of them, NFC terminals are not available everywhere, so leaving your home without a bank card could turn into a big problem when trying to pay for some services.
It is much more often a question of preference and understanding of how much you personally need something than the fundamental lack of digital services. What makes everyone talk about digitalization? In a very broad sense, digital services save a lot of time, which is the only non-accumulative resource. Anything that saves us time becomes very popular.