In these times of technological disruption, changing regulations and geopolitical uncertainty, openness to change must be present in the DNA of companies more than ever before. In order to stay relevant, existing firms must reinvent themselves for the digital age without obsessing about technology.
Peter Van den Spiegel heads the KPMG Data & Analytics Competence Center, Wim Ilsbroux is Enterprise Transformation leader. Together, they are ideally positioned to explain why business transformation is needed today, how to best approach it, what the pitfalls are and how to avoid them.
Let's recap: successful companies are constantly evolving in order to prepare for the future. But why is the need for change so urgent and real today? Wim Ilsbroux: “More than ever before, we are functioning in a drastically changing market environment. Globalization and digitalization are not new to us, of course, but what is new is that companies are now fully experiencing it themselves. Globalization opens markets and increases competition. Digitalization removes barriers in offering goods and services internationally. Technology is evolving at a rapid pace. And after a brief hiatus, geopolitical tensions are again the order of the day, with, among others, Brexit and the threat of trade wars. Global events are threats, but also opportunities for both large multinationals and say, a pear grower from Limburg, Belgium who is confronted with Russian sanctions.”
Peter Van den Spiegel adds: “Also new is that companies are now competing with each other across sectors. Entire new companies and business models are created and this forces existing firms to question their own identity. Consider what HelloFresh means for supermarkets. In order to come to a win-win situation under the motto, “If you can’t beat them, join them”, new alliances are created, such as the one between the security and insurance sectors, for example.”
We are evolving from offering a product to offering a service, says Van den Spiegel. “Leasing light instead of buying light bulbs, for instance, whereby all of the infrastructure is also included. As a company, you do not need to build a data center when you can easily hire cloud services. Business models are also changing: for clients, it's all about the experience these days, preferably at no cost. That is why companies are drastically experimenting to be able to respond to this, but they often fail to make a profit from it.”
These days, it seems almost as though it is easier to build an entirely new digital company from the ground up to conquer the world than it is to transform a brick and mortar company into a successful digital enterprise. How do we explain that? “It's always about people,” says Ilsbroux. “And people generally do not like change - even though change should be part of every company's DNA.”
Still, this is not a sob story about our demise, but rather an homage to hope. Van den Spiegel: “In our last CEO Outlook, 96% of the business leaders indicated that their enterprises were busy with a business transformation. The sense of urgency is therefore great and technology also contributes to this. By the way, digitally native companies are also faced with challenges, because they, in turn, need to make more physical contact with clients.”
What are the first steps you need to take in order to begin a successful transformation? Ilsbroux: “As a company, you should start with an honest self-assessment. Two fundamental axles are important here: how are we performing financially in comparison to our competitors? The second axle: is our business model future-proof, and how susceptible are we to (digital) disruption? If you score poorly on one or both axles, then you clearly need to transform. If you score poorly on both axles, then it's 'all hands on deck' in implementing a rescue operation. If, on the other hand, you score well on both axles, you can enjoy the luxury of time. Companies in this last category are also transforming, but they are taking the time to consider how to position themselves to gain and maintain leadership of a sector. An example of this is General Electric that is now fully committed to connected machines. Most banks and insurance companies are among those that are transforming themselves from a relatively solid cash position.”
One transformation that could bring quick wins is RPA, short for Robotic Process Automatization; the replication of repetitive business processes that, until recently, was done by people, such as onboarding of clients, journal entries, sending of invoices and so on. This allows employees to focus much more on their creative tasks.
“One step further in automation is working with data analysis and artificial intelligence,” says Van den Spiegel. But, he also warns: “This all needs to happen, but you are not going to fundamentally change your company with it. Too often today, companies choose to automate their activities, while they should actually first ask themselves if they should continue with those activities. It is important to call all processes into question and to find out how technology can help in that. 'Technology is a tool, not an end in itself'. That is why we do not start with technology, but first focus on the question. Depending on the goal, we evaluate which processes and technologies are needed in order to achieve this efficiently and effectively. The result of an exercise like this is often surprisingly different than with a traditional approach.
One example: why would you want to register all of the movements in your warehouse when all of the materials already have a RFC chip and you know where everything is at all times? It would be better if you focused on optimizing your warehouse and used predictive models to have materials ready even before they are ordered."
Another lesson we have learned is: do not transform just for the sake of transforming. First determine a clear vision, formulate a plan and a budget. Van den Spiegel: “How urgent is it? What investments are you prepared to make? What do you want to achieve and how can you get your organization on board? Also leave some room for experimentation.”
According to KPMG figures, 47% of the transformations succeed. More than half of the transformations miss their mark. What are the most common mistakes and how can you avoid these? Ilsbroux: “The most important reason is underestimating the impact of the transformation on the operational model. You can prevent this by drawing up a well-thought out action plan and a better execution with better data and better processes. Secondly, resistance within the organization is also often underestimated. This means that not enough change management is implemented. Thirdly: technology is still too often seen as an end in itself and not as a tool to achieve a goal, which is how it should be.”
How can you reduce the risk of failure? Ilsbroux: “Make sure that you carefully convert your strategic goals into an operational model - a big word for how your organization carries out its assignments - without losing sight of crucial elements. The structure, the people, the processes, the supporting technology and the data flowing through the process. Put simply: it starts with making sure that the basic principles of the transformation are clearly established and top management people are all committed to going in this new direction.”
This process requires various expertise and perspectives, says Van den Spiegel. “We at KPMG can offer an external perspective and the necessary structure.”
In doing so, it could very well happen that the offered solution deviates from the original question. “A client once asked us to help them reduce the costs of supporting services,” says Ilsbroux. “We then accepted the current strategy as a starting point, but when we analyzed the strategic objectives, it was not cost reduction, but growth that was more important and the plan was modified. Too often, strategy is interpreted very vaguely. So, it is a matter of sharply defining the strategy and converting this to an impact on the work floor, whereby everything becomes concrete as quickly as possible.”
Is change also in the DNA of KPMG, which is constantly helping other companies with change processes? KPMG welcomes some 200 newcomers every year, and over these last years they have come from enormously divergent backgrounds, including communications, statistics and even quantum mechanics. To serve the needs of the market, multi-disciplinary teams have been compiled. If we do not have a specific expertise in house, structural ties with external parties are established. “We have, for instance, a global strategic alliance with Microsoft.” Van den Spiegel: “By combining their technology with our expertise, we can guide clients from A to Z through the digital transformations and prepare them for the future.”