Basics of DX strategy｜Introducing reasons necessary from the meaning, how to make strategies, and corporate cases

With DX (digital transformation) attracting attention, many people may not know how to develop a strategy to promote DX.

It is very important to plan and revise DX business strategies in an era where social conditions change day by day.

Therefore, in this article, we will explain what the DX strategy is, how to set up a DX strategy, and introduce examples of DX strategies of domestic companies. In addition, we will introduce frameworks and books that are useful for DX strategies, so please refer to them.

What is DX

DX (Digital Transformation) is the concept of “technology that continues to evolve and has some impact on human life, and as a result, people’s lives change for the better . ” It was proposed in 2004 by Professor Eric Stolterman of Umea University, Sweden.

In the DX promotion guidelines compiled by the Ministry of Economy, Trade and Industry in December 2018, it states, “Companies can respond to drastic changes in the business environment, utilize data and digital technology, and develop products and services based on the needs of customers and society. In addition to transforming our services and business models, we also transform our operations, organizations, processes, and corporate culture/climate to establish a competitive edge. ”

Simply put, DX can be expressed as “leading to optimal management strategies and creating new value through business transformation, business model transformation, and business process transformation.”

What is DX strategy

A DX strategy is a strategy that uses digital technology and data in accordance with the definition of DX to transform not only a company’s business model but also products, services, operations, organizations, processes, and corporate culture. is.

The DX strategy is not led by the IT department or implemented by individual business departments to optimize their own departments. Since it is a strategy for a wide range of fields within a company, including organizational culture, it is a major pillar of corporate strategy and is led by the CEO of the company.

DX strategy is important to combine management strategy and business strategy. Under the management strategy, there is a business strategy, and under that business strategy there is a DX strategy, and the DX strategy is to transform in various ways using digital technology and data.

Why do we need a DX strategy?

According to a “DX initiative status” survey conducted by the Japan Management Association targeting about 5,000 major companies nationwide, companies that say that “the vision, management strategy, and roadmap for DX are not clearly drawn” is an issue. It also accounts for 77%.

There are three main reasons why Japanese companies need a DX strategy:

1. Fears of becoming a loser in the digital race and facing the ‘2025 cliff’ with technical debt
2. Because there are merits such as operational efficiency and new value creation
3. Successful digital transformation is harder for executives than “traditional” enterprise transformation

Ultimately, through the DX strategy, it will be “to increase the competitiveness of the company by utilizing digital technology.”

(1) There is a risk of becoming a loser in the digital competition and facing the “2025 cliff” due to technical debt.

On September 7, 2018, the Ministry of Economy, Trade and Industry announced the DX Report: Overcoming the IT System ‘2025 Cliff’ and Full-scale Deployment of DX (abbreviation: DX Report). It was pointed out that we are facing the “Cliff of the Year”.

If DX cannot be realized, it is predicted that there will be an economic loss of up to 12 trillion yen annually from 2025 onwards. On the other hand, it is also stated that if DX can be realized, it will be possible to boost the real GDP to more than 130 trillion yen in 2030.

With the extension of existing legacy systems seeing the limits of corporate growth, it is important for Japanese companies to think about how to quickly develop a DX strategy, minimize losses, and avoid being a loser in the market. .

②Because there are merits such as operational efficiency and new value creation

For many companies, two things are important in business strategy: zero negative or create positive.

In terms of “zero negatives”, there is a growing need to improve operational efficiency and eliminate dependence on human resources. In particular, Japanese companies are highly dependent on human work flow, and there are many problems in many fields such as “productivity does not increase” and “scaling due to working hours is limited”. In the DX strategy, it is important to maintain or improve competitive advantage by utilizing digital technology and data. Productivity in a company is also an important factor in maintaining and improving its competitive advantage.

In addition, in recent years, with the development of technology, many technology companies have increased their competitive advantage. At the same time, existing large companies are also facing the need for transformation through the use of digital technology and data.

In the rise of technology companies, companies represented by GAFA are representative. For example, Amazon has become the world’s fourth largest market capitalization (as of October 2020) by using a “virtuous cycle strategy” to attract customers to its online store based on “customer experience”, and has grown into a service that is loved around the world. has become an existential threat to the global retail industry.

If we do not create an unprecedented business model that matches new values ​​based on an excellent DX strategy, we may lose our advantage to emerging companies. It can be said that many companies are looking for a DX strategy that uses digital technology and data to improve their competitive advantage after understanding their strengths.

③ Successful digital transformation is more difficult for managers than “traditional” corporate transformation

In today’s corporate management, it is important to understand the current situation that “there is no continuation of the company without reform of the current situation.”

According to a McKinsey survey, 80% of Japanese business leaders share a common understanding that digital technology will be a “promising next move,” but only 30% felt that they were not sufficiently prepared, so they took the plunge. The reality is that the reform is not progressing.

And just 16% of digital transformations are successful in improving performance and building lasting organizational capabilities, according to the results of the Enterprise Transformation Survey.

The DX strategy requires a wide range of reforms, not only in corporate business models, but also in products and services, operations, organizations, processes, and corporate culture.

In order to implement a strategy that leads to an improvement in competitive advantage, it is becoming increasingly important to set up an effective top-down DX strategy, not just a digital strategy.

DX strategy items

Specifically, what kind of items does the DX strategy consist of?

DX cannot be implemented simply by changing the business. Management strategy on how to transform the business using digital technology, strong commitment by management, mechanisms within the corporate organization including changes in mindset in implementing the DX strategy, human resource development, etc. Item is essential.

Here, we will introduce in order of business model, products, services, operations, organization, processes, and corporate culture.

Business Model: Products/Services

The most important item in implementing DX and establishing a company’s superiority is the business model. Many people will be paying attention to how digital technology and data will be combined with businesses that directly generate profits.

On the other hand, recently, many new business models have been created and reported in various media, so there is a problem that DX only focuses on business creation. While many people are looking to launch new businesses on their own, it is important to combine the strengths of your company with digital technology and data in order to expand your business by combining digital technology and data. is important.

After understanding the company’s strengths, it is necessary to think about what kind of business model to create comprehensively based on the trends of competitors and the external environment (especially technological progress).

In addition to that, we must have a “user (consumer) perspective” and emphasize the creation of added value for users. Today, consumer trends are shifting from consumption of things to consumption of things, and the need to continuously provide value to users is increasing.

“Mono” refers to the functional value of individual products and services, and “koto” refers to the “series of experiences” obtained through various products and services.

Currently, the idea of ​​”use as needed” is spreading, especially among young people. The number of subscription-based services is increasing, and business models that use services rather than buying things are emerging, not only in content such as movies, but also in various fields such as cars.

Based on this background, it is necessary to design not only a business model that only sells things, but also an overall user experience and incorporate it into the business model.

It is also recommended to use a framework like the lean canvas below to check if there are any missing points of view.

business

In the execution of DX, it is important how to streamline operations and maximize the value of the company’s human resources. It is important not only to streamline operations and cut costs, but also to create time that can be devoted to profit creation.

In addition, digital technology and data cannot be used efficiently if human intervention and inefficient operations remain.

Therefore, it is important to take stock of your own business and utilize digital technology and data as follows.

In addition to subdividing the work, there will be many tasks that “I can’t do without” in the first place. If you consider eliminating tasks that you can’t do without, you can further improve the efficiency of your work.

In addition, what is important in improving the efficiency of operations is to clarify how much man-hours can be reduced, how much cost can be reduced, and how much budget is necessary for that, and make proposals in comparison.

In Japan, there are many cases where “I could not obtain the approval of my superior” as a hindrance to DX. If you submit a request for budgetary approval without any numerical basis, there is a high chance that it will be rejected. Based on numerical evidence, it is important to clarify how employees’ work styles have changed and what makes the company happy.

organization, human resources

Even today, with the advancement of digital technology, a company cannot exist without people. In DX, it is important not to exclude people, but to expand what people have created using digital technology and data.

In addition, it is undoubtedly the organization and people who implement DX, and the importance of strategies related to people and organizations is extremely high, and it is an issue that should be considered with the human resources department involved. True DX cannot be implemented with the recognition that DX is handled by a specific department. The most important thing to implement DX is to be aware of the use of digital technology and data from management to the field.

First of all, it is important to organize an organization that promotes DX.

In Japan, there are an increasing number of cases where a department is set up to lead the promotion of DX within the company. However, that alone does not necessarily mean that DX can really run.

In order to promote the use of digital technology and data in each department, it is necessary to communicate the importance of DX in a message from top management, prepare a training system, and transform the entire organization so that DX can be promoted. .

In addition to setting up a department to promote DX and collaborating with external startups, etc., we will not only promote DX, but also assign a person in charge of DX to each department to form an organization that can oversee DX in a project format. is also recommended.

Developing star talent is also important.

In particular, data scientists who handle data, which is an important asset in implementing DX, architects who identify new technologies and turn promising solutions into solutions, and designers who design ways of contacting new customers. Digital technology and data savvy talent must be developed internally.

In Japan, there are some cases where digital technology and data-related operations are outsourced to IT vendors. In particular, the IT department tends to be seen as a cost for companies. However, it can be said that the most important aspect of the current organizational strategy is to cultivate star talent within the company and to disseminate them within the company so that they can face the issues within the company.

Let’s create a strategy for the organization and human resources, focusing on the awareness that “everyone is a party to DX” and “cultivating star human resources who are familiar with digital technology and data.”

process

Now that more and more business is done through PCs, the number of people who use various systems and services to do their work must have increased.

However, the in-house system that has been worn out like a “secret sauce” hinders the process and is a hindrance to the promotion of DX, and it is expected that more than 90% of the IT budget will be devoted to system maintenance and management costs. The Ministry of Economy, Trade and Industry is calling the succession as a cliff in 2025.

Currently, in many companies, internal systems are isolated from each other, and there are increasing cases where cooperation with other departments is becoming difficult. Many of the issues listed in the pick-up of business issues mentioned above are caused by the isolation of the system.

Therefore, it is necessary to accumulate important data for executing DX and design an in-house system based on the issues so that each system can work together. Many services now provide APIs, making it easier to integrate with other systems.

It is important to redesign internal systems and elevate the employee experience of processes through digital.

Corporate culture/atmosphere

Last but not least is the corporate culture. Corporate culture is often put on the back burner rather than directly in business. However, in implementing DX, continuous DX cannot be realized unless the corporate culture is in line with DX.

As a corporate culture, it is necessary to define and establish the mindset necessary for DX, such as “user first” that does not forget the user’s point of view, “data thinking” that judges objectively, and “acceptance of failure” that is not obsessed with success. . Implementing DX without understanding the culture necessary for DX, such as data thinking and user first, will cause meaningless resistance within the company (some resistance is necessary) and delay in decision making. put away.

In order to foster a corporate culture to implement DX, it is necessary not only for the top management of the company to implement the mindset necessary for DX, but also to clarify the direction the company is aiming for and increase the sense of unity within the company. I have. In addition, it is necessary for people in the field to have the idea of ​​DX and make efforts to propagate it within the company.

How to create a DX strategy: 3 steps

The important thing in implementing the DX strategy is to clarify the current state (As-Is) and the desired state (To-Be), and fill the gap with strategies.

What is important in clarifying Ai-Is and To-Be is to analyze the situation within the company from multiple perspectives, including products and services, business models, operations, and organizations.

The promotion method of the DX strategy is subdivided into three steps (1) to (3) in the figure below.

So how exactly should we set up our DX strategy? I will explain it in three steps.

Step 1: Clarify your vision (To-Be)

The first step is to clarify the ideal company (To-Be). By clarifying the direction in which the company should aim and sharing it within the company, employees in the company can unite and aim in the same direction.

The important thing in defining the To-Be is to clarify the figure and vision in which competitive advantage is established. The definition of DX by the Ministry of Economy, Trade and Industry states that it will transform business models, operations, organizations, etc. by making full use of data and digital technology, and establish a competitive advantage.

Clarify how you can establish a competitive advantage

Even in promoting the DX strategy, it is necessary to clarify the state in which competitive advantage can be established. In addition, it is important to clarify the situation of competitors and forecast the external environment such as technology trends.

Competitor analysis should analyze the strengths of indirect competitors as well as direct competitors in the same sector. For example, global tech companies that currently represent GAFA, such as Google and Amazon, are expanding their businesses beyond the walls of the upcoming industry, such as the content industry and the self-driving industry.

Also, new startup companies are born every day, so let’s predict how the competitive environment, including technology trends, will change. Technological trends and the competitive environment are unpredictable, so it is important to check daily and leave room for flexible changes in your company’s DX strategy.

clarify the vision

In order to materialize the DX strategy, it is important for management to create an overall design and create their own DX vision. In promoting DX, it is important to promote strategies by building cooperative relationships both inside and outside the company, rather than limiting them to internal resources.

Therefore, it is important to clearly define the vision of what to aim for with the DX strategy and to ensure that it is thoroughly known both inside and outside the company. Is possible.

Few companies have strengths in all aspects, including business models, products and services, operations, organizations, processes, and corporate culture. It is important to understand the company’s strengths from these elements and define a vision that creates a competitive advantage.

Step 2: Analyze the current state (As-Is) and look for uniqueness

The second step is to analyze the current state of your company and look for uniqueness. In promoting the DX strategy, it is necessary not only to clarify the To-Be, but also to analyze and print the current state (As-Is).

Analyze your company’s current situation in terms of items such as business model, products and services, operations, organization, processes, and corporate culture. It is especially important to understand your strengths when analyzing your current situation.

Find your company’s strengths (uniqueness)

As I mentioned earlier, no company has strengths in all items, such as business models, products and services, operations, organizations, processes, and corporate culture.

DX refers to establishing a competitive advantage by utilizing digital technology and data, but in other words, it is important to expand your company’s strengths with digital technology and data.

Let’s first aim to eliminate the weaknesses of the company, and make the strengths the strengths of the company as items that demonstrate a particularly competitive advantage.

Step 3: Develop a strategy to bridge the gap between To-Be and As-Is

Once you’ve identified your To-Be and As-Is, Step 3 is about formulating a strategy to fill in the gaps.

The important thing in step 3 is to classify DX into digitization and digitalization.

Break down DX and put it into a strategy

As shown in the diagram below, DX can be divided into digitization and digitalization.

Just as the key to DX is the use of digital technology and data, digitization, which digitizes analog data, is important. On top of that, we can implement DX by accumulating digitalization that brings about transformation by utilizing digital technology.

After clarifying To-Be and As-Is, the axis of the DX strategy is to consider what kind of flow to digitize analog data and what kind of technology to combine it with. .

Three points to make the DX strategy successful

Here are three points that will lead to a successful DX strategy.

Consider the value chain from the user (consumer) perspective

DX refers to establishing a competitive advantage by utilizing digital technology and data, but the important thing here is not to forget the user (consumer) perspective. Even if DX is implemented and operations are streamlined, if the value is not felt from the end user’s point of view, the company cannot continue to be selected by the end user.

For example, it is important to design a DX strategy that focuses on the end user, such as making services more affordable by improving operational efficiency and reducing costs.

A value chain is a framework that can be used for this purpose. A value chain is a series of business activities such as raw material and parts procurement activities, product manufacturing and product processing, shipping and delivery, marketing, sales to customers, and after-sales service. It is a way of thinking to capture as a chain of. (Quote: Bizhint )

By considering how each business (function) within the company creates value for end users, it is possible to transform into a corporate entity that continues to be chosen by users.

embrace a partnership

In promoting the DX strategy, Japan’s self-sufficiency principle is often misunderstood. Self-sufficiency is the idea of ​​developing in-house technology using only in-house resources, but it is not suitable for promoting DX.

Openness is as important as the user’s point of view in promoting DX. In addition to our own resources, sometimes we can partner with external partners to combine our resources and create an opportunity to establish a further competitive advantage.

Also, currently, it is not easy to find human resources who are good at DX strategy in the company to promote DX. Sometimes it’s important to bring in a professional partner.

Especially in Japanese society, collaboration between large companies and start-up companies is flourishing. It is an initiative to establish a competitive advantage by combining customers (data), which are the assets of large companies, and technological capabilities, which are the assets of startups.

It is not limited to the combination of large companies and startups, but by understanding the strengths of the company and flexibly activating external initiatives, it is possible to implement the DX strategy in a more scalable manner.

Design for flexibly changing markets

Today, technology is developing rapidly, and so is the social environment. Even if you execute the DX strategy, if the premise environment changes unexpectedly, the DX strategy will be a free piece of paper.

What is important in implementing the DX strategy is to regularly analyze the external environment and adopt a mechanism that can change the DX strategy itself.

It is important to design so that once every six months or so, you can grasp the external situation and create an opportunity for the management team and the field to come together and review the DX strategy.

Consumer behavior will also change dramatically. The shift in consumer sentiment from “things” to “things” and from “owning” to “sharing” is evident, for example, from the increase in the number of car-sharing registrants. Many consumers have come to find value in the “experience obtained by using a car” rather than “owning a car”.

In order to shift from simply selling “things” to providing “things”, it is necessary to change business models that can quickly respond to the market, and it is also necessary to review the design of information systems.

Again, the importance of designing a DX strategy from the end-user’s point of view is emerging.

Introducing a framework useful for DX strategy

The purpose of formulating a DX strategy is to get one step closer to the company’s ideal form and goals. While implementing the formulated DX strategy, it is important to organize your company’s current situation and envisioned future, and the framework helps you organize it.

There are many frameworks that can be used for DX strategies, but it is important to use them according to the situation. Here, we introduce five frameworks that are useful for DX strategies, and explain how to use each framework.

1. MVV (Mission Vision Value)
2. 3C analysis
3. PEST analysis
4. SWOT analysis
5. DXcriteria simple diagnosis

The first MVV is Mission (meaning that a company or organization should exist), Vision (ideal image of the company or organization, what it wants to be), and Value (guidelines and standards of conduct to achieve its mission and vision). It is a word that takes the initials of. The image is as follows.

The most important role of MVV is to connect companies, employees and society, and to take charge of internal and external communication.

By clarifying the significance of existence and values, you can create a common understanding with everyone involved in your company. Therefore, by setting the MVV, you can optimally formulate the DX strategy to be launched from the mission top-down.

The second 3C stands for Company, Customer, and Competitor. It refers to a framework for researching the company, customers, and competitors and thinking about strategies.

You can discover your own originality by searching for market opportunities that make use of your company’s strengths, based on the analysis of your company’s weaknesses and strengths, changes in customer needs, and the strengths, scale, and industry position of your competitors.

The third, PEST , is an acronym for “Politics,” “Economy,” “Society,” and “Technology.”

By understanding the external environment surrounding your company from these four perspectives, the macro environment that your company cannot handle, you will be able to analyze in detail from a multifaceted perspective and formulate an optimal strategy.

Most of the companies that have been successful in the past have succeeded by understanding the external environment, riding the wave of the times, and adapting themselves to the times.

The fourth SWOT is an acronym for “Strength”, “Weekness”, “Opportunity” and “Threats”.

A framework for analysis from four perspectives: strengths and weaknesses of companies and businesses, and opportunities and threats surrounding companies and businesses. By analyzing from these four perspectives, the company’s points to be improved and points to be improved will be highlighted.

The fifth DXcriteria simple diagnosis is a tool that the Japan CTO Association released free of charge in December 2019 and can analyze your company’s DX deviation value in 10 minutes.

It is not easy to gain a multifaceted and quantitative understanding of how far your company’s DX has progressed compared to other companies. Therefore, by using this framework, you can understand your company’s strengths and weaknesses in DX and lead to improvements.

Introducing books useful for DX strategy

So far, I have explained the DX strategy from various perspectives. After reading this article, I will introduce a book for those who want to deepen their understanding of the DX strategy.

Concept of digital management transformation grasped by DX strategy draft CC-DIV framework

Based on 10 years of experience and achievements such as research and consulting in digital management, he explains the required digital strategy.

This book has the following features.

• Introduce an easy-to-understand framework
• Focuses on how to proceed with proactive self-transformation
• Books that will be valued as textbooks and basic books for a long time to come
• The author is a faculty member (professor) at Columbia University Graduate School, one of the top business schools, and is a global authority in the practical field of digital management.

[Contents]
Chapter 1 Five areas related to digital management transformation: customers, competition, data, innovation, value Chapter 2
Utilizing customer networks
Chapter 3 Building platforms as well as products
Chapter 4 Turning data into assets
Chapter 5 Rapid Experimentation to Innovate
Chapter 6 Adapting the Value Proposition
Chapter 7 Mastering Disruptive Business Models
Conclusion

If you’re interested in DX strategy but don’t know where to start, or if you can’t find a framework that suits your company among the many frameworks out there, please pick it up at a bookstore. .

This book anticipates the rapidly changing digital environment, so it should dramatically upgrade your strategic thinking in line with the times. We hope that you will use this article as a reference.

Understand the current situation with DX evaluation indicators

In order to objectively analyze the degree of promotion of DX, let’s diagnose the degree of DX of companies in six stages on the Wen site of the Ministry of Economy, Trade and Industry.

By using the Ministry of Economy, Trade and Industry’s DX promotion index and entering self-diagnosis results, analysis results such as benchmarks that enable comparison with overall data from the neutral organization IPA (Information-technology Promotion Agency) can be obtained. Presented.

Based on the results of this analysis, it is also possible to create an action plan on how to proceed to the next stage.

Examples of DX strategy

Many companies publish their DX-related strategies externally on their websites. It is also important to partially disclose the DX strategy to the public in order to gather the support of investors and acquire human resources from the outside.

Here, we will introduce the DX-related strategies of major domestic companies.

(Komatsu Ltd.) Komatsu’s strategy

By implementing the following four points, we will realize DX in construction with two axes of sophistication of things (automation and autonomy of construction machinery) and things (optimization of construction operations), and solve problems at client sites. I am aiming.

1. Management understands that Komatsu’s own DX is essential for solving social issues, and solidifies the will to carry it out.
2. Providing solutions not only for construction but also for other processes to improve customer UX
3. A business model that improves the added value of construction machinery through digital-related services such as Landlog Smart Construction
4. Smart construction consultants hired and trained as on-site professionals provide generous support to customers, and appropriately employ first-class engineers in Japan and overseas.

Yamato’s DX strategy

Yamato Holdings will celebrate its 100th anniversary in 2019, and formulated “YAMATO NEXT 100” based on three basic strategies.

The second of these is the “DX” strategy, which “transforms” from management that relies on experience and labor to digital-based management based on data.

In addition to the streamlining and standardization of logistics operations through DX, we will shift to data-driven management that enables forecasting of work volume based on data analysis, appropriate allocation of management resources, and quick decision-making. Management is the concept.

In order to realize the DX strategy, Yamato will carry out three business structural reforms and basic structural reforms.

Fujitsu’s DX strategy

Fujitsu is rushing into digital transformation (DX) support. The company defines DX vision as “For Growth” and conventional IT as “For Stability”, and clarifies that it will work on creating value for customers and society in two business areas. To that end, we have established a DX strategy from the two perspectives of value creation and self-reform.

In addition, Fujitsu established Ridgelinez, a subsidiary, in January 2020 to promote its DX strategy. I was responsible for assigning DX Officers.

summary

In the DX strategy, we have entered an era in which companies are highly likely to be weeded out unless they cooperate with various stakeholders and solve diversified and complicated customer needs.

Companies need to promote DX strategies in order to evolve into a corporate entity that is premised on change, like “no change without evolution”.

We have to think about the DX strategy that maximizes value creation using digital technology and data from the management level to the entire company.