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Factors and examples of DX failure – Explain 3 points for success!

In this way, there are probably many people who do not know in detail about the essence of DX and how to proceed concretely.

However, in the “DX report” announced by the Ministry of Economy, Trade and Industry,

“ If legacy systems (old systems that require large running costs) are not renewed and converted to DX by 2025, Japan will have a large amount of technical debt and will be left behind in global competition.”

is concerned.

For the above reasons, there is an increasing need for companies to correctly understand the purpose of DX and change direction to “offensive system renovation and IT investment”.

In this article, we will explain in an easy-to-understand manner, from the purpose of DX, which is different from conventional IT, to examples of DX successes and failures that you should refer to in the future!

[This article is recommended for such people]

  • I want to understand the purpose of DX and its importance in an easy-to-understand manner
  • I want to know the points to succeed after understanding the failure patterns that tend to occur in promoting DX
  • I want to refer to DX success/failure examples

Table of Contents

  • The purpose of DX, which is different from conventional IT
  • Why DX Is Growing in Importance
  • DX failure rate
  • 5 failure patterns that are common in promoting DX
    • ① Wrong organizational change
    • ② Not a sustainable effort
    • ③ Efficiency-focused projects
    • ④Understanding of management
    • ⑤Understanding of business
  • DX failure case
    • (1) Isetan Mitsukoshi: Failed to open a store on FANCY, a social commerce service originating in the United States
    • (2) Ford: Failed to establish a subsidiary in Silicon Valley to lead a large-scale business transformation plan
    • (3) P&G: Failure due to ambiguous goal setting
    • ④ Seven & i – failure due to lax security and lack of strategy
  • How to proceed to realize DX
  • 3 important points for promoting DX
    • (1) Strategic objective formulation
    • ② Analyze and evaluate the current legacy system to understand the overall picture
    • (3) Realize system innovation while controlling costs and risks
  • DX success story
    • (1) Zebra: Reduced stationery sample production time by introducing 3D printers
    • (2) Japan Post: Delivery of parcels using drones
    • (3) Daimaru Co., Ltd.: Building a data analysis platform
  • summary

The purpose of DX, which is different from conventional IT

DX (Digital Transformation) refers to the concept that the penetration of IT will change people’s lives for the better in every aspect.

On the other hand, the purpose of IT is to “realize work efficiency and value improvement by digital replacement of established industries”.

In contrast to conventional IT, DX requires business model transformation and digital technology utilization that is not bound by conventional policies in order to make society and life more convenient. The figure above is an image diagram showing the difference between conventional information and DX conversion.

Why DX Is Growing in Importance

In recent years, digitization has progressed rapidly, and there are many opportunities to hear the word DX in our daily lives. Below is a chart showing the transition of DX and the number of searches.

In addition, the importance of DX is mentioned in the “DX Report” announced by the Ministry of Economy, Trade and Industry in 2018.

An overview of the report is as follows.

  • Many managers understand the necessity of DX
  • However, since the existing system is built for each business division, company-wide data utilization is not possible.
  • DX promotion is difficult because the problem solving of the existing system takes precedence
  • If the issues cannot be overcome, there is a possibility of an economic loss of up to 12 trillion yen per year from 2025 (approximately three times the current level).
  • Concern about falling behind in international digital competition

In order to prevent the emergence of various problems related to DX in the future, it is essential to create new business models by radically transforming existing legacy systems, reviewing operations themselves, and realizing DX.

DX failure rate

How often does DX fail? Many people think that DX has increased due to the increase in remote work due to Corona. However, this is not the case.The success rate of DX is 3.1% in the Ministry of Economy, Trade and Industry’s “DX Report 2 (interim report)” announced on December 28, 2020, and ABeam Consulting’s “Japanese companies’ success rate” announced on December 14, 2020. DX Initiative Survey” reported that it was only 6.7%, which was only in the single digits in any survey.

From this, we can see that few Japanese companies have succeeded in DX, and most of them have failed.

5 failure patterns that are common in promoting DX

From here, I will introduce three common failure patterns when proceeding with DX.

  1. Wrong organizational change
  2. not a sustainable effort
  3. Efficiency driven project
  4. Management understanding
  5. business understanding

I will explain each.

① Wrong organizational change

DX promotion does not go well just by gathering people who are familiar with information technology. It is important to utilize human resources who have the ability to think about business models and management strategies from a company-wide perspective, advance projects, and have good judgment when outsourcing.

② Not a sustainable effort

The digital society is highly fluid, and the required initiatives are constantly changing. In order to improve the quality of people’s lives and make them more convenient, we must continue to create organizations and technologies that can continue to provide value.

③ Efficiency-focused projects

In the promotion of DX, in order to make society and life more convenient, it is necessary to transform business models and utilize digital technology that is not bound by conventional policies.

Therefore, instead of seeking temporary effects and efficiency, it is important to devise a strategy for improving customer satisfaction and loyalty that will greatly change the current situation → shift to thinking using DX for realization.

④Understanding of management

By converting to DX, the management system and business model will also change. Therefore, it is very important that the management layer understands DX.

Without the understanding of management, there is a possibility that the allocation of budgets required for DX conversion, securing human resources, building systems, and cooperation between departments will be delayed.

⑤Understanding of business

In addition, the original purpose of DX cannot be achieved simply by deepening the understanding of DX by management. It is important to deepen your understanding of the specific goals and implementation details of the project and work on DX company-wide.

DX failure case

Here are four examples of DX failures.

  1. Isetan Mitsukoshi: Failed to open a store on the American social commerce service “FANCY”
  2.  Ford: Failure to establish Silicon Valley subsidiary to lead large-scale business transformation plan
  3. Procter & Gamble: Failed with Vague Goal Setting
  4. Seven & i – failed due to lax security and lack of strategy

I will explain each.

(1) Isetan Mitsukoshi: Failed to open a store on FANCY, a social commerce service originating in the United States

  • Open a store in FANCY to achieve goals such as “I want overseas people to know more”, “I want to digitize contact points with customers”, and “I want to connect with customers digitally” by utilizing IT and the Web.
  • →Response was slower than expected, not worth the cost at all. Trying to solve the problem in front of you without a big direction, resulting in a temporary effort
  • = Strategic goal formulation is important for DX promotion

(2) Ford: Failed to establish a subsidiary in Silicon Valley to lead a large-scale business transformation plan

  • Established a subsidiary with the goal of developing digital automobiles using advanced mobility technology
  • → Operate the digital business completely separate from the company’s other automotive manufacturing divisions. Due to quality issues with services developed with little communication with other business divisions, the subsidiary lost approximately 300 million yen in 2017. Posted a dollar loss
  • =The entire organization should work together to promote DX while maintaining sufficient communication

(3) P&G: Failure due to ambiguous goal setting

  • A vague goal of improving consumer products and services through active use of technology in all business units
  • → The effect of investment in IT has not increased, and competitiveness has declined in some areas. CEO resigned in 2013
  • =It is necessary to set specific goals in order to formulate a strategy that fully considers external factors.

④ Seven & i – failure due to lax security and lack of strategy

  • Launched smartphone payment service [Sevenpay] with the aim of “collecting a wide range of big data such as customer and purchase information through smartphones”
  • → Unauthorized access was discovered immediately after the start. Inflict huge damage totaling 38 million yen
  • = Security management such as “2-step verification” is important

How to proceed to realize DX

First, changes in business processes due to the use of IT are required. It measures the improvement of work efficiency and quality by digitizing work that was previously done on paper using IT.

By using various business systems to manage and digitize data that was previously managed with paper slips and documents, it will be possible to reduce management costs such as securing paper storage locations and improve the work efficiency of employees. It will be possible.

In addition, by digitizing communication tools such as online conferencing tools, it will be possible to have video conferences with remote locations, eliminating the need to come to the office for meetings, thereby realizing the diversification of work styles.

In this way, it is important in DX to set goals and improve work styles by digitizing various operations to achieve them.

3 important points for promoting DX

The following three points are important for promoting DX.

  1. Strategic purpose setting
  2. Analyzing and evaluating the current legacy system to understand the overall picture
  3. Realizing system innovation while controlling costs and risks

I will explain each.

(1) Strategic objective formulation

Strategic goal formulation is essential for DX promotion. We have to think backwards about how digital technology can solve current problems and meet people’s needs, such as “what kind of inconvenience is there and how can we expect improvement and effect?” Hmm.

② Analyze and evaluate the current legacy system to understand the overall picture

It is important to “visualize” information assets and clarify evaluation indicators in order to improve the environment, including system renewal. If management can understand the existing system and recognize the problem as a management issue, it will be an opportunity to take the next action at the same time as realizing the importance of reforming the current situation.

(3) Realize system innovation while controlling costs and risks

Promoting DX will cost a huge amount of tens of billions of yen depending on the medium- to long-term period and system. For this reason, it is necessary to eliminate unnecessary functions in advance to reduce the scale and complexity.

DX success story

Here are three successful cases of DX.

  1. Zebra: Introducing 3D printers to shorten stationery sample production time
  2. Japan Post: Delivery of parcels using drones
  3. Daimaru Co., Ltd.: Building a data analysis platform

I will explain each.

(1) Zebra: Reduced stationery sample production time by introducing 3D printers

  • In the past, a large amount of money was invested in making samples when developing new products.
  • If it fails, the cost will increase further, so it takes time to check before consignment
  • → Introduced 3D printer, making it possible to produce in-house. Resolving delivery and cost issues

(2) Japan Post: Delivery of parcels using drones

  • The problem is the lack of manpower. Especially in rural areas, the road to the destination was steep and labor intensive.
  • → With the introduction of drones, the usual 20-minute delivery is completed in 10 minutes. Plans to further expand drone delivery areas

(3) Daimaru Co., Ltd.: Building a data analysis platform

  • Previously, the company had been using a tool that had been introduced more than ten years ago, so it was only possible to prepare user licenses for 50 out of about 760 employees, and there was also a security problem.
  • →Introduced BI products such as Dr.Sum, Datalizer for Web, and MotionBoard from WingArc
  • → Improve user operability and create a system that helps create plans and strategies that lead to business expansion

summary

This time, I explained the purpose of DX, points, and examples of DX successes and failures that you should refer to in the future!

In order to successfully promote DX, it is necessary to meticulously formulate objectives rather than prioritizing efficiency alone, and fundamentally change the existing business model.

Understand the problems of your company’s system and business model and advance DX strategically!

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