“At the moment full digital transformation is unattainable for 95% of Russian companies”
The co-founder of a platform to attract subject specialists Expert Me on digital transformation of businesses and the Industry 4.0
Is the automation of processes in the enterprise really a matter of survival in the market? At what level is the digitalisation of Russian businesses compared to other countries? How do the fear of innovations and the economic legacy of our country scotch the process of digital transformation in enterprises? Will human value grow amid the widespread automation? Co-founder of a platform to attract subject specialists Expert Me Denis Ponomaryov answered these and many other questions of Realnoe Vremya.
“Digitalised is now hyped up”
Denis, is it true that digital transformation is one of the conditions for the survival of large businesses?
It seems to me that digital transformation is important for any business now. It is a natural process of economic development like evolution for nature. It is as strange to ask about the feasibility of digitalisation as compare what is more effective: a cart with a buffalo or Tesla lorry. Transformation is a must-have, but it must be done wisely.
There is an opinion that large corporations are too clumsy when introducing new technologies. How applicable is this statement to Russian companies?
They are too clumsy because of their volumes. What is called patchwork automation in the IT language is what large businesses do is when the transformation isn’t one project, while a business gradually automates one project and then another. For instance, production management, planning, accounting, etc.
This has certain advantages, but such an approach causes problems and just drags “real” digitalisation because these systems are often badly integrated, each has its own interface. The results of work obtained in one system aren’t transmitted to the other automatically. It is necessary to upload them manually and then introduce again. This means a fall in information processing speed, the risk of data loss, after which many business processes suffer.
At the moment digital transformation is unattainable for 95% of Russian companies. For this, big resources and readiness of the staff (often quite numerous) are needed. I will put an example — several years ago we dealt with the automation of one of the processes of Russian Railways, which had been provided with manual labour. As a result, we faced a huge wave of negativism from the staff because the “simplified” methods seemed to be inconvenient.
At the moment digital transformation is unattainable for 95% of Russian companies. For this big resources and readiness of the staff (often quite numerous) are needed
What business areas do especially fall behind in digitalisation? Who should hurry up as soon as possible?
Digitalised is now hyped up. Business newspapers write about it, the government talks about it, the theme is raised in different sectoral events. As a consequence, many try to deal with the automation of processes “instinctively” — just to do something. In my opinion, first of all, it is necessary to create a digitalisation strategy, then its road map and then start to consecutively make it real in full.
“The digitalisation level in small and medium-sized businesses is very modest”
Does digital transformation require big costs? Doesn’t it make more profit instead of the money spent? How is digitalisation reflected on business indicators?
If digitalisation doesn’t have a strategy, if it has patches, it doesn’t make any profit in 99% of cases. There is probably some benefit but in the long term (tens of years). This is why it is hard to feel. To make a profit fast, it is necessary to audit business processes first and launch transformation where it is more feasible. For instance, a subdivision of a company with 5,000 people does simple work, but these functions can be automated and only 50 people can remain.
In one of the cases, we developed a solution in digital transformation for a big telecom company. The audit was carried out firstly, a strategy appeared. Then according to the road map, all patchwork solutions had one transparent interface or substituted for other custom solutions. If the client used 20 different solutions with 30 key business processes, a single IT platform appeared after digitalisation, which united not only production and technological processes but also all supporting functions. According to the company, the execution efficiency increased by 10-28% after transformation (for different processes), while it became possible to optimise staff by 5-27% (depending on the subdivision). We consider this case typical for telecommunications.
What are the most common barriers to digital transformation?
The most obvious barrier is the economic legacy that can be described as lots of systems. Fear and repulsion of innovations by businesses are the second barrier.
Businesses across the country deal with the wear and tear of material assets. According to the Centre for Business Tendencies Studies at HSE, most profit is spent on its upgrade. Thoughtless digitalisation I talked about earlier is a long-term project, while only 6% of companies consider long-term investments.
Contactless payments in general spread in Russia more than in Western countries. They tripled last year
I would like to compare the level of business digitalisation in Russia and around the world. What’s the distribution of power? Who is the leader and who falls behind?
Russia is classically in the middle between technologically developed and technologically backward countries. China, Japan, the USA, which we are 8-10 years late from in most sectors, are in one pole, Africa, which we go ahead of, is on the other.
In numbers, the gap looks the following way: in Russia, the share of the digital economy in GDP in 2018 was 5%, while in China it was 34%. Russia’s digital economy in 2018 officially grew 2,5 times. Forecasts say that it will continue to grow. For instance, McKinsey predicts the country’s GDP will grow by 4,1-8,9 trillion rubles by 2025 by means of a rise in the digital economy, which will already be 10% of GDP. It is too little anyway. By this time, two-thirds of the economy in China will already be digital.
There are sometimes local technological breakthroughs. For instance, one can pay by Apple Pay in a small village in the outskirts of Moscow Oblast. Contactless payments in general spread in Russia more than in Western countries. They tripled last year. It even influenced the circulation of cash in the country — people began to withdraw cash in cash machines for the first time.
The gap isn’t so obvious in big Russian cities and big corporations, but the digitalisation level in small businesses is very modest. Automation for small and medium-sized businesses is undesirable costs, in their opinion. Research showed that the Russian Business Digitalisation Index in the country in general totals 45% (100% is full automation). And this indicator seems to me very optimistic.
“We have a minimal number of our digital developments”
Do you agree that the Russian economy doesn’t at the moment use the existing potential of Industry 4.0 even though it is a great chance of changing its role in the global competition?
Yes, it doesn’t use it fully because it is hard to be the one who catches up. Both the fear of investments and the absence of a strategic vision of how to introduce digitalisation are the reasons.
We could be talking about the competitive chances of Russia, but how many Russian products are worldwide known? We have a minimal number of our digital developments except for some successful solutions.
To make a breakthrough in the development of innovative solutions, the country must have a big number of mobile specialists who would create teams and start-ups
There is interesting research of HSE and Stanford where Russian IT staff isn’t competitive compared to the US students. Also, half of them can’t find a job by trade — precisely because the training level after university doesn’t satisfy employers.
Russia lacks developers. By the most optimistic estimates, for instance, made by the Agency of Strategic Initiatives, the personnel shortage was evaluated at 400,000 people in 2018. And it is only unfilled vacancies in enterprises. To make a breakthrough in the development of innovative solutions, the country must have a big number of mobile specialists who would create teams and start-ups.
Could you talk about the key barriers impeding Russia’s transition to Industry 4.0? Are the low level of digitalisation and insufficient costs of enterprises in innovations the problem?
To approach Industry 4.0, one just has to understand what it is. In Russia, it is at the moment considered as competition between neighbours.
Again, the costs of digitalisation are mainly thoughtless. This is why transformation budgets grow. We shouldn’t forget the geographic peculiarities of the country — it is hard to create infrastructure to provide digitalisation in some regions.
“Robots will take up all routine work, but strategy and creativity will be left to the human”
What risk does humankind run when underestimating possible negative social consequences of the new turn of technological progress? Can digital transformation reduce human values?
Man must transform and grow anyway. Those who are subject to inertia the most suffer from the lack of development. Those who stay in one place for 20 years and perform the same routine functions need this first of all. Digital transformation “kill”s specialities or professions, but it immediately generates new ones in its development. Thanks to this evolution, 1,5 million new jobs and tens of new professions appeared in the world: SEO, SMM manager, data scientist, 3D Designer, online marketer, automotive electronic engineer, roboticist — and we even haven’t reached programming yet (AR/VR, AI/ML, interface, web, app, etc.).
Robots will take up all routine work, but strategy and creativity will be left to the human
The human value will only grow. Robots will take up all routine work, but strategy and creativity will be left to the human. Yes, there is no need to deal with, for instance, upload — automated warehouses cope with it very well. Probably there will be less operating staff (drivers, cashiers). There will be no need for monotonous actions like metering — IoT systems can do this all. On the contrary, human labour will become more valuable. Artificial intelligence still fails to, for instance, predict the outcome of a football match better than a person because football is a too human sphere. And retailers see that the consumer’s mood index falls after self-checkouts and goes up after a chat with the cashier. This is why no matter how convincing Amazon was with its self-service shops, shopping will always be an emotional sphere where human is irreplaceable. There were a lot of AI start-ups in 2016-2017, which wanted to automate some very human sphere from politics to gift selection, but they failed.
Are Russian companies ready for major changes in employment?
Unlikely, it is hard for people to accept changes. Russian companies should be ready to invest in employees’ development, it is senseless to refuse it. Digital transformation can be a completely painless period: people switched from push-button phones to modern.
Today realtors are already switching to professional IT systems too. A specialist has just one app where he sees everything — market prices in dynamics, the number of views of sale advertisements. He can automate the promotion of facilities by pushing one button depending on demand. Expenses on advertising are completely transparent and explained, the client sees real prices and so on. Or there is another example when field workers (equipment engineers, technical service) who start to use help desk systems and accompaniment of requests. All this refers to digital transformation. These tools are convenient, a person of any age will handle them for sure.
Will now everybody has to obtain IT skills to remain competitive in the labour market? What should be done with the older generation?
The older generation isn’t a special group that finds it hard to obtain digital skills. Everything depends on motivation, desire to be competitive, well-informed.
IT skills are part of the new reality of the labour market. A quarter out of a billion vacancies in 250 professions considers hybrid skills today, which comprise of soft skills and hard skills. The first skills are general managerial and communicative, the second are inspection and digital skills (for instance, an ability to work with big data, digital analytics, design and programming).