Ravil Akhtyamov: ‘The ‘digital tsunami’ will sweep not the business’
A digital economist on crucial principles of Tatarstan’s development in his review on From Rhino To Unicorn book by Orlovsky and Korovkin
It is necessary to create a Smart City lab in Tatarstan together with interested agencies of power, Kazan’s Executive Committee, scientific establishments and technological providers, thinks Realnoe Vremya’s columnist, digital economist Ravil Akhtyamov. He recently studied Viktor Orlovsky and Vladimir Korovkin’s book From Rhino to Unicorn. How to Drive Your Business through Transformation in Digital Era and Avoid Deadly Traps. The expert does a review of the issue and explains examples of “deadly traps” by using the book’s authors’ methodology in Tatarstan’s well-known cases in a new column for our online newspaper.
My acquaintance with the book of Viktor Orlovsky and Vladimir Korovkin’s book From Rhino to Unicorn. How to Drive Your Business through Transformation in Digital Era and Avoid Deadly Traps followed this book’s recipes. When I made a post on Instagram explaining key areas of digital transformation and got a like from Viktor Orlovsky, I learnt about this amazing in all senses. Viktor Orlovsky is a manager of Innovations and Digital Technologies at Skolkovo Moscow School of Management Management. Using the methodology of the book’s authors, I will try to explain examples of “deadly traps” in Tatarstan’s well-known cases.
Let’s sort concepts out
So what is digital transformation? Roland Berger provides the following definition: it is a situation in which enterprise comes across connected systems in every chain of the link of price fixing. Digitalisation is often understood in a simplified way, only automation of business processes is often meant. Leaders of rhino companies, representatives of traditional sectors are prone to use such an approach. Meanwhile, digital transformation completely changes the business of an organisation by creating new business processes and turning them into unicorns.
There are key areas of digital transformation: Big Data management, which is automation, creation of autonomous self-organising systems, compatibility of information systems. Existing services, including public systems, are often created with the help of different programmes that aren’t connected with each other, while data of one service is often needed in other services. After all, interlinks are created between all these programmes, the more the programmes, the more expensive the development. A united digital platform would allow uniting the services in one space to cut costs on their integration and accelerate the launch. Ultimately, the service of mobile access is the final but not the last area of digital transformation in terms of importance. 50 million users will be connected to the 5G networks by 2030 — this target is planned in the plan (road map) of the fifth-generation mobile network development created by Rostec and Rostelecom in agreement with the government. The mass creation of such networks will probably be too costly. Producers of network equipment and smartphones shouldn’t have problems, the 4G network developed at a similar pace.
Whom “digital tsunami” threatens
At the moment the state manages to quite successfully resolve issues of the creation of information public services — on the basis of a united portal of public services. Moreover, 15 Russian regions have regional portals of state services. However, things are so glittering when it comes to providing quality services of the mobile network, particularly Realnoe Vremya writes about it.
The notorious “digital tsunami” is created precisely here when the capabilities of consumers and producers of smartphones and network equipment contradict with the capabilities of the infrastructure of the internet and mobile network. The success of digital transformation across the country or in the republic depends on the way the state will solve this problem.
In this case, it is obvious that the business and consumers are prepared for digital transformation better than the country and an infrastructural organisation. If this isn’t done, the “digital tsunami” will sweep not the business. This wave will likely bring the business to city centres and regions with a good signal of the mobile network and internet, with the development infrastructure of Smart City. It is the crucial factor of the country or republic’s competitiveness.
Self-isolation is payment for underdevelopment of Smart City’s IT infrastructure
The authors of the book Viktor Orlovsky and Vladimir Korovkin note that digital transformation is, first of all, about a strategy. Applied methods of digital transformation depend on what development strategy of a company or republic was chosen. The COVID-19 pandemic has raised an issue of updating strategies of the business and the country. There is a tendency for saving, cutting expenses.
Let’s ask a question: if the only goal of the strategy is to save, is digital transformation necessary? Because digital transformation envisages investments in the creation of digital assets. Of course, there won’t be any economic effect without these investments. As it was previously noted in a column in Realnoe Vremya, the situation exposed serious imperfections in the development of the IT infrastructure. I think that self-isolation is payment for the underdevelopment of Smart City’s IT infrastructure and the diagnostics system in health care. It is a too high price for society and businesses. Instead of random inspection and mass diagnostics, a total control that’s fraught with the economy’s collapse was introduced.
For this purpose, the work on digital transformation should be organised on new principles. At the same time, it is important to avoid traps of digital transformation the book’s authors warn about. The words “digital era”, “digital revolution”, “digital transformation” reached everybody’s ear who has something to do with the business quite a long time ago.
It is unlikely somebody around the world has to be persuaded into the importance and scale of the ongoing changes. The authors of the book are convinced about the necessity of avoiding dreadful traps on the way to digital transformation.
Trap 1. “We will take the tried and tested road”
A traditional organisation tries to address challenges of the digital era with technologies first, then products, but correct answers are found in the whole organisation’s transformation. It will be also fair to indicate that digital technologies nowadays are surrounded by huge media coverage, which is exploited by armies of vendors who mainly pursue their financial goals than clients performing their business tasks, Orlovsky and Korovkin note.
The thought is mistaken for one reason: it puts the issues of technology above a business’s transformation, which leads to a deadlock. Realnoe Vremya’s careful readers will note that nowadays, for instance, quite a big number of information systems are introduced in Tatarstan. A considerable amount of pilot projects is implemented. Everybody has heard about a pilot project on the issue of the electronic identity card in Zelenodolsk or Smart City project. Such projects remain pilot projects without being implemented across the republic. “We will follow the tried and tested road” is a great example of the trap because nothing was said about the transformation of the public administration system. In this case, of course, the republican management’s will is necessary to introduce such advanced technologies everywhere and avoid this trap.
Trap 2. “Don’t put all your eggs in one basket”
In most cases, such an approach leads to the same slowdown as in the trap of “tested road” for rhinos that diversify risks of digital technologies. The reasons are the indeterminacy at the top of a company and the absence of the vision and understanding of how global forces of digital transformation work in reality. This is well illustrated by a part of McKinsey’s research on the importance of digital technologies for some of the world’s biggest corporations.
The most popular answer looks the following way: “This is in our top 10 priorities”. Unfortunately, being in the top 10 (or even top 3) means that the thing isn’t a priority at all. Saying to your employees that something will be among the top N priorities, in fact, means sending a signal that something insignificant is happening, Orlovsky and Korovkin mock.
Like in the case of the “tested road”, it is important to distinguish between specific digital projects and integrated digital transformations. Will there be sense in introducing quite expensive digital state services if the key task of introducing a digital ID (a citizen’s electronic passport) hasn’t been performed? No, of course. Both the republic and the country in general have things to work on.
Trap 3. “Synergy
To avoid the main business’s self-destruction looks for you a reasonable strategy (check it out a hundred times), aim to develop the digital business in a very remote segment of the market accepting they it won’t create synergy with the nucleus of your operations. Why should you succeed in a completely new sphere? Surprisingly, the correct answer often is: “Why not?”, the authors of the book note.
In this respect, the republic should introduce completely new information systems that don’t necessarily have to be in synergy with existing ones.
A smart city and consumers’ expectations are high-quality beautiful buildings with low operating costs, which can stimulate investments in the sector. Such changes are necessary to attract federal subsidies to implement road maps with the support of cross-cutting digital technologies (CDT) whose operators are the Russian Fund for Development of Information Technologies, Skolkovo Foundation and some other organisations. Fixing the mentioned measures in regional regulatory acts is a covenant of such support. Nowadays grants/subsidies to support digital transformation of companies in the urban economy can reach 80% of the budget of indicated projects from 20 to 300 million rubles. Moreover, additional costs of a municipal budget aren’t required.
The economic effect of implementing IT solutions in this sphere can total 3% of the book value of commercial real estate properties. For instance, the declared book value of the complex of buildings of the Kazan Kremlin is 5 billion rubles, while that of KazanMall is 6 billion rubles; 3% is saved on operating costs as a result of the introduction of 5D and 6D BIM, the general engineering data management environment can amount to 150-180 million rubles respectively in the next years of use.
Trap 4: “I am not worse than Steve Jobs”
It is always easy to criticise, especially with hindsight, but there are too many similar stories around the world. The new generation of managers completely understands that digital transition is the main strategic area and make bets in those areas they consider to have a decisive meaning. However, the bets too often turn out wrong.
The trap is hidden in an attempt to create a product for the digital era without transforming the whole organisation. The danger isn’t to create a wrong product or miss a technical mistake. Keep in mind that a rhino can be wrong in 90% of the cases and anyway win, Orlovsky and Korovkin write. But the way rhinos work with the executives’ mistakes makes “Steve Jobs’s trap” one of the most catastrophic.
The deep foundation of the trap is a fight for power inside a corporation. Rhinos live in a strict hierarchy, and people work mainly for career promotion. It is necessary to make a transformation before betting on a super project, not through the bet. The organisation must be able to take very risky actions, not being destroyed in case of a mistake (swept by the “digital tsunami”). This requires the whole organisation to have culture rewarding assuming a risk and admitting one’s wrongness and giving talented managers not only a second chance but also both a third and fourth one.
Trap 5. “We will invite consultants, and they will transform us”
It is seen in the way the best consultants address the problem of digital transformation and rise of rhinos in the business world. They put every effort to explain this in terms and frames they have been using for decades. The phrases that are used make one have a comfortable thought that, in fact, nothing new is happening: it is just necessary to find “a strategic focus”, “save the balance of short-term and long-term goals”, “mobilise internal support”, “plan changes” and so on. A business as usual is nothing more nor less, we can do this for you — this is what numerous reviews and reports offer clients, Orlovsky and Korovkin laugh at consultants.
Let’s develop a concept of digital transformation of the republic (by the way, where is it?)! Does this approach sound familiar? Now, let’s throw away all these road maps of a smooth transition to something that makes us all happy and start working to provide truly unpleasant scripts and find our response to them. A handful will take such a step if they take on this in general. Conviction, motivation, even persuasion of people to give up what they do perfectly and step into the unknown allowing a big number of mistakes and misfortunes is the recipe of the book’s authors.
Trap 6: “Let’s buy transformation”
Then there comes the Final Solution to all problems of the transformation — Purchase. Many successful corporations are behaving today as if they are spoilt children. They consider that buying everything they want is a way to reach happiness, Orlovsky and Korovkin say.
The alliance of Sberbank and the city administration of Moscow is a textbook example. In November 2019, Sberbank and Electronic Moscow JSC registered a joint company Digital Platform Solutions PLC, 50,1% of which are held by the bank’s subsidiary (Digital Assets PLC), while the rest belongs to Moscow’s structure. This project was created to shift urban services such as payment for parking, utility bills, an appointment for a doctor, a schoolchildren’s report to Sberbank’s IT platform. According to TAdviser, the activity of the joint venture of Moscow’s government and Sberbank — Digital Platform Solutions (DPS) — was put on hold with the coming of the coronacrisis. One of the interlocutors of TAdviser says, each of the founders of the joint venture had his own plans for it. Sberbank hopes to get reference thanks to the cooperation with the Department of Information Technologies — an experience of using its digital platform in the capital as well as expertise in public administration to be able to use the platform in other Russian regions. The DIT, in turn, intended to use Sberbank’s advanced platform and cut costs on the use of uncoordinated systems.
TAdviser’s source thinks that both sides turned out to be unsatisfied with the cooperation. It says that the soon dismissal of the company’s top managers happened for this reason. So the alliance of rhinos and unicorns not always leads to success... It is quite risky for a traditional corporation to leave its digital strategy in the dependence on the possibility of buying the rhino, but this is a surprisingly widespread assumption. Most importantly, the buyer (in this case, the state) should be ready to change itself according to a business’s patterns it will purchase, not the other way round.
Trap 7. “Success”
It is hard to achieve success. It is endlessly harder to keep it. Any professional athlete will confirm this. When you are at the summit, everybody sees you. Your strong sides are examined and copied, while your weaknesses are examined and attacked, the authors of the book note.
Tatarstan has a long history of successful IT projects. Innopolis is the most famous one. However, Innopolis’s advantages can be offset by a tax manoeuvre for the IT sector, as a result of which IT companies obtain significant tax benefits regardless of their location.
It will unlikely be possible to avoid this trap. You can only experience it. If the transformation is successful, both you and your clients will learn this. And this is will be enough to withstand the period of disappointments and doubts, Orlovsky and Korovkin advise.
What to do?
It is important to create an environment to cultivate internal rhinos in the organisation, the book’s authors advise. We think that at regional level Smart City’s laboratory together with interested agencies of power, Kazan’s city administration, scientific establishments and technological providers can be created as a working body to develop the indicated changes.