Tuesday, August 22, 2017

The nexus of CPEC and digital transformation

https://tribune.com.pk/story/1487505/nexus-cpec-digital-transformation/

By Zulfiqar Qazilbash

Published: August 22, 2017

A truck drives along the China-Pakistan Friendship Highway before the Karakorum mountain range near Tashkurgan in China's western Xinjiang province. PHOTO: AFP

The CPEC loans to fast track much-needed improvements in power and transportation infrastructure have the potential to massively impact many areas of Pakistan’s economy. Assuming we can manage the security issues, it will create the enabling environment that along with the economic zones and regulatory reforms will attract Chinese and other large investments into the country. Many of them will avail our large and cheap labour force to serve both the international market as well as the large domestic market. This will increase Pakistan’s connectivity with the global economy. It will also create the need and absorb a skilled workforce which will increase per capita income. If all goes well, the increase in domestic economic activities in the formal sector will generate enough revenues to pay for the CPEC loans.

In theory, this is a great strategy for economic development and without China’s Belt and Road initiative, would not have been possible. Within the current informal sector led domestic economy and defence and debt financing eating up major revenues, Pakistan has limited capacity for acquiring financing for this kind of accelerated infrastructure spending, particularly with the security issues over the last few decades.

‘CPEC changing country’s destiny’ 

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However, every business venture that requires external financing has a risk associated with its execution and many other countries have failed to pay back the loans in such previous development attempts due to execution problems. We need to ensure that our best and brightest minds are making the complex decisions required for success. The need of the hour is specialists and technocrats. People who have the international experience and can create solutions to and execute on moving more of the population into the formal economy. People that can reform the executive branch and judiciary so that they acquire the facilitation, connector and customer orientation profile that is the need of today’s business community.

The major issue Pakistan faces today is that it is not the most appealing destination for foreign investment outside of China. Although our government should keep trying, in all reality, strengthening our homegrown investment and value addition capacity and orienting it towards export, if properly executed has the most potential for sustained growth, managed and controlled by its own people.

Unfortunately, many, if not most of our homegrown businesses today are not in a position to compete with the broader international market. With their current businesses models, globalisation is a big threat and many are not prepared for measurement against international competition and global standards of quality, scale and customer care.

Faced with the changing economic realities of CPEC, many of them won’t survive. Those that do will have to adapt to the changing times. This includes developing a sound understanding of the latest trends in enterprise management and how to benefit from them. The world has changed a lot in the last two decades.

The global model corporation or SME today is agile and adaptive and capable of repurposing its business processes instantly. It spends a large amount of its resources on creating proprietary links to its customers to gain unique insights and connectivity which it uses to develop and maintain trusted relationship with them and experiment with new product and services. It excels in R&D and rapid prototyping and it fails often but does so quickly and such experiments do not detract from the bottom line. Innovation comes from many sources in the enterprise not just the top and there are lots of emphasis on skill development and career progression to create a community of employees that continue to add increasing value. The entire enterprise is customer oriented and led by a new breed of leadership who leverage dashboards to drive constant improvement and think about their operations and performance using new concepts like balanced scorecard and others. The drive for constant evolution makes it all the way to the boardroom which pairs investors with serial entrepreneurs, strategic thinkers and behavioral scientists in addition to, or in lieu of, senior accountants and lawyers.

The underpinning of this revolution is digital transformation of the enterprise which allows for managing and profiting from collaboration and connectivity in ways not possible before. Digital transformation is the final stages of the digitisation of society which started with the invention of the internet and PC.

It is important to recognise digital transformation for what it is — not just a technology trend that provides incremental gains but for mankind, this is the third great leap forward. A breakthrough of historic proportion, its impact will be similar to the mechanical age which eclipsed the agricultural age and unlocked a huge quantum of potential in economics and in society.

CPEC will allow Pakistan to become global leader

Digital transformation is similarly impacting all dimensions of society as it permeates. It will make government more accountable, allow for citizen participation and oversight never before possible in the previous mechanical age. It will transform our economy by unlocking and trading value that was previously not accessible or imagined and facilitating transactions to occur anywhere and anytime. Companies will have to adapt or be eclipsed by startups that understand its potential and disrupt the market with innovation, customer orientation and better data driven decision making. Workers will need to acquire new skills, sometimes in multiple disciplines or face unemployment. Universities and training houses will have to evolve and offer more flexible ways of on demand teaching and training. At the end of the new value chain, consumers’ lives will be transformed by new value addition and experience not possible before.

The transition is globally under way. According to IDC, 66% of Global 2000 CEOs have digital transformation on their strategic agenda today and 90% of them think that their business will need to go through digital transformation in the next two years. For Pakistani CEOs and board members that are not in process of digital transformation of their enterprise, this should be a wakeup call. All your future competitors are adding in ability that you cannot hope to match in a sustainable way using current operational models. Unless you evolve with them, you take the risk of becoming a dinosaur.

From the enterprise perspective, digital transformation is a maturing process that is implemented over phases. It cannot happen overnight. There is organisational learning involved and change management is required so that current business is not negatively impacted. Frequently the process is managed through a Centre of Excellence (COE) setup with help from qualified consultants to drive the change agenda.

Generally speaking, digital transformation of the enterprise occurs through evolution in the following areas:

• Social — a globally competitive enterprise cannot afford to neglect formation and actively driving of social communities of customers and partners that subscribe, sustain and enhance its value proposition and brand. Social is an essential tool for acquiring customer insights, prototyping new product/service ideas and using quality customer care to decrease customer acquisition costs and increase lifetime value of customers.

• Mobility — provides new ways to connect with customers. Allow them to make transactions and deliver service whenever they want it and wherever they want it. Sometimes even providing remote maintenance and management of their inventory. The increased transactions resulting from this flexibility cannot be competed against with older less mobile business models. It also enables new ways of talent engagement that increases productivity as well as motivation.

• Analytics — basing decisions on real-time data improves quality of decision-making which directly impacts both top line and bottom line. It allows for introducing innovation and agility and rapid prototyping of new products services and set demand based pricing to maximize revenue and profits.

• Cloud — leveraging the cloud reduces capital expenditures that made managing change difficult and expensive in the old-style enterprise. It allows for creating a new type of enterprise which provides the intellectual capital and customer relationships and seamless and just in time integration of supply chain and marketing channels and outsourcing of most other functions. This makes the enterprise able to better adapt and take advantage of changing market conditions and take risks associated with managing innovation. It also allows for just in time training to employees that keep them relevant as the Corporation or SME evolves.

Incorporating and maturing these capabilities transforms the enterprise to deliver innovation-driven, adaptable, organic, growth with value addition from all levels.

Published in The Express Tribune, August 22nd, 2017

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