Digital Transformation: Path to the Future
On a day-to-day level, it is impossible not to notice the increasing presence of technology in every aspect of life. Companies are going through a similar digital transformation, with the integration of digital technology across all areas in order to create greater value for themselves and their customers, as well as facilitating further innovation and technological development.
In this interview, Tianshu Sun, Visiting Professor of Information Systems at CKGSB, discusses the importance of technology, data and regulation in digital transformation, the differences between consumer and enterprise technologies and the different barriers to success that a company may face depending on which market they operate in.
Q. What would you say are the main drivers of the global digital transformation?
A. I think there are three key drivers underlying the global digital transformation: technology, data and regulation, and I think you can rank them in importance in that order. On the technology side, there are two different types: consumer technology and the enterprise technology. Consumer technology mostly takes the form of the mobile internet and the massive digital platform it enables, while for enterprise technology, the most significant disruption from previous technological generations is cloud computing.
The second driver is data. Thanks to the aforementioned technologies, we now live in a world where a digital platform model has become part of our day-to-day lives, both on a personal level and in business. As a result, there is now a massive volume of different types of data generated every second. The data is stored, processed and returned to our lives in various ways.
As for regulation, this comes as both a driver for change in the form of supportive policies and subsidies, as well as affecting the digital transformation by introducing extra challenges for businesses. Data privacy, algorithm fairness and cross-border data flow regulation are all good examples of the latter.
Q. How have consumer and enterprise technologies developed over the last decade or so and to what extent does this differ between China and other global markets?
A. For consumer technology, the network effect is the dominating force behind a lot of the disruption enabled by the mobile internet-based digital platforms, while scale is the driver behind the development of enterprise technology.
On the consumer side, the biggest revolution in the past 10 to 15 years has been how the emergence of the smartphone and its surrounding ecosystems have fundamentally disrupted how consumers interact with different content services, products and goods. This has resulted in the digital platforms we see now in both the US and China. But the platforms in each country are quite different, with China having an advantage, simply due to the size of the market. In general, production and consumption in China are huge, and very fierce competition leads to a variety of new innovations and differentiation in this mobile platform ecosystem. For instance, we have a lot of new business models in China, such as social shopping, an e-commerce process in which shoppers’ friends become involved in the product purchasing process. And that doesn’t exist yet in the US.
On the enterprise side, we see a lot more Platform as a Service (PaaS) and Software as a Service (SaaS) solutions that are now based on and have been transformed by cloud computing. All the major enterprise software and service companies are, willingly or unwillingly, embracing this trend. In general, US Cloud Computing providers have had an early mover advantage and enjoyed wider adoption of their public cloud services. They also have a larger share of the international cloud computing market, providing them with the scale they need to continue expansion.
Q. What role does data play in digital transformation and what are the fundamental challenges to effective data usage?
A. The more technology is embedded in society, at the consumer and enterprise level, the more data of varying types will be collected and processed, especially on the enterprise side. Effective data usage is the key bridge between the basic functions of technology and the generation of true business value. For example, cloud computing without data is like having plumbing with no water in it. The infrastructure is there, but there are none of the raw materials required for it to be useful. If the data is there, the computing power we have can begin to extract value from it. And then the question is how exactly we go about extracting that value. Effectively leveraging data is still a challenge, but things like AI-powered automated systems have really helped at all levels. We’re definitely still at an early stage of this process, but there is certainly a lot of potential.
That is not to say that there aren’t fundamental challenges to more efficient data utilization. Around the world, and especially in China, there is a significant lack of data literacy and a lack of digital talent in general at all levels, because digital transformation requires more than just top-down expertise. While C-level executives can run the company on a macro level, skilled middle management is required to really leverage the data and correctly transform the business processes of their specific departments, and frontline employees are required to understand how to incorporate data into their decision-making. The decentralization of data-driven innovations is something I think is of great potential for companies in both China and the US.
Q. There are an increasing number of laws governing data usage and transfer. How does this affect digital transformations within countries and the companies that work in digital spheres internationally?
A. They have a fundamental impact and shape the landscape of both consumer technology and enterprise technology globally. On the consumer technology side, it has become much harder for tech companies to scale globally, both from the US to China and also from China to the US and elsewhere. For example, the restrictions on, say, TikTok that hampers data transfer across the globe will reduce their network effect both in the pooling of content as well as building a larger consistent global market for their businesses. But the hardest part for companies is the massive variations that exist in global regulations, which means that it becomes increasingly difficult for them to scale properly globally.
There is also geopolitical risk, which breeds uncertainty. It raises the entry requirements for a company to start out in many markets, and can even result in a lack of entry into a market altogether. This is also not something that can be solved easily in the next few years, but I do remain optimistic.
Q. What are the key factors to bear in mind when regulating digital transformations?
A. I would say homogeneity is important in the standard setting and regulation of data and algorithms. Software is the coding of human knowledge and it needs to be able to properly interact in order for society to extract the most from it.
Within a country, this can be driven by government regulation and then backed up by industry standards setting. Areas such as financial compliance or environmental regulation, are excellent examples of where this approach has been adopted. But looking globally, there are much greater challenges to creating homogeneity. There is no global decision-making body. Geopolitical tensions are kicking in, and there is a wrestling match going on for value chain dominance and to be the ones setting the standards. Who is ahead at the moment really depends on which industry you are talking about and is a combination of both political action and technological strength.
Q. What barriers do companies face in pursuing the digital transformation?
A. As well as data literacy issues and the barriers posed by governmental regulations, a major problem that many companies face in China is the speed of change. Firms need to go through multiple stages of transformation at the same time, condensing their development to within a very short space of time. They need to standardize management, integrate technology, increase data literacy and adopt a different mindset, and it’s very hard to squeeze all of those together.
This isn’t really something that US companies face because they have gone through and sorted out these problems over a much longer period of time. There is an idea that China and other Southeast Asian countries are in a position to leapfrog technologically, and while this is easy enough to do with consumer technology, enterprise technology takes much more time and effort.
Q. How do you see the digital transformation process progressing over the next five to 10 years?
A. I think that digital transformation is irreversible, because technology in general is progressing, consumer technologies are still developing, and enterprise technologies are scaling. So I am optimistic that firms will have to embrace cutting-edge technologies in the long run.
For example, in the US the public cloud is already prevalent and most firms are joining the public cloud from their local machines, whereas in China there is still a lot of deployment of the private cloud. But the common forces behind the public cloud are very attractive and over time will convince companies of its security and opportunity, which means that firms will start to move from private to public over the next decade or so. I’m sure such a future will come, but for the top tech firms, the question is how to survive long enough to reach that future. What strategic paths should they take to ensure development in the right direction.
A similar future is there for things like virtual and augmented reality. Both technologies are still in their very early stages, but they will likely become the next generation of computing infrastructure, alongside things like the mobile internet. The next 10 years will see a slow accumulation and acceptance of both the hardware and the operating systems and aesthetics that come with these new realities. But again, the key question is how we get there.
And over-arching all of that are questions around who will take the lead and guide the rest towards the future iterations of tech, and this is the beauty of the ever-evolving nature of the digital transformation. I think there are massive opportunities for the top tech firms to stay ahead and also smaller firms to challenge them. There are also chances for entire industries and countries to take a pioneering role. It is clear that we can all benefit from this progress, so it’s important to understand and develop a pathway towards this bright future.
Interview by Patrick Body