Digital Transformation Benefits Beyond Cost Reduction
This is an intriguing time for digital transformation. For the past few years, many companies held back in the extent of digital transformation they were willing to undertake because the change management effort was huge. But the COVID-19 crisis and subsequent recession changed that picture and companies now look to accelerate digital transformation. Why? Because digitized processes deliver robust value-creation opportunities that go way beyond cost savings. Consider the following three examples.
We at Everest Group worked with an airport in its digital transformation. By implementing digital technology, the airport significantly increased the revenue it generated from its retail restaurants and other amenities – to the tune of many times more than the cost of the third-party firm providing the technology and services.
Similarly, a hospital system used an outside service provider to reduce costs. When they undertook digital transformation, the hospital system gained savings in the realm 25-30% for what the services cost. But more importantly, the services enabled the hospital system to generate hundreds of millions of dollars in additional revenue.
Enterprise-wide analytics and a digital platform gave the hospital system new opportunities to create value through its revenue cycle management, clinical informatics and Health Information Management (HIM) processes. The hospital system collected more money from insurance companies, saved money on drugs and gained more revenue per patient.
Energy company example
An example of robust value-creation through digitized processes is a major energy firm that needed to improve the performance of its sales team. Its call center was outsourced to an offshore service provider to take advantage of low-cost workers and take costs out of specific activities. They decomposed the process of taking customer requests for a lubricant product into many steps and focused on handling each step quickly and efficiently.
The problem: By focusing on taking costs out, they inadvertently created an overly complicated and inefficient process where each activity was cheap, but the overall customer experience was lengthy, unpleasant and expensive.
The solution: digital transformation. First, the company brought the work back in the US and hired highly skilled people who could fully understand the customers’ problems. The company then equipped these workers with digital technology enabling them to see a customer’s history so that the call center agents could make the necessary adjustments to get the right product to the right place at the right time.
They focused on how long it took to understand the full nature of the customer request and how quickly and completely they could solve the problem, rather than how quickly they could do an activity such as answering the phone.
When they focused on the customer experience – specifically on “on time” and “in full” experience (how long it took them to understand the complete order, ensure it was the right lubricant for the right task and arrange for credit terms and shipping location).
The impact of the transformation? They were not only able to reengineer the process for greater efficiency but, more importantly, the company gained a 10% increase in market share, which was worth hundreds of millions of dollars in revenue.
Opportunities for your company
For the past 20 years, companies outsourced business processes to third-party service providers to save money. Now, as companies move further into digital transformation, they gain an opportunity to save even more because of greater efficiencies. Injecting digital technologies such as analytics, AI and digital platforms into business processes makes them 40-50% more efficient.
But as the three examples above demonstrate, digital transformation led to two additional results:
1. Lower overall cost to operate, even though they paid more for people and technology.
2. Huge impact on profitability.
In each example, instead of focusing on activities and cost components, they chose to look at the holistic customer experience, or patient experience, and improve it through digital technologies and platforms. In doing so, they captured hundreds of millions of dollars more revenue.
If these different kinds of businesses can unleash dramatic value at the same time as cutting costs, what are your company’s opportunities to do this? Don’t make the mistake of focusing on cutting costs of your activities and inadvertently driving up your total cost while also missing the elephant in the room – the opportunity to create more value.
Value-creation opportunities through digital transformation are much more robust and much more meaningful than ever before. It is a tremendous opportunity for your company. But it requires a more sophisticated approach than focusing on costs. As you move forward with transforming your business with digital technologies and techniques, ask this question: Does it create value as well as cost less?
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