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The digitalisation roller coaster

What are the prospects of digital transformation locally when we face such uncertain twists and turns in our economy? (123RF)

Every generation has its challenges, and we’ve only the past with which to judge our current predicaments.

2017 does seem to have created a benchmark as a period of global uncertainty, aided in some cases by technology. At least one election seems to be have been skewed and while there have always been counterfeit opinions, these can now race around the world masquerading as facts. There have also always been thieves, but never before have organisations and governments spent more on trying to keep them at bay.

There are now wildly inflated expectations about what technology can deliver. The global analyst firm Gartner calls this a ‘hype cycle’, and as it warned at its annual Symposium in Cape Town, held towards the end of 2017, a peak is a sure sign that a trough is coming. Business, 
as well as humanity, is left with little choice but to hurtle forwards. As Peter Sondergaard, research vice president at Gartner puts it: “You must take the ride.”

It’s now abundantly clear there are profound advantages for businesses that embrace digital transformation. Amazon, for instance, which started with books, then clothing, is now planning to upset the grocery market. It doesn’t even have to enter a market and can shave percentage points off incumbents – in the pharmaceutical industry, for instance – just by saying it’s considering doing so.

Sondergaard says digital transformation also lets organisations sniff out new and unmet consumer needs; how to make use of excess supply and capacity and find new platforms for marketing.

The possibilities seem endless, but most organisations are still focussed on the prosaic and are moving more cautiously. Many organisations are struggling to understand just how to implement a digital strategy and there are wildly differing interpretations of what it entails. Some enterprises, especially those built far away from the global epicentres of innovation, can’t afford to ‘fail often’, and ‘fail fast’.

Local woes

One such territory is South Africa, where the currency has suffered in 2017 due to political uncertainty and downgrades. There are also structural problems. Unemployment, inequality and poor quality education will mean many years of single-digit growth, if at all. But in this gloomy picture there are some companies that are thriving, and showing double-digit growth. They’ve kept pace with the changing market, and in many cases have reinvented themselves midstream.

Broadly though, growth in IT services this year, while showing a marginal improvement in rands, is at or slightly declining in dollars.

But this country isn’t alone, and global uncertainty has, to some measure, buffered some of the fluctuations in the rand.

According to Jon Tullett, research manager for IT services in Sub-Saharan Africa at the International Data Corporation (IDC), one effect of this uncertainty is that organisations are shying away from capital expenditure.

“We’re not seeing spend on IT infrastructure, especially not long-term stuff.

"There's far more of an emphasis on facilities and real estate, rather than short-term depreciating IT assets.”

Tullett says most organisations he deals with have been going through a period of belt- tightening, and after a number of years of this, ‘the belts are pretty darned tight’.

This has also meant that long-term outsourcing deals – measured in the millions and lasting perhaps half a decade or longer – are being broken down into smaller components. Deals, too, are being more aggressively brokered by customers.

Tullett says this isn’t a negative trend, but service providers are now bidding on a lot more smaller contracts that are more expensive.

“As a result, there’s a lot of stress on your pre-sales. And you’re not going to win as many deals. You’re having to run faster to stay where you were.”

As spending on infrastructure is drawn down, this will hit the channel hard, forcing players to diversify their offerings into managed services, such as cloud.

Tullett says he’s concerned, however, that these players don’t have a lot of slack to play with.

“Margins are tight anyway. Channel players need to get it right whatever direction they’re going in, whether it’s towards the traditional outsourcing managed service, SI space, or whether they’re moving towards the cloud or cutting-edge technologies. It’s great they’re doing something, but they don’t have a lot of capacity to get it wrong and try again.”

Plans on pause

Tullett says while most South African organisations have some kind of digital transformation plan underway or in progress, many of these organisations are ‘operating in a fully defensive model, with longer-term strategic investment on hold’.

He says in an economy such as South Africa’s, most organisations are focussed on cost containment, and there would not be a flood of experimental innovations coming to market in the hope that they’ll get traction.

“The ‘fail fast, fail often’ is really great when you’ve got deep pockets, but it’s not going to happen here.”

Rather, organisations are building their platforms or transforming their infrastructure so they can take advantage of nascent opportunities.

This can involve organisations retooling their analytics capabilities and making sure their data management is in order, providing a platform to take advantage of, say, machine learning and artifucial intelligence.

“Digital transformation is about getting people out of the corner they’ve painted themselves into,” says Tullett.

Digital transformation means different things to different companies. Some say it’s using less paper, others, more e-commerce or online activity. Still others will splash out on a new all-flash array.

All of these would be advised to remember the customer. As Joe Baguley, VMware vice president and chief technology of ofcer for EMEA, says: “The classic problem you have in digital transformation is that people think it’s about changing something for the business. It’s about changing the users, and the business will change.”

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