And Digicel's missed opportunity for Digital Transformation
Good day everyone. Today’s Issue is a follow-up from Issue 12, Management in the Digital Age. Let’s get straight to it.
Don’t forget to listen to the podcast I was a guest on ;)
Kadia Francis (@digitaljamaican) asked me a question on twitter, I thought was very interesting:
@TFIDNewsletter Absolutely loved this. In terms of obsoletion isn't the same true for companies reluctant to incorporate technology into their business operations? We are in complete agreement that the future is digital, I say it all the time so stubbornness in that regard would be fatal.
Operations and their role in the digital future
The question was in response to Issue 12 where I talked about management obesity, in the sense that, not only has the definition of management changed, but the quantity of managers necessary to operate a business these days had been constantly on the rise. This paradigm shift has produced a fundamental change in the structure of businesses:
This change in manufacturing layer has brought about a change in company structure. Low-skilled low-pay jobs are being replaced by highly skilled jobs paying higher salaries. But it’s not just salaries, responsibilities have also increased. As a line manager for a spindle maker, the responsibility was limited to the line and the workers occupying it. In the new plants, managers are responsible for much more and decisions have more implications for both productivity and efficiency, with knock-on effects that may cause the loss of hundreds of thousands of dollars. And, being that there are no low-skilled workers anymore, everyone has essentially become a manager. This is what I termed Management Obesity, a factory with only managers and no workers.
We’ve gone from a pyramid structure of management and workers to one with a portlier girth.
The old management structure versus today’s
It’s not limited to only manufacturing either. In much of the service industry, offices have become more and more staffed by managers of things and processes and not necessarily people. Many of today’s tasks in modern offices didn’t even exist 5 years ago, Marketing, Social Media Manager, Community Manager, Technical Officers, Environmental Departments, I could go on.
This issue was largely targeted at the production side of a business, but as Kadia rightly points out, operations are also ripe for digital transformation. Let’s look at the various parts that make up an organisation and I’ll attempt to show how digital transformation is or will affect them.
The best approximation of the various elements of a business can be found in the value chain. I introduced and talked about it in Issue 11:
Investopedia defines the Value Chain as:
A value chain is a business model that describes the full range of activities needed to create a product or service. For companies that produce goods, a value chain comprises the steps that involve bringing a product from conception to distribution, and everything in between—such as procuring raw materials, manufacturing functions, and marketing activities.
A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its business. The purpose of value-chain analyses is to increase production efficiency so that a company may deliver maximum value for the least possible cost.
Essentially, Michael Porter’s Value Chain model allows you to break down your business into sections and attribute to each section their relative value and contribution to the end result, the value add of your products and services. As an example, someone who sells fruits and vegetables may have a fairly simple value chain where elements like logistics and marketing are the principle value creators of the business. A product like Apple iPhone, I think we can all see, is a very different proposition, with and extremely complex value chain.
The value chain is represented as a graphic where all the distinct parts contribute to the right-hand side, which is the profit. This graphic shows the most common representation of the value chain:
Denis Fadeev CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)
There are two distinct sections; Support Activities, Primary Activities that are in play in any business that generate value helping generate revenue, and hence margin.
Looking at the support activities like the firm infrastructure, which include HR, Accounting, Finance, Legal, PR etc., it is easy to see in areas such as HR, digital transformation has not only started, but has started to gain some real traction. An example is the use of the LinkedIn platform. Integrating it in to your business not only as a corporate rolodex, but as an essential tool for recruitment provides benefits that are over and above that of traditional recruiters. LinkedIn allows targeted advertising, peer recommendations, full (up-to-date) CVs — as long as you’re willing to accept that they are not formatted in the old-school way — and most importantly the networks in which potential staff revolve in. This is done in minutes compared to hours/days, if at all, in the past.
With Accounting — and by the way, I’m very fearful for the long term future of basic accountants — today’s software is available for free for basic skills to a percentage cut on invoices for advanced services, allowing even the most reticent and incapable, of posting to the correct account and consolidating accounts in a matter of minutes. And it is here we find the opportunity for accountants in the future, but I’ll leave that hanging for a while…
Most accounting software in the cloud allows for uploading of receipts, with AI image processing applied, can automatically post to the correct account for your expenses, parking, fuel, purchases and so forth. Gone is the manual entry and the keeping (almost certainly) badly organised piles of paper.
For Legal, it will be the same. Basic legal questions will be answered by machines capable of determining the right advice for simple solutions. This frees up business that would ordinarily wait for Legal to get back to them. Again, the opportunity for value-add by the lawyers is enormous.
In the primary activities of a business, procurement, manufacturing, logistics, marketing and sales and service, we see much transformation already taking place.
Procurement is undergoing fundamental changes in the processes with automation of orders
I talked about manufacturing and operations in Issue 12: Management in the Digital Age, talk a minute to read it if you haven’t already. Marketing and Sales have been revolutionised by digital technologies and continue to strive forward almost faster than the other parts of any organisation. In fact, when I talk about digital transformation to most businesses and people, they think in terms of marketing strategies using Facebook and Instagram, but this is only one side of a multi-sided problem.
So, you see the same shift and reduction in the obese middle is taking place not only at the production side of a business, but at its very core of operations throughout the enterprise. It’s a point I wanted to get across but didn’t articulate it very well at the time.
Digicel, cost-cutting and a missed opportunity for Digital Transformation
The OECS Business Focus site reports that Digicel has announced a partnership with fastforward.ai to “… accelerate its vision to become the digital lifestyle partner for its customers …”.
Right off the bat I’ll note my scepticism in how this will play out for Digicel. To me it looks more like a cost-cutting exercise dressed up as a new and revolutionary offer for their clients. To illustrate why I think this and what I think will play out, let’s look at the current position of Digicel and the offer that is fastforwrd.ai.
Digicel has for a number of years been struggling financially. Revenues are not growing, and costs are increasing. Looking at the since withdrawn F-1 filed in June 2015 prior to their attempt at listing on the NYSE, we can see a company that is having difficulties with debt — estimated at around 6 billion USD —, risks and cashflow.
In 2015, its revenue was made up of 60% voice communications, this has since fallen off a cliff as far as anyone can tell, and it is unclear whether or not data services will replace the lost revenue stream. In fact, Digicel’s revenue in 2013, 2014 and 2015 was stable at around 2.7B USD but it made a Net Loss in 2013 and 2015 with only a bright spot in 2014 where it made a Net Profit with some of this attributed to Finance Income. I’m not a financial analyst, so I don’t want to go into too much detail, but suffice to say, things are not easy for Digicel.
Digicel has a number of strengths that are non-negligible, and it is these Digicel should develop their innovations going forward. They currently boast 14 million subscribers in the regions they are implanted (Latin America and the South Pacific). They have built strong direct to customer relationships and their products supply lots of data about usage and habits.
They have, like most businesses, a few weaknesses too. The prepay/post-paid ratio is lower than in European or American markets — to be fair, this is a symptom of the zones they are present rather than a failing on their part —, they’re facing rising costs (5G anyone?), with tighter margins due to a nose-dive in lucrative voice services. And as they admitted in the F-1, they face “significant competition” in its markets.
Fastforward.ai turns out not to be what I’d hoped. When I first saw the announcement, I thought that Digicel was expanding in to digital payments, something that is badly lacking in the Caribbean and as a result a massive opportunity for an established player with experience in transaction businesses and a direct-to-customer relationship. Much online commerce relies on digital payments and development is just starting in the Caribbean Fastforward.ai is a platform that allows marketing on social media platforms like Facebook and Twitter and is used to automate of customer support and promote offers direct to users. Hence why I feel this is more cost-cutting rather than innovation.
Perhaps I’ve misunderstood the opportunity for Digicel with this partnership, but I can’t quite see how it will replace its falling revenues from the cash cow voice services with this initiative. Noted for review in the future.
Reading List
Digital Transformation Strategy to Launch Shortly in St. Kitts & Nevis - OECS Business Focus
Source : OECS
I’m Looking forward to learning about the details of this strategy in the coming months. One to watch.
In South-East Asia, Grab and Gojek bring banking to the masses - The Economist
Source : The Economist
This is a follow-up too. We talked about ride-hailing in the Caribbean and one of the difficulties highlighted was the lack of bank accounts held on the islands and the (virtually none) use of digital payments. This article highlights the opportunities identified in South-East Asia and I think it is a model worth adapting to our context. What do you think?
The Future is Digital Newsletter is intended for a single recipient, but I encourage you to forward it to people you feel may be interested in the subject matter.
Thanks for being a supporter, Have a great day.
