Vietnam’s economy last year has achieved important results, drawing a bright picture for the development process.
GDP growth in 2019 reached 7.02%, which is an impressive result. The contribution of total factor productivity (TFP) to GDP growth was 46.11%, a significant improvement compared to 2018 (43.5%), showing that the efficiency of labor and capital resources in economic growth is developing at a relatively high level. Although the COVID-19 epidemic affected the global economy, the early control of this pandemic in Vietnam as well as the positive results of 2019 created the premise for economic development with more sustainability and higher quality. Technology applications play an important role in that development. The Industrial Revolution 4.0 offers ever more favorable opportunities for the business community. Enterprises are increasingly aware of the importance of digital transformation in their development roadmap.
According to the report “Vietnam large enterprises: Current capacity and growth challenges in 2020” of Vietnam Report, to achieve a “breakthrough” development in the current conditions, enterprises must face challenges in important aspects including governance capacity, labor use capacity, technology use capacity… Regarding the governance capacity, this report cites a VCCI’s study in 2016 on 400 companies, joint-stock companies, foreign-invested enterprises: Only 23% of businesses publish both financial statements and annual reports.
While these reports reflect the corporate governance capacity, the above-limited number indicates that many managers are not properly aware of the role of governance. There is still a large proportion of business leaders governing their business spontaneously with “experience” thinking. Labor productivity of Vietnam has achieved an increase (on average, 2011-2015 increased by 4.35%, 2016-2018 increased by 5.8%) but compared to other countries in the region, there is still a big gap (Vietnam’s labor productivity is equivalent to 7.2% Singapore, 18.4 Malaysia, 36.2% Thailand, 43% Indonesia, 55% Philippines), which need stronger improvement. Regarding technology use capacity, according to the World Economic Forum (WEF 2019), Vietnam’s spending for R&D is equivalent to 0.41% of GDP (1.5 billion USD), while for Malaysia it is 1.3% and for Singapore, it is 22%.
The Industrial Revolution 4.0 is giving the business community the conditions to greatly improve these capabilities, but also challenges. Not taking advantage of this opportunity is synonymous with rapid lag in this increasingly flat world. Being aware of that importance, enterprises have taken bold steps in technology investment. According to the VNR500 survey (November 2019), 59.60% of large enterprises are promoting technology investment, 25.25% choose to invest slowly step by step, 9.06% are preparing capital and human resources and only 6.06% do not intend to invest.
Investment for technology in general and digital transformation in particular is not only a slogan but has become a specific action for each business. However, to successfully implement, enterprises must ensure three factors: (1) sufficient capital, (2) sufficient human resources, and (3) a vision to build a digital technology system and support from senior leadership. Digital transformation is generally understood as the application of digital technology in all aspects of the business to transform the way it operates in order to bring remarkable efficiency to businesses. But business leaders do not always have a clear vision of their digital transformation. How far will we transform? What will be changed? What value do those changes bring? These are the questions to be asked when determining the vision for digital transformation.
If we look at a business in a 7P model: P1: Product, P2: Price, P3: Place, P4: Promotion, P5: People, P6: Process and P7: Philosophy, then a vision of digital transformation covers at least 3 levels: P7, P6, and P5. The 7P model is commonly mentioned in modern marketing to enhance the position of marketing in corporate governance. Not only in marketing, but 7P can also guide the assessment of competence for the entire company from business activities to management and philosophy. Specifically, the digital transformation vision will shape changes in the business model, business processes, and working practices of labors.
The business model is determined on the following aspects: the value proposition to customers, ways to make money and shareholder value, core competencies and resources to create competitive advantage, strategic suppliers and partnership, markets and regulations that impact the business. The rapid development of digital technology today allows enterprises to transform their business models rather than just digitizing products or sales channels as before (refer to Evolution of digital transformation – source IBM Institute for Busines Value).
The driving forces behind dramatic changes in business models are the development of mobile technology, social networks, analytics, and artificial intelligence. Mobile devices remove the boundaries of space and time, allowing customers and businesses to connect online anytime, anywhere. With over 3.8 billion users, social networking is now the main communication and cooperation channel. Not only that, but many business transactions between businesses and customers have also been made via social networks. Today, we are witnessing the rapid development of hyper digitization. Electronic information can be attached to all goods and vehicles. Data collected from sensors provide real-time information on energy and water networks, machinery, natural resources… Advanced analytical capabilities and artificial intelligence help to exploit maximum value of data collected and is the main driving force to create intelligent enterprises.
The vision of digital transformation can be directed to transforming the business model in the following directions: (1) outcomes-based models, (2) expansion to new markets, (3) digitization of products and services, (4) digital ecosystems, (5) sharing economy. In fact, an enterprise can deploy many of those directions at the same time depending on its capacity and conditions.
- In the outcomes-based model, value proposition is based on the expectation of the customers instead of selling products and services in the usual way. This approach both increases customer satisfaction and creates a new revenue stream for the business. Hoerbiger is an example. The company operates in 50 countries, producing compressors for gas fields. Thanks to the application of the Internet of Things (IoT), Hoerbiger tracks operating performance of the equipment, proactively performs maintenance and invoices based on the availability of equipment at the customer’s location.
- Expansion into new markets is based on digital capabilities to disrupt existing markets, creating a new competitive advantage. An example of this model is the technology taxi. Launched with the explosion of Internet connectivity, mobile devices and digital map processing on cloud computing, this business model has disrupted the traditional taxi market, both benefiting customers and creating a superior competitive advantage. Not only limited to the field of passenger transportation, this model also developed an ecosystem of a series of interconnected services such as: digital payment, entertainment, foods, delivery, hotel…
- Digitization of products and services helps businesses deliver products and services to customers faster and at a lower cost. The story of UPS is an example. This global delivery company applies 3D printing technology in combination with the supply chain management system to provide on-demand spare parts production services and deliver to customers in the shortest possible time. With the production and logistics management system based on digital technology, most of orders received from 6 pm can be produced immediately and handed over to customers by the next morning.
- Digital ecosystem creates an environment to seamlessly connect products and services of many enterprises together to bring the best benefit to end customers. Some examples of digital ecosystems are Apple, Verifone, Klöckner, and even technology taxi models as mentioned above…
- Sharing economy is a digital-based model that supports peer-to-peer sharing of resources available in a community. Airbnb is an example of this model in the field of accommodation sharing. Cohealo shares medical equipment among medical facilities to speed up service delivery and minimize costs in health care.
At the level of business process, digital transformation vision needs to identify the capabilities that digital technology changes the way enterprises operate, deliver value to customers, and create value for the company. Possibilities that digital transformation can create value include:
- Customer centricity, which satisfies customers throughout the life cycle of sales and services. For example, the application of machine learning and virtual reality helps better understand customers and personalize the services provided to each customer.
- Real-time business, which allows to gather information generated in real-time, support decision making, shorten transaction time, and optimize operations.
- Predictive insights, based on data and superior computing capabilities, help enterprises move from reactive to proactive ways of managing business, and optimize processes.
- Cross-enterprise collaboration, in which business processes are seamlessly implemented across different enterprises, providing a better quality of service to customers, minimizing conflicts and costs.
- People and machine collaboration, in which application of machine learning and automation features can replace people in repetitive and high-precision work.
At the human level, the digital transformation vision needs to show the change in workplace. Digital technologies such as artificial intelligence, cloud computing, social networks, mobile applications… bring new experiences to people including the management team and employees. The changes can be listed as follows:
- Work together better. Cloud-based management systems create a more convenient and user-friendly collaborative environment.
- Make the job easy and fun. The intelligent analysis capabilities, voice recognition, smart sensors… bring to users a more pleasant experience when working.
- Work with new colleagues: smart machines. Application of artificial intelligence and automation replaces people in monotonous and repetitive tasks, thereby increasing productivity and reducing errors.
Digital technology is developing very fast, creating countless opportunities for businesses to transform themselves to achieve outstanding results in business and governance. Not only improving some aspects, but digital transformation also allows changing the business model, disrupting traditional markets, and creating new competitive advantages. When embarking on the transformation, business leaders must definitely shape what the enterprise will look like after the transformation: new business model, new business processes, new working environment. A clear vision is an important factor that ensures the feasibility of a digital transformation project.
- White paper: Vietnam Economy 2020: Challenges to growth in 2020, Vietnam Report, 01/2020.
- Global social media overview, datareportal.com, 07/2020.
- Digital transformation: Creating new business models where digital meets physical, IBM Institute for Business Value, 2011.
- Digital Innovation Demystified: Reimagine Business Models, Reimagine Business Process, Reimagine Work, SAP, 2020.
- How to Develop a Digital Ecosystem: a Practical Framework, Omar Valdez-de-Leon, 08/2019.
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