6 years, 9 months ago

Trying to Digitize? Learning How From Emerging-Economy Companies

Link: http://cisr.mit.edu/blog/blogs/2014/05/13/emerging-economy-companies/

Who is leading the world in terms of digitization? Surprisingly, it’s not developed countries. In 2012, we saw a significant flip, with emerging economies now at the front of the pack. Companies in those economies are spending more on digitization, are outperforming, and are faster to market with new offerings than businesses in developed countries.

In a survey of 354 companies in 19 countries, MIT CISR found that emerging markets spend 35% more on digitization as a percentage of revenue relative to the global industry average. At the same time, they are spending less on running existing systems: 52% compared to 62% in developed economies. They are spending more on new initiatives: 48% compared to 38% in developed economies. And they are more digitized with core business processes. Add a faster time to market, better customer experience, and higher revenue from innovation, and you have an impressive scorecard for emerging versus developed economies.

Why is there such a big divide? We have a few theories. First, the lack of heavyweight legacy systems in emerging economies means companies can more easily jump on new lightweight technologies like mobile and cloud. In contrast, developed economies have legacy systems to maintain and secure, which costs money.

The second theory involves attitude. Companies in emerging economies are more open to digitization. This is evident in their faster growth. Our survey shows that while margins are similar for both emerging and developed economies, the developed-economy companies grew three times faster in the same industries.

Our third theory is that emerging economy companies have better learned lessons about what it takes to digitize. These include:

  • Transparency—They make costs and performance metrics for each unit transparent. They review those centrally and provide recommendations for poor performers.
  • Strategy—They implement an enterprise-wide strategy process that includes digital spending plans.
  • Business Case—They use an enterprise-wide business case and capital allocation process.
  • Approval Process—They have adopted a multiparty approval process for new digital investments.

It’s all about mindset and how you approach digitization. If you’re a developed-economy company and have operations in emerging markets, why not try some of these approaches in those emerging market operations? It may be harder to implement change in the US or Europe, but try it out in another part of the world. Learn what works and then scale it.

Are you an emerging- or developed-economy mindset company?

Peter Weill is a senior research scientist and chair of MIT CISR. Stephanie Woerner is a research scientist at MIT CISR.