As India rapidly moves into the digital era, leading Indian businesses are changing their business models to capture the opportunity.
India is quickly becoming a digital country. The evidence of rapid change is staggering. For example, the number of smartphones shipped in the Indian market is expected to surge from under 28 million in 2013 to more than 155 million in 2017. In e-commerce over the same period, the value of physical goods purchased online will grow from US$2 billion to US$8.5 billion. And to fuel this digital transformation, the number of software developers is expected to increase by 90 percent to 5.2 million – 700,000 more than the United States will have – by 2017.
None of this has escaped the attention of corporate India. In a recent Accenture survey of more than 100 Indian senior executives, nine out of ten said “being digital” is a strategic imperative for their companies over the next five years. As one CEO of a large insurance company succinctly told us, “If we don’t go digital, we won’t exist.”
That sense of awareness, however, has not necessarily translated into the right strategic focus. Many businesses are concentrating too intently on plucking the low-hanging fruit. When we asked the Indian executives which business priorities their firms were addressing through digital technologies, their top response was to increase the efficiency of existing IT systems (58 percent), and their second choice was to enhance the efficiency of the supply chain (48 percent). Of course, those two objectives are important, but they are merely the start. To avoid missing the “digital bus,” companies have to transform digital resources and technologies – including social media, cloud-based software, and machines equipped with digital sensors – into new sources of profitable revenue.
In other words, companies shouldn’t just concentrate on process efficiency. They should also focus on growth, developing closer connections with customers and offering new products and services by digitalising their business models.[ms-protect-content id=”9932″]
Growth through Digitalisation
Consider how the State Bank of India has adapted to the digital era. As the country’s oldest bank, with origins dating to 1806, SBI commands more than 22 percent of the domestic market. In terms of profits, assets, deposits, branches and employees, it is the country’s largest commercial bank.
But SBI recognised that continuing to focus on its large and profitable customer base – those in the 45-plus age bracket – could threaten its leadership position. It would have to embrace banking practices preferred by hyper-connected, highly informed, value-driven young customers – the “digizens.”
SBI turned to the power of digital technologies to attract, retain and grow with these younger customers. It created a new sub-brand specifically to appeal to this group called SBI InTouch and put in the necessary human and technological resources to support it. Customers can open an account and receive a personalised debit card immediately; receive instant in-principle loan approvals; and speak with financial advisors through high-definition videoconferencing.
Beginning with the first day of its launch at six branches, SBI has witnessed a high level of engagement through SBI InTouch. Typically, more than 100 people on weekdays and 250 on weekend days enter each of these locations. Without the new technologies, the bank’s sales staff would not have been able to interact with potential new customers at that level of volume.
But the bank is the exception to the rule. Indeed, only 5 percent in our survey reported that they were using digital technologies to create a more compelling customer experience, and only 7 percent said they were transforming their digital resources into new sources of revenues.
Building a Digitalised Business Model
To emulate the success of SBI and other Indian leaders, companies must rethink their “analog” business models. A business model consists of several key components, including the customer value proposition; available resources (such as people, processes, technology and capital); a profit formula; and metrics for tracking success. Companies need to synchronise these components with their digitalisation agenda.
In our research, we studied companies to understand how they were digitalising their businesses. Through that process we were able to identify practices that companies in India and beyond can emulate to digitalise their business models. (See “About the Research.”)
Dissect Data to Create a Digital Customer Value Proposition
Digitalisation often requires companies to rethink their customer value proposition. Companies should employ data analytics techniques to this end.
One example comes from a leading Indian property and casualty insurer. The property and casualty market was experiencing the intense price competition that comes with commoditization, along with increasing customer expectations for better service at lower prices. The insurer had enormous amounts of rich historical data on customers and channels, but it was often disjointed. Decision makers within the company lacked a “single view” of their customers and thus were not in a position to improve the overall value proposition.
With the support of service providers, the insurer designed and used advanced real-time statistical models that allowed the company to segment customers and channel partners more effectively, and also to launch multi-channel campaigns targeted at each segment. Most important, customers in each segment started enjoying services better linked to their needs and preferences, and their claims started getting processed faster and with more predictability.
Use Digital Resources to Deliver High-Value Impact
To digitalise their business model, a company must invest in digital resources capable of producing a scalable impact. Such investments can be shared with other interested parties, and the technologies can be developed in collaboration with other companies in the same ecosystem.
Hindustan Lever came to grips with this challenge with its Shakti Ammas, the tens of thousands of women who act as salespeople and distributors throughout India’s rural villages. These entrepreneurs were using manual bookkeeping to manage their inventory and record sales transactions, and the process was prone to errors. Moreover, given the large distances between villages in rural India, HUL could send company sales representatives to visit the villages only once or twice a month. That made it hard to supervise the Shakti Ammas and advise them on how they could improve their sales.
HUL collaborated with Tata Docomo to provide handsets and arrange for a mobile connection for the Shakti Ammas. Working with a startup, it also developed and deployed a low-cost mobile IT solution called Shakti Mobile – a mini-ERP package that can be operated on an entry-level smartphone. The application, available in eight languages, enables Shakti Ammas to take and bill orders as well as manage inventory. It also provides the women with updates on promotional offers and discounts. To compensate for the poor mobile coverage in rural India, the application has been built to work offline as well.
More than 40,000 Shakti Ammas across India now conduct transactions through the application. As a result, they have been able to spend more time in the field – closing deals and making money both for HUL and for themselves.
Turn the CIO’s Office into a Growth Driver
Technology is both a driver and an enabler of digitalisation. In large organisations, especially those based in India, the responsibility for capitalizing on these twin strengths of technology falls squarely on the CIO’s shoulders. CEOs generally want their CIOs to work closely with other C-suite leaders to make the business more digital. CIOs in India thus have an opportunity to put together a “team digital” capable of driving the company’s growth agenda.
Consider Essar Energy as an example. The company has $US16 bill ion in assets, with refineries in India, the UK and Nigeria. In India, it serves customers through a network of 1,400 retail fuel outlets. Until recently, the CIO’s office at Essar was generally seen as playing a supporting role — an office that supported automation and helped organise information for the refining and processing teams.
The CIO set about to change this situation. He led the building of a team of chemical engineers, mechanical engineers, chartered accountants, and management graduates who were not only proficient at deploying digital technologies but also understood the business value chain. With that team assembled, the CIO’s office started approaching various parts of the organisation to understand their problems.
Drawing on the cross-disciplinary skills of its team members, the CIO’s office was able to offer digital applications to address critical problems – solutions that operations teams had failed to identify earlier because of poor knowledge of digital technologies. As a result of these efforts, the budget for the CIO’s office was approved for an increase of 100 percent, and the CEO now cites the office of the CIO as a growth enabler rather than a support function.
Use Digital Platforms to Develop Profitable Offerings
Profit maximisation, especially in a digitalised context, is an “I” (company) with “You” (customer) game, not a game of I-versus-You. In this context, customers are no longer simply “takers” of a company’s offerings but active co-creators.
In such an environment, profits are defined by the efficiency companies can ac hieve during value creation (from offering conceptualisation to launch) and the “share of wallet” they earn by providing a differentiated experience.
Café Coffee Day, an Indian chain in more than 1,500 Indian cities, is a prime example. With revenues of over US$500 million and an employee base of more than 5,000, Café Coffee Day is India’s largest coffee chain. Recognising the growing popularity of social media and the accelerating penetration of mobile technologies, CCD established a robust presence on Facebook, Twitter and other social media engines.
When CCD acquired more than a million fans on Facebook, executives decided it was time to use social media to create new offerings with customers. For instance, the company used Facebook to invite customers to propose definitions for two new products. After the definitions were finalised, CCD developed prototypes and asked the same customers to taste them. Customers posted their comments and ratings for the prototypes, such as the Crunchy Frappe, on Facebook.
CCD has hit upon an affordable and efficient process for involving customers in the development and launch of popular new products.
Partner and Profit with “Digipreneurs”
Digital Indian startups – headed by digipreneurs – have emerged as a powerful economic force. According to one industry group, startups in India will drive the growth in outsourcing contracts for technologies associated with social media, mobile devices, analytics, and cloud computing. The market for such outsourcing is expected to reach US$287 billion by the end of 2016, up from US$164 billion in 2013. This is good news for large companies keen to digitalise cost effectively.
Their challenge is to choose the right digipreneur as a partner – and then to fully draw on its strengths as a means to faster growth. But to date, few large Indian companies understand the cultural requirements necessary to grow through collaboration with digital entrepreneurs. As one senior executive explained to us, large companies in India still have to develop a culture of respect for startups. “Innovation labs in many large companies,” he pointed out, “do not have the cultural makeup to mix and mingle with the youngsters running startups.”
Even as big companies in India struggle to master this practice, some multinationals have begun launching accelerator programs for new technology ventures in India. US retailer Target, for example, aims to help startups in India by providing them with US$30,000, along with access to mentors, tools, resources and operational support. Target is expected to work with startups that are focused on mobile, data and analytics, video content, social media, and other digital technologies. These technologies are all critical for retailers to determine if they have the right merchandise assortments in stores, to set the right prices, and to accelerate deliveries to customers.
Define “Digitalisation” Metrics
The metrics a company uses to measure performance need to reflect its commitment to digitalisation. Purely financial indicators do not fully capture a business’s progress toward commercial viability in its digitalisation efforts. Companies must use some metrics that assess the strength of their “digital customer value proposition.” For example, a firm would want to know the size of the long-term income differential generated by a digitalisation initiative as compared with differentials delivered by other projects. Executives may also want to know the impact that such a differential has on aggregate market demand.
By using the right metrics, a company can know whether digitalisation has generated value for large numbers of customers over a sustained period. The enterprise can therefore determine whether its digital initiatives have generated enough demand to support prices and volumes that could exceed the costs of production and marketing, including the cost of capital. Some examples of metrics that companies are using include percentage of sales that are digital, profitability and margin of digital customers, digital versus physical return on capital employed, number of digital offerings with a consumption lifecycle focus, and digital customer retention score.
Toward a Digitalised Future
Thirty years ago, businesses in India began experimenting with information technology. Today, they are using digital applications not only to reduce costs and increase efficiencies, but also to tap into new revenue streams. Indeed, digitalisation is real, and a growing number of Indian companies have begun to reap handsome rewards from it. Companies are now following several best practices to transform their businesses toward digitalisation, but this list is hardly exhaustive. For example, many firms in India would benefit greatly from partnering with NGOs in their digitalisation initiatives. These practices will provide a useful starting point for companies, as digitalisation increasingly becomes a strategic imperative for Indian businesses and many others around the world.
Raghav Narsalay ([email protected]) is managing director of research with the Accenture Institute of High Performance in Mumbai.
Avnish Sabharwal ([email protected]) is managing director for growth markets strategy, Accenture India.