Published LA.LV
The European Union has allocated substantial funding to accelerate the digital transition in both the public sector and the business community. It is expected that these funds will become available to Latvian companies in early 2022—for the implementation of new digital technologies, the broader use of “big data,” and the development of new information technology solutions.
Digital transformation is the comprehensive adoption of digital technologies, which makes processes in the economy and the public sector more efficient. For entrepreneurs, this means a deliberate and strategic shift of their business into this modern, digital space. No company will be able to avoid this process, as it is, to a large extent, also a matter of sustainability.
Alongside the march of digitalization and its many benefits, the issue of its less pleasant “side effects”—data protection and data security—will become increasingly relevant in Latvia as well: whether and how we can influence and change them.
EU institutions have been working for several years on digital market regulations to create a single digital market in the EU, while work is also underway on data governance regulations. These are complex topics, which we can only briefly touch upon here. As Latvia’s relevant authorities develop guidelines for the allocation of the millions earmarked for digitization, they will also need to address these issues.
Data security is at least partly related to the question of where to store a company’s data—or “digital twin”—whether on its own servers or in the cloud. For several years now, many providers of these services in the European Union —particularly those from CISPE, the European trade association for cloud computing service providers—have been arguing that strict antitrust laws are needed to prevent anti-competitive practices by major software providers. Many in Europe are unhappy with the dominance of American global digital firms, and there is a widespread view that companies such as Microsoft, Oracle, Amazon, and others restrict competition.
Currently, EU institutions have nearly completed work on new digital market legislation, and as a last resort, we can only hope that it—as one of the central elements—will ensure a level playing field and curb the abusive dominance of overly large companies. These broad legislative frameworks will also influence, for better or worse, how the digital transition unfolds at the micro-level in Latvia.
SUSTAINABILITY AND DIGITALIZATION GO HAND IN HAND
The European Union is currently focusing seriously on two major themes: the “Green Deal,” or sustainability issues, and digital transformation. It must be said that these two processes are closely intertwined. Sustainability encompasses both environmental issues in the broadest sense and aspects of social responsibility and governance modernization. Digitalization, on the other hand, not only helps a company become more modern but also serves as a tool that can help businesses achieve the goals of the “Green Deal,” or sustainability.
Sustainability goals are unique to each company, and digitalization is just one of the tools that will help achieve them.
Small and medium-sized businesses, in particular, should give serious thought to the possibilities of digitizing their operations. The reason is quite simple: a well-digitized business is based on powerful data processing, which allows the company to build relationships with various customer groups much more effectively. The ability to maintain close and personal relationships with customers has always been one of the most important advantages of small businesses. However, this is now seriously threatened by modernized large businesses that are taking full advantage of the opportunities offered by data processing.
Second, it’s worth remembering that technology is merely a tool for business or project development. It does not solve the problems that have accumulated up to this point; it merely provides a temporary “band-aid” solution. The most obvious example is a company’s website or social media profile. If there is no clear answer to the question of what the goals are—whether to attract customers, build a loyal customer base, or simply sell more products—and what mechanisms will be used to achieve these goals, and, ultimately, how much it will all cost—then a good result is highly unlikely. Instead, there will likely be confusion: why isn’t any of this “working” and yielding the expected results?
In fact, even the development of such simple digital tools should be incorporated into a business strategy with very specific goals and objectives. Why is that? We’ve seen how people’s lifestyles and habits have changed in recent years, leading to different expectations regarding products, services, and accessing information electronically. Entire industries are changing right before our eyes; for example, digital platforms are increasingly setting the tone in the taxi service sector. The pandemic has only intensified this trend, so investing in an online store or app with functionality that was adequate several years ago would not even be worth it today.
On the contrary—it would be wiser to review business processes and models, identify all of the company’s “bottlenecks,” and consider what needs to be done to adapt to this new, technology-driven world.
DIGITAL TRANSFORMATION REQUIRES US TO “THINK OUTSIDE THE BOX”
How far should digitization go? Should everything be transformed, or might it be enough to simply improve the customer experience and introduce a more modern—perhaps even more extravagant—sales approach? What technologies are used in the company, and why? Is there an understanding of why these specific tools are being used? And are technology-related decisions made in line with the business strategy? The answers to these questions will help you better understand what needs to be done.
A great example is the online store launched by a major food manufacturer during the pandemic restrictions. Who would have thought that the manufacturer itself could sell online, right? Overall, this case clearly illustrates the opportunities that a high level of digitalization opens up—speed and flexibility in making non-standard decisions.
In Latvia, we also saw several industries where companies failed to recognize the opportunity to adapt and try something new during the restrictions, even though market conditions might have allowed for it. This should come as no surprise, since digital transformation requires management and all involved employees to “think outside the box”—in other words, it necessitates fostering change in the company’s culture and work environment as well. Professionals who have done this know that it is a long-term process. It requires significant investment and may initially seem too costly, both literally and figuratively.
For example, implementing a completely paperless office in a company with a few hundred employees. It might seem like the process wouldn’t be complicated—just turn off the printers and that’s it—but that’s not the case at all. You have to overhaul the document management system and consider storage, security, and access. You have to assess whether—and to what extent—employees need to improve their digital skills. And then it turns out that the total cost is too high and requires too much investment. It seems safer to leave everything as it is—at least for a year or two, until the company is ready to undertake a digital transformation of one scale or another.
IT’S TIME TO CONSIDER HOW BEST TO COMPETE FOR THE 360 MILLION
It’s no coincidence that I previously encouraged you to think about how the technology you use ties into your business strategy. After all, it’s rare for a company not to use any technology at all in its day-to-day operations—whether it’s accounting software, customer relationship management tools, or something else. However, that’s not enough for a comprehensive digital transformation of the business. In my opinion, the most important thing is to understand what’s best. Is it still sufficient for a particular type of business to rely on individual solutions that will improve the customer experience or speed up a process? Or is a more fundamental digital transformation necessary, since the industry has many opportunities to change and someone will certainly take advantage of them?
Any digital transformation requires significant financial investment. However, in the coming years, Latvia will have access to substantial European Union funds earmarked for both achieving sustainability goals and digital transformation. For example, under the Recovery and Resilience Facility, more than 360 million euros will be available for digital transformation, including the promotion of people’s digital skills. Therefore, now is the right time to consider exactly what steps a company should take to set its own sustainability and digitalization goals, adapt its business model accordingly, and use digital transformation as a tool to achieve these goals.
Author: Armands Gūtmanis, Director of the consulting firm Meta Advisory