Fast-changing economics requires prompt feedback from the business. The “digital” world of the future will have no place for conservative clumsy business entities.
Traditional companies shall change their business processes with due regard for the advanced technologies not just to survive, but not to lose their positions as well. This is called “digital transformation”.
How this transformation is being overcome by Ukrainian companies? How do employees, who got used to “old” approaches, respond to such changes? Chief executives of major state-owned and private companies answered these questions during the conference IDC Digital Transformation Forum 2017, where Innovation House was the communication partner. We have selected for you some of the most interesting examples.
Ukrposhta: change yourself or die
Ukrposhta state-owned postal operator is the very example of such a clumsy business entity that has already begun to lose the ground due to its technological backwardness. According to Ukrainian Association of Direct Marketing, in 2014 the domestic postal logistics market share of Ukrposhta reached 45,1%. Nova Poshta private company came in second with the share of 15,6%. At year-end 2015 positions of these players have almost become equal: Ukrposhta fell down to 32,4%, while the share of Nova Poshta grew to 31,9%.
In mid-2016 Igor Smelyansky became the CEO of the state-owned enterprise. He is a former employee of the US office of KPMG audit company. He declared aloud that he was going to turn Ukrposhta into innovative business.
According to Smelyansky, the Ukrposhta’s network consists of 11,5 thous. branches and 75 thous. employees, 70% of the branches locate in villages having the population of less than 2 thous. people. 45% of all the pensions are paid via the enterprise, this is about UAH 140 bln. “We are larger than the entire banking system of the country” – Igor Smelyansky said.
Moreover, various components of this large system work according to their own, often wild, rules. Smelyansky said that in earlier times Ukrposhta’s branches annually received payments amounting to UAH 25 bln and made notes in “paper notebook”. That is, data on each transaction were entered manually.
Yet another example: 127 separate IT systems operate inside Ukrposhta. In other words, different software that is purchased separately, is serviced separately and has poor intercommunication. Equipments has also became out of date. 15% of 22 thous. computers were older than 20 years, another 16% – older than 10 years. Therefore, one of the steps taken by the Smelyansky, was procurement of 8 thous. of new computers. Moreover, according to him, we succeeded to save $750 thous. during the first purchase.
Computers, printers, cars – all this is purchased under leasing agreements to avoid a vast number formalities that slow down the procurement process. The bidding procedure is also the complexity. According to this procedure each customer shall choose the cheapest offer on the market. “It is a challenging task to explain to law enforcement agencies why the cheaper does not mean the better,” – Smelyansky complains.
Smelyansky’s approaches to the management often horrify his subordinates. Non-uniform raise in salaries caused public anger, for instance. “Prior to the raise in salaries, we ran through the sort facilities and asked: how do you want the raise to occur – depending on the work that is being done by every person, or we shall raise salaries of everyone in equal parts.” – Smelyansky said.
According to him, even such minor innovations as the switch to Viber notifications about parcels caused misunderstanding of colleagues. Employees wrote to the top-management in Facebook: “What vibr stands for? I will not give my parcels this way.” Despite the general skepticism, within the first 2 weeks 49% of notifications were sent via Viber.
Ukrposhta is still behind its main competitor. Smelyansky said that in 2017 Nova Poshta got ahead of Ukrposhta both by the number of mailing unit and by the profit as well.
Between innovations and theft
According to Smelyansky, the most difficult thing in the transformation of the company is to change the personal culture. “Sorters, drivers, operators of Ukrposhta have always stole along all the vertical direction. And now people do not believe that we do not steal,” – Smelyansky said.
IT Director at Ukroboronprom, Alexander Shubenko, who came to the state group of companies in 2014 shared the similar views. Ukroboronprom is also the huge business entity consisting of 130 enterprises, 31 design bureaus and about 80,000 employees.
“For historical reasons, any developments in the state-owned companies have always been the tool for the funds usage,” – CIO said. For this very reason initiatives of the executive made in public sector often uncover resistance. “Those things that I planned to do here in six months, I managed to do only now, three years after,” – he said.
According to Alexander Shubenko, the net profit of Ukroboronprom reached UAH 65,9 bln. 80 developments of Ukrainian scientists were implemented in the production. 8,108 students and junior specialists have undertaken an internship at the enterprises of group of companies – this is how potential for staff renewal is being created.
Furthermore, Shubenko believes that the cooperation with other enterprises in order to fulfil Import Substitution Programme is also among the achievements of Ukroboronprom of recent years. We attracted 200,000 thous. experts from 394 companies.
“The first condition to make transformation successful is the will of the CEO. If CEO wants to innovate, then this will be done. It is all about the desire,” – Alexander Shubenko said. According to him, 51% of the success is the leadership and 49% – is the personnel.
On the other hand, Igor Smelyansky believes that the important condition is independence, inclusive of the schemes and old approaches independence. “Independence is expensive. But one cannot build new system without it,” – he said.
“Digital” thinking people
“Digital transformation” needs new management approaches and persons having the new type of thinking. Ukrainian companies start creating entire departments working with the “digital” environment, and make open positions of CDO (Chief Digital Office) level. “As of today, digital thinking is major component of the success. Strange as it may sound, but your ability to earn “likes” in social networks affects your business,” – Anna Tkachenko, Head of Digital at 1+1 Media said.
According to her, 1+1 Media analyzes the trends from the “digital” world and makes active use of them to create its content. “For instance, if in the television show “Breakfast with 1+1” you see that Ruslan Senichkin prepares and cooks some dish, then I assure you that on the eve of the shooting this very dish was in top Google search queries,” – Anna Tkachenko explained. The same goes for news items. When Anna Tkachenko was asked why there are so much negative in the news of Television Service of News (TSN), she said that this is exactly what people are interested in.
Or, for instance, media holding company has own development on copyright protection called SUDUM. It uses the “smart” content analysis algorithm. It helped to delete 200,000 illegal video copies and 70,000 links from the Google search system so far.
Head of Digital at 1+1 Media believes that companies will soon need digital leaders of 3 types. The first one is digital investors, that is, senior executives, who create conditions for the intellectual capital development within the company, invest in talents and ideas, and encourage innovations as well. The second type is digital pioneers, executives of subdivisions, who form new business models and are in charge of “digital” strategy. The third type of leaders is digital-transformers, as they are called in 1+1 Media. Persons able to bring their team through groundbreaking changes.
Intertop, chain of footwear stores, which unites nearly 200 outlets in Ukraine and Kazakhstan, also pays much attention to “digital transformation”. They have CDO position. “Digital transformation” of Intertop is primarily centered around the switch to multichannel (omnichannel) sales. “Multichanneling is the major growth source when it comes to retail,” – Sergii Badritdinov, CEO at Intertop, said. Five years ago Intertop’s website was more like a business card website. Currently about 10% of sales are made online.
Sure thing, far from every innovation generates immediate effect. And not many of them strike the roots. “Three years ago we introduced the first plasma-panel displays in stores. We thought that people will come, browse and place orders for footwear. But this failed to happen, – Mr. Badritdinov recalled. – We thought that this was caused by poor work of our marketing. Therefore, we enlarged the pointer and wrote “Place your order and take it away!”, sales advisors stood near such displays and said: ”Hey, people, go here! We made this for you.” The answers were: “You know what, we do not need this”.
According to CEO, we shall gradually launch the business transformation. We shall listen to the customers, try something new. “We will have to “trash” something, but some things will operate. But under no circumstances we shall ignore this trend.
While business community is trying to readjust itself, countries shall also consider the transformation. According to Robert Farish, Vice President and Regional Managing Director at IDC, countries of the future have the global challenge: how to adapt the taxation system and how to interact with other countries of the global world.