Businessworld

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Digital transformation creates new possibilities for an organization be it innovations in products and services, better ways of working, and enabling nimble organizational models. But, often, a digital transformation fails because organizations focus solely on technology and are inattentive to data quality, people and processes. “On Exactitude in Science” or “Del rigor en la ciencia” is a one-paragraph short story written in 1946 by Jorge Luis Borges, about map–territory relation. It imagines an empire where the science of cartography becomes so exact that only a map on the same scale as the empire itself will suffice. But, then it’s not a map. It is the world just as it is!! Same is true of data and brand building. Data should evidence patterns that give insight. Else, data is just everything about the world as it is and that is of little use! [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Data has been heralded as the ‘new oil’, but what good is oil be if nobody knows where to find it, extract it, refine it, store it and use it? In my opinion data is more like electricity. It is not finite, lying underground and waiting to be discovered. It has to be created, tapped, transmitted, utilised and handled carefully. Not knowing about your data or its location can cause compliance vulnerabilities and security risks. Since the GDPR legislation came into play, this has been a constant red flag. Its severity goes up for sensitive data such as financial or health records. Data is undeniably the most valuable resource for an organisation today. As a key business decision driver across industries, understanding data, and data analytics, in particular, is often crucial to success. Modern businesses are adopting technology to organise and comprehend the huge amounts of information they collect. But when the data with which big decisions are being made is ‘bad’, or spurious what can that mean for data-driven businesses? From evidence across industries, it is quite clear that customer experience ambitions are being challenged by this phenomenon. The three most common factors preventing businesses from using data to their advantage are data inaccuracy, lack of direct control needed to impact strategic objectives and information overload A lack of trust in data derived insights isn’t necessarily a result of the data itself, but how it is being managed and collected. Historically, businesses have been slow to tackle data quality issues. Inertia makes them endure pains and fix issues sporadically and reactively. Data fragmentation is a common occurrence where legacy structures impose on data collection, storage, pooling, analysis and utilisation. Data is compartmentalised, scattered or located in pieces or multiple copies all over an organisation’s IT system, leading to an incomplete single view of the data, its components, and an inability to extract real value from it. The vast majority of data sets are typically located on secondary storage, used for backups, archives, object stores, file shares, test and development, and analytics However, when fragmented – as is often the case – it can be extremely difficult to locate, manage or put to any use. I have led more than one digital transformation project and in each case the underlying data foundation was the most critical concern. The entire superstructure rests on that foundation. Any customer journey involves many moving parts that the company must connect and orchestrate, including the behind-the-scenes middle and back offices and various support functions that have no direct contact with customers, such as marketing, product, operations, HR, finance, legal, risk, and compliance. For realising the power of data based transformation, customer journeys have to be treated collectively as one comprehensive project rather than as multiple projects. The only way that can happen is if the data flow and single view of customer allows for it. Data pooling, de-duplication and harmonisation is the biggest effort in such a program. As a first step, a company needs to develop a list of relevant journeys, evaluating the business benefits of each and tying the expected outcomes to the company’s overall strategy and purpose. These journeys then become the primary basis for organizing the required data and structuring the teams. For example, a bank should have a journey – “Helping a customer buy a home” rather than separate steps of filing a loan application, submission, documentation, validation, contract etc. Many business leaders view their secondary data as expensive to store, of poor utility and a growing compliance risk. But a lack of control around data ownership will impact strategic ambitions, particularly around customer experience, agility, growth and competitiveness. It seems obvious that businesses that can’t get in front of mass data fragmentation, and tackle such data quality issues, face serious disadvantages that may jeopardise success for years to come. The inability to manage and harness insights is a big competitive disadvantage when it comes to customer satisfaction and development of products and services. Secondly, the inability to know your multiple data sets and its location can cause compliance vulnerabilities and security risks. The problem of poor data and fragmentation is not only an IT concern: it’s a business one. If IT is expected to manage all the organisation’s secondary data and apps across all locations, but neither standard operating procedures nor technology is in place to accomplish that goal, IT leaders will understandably be worried about a wide array of major problems occurring in several different areas. While technology plays a key role in data management and the improvement of data quality, changes in working processes, organization of cross functional teams, reward criteria and employee behaviour are critical too. There is clearly a need for a Chief Data Officer to reinforce both data compliance and security. The solution, of course, would have to encompass a better way of storing, managing, protecting and extracting value from the wide-ranging pools of secondary data. Breaking down business silos, preventing redundancies and using technology to help give real time access to data. These are cultural and business process issues. The world of business is on two sides of a

The past two decades have been good for ‘big’ businesses. While the size of the private sector as a percentage of OECD economies has remained relatively steady since the mid-1990s, the share of companies with more than $1bn in annual revenue has grown by 60 % since 1995. While companies on average contribute to 72% of GDP, they underpin 85 percent of technology investment and 85 percent of labor productivity growth since 1995, a larger proportion than their GDP contribution. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Big companies have become bigger across the world. A new McKinsey Global Institute white paper divides corporations into eight archetypes: discoverers (for example, biotech firms, which push scientific frontiers), technologists (including the platforms that build the digital economy), experts (such as professional services, hospitals and universities), deliverers (which distribute and sell products), makers (mainly manufacturers), builders (utility, telecom and transport companies), fuellers (fuel marketers) and financiers (banks and insurers). [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Large companies, particularly in the US and China, have been the biggest economic winners of the past quarter of a century. This was due to globalization, source and flow of investments and the rise of the platform giants in technology. With every passing decade, there are more and more companies globally that command market valuations of more than $100 Billion. In 2000, 2010 and 2020 there were 43, 51 and 106 corporations that met the benchmark. However, this value concentration is not equitably distributed in terms of country of origin. In the year 2000, out of the 43 mega corporations of 100 Billion+ value, 21 were American. In 2020, we see the US dominating even more – 60 of the 106 companies are American! By 2020, the world saw the bar raised to a trillion-dollars of market value. There are five of these trillion-dollar behemoths viz. Apple, Microsoft, Amazon, Alphabet and Google from America’s tech sector. China and India were nowhere on the value map in 2000 but China has managed to enlist 14 companies in this elite group by 2020. India has merely 2 in the Star rankings – Reliance and TCS. India must do everything to change this. It begins with a need to celebrate big business entities. We need mammoth corporations that create value by being bolder, aiming to be bigger and embracing growth. Today’s world allows for asset light, idea-rich disruptors to rapidly build value. Robinhood, a US based commission free brokerage service for retail investors that listed on the NASDAQ recently got at an eye-popping valuation of $35B. It is not alone. India is seeing continuous churn but our value growth is relatively tepid. Half of all Nifty constituents in 2000 were replaced by 2010 and then another 50% of Nifty entities faced churn between 2010 and 2020. I would point to TCS, the crown jewel of the Tata Group as an ideal. It has become one of the largest wealth creators not only in India but also across the world. In its sphere of activity it is a global leader. This is one case of a truly focused, enterprising Indian company that competed in the global market and won. Enormous tenacity, growth-minded focus and a bias for action were required for this to materialize. Market forces tested the resilience of the company when the world went bust right after Y2K, then again with the financial meltdown of 2008 and again in 2020 with Covid. TCS had positioned itself as a global company right from the beginning and then continued to deliver in this totally new sector without any form of government support. The credit for this goes to the visionary and disciplined leadership of Mr. N. Chandrasekaran, now the Chairman of Tata Sons. Mr. Chandrasekaran led multiple full-scale transformations as opportunities and challenges presented themselves. He focused on developing scale, cost advantage, intellectual capital and a global delivery system. The Tata Group – founded by Jamsetji Tata in 1868 – has been led by visionary, statesmen leaders ever since. It is a global enterprise and operates in more than 100 countries across six continents. It is indisputable that they are focused on long-term stakeholder value creation based on ‘leadership with trust’ . We really do need to make Indian companies learn from the Tata example. Reliance Industries, India’s largest company, continues to be vastly profitable and successful in the old world businesses of oil and petrochemicals. Reliance chose to make a quantum shift and, through internal accruals, is fast pivoting to a tech and consumer focused organization. Their commitment towards connected networks, renewable energy, software and enterprise solutions and new age businesses shows vision, risk appetite, appreciation of scale and a leadership mindset. Very rarely has such a large company – so quickly and so comprehensively – pivoted itself completely towards future focused growth streams. So, we don’t need to look farther than these two Indian examples that embraced technology and generated wealth for all stakeholders and the community at large. In both these cases, the private enterprise has raised resources and painstakingly crafted their own unique growth story without much external help and both defined success in their respective sectors through Indian talent going global in ambition. If these two companies could do it, so can others. We need to ensure small and big firms flourish. It cannot be a one or the other option. On virtually every meaningful indicator, including wages, productivity, environmental protection, exports, innovation, employment diversity and tax compliance, large firms as a group significantly outperform small firms. India definitely needs more of this mindset. India has strong fundamentals, a growing consumer economy and a young workforce and all these need to be channeled into value through the private corporations of the country. The pursuit of value is a never ending process and the government and private companies should work together with a growth and forward mindset in order to make India the biggest growth engine the planet has seen. India’s appreciation for small business is rooted in socialistic ideals passed down from the nation’s pre-industrial context. We

The marketing function developed in the ‘Indirect Brand Economy’. Historically, the advantage lay with the entrenched incumbents. Challengers had a bleak chance of breakthrough. The top few players created a high barrier to entry using a capital intensive supply chain network. Small scale distribution was exorbitantly expensive and it was almost impossible to get shelf-space with the retailers unless you drove ‘big volume’ demand. Inability to manufacture, distribute or create customer awareness at scale meant new entrants had almost guaranteed failure. The third parties involved in value extraction included the advertiser channels who controlled all access to the consumers and retailers who were the only ones to do the last mile demand fulfilment. Right from FMCG to consumer durables, this formula was the holy grail for success and remained so for more than a hundred years. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Fast forward to the current century – legacy systems have longevity and naturally, the major brand and supply systems have endured though eroded. The essentials are all the same – it is important to have an idea, be viably differentiated and create positive meaning. And yet things have changed tremendously. The rush of technology, particularly cloud, has been a game changer in the way brands conduct their businesses. It has fueled a ‘Direct to Consumer’ economy. This trend of selling directly to consumers without physical outlets started in the 1990s itself with the e-commerce players like Amazon and Zappos. They certainly posed a serious threat for traditional retailers but for manufacturers/brands they simply opened up an additional demand fulfilment channel. It is what transpired in the next decade that transformed this equation – we saw a meteoric rise in D2C companies that started disrupting legacy businesses by creating their own brands and selling directly to consumers. Traditional brands were no longer immune from upstarts with a plan. So, the obvious question is what has changed? Firstly, an end to end supply chain can now be leased ‘off the shelf’ – this has not only bulldozed a capital intensive entry barrier but has also eroded the value of scale with the companies becoming extremely agile and nimble. Cost of entry has plummeted leading to fragmentation in not just brands but also how things are sold. Additionally, the rise of digital marketing and e-commerce has ensured that the access to the end consumer is far more democratic – the reliance on the ‘3rd Party hand-offs’ has come down dramatically. In a nutshell, this ‘Direct Brand Economy’ creates value through open source, leased or rented supply chain and does value extraction through a direct relationship between the brand and the customer. The shift from physical retailing to digital demand fulfilment is leading to creation of a different form of companies – an enriched enterprise where the core asset and hence the entry barrier and competitive advantage is data itself. This emergent reality has made D2C – Direct to Customer – a big force and growing reality as evidenced by the deals between Coca-Cola and Costa, Nestlé and Starbucks and Unilever and Dollar Shave Club. All of those deals are influenced in some way by the advertiser’s need to control first-party data or at least use it in a coordinated way. A new breed of specialist agencies will come into the picture and be valuable. For example Sokrati Merkle is a leading edge agency in digital, search and CRM data services. It expanded its data services beyond direct mail and email marketing to include loyalty initiatives, data strategy and modelling, as well as technology integration. Every major brand is looking for a service layer agency that can assist in nurturing relationships, steering creative ideas or post-purchase experiences direct to consumer and not only from media buys and reach oriented investment like doing through the traditional agency network. This is not a competition between physical and digital ways of business but a democratization of these touch points with numerous ‘Phygital’ combinations. Central to all of this is ownership of data and creation of a personal relationship between the brand and the consumer. Technology is disrupting everything and that is not a throwaway line. As a consequence, tent pole campaigns and media dependent growth are becoming déclassé. It’s no longer advertising with a capital ‘A’ but data driven, always on, programmatic advertising with a small ‘a’. Today marketing is like an election campaign without a voting day. Tent pole campaigns and tent pole IPs are being outdone by a virtuous combination of data science and creativity . D2C is –by definition – an accelerated route to market. This acceleration requires change in legacy systems, organization structures and skills. It demands transformation across silos, on scale. Tinkering with digital bits and pieces won’t do. Discrete digital acts within functional silos won’t help. Data driven D2C demands agility, conviction and a painful metamorphosis when undertaken by legacy players. For new challengers, customer experience as a differentiator is also easier said than done. It will not be an exaggeration to say that the era of mass brands which used to cater to consumers through mass retail stores and communicate using mass media is now giving way to a new era of very nimble customized or semi-customized brands who cater to the most relevant target audience and have a semi-personalized set of targeted communication for marketing. A two way relationship with the customer is even more valuable than a one way impression as it brings in voluntarily provided customer data. Every brand needs to think ‘Direct’ – the future of the business lies in dealing directly with the consumer. The growth of digital connectivity made a global consumer convergence possible. Digital interfaces don’t treat third world markets in a second hand manner. The virtual store doesn’t have a velvet rope. It doesn’t smirk at any customer, low or high. The expectations of quality products, services, timely deliveries, online capabilities, responsiveness etc. are irreversible. D2C challengers beat indirect brand behemoths who are pushing outdated value propositions and retaining unwieldy, profit eroding, channel

The Retooling of Fintech and its Existential Challenge to Traditional Banking In recent times, there is a blinding halo around Fintech startups. Their potential for success is such that the largest players in venture finance are queuing up with investments. Successful IPOs are proving their bets right and further feeding this frenzy. The pipes that carry the world’s most precious commodity have always been important. That commodity is no longer money but ‘data about money’. There is a virtuous, mutually reinforcing, loop between data and money. The proliferation of smart phones and the universal growth in e-commerce is seen, by all, as a value accelerator. The pandemic has further made this accelerated innovation a dire necessity. As a result, more than 20% of all funds given to startups in 2021 went to Fintech. It was the single largest recipient. Acquisition of promising startups has been a longstanding strategy of Visa and MasterCard. This is seen as muscle building by this duopoly to add technology and processing capabilities. Both Visa and MasterCard are still very much in play as acquirers, investors, principals. However, the game is now bigger. From an evolutionary perspective, the banking sector is ripe for disruption and traditional banking has been giving way to ‘new age financial experiences’ provided by the NBFCs and startups of the Fintech space. The new players have deviated from the traditional banking modalities and hence successfully caused disruption. For a thousand years, the core collateral based lending model has reigned supreme. That is changing and things will never be the same again. Startups with a wealth of first party consumer data assets are muscling into traditional banking’s turf by confident lending done seamlessly and in a heartbeat. This is a change in both the genre and process. It is a delight in terms of customer experience. Where the consumer is concerned, it’s ‘faster cheaper better’, cliché and all. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Just the other day, I received a notification from Cred offering a line of credit. What struck me was the ease with which I could have utilized this service without any documentation and then repaid, in installments, activated entirely from my smartphone. Compare that with how a bank lent me money to buy a home. It took endless documentation and several meetings to get the loan sanctioned. The Chinese giants Alibaba and Tencent made their fortunes building payment networks, then reducing interchange fees and then launching integrated social and e-commerce platforms. The traditional 4-party model of Visa and MasterCard comprising the issuer, acquirer, merchant and customer is still flourishing but its underlying economics is being undercut in a big way. The new challengers are armed with better information about customers today than any bank. They can lend with low risk and if borrowers do not pay back, they can be ostracized from social and e-commerce platforms which amounts to an existential matter today. This ‘information asymmetry’ is extremely powerful as institutions like Ant Financial with first-, second- and third-party data sets can triangulate in real time and make very sharp predictive assessments on a borrower’s viability and other information. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Across the world, Fintech disruptors started small and serviced a particular need of consumers exceptionally well. Then they expanded into an integrated ecosystem offering a multitude of services like Lending, Ecommerce, or Insurance. This differs from case to case. The Economist reported that Fintech firms enjoy better ROEs (~20%) compared to traditional banks (~5-6%) which means they command a premium in valuation. Today, Fintech companies are valued more than $1.1 Trillion, a good 10% of the global banking and payment industry’s worth. Along the way, many shall deflate in value terms and more than a few will go bust but they are representative of the changed order and new scheme of things. PayPal and Stripe are valued at $310B and $95B, respectively.The Swedish ‘Buy Now, Pay Later’ startup Klarna is valued at $46B while Indonesia’s Grab is valued at $40B. Razor Pay and Paytm are some of the leading Indian startups in this space. As these new age institutions become bigger and reach more consumers, they gain from network effects and offer better cost competitive products and this, in turn, boosts their growth even further. These companies are especially beneficial for emerging economies since access to banking is lower than in developed countries. One such Indian initiative was the UPI (Unified Payments Interface), created by the Government of India. It has disrupted the business model for e-wallets and even debit and credit card providers, all because of the convenience and hassle-free experience. It is because of such experiential differentiation that NBFCs and new age startups have been rising at breakneck pace and traditional banks have been losing share steadily over the last 2 decades. NBFCs have seen a surge in asset holding because of newer methods of lending and, as of 2019, they hold more than 50% of all financial assets, globally. With all this happening, central banks and regulators were bound to wake up and take notice. And they did. There are centrally sponsored experiments and studies running across the globe which study the benefits of digital currencies, cryptocurrencies, payment networks (like UPI) and information sharing across the financial space. For example, European regulators are looking at the possibility of sharing online consumer behaviour which can then be used by all financial service providers. This is akin to a CIBIL score in India but differs in the scope and depth of data used.After the experiments with the Chinese Digital Yuan, now even the US Federal Reserve has begun evaluating the pros and cons of a Digital Dollar and that obviously does not bode well for the commercial banks. Payments would be settled faster and transaction costs could be nullified among other benefits. The ECB is also looking at similar possibilities. This relentless advance of Fintech will touch everything that money touches and will flow everywhere that money flows. We are going to see more innovations in the world of finance

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