Executive Roundtable in India – Leveraging disruption to drive digital innovation

Digital disruption is impacting every industry, and those that do not adapt will not survive. This disruption is extending across industries as social media giants, e-commerce marketplaces, telcos and data companies challenge the concept of traditional, siloed industries altogether.

From left - Moderator: Abhishek Gupta, Partner, KPMG India,  Panelists: Manu Saale, Chief Executive, Mercedes-Benz Research & Development, K Harishankar, Head of IT Innovation & Services Centre, Bangalore, Unilever, Sachin Kulkarni, Managing Partner and Vice President, IBM Global Business Services and Bidyut Durma, Executive Director, DBS Innovation Group.

 

Looking at the automotive industry, for example, we are seeing disruption due to electric vehicles, bio fuel cells, driverless vehicles and so on. But while digital is driving research and development (R&D) priorities, digital is also enabling R&D. Which would you emphasise?

Manu Saale, Mercedes-Benz: I think that this is exactly the issue: digital is shaping R&D and vice versa. It is not just automotive technologies that are transforming the business, but wider digital trends too, such as Uber and the ride-sharing economy. If a company offering car sharing services or on-demand transport buys our entire fleet, immediately our business model is overturned, with no touch points to end customers. We need to reinvent ourselves to reflect an environment that will change quickly. In our business, we have two classifications of digital: first, the customer-engagement technologies in the form of apps and customer touch points; second, the less obvious digital innovations to drive product development. Digital design and product development allows us to innovate and test concepts and ideas far more quickly without the time and cost of physical manufacture, which fundamentally changes our development timelines. Producing a new model takes around seven years: reducing this by even six or twelve months brings big savings and competitive advantage.

 

Looking at the FMCG (fast-moving consumer goods) industry, how is digital changing the back office? And how is this impacting on digital at the front end?

Harishankar, Unilever: An interesting question for us has been how we see digital in relation to global business services (GBS) at Unilever. In many ways, these are symbiotic: digital is essential to GBS efficiency but at the same time, GBS is an enabler of our digital business strategies. This combination is very powerful: if we get our internal digital strategy right, we can create and deliver a better digital strategy for our customers. In the past, we’ve often talked about GBS in terms of labour arbitrage, offshoring, outsourcing etc. Today, we talk about automation, leveraging RPA (robotic process automation) and AI (artificial intelligence) to embed digital in shared services, and therefore enable a better digital business strategy.

FMCG appears to be a product-centric industry but in reality, data and digital are at its core. Market research, product development, these are all far more effective when harnessing data effectively using digital tools.

 

As a technology enabler of other businesses, what does digital mean to a company like IBM?

Sachin Kulkarni, IBM: As a cloud, cognitive and digital company, digital transformation underpins our business. We have spent more than USD 16 billion over the past six years on our digital innovation infrastructure and last year alone, we registered 9,043 patents. Any company wanting to maintain a worldwide leadership position, in whatever industry, is thinking in the same way. One of the challenges of digital innovation is how to architect an enterprise in a way that is difficult to disrupt. After all, one day the technology buzzword could be blockchain, the next day it could be quantum computing, and who knows the day after? We have to build the business in a way that is resilient and adaptable to the next new business model or technology. We look at this in four layers: cloud; data; AI (artificial intelligence) and analytics, and finally digital. We combine these layers, each of which can be very complex, to create compelling, differentiated, personalised customer experiences through the most appropriate channels for that application and generation. Cutting across all of this is security, which is like our immune system, and automation: you can’t talk about digital without automation.

Our digital strategy has specific characteristics in India. IBM is an USD 80 billion business globally, but our business in India has already reached USD 5 billion. We are therefore becoming more important in shaping digital strategy, not only within our own, and our customers’ business, but in India more widely. For example, Ginni Rometty, IBM’s CEO, has met Narendra Modi seven times since he came to power, and IBM has a seat at the table in advising on digital policy, such as through NITI Aayog (the National Institute for Transforming India). As our global corporate customers evolve their business model, we also need to change the way we provide our services to them. For example, while many large corporations may have set up relatively straightforward offshore shared services in India, Central or Eastern Europe, Latin America or Southeast Asia initially, these are now becoming centres of innovation, such as R&D and engineering, so we need to provide a different, digitally-led service to support this.

 

What about banking? Bill Gates once famously said, “Banking is necessary, banks are not”: could digital transformation threaten banks’ survival?

Bidyut Durma, DBS: It’s interesting: this quote was from 1994, and over 20 years later, the banking industry is stronger than ever. What is different, however, is the language and shape of banking. When you think about what you need for yourself and your family, you’re more likely to include houses and cars in your answer than mortgages and loans. Banks are not here to sell financial products, we are here to help people – and businesses – to fulfil their dreams and ambitions. In that context, I think DBS’s brand promise, ‘Live more, bank less’ is very apt. To change the shape of our bank, we needed to become a digital bank. Over time, perhaps we’ll become invisible altogether:  if you’re banking without knowing it, we’re all winning.

 

Companies like IBM are running enormous R&D GBS divisions in India now, in which digital innovation is crucial. To what extent are your R&D GBS centres partnering the business, and in what ways?

Manu Saale, Mercedes-Benz: We have positioned ourselves not just as a partner to the business, but as the business itself. As someone on our Board said when he came here, ‘There’s a little bit of India in every Mercedes.’ This didn’t happen overnight. For the first decade, we didn’t really understand India and the potential that exists here, particularly as it is not yet a key sales market for us: we sold 14,000 cars in the whole of India last year, compared with 15,000 through a single dealership in Beijing. It took a while to recognise that India is positioned as the perfect location for a world-class R&D centre, so it is important to understand your strengths and build on them.

One of the key factors in the success of our R&D centre (which we refer to as our GCC or global capability centre) here in India is understanding the needs of the business in each location, whether these are technology-related, but equally, cultural. For example, the concept of shared mobility is different in parts of Asia than it is in Europe and the United States, while people’s priorities and behaviours are different in each country. We need to understand what is happening and what people need in each country, which we do by working closely with the business, and apply technology and entrepreneurship to delivering digital solutions that address these needs.

The profile of our GCC is quite different to other parts of our business. The average age in our GCC is 29, compared with 49 in Germany. We have professional experience of 7 years, on average, compared to >20 years in Germany so we are digitally very savvy, and open to new ideas. As India is not a big market for our vehicles, we don’t have large number of test cars, and there is little value in designing cars for the India market. Other parts of our business have strength in hardware, our strength in digital, so when the digital wave struck, we were ready to become the internal digital partner for the group. From 150 people when we started, we now have 4,000 mechanical, electronics, and computer science engineers, while our AI, deep learning and computer vision specialists work with the business to understand the customer needs, translate these into technology terms and then hand back solutions at rapid speed.

 

Manu, you mentioned – and thank you for your humility - that Mercedes-Benz’s first decade in India wasn’t a great success - what changed?

Manu Saale, Mercedes-Benz: It’s quite hard to admit that a whole decade is forgettable, and at the time, I was watching from the outside: it was a difficult period. There are things to learn though. Many global businesses that come to India – whether to gain cost arbitrage, leverage R&D talent or whatever, find it difficult and a number have exited. It’s not about patience, nor is it about investment dollars – during that decade, Mercedes-Benz had both. One obstacle we encountered was perception – not outside the business, but within it – which limited our success. We found that our business, including at a headquarters level, actually saw us a threat. We therefore needed, and continue to need, to make it clear that our role is to strengthen competitiveness of the whole business for long-term success, not to compete with it or supersede what is happening in other parts of the world. Our contribution to the business is digital, because that’s where India is strongest. It took time, and constant reinforcement, to convince senior management that we are doing something that cannot be done elsewhere. The benefits we bring have become increasingly clear – if you crash a car during testing, there’s a cost and it takes time to learn, change and start again. If you crash a car digitally, you can learn, correct and test again very quickly, and then over time start to predict and anticipate. You can’t do this when you’re crashing a car each time.

It’s also important to remember that you build reputation and trust through success. This is one of the benefits of being part of a German enterprise, as there is a culture of respect, professionalism and an appreciation of quality. True, we can also deliver more cheaply than they can in Germany, but this is not the main driver, and we have worked hard to build our internal reputation by delivering value to the business.

 

Coming back to Hari, what is the impact of a GBS centre on the top line? – or are the benefits still mainly in back office savings?

Harishankar, Unilever: In reality, the association of GBS with back office is largely outdated. It’s true that when GBS centres were first established, including at Unilever, the early wins were in the back office. But after the first couple of years, like many other GBS centres, we moved beyond cost to capability, and then from capability to innovation. For the India FMCG industry, for example, the number of customer facing processes that are directly or indirectly touched by GBS is quite high, which has a direct bearing on growth. Looking at sales promotions, for example, GBS plays a key role in promotions management, analytics and supporting the business with add-on sales operations planning. We run distributor management systems globally and empower our distributors which has a direct impact on sales, and how we serve our customers. After all, our role is summed up in our name: “global business services”.

In many respects too, our location in India is an advantage, not least for the demographic reasons that Sachin mentioned. The speed of change in emerging markets still surprises many in the developed world, so our senior leadership is keen to take experiences and innovations from emerging markets to other parts of the world, not just products, but also in terms of ways of working, frugal innovation, agile innovation, speed, dexterity, and embracing new paradigms. We can re-invent our business very quickly, which is not so easy in other parts of the business.

 

One of the accusations often levelled at banks is that while they’re insourcing, adopting or building technology, they are not open to open innovation. Is that fair, do you think?

Bidyut Durma, DBS: There are two issues I’d highlight here. One is that when we insource, we do so in order to address customer problems more quickly and go to market with new solutions, it doesn’t preclude any other innovation strategy. The second is that open innovation is becoming critical for banks. We have opened up our development portal, with more than 200+ APIs, which are available to anyone, globally. You simply jump on, create a login, get access to a sandbox and gain access to a complete complement of APIs which allows you to build whatever services you want. We have already got a raft of businesses, from small startups to global players, that are now using the platform to build client propositions. Once they move from sandbox to production, they run through a certification process with us. DBS was recently rated as one of the top two banks globally in terms of embracing open innovation and open banking.

The two points here are not mutually exclusive. It used to be the case that the higher your walls and the deeper your moats, the better protected you are, and the better you are as a bank. That doesn't hold true anymore. Almost all banks are moving to an open banking model with a think tank, an accelerator, an incubator. As a result, it’s now the speed with which a bank can move from idea through proof of concept to a marketable solution that becomes a differentiator.

Before launching Digibank in India for example, which was our first market for our new digital bank, we had around 14,000 customers in India. We now have over 2 million customers in India. Furthermore, we have been able to take the insights, experience and technology we have gained and expand them into other markets.

 

We have talked already about India being a global centre for R&D, innovation and digital? Are we ready for that?

Manu Saale, Mercedes-Benz: Absolutely, yes. It’s the reason I get up and go to work every day. We are absolutely ready, we just have to learn to dream differently. We need to understand our limits, as I said before, but also leverage our strengths. If a problem has a digital solution, then India has the way to find it. Whether that problem originates in India, or whether the solution is applicable to India is not the point: the point is that we excel in global digital solutions.

Harishankar, Unilever: Two of the major factors in the success of a business is talent and a rich ecosystem. We have the talent, which gives us the opportunity to really drive digital in the future. Similarly, our ecosystems are evolving, with fundamentals in place and building quickly. We have challenges, of course, such as infrastructure. But our strengths, as Manu has said, are globally significant, and there is no reason to believe that our digital potential successes will not accelerate even faster.

Sachin Kulkarni, IBM: To be really successful at this, however, we need to think differently. In particular, we - generation X - need to think about how generation Y and generation Z - which are both the customers and the workforce of the future - think, learn, work and play. I think we are underestimating this at the moment. We are the ‘double click’ generation, which saw the start of the internet, broadband and the browser before transitioning to mobile. Generation Y is perhaps the ‘zoom and pinch’ generation, that moved straight to touchscreens, and my daughter’s generation is the ‘hover and blink’ generation. They just smile, and expect their phone camera, or better yet, the drone, to take a selfie. Who knows how the generation after Z will interact with technology and what their expectations will be: perhaps their technologies will be thought-activated without even a gesture required. However, the future enterprise is being designed by my generation, which is the furthest away from the digital native generations of today and tomorrow. This needs to change fundamentally to unleash the creativity, collaboration and ingenuity of new generations in developing relevant digital solutions.

A second point I’d make is that the whole concept of work is changing: the idea of a person going to work at the same time every day, sitting in one campus, doing one job, is being challenged by the new generation.  People want flexibility, the opportunity to explore new ideas, new skills, new places in a way that would have been unthinkable when our generation started our professional lives.

Bidyut Durma, DBS: I agree with these points. I saw a recent survey that ranked India at number 20 globally in innovation terms. The country scored very highly in skills and talent, funding accessibility, regulation and entrepreneurial mindset – however, these advantages didn’t translate into entrepreneurs. So, there seems to be a gap, perhaps cultural, in relation to risk appetite. In addition to skills, therefore, we need to develop the entrepreneurs of the future so that they don’t just dream big, but can crystallise dreams into objectives and have the confidence to pursue them.

 

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