Each year, I publish a report that documents the ” State of Digital Transformation” around the world. This year, for the first time, the report included input from companies digital transforming in China. This was inspired by a recent speaking engagement I had on the subject in Shanghai. In my interviews with executives ahead of the conference, I noticed a very different corporate approach to digital transformation and innovation. Now, a new report, in partnership with Leon Zhang and Benoit Garbe at Prophet Asia, compares the data between Chinese companies and those around the world. The goal was to surface key differences in strategy and efforts. The State of Digital Transformation in China report is also available in Chinese and Korean.
Almost all companies around the world are now undergoing digital transformation. But, digital transformation is no longer an initiative that can be executed solely in silos, nor is DT an investment limited to IT. It is a crucial component in any business growth strategy.
In China’s distinct and fast evolving landscape, digital transformation is directly tied to agility and innovation. In the past several years, tech innovators such as Baidu, Alibaba, Tencent, Didi Chuxing, ByteDance (TikTok and Toutiao), RED and Meituan Dianping, have led an accelerated wave of sweeping digital transformation. Their stories have served as influential case studies for a new wave of transformers. Traditional businesses are now aiming to shift toward a digital-first, growth mindset to more effectively compete and thrive.
So, how does China’s digital transformation trends compare to the rest of the world?
A common theme is that a majority of efforts focus on customer experience (CX) and modernizing critical touchpoint across the digital customer journey. But how and why they do that is what separates China from everyone else.
Who Owns Digital Transformation?
In China, digital transformation is increasingly led by the CEO. In other countries, CEOs are increasingly assuming leadership, but also CIOs and other C-level players still largely lead efforts. Forty-two percent of the companies in China said that their steering committee for digital transformation is led directly by the CEO, which is significantly higher than other countries at 29%.
What’s Driving Digital Transformation?
Companies in China are taking a more offensive role, using digital transformation as a way to differentiate, drive revenue, enhance customer experiences and acquire new customers. For instance, Chinese companies place emphasis on digital transformation in modern marketing and CX (83% on CX, 58% in digital marketing and 75% in e-commerce initiatives.” Compared to the rest of the world, those numbers are significantly higher (32, 40 and 23% respectively). China is also applying and directing digital transformation efforts toward product and innovation, notably ahead of the rest of the world.
Interestingly, Chinese companies are investing less on employee engagement in comparison, 8% (China) vs. 29% (rest of the world). This orientation of digital transformation toward external factors over internal efforts is closely linked to China’s highly competitive digital ecosystem and dynamic market landscape. This is most likely the reason that investments in employee experience (EX) around the world is on the rise. The need to modernize the work force and work itself is a critical enabler for enterprise-wide innovation.
Digital Transformation is a Competitive Advantage
To serve rapidly changing consumers and respond to a fast-moving and innovative environment, businesses in China use digital to stay competitive. Every industry has to keep up and evolve. By way of illustration, retail is evolving as “new retail,” automotive is emphasizing electric and autonomous solutions, finance is driven by fintech and manufacturing is comprised of IoT, robotics and AI-powered solutions, etc.
On average, data shows that global firms tend to use digital transformation as a means to drive operational efficiencies along with modernizing CX infrastructure and customer experiences. China, in contrast, invests driving a competitive edge and growth. For example, digital transformation helps identify growth opportunities (62% in China versus 48% in rest of the word). When it comes to CX, DT efforts help executives better understand consumer behaviors and preferences (50 versus 45%). Additionally, DT informs strategies against increased competition (45 versus 40%).
Top Digital Transformation Initiatives in China
The drive for growth is also reflected in Chinese companies’ long-term priorities of digital transformation. CX and customer data strategy dominate the agenda with 66% integrating customer touchpoints to deliver integrated, frictionless, omnichannel CX. At the same time, 62% are investing in IT infrastructure and technology to better manage data and cross-functional efficiencies.
It is worth noting that organization and internal transformation is relatively low in terms of priorities for many Chinese companies.
In Digital Transformation, Customers are Number One
Innovators such as Baidu, Alibaba, Tencent, Didi Chuxing have raised consumer expectations. Just like Uber, Airbnb and Amazon has affected their respective markets. Anyone interacting with a brand and business now expect fluidity, real-time, personalization, and complete integration cross touch points and interactions. This means understanding the customer journey, where it’s broken and where there’s need for innovation, is paramount.
As much as 74% of the Chinese companies interviewed are in the process of (28%) or have completed (46%) mapping out the customer journey compared to 32 and 27% respectively.
Proving ROI is a Top Challenge Over Culture and EX
Digital transformation is an incredible expense and is often viewed as a cost center. But, understanding where investments will have a business impact focuses strategy around performance and growth. As Chinese companies evaluate whether to increase investments in digital, they noted the lack of data and ROI important. In fact, 61% of companies in China expressed concerns over the lack of data and ROI, while only 34% shared budget concerns.
External factors clearly motivate companies in China to digitally transform. As a result, they are less worried about internal facing programs compared to the rest of the world. In other countries, a lack of clear vision (18%) and company culture (23%) pose major challenges for companies. Whereas in China, these numbers are substantially lower, at only 11% and 6% respectively. The top-down cultural norm in China and the fact that many employees are digital natives, are providing businesses with a unique position to be more intentional and agile.
Around the world, the early roots of digital transformation overly emphasized “digital” ahead of business strategy. Now however, customer experience and innovation are core drivers. In China, this is leading organizations to take a more proactive, rather than defensive, role in pursuing growth and performance. For businesses around the world, this means that enterprise-wide innovation must also significantly factor into digital transformation strategies. At the same time, the under-prioritization of Human Resources in Chinese companies is a signal to organizations worldwide that workforces must be trained, guided and incentivized to work in what’s quickly becoming a much more dynamic and agile ecosystem.
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