Different DX objectives between Japan and abroad

Although DX has been a major trend for some time, according to the “DX Report 2” [1], 95% of Japanese companies surveyed responded that they have “not yet started at all or only some departments have started” DX initiatives, which leads to a strong argument that “DX in Japan is lagging behind the world.” Where does this gap come from? In exploring the backgrounds, it would be interesting to compare the breakdown of IT budgets classified by use between Japan and the U.S.

According to the “2020 Survey on DX in Japanese and U.S. Companies” [2] conducted by JEITA (Japan Electronics and Information Technology Industries Association), IT budgets are increasing in both countries. However, the breakdown of the usage shows many U.S. companies allocate IT budgets to understand markets and customers, such as “responding to changes in markets and customers” and “strengthening analysis of customer behavior/markets.” In contrast, Japanese companies still allocate the majority of IT budgets to internal business improvements such as “improving work efficiency,” “cost reduction,” and “work style reform.” In other words, while many U.S. companies focus on “boosting customer experience value” as the purpose of DX, many Japanese companies focus on “improving business operations.”

Returning to the Definition of DX

The U.S. companies’ objectives of DX resonate with the definition of DX outlined in the "Guidelines for Promoting Digital Transformation (DX Promotion Guidelines)" published by the Ministry of Economy, Trade and Industry in December 2018 [3] as follows:

"A situation where a company takes advantage of data and digital technologies to deal with dramatic changes in business environments, change its products, services and business models to meet the demands of customers and society and change its business itself, organizations, processes, corporate culture and corporate climate, so that it can establish a competitive advantage."

In other words, while "improving operations" is certainly important, it should not be the focal point for DX. Instead, companies should first define the purpose of DX, that is, the "reasons to work on DX" based on the needs of customers and society, then generate business models and strategies based on these definitions, and switch the necessary technology from analog to digital. These are the ideal approach for DX initiatives.

Design approach to derive "reasons to work on DX"

So, how can companies derive the "reasons to work on DX" from a customer-centric perspective? One effective method is a design approach through in-depth interviews with stakeholders such as consumers, management, and employees. This approach allows companies to identify the Key Factors for Success (KFS) based on important customer experience values in the relevant area, and clarify the gaps between the KFS and the current business.

The overall process consists of six steps:

1. Set the target areas, players, and users
2. Visualize the overall picture of the desired experience values in the target areas
3. Narrow down the key experience values for now and in the future
4. Derive KFS from a customer-centric perspective
5. Visualize the gap between the key experience values/KFS and the current business
6. Derive the "reasons to work on DX" from a customer-centric perspective.

1. Set the target areas, players, and users
First, set the scope, target players and target users in order to conduct in-depth interviews with consumers. When setting each item, it is important to expand the scope a little by not only focusing on direct competitors in existing industries but also considering indirect competitors that strive for customers' time and extreme users who have extremely positive and negative behavioral patterns. This process often makes companies realize the potential demand for experience values that had not been anticipated otherwise.

2. Visualize the overall picture of the desired experience values in the target areas
Next, clarify the overall picture of the desired experience values within the target area through in-depth interviews with consumers. In this process, keep in mind not only to look at the experience values currently desired, but also to pay attention to the potential experience values, that is, the latent experience values that have not yet been fully satisfied by any player but may see increasing demands in the future. It is necessary to carefully extract the unconscious mind and desires as "unspoken voices" commonly heard in multiple statements (facts) by consumers through the in-depth interviews.

3. Narrow down the key experience values for now and in the future
While considering the positioning of each experience value identified in step 2, narrow down each of them. In this step, for example, it is practical to draw a two-axis matrix with items such as "importance among consumers" and "fulfillment of what is offered.” This process can help specify the important experience values for now and in the future, and generate grounds to determine action priorities in many cases.

 
4. Derive KFS from a customer-centric perspective
Once the key experience values have been specified, pick up players with high satisfaction rate for each value, and examine the reasons for their high satisfaction. After reviewing everything, identify common factors to derive the KFS. At this point, it may be helpful to try to differentiate the KFS by time axis from the present to the future, such as "KFS for being chosen now" and "KFS for being chosen in the future." This will ultimately lead to deriving "reasons to work on DX" with a medium to long-term perspective.

 
5. Visualize the gap between the key experience values/KFS and the current business
Through in-depth interviews with management and employees, clarify the gap between the experience values that your company believe it should provide to customers and that consumers are actually seeking for. The gaps between the KFS and the current state of business should also be explained.
 
6. Derive the "reasons to work on DX" from a customer-centric perspective
After identifying the gaps inside and outside the company regarding the perception of experience values and the KFS, determine where and in what order to address these gaps, and ultimately generate a common language to articulate "reasons to work on DX” based on its management philosophy, strengths, and resources. By involving on-site members in events such as internal workshops, your company can appreciate important experience values and the KFS identified in the surveys, compare them with the current situation, and derive "reasons to work on DX" that resonate more strongly with the frontline.
 
For example, one company conducted in-depth interviews targeting not only the film genres it had focused for a long time but also users in the entire entertainment industry in the new genres including SNS and fan communities, and initiated to prioritize experience values such as "wanting to enjoy cost-effectively without spending time or effort," "wanting to enjoy in a way that fits one’s timing," and "wanting to deepen one’s interests." Next, based on the generated KFS of "adaptation to the time-effective life," the company came to realize that the majority of their business contents was highly time-constrained with a risk of wasting time. Finally, they redefined the business strategy from a customer-centric perspective to fill these gaps, creating the concept of "providing a lifestyle where the time-effectiveness and entertainment value are highly integrated" as reasons to work on DX.

Leading transformations in the field from a customer-centric perspective

After defining "reasons to work on DX" from a customer-centric perspective, the key is to actually implement it in the field. Specifically, it is essential to set KPIs (monitoring indicators) that contribute to raising customer experience values by breaking down the "reasons to work on DX," and to improve resource allocation such as personnel and investments based on the KPI. One example of how to set KPIs is outlining a series of customer experience processes, setting a measurable indicator highly correlated to important customer experience values on a hypothetical base, and conducting verifications and reviews while referring to the actually measured results.
 
In the "DX White Paper 2021" published by the Information-technology Promotion Agency, Japan (IPA) [4], the comparison is made between Japan and the U.S. companies about the frequency of KPI evaluations and that of resource allocation reviews following the KPI evaluations in promoting DX. The results show that about 80% of the U.S. companies set KPIs in terms of "promoting improvement of customer experience value," and conduct evaluation and reviews at least every quarter. In contrast, more than half of companies in Japan have not yet been able to set such KPIs. By defining the "reasons to work on DX" from a customer-centric perspective, it becomes possible to appropriately address these problems in the field.

Conclusion

When it comes to "design approach," we tend to think of a series of human-centered design processes such as "understanding," "empathizing," "creating ideas," "prototype," "testing," and "measurement/analysis" in the areas of product and service development and/or improvement layers. However, by applying this human-centered thinking to higher upstream layers to formulate business strategy as well as corporate strategy, it becomes possible to utilize a design approach in the uppermost stage of DX as well.
 
In this article, we have introduced a method to derive customer-centric "reasons to work on DX" using a design approach. If your company is struggling to make progress in DX, you might want to try the method introduced in this article. It should provide a clear starting point (a standard of judgment) for a decision-making in promoting DX initiatives.
 
In the next article of this series, we will explain a desirable human resources development to advance a digital transformation.