What stage are companies at in digitalization?

Date of recording: 21.10.2021.

In this podcast episode, we talked to Sándor Mester about the results of our research on the digital readiness of large enterprises in 2021.

Participants

Sándor Mester - Moderator Mester Sándor
András Tresch - Quattrosoft managing director Tresch András

Note that the podcast is in Hungarian.

Summary

I spoke with Sándor Mester on the IT Business podcast about digitization challenges and opportunities. Let me summarize the main points of our conversation.

Research Findings

Quattrosoft regularly conducts research on the digitization status of large Hungarian companies. In our latest survey, we approached 20 large companies employing approximately 50,000 workers, representing a significant portion of the domestic labor market.

System Integration

One of the most important lessons from our research is that corporate systems - processes, documents, data, physical records, and related automation - only work efficiently when tightly integrated. However, the majority of surveyed companies either use loose integration or no integration at all to connect these systems.

Companies using loose integration typically only implement connections between electronic content and core systems (e.g., banking account management systems, insurance life/non-life administration systems). However, we believe that tight integration of processes and digital content truly enables automation opportunities. This approach also ensures the efficiency gains achievable with BürOffice.

Satisfaction with Digitization Level

In our 2016 research, only 9% of companies believed they were at an appropriate level of digitization. By 2021, this ratio increased to 21-22%, which, although an improvement, still means 78% of companies are not satisfied with their digitization level. It's particularly concerning that about 60% of companies have already spent significant amounts on digitization without achieving the expected results.

Impact of the Pandemic

Due to COVID-19, companies primarily focused on digitalizing communication (Teams, Zoom, etc.) and supporting remote work infrastructure (VPN, laptops). Many large companies faced significant challenges when suddenly having to send their entire workforce to home office, as neither the technical infrastructure nor the management culture was prepared for this.

New problems emerged during remote work:

  • Management distrust: many didn't believe employees worked efficiently from home
  • Changes in meeting culture: multiple meetings, mandatory camera use
  • Introduction of monitoring programs measuring computer activity - these received extremely negative feedback

During the pandemic, major digitization projects slowed down as coordination became more difficult in the online environment. Now, however, more companies are considering hybrid work models, which brings new digitization needs.

Physical Document Management

Interestingly, many IT departments didn't know how physical documents moved within their organization. This is because there's often no IT system for this purpose. For example, in a bank's branch network, paper documents are often only available at the "home branch," with no system for accessing them from other branches.

Physical document management has significant costs, both in terms of storage space requirements and risks from potential document loss. For example, one bank lost a lawsuit because they couldn't retrieve the necessary document in time.

Current legislation already allows for certified digital archiving, after which physical papers can be destroyed. This area may soon become the responsibility of IT managers.

Silo Mentality and Multiple Data Entry

A major problem in corporate operations is the silo approach. Systems are typically built along organizational units with minimal interconnectivity. This leads to multiple data entries, increasing the possibility of errors and making it impossible to measure processes in their entirety.

A typical digitization mistake is when organizational units digitize their operations separately without integration between them. ERP systems show the "numbers," but process tracking is rarely implemented.

Customer Processes vs. Internal Operations

Companies are typically more advanced in digitalizing customer relationship processes than internal operational processes. Customer relationship processes are often reactive (the customer initiates something), while internal operational processes can be proactive (the company initiates).

Creating a 360-degree customer view often faces difficulties because customer data is stored in multiple systems. For example, at a bank:

  • Lending process in the core system
  • Complaint management in a separate system
  • Sales communication in a third system

This complicates customer service work, where 3-6 different systems often need to be used simultaneously to handle a single customer inquiry.

Automation Opportunities

One of the greatest opportunities for increasing efficiency is automation. If a system automatically performs 5-8 steps of a 10-step process, the throughput of the administrative team can be doubled. This can result in significant cost savings.

Example: With 100 administrative employees at a monthly cost of 300,000 HUF per person, the total cost is 30 million HUF. If automation achieves a 20-30% efficiency increase, that means monthly savings of 6-9 million HUF.

Automation can result not only in cost reduction but also in revenue growth if we can serve more customers with the same headcount.

Barriers to Digitization

Based on our research, the main barriers to digitization are:

  1. Information access regulation: Companies reported that roughly half of their information requires some manual intervention to determine who can see what. This is practically unmanageable in a file server environment.
  2. Multi-channel communication management: Companies receive inquiries through various channels (email, phone, in-person, website, courier, etc.), and handling these is often not unified. Tasks are typically distributed manually.
  3. Difficulty in vendor selection: Surprisingly, a significant barrier to digitization is that companies struggle to choose vendors. The supply market is extremely broad, offers are difficult to compare, and companies often lack relevant internal experience to precisely formulate requirements.
  4. Lack of business support or budget: Previously, IT had the budget; today, the money is more often with business units, but necessary decisions are often not made.
  5. Starting overly large projects: A common mistake is that companies try to implement digitization too broadly. Preparing a large project can take up to 1-1.5 years, meaning that requirements formulated during the needs assessment will certainly change by the project's end.
  6. Use of multiple separate systems: Many companies have gone through several previous digitization projects, resulting in multiple parallel document storage solutions (SharePoint, OpenText, etc.) that typically don't interoperate.

Digitization Recommendations

As a CEO, if I could ask for three things related to digitization:

  1. Have an operational model and organizational policy designed assuming digital operations.
  2. Have a system that effectively supports this operation.
  3. Minimize the time it takes for the organization to adapt to the new operational model and system.

With these in place, we can achieve the following benefits:

  • Faster and more efficient work
  • Easier GDPR compliance
  • Dynamic intervention capability in company operations (e.g., resource reallocation)

For managing organizational change, I've seen two approaches: one big step or many small steps. In my experience, one big step is more effective in the long run because, although the initial resistance is greater, it lasts for a shorter time. Many small changes generate constant tension in the organization and take more time overall.

It's important that the digitization project be business-led rather than IT-led. If users don't understand why the change is happening, if the project isn't theirs, then resistance is much greater.

Digitization is a complex process requiring careful planning, good communication, and patience. We can't expect miracles; organizational transformation typically takes at least a year. But if successfully implemented, it can result in significant competitive advantage and efficiency gains.

Note that the podcast is in Hungarian.