Digital Governance

Corporate governance in a digital world

Sweden: Innovation-friendly but risk averse

Most Swedish companies are highly innovative but have not been taking too many bold steps to transform their businesses in the race for digital transformation, says Rajkumar Ravindranathan at L&T Technology Services.

As the Chief Business Officer of a major global Engineering Services and Digital Company, Rajkumar Ravindranathan says that most enterprises are going through technology led disruption. There has been rapid transformation in the global digital and technological sphere that has led to a lot of market movement, acquisitions, and consequently, a sense of increased risk and insecurity.

Mr. Ravindranathan says a lot of companies are evolving, but some lack the foresight to make intelligent use of available resources.

“Companies are first investing in cutting-edge technologies, shifting to Cloud, launching AI-Labs, and then start looking for problems to solve. I would advise to first have a vision and a clear path to economic value creation and then look at the technology required to get there. And have sustainability agendas as core to transformation”

He says that companies must re-visit their business strategies to stay in the game. 

The Role of CEO

“Digital transformation needs to be at the center of any company’s overall strategy, with the CEO at the helm as the driving force for such transformation. To create economic value, CEOs need to be business and technology savvy, and know what these drivers are.”

That means the CEO would need to place him(her)self at the center of big decisive projects or name an avatar that holds equal weight, something Microsoft chose to do when they centralized their whole data structure. 

“A company needs to focus on customers and their customers first and then worry about savings”, says Mr. Ravindranathan. Pooling competencies, sharing knowledge and data, and inviting collaboration, are the mantras of the day, or at least should be and data is at the center of the whole digital revolution. 

To improve end-customers experience a company must, in many cases, either share data between related companies, or get access to their data or integrate it with their own processes. This way, they become part of an “eco-system”.

Mr. Ravindranathan takes air travel as an everyday example.“If different players in air travel industry come together to share data and collaborate, they can provide superior passenger experience. For e.g.:- if airports, airliners and baggage handling companies come together, they can provide better passenger experience by providing near-real time status of their checked in bags say when there is a shorter connection time or even while waiting at the carousel to pick up your bags”, says Mr. Ravindranathan.

Look out for disruption

Every company, he says, must ask themselves, “Can our products and services be by-passed? What are the risks to our operations such as they are done today?”

The leaders of a company must think about its future, and have a strategic roadmap keeping competition in mind – even a small-scale rival can pose big challenges. Industry boundaries are blurring, you should anticipate and prepare for competitors emerging from other industries. 

“A paper manufacturer, let’s say in Finland, should ask themselves what if tomorrow paper is not made from trees but from some synthetic material, are we prepared to deal with that disruption, how can we capture that market? 

One piece of advice from Mr. Ravindranathan is to always try to get to the customer´s customer and pre-empt any threat of your suppliers by-passing you to get to your customer.

Is there not a risk involved in that? Your customer may think you are stealing their customer?

“Absolutely, but if you don’t act, if not you, someone else will do it.” He says it is not always about ‘stealing’ a customer but rather to utilize new techniques to create a situation that is beneficial, sometimes, to all parties involved.’

Mr. Ravindranathan uses an example of a seed and fertilizer producer here, who used to sell to distributors, who in turn sold to farmers. In the new digital world, this company can engage the farmer directly by providing value added services, thereby increasing sales of their products. The distributor also benefits from these increased volumes. 

Consultants in a tech race

Digital tech is certainly a driver at the macro level. Acquisitions where engineering companies merge with digital experts and vice versa is one dominant trend which started back in 2014-2015 and will continue for at least another five years, according to Mr. Ravindranathan.

“For any digital company or consultant to create value, they absolutely need to understand the fundamentals of the core product, for e.g.:- to build a digital twin of a process or equipment, one needs to understand the physics and engineering that goes in to it. 

The latest move that created headlines was the news in March of engineering major Hitachi acquiring GlobalLogic for 9.6 billion (US Dollars). We are seeing very high valuations in the technology industry. 

There is also a race between countries. Where is the lead?’

“The race is mainly between the USA and China. The US has an innovation culture, a consumer driven economy, fast decision-making and a results-oriented culture. China is driven by the government and have a five-year plan for digitalization with the goal of being the AI superpower by 2030. India is not lagging, but they have never spent big money, and is behind the US and China of course. 

”Europe is in between, I would say. Decision making is slow, and focus is get things done really well and has a task oriented culture.”

What about Sweden?

Sweden is one of the early adopters and has a long and credible history of technology innovation. Swedish companies are very innovative, but there is still scope to take bolder steps on the business front. They have a consensus-based culture and are hesitant to take risks, where most of the tasks are done in-house and there is little reliance on external support.”

5G is slow in Sweden. Would that make us lag?

“5G is a technology that will give impetus to Industry 4.0. We are in the early stages of adoption. I am confident that as part of digital transformation, it will be a key driver.” 

Are we digitally safe?

“Company leadership needs to have an oversight on security because vulnerability is much higher today. We see more breaches because we are getting more connected. For every node that you add, you add risk exponentially. For every product, digital content security is a challenge but manageable. The answer for the producer is to build in security in the design from the start.”

How about machine learning?

“Personally, I feel it´s just in the beginning of the race. AI is especially driven by the evolving needs of the industry and consumers. The right way to look at AI is that increases machine competence thereby freeing up resources or increasing productivity of human resources. This space will look very different five years down the line,”

What will be the result of the pandemic?

“The pandemic is disrupting everything,” Mr. Ravindranathan says

One and a half year into the pandemic, two opposite movements have become prominent – the pandemic has accelerated the already on-going digital development, but it has also caused companies to go back to safer havens and look for resiliency with regards of operations. 

“One example is the automotive industry where it has been a lot of just-in-time deliveries of auto parts such as say windshields. The car OEMs historically have not carried inventory but had their suppliers do deliveries just in time, hours before the part is required. Now the pandemic has disrupted supply chain. So, what they are doing now is stocking themselves.”

He says the same goes for any product that uses a chip. Customers from various industries are planning to build their own custom build chips which are more efficient. 

“That sounds more expensive”. 

“Yes, absolutely in many cases it can be more expensive. They choose resilience in the business over cost efficiency.”

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