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The term "digital transformation" (DX) is becoming increasingly common. Especially with the significant changes brought about by the pandemic, such as remote work and increased online activities, companies have been compelled to prioritize DX efforts across their operations.
In the post-pandemic era, the success of DX has become crucial for companies to maintain competitiveness and achieve business success. While Japan was previously considered to be lagging behind in DX, it's important to understand the current situation.
In this blog, we'll provide a comprehensive explanation of DX and its significance in business transformation during the digital age. We'll cover its definition, current status, and key challenges faced by companies in Japan, based on the latest information available.
The beginning of DX
The concept of DX was first proposed by Swedish university professor Erik Stolterman in 2004. Originally, it referred to how the integration of digital technology could enhance various aspects of people's lives. Although the term DX initially encompassed more than just business applications, its relevance to the corporate world soon became evident. Companies worldwide began leveraging advanced digital technologies like AI, IoT, and Big Data to enhance processes, improve customer experiences, create new business models, and transform their organizational structures and cultures to remain competitive.
Today, DX is a pivotal initiative that drives innovation and shapes the future of businesses.
Difference between DX and IT
The term "IT-ization" refers to using Information Technology (IT) to enhance and streamline business processes and information management. It involves automating systems and efficiently managing data using computer systems, software, and networks. The primary objectives of IT-ization are to improve operational efficiency, productivity, and the accuracy and security of information. While IT-ization focuses on specific processes, DX aims to transform the entire business structure, society, and organization through the use of digital technology. In this sense, IT-ization can be seen as a subset of DX.
Difference between DX and digitization
Digitization primarily involves converting traditional analog methods into digital ones. By managing information and data in digital format and processing them using computers and networks, access and sharing become easier, leading to improved operational efficiency and flexibility. Digitization encompasses various aspects of generating, storing, processing, transmitting, and displaying digital data.
In contrast, DX goes beyond digitization and strives to transform the entire business. DX utilizes digital technology to create new value, enhance customer experiences, and establish innovative business models. While digitization is effective for improving efficiency, DX is essential for business evolution and growth.
Current Status of DX Promotion in Japan
According to a 2018 report by the Ministry of Economy, Trade, and Industry (METI), Japanese companies that fail to embrace digitization risk losing their competitive advantage to other countries and experiencing an annual economic loss of ¥12 trillion between 2025 and 2030.
However, Japan's ranking in the annual Global Digital Competitiveness Ranking published by the International Institute for Management Development (IMD) of Switzerland reflects concerns about the country's lagging digitalization efforts. In 2022, Japan ranked 29th out of 63 countries, dropping one place from the previous year and achieving its lowest rank on record. In comparison, countries like Denmark, the United States, Singapore, South Korea, Taiwan, and China are far ahead.
Furthermore, SMEs in Japan face challenges in advancing their DX initiatives. The "DX White Paper 2023" reveals that while 40% of large companies are actively promoting DX, only around 10% of SMEs, facing budget constraints, are doing the same.
DX is crucial for sustainable corporate growth and increased competitiveness, necessitating serious attention from Japanese companies.
DX Challenges Facing Japan
Despite being an economic powerhouse, Japan faces several challenges in promoting DX. Three key obstacles are as follows:
1. Lack of understanding of DX by management
Japan's slower pace in DX implementation can be attributed to a lack of understanding at the top management level. DX is not merely about digitally transforming certain processes; it requires a holistic approach encompassing the entire organization and its business. Without management fully comprehending the importance and potential of DX, appropriate strategies and resources won't be allocated, hindering progress.
2. Shortage of DX personnel
Japan's labor market continues to face chronic shortages, with a scarcity of digital professionals being a significant issue across various industries. Digital roles require specialized knowledge and experience, making it difficult for companies to secure the necessary talent. This shortage of human resources is a significant hurdle in advancing DX efforts.
3. Problems and Burdens of Legacy Systems
Legacy systems pose another challenge to DX promotion, as their lack of adaptability and limited scalability make it challenging to respond swiftly to rapidly changing environments and adopt new technologies. These systems also incur high costs and time-consuming maintenance efforts, leading to operational inefficiencies.
To thrive in the digital age, early digitization of legacy systems and a focus on DX are essential. This approach can lead to cost reduction, productivity improvement, and enhanced competitiveness. Allocating appropriate resources and taking immediate action will pave the way for future success.
DX is an initiative to transform businesses, organizations, and companies through the use of digital technology to improve customer experience and create innovative business models.
One way to tackle the challenges and make DX a success now and then would be to rely on the help of experts in the IT field. Robert Half has helped many companies with DX in terms of human resources.
If you are interested, please contact our Managing Director of Technology. We will be happy to show you how we can help you realize your DX vision.