What is DX?
DX (Digital Transformation) is a term that has become trendy lately. Many might have heard phrases like "Our company should focus on DX" or "Let's just migrate to the cloud for now." In recent years, we hear more about DX-related events and departments named after DX.
So, what exactly is DX?Directly translated, it means "Digital Transformation," but its understanding varies among companies and individuals. Gartner explains it as follows:Gartner: “Digital transformation can refer to anything from IT modernization (for example, cloud computing), to digital optimization, to the invention of new digital business models.”
In my interpretation, DX is not just about digitizing operations. It's about leveraging digitalization to make business and life better.
Benefits of DX
DX offers a range of benefits. Here, we'll discuss three:
- Productivity Improvement: Digitizing operations reduces man-hours and enhances productivity. It also allows for easily adopting market changes and new technologies, enabling adaptability to dynamic changes.
- Cost Reduction: For example, migrating a company's on-premises systems to the cloud can significantly reduce maintenance and labor costs.
- Risk Mitigation: Migrating core systems and services from on-premises to the cloud enables decentralization, allowing business and services to continue even in the event of disasters or failures.
Does DX Lead to Cost Reduction?
Among the benefits mentioned earlier, let's focus on cost reduction. Does systematization through DX actually reduce costs? Let's consider some potential cost reductions:
- Labor Costs: Systemizing manual tasks can reduce the time and number of people needed, thereby cutting labor costs.
- General Expenses: With most operations going online and telework becoming mainstream, it's possible to downsize offices or move to cheaper locations in the suburbs, reducing rent. Additionally, utilities and employee transportation costs decrease.
- System Expenses: Migrating in-house systems from on-premises to the cloud can reduce costs. Cloud usage allows for scaling resources as needed, paying only for what is used.
While reducing labor, general expenses, and system costs seems promising, does it always work out? There are risks to consider:
- Labor Costs: Even with systematization, manual checking and entry might still be required. In cases where the system is too complex to be efficiently used or when transitioning to the system isn't smooth, labor costs remain unchanged, and additional system expenses occur. Systematization may temporarily burden frontline staff, so planning for the extra work and a smooth transition period is necessary.
- General Expenses: While telework can reduce rent, utilities, and transportation costs, online communication may incur additional time and misunderstandings, leading to indirect costs. These invisible costs can slow down work progress.
- System Expenses: For cloud migrations, the pay-as-you-go pricing model is common. While effective use can avoid extra costs, unmonitored resources can lead to complex management and unused resource wastage. Tight control of permissions and thorough resource management are essential to prevent such issues.
How to Achieve Cost Reduction with DX
So, how can cost reduction be achieved through DX? It varies depending on the size and structure of the company and the environment, but at Alphas, we believe the following steps can facilitate effective results:
- Identify Priority Areas: Change always brings some burden. Identify items to improve through DX and prioritize them. Estimate the expected efficiency and cost reduction effects and start with the most impactful ones.
- Set Targets: Simply minimizing costs is not the essence of DX-driven cost reduction. The goal is to improve the business and environment for sustainable growth. Set quantitative targets for the desired level of efficiency and cost reduction.
- Involve People: The effect changes significantly depending on whether you can involve the team and related departments. Cost reduction tends to benefit the company, but for example, promoting remote work eliminates commute time, allowing for better time utilization. Systematizing manual work can reduce human errors, thus easing mental stress. Understanding personal benefits can change the perception and drive the initiative.
- Measure the Effectiveness: Verify whether the intended effects were achieved through systematization for each task. Recognizing the characteristics and differences between successful and unsuccessful cases can inform future initiatives.
Whether the benefits of systematization can be fully enjoyed depends on how it is utilized and managed. DX is not a one-time improvement; it constantly evolves with time and environmental changes. With the popularity of DX, services to optimize system migration and operations are increasing. Utilizing successful corporate case studies, seminars, and DX-related communities can help promote DX and achieve one of its benefits - cost reduction.