Small companies have to scale up and go global in an interconnected world
SingPost sees itself as well positioned after its digital transformation
ANALYSTS and vendors have been going on about the need for businesses to undergo some form of ‘digital transformation’ to stay relevant in today’s increasingly interconnected world, but putting this into practice is not so simple.
According to research commissioned by BMC Software, only 5% of Fortune 1000 companies have successfully gone ‘digital.’
That doesn’t mean they should not try, however – the pace of technology change, global competition, and pressure from startups are increasingly threatening some of the most iconic corporations, according to a report in Reuters.
Citing a study by consulting firm Innosight, the news agency reported that the average lifespan of a Standard and Poor’s 500 Index (SP 500) company has been drastically reduced from 90 years in 1935, to 18 years in 2012.
Traditional companies unable to make the change will lose their market capitalisation to up-and-coming companies.
And you can’t get more ‘traditional’ than a company like Singapore Post Ltd (SingPost), a typical, old-economy company that has however successfully digitally transformed its business, morphing from being a mere mail-and-parcel company into an e-commerce giant.
Its business now covers store management, all the way to delivery and returns in the e-commerce value chain.
As a tribute to its digital transformation success, SingPost won the 2015 World Mail Award in the retail customer access category for its POPStation suite of services. The company was also named the No 1 postal agency in an Accenture report.
In a presentation at the recent Forrester CMO + CIO Conference 2015 in Singapore, Timothy Lee (pic below), vice president of global strategy at SingPost eCommerce, laid down a few laws to guide other companies in their digital transformation journey.
Law No 1: Grand vision
Entrepreneurs who are successful have “massive dreams,” and perhaps a “quiet roadmap,” according to Lee.
He referred to a quote by Hugo Barra, vice president of international at Chinese handset-maker Xiaomi Inc: “We have the software engineering horsepower of a Google, the design ambitions of an Apple, and the e-commerce and customer focus of an Amazon.”
“These may be huge ambitions, but they are also quiet about how they are going to do it,” Lee said.
“A year and a half ago, when I started meeting him [Barra], he said, ‘I have a lot of things coming but I can’t tell you what’,” he added.
Xiaomi has since come up with products that were logical like headphones, and less logical like air purifiers, Lee commented.
Xiaomi’s online-only approach brings products direct from the manufacturer to the customer, cutting out the retailer.
“That’s a threat to the whole retail model – if they can do it well in China, there’s nothing they can’t start selling with their Mi.com brand,” Lee said.
Taking a leaf from Amazon founder Jeff Bezos, Lee said that it was no longer about shouting about your product, but about building the right product.
Bezos once said, “In the old world, you devoted 30% of your time to building a great service and 70% of your time to shouting about it. In the new world, that inverts.”
“When you build a great product, customers will come,” Lee stressed.
Law No 2: Move upstream
“The little secret? You actually have to redefine who you’re working with, how you’re working with them, and to what degree,” Lee said.
He cited SingPost as an example of a company moving upstream – it started as a mail service provider delivering mail, then acquired its first warehouse company six years ago, and now has 22 warehouses globally, according to Lee.
From that base, SingPost was able to do returns for e-commerce orders.
“Now we are at a point where we have actually developed a web platform – we signed up Adidas initially, then Muji and other big brands,” he said.
“These big brands are working with us to not only do the backend – fulfilment – but also the frontend or the web store, and the marketing across Asia,” he added.
SingPost has moved from the bottom of the value chain to the top, which has helped drive up its main delivery business.
“When you think about shopping online, you rarely think about who’s delivering it at first,” Lee said.
“We are now running the store and the marketing for that site, we are now in a position to drive who does the fulfilment,” he added.
SingPost has done this relatively quickly, according to Lee, having started only three years ago. Now the e-commerce arm is present in 12 markets – Singapore itself, plus Australia, China, Hong Kong, Indonesia, Malaysia, New Zealand, the Philippines, South Korea, Taiwan, Thailand, and Vietnam.
Law No 3: Agile iteration
“Agile iteration is not a new thing, but the difference is that we have accelerating pivot cycles,” Lee said.
Citing the example of David and Goliath [the Malcolm Gladwell book and not the Bible], he said agile companies can take advantage of large companies which move slowly and have certain weaknesses.
“You are competing against players like Amazon, eBay, Facebook, and so on, and you think, ‘I can never compete against those guys.’
“Well, up until market crashed recently in China, Alibaba and Alipay were essentially the size of Amazon and eBay combined, and Tencent was the size of Facebook in terms of market cap (capitalisation).
“In other words, almost overnight you can actually compete against a Goliath if you do it right, in the right environment, and in the right market,” he added.
The key to this, according to Lee, is to get a team and just start building. Quoting from his own experience, he said companies “need to go out there and build the product, rather than take the consultant approach, where a McKinsey deck can take between six to 12 months to evaluate the options.”
“What we do now is we go out there, build it, and see if it works,” he said.
“Hopefully we don’t make any mistakes, but if we do, we will move on – and the key is how quickly we move on,” he added.
He cited SingPost products like its virtual postbox service vPost, which allows customers to get an overseas address to shop overseas, and which has sign-ups from more than half the households in Singapore.
Other examples are POPstation, where customers can send and pick up their packages; and ezyCommerce, which allows small enterprises to get warehouse space on a pay-per-use basis.
“The point being, it took us a while [to get] the first iteration of vPost; the second iteration was a little faster, but the latest one we did in a year,” Lee said.
“That’s because we have been accelerating our pivot cycles – we’re getting better and faster at this because we now have experience and we have been building off our successes,” he added.
Law No 4: Complex ecosystem
“The key element for this is that it is achieved through ‘unique path dependency’,” Lee said.
He explained the term ‘unique path dependency’ from his experience meeting people from the Alibaba group 10 years ago.
They were mocking Meg Whitman, the chief executive officer of eBay at that time, for having spent a year in China. They were willing to wait eBay out to see how long it would last. They were willing to price TaoBao at zero, launch Alipay, and laughed over drinks right through midnight, according to Lee.
“They knew they could build something with all the elements I just described: Grand vision, etc.,” he said.
“The unique path dependency is when they can do this right and do this well, and no-one else can do it like them,” he added.
According to Lee, Alibaba first built TaoBao, its eBay copycat; then Alipay, its PayPal copycat – and it does it well in China, getting up to an 80% market share.
“No-one else can copy them like they did, and not in the way they did,” he said. “Their ecosystem is highly complex because they have been building it for years … quietly.”
The Alibaba ecosystem includes hosting, marketing, web and other services that are all interconnected.
“If you are part of this ecosystem, you are aligning yourself with a winning team which is more likely to succeed,” Lee said.
“If you are running it on your own or partnering with local counterparts, especially in a small country like Singapore, you lack the scale to compete globally, and in an interconnected digital world, it’s the scale that wins,” he added.
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