Digital maturity in Baltics 2019 - PwC · levels and generations is essential to digital...

Digital maturity in Baltics 2019Survey in Latvia, Lithuania and Estonia

March, 2019

Introduction

Transformation by definition implies a step-change from where a business is today, rather than an evolution. So before embarking on transformation, organisations need to be clear about what they’re step-changing to.

Whatever industry you’re in, your organisation must transform for a digital world. In our Baltic CEO survey, 91% of respondents either strongly agree or agree that digital technology will fundamentally change their organisation and the pressure to move faster is relentless.

But achieving digital transformation at speed requires more than technology. Two other things are just as critical: first, agility – delivering change through quick steps and learning as you go; second, adoption – taking your people with you.

It’s this understanding that makes our approach unique, ensuring you accelerate your business as well as your transformation.

Digitalisation means integrating technologies into the way people work and live. So digitalisation can be viewed as disruptive regardless of specific technologies. We believe that businesses in the Baltics are ready to

use disruption for improving their EU-wide competitive edge.

In the summer of 2018 we surveyed C-level representatives of Baltic businesses to identify their current and desired digital maturity and help them become more competitive across the EU.

The results of our survey have been summarised in five categories: strategy, change readiness, data analytics, customer engagement, and information security.

We hope these results and thought-provoking charts will accelerate the digital transformation commitment in the Baltics even more, and we truly believe that a seamless combination of business strategy, experience and technology will help transform business and achieve sustained growth.

Baiba ApineDigital Transformation LeaderPwC Baltic Advisory

2 Digital maturity in Baltics 2019

About the survey

PwC surveyed small and medium-sized entities (SMEs) in Latvia, Lithuania, and Estonia, asking their CEOs about their current digital maturity and desired digital maturity.

The maturity is evaluated from 0 – I don’t understand the question and/or we haven’t thought about the topic to 5 – we’re using the most advanced solutions.

The survey was conducted electronically in August–September 2018. A total of 68 SMEs from the three Baltic States responded.

Digital transformation strategy;

Change readiness for going digital;

Use of data analytics;

Customer engagement through digital channels;

Importance of information security.

The survey covered the following areas:

3Digital maturity in Baltics 2019

Our findings

Digital transformation strategy

Whatever industry you’re in, your organisation must transform for a digital world. In our latest CEO Survey, 91% of respondents agreed technological progress will fundamentally change their organisation and the pressure to move faster is relentless. But achieving digital transformation at speed requires more than technology.

Companies that are more digitally mature recognize the value of a well-defined and well-communicated strategy. It’s important to have principles, concepts and priorities defined in your company, as well as the next steps. Explaining your digital transformation strategy to your employees is even more important. Younger staff adopt digital faster, understand inherent risks better, and can explain them to the executives in the context of business. Successful collaboration between different management levels and generations is essential to digital transformation.

Technology is changing the entire decision-making process in most companies. Younger employees are faster in gathering and processing information via different channels. Executives can and should place more reliance on the informed view of their staff.

,,


- 001 001 002 002 003 003 004 004

Banking and capital markets

Energy, utilities and resources

Engineering and construction

Government and public services

Hospitality and leisure

Industrial manufacturingIT

Media

Other

Pharmacy and healthcare

Professional services

Vision / Strategy

Current Desired

Vision / Strategy

QUESTION:

Do you have a documented e-Business vision or strategy with a clearly defined goal or mission and concrete measures understandable to all employees?

(Please assess your maturity level from 0 to 5, where 0 – no single view – only visible through each channel, and 5 – a single comprehensive data set drawn from all sources and fully available to staff and customers)

The most developed and digitally mature in terms of vision and strategy are companies in hospitality and leisure, scoring 3.85, and those in banking and capital markets, scoring 3.13. These two industries are undergoing significant changes to their business models.

The biggest gaps between current and desired maturity levels can be found in media, energy, utilities, and resources.

Financial services are changing their business models to adopt the best practice in transparency and anti-money laundering under strong regulatory supervision. Financial services experience growing competition from fintech companies as well. The hospitality and leisure industry using the traditional B2C model feels increasing competition from growing C2C models. The availability of digital solutions serves as enabler for C2C models in the hospitality business. External pressure from regulators or competitors motivate companies to look at digital transformation as an option. Adopting a clear, written digital transformation strategy helps companies shape their technology investment and communicate their digitalisation agenda to all employees.

scored

3.85

scored

3.13

The most developed and digitally mature in terms of vision and strategy companies in hospitality and leisure

and companies in banking and capital markets


Change readiness for going digital

-

001

002

003

004

005

Banking and capital markets

Energy, utilities and resources

Engineering and construction

Government and public services


Industrial manufacturing IT

Media

Other

Pharmacy and healthcare


Readiness to change

Current Desired

Readiness to change

Digital transformation is on the agenda of nearly all the executives surveyed. Change readiness includes employee attitudes towards digital and the ability to execute digital initiatives effectively. Although the level of change readiness is high in all the companies surveyed, their CEOs want to raise it even higher. This is the right moment for the Baltic companies to embrace digital transformation and improve their digital maturity.

Change readiness is high for industries undergoing business model changes (hospitality and leisure, banking and capital markets). The flow of EU funds to the Baltic States keeps change readiness high for public services, leading to the implementation of new e-services.

Industries with the lowest change readiness are engineering and construction as well as professional services, media, and manufacturing. These are industries where the level of shadow economy is among the highest according to the 2018 Baltic Shadow Economy Index by the Stockholm School of Economics in Riga.

Change readiness is high in all companies


What are the required staff attitudes and behaviours related to digital?

QUESTION:

What are the required staff behaviours and attitudes towards digital?

(Please assess your maturity level from 0 to 5, where 0 – lack of clarity as to what attitudes staff are expected to have. They fail to show a positive attitude to digital channels, and 5 – total clarity as to what attitudes staff are expected to have. They show a positive attitude to digital channels)

- 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00

Banking and capitalmarkets

Energy, utilities andresources

Engineering andconstruction

Government andpublic services


IndustrialmanufacturingIT

Media

Other

Pharmacy andhealthcare


What are the required staff attitudes and behaviours related to digital?

Current Desired

Digital transformation is largely inspired by the pressure of competition

The readiest is hospitality and leisure, scoring 4.78, while pharmacy & healthcare and banking & capital markets both scored 3.The biggest gaps are observed in industrial manufacturing, energy, utilities & resources, and media.

Employee attitude towards digital is the most important enabler of the whole digitalisation concept. Having digitally intelligent people only in your IT department is not enough, as you need digitally literate employees in your technical, marketing, sales and accounting departments as well.

scored

4.78The readiest is hospitality and leisure


Use of data analytics

Analytics

Data analytics used for decision making is measured according to how management information is collected from digital channels and how internal and market data is used for business decisions.

Data analytics is at the heart of digital transformation. Executives expect to unlock the real business value from available data, but this is the most complex and expensive part as well. It brings together data available for analysis and models used, as well as people interpreting data. All these components are equally important.

Input data for analysis must contain the company’s internal data as well as externals. Internals include production volumes, sales, equipment downtime etc. Current and expected numbers of people in the region, outside temperatures, mobility data etc are samples of useful externals. The availability and quality of input data is one of the major issues for the effective use of data analytics. The availability of your internals is determined by the level of business automation, and this is the most reliable and available part of data. However, using only internals will be of limited value to your company. Maximum value can be gained by combining internals with externals.

- 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50




Government and publicservices


Industrial manufacturingIT

Media

Other



AnalyticsCurrent Desired


Government open data and companies having important data as part of their business are the major sources of external data. For instance, mobile operators, electricity distribution operators etc can serve as external data sources. This data should be treated with care, and data providers are not ready to share the data yet. However, successful digital transformation involves breaking data silos and sharing data. Another external source could be government open data. Data opening by public institutions has just begun. Even though all three Baltic States are already in the first half of the DESI 2018 in terms of open data, the opening of meaningful datasets by governments is still expected.

Regression, KNN analysis and different clustering models are mostly used by data scientists to build predictive models. Models are as useful and reliable as the people building them and interpreting the results. It’s essential that these people understand the data models and also the business behind the data. A team interpreting the results is even more important than quality of input data and excellence of the model. The team must be aware of the business specifics and understand the context the business operates in. There are not many companies employing such experts. Collaboration between companies and universities can be a solution for obtaining the missing expertise.

There’s a gap between the existing and desired extent of using data analytics in all the businesses surveyed. This gap is particularly large in energy, utilities & resources, media, and industrial manufacturing. The companies with a long production experience have accumulated large amounts of data, but that data lacks structure and is fragmented. Significant investment is needed for data normalisation to serve as input in their models and in their teams capable of building models and interpreting the results.

We see the following key enablers to close the gap between the existing and desired use of data analytics:

Availability of reliable external sources;

Effective collaboration between companies – data owners and data scientists. Mutual understanding and collaboration are essential.

The engineering and construction industry is one of the least digitised according to our survey since their drawings, working plans etc are still on paper, thus preventing the effective use of data analytics solutions.

,,


,,Drones are used to obtain a full view of the construction site and monitor real-time progress, the number of employees at work, and the machinery and materials used. Pictures taken by drones are compared to the assets on the database, drawings for the building under construction etc. Drones as well as a digital twin of the building under construction are needed to make the most of this solution.

We have designed an analytical approach that filters and prepares data to assess values gained from the equipment and external sources, and develops and calibrates system-specific event models for predicting delays. The model is used to avoid high

operational costs due to delays or cancellations of production equipment. However, the results of the model will be used by employees maintaining the equipment. So their attitude and care are an essential part of the whole system, equal in importance to the model itself.


-

1,00

2,00

3,00

4,00

5,00





Hospitality andleisure


Media

Other


Professionalservices

Customer EngagementCurrent Desired

Customer engagement

Customer engagement involves all dimensions of interaction between the customer and the company: interactions across different channels, aligned processes between all sales channels and capabilities to capture improvement ideas and suggestions from customers and understand their needs.

The level of customer engagement is higher in industries where customer requirements are historically at the heart of the business: IT and hospitality & leisure. Implementation of IT projects has developed over decades through many unsuccessful deliveries before coming up with Agile, the customer-centric system implementation methodology. Agile lies at the heart of digital transformation and is adopted in other industries as well.

A number of customer-centric platforms are available to hospitality providers (booking.com etc.) bringing the whole industry to a high level of digital maturity. Other industries are in progress with customer engagement through digital channels. Financial services and energy

through digital channels

Customer Engagement

& utilities are catching up with customer engagement due to increasing competition. Energy & utilities markets are open now in the Baltics and competition is increasing as well. Other industries have not faced such major changes, and so their agility is lower.


QUESTION:

Question: Are appropriate controls in place to prevent unauthorised access to digital channels?

(Please assess your maturity level from 0 to 5, where 0 – limited security, and 5 – complex in-depth security from application to business services)

Importance of information security

- 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50





Hospitality andleisure


Media

Other


Professionalservices

Digital channelsCurrent Desired

Digital channels

C level executives surveyed believe the level of information security is reasonable, except insurance. The self assessment should be evaluated in the context with customer engagement and use of digital channels. As the level of using online is quite low across industries, hence the level of security might be enough. If the use of digital will increase, more attention must be paid to security and more investment should be devoted.

C level executives surveyed believe the level of information security is reasonable, except insurance.


The way forward

Digital transformation is substantial change in the way company works. The digital transformation must be treated as business transformation. Framing all digital transformation initiatives and business transformation with project framework will allow to control the investment, schedule and benefits obtained from digital initiatives.

The digital transformation must start with an honest and humble look at how the customer sees the company, how to get closer to the customer, and how to understand him better. An overall assessment of the company’s digital maturity will help measure its real digital maturity, identify areas employees see as

Scope the digital transformation

project

the most feasible for digital transformation, assess staff attitudes towards digital transformation, and identify digital champions.

The next step involves organisational changes allowing the most promising digital ideas to be realised fast. The company has to ensure the ability for agile development - trained people, test beds for prototypes, relationships with universities and start-up community and digital transformation funding.

Every company can become a digital leader in reasonable time with reasonable investment if the digital transformation is scoped and pursued properly.

Set up an agile development

capability

Grow the business using the start-up

environment

1. 2. 3.

© 2019 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to customers. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.

Audrius LeipusTechnology consulting leader+370 656 [email protected]

Baiba ApineDirector of Advisory +371 [email protected]

Erki MägiSenior Manager of Advisory +372 614 [email protected]

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