BreakThrough Study Idea

The future of your company depends on achieving digital transformation (DX)Mikio Aoyama

<Series 2 (Total 4 series)>

2020.02.25

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What kind of results are growing SMEs achieving using digital transformation (hereinafter, DX)? And what kind of crisis awaits companies that delay their DX efforts? We asked Mikio Aoyama, Professor at Nanzan University's Faculty of Information Sciences and Engineering and chair of the government's "Study Group for Digital Transformation."


DX is effective for both creating new businesses and improving productivity

Mr. Aoyama spoke with determination about how "DX is effective at both efficiently using a company's current assets to raise productivity as well as generating new profits by developing higher value-added products and services. Achieving DX in terms of both is critical to a company's growth potential."

He then cited the ride-hailing service Uber as a good example of creating a new business model using DX.

"The company has provided more convenience to both users and drivers by connecting users with vehicles through a smartphone app, allowing them to arrange transportation, pay, and predict arrival times even in areas without running taxis. Even in Japan, where ride-hailing is limited to taxis, it has many benefits such as improving taxi occupancy rates and reducing user wait times."

SMEs can also boost sales and increase production efficiency

DX also greatly expands the potential of SMEs in terms of sales. Mr. Aoyama mentioned the example of Seiwa International Inc., a company with about 20 employees which recorded huge sales during Alibaba's "Single Day" sale in the Chinese B-to-B online market.

"I heard from the media that this company, which manufactures and sells hyaluronic acid, achieved revenue of about 100 million yen on that one day in 2018. This year, they expect to further increase sales by utilizing local influencers. SMEs that have given up on overseas expansion due to human factors can now do so by making effective use of IT platforms. With the domestic market expected to shrink, I think it's important to have this path forward."

Even in the field of manufacturing, there are many precedents that are pioneers of DX, such as Kyoto's metalworking manufacturer Hilltop Corporation, which has made possible the digitization of craftsmanship and the operation of unmanned factories 24 hours a day, 365 days a year. The auto parts maker Asahi Tekko Co., Ltd. mentioned by Mr. Aoyama will be described as an example in detail in the next part of the series.

Many problems confront companies that do not address DX

But what happens to companies that have delayed their DX efforts? A report released by the Study Group for Digital Transformation addresses these problems, including rising maintenance costs due to aging and increasingly complex core systems, increasing security risks, and decreasing competitiveness. The report points out that if these issues cannot be resolved, the economic loss will amount to 12 trillion yen annually from 2025 on.

"In Japan, many companies have systems built for individual business divisions, making the company-wide use of data difficult. In many cases, a system has become complex due to excessive customization. Core systems of large companies are increasingly aging, and as of 2025, at least 60% of them will have been operating for more than 21 years. The cost of maintaining old and complex systems will have risen, accounting for more than 90% of IT budgets and making new investments more difficult."

IT was integrated with the business to start with, so IT systems must be customized according to changes in business activities.

"But in Japan, IT is often a drag on business. The importance of IT departments and data needs to be understood as a foundation of management."

Considering the large number of companies that struggled with the end of Windows 7.0 support at the end of 2019, this is not just a problem for large companies. So how should SMEs proceed with DX? In the third article to follow, we will present some tips based on the example of the previously mentioned Asahi Tekko.


Series DX based on business goals and "three points" will allow SMEs to make further leaps forward

Series 1 Why should SMEs work on digital transformation (DX) now?
Series 2 The future of your company depends on achieving digital transformation (DX)
Series 3 How to promote DX in SMEs, learning from in-house IoT adoption success stories
Series 4 DX based on business goals and "three points" will allow SMEs to make further leaps forward


Mikio Aoyama
Professor, Department of Software Engineering, Faculty of Information Sciences and Engineering, Nanzan University / Chair of the Ministry of Economy, Trade and Industry's "Study Group for Digital Transformation"

Completed the master's program at the Okayama University Graduate School of Engineering in 1980, then joined Fujitsu Limited. Worked on the development of a distributed processing communication software system. After two years as a visiting researcher at the University of Illinois, USA in 1986, he was became a professor in the Department of Information and Electronics Engineering at Niigata Institute of Technology in 1995, and a professor in the Department of Information and Telecommunication Engineering, Faculty of Mathematical Sciences and Information Engineering at Nanzan University in 2001. PhD (Engineering). He began researching DX in 2005 and assumed his current position in 2009. Chair of the Ministry of Economy, Trade and Industry's "Study Group for Digital Transformation" in 2018

Coverage date December 25, 2019

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