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Why should SMEs work on digital transformation (DX) now?Mikio Aoyama

<Series 1 (Total 4 series)>


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In recent years, there has been increasing use of the term "digital transformation (hereinafter, DX)." But not many people understand its real meaning. DX means to bring "disruptive change" to industries, and it strongly affects the future of SMEs. 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" about the significance of DX, how to approach DX starting from a low budget, and the key points for SMEs to succeed with DX. The interview will be presented in a four-part series.

The Ministry of Economy, Trade and Industry also demands DX from industry

Amid the rapid progress of digitalization, industry must "create new added value strategically by utilizing new digital technologies (digital transformation)." The Ministry of Economy, Trade and Industry (METI) stated this in a release on the establishment of the "Study Group for Digital Transformation."

One of the reasons why DX attracted attention was that in September 2018, the study group released "DX Report: Overcoming of '2025 Digital Cliff' Involving IT Systems and Full-fledged Development of Efforts for DX."

"This report pointed out various issues and measures related to the use of IT by Japanese companies, such as the aging of core systems and the resulting increase in security risks. In some industries, companies that are unable to utilize data are actually being left behind by the competition. A sense of crisis has now finally gripped Japanese industry."

What does DX achieve?

Many people feel that they don't understand the difference between DX and the conventional utilization of IT.

"One of the most common conventional uses of IT is to use past data to make current tasks more efficient." But analyzing a large amount of data with AI reveals what will happen in the future. This "future prediction" is an important element of DX."

A simple example is device failure prediction at a manufacturing company. IoT is used to collect data on equipment in factories and AI analysis is then applied to detect in advance equipment failures based on very minor incidents. What was infeasible for anyone other than a very few skilled craftsmen is now possible everywhere. Retail stores and restaurants are also making more accurate and detailed demand forecasts by mating past sales results with weather and crowd flow data.

"Another important element of DX is that it creates new services and added value using technology. For example, companies can directly connect with customers through smartphones, gaining a deeper understanding of consumers. Using that data, we can create better products and services and new business models."

The essence of DX is "business transformation"

How should managers interpret the essence of DX?

"People in Japan tend to view DX in technical terms, i.e. "utilization of new digital technology." But the essence of DX is to "transform businesses." Using IoT, AI, and the cloud, the focus is on "discovering issues, changing how business is done, and increasing corporate value." Companies must figure out how to apply data and technology to their business."

After "people," "things," and "money," the fourth management resource will be "data." Along with the use of human resources and asset management, the key to business management will be "to make good use of data and use it to the benefit of the company."

"In Japan, with its many successful manufacturing companies, the importance of data is not well understood. But DX is bringing about a once-in-a-century revolution, hence "disruptive change." Moreover, IT evolves so quickly that it cannot be compared to changes in manufacturing. The first important step is to be aware of this."

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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