Digitization: Redefine Enterprise Operation with Binary System to Resolve Two Major Pain Points

By Yang Xiaoling (Chief Digital Officer of China Pacific Insurance (Group) Co., Ltd.)

Jack Ma made a remark in 2008: “If the bank does not change, we will change the bank.”

It turned out that this was not a brag. The 2016 bill of national payments released by Alibaba revealed that Alipay already had 450 million real-name subscribers, who spent RMB 5.16 trillion in online shopping in 2016, of which mobile payment accounted for 71%. Unexpectedly, instead of Beijing, Shanghai and Guangdong, Tibet became the region with the highest proportion of mobile payment, accounting for 90%, and, as expected, those born after 1990 represented 92% in the total mobile payments. The author has been carrying only a credit card, no wallet, for many years, and, starting from March this year, begun to try going around the world with only a cell phone, with no bank card or cash at all.

(On Nov. 12, 2015, at the Media Center of 2015 Tmall “Single’s Day” Global Carnival located in the Water Cube in Beijing, a big screen showed the final live trading data of Alipay. Picture/Visual China)

One decade ago, there was an “Internet Survival Contest”, in which participants were locked in hotel rooms with electronic money worth only RMB1,500. The contest was to see if they could last for a week. Today, ten years later, another Internet-free Survival Contest may be organized to see if a living condition without the Internet is endurable.

Therefore, traditional financial firms generally have an “Internet anxiety”, fearing to become a dinosaur.

Now the hottest buzz word is Fintech, which should not be the same thing as Internet finance. Internet finance means non-financial firms break into the financial sector with technological tools, like “barbarians knocking on the door”, which is not a derogatory statement; Fintech is the “defensive counterattack” of traditional financial firms, which make model innovation and process reengineering through the integration of finance and technology.

The focus of this round of technological revolution is digitization, with surging tides of Internet of Things, Big Data, AI, Cloud Computing and Block Chain. The digital wave is much larger than the Internet in breadth and depth.

Logical starting point of digitization

What is digitization? In fact, digitization is just a label, a more abstract label, and the essence of digitization is the use of new technology. Most modern technology applications can be labeled with digitization.

The purpose of digitization is to solve problems. The digital strategy of an enterprise is to solve outstanding problems existing in the operation of the enterprise. Almost all the operational problems of an enterprise come down to two major pain points: customer experience and operational efficiency.

The key to the long-standing prosperity of an enterprise lies in the formation and maintenance of its core competitiveness. Customer experience is the direct experience and evaluation of customers resulting from the critical journey of products and services, determining the customer satisfaction and loyalty, and being the external reflection of the core competitiveness of an enterprise. Operational efficacy reflects the relationship between value creation and cost consumption, and the key is the marginal benefit brought by technological progress and model innovation, being the internal expression of the core competitiveness of an enterprise.

The lesion of the two major pain points, namely customer experience and operational efficacy, lies in the supply chain of an enterprise, while the goal of supply chain management is to eliminate these two pain points. The digital strategy is an effective solution itself.

There was a famous slang in New Yorker in 1990s: “On the Internet, nobody knows you are a dog.” More than 20 years later, this sentence may be changed as: “On the Internet, nobody does not know that you are a dog.”

Recently, the author visited an Internet startup in Zhongguancun, a company that has integrated more than 3,000 mainstream websites in China and has been in possession of the data on 560 million Chinese customers after many years of accumulation. It can use Big Data to make profiles of its customers - Internet profiling.

They did a live demonstration by using a cell phone to randomly log into Site A, search for cosmetics and switch to Site B, and Site B would recommend cosmetics to you; then you took a quick look at fresh food and switched back to Site A, and Site A would expectedly push fresh food to you.

In other words, they know what you just browsed and what you are interested in. Logging in on another PC, even with different hardware and no registration, they still know you and remember you, and recommend the fresh food you just browsed.

Today, our life activities have been largely migrated to the Internet, and all your online behaviors will leave traces, as the internet is transparent. As long as the Internet records your fragmented online behaviors, pieces together these data, and analyzes and builds models with Big Data, it will know who you are, where you work, where you live, where you live, basic necessities of your life, your family members and social circles, and complete your panorama Internet profiling. You really have no place to hide on the Internet.

This Internet company has spent RMB 700 million for applications of Big Data technologies, and their understanding of customers has exceeded any individuals, units and government organizations.

How much do traditional businesses know about their customers? Insight into and improvement of customer experience are not empty words, which can only be achieved through digital technology.

The pathway of digitization of an enterprise is to speak with digital products and APPs.

If the lesion of the two major pain points of customer experience and operational efficacy lies in the supply chain of an enterprise and is mapped to the critical customer journey from the supply chain, then clinical manifestation is the obstruction and bursting pain in the critical customer journey, and those behind the supply chain and critical customer journey are operational mode and process. The remodeling of critical customer journey and its entire supply chain can be materialized only by leveraging digitization to innovate modes  and reengineer processes.

Let’s look at two cases: the first is the original charge mode of the parking garage, of which you press the button to take a card for the start of billing when you enter the garage and hand out the card for manual billing when you leave; now, you will have a picture taken automatically when you enter the garage, and the back office will start the billing after picture recognition; when you leave the garage, you will have another picture taken automatically and you will be charged according to the back office record, so this is the most simple charging mode reengineering with the application of OCR technology.

The second case: the traditional mode of claim settlement of health insurance is the circulation of physical documents + one-by-one verification of physical documents, and such a manual operational mode is featured by heavy workload, intensive labor and long billing cycle. With the use of OCR technology, you will use a mobile phone to take a picture of the medical documents and upload it after seeing a doctor, and the back office will conduct automatic image recognition, data structuring, claim and case closing, and, in theory, achieve real-time reimbursement of claims. Fukoku Mutual Life Insurance of Japan applied IBM Watson Explorer AI in 2017 to launch a robotic claim processing system, which replaced 34 claims staffs and significantly improved the efficiency by reducing an expenditure of US$1.1 million per year.

The pathway of digitization of an enterprise can be summarized in five sentences:

I. Speak with digital application products;

II. Take three products of “C-end” (customer), “B-end” (channel users) and “E-end” (internal staff) as the cornerstone, and make the digital terminal a carrier to integrate critical customer journeys;

III. Push forward the reformation of traditional supply chain with user scenarios, user experience and operational efficacy of digital terminal product clusters in critical customer journey;

IV. Establish an agile development mechanism based on cloud computing, and support mode innovation and process reengineering with three technological engines, namely Big Data, AI and mobile terminal;

V. Get integrated into the main business, and get rid of hierarchies, intermediaries and institutionalization to form productive forces.

Goal of digitization

The goal of digitization of an enterprise is the digital coverage of critical customer journey. Focus on the dimension of critical customer journey, identify the pain points existing in critical customer journey, establish a mapping relation with professional fields and functional areas associated with the supply chain, and perform pigeon-holing and targeted treatment on the pain points of critical customer journey.

Digitization is a systematic project involving all aspects of the supply chain, with no outsiders. Among them, the most difficult part in mode innovation and process reengineering is integration and collaboration.

It is extremely difficult to maximize the compatibility, integration and coupling between business groups, head office and branches, functions, front, middle and back offices, functional areas and even posts, and to maximize resource sharing and mutual empowerment.

Coase Theorem tells us that an enterprise will have growth potential only when its internal transaction costs are lower than external transaction costs, and the lower the internal transaction costs, the greater the vitality of the enterprise.

Internal transaction costs are mainly integration and collaboration, as well as complicated benefit mechanism and interpersonal relationships. Behind integration and collaboration are exchange, compromise, forbearance and tolerance. The adjustment of benefit mechanism and interpersonal relationship is too complicated, so integration and collaboration will become a knotty problem.

Digitization is a binary system, with only “0 and 1”, and it can simplify problems through dimensionality reduction attack, avoidance and short circuit, using digital logic to solve the balance between mechanism and human nature.

The solution of digitization is APP. Conventional transmission tools are conferences and documents with diminishing marginal efficiency, which are far inferior to APPs in terms of transmission and execution efficiency. So traditional management-based headquarters should evolve to R&D-based headquarters.

The traditional leadership model is leading by example and organizational drive, while the leadership model in the Fintech era is to research and develop algorithms and APPs to transmit your ideas and management demands. It would be most effective if our management ideas, business strategy and way of resource allocation are accurately expressed, transmitted and implemented based on computer language, database, algorithms and programming, APPs and mobile terminals, instead of meetings and documents.

The core competence of working animals in the past was to write materials, while the core competitiveness at present is to write PPTs, and that in the future is to write APPs.

We should evolve from PPT experts to APP masters.

Digital products are often across administrative structures, and the incentive mechanism under the existing administrative structure of an enterprise is not enough to inspire the subjective initiative of participants. A more effective incentive mechanism should be established.

Self-made start-ups are not necessarily better. Conventional enterprises have no shortage of resources, capabilities and opportunities, instead, they are more lack of entrepreneurial spirit compared with start-ups.

Jack Ma once told a joke about a founder and a professional manager going hunting in the mountain. After missing several shots, the professional manager threw the gun and ran away, and the founder had to rush up to put up a desperate fight. He had no way back, as he had bet everything he had.

What is entrepreneurial spirit? There are a few key words: the first is “belief”, as only with belief will you do a thing. The second is “action”, as it is useless just having belief. Better return home and make a net than long for fish by the waterside. You must put it into action. The third is “all in”, meaning going all out to do it and no turning back. The fourth is “admit defeat for bet”; the fifth is “aspiration”, aspiration of taking the company as your own duty. We should take the company as our own duty and tie our vested interests and career planning with the development and growth of the enterprise, sharing prosperity and bearing losses together.

Digitization of mental models

Peter Peterson, founder of Blackstone, said that “I am not satisfied with what I know and what I think I know”.

Digital strategy requires digitization of mental models first, but what is a mental model? A mental model is a cognitive framework accumulated on the individual experience, and it determines the way one thinks and acts.

Character determines destiny, and mental model determines achievements.

Genes are hard to alter, but a mental model can be changed. Mental model is inert and can be affected by past knowledge and experiences, and with the accumulation of new experience and mastery of knowledge, your mental model will also be changed. Much like AI, mental model has a deep-learning ability.

There are four pain points in executing the digital strategy of an enterprise: two sheets of skin, repetitive construction, integration and collaboration, and deficiency of holistic capacity in the R&D of digital products. Behind the pain points is the problem of people, which, above everything else, is the mental model.

Traditional competency model includes knowledge, experience, character and skills. Digital mental model has the following characteristics:

I. The first reaction in the face of anything is whether it can be played another way;

II. Think about the problem by returning to the basic physical principles;

III. Proceed from user scenarios. There used to be a saying, “proceed from reality”, and with the Internet thinking, it becomes “proceed from scenarios”, which is more vivid and impressive;

IV. Possess the ability to switch quickly between expert thinking and dummy thinking;

V. Invest time and energy to achieve the binary system, and the most complex problems can be broken down to yes or no. Digitization is 0 and 1, and the computer only recognizes 0 and 1;

VI. Transform from focusing on customer needs to resolving pain points of users;

VII. Hold together for warmth. Only when you do your best to help others will you be likely to obtain the help of others. All expressions of goodwill will have well-intentioned responses.

From last year to this year, Alpha Go, Master and Alpha Go2.0 have covered all screens repeatedly. Go is the most complex brain exercise in the mankind, and in the most brain-burning area, AI beats out humans.

Yuval Noah Harari, the author of A Brief History of Humankind, wrote a new book: A Brief History of Tomorrow. A Brief History of Humankind is about the evolution from primitive people to homo sapiens (knowing man), while A Brief History of Tomorrow is about the evolution from homo sapiens to homo deus (god man). The industrial revolution produced the “proletariat”, and the AI revolution will produce the “useless class”.

Algorithms and APPs are redefining the world. Digitization is to redefine enterprise operating system with binary system.