Joining Forces to Digitalize: How Collaborative Innovation Can Augment the Impact of Digital Transformation on SC Performance

Innovation

By Sara Abdalla

Digital transformation is reshaping the world of business, enabling ambidextrous supply chain performance by driving both efficiency and adaptability. Nevertheless, implementation of the most advanced technology by itself cannot yield the desired outcomes. Firms must seek collaborative innovation in order to reap the benefits of DX and sustain competitive advantage.

DX in Supply Chain Management

Driven by societal changes, the advent of new technologies, and the global COVID 19 pandemic, digital transformation is reshaping the world of business. Firms of all sizes and industries are actively using, pursing, or at least considering, the use of digital technologies to enhance their performance and capabilities. Supply chain management (SCM) is one area of the business management that is greatly affected by this digitalization movement. According to MIT Center for Transportation & Logistics, digitally transforming SCs can cut process costs by half and lead to about 20 percent increase in revenue1. SCM processes can be streamlined and optimized using technologies such as the internet of things (IoT), machine learning (ML), and artificial intelligence (AI), to name a few. Assisted with these technologies, SCs can be transformed into agile, customer-driven, and demand-sensitive networks.2

Efficiency vs Adaptability: Keeping Balls in the Air

Practitioners and academics alike emphasize the importance of firms’ ability to adapt to dynamics in the business environment. Such adaptability entails the rapid reconfiguration of resources, activities, as well as relationships and business priorities, to the changing market conditions3. However, this ability should not be at the expense of lower efficiency. The intense competition prevalent in today’s business landscape necessitates pursuing adaptability and efficiency simultaneously, a capability known as “ambidexterity”4.

The intense competition prevalent in today’s business landscape necessitates pursuing adaptability and efficiency simultaneously, a capability known as “ambidexterity”4.

The use of digital technologies in SCM has been proposed as a means by which firms can achieve ambidexterity. On the one hand, DX contributes to cost saving and the reduction of slack resources by providing enhanced visibility and optimization of SC processes, leading to increased operational efficiency. On the other hand, digital technologies allow higher customer proximity and market sensing capabilities, resulting in improved adaptability. 

Choosing the “Right” Player

Collaboration prevails in innovation projects, as individual, firm-bounded projects can produce little value. Collaboration, in its broadest definition, seeks the acquisition of resources not currently available for the focal entity by polling and / or combining own resources with other entities’ resources. In this sense, it is vital to define the nature of the needed resources. Generally, these resources can be either complementary, i.e., different in nature, or similar. Firms engage into collaborative innovation (CI) activities with firms with similar resources/challenges to benefit from their experience and to gain economies of scale. The expected outcome of such collaboration is boosted efficiency. Alternatively, firms choose to collaborate with firms with complementary resources to expand their resource base and have access to different types of resources. In this case, their adaptability is enhanced. CI projects are thus can be directed towards specific targeted outcomes.

DX and in Japanese Firms

DX is becoming an imperative for business survival. In Japan, however, the long-established corporate culture has resulted in poor commitment and support by top management to the transformation endeavors. Combined with shortages in trained human resources for DX implementation, Japanese firms are faced with an “insufficient scaling and development of digital services”5. According to their corporate transformation surveys, McKinsey & Company reported a digital transformation success rate of only 16 percent in Japanese firms, with an even lower success rate among traditional industries such as energy and infrastructure. In general, the investments in information and communication technology (ICT) in Japan are far below its peer countries; US and UK for example, and has not witnessed any growth since 20006.

Acknowledging the significance of DX and in attempts to accelerate its adoption by Japanese firms, the Ministry of Economy, Trade, and Industry (METI) in Japan has launched a study group with the mission of “researching and prioritizing current challenges involving IT systems that Japanese companies are facing in achieving digital transformations”7. One of the main challenges identified by the study group was that business owners are hesitant to engage in DX project given the associated high costs and long-term outcomes, which could entail many risks to their businesses. To promote DX, several measures were proposed by the METI including providing guidelines, developing metrics, and establish a platform for cooperative areas. 

A recent study which included a sample of Japanese manufacturing firms8 has investigated the joint impact of SC digitalization and CI with partners having similar vs different resources on SC performance. According to the results (see Figures 1), when firms engage in CI activities, the impact on their SC performance is significantly higher than when they pursue DX individually.

figure 1

More specifically, the results illustrated in Figure 1 (left) show that Japanese firms embarking DX radically improved their SC efficiency when collaborating with market and industry members (MICI), such as consultants or even competitors, compared to those who pursued it individually or with member of the SC, such as customers and suppliers. The figure also illustrates how the typical high costs associated with DX resulted in a decrease in SC efficiency for firms with lower CI levels.

Similarly, Japanese firms in the study who engaged in CI with their suppliers and customers (SCCI) were capable of achieving higher SC adaptability using the digitalization of SC processes compared to other firms which foregone such collaborations, even when they attempt to embrace DX. In Figure 1 (right), we can see clearly that combining DX with collaboration assisted the Japanese firms who initially suffered from lower SC adaptability to surpass other firms which relied only on digitalization initiatives. 

Conclusion

The business landscape is rapidly changing, placing increasing pressures on businesses to cope and adapt while maintaining a healthy bottom line. Many firms are moving towards SC digitalization as a means by which they can streamline and optimize processes, and eventually balance the efficiency-adaptability tradeoffs. Despite their tremendous advantages, however, digital technologies alone cannot sustain the competitive advantage sought by these companies.

Creating high value collaborations with SC and non-SC members can minimize some of the associated risks inherent in the DX process, ease the transition, and improve it outcomes by providing access to complementary capabilities and / or pooling similar resources. In this sense, SC leaders, especially in Japan, can use this recipe to reinforce the impact of DX and guarantee higher success outcomes.

 

About the Author

Sara Abdalla

Sara Abdalla is a lecturer and a researcher in business administration, with a focus on technology and innovation. She is currently finalizing her Ph.D. in business administration at Osaka University in Japan. Her research interests include SC management, analytics, and entrepreneurship.

References

  1. MIT CTL, “MIT Digital Supply Chain Transformation,” MIT Digital Supply Chain Transformation, 2021. https://digitalsc.mit.edu/ (accessed Sep. 28, 2021).
  2. G. Büyüközkan and F. Göçer, “Digital supply chain: literature review and a proposed framework for future research,” Computers in Industry, vol. 97, pp. 157–177, 2018.
  3. 3. H. L. Lee, “The Triple-A Supply Chain,” Harvard Business Review, vol. 82, no. 10, pp. 102–113, 2004.
  4. J. Birkinshaw and C. Gibson, “Building ambidexterity into an organization,” MIT Sloan Management Review, vol. 45, no. 4, pp. 47–55, 2004.
  5. M. Kurokawa et al., “Using digital transformation to thrive in Japan’s new normal: An urgent imperative,” McKinsey & Company, 2021. [Online]. Available: https://www.mckinsey.com/jp/en/our-work/digital
  6. OCED, “Information and communication technology (ICT) – ICT investment,” OECD Data, 2021. http://data.oecd.org/ict/ict-investment.htm (accessed Sep. 28, 2021).
  7. METI, “Digital Transformation: Overcoming of ‘2025 Digital Cliff’ Involving IT Systems and Full-fledged Development of Efforts for Digital Transformation,” Ministry of Economy, Trade, and Industry (METI), 2018. Accessed: Sep. 28, 2021. [Online]. Available: https://www.meti.go.jp/english/press/2018/0907_004.html
  8. S. Abdalla and K. Nakagawa, “The Interplay of Digital Transformation and Collaborative Innovation on Supply Chain Ambidexterity,” TIM Review, vol. 11, no. 3, pp. 45–56, Apr. 2021, doi: 10.22215/timreview/1428.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.