'India is the digital factory for the world but many companies still question the need for tech adoption': Tony Saldanha

Q. You say the global digital transformation industry is valued at about $1.7 billion. But you highlight that 70 percent of digital transformations fail. Why? Could you explain this in context of India?  

The reason why you have such a big spend and growing at 17 percent on an annual basis is because digital transformation is our generation's transformation from being successful in the third Industrial Revolution, which is all about the internet, to the fourth Industrial Revolution, which is all about digital capabilities. So, when you consider that 70 percent failure rate in the context of this is an existential threat, if you don't adapt, then your company or an organisation is going to fail.

I don't have the size of the digital transformation industry within India. Domestically, if I were to take a guess it is not very large because domestic consumption has exploded.  Based on a per capita basis, the dollar numbers are still, fairly low, so that wouldn't be a big impressive number. The number that would still apply is the 70 percent failure rate, which leads to the second question, which is, why do 70 percent of these transformations fail?  

I met with more than 100 of our senior leaders, CEOs, consultants, venture capitalists and so on and so forth. One (reason) is because the industry and digital transformation is evolving so quickly, there hasn't been the time to kind of put maturity into context. If you're confused about what you're doing, then you're certainly not going to be successful. So that's one. The second of two reasons at a high level are methodology.  So, most companies, most organisations, your projects and IT projects tend to use and implement technology without taking into account the human organisation behaviour, which is a crucial element of implementing change and the key to resisting the change in habits that are needed to transform a company. So, it's a little bit like giving flashy tools to people and getting pushback on non-adoption. So, the methodology, which is being used to drive adoption, is simply not mature. So those are the two core reasons why 70 percent fail.

Also read: The promise and peril of artificial intelligence as a general purpose technology

Q. How are Indian companies solving this problem? In fact, most companies now want to join the AI bandwagon primarily as a cost-saving exercise. How are they coping?

How to embrace the technology wave without becoming part of the 70 percent is critical. I have two key pieces of advice, especially for Indian companies, but these can apply more broadly as well. First, it's essential to remember Bill Gates' insightful observation that people tend to overestimate technology's short-term impact and underestimate its long-term consequences. In the short term, which includes the next one-two-three years, the hype around technology can be exaggerated. However, in the long term, particularly over a 10-year horizon, technology's influence is often underestimated.

Instead of getting caught up in the buzz around a specific technology like AI, consider practical applications. For instance, ChatGPT and AI can at best generate ideas, provide data, and even write a terrible first draft, but it is certainly not going to replace human creativity and critical thinking in the next few years, or even decades. The same principle applies when considering AI for areas like supply chain management or sales. Many startups have developed niche AI solutions for specific problems, such as optimising demand and supply management or coordinating logistics.

Second, Indian organisations should consider a leapfrogging approach, leveraging their existing human capital. Instead of immediately investing heavily in technology, allocate some resources to train your workforce in AI. This aligns with the approach of companies like IBM and PwC that are freezing hiring to allocate funds for employee training. Building your human capital in AI is a strategic move. By upskilling your employees, you can harness the power of AI more effectively and stay ahead of the curve without unnecessary expenditures on tech "toys." Focusing on practical use cases and investing in your workforce's AI capabilities can help Indian companies, and others, navigate the technology landscape more effectively and avoid becoming part of the 70 percent that struggle to adapt.

Q. What do you pick from your interactions with CEOs of Indian companies? Where does the anxiety lie?  

I've identified three major concerns that businesses, particularly those in services like finance, consulting, and BPO, often face when it comes to embracing AI. Firstly, they worry about the timing of their AI investments. Secondly, they're concerned about the relevance of their current services in the face of AI disruption. And thirdly, they struggle to find the funds to invest in AI due to tight profit margins.

While the concerns surrounding AI adoption are valid, businesses must recognise that they cannot afford to ignore AI. The key is to invest wisely, embrace innovation, and use AI tools to gain a competitive edge in the marketplace. Indeed, the widespread adoption of AI and other advanced technologies has the potential to drive down prices, making these tools more accessible to businesses across the board. However, the mere possession of these tools doesn't automatically guarantee a competitive edge. The true advantage comes from how effectively you wield these tools and out manoeuvre your competitors in their utilisation.

My guidance to them is straightforward. Firstly, not investing in AI is not an option. It's akin to sticking with horse carriages during the Second Industrial Revolution instead of embracing internal combustion engines. The key is how to use your funds wisely. Secondly, leverage India's renowned spirit of jugaad and creative thinking and cost-effective solutions.

Q. Typically, what percentage of the budget is allocated for AI and digital transformation at large in India?

Regarding budget allocation, I don't have specific data for India. Most IT budgets typically range from one-two percent of a company's total operational costs. Within that, less than 0.1 percent may be allocated to AI. Most of the budget goes towards maintaining existing systems, leaving only a small fraction for innovation. However, this is both an opportunity and a challenge. Doubling a small budget is feasible, and increased adoption will likely drive down AI prices.

Q. If digital innovation is the name of the game, how can Indian companies incorporate a sense of stability to address fears of employees and other stakeholders?

If your organisation has a culture of being relatively slow to adopt technology, you're going to have more resistance to change. You are going to have a harder time with the middle management. But if you work in a company that's constantly transforming itself, it almost becomes second nature, right? So, my advice is, first and foremost, look in the mirror at the company's organisational culture.

There are a lot of models including the one that Google originated in the early 2000s under their CEO, Eric Schmidt, on the 70:20:10 formula which is 70 percent of the resources should be dedicated to running day-to-day operations, 20 percent to continuous improvement, the next 10 percent to disruptive innovation. So, when you use frameworks like that, when you create a culture, you are actually enabling your organisation to anticipate some of the changes, you're going to have less resistance than and if you do that, episodically every 10 years, I'm going to do a restructure, well that’s going to be a problem.

Actually, the bigger issue is with the bigger Indian companies or the biggest foreign companies outside of India, which is they don't have a hope in hell of convincing Wall Street or the Dalal Street that their valuations should continue to go up while they're building for the future. That bus has sailed! They have trained the analyst to expect a certain amount of growth. So, it’s a lot harder for those companies and they have to change the playing ground. They have to relook at models like the 70:20:10 model that I was talking about to accelerate disruptive innovation.

Also read: How AI training can elevate human performance

Q. What is the big challenge for Indian companies?

When it comes to leapfrogging on digital transformation, the Indian companies are divided. There is a generation of companies and leaders that still don't really get the potential that exists long-term. And that's a little awkward because India is the digital factory for the world. Many domestic companies still question or invest in the wrong areas. So, unfortunately, there is a large percentage of Indian companies where this is a leadership vision issue. Also unfortunately, in industrial revolutions, companies die. And, unless these cohort of companies figures out ways to change their mindset, they're going to be in trouble.

The other cohort not just gets it, but is actively looking for competitive advantage through digital technologies and I have been thrilled to see that these are not just the big companies with a lot of money. These are medium-sized businesses that are trading or doing local stuff, maybe in one city or one state, but they have still found creative ways to use technologies. Maybe they're not buying the big software like the SAPs and stuff like that, but they found somebody locally to give them some of those same capabilities at a different price point.

So, what's the holdup? First and foremost, the holdup is envisioning. Envisioning what your business will be like in the new Industrial Revolution, is your bus carriage business becoming an automobile business? What's the equivalent of that in your company? The second one is affordability and a low price point. But that is a leveller, right? Most of your competition still works in the low price point market of India and in that environment the most creative, that is, the most jugaad culture will win. And that's what is necessary!

Q. So, do you think many of the bigger players will lose market share to their western counterparts as they play the catch-up game?   

No, I actually think that this is an opportunity of historic proportions and I feel Indian companies will play the disrupter to the western counterparts.

Q. In what sense? Will it come from the unicorns (disruptors) of India or will it come from the Tatas (established companies) of India? Give me some more colour on that. 

Yes. I think this is going to come from the unicorns in the longer term. They may actually struggle a little bit more initially since the venture capitalist model is relatively new in India - the ability to sell the products and services outside of India is still developing. So, they will take longer, but there will be disruptors. To be clear, the Tatas and other bigger companies can also play the disruptor role, but in enabling products and services.  They’re going to play it via the playbook of getting global work done out of India.

The implications are that as a company leader, you must leverage human capital as disruptors. Treat your employees as raw material, train them to get an advantage, and combine that with the culture of disruptive innovation and jugaad to identify new business models that are disruptive.  Then start to reapply that in countries outside of India. So, whether it is the Indian services firms—BPO and IT—or the ability of India in industries such as manufacturing, infrastructure, or high technology—perhaps now with rockets and things like that—to start to disrupt western countries.

Q. Which sector do you think has an advantage in terms of digital progress and which sector do you feel is lagging behind?  

The most progress has been made in and around the IT services sector. The sector that for me is most interesting within India is manufacturing. It is absolutely, with the engineering capabilities and the people power that exists in India and again, geopolitical constraints like the countries want to limit their exposure to China, India should be the next game to play. The challenge in manufacturing has always been infrastructure and so I think you're going to see an emphasis on building infrastructure, hopefully supported by government agencies and the financial markets but that's the one that I'm most excited about.

Q. What lessons must we learn from the Y2K crisis in the age of the fourth Industrial Revolution? In the past we have seen the social costs of these big revolutions…

I think that the creation of that burning platform - there is a common goal - is exactly what needs to be done in the face of AI and digital capabilities. As I mentioned, AI and digital capabilities are at the root of this Fourth Industrial Revolution. It is what is disrupting the status quo. It is not an enemy, but it is a common opportunity. And still, I think there are some companies that view this as a burning platform while others are like, ‘let's wait and see’ or ‘it’s not going to affect me as much in my business’. So, I think the best lesson from Y2K is—how do you create that same spirit of a burning platform or oneness to go adopt these changes? As you recognise that you have a burning platform, the issue is to move away from episodic transformation to set a culture of accepting constant ongoing change. And the mistake people make is they make big, scary plans which are going to be one-off until the next big transformation needs to happen.