We’ve been hearing of the term digital transformation for many years now, in the context of how enterprises are trying to incorporate digital into the way they do business. The one thing that’s changing now is artificial intelligence (AI). 2023 is the year that AI went mainstream.
There’s a lot of curiosity on how AI will change the way business is done, and how companies can use it. Questions on how it changes consumer behaviour, and the relationship between consumers and businesses (be it products or services or more) also arise. “It's incredible that AI became mainstream,” Tony Saldanha, former vice president of global business services and IT at Procter & Gamble and author of Why Digital Transformations Fail (2019) told The Core’s Govindraj Ethiraj.
“Now you start to see AI as a way of targeting, as a way of product development, as a way of learning, as a way of operating the organisations,” Saldanha said. “When I was writing my first book, Why Digital Transformation Failed, only about 20% of boards of directors were really capable enough to even understand the power of technology and AI. That jumped dramatically during Covid and then it jumped even further when we came to last year with ChatGPT etc,” he said.
Saldanha pointed out that businesses were discovering more and more benefits of using technology. For instance, consumer packaged goods (CPG) businesses, including Procter & Gamble and Unilever are harnessing technology to do consumer research quicker. Interactions with the consumer, from targeting all the way down to shop shelves, are being transformed by AI.
Internally as well, organisations are turning to AI to make operations more efficient. For instance, Saldahna pointed out that companies are using AI for something as trivial as a travel and expense report. “Quite literally every function in these companies is dramatically being changed.” In 2024, supply chains will remain a priority, especially with growing environmental consciousness, according to Saldanha. “You need to be able to respond to consumers who are saying, how can I make sure that 100% of all of the ingredients that went into this product was sustainably sourced?” he said.
For The Core Report: Special Edition, financial journalist Govindraj Ethiraj spoke to Saldanha about how businesses are changing with technology, how the relationship between businesses and consumers is changing and what 2024 will hold.
Before we go into 2024, tell us about what you've seen and taken away from 2023 in the context of transformation. Obviously in the digital context.
2023 has been in many ways a watershed year. This is where technology has suddenly become a main stage element in the consumer goods industry, in consumer behaviour itself. I would say that there are three patterns that became really very evident in 2023.
The first one was around consumption. I think people are finally starting to demand much more personalised services. So they are no longer happy with just generic targeting, whether it is targeting for advertising, or even targeting for products.
The second thing, which really I do not need to say, because everybody’s experienced it, is the rise of AI. It’s incredible that AI became mainstream. It was driven by a very specific use case of ChatGPT. But nevertheless, I think now you start to see AI as a way of targeting, as a way of product development, as a way of learning, as a way of operating the organisations.
And the third, I think, is 2023 was also the year where the environment suddenly once again had a tremendous jump in the consciousness, in the psyche, in the demands of the consumer. So I would call those out as the three big trends of 2023.
You said targeting product development and learning. Targeting is something that’s obviously being practised by corporations in the consumer goods space. Let's stick to that space, perhaps for clarity for some years now. So what's changed more recently, in your understanding?
I think a couple of things have changed. Honestly, when it comes to targeting, I would say that the biggest thing really is the awareness, the consciousness amongst large and medium and small-sized companies of the power of technology.
I mean, Covid really step changed the digital awareness for the average person, including the executives. By the way, the reason I call that out is because about five or six years ago, when I was writing my first book, Why Digital Transformation Failed, only about 20% of boards, boards of directors, were really capable enough to even understand the power of technology and AI. Obviously, that jumped dramatically during Covid and then it jumped even further when we came to last year with Chat GPT and things like that. So the first is awareness.
The second actually is, I believe, the consumers themselves. I mean, the digital revolution is finally here. For example, in India, e-commerce is now going to reach Rs 200 million, almost there, next year 2024. Mobile penetration is going to be about 80% next year. So I think you put the two together, the awareness of companies that this is a big deal, and of course, the adoption from the consumers, and that makes it a really potent force.
If you were to look at the companies or the enterprises that are using technology, or could use technology as we look ahead to better connect with consumers, to understand them and to obviously deliver to them what they want from any product category of your choosing.
When it comes to consumer understanding and outreach, let's take the good old consumer packaged goods (CPG) businesses, including Procter & Gamble, Unilever, and all of the other big names in India. I think there is a much better use of technology and understanding of technology to very quickly do consumer research.
The good old days of doing large numbers of studies and then waiting three or four months to get the data back, and then analyse it – that was the traditional way of doing things. Now there is much more capability to not just do quick A/B testing using algorithms, online consumer behaviour data from other sources, but also reaching back into the archives of previously done studies and then drawing quick inferences from the data that exists. So I think when it comes to understanding, there is much more prevalence of using those kinds of techniques and technologies.
The second is also reaching the consumers where they are. I'm not just talking about Facebook and Twitter, but I think the rise globally of Twitch and BeReal and to the extent that it is used in IndiaTikTok – I think all of these are becoming even more prevalent in targeting, reaching the consumers where they are.
Right. And I'll come to TikTok. TikTok is banned in India, but..understanding how it's being used in the United States or other markets would also be illustrative. Now, you talked about going back and using past data or applying new algorithms on past data, and that sounds quite interesting. Are you saying marketers are able to actually pull out fresh insights by looking at old data?
Absolutely. You know, let me give you an example. Let's say that there was a study done (and a lot of these studies are captured on video) of a consumer working in the kitchen, right? Perhaps for dishwashing, perhaps for cleaning and so on. Video AI recognition has gotten smart enough that it can now recognise actions and outcomes. So, for example, previously, maybe you shot a video to say how frequently a person reaches for the bottle of dishwashing liquid or soap for cleaning. But now you're able to go back into that data and actually see that every time the person is reaching or bending down into the closet, she is wincing in pain. That’s an example of the kind of new insights that you can get out of previous studies.
Interesting. And this is one kind of insight. But is there any other, let’s say, large data set, which is more broader in terms of a regional preference for a certain product or some insight? Or alternatively, maybe people have changed their view on something because they’ve looked at old data in a fresh way.
There are certainly examples of that happening. You can always get new insights out of existing data. Regional targeting, which is the example that you brought up, is always something that is a gift that keeps on giving, as I say. The fact of the matter is that previously companies were limited by processing power, how many insights and how much they might be able to get out of existing data sets. So studies may have been done naturally, but the way they were tabulated were really limited by, again, the capability of the technology to do this.
I think when it comes to regional insights, what we're finding more and more is that now that you actually have the data, the limiting factor is really your imagination. You can go back and you can combine, for example, offtake data in a particular state or in a particular part of the country, and then reach back into your original consumer understanding studies and see why it is that the offtake is not as much as you thought it was.
Let's look at AI now as we look ahead. As you mentioned, obviously, our first exposure to AI in its new form is large language models and the ability to communicate. AI in some form has obviously existed for some time already. But tell us about the new waves of AI or the new kinds of AI. How companies in the consumer product space, for example, could be using it. And similarly, how could consumers be empowering themselves in the coming months or years to either get better deals or get better products or services tailored for them?
Let me start with companies, including large consumer goods companies, on how they’re using AI or how they could use AI. Let's look at sales — the ability to do planogramming — product placements on shelves. Again, previously that was limited by the fact that planograms were drawn manually or maybe on the computer, but they were human-generated. Now you have the ability through AI to create targeted planograms, not just for a chain of stores, but specifically for stores themselves. So that's an example of how consumer goods companies are getting much better at distribution and sales and availability based on AI.
When I was at Procter & Gamble, one of the things that I did was actually finally use very different technology, not just the traditional SAT type of supply chain systems, but really starting to use AI and artificial intelligence algorithms for the first time to do end-to-end—demand all the way through the factory, replanning in real-time. And we actually took a product, a global Metamucil product, which is relatively simple and we showed globally how we could quite literally replan in real-time. I mean, that capability just simply does not exist or did not exist until we kind of looked at that. So supply chain is another example.
But let's take something really trivial, which is the humble travel and expense report. Anytime in one of these companies, you go on a trip, you do the hated travel and expense report. Where are your receipts? How do you enter the system and stuff like that? Well, AI changes all of that…because now what companies are doing is…Google is doing this, Adobe is doing this, is that you use data.
So what you do is go into the system, put in your plans, three-day trip, whatever it is. The system has all of the information of spending on travel, on airlines, on food and stuff like that, and spits out, gives you a budget. At that time, your travel and expense process is done.
You can use the company-issued credit card, which will keep track of all of the expenses and all of the data will do much more analytics than humans could ever… on the use of this. Best of all, you are now free to travel with whoever you want, stay with whoever you want, because you're driven by a budget, not necessarily by following the standard processes of — I have to use this travel agency or I have to stay in these hotels.
So, as you can see, quite literally every function in these companies is dramatically being changed. And by the way, all of these are examples that I have done at Procter & Gamble. So this is not conceptual.
From the second part of your question, which is what can consumers do? Can they get better deals? Absolutely. I saw a study that said that consumers are finding more and more deals via social media today. And so they’re looking less at traditional advertising. They’re looking more at either advertising that they see on social media or trends from influencers on social media.
Of course, the ability to use AI to search more precisely for what you're looking for is there already. And that's another way I think, consumers can get better deals.
From what you're saying, I can sense that there are two kinds of benefits. One is internal to the organisation, and that itself is important because it makes the whole organisation more efficient and responsive. And the second is the interaction with the consumer, including down to shop shelves or shelves at stores or department stores and so on. How is attention going to be divided in the coming year?
I think in the coming year, supply chain still continues to be the big priority. Certainly in consumer goods organisations manufacturing costs and the ability to source large amounts and large numbers of different materials is a big cost driver. At the same time, as I was saying, at the macroeconomic trends, the environmental consciousness of consumers, where you need to be able to respond to consumers who are saying, how can I make sure that 100% of all of the ingredients that went into this product was sustainably sourced? And so, without a doubt, I think supply chain is a priority.
That's interesting, because clearly in the last couple of years, many companies are shifting around supply chains. Many started maybe around 2017 as tariffs went up in the United States. India, for example, is benefiting from some of those supply chain shifts. And we can see that with companies like Apple and Foxconn. So what does this mean? What's the digital efficiency that is there? And how can it get better?
I'm going to narrow down on India and the manufacturing plus technology sector as a competitive advantage for India. You and I know that India has been the digital factory of the world now for several years. It's not just the programming work that’s done out of India, but the fact that everybody from Google to Microsoft, a lot of the software that they produce for the rest of the world is actually done in India. So India has always had a competitive advantage when it goes there.
Now, the interesting trend in 2024 is to combine that with the need of the West to move away from China and do much more manufacturing out of India. And as you correctly pointed out, one part of this is obviously the factories, the machines, the physical aspects, the Internet of Things, so on. But I think this is the big opportunity for India.
This is an unprecedented opportunity, not just for the country, but anywhere in the world, which is to combine IT technical skills and supply chain skills for all types of processes, whether it is incredibly efficient planning, incredibly high tech, high efficient capability machine running, using Internet of Things and things like that, as well as manufacturing planning, factory shop layout, factory scheduling, so on and so forth. We can already see some of this starting to happen. This is an opportunity not just for the big companies, but for the small sector of businesses that want to become the manufacturing factory of the world.
And just to spend some more time on the supply chain aspect. Where do you see the opportunity to squeeze out more costs and or efficiency? And how is that different from what it was, let’s say, a couple of years ago?
The Fourth Industrial Revolution, the use of industry 4.0, which is really the blending of technology and manufacturing, is the big opportunity. I’m talking about execution, not so much about geopolitics.
When it comes to Industry 4.0, the opportunity to improve both efficiency and effectiveness is almost unlimited. On top of that, the environment-driven considerations, which is not just figuring out how to optimise the use of power or water as a resource or all of that. You put together the Internet of Things. You put together really fine-tuned algorithms and you can make a difference truly on carbon neutrality.
Let’s take efficiency – for the most part, at least on large manufacturing there have been more sensors available. Now, what we're starting to see for the first time is the ability to use that information to improve availability of these machines, reduce downtimes, and so on.
The other is the logistics related stuff, the improvement…not just in the manufacturing side, but the ability. Every truck that rolls in India today or anywhere in the world, undoubtedly has a driver with a cell phone. There is already an inbuilt Internet of Things that comes along with the know. Do we use it?. That's an example where you can start to put together some of these signals and really make a big difference both on efficiency and effectiveness.
As we look ahead again, what is the role or what are the challenges that you see for business leaders, whether in the consumer space or any other space?
I started off our conversation by saying that there is a large awareness amongst business leaders on the power of technology, specifically within India. I would say that it is spread unevenly. I do think that larger companies, whether they are multinational or Indian owned companies that are very big, they're making much more use of technology and modern manufacturing, supply chain industry 4.0 techniques.
I've had the opportunity in recent months to study a little more the medium and small sized organisations. I don't think the awareness and adoption of technology is keeping the same pace. So opportunity number one, I think, is still awareness and understanding, maybe much more so in the small and medium enterprises, where I fear that the digital divide is becoming bigger.
But I also think that it exists even in the large companies in India, primarily driven by the age of some of the assets, some of the machinery, and some of the technology that exists out there. How do we transition very quickly in line with the ambition to become, quite literally, the manufacturing and technology factory of the world? I think that's challenge number one.
The second challenge is for executives in many of the CPG industries to keep up with the very quickly changing demands of the growing middle class. The middle class in India will be about 475 million in 2024. Right. And these are 475 millions that are very different from their counterparts even two years ago in their habits, in their preferences. Their food habits have become much more international. Local food delivery at home is going to be up like 16% next year. That's the second opportunity, which is consumer understanding.
And then the third thing which is going to be a challenge is the continual growth of the awareness and the demands from this consumer base on corporate and social responsibilities. Companies are going to be hard pressed to give real data on why they are better than their competition when it comes to CSR.
Your book Why Digital Transformations Fail obviously talked about what goes wrong, despite having the best of intentions. So the objectives are broadly clear, the path is fairly clear, but yet the transformation– if that’s the right term to use here—process, can fail. Why does that happen?
This is the $64 billion question as they say. It fails for two reasons, very candidly. One is language and awareness of what we are trying to do, and the second is methodology.
First, language and awareness. The terms digital transformation, business transformation, have become buzzwords. They have been co-opted by technology suppliers. Even if you're selling a payroll system, you say, transform your company, use payroll. So the reality is that as an executive, context is incredibly important. We are in the Fourth Industrial Revolution era. And unlike the first three industrial revolutions, which were steam engine, electricity and the Internet respectively, this fourth, digital data AI, eats all of the technologies.
There is only one way to define transformation in this era, which is: if you were successful in the Third Industrial Revolution era, all the things you have to change in order to be still successful. So one piece of software is not going to do it. One platform is not going to do it. It is going to have to be total shareholder returns that you deliver using new business models, using technology.
The second is the methodology. If you follow the logic that I just said, it's not about technology alone or about processes alone. It's also 90% about culture change within your organisation. Upskilling, figuring out how to bring your organisation along. And none of the transformation methodologies really address that adequately. It’s more like an afterthought. So you put those together, and that's really why 70% of all digital transformations fail.