BrazilSri Lankan firms need integrated digital approach to unlock potential
Sri Lankan companies are investing in digital initiatives ahead of their regional economic peers, according to a new report from McKinsey & Company, but a low appetite for risk and failure to integrate may be letting the opportunity slip.
With strengths in digital marketing, agility, and investments in digital initiatives, Sri Lankan companies are in some areas ahead of the curve in their digital journey compared to those operating in fellow emerging Asian economies such as Thailand, Vietnam, and Indonesia. Yet, according to a new report from McKinsey, a local company culture adverse to risk may hold the country back from bridging the digital gap to operators in developed markets.
The McKinsey report assessed Sri Lanka’s digital maturity according to the global strategy and management firm’s Digital Quotient (or DQ) framework, which covers 18 digital management practices broken down into four dimensions: strategy, culture, organisation, and capabilities – with subjects then given an aggregated DQ score. In an analysis of around four dozen cross-industry companies, Sri Lanka achieved an average DQ score of 35, slightly above the global median average.
While the score places Sri Lanka firmly in the framework’s ‘digital followers’ category (scores of between 24 and 50) and ahead of the globe’s ‘digital laggards’, it’s still well short of international digital leaders. Here, the significance of the DQ model is that McKinsey’s research has found that companies with higher DQ scores generally outperform the market, exhibiting revenue growth at rates of two to five times greater than lower scoring firms.
There are according to McKinsey some digital leaders and leading industries in Sri Lanka (notably in the ecommerce and high-tech sectors, which sit above the Sri Lankan medium as compared to the manufacturing, banking and professional service sectors which languish below), yet the firm concludes that too many local companies trail in comparison to digital forerunners and underperform on the DQ index.
Overall, compared with other emerging markets in the Asia Pacific (Malaysia, Thailand, Vietnam, Philippines, and Indonesia), Sri Lanka’s performs particularly well as to as to its digital investments, data-driven decision-making, customer focus, governance, and agility – the latter of which category it even sits ahead of developed markets such as Japan, Australia, Singapore, and South Korea. All in all, this set of strengths indicates a solid foundation.
Yet, in terms of weaknesses, Sri Lankan companies are let down by a risk-adverse mentality, as well as in their ability to integrate digital priorities into overall business strategies, their automation of internal and customer-facing processes, and the lack of a collaborative culture between local digital teams and business functions – areas not uncommon across both the emerging and developed markets of Asia, but which will hamper the country’s efforts in bridging the gap.
While there is a significant variance between companies within Sri Lanka as to their digital maturity (with 24 percent categorised as digital leaders, 60 percent as followers, and the remainders as digital laggards), an attendant McKinsey survey notes some common features, especially as to capabilities; 20 percent or less use lessons from previous digital-marketing campaigns to inform future strategy; have robust analytical measures in place or use data to generate insights, or; can confidently use digital technologies to enable automation.
These weaknesses then, when weighed against the country’s strengths, amount to missed opportunities for local companies and a failure to capitalise on intent and investments. “Companies can’t do digital on the margins,” the authors of the report state. “A digital transformation requires a wholehearted commitment from a company’s leadership, sustained investment in people, capabilities and technology, and the creation of a new company culture.”
To unlock the potential of digital technologies, McKinsey contends, Sri Lankan companies must reinvent themselves through a holistic digital transformation, keeping several priorities in the mind, the first of which is to ‘set big, bold aspirations, and integrate them into the overall business’. The firm says in conclusion; “They must constantly evaluate their unique competitive strengths, identify imminent threats, and reinvent their business models as necessary. Equally important: they must anchor themselves to a clear digital strategy focused on customer needs.”
