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Arturo Capasso
Full Professor of Corporate Governance, University of Sannio | LUISS G. Carli.

The digital transformation of management and governance processes in the Italian companies

"46.5% of executives now believe that digital transformation will be essential to their survival in the next 3-5 years." - Worldwide SMB Executive Survey: IDC 2017


Digital transformation as an element of business development


Historically, there has always been a causal relationship between technological innovations and business methods for managing and developing a business. In the Industrial Revolution, the introduction of machines and the consequent economies of scale have given an impressive acceleration to the growth of companies size. A few decades later, the progress of telecommunications, with the introduction of the telegraph first, and then of the telephone, played an essential role in the internationalisation of companies. However, even less radical innovations, such as the fax - to mention just one outdated technology - have considerably changed the way work is organised within companies and in the academic community.

Recently, it became clear that the innovations with the greatest impact on business organisation have definitely been the development of the Internet and of the mobile communications, supported by the significant expansion of the capacity to acquire, store and archive data. The combined effects of these innovations had a disruptive impact, not only on the development and organisation of businesses, but also, on many other aspects of our daily lives, for instance, on the relation with the public administration, and even on personal relationships.


Starting from this scenario, and in a continuous evolution, some considerations related to the digitisation, archiving and electronic management of documents emerged along with their impact on business practices in companies. In fact, the possibility of being permanently connected to company networks and being able not only to communicate in real time, but also to access and modify any document, has undoubtedly favoured the sharing of work and facilitated the coordination of complex activities that require the participation of several actors, often located in geographically distant locations and, sometimes, operating in different organisations.

In this sense, digital transformation and the consequent reorganisation of business work is certainly a central point. In fact, it is not surprising that, according to data from a study conducted in 2017 by the International Data Corporation (IDC), 46.5% of Italian executives consider digital transformation to be a critical factor for the development of businesses in the next 3 to 5 years (Worldwide SMB Executive Survey, IDC 2017). It is clear, therefore, that the digital transformation represents a fundamental challenge for the Italian business world, on which the future economic growth of the country's system will depend.


The digital economy in Italy

How much is the digital market in Italy worth? There is no clear answer to this question. The main reason is linked to the transversal nature of digital innovation. In fact, the boundaries of the sector are not easy to define, and recent estimates indicate the value of about EUR 58 billion, employing 253.000 units in 2017. Compared to 2016 there has been an annual growth of 9% of the market size, and of 15% in the employment1. According to the Europe’s Digital Progress Report, published in 2017, among the European countries, Italy has had a 19.7% growth in corporate digitisation in the past two years2.

However, it seems evident that there is a different speed in the digital transformation process. Large groups are already at an advanced stage, often even ahead of their foreign competitors, while small and medium-sized enterprises seem to be lagging far behind3

The delay in digitisation of small and medium-sized enterprises is worrying because they represent the main component of the Italian industrial system, on which the Italian economy relies and builts its international success. Italy is in fact a world leader in the production and industrial machinery sector mainly thanks to its industrial districts, networks of small and medium-sized enterprises, which are often seen as "pocket multinationals". For this reason, the country must increase the digitisation of information and decision-making systems of both small companies and inter-company networks in order to remain competitive in the world economy. However, the small size of an enterprise should, rather than a limit, represent an advantage, because small and medium enterprises are usually much faster than large groups in adopting new technologies4.

Furthermore, from the perspective of the production of digitising services, it should also be noted that, unlike countries such as the Netherlands and the United Kingdom, which export digital services to Europe, Italy imports digital services5. This is in contrast with the presence, in Italy, of universities and research centres that are at the forefront of scientific expertise in the field and, which, however, lack the necessary link to the business word. A connection that in other countries is represented by investments in venture capital funds and by the technology transfer carried out among universities, research centres and business communities.

Undoubtedly, the digital transformation offers a scenario of enormous potential for the Italian research system. In fact, after having acquired the necessary entrepreneurial mentality, there could be the possibility of considerably reducing imports and, at the same time, of increasing the potential for digitisation of companies. That is because, in addition to the aforementioned sectors, there are other successful market sectors, such as automotive components, food, fashion and the pharmaceutical sector, which lacks digitisation, and at the same time, have the potential to increase their level of innovation. For instance, the agro-food industry presents a problem in terms of products traceability, which could be solved thanks to digital technologies, or the fashion and e-commerce sectors, where only about 10% of companies sell goods or services online and only 25% of the consumers use the web as the main channel6.

However, digital transformation is a demanding process for any company and failure is not uncommon even for larger companies. Recent surveys show that a substantial proportion - 27% of the sample considered - of medium and large enterprises that have undertaken digitisation projects, have then decided to stop such projects after their launch, generating an average cost per enterprise of almost half a million euros. The complexity comes from the need to design tailor-made solutions, tailored to the characteristics and specific needs of companies.

Constantine Kamaras, Chairman of the Board of Directors of the Interactive Advertising Bureau (IAB), recently states that

"the key elements for successful digital transformation of any company are: data, technologies, and the people with the right skill" 


but he also added "... when a company wants to act quickly and break the mould without branding the bank, the key factors for success are leadership and courage"7

In this sense, one of the most successful cases of digitisation comes from the Italian energy sector. Eni, a global oil and gas company, is now experiencing a crucial phase with the launch of the new HPC4 supercomputer. As explained by ENI’s CEO, Claudio Descalzi, "We are in the crucial phase of our digitalisation process, with 150 projects across all business areas and over 150 managers involved, with the aim of achieving economic benefits in the medium and short term"8. This project was designed to transform and encompass the organisation's economic performance not only through greater computer capacity, but by enabling the development of new business models and accelerated decision-making processes. Eni’s digital transformation was not an overnight success, but a plan that began with an outline from the CEO thirty years ago culminating with the new HPC4 supercomputer. Their ability to digitally transform their employees, IT and technology is what truly sets them apart in the industry9.

Looking more generally at the Italian entrepreneurial system, a significant contribution to the digital transformation of enterprises should come from the National Plan launched in 2016 by the Italian Ministry of Economic Development. The plan, known as "Industry 4.0." was a way to digitalise the Italian economy through technology research and innovation, tax breaks, and venture-capital support for startups10. The plan also includes funding at the top Italian universities that focus on innovation and high tech, as well as, partnerships with organisations in the United States such as Apple and Cisco, who see great potential in the Italian market11.


Digitising the work of executives and administrators

As already mentioned, the impact of digitisation processes is on all the business functions and processes. The ability to operate at any time as if you were in your own office, to interact with multiple colleagues on the same document, to make changes to projects that are in progress at the premises of a customer or supplier, perhaps using software and archive data taken from the Cloud, expand in a significant way the company's potential. However, it might be interesting to reflect further on the role of digitisation in the typical activities of managers and administrators.

In fact, it is in the management and control processes that the need for innovation is most required, and where the most of the potential offered by the digital transformation is achievable. In other words

it is necessary to rethink the decisional models, with a simplification of the organisational processes that can lead to the development of a mode of digital leadership of the management.
 


The problem is not purely technological. Antonio Grasso, a leading figure in various digital innovation projects for both the public and private sectors, commented on this point: "The Italian digital transformation will not be successful without a change management approach. Technology alone is not enough"12.

A significant change concerns one of the typical practices characterising management activities: the management of meetings could, in fact, be radically changed by digital technologies. Innovations in telecommunications have made the use of teleconferencing and videoconferencing increasingly frequent. This has not only resulted in considerable savings in terms of time and cost, but also in the possibility of involving people who live and work in different locations, and also with different cultural contexts, broadening horizons and increasing opportunities, thanks to the multiple perspectives of framing scenarios and decisions. Now, the next step is to make remote participation more effective, thanks to the support offered by real-time accessibility to meeting documents and the possibility of operating a selective approach to meetings according to the topics under discussion.

Studies have shown that many executives are overwhelmed by meetings and this significantly reduces their productivity and happiness at work. In a study conducted by the magazine Harvard Business Review (HBR), 54% of respondents affirmed that meetings are often too frequent, poorly timed and badly run. Changing the organisation's perception and approach to meetings, on the other hand, had significant rewards: a 42% increase in team collaboration, a 32% increase in the ability to express opinions, and a 28% increase in team performance. Respondents' also reported greater satisfaction in their life/work balance – a rise from 62% to 92%13.

The impact of new forms of communication and digital technologies can, therefore, bring a significant improvement in the effectiveness of meetings, both with regard to meetings of the management and with regard to those of corporate governance bodies. This has also become a necessity; especially, if we consider the acceleration in business times imposed by a characterised competitive context, and by a dynamism never experienced before in the past.

Where once sitting through endless meetings was acceptable even if one's presence wasn't necessary, today they are considered empty rituals14. Elon Musk, CEO of Tesla, has encouraged the elimination of excess meetings and limiting attendance to only necessary parties. "Excessive meetings are the scourge of big organisations and they almost always get worse over time," he says. "His tips? Eliminate frequent meetings and only stay at a meeting if you are contributing value to the call or meeting"15.

In this scenario, a meeting management software can provide the opportunity for more successful executive and board meetings by simplifying the preparation process and enabling them to focus on value-added activities. Faster access to data, documents, and the speed of digital tools combine to result in improved and faster decisions. When you consider that the typical executive dedicates an average of 23 hours a week to attend meetings, the savings in time and opportunity costs are enormous16.

Adapting to the digitalisation of meetings requires the right technology, but also a rethinking of the traditional meeting environment. It’s a collaboration between technology, processes, and people, with management in particular taking the lead. When digital leaders such as Elon Musk lead the way in focusing on creating value in meetings, the processes and technology follow suit.


The future of Italian digital transformation

According to the International Data Corporation (IDC), digital transformation spending will reach $1.3 trillion in 2018. Organisations that are able to embrace digital transformation will benefit greatly; those that don’t will fall behind. A new structured approach to meetings could collect data from each person, analyse it as a team, set collective goals and milestones and regularly debrief participants17. The change doesn’t have to come from the C-suite, but can be essential in driving modifications within an organisation18 and save organisations up to 8,000 Euros a year on the cost of traditional board meetings.

As Italy continues to encourage organisations to ride the Italian digital transformation wave, we will see more and more adoption of digital technologies and processes. But it’s important to understand that digital transformation is not only about technology, but also about people and processes.

As Alexander Magno, Chief Digital Officer of GeMS, a leader in the Italian publishing industry, puts it: "You don’t need to be a technological giant to be data-driven. It’s about a new approach through which an organisation transforms business models through digital skills.19"

The future potential is great although the path may be slow. According to a recent McKinsey report, Italy has only captured 10% of its digitisation potential20. Now is the moment to unleash the other 90%.


 


1 "Natural born digital." Enel Blog. December 11, 2017.
2 Europe’s Digital Progress Report 2017.
3 Casini, Stefano. "The digital transformation? Many have thrown away at least half a million." Industria Italiana. February 7, 2018.
4 "Natural born digital." Enel Blog. December 11, 2017.
5 "Italy Transforms Itself into a High-Tech Hotbed." Technology Review. March 15, 2017.
6 "Goldman, Jeremy. "The European Country Becoming an Unexpected Hotbed of Innovation." February 13, 2018.
7 "Italy Transforms Itself into a High-Tech Hotbed." Technology Review. March 15, 2017.
8 Bughin, Jacques et al. "Digital Europe: Realizing the continent's potential." McKinsey Global Institute. June 2016.
9 "Italy Transforms Itself into a High-Tech Hotbed." Technology Review. March 15, 2017.
10 Eni Website.
11 Eni: Story of a digital transformation based on skills. Eni website. February 22, 2018.
12 "Only Technology is Not Sufficient." Digital Scout Blog. Interview with Antonio Grasso. January 2, 2018.
13 Perlow, Leslie A, Hadley, Constance Noonan and Eun, Eunice. "Stop the Meeting Madness." Harvard Business Review. July-August Issue.
14 "Elon Musk: Walking out of meetings, and other advice from tech gurus." BBC News. April 19, 2018.
15 "Elon Musk's 6 rules on productivity." Millionaire Italy. April 24, 2018.
16 Carrasco, Isabel. "How to End the Madness of Meetings." Grandes Pymes. February 10, 2017.
17 Perlow Leslie A. et al. "Stop the Meeting Madness." Harvard Business Review. July-August 2017 Issue.
18 "Tackling challenges in meeting organization for organisers and attendees." Sherpany blog. March 8, 2018.
19 Zanotti, Laura. "Digital Economy: The True Meaning of the Digital Transformation Journey." Digital Executive. March 2, 2018.
20 Bughin, Jacques et al. "Digital Europe: Realizing the continent's potential." McKinsey Global Institute. June 2016.

Arturo Capasso
Full Professor of Corporate Governance, University of Sannio | LUISS G. Carli.
Arturo Capasso is full Professor of Corporate Governance at the University of Sannio, Benevento, and President of the Master degree course in Economics and Management. He also teaches Advanced Corporate Governance at the LUISS G. Carli University in Rome. He has published more than 60 scientific articles and volumes in international journals about Corporate Governance, Corporate Finance and Management. Professor Capasso holds a Master degree from the University Federico II of Naples, an MBA from the Columbia University and a PhD in Corporate Finance and Markets. He has held several mandates in private companies, banks, financial intermediaries and government-owned companies.

More information on the LUISS University of Rome.

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