ADAPT OR DISAPPEAR: the digital shakeout looms.

Author:Ramirez, David

The only bright spots are leading-edge sectors such as telecommunications, banking, and retail. SMEs under pressure.

Digital transformation (DT) has become a must. "The company that is not undergoing digital transformation is destined to disappear, or at best, to lose significant market share in the medium term," Carlos Mercuriali, SVP, general manager EMEA South of SAP Ariba told Latin Trade.

A report by international consultant Innosight projects that the effects of changes in technology will lead to as many as 75% of companies that currently make up the S&P 500 being forced out of the index by newcomers over the next decade.

Similarly, a study of 350 global companies by the Harvard University School of Business showed that those that included DT in their business model achieved net margins 57% above those that did not, while operating margins were 80% higher.

Though such studies might seem convincing, many Latin American companies either don't fully understand DT or approach it in the wrong way. Mercuriali said that a SAP survey of CEOs found that 90% of accepted that DT is "fundamental," but just 15% of them had actually assigned a budget for it.

This reluctance to change is worrisome, said Mercuriali. "Latin America still does not fully understand that without DT they're not going to be competitive, in terms of revenues, costs, or in anything," he said.

While a few multilatinas and some local market leaders are embracing the transformation, the vast majority of companies in the region are being left behind. "We are seeing that a few large firms are adopting DT, but most of them, above all the small and medium-sized firms, aren't doing anything about it at all," said Marcelo Ruiz, director of consulting, Latin America-Technology, for GlobalData, a digital consultant.

Part of the resistence to change can be explained by a lack of understanding of what DT really is. "Some firms think it consists only of digitizing processes that they're doing on paper," said Ruiz. This reflects "the absence of a DT-oriented business culture."

Businesses that are actively incorporating DT are not just those involved in leading-edge industries such as telecommunications, banking, and retail. "These sectors are in attack mode, but there are also companies in agro-industry, oil, mining, and utilities," Mercuriali said. Also, startups are using tools like blockchain, big data, the internet of things, and artificial intelligence to develop specific lines of...

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