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Strategic Innovation: The Impact of Digital Transformation on South African Businesses

Specno
February 21, 2024

7 Ways new technologies can empower (or threaten) your operations – this is how digital transformation is impacting SA business and how to stay ahead of the curve

Is digital transformation a core part of your strategy?

The world is shifting faster than ever, with new technology and macro trends disrupting virtually every industry and sector – with no signs of slowing down.

From the march of AI to immense pricing pressures on all consumers, it’s now, more than ever, that every business needs to invest heavily in digital transformation – be it through venture building or simply up-skilling and tech-enabling internally. See, for example, the tech-enabled future of retail.

Here are 7 key areas where we’re seeing the immense impact of digital transformation on South African businesses…

First: What is digital transformation?

Digital transformation is more than just updating your tech and systems, it’s taking an entirely new approach to business with the help of technology. It’s a cultural shift that involves rethinking old operating models, being more responsive to market changes, customers, and competitors, as well as adopting new technology to enhance innovation, efficiency, and effectiveness.

That’s often hard to imagine if you’ve been doing things a certain way for a while. So we’re going to walk you through 7 big ways tech can impact your business – show you the risks and opportunities, with some real-world SA business examples…

(PS: Want to know how to fund a big transformation project without paying for it all yourself upfront? See 7+ creative ways to finance your innovation projects with unique models of venture funding in retail.

The impact of digital transformation on South African businesses today

1. Enabling Greater Agility

After the Covid-19 pandemic, we’re all too aware that macro events can severely disrupt even the biggest behemoths in any marketplace. Casualties of SA lockdowns include Edcon, Comair (Kulula), Mango Airlines, Associated Media (Cosmopolitan), a whole host of Media24 and Caxton publications, Prada, nearly half of Flight Centre outlets, a telephone book full of restaurants, clubs and pubs, and the discontinuation of countless beloved South African retail product lines.

At the same time, some businesses thrived during Covid – Checkers, Naked Insurance, The Unlimited, Yebo Fresh, etc. The difference? The thrivers had digital transformation as a strategic objective, enabling them to adapt fast and unlock new ways of doing business.

The Risk

Disruption is no longer isolated to macro events like Covid. At the start of 2023, the Russia-Ukraine war started an inflation cycle that’s still driving record fuel and price increases. On top of that, crippling load shedding forced immense expenditure just to keep the lights going.

And the adoption and investment in AI happened at such a pace, even the people behind it are frightened of what the technology could do to the world as we know it

If there was ever a time to invest in your business’s future and resilience, it is now.

The Opportunities

The great thing is that the technology to advance is available to us, right here in South Africa. There’s no scarcity of tech, perhaps just the skill and will to apply it – see why your business needs a digital consultant.

One place to start is to use tech to employ data analytics to monitor and analyse customer behaviour and adjust your products and services in real time. Then move on to address cost centres, increase operational efficiency (see point 2 below) and be more responsive to customer needs (see point 5 below).

And it pays to partner with an innovation consultant because digital transformation requires a cultural shift – see what a week with an agile team looks like

See all about the future of retail and why you need retail technology integration in-store.

For Example: Checkers Sixty60

A shining example of agile response is Checkers Sixty60. They not only addressed the need for delivery but built an entire system to talk straight to the consumer’s No 1 concern regarding last-mile delivery – getting the things I order as fast as possible (not next week, like most e-commerce).

It’s no wonder others are following suit – the need to compete with Checkers Sixty60 is what drove Pick n Pay to invest so heavily in ASAP!, Woolworths in Dash and likely why Uber Eats suddenly branched out to retail.

Also see how one of the world's largest retailers do things in our in-depth case study on the Amazon omnichannel strategy and the benefits of inventory technology integrated for more competitive retail operations.

2. Unlocking Operational Efficiency

Possibly the biggest impact digital transformation can have on a business is increasing efficiency. Digital technologies enable businesses to automate tasks, streamline processes, and reduce manual labour, unlocking significant cost savings and increased productivity.

The Risk

Failing to invest in efficiency can render your entire business uncompetitive or even obsolete because there are others actively looking to use your inefficiencies as gaps for them to capture the market. The entire tech startup industry exists to disrupt and completely redefine entire markets (Uber up-ended taxi industries worldwide, including SA’s ailing taxis). Even if you’re not actively venture-building or investing heavily in tech transformation, there’s a good chance your competitor is.

Digital transformation is no longer just about technology, it’s an active part of future-proofing.

The Opportunities

A good place to start is to look at your cost centres. Virtually anything can be automated or streamlined, and percentages saved here and there all help to make you leaner and more competitive. Next, consider processes, supply chain, and routine tasks – again, much can be automated today. 

Discover more opportunities by speaking to a digital consultancy.

For Example: WeBuyCars

SA’s automotive industry is big and set in its ways. Yet, WeBuyCars managed to completely disrupt the second-hand market simply by better understanding the consumer’s needs (selling is harder than buying), enabling faster sales through technology, and focusing on moving cars within days – even if it meant auctioning or lowering prices.

WeBuyCars works very differently from traditional dealerships and that helped grow revenue by 66% in 2022. And it’s, by and large, the technology and digital adoption that unlocked a higher margin on every deal. See how data boosts customer loyalty.

3. Facilitating Diversification

It’s no secret that South Africa has an extensive yet finite market – and that’s true for most industries. This is despite the fact that there are entirely unaddressed markets (such as the informal sector and township markets), that seem unreachable, leading most companies to an eventual impasse of where to diversify to next.

The Risk

Expanding into new geographical territories is extremely costly and risky – operating across borders brings its own set of regulatory challenges. And yet, you have to grow somewhere, right? Because your competitors are looking to grow, and they’ll outpace you the first chance they get.

The Opportunities

Technology can help unlock much simpler, faster, and more efficient ways to unlock new market opportunities and product innovation. Not to mention enhanced customer engagement and even the ability to offer entirely new services as bolt-on products to your core services through APIs.

Speak to a tech-native innovation consultant.

For Example: Pepkor’s Flash

Pepkor is an absolute giant in retail, and yet even they recognised the key concern of SA’s informal market’s reliance on cash in rural, traditionally unbankable areas – cash that creates an enormous risk at scale. Yet, this year (2023), for the first time, Pep started reporting on their subsidiary Flash, which has developed a means of turning cash into digital tokens all across rural Africa.

What’s remarkable is that in 2022/2023, Flash processed some R10bn’s worth of transactions that simply would not have existed without their new technology. (More on unlocking new markets at point 7 below).

4. Advancing Customer Acquisition 

One of the fastest ways to get a handle on how to grow a company is to know exactly how much it costs them to add a new customer. It’s something traditional businesses aren’t used to (for lack of analytics, usually) but it’s built-in to tech-native businesses.

Speeding up acquisition or lowering its costs is one-half of designing your company’s profitability – yes, the word design is intentional – because the revenue you get per customer, minus the cost to acquire and service them equals your profit. In a tech-native company, this information is not exclusive to the CEO or accountants, every person in the company knows it instinctively and can thus work towards it.

The Risk

It’s getting harder and more expensive to acquire new customers by the day. And the old grocery store model of setting up shop and serving people without capturing their details (so you can contact them again later) is long gone.

Since the cost to acquire a new customer can be so directly linked to the profitability of your operations, it stands to reason that with rising acquisition costs, those who do nothing will gradually become less and less profitable. The way to avoid restructuring pressure and becoming less competitive is to invest heavily in customer acquisition tech.

The Opportunities

It all starts with better data. The more intelligent information you can extract from your business processes and systems, the better. Coupled with advanced insights into what markets are thinking and feeling, virtually every moment of the day.

This means investing in advanced business analytics, external research, creating feedback loops, and designing offers in the digital space where you can test ideas more rapidly and be more agile in your response to market trends.

For Example: Rain

Upstart Internet and mobile network provider Rain is running absolute circles around all the behemoths in Africa’s competitive telecoms industry. In just 5 years, Rain managed to grow to double the valuation of Telkom – even offering to merge with the entity (perhaps a little cheekily) to show it how things are done.

And the trick all comes down to Rain being able to eke out margins that eclipse the likes of even Vodacom and MTN, acquiring and servicing customers purely online – which means no retail or excessive staffing costs – with most processes automated to the point where almost no one in the industry can compete with them.

Unlock the same? Get a tech consultant in now.

5. Improved Customer Experiences

A key result of advancing technology is the sheer abundance of choice. Customers are now exposed to businesses, products, and services from around the world. And with that comes the ability to compare – which is why the customer’s experience has become phenomenally important.

Thus designing what customers experience in every interaction with your brand is becoming vital.

The Risk

In the digital space, we know that 90% of customers will simply stop using a product if the experience is bad. In the past, we didn’t have the means to measure this effectively in the real world. Advancing technology is now unlocking that power and more and more businesses are making use of it. Failing to do so is to fall behind.

The Opportunities

Building in feedback loops, gathering and analysing customers’ opinions, and applying these learnings to products and operations can unlock unrivalled loyalty and even unlock new markets. And it’s the technology that unlocks this ability efficiently and affordably.

For Example: Pineapple and Naked Insurance

With ultra-smooth sales and onboarding, tongue-in-cheek and often meta marketing (most people probably know them from their cheeky billboards in Gauteng) Naked Insurance and startup Pineapple (who recently raised another R400m in funding) are making big inroads into arguably one of SA’s oldest and most developed marketplaces.

Both are backed by big names – Hollard is behind Naked and Old Mutual underwrites Pineapple. But what Naked does differently is employ tech to target and service a completely different demographic which none of “the usual” insurers have managed to capture yet.

Pineapple has a similar target market, but it’s using automation and tech to streamline its operations – it’s estimated that less than 3% of its workforce sit in ops, allowing the bulk of its skill to go towards sales and business development. No wonder they acquire customers for less than 20% of the return they make.

Also see the must-have retail app features for personalised user journeys and see how data boosts customer loyalty.

6. New Business Models

It’s an extreme benefit when a business can, during times of market difficulty, tweak or switch up its business model on the fly. Think how Media24 simply switched up from an advertising-heavy model to subscriptions overnight when a recession seemed likely. That’s business-saving flexibility.

The Risk

With the march of globalisation and as markets mature, a unique trend we’re seeing is extremely tech-savvy competitors entering traditional marketplaces with an entirely different model – Amazon Prime, for example, lumps Prime Video access along with its same-day delivery subscription. Netflix and the like simply can’t compete with that revenue stream, meaning Prime is completely untouchable by any traditional competitors.

The Opportunities

The key thing to realise is that it’s not just new companies doing this – many are ventures built by older, traditional businesses. To start, one needs to invest in venture building: create new entities that do what you do differently. You can always amalgamate the most successful ones back into your company later.

This allows you to experiment with entirely different business models, helping you future-proof by building a range of new models to implement in response to market conditions.

For Example: Media24, EasyEquities, OfferZen

The biggest local player here is Media24, whom we’ve mentioned simply switched up to a subs model overnight. But this is not uncommon. In the face of adverse market conditions and a drop in consumer expendable income, digital stocks exchange EasyEquities also switched to a subscription-based model in 2023, as did developer recruitment network OfferZen.

Start gaining that ability for your business by speaking to a digital consultant now.

7. Unlocking New Markets

If you need to grow, what’s simpler than just getting more new customers – better yet, ones that no one else is targeting yet? Quite a few of our example companies here managed to do that in their focus on digital transformation – Flash (Pepkor), Rain, Pineapple, and Naked (Hollard) all used their tech to create opportunities where there were none before.

The Risk

As mentioned before, SA’s market is extensive but limited. Unlike Europe, the US, or Asia, where you have a lot of developed nations as neighbouring states, in SA you have very limited options for reaching new markets – it’s either into Africa or tackling all the developed nations. Both of which require immense funding and support to execute.

The Opportunities

Technology doesn’t have the same boundaries. You can service a new geographical location without actually being there. Or, you can simply unlock more of the existing market that’s been previously unreachable right here in SA.

For Example: Investec, Lula, Old Mutual

Watching the march of retail investment, both internationally and locally with the success of EasyEquities, Investec developed an easily accessible, no-fee digital trading platform called Clarity. First testing it out on select customers internally (no doubt ironing out bugs and working on user experience), it’s now launched publicly – giving Investec access to a younger, more digitally savvy investor (likely as an alternative to risky crypto, too.)

Similarly, Lula Lend, who started out doing small business loans, quickly realised that the SME market in SA is R billions strong, yet most banks don’t offer growth-effective products for this market. And, using the fact that Capitec, who bought Mercantile Bank, hasn’t yet made any big plays in this space, launched its own SME-focused bank simply called Lula. Lula probably has its pick of the market right now.

Another smart move came from Old Mutual who saw a gap in getting more hands-on in the venture development space. While the likes of FNB and Investec merely supply venture funds to promising new startups, Old Mutal launched venture studio Next176 and hired a down-right impressive team of venture builders to actively find, incubate, and back new ventures, as well as build a few of their own internally.

Risky as it may be, Old Mutual knows new ventures are where the future of SA’s economy lies. And, you know, where else can you get a potential 5 to 10 times return on your investment in the next few years?

Find creative ways to pay for your big innovation projects with these unique models for venture funding in retail.

Want to unlock the best of digital for your company?

Our venture-building team has helped numerous SA companies unlock new opportunities, and we’d love to help you do the same.

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