Russia’s major corporates undergoing a digital transformation

Russia’s major corporates undergoing a digital transformation
Sberbank's CEO German Gref has embraced the digital revolution in Russia / Sberbank
By bne IntelliNews December 18, 2018

Everyone is on board. Digitisation has been made a top priority of the government that has already transformed the tax service so that a cosmonaut paid his taxes from space last year. Companies are putting their businesses online and retail has gone into the cloud so fast that footfall in Russia’s leading malls is already visibly falling each year. And Russians love their gadgets to the point where even babushkas have been seen paying for groceries using an e-wallet on a smart phone.

The state-owned retail banking giant Sberbank is probably the best known example of Russian companies that have thrown themselves into using technology to boost their business, but a lot of more dour industries, like metallurgy, have joined the train recently.

Metalloinvest, one of Russia’s leading steel and mining companies, has been pursuing a digitisation strategy since 2016, dubbing the programme Industry 4.0. The scheme is focused on standardising the company's processes and stepping up flexibility and speed in reacting to internal and external challenges.

"The world is changing enormously fast," Yuri Gavrilov, the company's director for strategy, development and transformation, told Vedomosti. "We need to adapt, and to adapt quickly. However, speed is achievable only when the company is manageable and processes can be adjusted with lightning speed.

"To achieve that, we need, among other things, to change the principles of interaction between our employees and modes of collaboration with suppliers, and customers," he added.

Using SAP S/4HANA as the digital core of its platform, Metalloinvest originally applied new solutions at Lebedinsky and Mikhailovsky mining and processing enterprises before scaling them to the entire company. As a result, the time required for bureaucratic procedures was reduced by about a quarter.

Within the framework of the overall scheme, several initiatives are being implemented, including those focused on switching to e-documentation and maintaining information security.

The company aims to complete its digital switch by mid-2019, when the rollout of the digital solution is expected to be completed at the company’s Oskol Steel Mill and Urals Steel plants.

Meanwhile, oil giant Gazprom Neft has even more ambitious plans for its digital transformation as it expects to not only benefit from cutting-edge digital technologies but also eventually become an IT leader among local companies.

One of the directions of the company's digital transformation is development of a digital platform to manage information flows and datasets, which at a later stage could be opened up to the company's partners and contractors.

Similarly to most companies in the energy exploration and supply sector, Gazprom Neft is focused on a physical product. As a result, the company heavily uses digital doubles, which allows engineers based thousands of kilometres from the oilfields to test and control operation of the equipment.

Gazprom Neft is in the process of finding applications for digital solutions across the company's entire diverse business, which includes oil exploration, extraction, processing, transportation, sales and supply.

The oil major is also focused on unification of its financial and accounting processes on the basis of digital templates, which has already resulted in annual savings of RUB70mn ($1.1mn). Further cost savings are expected from currently run programmes for streamlining accounting and switching to paperless documents.

Meanwhile, the United Engine Corporation (UEC), a major helicopter engine manufacturer controlled by the government-owned engineering corporation Rostech, is focusing its digital transformation plans on Internet of Things (IoT) technology.

The company recently launched a scheme that could take the use of IoT in Russia's heavy industry to a new level.

"It could become one of the largest projects in Russia in the area of adopting industrial IoT, as about 700 workplaces are expected to be digitised," the company said.

IoT will be primarily applied to monitoring equipment at the company's 12 industrial sites, and the scheme is expected to raise the workload of the equipment by 20%.

In addition, UEC is working on a digital platform that would allow it to optimise processes at all of its production and R&D divisions.

But while leading Russian companies have made considerable progress in digitising, most other enterprises are still lagging behind.

"Russian businesses are moving too slowly, especially in traditional sectors," the World Bank said in a report published in October 2018. "As such, digital transformation must be enforced in large traditional enterprises and [state owned enterprises], which would create demand for innovation in their respective ecosystems."

According to the World Bank, the focus should be on sectorial and cross-sectorial digital platforms, which grow into seamless horizontal digital ecosystems, and enable the emergence of new business models, innovation and private sector competitiveness.

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