Beyond Carnaval: Is It Digital or Cultural Transformation?
Concise reflections, digests, and highlights of the week's significant news within Brazil's investment and innovation landscape.
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IN TODAY'S BEYOND CARNAVAL:
The Digital Transformation Worldwide
Brazil Going Digital
Top 1 Challenge of Digital Transformation
A Great Brazilian Example: Onfly
Ah, digital transformation - one of the many buzzwords of the century. It’s that magical process where institutions fling themselves headfirst into the digital abyss, hoping to emerge on the other side as sleek, tech-savvy unicorns.
Digital transformation is not just about upgrading your office from fax machines to Slack, although some people still seem to think that’s revolutionary. No, it’s more complex than that. Imagine taking every outdated, clunky process in your organization, shoving it through a shiny new algorithm, and praying it comes out more efficient. Sometimes it does. Other times, it’s just a more expensive way to do the same thing you were doing before (if not considering the non-tech challenges of this process).
The core of corporate digital transformation is supposed to be about rethinking how you deliver value to your customers and all stakeholders in a digital age. It’s not just about leveraging data or automating tasks; it’s about fostering a problem-solving mindset that is empowered by digital tools. And this is exactly where many organizations stumble. As many focus only on technology and neglect the human element, forgetting that cultural transformation is just as critical as technological change.
Take, for example, Amanda’s story from Beyond Carnaval's last edition: How Fraud Catalyzed The Birth Of This Traveltech. We gave this real character a fictional name to share how a secretary with a keen eye for loopholes, exploited a gap in the company’s travel budget policies, racking up R$60,000 (~$12,000) in personal car rentals.
Amanda’s case ultimately sparked the creation of Onfly, a travel tech solution born from the need to "bring more organization to the house" (as we would say in Portuguese). But for every Amanda, how many other vulnerabilities remain hidden, waiting to be exploited?
For this reason, in this edition of Beyond Carnaval, we will dive even deeper than we did in the last edition and explore how cultural aspects influence the Digital Transformation in corporations, but especially how Brazil's landscape in this matter.
The Digital Transformation Worldwide
Digital transformation is driven by several key factors depending on the industry we are talking about, but it usually includes the need to enhance operational efficiency, improve customer experience, and maintain a competitive edge in an increasingly digital world. After the pandemic, this movement towards digitalization accelerated significantly. The numbers from 2022 show that global spending on digital transformation was $1.9 trillion, with forecasts indicating that it will hit nearly $4 trillion by 2027. A growth with a compound annual growth rate (CAGR) of 16.2% over the 2022-2027 period.
Besides that, the digital transformation market itself is expected to surpass $1 trillion by 2025, underlining the immense scale and importance of digital transformation efforts in the global economy.
Brazil Going Digital
Diving into the Brazilian market, surprise surprise, the country has emerged as a global leader in digital government, ranking second worldwide in the World Bank's GovTech Maturity Index out of 198 evaluated economies in 2022. Surpassing even the United States and Canada to claim the top spot in the Americas.
Also related to the public environment, the country's GovTech Maturity Index score of 0.92, well above the global average of 0.52, Brazil stands out as one of 18 countries in the Americas recognized in the "very high" group of the UN's E-Government Development Index (EGDI).
Brazil's success in digital government has positioned it among the world's top "fast movers" in this field. This achievement can be attributed to several key factors, such as:
The creation of the Brazilian Digital Transformation Strategy (E-Digital), which includes initiatives such as the unified digital government platform, digital identity systems, open data policies, and cloud computing adoption.
The extensive use of the gov.br platform, which serves 140 million users—about 80% of the adult population.
The improvements of Marco Legal das Startups framework (Lei Complementar n°182/2021) that aims to reduce bureaucracy and provide legal security for startups by defining them as innovative companies with up to 10 years of operation and annual revenues of up to R$16 million (~$3 million).
The implementation of the Public Contract for Innovative Solutions (CPSI), which simplifies the process for public entities to contract startups and encourages the adoption of innovative technologies in the public sector.
Switching to the private market: a significant majority (75%) of Brazilian CIOs and technology executives plan to increase their investments in technology. Technologies such as big data analytics, the Internet of Things (IoT), and artificial intelligence are seeing the highest adoption rates.
A McKinsey's study on corporate digital maturity in Brazil states found:
"In Brazil, three sectors clearly stand out in terms of digital maturity (scoring above the overall average): Financial Services, Retail, and Telecommunications & Technology. These are precisely the sectors most impacted by changes in customer behavior and needs, as well as by competitive dynamics."
It's no surprise that Brazil leads the fintech scene in Latin America, with over 1,600 active financial startups in the country, attracting $10.4 billion (R$59.6 billion) in investments over the past decade.
On the other hand, Transportation and Infrastructure in Brazil is an interesting sector. Not due to a lack of investment in the LATAM region—a topic Leo Torres has been discussing for a long time—but due to the vast opportunities for businesses to make a significant impact. Take the travel sector, for example. The "Mapa das Travel Techs," an exclusive study by Onfly on tourism innovation in Brazil, highlights this potential.
The study mapped 205 active travel tech companies in the country, with 17.6%—the second-largest segment—focused on mobility. This is noteworthy, as "Connecting the dots of the [traveler's] journey will be the main challenge of the new decade. Since 2018, AI has attracted about two-thirds of all technology investments in the travel and mobility market, showing that it is here to stay" according to Vinicius Ribeiro, CMO at Onfly, in the newsletter Notes By Letícia.
While the positive outlook is encouraging, there are still challenges to address in the digitization process.
Cultural Challenges of Digital Transformation
I'll be straightforward with this data: Innovation Culture is the top 1 challenge for companies to innovate in their processes.
Top 1!
(if not the absolute first, it’s certainly among the top three)
Transforming culture requires changes in mindsets and behaviors across all organizational levels, achieved through leadership role modeling, consistent communication, talent development, and reinforcing mechanisms. Depending on how big the corporation is, the bureaucracy will be huge.
As Digital Transformation is directly involved with the innovation topic, it is not naive from me to say that neglecting the human part of the digitization process might be a huge waste of investments and opportunities for your company to stand out.
On the other hand, companies that embrace agile development practices and align them with a strong appetite for innovation tend to excel in fostering a digital culture.
That's why not considering cultural aspects in a digitalization process is a big mistake.
While tech is a powerful tool, it’s only part of the solution as it can only go so far in making processes more efficient and ensuring compliance. The real foundation still lies in people making ethical decisions, complying with processes and being transparent while using tech - this has to be considered in a country like Brazil.
That's why a great example of a successful company driving digital transformation in both Brazil and Mexico markets is the travel tech Onfly. They are one of many companies using technology to innovate in a traditional and often overlooked sector, making life easier for people and businesses while contributing to their digital transformation.
Make sure you go check out Onfly's website if you're in need of a platform that will make your travel process chaos seem like a thing of a long time past.
Mac Jee's Aerospace Expansion: Brazilian company Mac Jee is expanding in the defense and aerospace sectors, investing R$ 120 million (~ $21 million) in new factories. It is working on advanced defense systems, including a project with the Brazilian Air Force for a hypersonic rocket. Mac Jee aims to innovate both domestically and internationally. (Source)
UME Secures PayPal Investment: Brazilian startup UME raised $15 million in a round led by PayPal. UME provides digital credit services to small and medium retailers, offering installment payments through PIX. The funds will support UME’s geographic expansion and further investment in its AI-powered credit technology. (Source)
Brazil's Leading CVC Funds: Brazil accounts for 10 of the 16 most active corporate venture capital (CVC) funds in Latin America, according to LAVCA. In the first half of 2024, CVCs contributed to 25% of regional venture capital deals. Brazilian CVCs like 2bCapital and Globo Ventures led the way. (Source)
Floripa's Startup Hub: Florianópolis, known as the "Silicon Island," was officially named Brazil's Startup Capital by the President. The city leads in tech startups, with 7.4 per 1,000 residents. Its growth stems from public universities, tech associations, and government incentives that support innovation, attracting over 32,000 jobs in the sector. (Source)
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