Detecon
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2018/07/25

Digital Transformation – the Path of the Successful

8 fields of action for digital transformation in midsize enterprises

Some cannot stand to hear any more about it – digital transformation is an ongoing topic, but in many companies it is an ongoing task as well. In recent years, disruptive upheavals have brought down entire markets, new middlemen and platforms have appeared, goods have been transformed into digital services, internal processes have been digitalized and subsequently automated, work procedures have changed. Many companies have taken their first steps in digitalization, collected initial experience, but still find themselves far from the finish line.

During the initial phases of the discussions about digitalization, eyes were frequently fixed on the large digital players such as Google, Amazon, Zalando, Facebook, etc. These companies, however, have not gone through digital transformation as such because they were positioned with a digital business model on the market right from the moment they were founded. For companies with a long history, the transformation has been a very real and very challenging task.  Many of the things that were good, right, and even convenient for years or decades must be questioned, and often enough they must be tossed overboard. Some companies have not mastered the transformation – frequently mentioned examples include Kodak or Nokia. Other companies – especially German midsize enterprises that are praised so frequently – have found their path. One impressive example is the photo service provider CEWE, which has successfully traveled the road from analog photography to digital photography over the last ten to fifteen years.

As part of our work on a master’s thesis at the University of Oldenburg, we conducted a study tracking down the success factors for digital transformation in midsize enterprises in particular at the beginning of the year. Among other aspects, we focused on companies whose successful digital transformation has been certified by an award within the framework of the Digital Champions Award. In contrast to the Award, however, we concentrated less on the “what” and the results and more on the “how” and the path that was taken.

The challenges for successful digital transformation

By analyzing semi-structured expert interviews, we were able to draft a picture of the trends, influencing factors, and, above all, the actions with which the companies we surveyed responded to the challenges of digitalization and applied to achieve their transformation successfully.

The companies we surveyed regarded four influencing factors to be decisive for their digital journey:

  • Technological development
    The rapid advancements in technology, illustrated in Fig. 1 by the technology trends, is generally recognized to be an important influencing factor of digitalization.
  • Changed competitive environment
    All of the companies we surveyed sense significant changes in their competitive environment to which they must react. Current competitors are accelerating their rate of innovation, new players (as a rule, digital players) are entering the market.
  • New customer demands
    Customer demands have undergone radical changes in recent years. Pampered by Apple, Amazon, and their ilk, customers expect constant availability along with perfect service quality and utilize the high transparency of the digital world.
  • Regulations
    Regulatory influences from laws or regulations also affect the digital transformation process. The primary issue for many companies at this time is the EU General Data Protection Regulation (GDPR).

The path to success: eight measures for successful transformation

The new challenges and influencing factors demand a response. For the companies we surveyed, eight fields of action proved to be critical for success.

 

  1. Offering new and individual services
    New business opportunities based on digital products and services are arising on almost all markets. Customers and the digital customer experience are situated at the center of attention. The use of digital channels and processes makes possible an individual response to customer demands and behavior at an exact time. Digital services frequently supplement existing products, most of which are physical. Hybrid product bundles and a partner portfolio in conjunction with other providers (co-branding) extend the service portfolio while simultaneously generating customer loyalty to the core product.
  2. Introduction of modern working methods
    Digital organizations utilize collaboration and communications systems and platforms to secure dynamic exchange of knowledge and experience. While pervasive throughout the company, this sharing extends as well to partners and generally into the business ecosystem. Collaborative and customer-centric working methods such as Design Thinking encourage new ideas and innovations. Many companies set up separate innovation labs (creative spaces for experimentation with technological support) to generate extraordinary new ideas. The working environment is designed in accordance with New Work principles to be flexible and to foster creativity.
  3. New divisions and roles in the organization
    The establishment of new divisions in companies can help them to develop and progress digitally. Many companies establish a separate company or unit that concentrates specifically on the subject of digitalization. These organizational units either carry out coordinating activities or serve as the nucleus for new business models and business fields. Moreover, entities with the objective of driving digitalization activities forward are often created at the management level. Typical examples are a chief digital officer (CDO) or a digital committee with close ties to the management board or top management.

    The new procedures such as Design Thinking or Agile Development lead to other working methods that challenge the previous line organization. The new tasks and topics are often organized in project structures or guilds and/or communities. This requires, and results in, significant changes in the leadership and collaboration culture. Line superiors are becoming less important, and (temporary) collaboration becomes the dominant organizational form.

    Many areas see the rise of completely new roles such as the data scientist, the product owner, or the scrum master.
  4. Early recognition and implementation of new technologies
    The early recognition of new technologies and the implementation of all that appear relevant and meaningful are indispensable for success in the digital world. This is also an area where the networking with external parties is an important aspect. In the same degree to which it becomes increasingly difficult to maintain an overview of all topics and to be able to process them, more and more innovations are integrated into the company’s own value creation via external partners. These partners may be temporary consultants or technology service providers or, in the long term, startups and larger partners – frequently from different industries. Comprehensive dialog at conferences, seminars, workshops, etc., becomes increasingly important to obtain the best possible access to new technologies.
  5. Customer orientation
    Customer expectations have changed radically in the digital world and will continue to change rapidly. Customers presume there will be a uniform and consistent purchasing experience across all touch points and sales channels. Companies are confronted with the demand to adapt to the (digital) customer requirements – not only those from their own industry, but in line with the general best practices on the market as well. The competition or an alternative provider is always only a click away. The first step of customer orientation is an attitude and approach, then in the second step comes the comprehensive mastery of all digital and non-digital channels (omnichannel management), followed by sophisticated analysis and CRM, and, fourth, the end-to-end integration of customer processes with the upstream value generation elements such as production and logistics.
  6. Analysis of (customer) data
    At the heart of every digital market strategy and every omnichannel management is the use of analytics methods for the analysis of customer profiles, customer use behavior, and the sales data. This is the starting point for the creation of specific products and services for individual customers. The topic of predictive analytics in particular is of great relevance here. Predictive models can be used to create individual offers tailored to the customers.
  7. Establishment of partnerships
    Collaboration with other companies or external partners such as corporate consultants, advisors from colleges and universities, etc., is – as described above – indispensable for digital transformation. New market opportunities arise from the exchange of information on certain topics and digital trends or from the joint development of new products and services.
  8. Integration of various platforms
    Digital business is platform business. With the rise of cloud and software as a service offers, instruments for cross-company collaboration have also become available. A cloud service can be used jointly much faster than the bilateral coupling of existing on-premise systems. This is equally true of internal-only use. This is one reason why tools such as Trello, Yammer, or Workbench are being used more and more frequently – not to mention the unrecorded number of WhatsApp communications.

Company ReBuilding approach

Each of the companies we surveyed have used elements of the transformation path described above in its own way. How can an integrated action program now be developed in alignment with the fields of action?

Detecon’s Company ReBuilding approach [2] provides for this purpose a broad framework and model for the conceptualization and orchestration of the many single activities required in the fields of action. The strengths of an existing organization (knowledge from experience, competent experts, infrastructure, financial resources, ...) are used to build up an ecosystem comprising small, agile units (cells) that are bound together by a powerful and value-oriented vision. Value is created in this ecosystem in cooperation with customers and partners.

The Company ReBuilding approach:

  • Provides a blueprint for the establishment and structuring of new divisions and roles;
  • Goes hand in hand with the introduction of modern working worlds [3];
  • Is based on intensive examination of future trends and unwavering orientation to customers; and
  • Forces the establishment of partnership. [1]

It offers an ideal breeding ground for the development of new products and customized services that can be marketed in a data-driven concept.

Many of the midsize businesses we surveyed were instinctively oriented to these principles. Companies that take this approach can seize the opportunities of digitalization and master its challenges. Many companies are just starting out while others have advanced far in their digital transformation. For all of them, however, it is an ongoing process that continues to develop and in which a clear vision and framework of action help to develop the right actions and ensure they are in harmony with one another.

 

Bibliography

[1]         Rieger, V., Bodenbenner, P., Drube, D., Jalajel, R., Tress, L., Leonhardt, I., Weis, B., Escalante-Mendieta, O. 2018. Digitale Geschäftsmodelle 2.0, Detecon International GmbH, URL: https://www.detecon.com/de/Publikationen/digitale-geschaeftsmodelle-20.

[2]         Vinke, V., Wagner, M. 2018. Company Rebuilding: Die Erschütterung der alten Macht, Detecon International GmbH, URL:

https://www.detecon.com/de/Publikationen/company-rebuilding-die-erschuetterung-der-alten-macht.

[3]         Wagner, M., Vinke, V. 2018. New Work meets Company-Rebuilding: Für eine starke Unternehmenskultur, t3n, URL:

https://t3n.de/news/work-meets-company-rebuilding-1088420/.

 

Recommendations for Further Reading

Haffke, I., Kalgovas, B. and Benlian, A. 2017. “The Role of Bimodal IT in Transforming the IT Function,” Honolulu, Hawaii.

Schwarz, T. 2016. “Digitale Transformation: Chancen und Herausforderungen,” in Leitfaden Digitale Transformation - Beispiele aus der Praxis: Lifecycle-Marketing über alle Kanäle, Neue Märkte und Erlösmodelle, T. Schwarz (Ed.), Waghäusel: marketing-BÖRSE, pp. 7–18.

Wallmüller, E. 2017. Praxiswissen Digitale Transformation – Den Wandel verstehen, Lösungen entwickeln, Wertschöpfung steigern, Munich: Carl Hanser Verlag.

 

The authors

Maria Taut earned her master’s degree in business informatics at the Carl von Ossietzky University of Oldenburg. She served as an intern and master’s degree candidate/working student at Detecon. In her master’s thesis, she examined, in cooperation with Detecon, the subject of “Digital Transformation: Trends and Concepts of Digital Organization – an Organizationally and Technologically Oriented Case Study and Concept.”

Dr. Volker Riege is Managing Partner and directs the consulting business for the energy industry at Detecon. Parallel to this position, he is in charge of consulting services in the areas of digital business models and ecosystems. He has established new business units for large international corporations, conceptualized business models, and introduced innovative products and platforms on the market. Digital transformation is one of the focal points of his activities.

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