Digital Transformation: The Road to Success

Due to radical changes in terms of new digital technologies and increased customer needs, companies must seize their opportunities in the digital transformation in order to remain competitive. This has been massively reinforced by the COVID-19 pandemic.

Achim Berg, President of the digital association Bitkom, also emphasizes the importance of innovation and comments on the COVID-19 crisis:

At the tean, we have noticed that demand for digitalization solutions has increased significantly since COVID-19. However, many companies lack an overarching digital strategy, new digital technologies and skilled workers. This is also confirmed by a study by Bitkom (2020):

Digital transformation (from the Latin "transformare" [to reshape]) is an ongoing process of change, often triggered by innovations in digital technologies and customer expectations.

The Massachusetts Institute of Technology's (MIT) definition of the term "digital transformation" describes this very well:

In our view, a large number of factors are crucial for digital transformation and digital change in business and society. The most important factors are listed below:

PricewaterhouseCoopers International (PwC) says regarding the increased competitive pressure:

We share the view that digital companies like Amazon will increasingly position themselves in other industries. This is already apparent: Amazon not only offers an online marketplace, but also movies, music, groceries, private labels and cloud services.

This makes it all the more important for companies to take steps toward digital transformation and, like the global players, to find their strategic differentiation by means of digitalization.

On the one hand, digital transformation can mean enormous potential for growth for companies.

In addition, the digital transformation promotes the emergence of innovative start-ups.

• Here, so-called scale-ups have developed, particularly in the technology sector: companies that have achieved an average annual return of 20% in the last three years and employed at least ten people at the start.
  
  
• Another common term is that of unicorns: start-ups with a market valuation of over one billion US dollars. Bitpanda, Austria's first unicorn, comes to mind here.
  
  
• Another form of start-ups includes moonshots, a term often used in Silicon Valley. Borrowing from John F. Kennedy's moonshot speech in 1962, moonshots are companies with particularly ambitious and innovative visions and often disruptive technologies. At the tean, we refer to such innovative and disruptive companies as rockets and develop them for and with companies as part of our service Digital Business Development.

On the other hand, traditional companies are facing major challenges and are getting into trouble. Nokia and Kodak are well-known proofs of the effects of digital disruption.

Such companies, which have been successful for decades, are being replaced by disruptive innovations from other players (competitors), which fundamentally change industries and necessitate an increase in new markets. This phenomenon is referred to as "The Innovator's Dilemma" (Clayton Christensen, 1995). Examples of this include Uber and Airbnb.

It should also be noted that not only entire companies but also individual departments such as production, marketing and sales, customer service, human resources and logistics can be digitalized.

Digital technologies are another key driver of digital transformation. The focus here is particularly on efficiency, for example the efficiency of processes.

Some key technologies are illustrated below with the help of examples.

• Blockchain

Blockchain is a continuously expandable list of data records, called "blocks", which are chained together using cryptographic methods. Each block contains cryptographic information of the previous block, transaction data and a timestamp. This enables, for example, decentralized accounting of logistical transactions without central mediation. A whole range of conceivable use cases are related to so-called smart contracts: computer-controlled transaction protocols that execute contract terms securely and autonomously. For example, when a container ship arrives at the port, additional actors could be automatically assigned to unload it through smart contracts.

• Augmented Reality

Augmented Reality describes the computer-based enhancement of reality perception (in contrast to virtual reality, which describes reality perception in a virtual environment).

Augmented reality will revolutionize picking processes. Pickers will be able to see all the data they need to perform their tasks directly in their field of vision by means of data goggles (pick by vision). The decentralized provision of knowledge via centrally recorded manufacturing know-how will also be made possible when equipping assembly and service workplaces in industry.

• Robotics

Robotic Process Automation (RPA) makes it possible to automate administrative and scheduling processes such as planning, customer invoicing, invoice verification, and many more. Machine learning algorithms and other methods of artificial intelligence (AI) support or replace the clerk or scheduler in standard tasks. The objective is always to increase efficiency, reduce errors and better recognize correlations.

• Big Data Analytics

Recognizing interrelationships in large data collections and using them leads to new application areas. Big Data Analytics enable new applications for decision support and decision automation. For example, methods can support prediction (predictive analytics) or even identify patterns that can be useful for process improvement or for addressing customers.

Other new technologies include cloud services, Internet of Things (IoT) and 3D printing.

The nation is another actor influencing the digital transformation.

In 2014, the German federal government published its „Digitale Agenda 2014 – 2017“. The measures listed there are intended to exploit the opportunities offered by digitalization in Germany.

In Austria, the Digital Roadmap Austria (2016) was published in this regard, in which various guiding principles, measures and strategies were named in order to drive forward the digital transformation in companies and the digital transformation in society.

Despite these efforts, the state often slows down digital innovation processes. The digital transformation should be driven forward more quickly and vehemently by the state: in education, in administration and in business, among other areas. Innovative measures should be increasingly promoted in companies. This is the only way Austria and Germany can remain or become internationally competitive.

The first dimension – the Value Creation Model – involves the creation of new products and services. This process changes as a result of new digital technologies.

The third dimension – the Customer Interaction Model – relates to interaction with the customer, which has changed fundamentally as a result of the large number of electronic channels.

It should be noted that the dimensions of digital transformation can be applied not only to companies, but also in the fields of politics, education and medicine.

Digitalization is independent of industry and affects SMEs just as much as large companies.

The degree of digital maturity varies from company to company and is usually independent of industry.

This is also shown by the study „The Digital Advantage: How digital leaders outperform their peer in every industry“ by Capgemini Consulting and MIT Sloan Management, for which 391 companies were surveyed. The fact that digital maturity is independent of industry is summed up in one sentence:

It should be emphasized that the study is not just theory, but analyzes the financial performance of the companies and links it to the degree of digital transformation.

Capgemini and MIT distinguish between two dimensions of digital maturity:

• Transformation Management Intensity: This describes the leadership qualities required to drive digital transformation in an organization.
  
  
• Digital Intensity: This refers to the investment in technology to optimize internal processes.

Based on this, companies are divided into four categories of digital maturity:

• Beginners: The digital beginners are not yet taking advantage of the opportunities offered by digital transformation.

• Fashionistas: These companies are experimenting with technologies, but lack a digital strategy.

• Conservatives: The digitally conservative companies pursue a unified digitalization strategy, but they are skeptical of new trends and technologies.

• Digirati: The last group of companies includes the so-called digirati, who understand how digital transformation is successfully implemented by means of an overarching vision and the appropriate technology. By continuously investing in digital projects, they develop competitive advantages.

The study shows that digirati – fully digitalized companies – have several advantages over competitors. According to the study's data, digirati

• are 26% more profitable than their competitors,
• generate 9% more revenue based on their employees and physical assets, and
• receive 12% higher market valuations.

Consequently, the impact of digital transformation can be described as very positive.

There are a variety of factors that complicate the digital change process in companies. The following is an overview of the most significant barriers we see in companies.

The barriers are countered by numerous factors that can lead to the success of digital transformation in companies. Some of the success factors are listed below:

1. Customer centricity must be the focus of all considerations.

2. The efficiency of processes is another key factor. To this end, the company's own technologies should be analyzed and, if necessary, replaced by modern technologies.

3. Digitalization, innovation, communication and continuous learning should be firmly anchored in the corporate culture. A clear digital strategy should also be in place.

4. Digital transformation must be driven by executives.

5. Employees should be continuously informed and involved in development. In addition, their digital competence should be trained.

6. A reliable partner is needed to guide the company through the implementation of digital transformation.

7. New positions such as the Chief Digital Office or Chief Data Scientist should be created in the company to act as an interface between the organization and the partner and to manage the digitalization project.

8. At the start of the project, the company's initial situation and digital use cases should be defined. Based on the problems and customer requirements specified by the companies, ideas are to be developed in joint workshops.

9. These ideas are tested as Minimum Viable Products (MVPs). If successful, these are further developed into business models. The goal of each company here is to develop a disruptive business model in order to become a pioneer in an industry.

10. Agility – the "best kept management secret in the world" (Steve Denning) – is of great importance throughout the process. Instead of following a top-down approach, goals, methods and business model should be continuously adapted to new market requirements. Speed is a crucial factor here.

     

At this point, we would like to refer to the article "Catch the ball – managers in the age of digital transformation", which shows the five factors through which managers can lead their companies to success in the digital transformation and what they have in common with wide receivers from American football in this context.

Based on the above arguments, we believe that digital transformation will become increasingly important. COVID-19 has additionally accelerated this development.

The market research company IDC (2020) confirms this in its article 10 forecasts for the development of digitalization up to 2023. Here it becomes clear that digital transformation is not just hype, but a megatrend that will accompany us in this age.

Digital transformation is a basic prerequisite for success in the coming years. There will hardly be an industry that does not turn to the topic of digital transformation: consequently, the question is not if, but when!

We believe that every company can become an Airbnb or Uber of its industry, as sooner or later every market will become a digital market. Addressing the issue of digital transformation now and investing in digital technologies, services, products and business models can only be beneficial.

Now is the time to position yourself as a digital pioneer in your industry. Digital is real!

We look forward to feedback on our article by e-mail to an office@the-tean.com!

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