Digital Transformation: Just a New Hype?

Digital Transformation: Recognizing Needs and Increasing Implementation Success Prospects.

The relevant press is currently overflowing with reports about Digital Transformation, following the motto: those who don’t transform are not in. Anyone who doesn’t jump on this trend must have missed something or is seemingly doomed. Is this phenomenon substantial, unique, and one-of-a-kind?

A contribution by: TRANSFORM-First® – the expert network for business transformation
Authors: Dr. Errit Schlossberger and Günter Conrad

What is Digital Transformation?

In the past, communication took place using typewriters and carbon paper, letters, telex, and telephone. The speed of these data transmission media and their very limited volumes are well-known. Additionally, there were border controls and trade barriers to a greater extent than today.

The management of companies, i.e., decision-making and implementation, was subject to these “laws of slowness”. Today, decisions are immediately known worldwide, across all physical and cultural boundaries. And the processes within companies and in interaction with customers and suppliers have and will continue to experience an extraordinary acceleration.

Accordingly, markets can change quickly, perhaps only slightly held back by the inertia of the human mind, which finds it difficult to part with old habits. This is the opportunity for proactive and determined market participants who can implement their strategies “in seconds” and thus leave their competitors far behind.

The accompanying changes to all “rules of the game” are of a fundamental nature and require profound and continuous change. Accordingly, we talk about Digital Transformation and mean by this a permanent state of change.

The fundamental importance of the digital components of this transformation has become clear in recent years, as information technology has become indispensable in many areas of people’s daily lives.

Accordingly, we talk about Digital Transformation, the profound change triggered by information systems. Digital Transformation as a phenomenon is comparable to natural forces: either you use it and arrange yourself, or you perish. Accordingly, in this short series, we describe how you can use Digital Transformation to harness the natural force of digitalization for the success of your own company, even to achieve or maintain market leadership.

Digital Transformation in Practice

• IKEA is an excellent example of a permanent pursuit of improvement and change. It even advertises for new employees with statements like “How about striving for permanent change – how about IKEA?”
• Apple also needs to constantly reinvent itself and fill the ever-threatening innovation gap to remain successful. Although Apple had almost run aground, with Steven Jobs there was a return to the original DNA. His successor Tim Cook also successfully continues the tradition with his own authenticity.

Companies like IKEA and Apple show that business transformation, and especially Digital Transformation, is a very normal but also essential phenomenon for the successful future of the company. In the current transformation stage, due to technological progress and the associated risks for established firms, Digital Transformation is at the forefront.

Digital Transformation: Impulse 1

Transformation is normal. Long-standing market leaders have been cultivating a culture of permanent transformation for many years. A holistic change process is an evolutionary, a completely natural process.

Why is there such a Digital Transformation fever right now?

In the past, a strategy set on autopilot for 5 years was surely sufficient for power suppliers like RWE and E.on or chemical giants like BASF or Bayer.

When asking executives today about Digital Transformation, how far they believe they can foresee the future or plan into the future, time periods of a maximum of 6 months are mentioned.

• In one of the world’s certainly most extraordinary companies, the Brazilian Semco Group, it was noticed quite early on that long-term planning beyond 6 months not only ties up enormous management capacities but also that actual developments usually deviate strongly from plans due to increasing market volatility. Therefore, no strategic planning takes place here anymore. Nevertheless, the company generates double-digit growth rates annually.
• The Allgäu-based specialist for load securing straps and multiple award-winning employer ‘AllSafe’ also doesn’t believe in centrally prescribed plans. They generally provide the wrong orientation and are insufficiently aligned with daily current events and the constantly changing and increasingly complex markets. Despite this, the company managed to increase its turnover tenfold and quadruple its profits within 10 years.

New Competitors Are on the Path to Digital Transformation

Who knows which new competitor will appear tomorrow that no one had thought of yesterday? Which industry boundaries will be shifted or eliminated next? It’s not just Amazon that has been making life difficult for booksellers and the electronics industry for years.

• Who would have thought that companies like AirBnB or Wimdu would attack the hotel industry?
• Uber, drivy, and car-sharing providers are attacking the well-established taxi industry and car rental companies.
• FinTechs like ayondo, Kreditech, Seedmatch, or friendsurance are attacking the banking and insurance industry.

Digital Transformation: Impulse 2

Currently, change processes are accelerating, leading to higher market dynamics and a need for action. In other words: The forces of nature are currently stronger. Use the trend to your advantage and don’t get too caught up in multi-year planning.

Losers of Digital Transformation and the Solution Against It

Market leaders – today more than ever – constantly question themselves, otherwise others will do it. The greatest enemy of a company is the success of yesterday. Those who rest on their laurels may find themselves on the sidelines before they can react. Examples like Kodak or BlackBerry can tell a tale of woe here.

• The Swiss watch industry was on the brink of collapse with the introduction of quartz watches by the Japanese. Nicolas Hayek recognized the danger just in time, invented the Swatch, and founded the Swatch Group as a home for traditional but weakened brands. Only through the success of Swatch was it possible to save many established brands through acquisitions.
• Nike ensures through countless patent applications for shoes, clothing, or sports equipment that hardware can be integrated into holistic proprietary and playful platform solutions and that the innovation pipeline can be kept high in-house. This puts Nike far ahead of all competition. For Nike, innovation has become the central competitive factor for revenue growth and market leadership.
• At Lego, broad diversification into new products such as watches, children’s clothing, and computer games almost led to insolvency in 2004. Under the new CEO Knudstorp, Lego ended the defocusing and reinvented itself by tapping into the new target group of parents and gaining new insights into the actual sources of value creation through a structured customer journey mapping of the needs of parents and children. Lego’s revenue has been growing at least double digits annually for 10 years.

Digital Transformation: Impulse 3

Only companies that constantly question their own business model and, if necessary, creatively destroy it, release new energies. This includes the willingness to cannibalize oneself through strategic realignment, innovations, or acquisitions. Otherwise, they run the risk of others serving their customers.

Transformation = Change of Mindset

Well, great. That doesn’t necessarily encourage change. If I, as an entrepreneur, don’t move, I risk falling behind.

According to a ‘Digital Business Readiness’ study by Crisp Research, 61% of the companies surveyed in Germany are only passive followers or change resisters and are still far from Digital Transformation.

No wonder, because various studies show that only about one-third of corporate transformations meet expectations for time and budget constraints. According to Boston Consulting, 75% of transformation projects fail due to non-technical reasons such as lack of acceptance and communication problems.

If I bravely face the transformation dictate, I also run the risk of failing. So how can the dilemma be avoided? Fear-mongering is completely out of place here. Because the crucial question is how transformation projects can succeed with high probability.

Digital Transformation: Impulse 4

Those who employ engineering-style program management significantly increase the chances of a successful transformation.

The “enemy” of transformation is not primarily found externally but internally, in order to be able to perceive changes in the external environment at all. But what does internally mean?

First and foremost, the company should objectively examine how open and present the workforce is to permanent internal change, in order to react to external change or create new markets.

Question on Digital Transformation: Is your organization prepared to implement the transformation and thereby secure competitiveness in the future?

The U.S. economist of Austrian origin, Peter Drucker, rightly claims: “Culture eats strategy for breakfast.” If outdated belief patterns, behaviors, and values of the workforce stand in the way of the transformation goals of the strategy, the transformation process is in danger of failing.

• A network partner recently told us that the board and supervisory board of a company had worked out the Digital Transformation strategy with him in a very short time and set up a 10-point program. But when it came to implementation, the consultant had to urge them to first do fundamental cultural homework.
• dm drugstores is an excellent example of an entrepreneurially unleashed and uninterrupted development when the cultural parameters are right.

Digital Transformation: Impulse 5

It’s often also about changing the culture to create a culture of change, even one that continuously seeks change.

Recommended Links:

• Wikipedia: Digital Transformation
• The Series: Digital Transformation

In Part 2 of our series, learn what prerequisites a company should meet before embarking on the implementation of a holistic transformation strategy.

This post is part of the Digital Transformation series.