Industry Thought Leadership

Whether Uber, Airbnb, Booking.com, WhatsApp or Netflix, in almost every sector digital transformation is bringing companies to the fore that are turning conventional processes, behaviors and market mechanisms on their heads. As Internet-based platforms and services, they are wedged between provider and consumer and can, with unimaginable speed, revolutionize established business models and industries with the help of self-reinforcing network effects – often without producing or owning something themselves, and especially without having to give up something that already exists.

Digitalization as a growth opportunity
Most companies are still not adequately prepared for this development. Especially traditional providers – whether energy suppliers, media houses or financial institutions – are faced with the challenge of proactively dealing with these changes, because they have to give up something: their current, and still profitable business models with their tried and tested structures. To address this challenge, they have to answer some key questions: How do we find new areas of business for growth? Can my existing business model continue to exist or can it be undermined? How can costs be reduced? What requirements do today’s connected customers have, and how can I service them in a more targeted manner? How can I communicate digitalization, with its changed market and working conditions, to my employees – and what conditions must I create as a company?

Two interdependent and mutually influencing aspects are always decisive to answering these questions: the ability to create something new (innovation) and the flexibility and adaptability of the organization (agility). Both are at the heart of the seven steps to successful digital transformation:

1. Create awareness and set the course: Your own employees are a primary driving force behind innovation and the successful development of new business models. Classic top-down management approaches are insufficient for digital transformation. Instead, companies need to free up capacities, which requires more decentralization and a bottom-up approach. The first step should therefore be to create an appropriate awareness of opportunities and risks within the company and among employees. This can be achieved, for example, through digital boot camps where the basic mechanisms of digitalization, such as platform thinking, self-reinforcing network effects and the power of (customized) information, are demonstrated to employees using concrete examples. In addition, right from the start it’s important to define a digital vision with clear strategic objectives that can be used to measure all ideas and business approaches that are generated.
2. Develop business models: Ideas alone do not constitute a digital business model – it is also important that these ideas can be directly tested without jeopardizing the existing core business. Making mistakes in the process is likely – and, according to the norms of the digital world, even desirable, even if this type of trial-and-error culture itself is revolutionary for many companies. Both brainstorming and testing are supported by activities such as innovative workshop formats, internal “hack days,” external prototyping, design thinking, participation in accelerator and incubator programs, or even the support of startups through corporate venturing. Especially the latter approach offers an opportunity to benefit from testing digital and disruptive business models from the startup community, with established companies providing startups with investment capital and existing assets such as customer data or technological expertise.
3. Create a digital strategy: Following the development and testing phase, promising business models should feed into a digital strategy that is closely meshed with the company strategy over the long term. Strategic patterns of action amid the diversity of the newly emerging business models are difficult to identify, especially for companies with a traditional focus. They range from selling products with additional digital benefits to information as a stand-alone business; it is important here to understand the basic taxonomy of the business model.
4. Initiate a transformation program: If the focus prior to defining the strategy was primarily on innovation capability, then business agility is more important in the following steps. First of all, digital roadmaps should be implemented using digital playbooks. In addition, a comprehensive transformation program should be initiated to engage or recruit employees with the appropriate capabilities and competencies as well as to define partnership and technology concepts.
5. Expedite the implementation: The subsequent roll-out phase of implementing the transformation includes activities ranging from training and continuous development of employees to changing the structures and processes that were affected. Implementation is only successful if operational responsibilities are established and prototyping is allowed and carried out in a decentralized structure that allows employees to gain autonomy in their work.
6. Change management and communication: Steps 6 and 7 both accompany a large part of the previous steps. Change management must be initiated as early as possible to develop employees’ willingness to change. Classic activities such as workshops, training and coaching are not wrong, but are not enough. What matters is to make digitalization “experienceable” by each individual; different fears need to be addressed appropriately and the entire process must be communicated and organizationally supported, because digitalization cannot be implemented just by talking about it.
7. Digital governance: In terms of governance, there is widespread agreement that digitalization is a top-level priority and belongs on the board agenda. As mentioned, however, a top-down approach is not enough. The company must be perceived as an agile biotope; self-regulating systems must be created (e.g. Scrum, waterfall model), and energy must be released for use and made available to the company from the bottom up.

Continuous development
Fostering innovation and agility in your own organization are key elements of every digital transformation. Success depends only partly on whether the right external ideas were taken up and the strategy was correctly initiated and implemented the first time. There’s more: digitalization’s winners to date are not standing still; instead, they constantly question their own business models, product ranges and structural organizations and develop them continuously. They do not see the digital transformation as a one-time event, but a long-term disruption in which they are embedded. They might derive their initial motivation for digital transformation from the outside, but it must be kept going from within.