need to become a software company in all divisions of GE.” In addition to selling machines and equipment as well as maintaining them, software for the networked world of the Internet of Things (IoT) is to become a new business area for the company.
Radical change is also underway. For example, the Chinese iron and steel giant Baosteel has established an open online marketplace called Ouyeel. While initial versions of the e-commerce website allowed Baosteel to offer its products on a new channel, it has since expanded significantly to include competitor products and adjacent offerings such as financing, logistics, data, and technical services. Ouyeel is also supported by a massive analytics engine that provides pricing and analytics insights. Between 2013 and 2015, revenue from digital activities for Baosteel grew at more than 300 percent per annum. By the end of 2015, Baosteel’s digital activities contributed more than $800 million to the top line.1
Digitization has also reached manual trades. For example, at elevator maker Schindler, over 50 percent of the staff work in field services. This staff performs activities that are largely manual and heavily reliant on expertise. In the past, the time to resolve an issue was often impacted by the fact that the field service staff had limited information on the issue prior to the site visit, and therefore might not have the required tools and/or parts on hand. Finally, part reorders created extra costs and revisits. Schindler was able to simplify this whole process by automating diagnostics, applying predictive analytics to preemptively address issues and order parts in advance, and the company enabled field services staff with iPhones and supporting apps to help simplify in-field activities. All this has helped significantly improve service efficiency, as well as customer and employee satisfaction.2
Traditional organizations have high levels of inertia. When business is going well, managers and employees generally only pay lip service to change requirements. Any manager who still wants the company to change therefore needs to analyze and eliminate the barriers.
Efficient organizations in particular tend to prove especially resistant to change. They follow their own logic: any change to the existing system would create efficiency costs and must therefore be avoided. The most successful managers often slow down transformation efforts behind the scenes. They calculate that they have little to win personally, but much to lose. They are often the opinion leaders and belong to the inner circle – making change twice as difficult. After all, doesn’t the team still need these managers? Perhaps not.
Those who want to propel their company from the analog present to the digital future should first focus on the strengths: What sets the company apart from the competition? The technology in the product or service? The strong customer loyalty? The attractiveness of the brand? All of these strengths also count in the digital world. And while they may count differently, whoever retains them will have an advantage.
Without a clearly defined objective, the journey into the digital world can easily become an odyssey. The company management should therefore formulate its quantitative or qualitative objective, and communicate this to the employees. Interim goals – depending on whether and how they are achieved – are also helpful in determining whether the project is on track.
In all of these points, from generating awareness of the need for action, determining the change requirements, and identifying the greatest obstacles and the greatest strengths, through to formulating objectives, responsibility rests with the company management. Chapter 3 deals with how to respond to employees who ask why change is necessary, and how to respond in such a way that they are happy to embark on the digital transformation.
2.2 WHAT? WHAT DOES DIGITIZATION MEAN FOR MY COMPANY, AND WHAT PRIORITIES ARE DERIVED?
Digitization means different things to different people. We need a structure and a plan. To answer the “What?” question, it is helpful to build a three-stage structure that can be used to prioritize the strategic and operational tasks.
At the first level, New Ecosystems, strategic thinking is needed. Innovations arise at industry boundaries. This is all about the new markets that emerge as a result of the technological possibilities. In this book, we select nine of the most important new ecosystems. In Chapter 4, we discuss how digitization is changing mobility, how smart our homes will become, what will happen to commerce, what banks need to focus on, what will change in public administration, what digital health care will look like, the threats to telecommunications groups, how drastically logistics is changing, and how even old technologies like electricity grids are being revolutionized by digitization.
These are the strategic questions all managers need to ask themselves: are competitors attacking our business with new technologies? Are we grasping the opportunities of digitization and actively developing new value propositions? Are new profit pools emerging at the boundaries between traditional industries? The more unsettling the answers, the greater the willingness to revise the current business model and to accept cannibalization of revenues. A new vision for the company is needed with a convincing value proposition that takes into account the disruptive force of change.
The second level, Business Architecture, deals with operational questions: Are we using the opportunities of the digital world and reaching our customers at all contact points – both traditional and new? Are we leveraging all the advantages that digitization and new analysis methods offer? And how is digitization changing our management and administrative processes?
In Chapter 5, we describe how digitization is changing the business architecture, focusing on three areas: the customer experience, product innovation, and value added. The challenge is significant: digital attackers are strongest when it comes to the customer experience. With simple and reliable processes, they seamlessly shape the entire journey from first contact to completed order, often making traditional companies appear outdated. Many new players also benefit from open platforms for developments, thus increasing the innovation pace of their products. Billing, support, data analysis – the best attackers have digitized the entire value chain. However, digitization doesn’t just affect production areas; it also fundamentally changes management and administrative functions. These new players set the example for all companies that intend to take up the challenge.
The third level, Foundation, deals with the technological and organizational frameworks. Typical questions include: are we employing state-of-the-art technology in our company? How can we make our company agile without taking on too many risks? How can we attract digital talent and build targeted partnerships?
In Chapter 6, we discuss the challenges for the foundation, and focus on two areas: technology as well as culture and organization. We start with a practical problem: an existing IT system cannot be replaced overnight if completely new skills are required for digital projects. Thus the company also needs a second pillar, an agile and fast separate IT system. To operate it, the best new digital talent may need to be hired – talent that expects flat hierarchies and cross-functional working. In short, both the culture and the organization need to be overhauled.
2.3 HOW? HOW DO I MANAGE THE TASKS RESULTING FROM A DIGITAL TRANSFORMATION?
The answers to the What question resulted in a list of priorities to be addressed on the road to the digital transformation. Now it’s time for the How. Successful transformations require profound changes to structures, processes, management instruments, and IT. Again, a three-stage structure is needed, which sorts the relevant points by priority.
At the top of the list is a road map to the digital future: calibrate people and processes for the digital world. Second, it’s always about the customer – digitize all contact points that customers have with the company according to importance. And to ensure we find the digital solutions, we radically abolish the functional silos in the company, and form overarching teams supplemented with digital talent.
The plan outlines the direction and priority, and is often the cornerstone of a transformation program that almost always lasts years. Chapter 7 describes how companies can