Why is digital transformation important

Why digitization and digital transformation are more than Buzzword Bingo Deluxe and actually vital for companies

New year = new buzzword, that's the golden rule of every marketer. The 2015 buzzword is certainly digital transformation.

Why do we think digital transformation is more than just a buzzword?

How technological progress causes digital transformation

The technological change of the last few years is without a doubt the most important of the last decades. The book “Lead Digital” (1) even speaks of the second industrial revolution.

It is not only interesting to observe the development of hardware and software, but also what effects these innovations have on us, i.e. on society.

Because step by step technology has become part of our daily life.

This development has emancipated the user, even Forrester sees the dawn of the technological development “The Age of the customer” (2).

Also due to new technologies, new market participants are pushing into the market. And that affects every industry: hotel (Airbnb), automotive (Tesla), taxi (Uber) or retail (Amazon).

Most of the time, "traditional" companies cannot keep up with the speed of adaptation by users and start-ups, they fall behind and are then faced with a decision after a short time:

Adapt or Die! This process is commonly referred to as Digital Darwinism and is the starting signal for companies to think about digital transformation.

Companies then ask themselves what role their own brand still plays today and what a digitization process can look like.

Yes, you understand correctly: it is about redefining the existence of rectification of the company!

How far has the digital transformation progressed?

According to the 2013 study "Embracing Digital Technology" (3) by MIT Sloan and Capgemini, 78% of the stakeholders surveyed are sure that the topic digital transformation critical for corporate success will be.

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As part of this study, companies from different industries were divided into 4 categories with regard to their "digital maturity":

Over 65% of companies are still at the beginning, whereas 15% have already reached digital maturity.

Technology companies, of course, show the greatest digital maturity, which is not surprising. In contrast, sectors such as pharmaceuticals and heavy industry are only just beginning.

Interestingly, the study also shows that the degree of digital maturity also has an impact on profitability (EBIT margin), for example:

Companies with the highest level of maturity are 26% more profitable (compared to the undigital competitor). In contrast, the profitability of digital beginners fell by 24%.

What are the success factors for the digital transformation?

Ultimately, there are many different influencing factors that are mutually dependent.

In our opinion, the influencing factors play a role Leadership, business model and culture (digital DNA) plays a major role in ensuring that digitization and transformation in companies can be carried out successfully.

Digital transformation is a Top-down process, because digitization brings with it decisions and changes that can only be implemented with top management support.

Nevertheless, it is of course essential in the transformation process as well bottom-up to work, because without the broad support from within the company, digital transformation will not work.

Why is the digitization of companies important? These success factors show it:

Leadership alone is not enough; a vision, culture and processes are required to implement the digital transformation project.

This can be shown very clearly using the example of Kodak. As strongly as Kodak dominated the analog color film market, the company failed miserably in its transformation to the digital business model. While the need for change was recognized, the CEO's efforts failed due to the reactance of middle management. (4)

A second success factor Digital capabilities, i.e. the digital possibilities or capabilities of a company, can be divided into three areas, which can be viewed singularly, but mostly influence each other:

Customer Experience: The creation of an omni-channel customer experience is the best-known area of ​​digital transformation, but it still requires a holistic vision.

Burberry is a wonderful example of digital leadership in customer experience. In 2006, the Burberry fashion house found that it could not keep up with the competition in terms of growth or innovation. A realignment was needed! A new target group was also defined within this group: the millennials. Accordingly, “Digital First” was anchored in Burberry's marketing DNA with the aim of creating a “Seamless Customer Experience”. This means that innovative formats such as tweet walks, live streams of fashion shows or platforms such as WeChat can be quickly adapted, but always taking into account the seamless brand experience within the customer journey.

Core Operations: During this process, the focus is on the inside in order to increase efficiency and innovation.

For example, 106,000 UPS parcel deliverers deliver 16 million packages every day. Special algorithms have been developed to cope with this unimaginable amount of data. The aim of these programs is to increase the efficiency of the routes. For example, engine running times have been reduced by 10 million minutes and over 2 million liters of petrol have been used less, which is not only more environmentally friendly, but also lowers UPS costs.

Business model: The reinvention or further development of your own business model is the most critical part of the digital transformation, as it is now down to the nitty-gritty.

The best-known example is of course Nike +. Nike didn't reinvent its business model, but expanded it and was still damn successful with it! Nike + now has more than 28 million users worldwide (5).

According to analysts, Nike + membership growth of 55% in 2011 had contributed to the growth of the running division by 30% (6). These figures could not prevent the fuel band from being discontinued due to high production costs. Nike will continue to tap the data, however, because it is far more valuable than a few fitness bands that have been sold.

Does this digitization process only affect the economy?

No of course not! The “digital agenda” of the German federal government is a good example of the fact that at least the need for action has been recognized on the part of politicians.

According to the survey by TNS Infratest, the point "Politics not up-to-date" is the most critical success factor for the digitization of the German economy (7).

All well and good, why is the digital transformation of companies the future management topic and how do you start the process?

The first step is to become aware of whether your own company and the associated business model are sustainable.

Can I reach my customers at the relevant (digital) touch points? Are my business processes still up to date?

In order to identify the need for action in the context of digitization and to initiate a digital transformation in companies, we work with a few defined fields of action.

This structure allows us to set different priorities in transformation projects and, above all, to understand digital transformation together with our customers as a process.

There is no master plan for digital transformation. Depending on the business model, corporate culture, competitive situation ... the starting point is very individual. Therefore we use as BOUTIQUE AGENCY FOR DIGITAL BUSINESS everything to offer tailor-made solutions - no rigid systems off the shelf.

More about digital transformation

Swell:

(1) George Westerman, Andrew McAfee, Didier Bonnet, Leading Digital: Turning Business into Business Transformation, 2014

(2) Forrester, Competitive Strategy in the Age of The Age of The Customer, 2013

(3) MIT Sloan, Embracing Digital Technologies, 2013 (pdf)

(4) Digital Transformation Report, Report, 2014 (pdf)

(5) Forbes, Here’s How Valuable The Wearables Business Is To Nike, 2014

(6) Fortune, Nike’s new marketing mojo, 2012

(7) Netzökonom, The Techs Are Coming, 2014