What does digital transformation mean in the corporate environment?
The term digital transformation characterizes current economic reporting. But this change also brings to light numerous uncertainties. Those involved are often not sure which features this transformation will take. The change in business is illustrated with a long-term vision, but short-term measures are often not tangible. However, digital technologies are no guarantee for innovative, agile, and efficient companies. The change must already take place in the corporate culture. In the following, we will show you how companies successfully manage digital transformation.
What is behind the digital transformation?
Digital transformation is a continuous process for the further development of digital technologies. This has a lasting impact on society and the economy and results in new habits in private and business life. In particular, the areas of big data, the Internet of Things, blockchain, cloud services, and social media illustrate the influence of this change. Due to the numerous influencing factors, the requirements of potential consumers are also changing. Correspondingly, companies must change existing processes. In the long term, digital and efficient processes will replace the previous business processes. In the past, the digital transformation also enabled disruptive business models such as those from Netflix, Spotify, or Uber. These new business models meet society’s expectations and ensure a reallocation of market shares.
In theory, a distinction is made between “enablers” and “actors” in digital transformation. The former provides the prerequisites for a successful digital transformation. These include:
- Digital technologies,
- digital infrastructures
- and digital applications.
The use of these enablers opens new possibilities for satisfying customer requirements and developing appropriate solutions in the context of pilot projects. Change knows no boundaries and affects employees, customers, researchers, and entrepreneurs to the same extent.
The importance of digital change in companies
In practice, many people use the terms digitization and digital transformation as synonyms. Digitization only describes the process of transforming corporate processes. Traditionally, analog processes are transformed into digital company processes. As a rule, the term automation is used in this context. The influence of this sustainable transformation can now be felt in the entire value chain of German companies.
But what does this change mean for the respective companies? Basically, companies must be open and face this challenge. An adaptation of the business model is essential. In addition, it is necessary to think outside the usual limits and to further develop the business model or even expand one’s own activities. It also shows that digital transformation goes hand in hand with high speed. While digitization provided the corresponding technologies for superficial use, the actual transformation ensures lasting changes.
What causes can be identified for the digital transformation?
The basis of digital change is the direct and indirect effects of new technologies and techniques. The computing power of IT components is increasing with simultaneous miniaturization so that innovative technologies are increasingly finding their way into our everyday technology. This development is particularly evident in:
- Forms of human-computer interaction
- Machine learning techniques
- Use of sensors and actuators in the area
- Mobile communication technologies for networking and automation of communication
- Big data technologies for data processing and collection
In the production environment, cyber-physical systems in particular are driving development. For end customers, on the other hand, the smartphone is at the center of digital change. With the help of context-sensitivity, identification, and telemetry functions as well as its ubiquity, it represents the perfect interface between the real and the virtual world. In addition, the smartphone allows the integration of human behavior in autonomous and semi-autonomous processes.
10 practical examples for transforming companies
1. German automaker Volkswagen
German automaker Volkswagen (VW) will invest $4 billion by 2025 to reinforce its digital ecosystem. The massive investment won’t just enable Volkswagen to appeal to consumers as the auto industry undergoes a digital transformation, it will also help the firm take on competitors who are launching comparable strategies.
As a result of the investments, from 2020 onwards, five million new Volkswagen brand vehicles per year will be connected to the Internet of Things. Various mobility solutions will also be introduced to the consumers in the hope that soon they will become integrated into their daily lives. For example, a solution that enables car owners to have packages delivered to their car rather than a specific address is currently being developed. As also a parking app with integrated billing, and real-time personalized recommendations based on location.
The company is also launching a new car-sharing service dubbed “WeShare” that will debut in Berlin probably in the second half of 2019 with 2,000 electric vehicles. As we could learn from the tweet of Jürgen Stackmann, Volkswagen’s sales and marketing director, they are currently beta testing WeShare in the streets of Berlin. With this launch, VW hopes to open itself to a new market of consumers who are not interested in car ownership. VW has stated that it expects to make around $1.1 billion in sales by 2025 from new digital services.
Listening to clients’ feedback and embracing digital permitted Domino’s to be crowned the largest pizza company in the world and to finally pass its old rival Pizza Hut. Therefore, there is no surprise that today four-fifths of Domino’s sales come from digital channels.
To arrive where they are today, Domino’s changed the company’s entire ethos, transforming it from a fast-food business into a company imbued with programming hiring digital marketers, and other tech personnel. The entire corporate structure was also revised and the focus shifted toward digital sales and advertising. It was crucial that everyone at the top, from the Board of Directors to the CEO, was on board. As a result, Domino’s is an “e-commerce company that happens to sell pizza.”
Thanks to Dom the Pizza bot, customers can now order from whatever channel they choose (Slack, Facebook Messenger, the Company’s mobile app, Twitter with the use of emojis, Google Assistant & Alexa, and Smart TVs). These practices help to make the user experience more fun and less frictionless. Domino’s has also taken an interest in self-driving cars and delivery robots to develop an automatic delivery system.
Starbucks’ digital strategy, and its innovative use of data analytics, in particular, remain at the forefront of its growth and continue to pay off. For example, since 2008 Starbucks has taken a much more analytical approach when it comes to placing their stores. They are now using data like population density, average incomes, and traffic patterns to identify target areas for a new store.
Starbucks also uses data to help align its menu and product lines with consumer preferences. Meanwhile, they have started testing digital menu boards, which will allow Starbucks to change the featured products to drive and increase sales strategically depending on the time of the day.
However, the company’s true competitive advantage is its trove of exclusive customer data from the Starbucks Rewards loyalty program, which with its more than 14 million users will be the key to its continued success.
The Swedish furniture giant is also taking steps to stay relevant and competitive in the future. By providing innovative and highly valuable experiences for both online and offline customers, IKEA has taken the first steps on the path of transforming into a tech company.
In 2017, the IKEA Place app, an augmented reality tool that allows users to visualize how furniture will look in their own home, was launched. This helps the customers to try out different options beforehand and decide on what to purchase. This app has been downloaded 2 million times and has been widely used. Ikea has also entered the smart home market and is offering speakers and smart plugs. The development of these kinds of products, services, and strategies will allow IKEA to compete better in the future. Other technology-driven campaigns (such as its virtual reality experiment) and its recent sustainability-focused content series have contributed to its status as a digitally-innovative brand.
Through movies, mobile applications, and mobile games, LEGO has managed to appeal to today’s digitally-savvy consumer groups. An updated digital strategy helped the company to escape the brink of bankruptcy and to start to thrive. By now, it has achieved many content marketing triumphs that most other brands would kill for and a social strategy that puts the majority of its focus on community engagement.
LEGO’s online community allows fans to submit their own ideas for new sets and vote on the suggestions that they like the most. If a project gets 10,000 votes, LEGO reviews the idea, picks a winner, and creates a new LEGO set that is sold worldwide. This means that LEGO has recognized that its customers are its greatest source for new ideas and innovations. This approach has helped the company to keep releasing new product ranges that its fans love and helped to maintain a close relationship with its customers around the world.
6. Netflix‘s disruption of the DVD market
One of the best examples of successful digital transformation is Netflix. In 1997 the company started as an online video store and in the years to come sent DVDs and BluRays to its customers. In 2007, more than a billion DVDs were sent. Also, Netflix started its streaming offer in the same year, which has replaced the previous business model. The classic video stores disappeared. Instead, the majority of customers now turn to stream. The company also shows how user data can be used to create an optimal customer experience. By analyzing the user, the platform can make intelligent recommendations for new films and series. Artificial intelligence also supports Netflix when analyzing network capacities and identifies foreseeable bottlenecks.
7. Digital transformation at the port of Hamburg
The Port of Hamburg relies on digital technologies to make optimal use of the limited space available. With the help of the logistics platform “Smart Port Logistics”, traffic jams in the port can be reduced, the speed of goods turnover increased, waiting times shortened and real-time information forwarded to truck drivers. Mobile devices enable optimal availability of the services and ensure optimal business operations. In this way, the digital transformation supports the Port of Hamburg in optimizing its business model.
8. REWE is transforming the German supermarket
As part of the digital transformation of its German supermarkets, the supermarket chain Rewe is primarily concentrating on its online ordering service. This enables customers to shop digitally and thus saves time and nerves. With this offer, the company clearly differentiates itself from the competition, with Lidl and Aldi Nord now following suit. In addition, Rewe has implemented new cash register systems in most of the Rewe branches. With the help of these systems, customers are given the opportunity to use mobile payment systems such as Google Pay or Apple Pay. In addition to faster processing of the payment process, customer satisfaction also increases due to reduced waiting times.
9. DriveNow – the transformation of urban mobility
The car-sharing service Drive Now from BMW is a prime example of digital transformation. The service is based entirely on a mobile application that customers can call on their smartphone. With the help of the app, available vehicles can be found and booked and the costs paid directly. Until September 2014, the company relied on analog membership cards. By digitizing the process, there are no management fees for the membership cards, and using the service is easier and more convenient from the consumer’s point of view.
10. Deichmann digitizes retail
The digital change is also in full swing at the well-known German shoe retailer Deichmann. While the perception of the company is rather conservative, the management is pushing the digitization of the business model. Deichmann opened its own online shop as early as 2000. Two further digitization projects followed in 2015. On the one hand, the Click & Collect service ensures that customers can order their shoes online and pick them up at a branch. With Ship2Home, shoes can even be delivered from a branch to your own home address. Due to the high growth in the online area, the company is pushing ahead with further digitization.
The nine fields of digital transformation
The possible fields of application of the digital transformation are particularly extensive so the options for action can be divided into nine strategic fields of action.
1. Strategy & Management
The effects of digitization are not a big secret to anyone. However, successful change cannot take place completely from the bottom up; it also requires appropriate initiatives at the level of top-level management. For this reason, for example, the installation of a Chief Digital Officer is an option. This ensures the long-term survival of the company and steers it on the right digital path. Alternatively, the role of the Chief Technical Officer or the Chief Information Officer can also be strengthened to advance digitization in the company.
2. Customer experience
Customer experience is the overall experience that a customer has with the brand, from the first to the last point of contact. The basic idea of the customer experience places the customer, his wishes, and needs at the center of all company activities. Many companies are now striving for intelligent networking of information that a customer comes into contact with at the various brand contact points. This is intended to improve and optimize the brand experience. In addition, companies are striving for more and more information that helps them fully understand their customers. Ultimately, this step leads to a focus on the individual customer instead of the respective target group.
3. Product and service innovations
Product and service innovations are other fields of action in digital change. These deal with the further or new development of a product or service using digital possibilities. In extreme cases, the actual product can be omitted completely and replaced by a new business model. The origins are often fundamental, technological changes that are forced by new market participants and thus force the established market participants to change.
In addition to the products and services, the organization of the company is also changing. So, the question of the optimal organizational structure arises. This includes the construction and dismantling of departments and the dismantling of silos. Flat hierarchies are often seen as particularly promising. In addition, heterogeneous teams are characterized by increasing productivity, so the adaptation of the organizational structure to the changing business processes represents a sustainable solution for companies.
5. Culture and know-how
The digitally savvy employees are a particularly important field of action because they lay the foundation for a successful transformation. A Bitkom study from 2015 already shows that 75 percent of German companies view corporate culture as an important success factor. Accordingly, there is great competition for the best employees. An attractive employee offers, good working conditions, flat hierarchies, and transparent decisions should inspire new employees for their own company.
Collaboration on an internal and external level plays a crucial role in a successful transformation. Internal communication is now moving to many-to-many communication, which enables a large number of employees to exchange ideas horizontally within the framework of social networks. Social networks also help in selecting the right employees for projects and enable an optimal transfer of knowledge. Skype, cloud services, and other workspace solutions also offer sufficient potential for successful transformation. In addition, variable working environments, mobile jobs, and different offices form a perfect basis for optimal collaboration.
7. Business processes
Business processes are the basis for developing products and services. The central business processes are supply chain management, numerous transaction processes, and logistics management. These processes can be automated with innovative technologies such as Robotic Process Automation (RPA). Especially with manual, repetitive processes, physical capacity limits can be exhausted in this way, numerous optimization potentials can be realized, and the profitability and efficiency of companies can be increased. Ultimately, the areas of application for RPA are as diverse as the processes themselves. RPA can be used wherever structured processes take place.
In order to process unstructured information and to be able to make decisions on the basis of complex, unstructured inputs, an intelligent, self-learning, cognitive automation tool is already available with Cognitive Process Automation. Cognitive process automation can uncover and process hidden, complex data patterns within large, even incomplete, unstructured data volumes (including text-intensive reports).
8. Digital infrastructure
The aim is to create a technical, digital infrastructure that lays the foundation for a new type of collaboration and supports new business processes. It can range from simple options – such as a smartphone for employees – to customer portals with a high level of security. IT becomes the basis of the digital transformation and at the same time represents a competitive advantage for the company in the digital environment. For this reason, experts expect IT budgets to rise sharply in the coming years.
9. Networking and the Internet of Things
The last field of action is the increasing connectivity of intelligent end devices. This includes intelligent cars, smart homes, and even smart cities. Ultimately, it’s about networking analog objects and machines. Terms such as the Internet of Things or Cyber-physical Systems are the keywords for this trend. Future devices will be intelligent and warn or inform users about upcoming events. In addition, the devices communicate with each other and thus contribute to the automation of complete tasks. This is based on numerous sensors and microprocessors.
Digital transformation is a long-term change process that takes place throughout the company. This is not about the digitization of individual processes, but about the sustainable change of business models in a corporate context. The fields of action presented have a decisive influence on this transformation and should be an integral part of corresponding strategies. The result of consistent implementation of these strategies is the successful transformation and thus the best future prospects.