What is the digital transformation all about? How to successfully tackle this strategic challenge

Definition: The term "digital transformation" is often little more than an empty buzzword.
Read this article to find out what it actually entails.

Geschrieben von
Alexander
October 16, 2020
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12 min reading time
[Digital Transformation] So funktioniert sie! - Definition
Inhaltsverzeichnis
  1. Digital Transformation General
  2. What is the Digital Transformation - Definition
  3. Strategic & organizational considerations
  4. Transformation of business models
  5. Transformation & Digital workplace
  6. challenges (examples)
  7. Conclusion
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A study on the opportunities and challenges of digitalisation for medium-sized business found that more than 30 per cent of them view the resulting changes as highly positive for their own company, while just under 50 per cent consider them to be mostly positive. More than 80 per cent of those surveyed consider the digitalisation of work processes to be of high or very high importance. However, company managers regard the lack of knowledge in their own ranks as the greatest challenge they face.

Such findings show that organisations are in the midst of a transformation, with digitalisation acting as a crucial game changer that both company executives and strategy departments need to address. Such a fundamental transformation naturally raises a number of questions: What are the aspects that companies need to consider in the context of digitalisation initiatives? Who is most affected by digitalisation? Where does the digital transformation lead, how long will it take and how can it succeed?

Definition of digital transformation: What is true digital transformation and how can it succeed?

An attempt at a definition could read as follows: "Digital transformation is the process by which companies harness digital technologies and skills to create a new competitive digital business model".

As this definition shows, digital transformation is not so much a technical issue to be handled by IT departments, but rather a top-level management task with the aim of transforming the entire company, including its business model, culture and employees.

The dimensions of digital transformation processes go much deeper than the associated technological changes, as the following diagram clearly shows.

The transformation processes (under the water line) are much more profound than the technological changes (above the water line).

Companies often underestimate the willingness to change, especially among the workforce. Successful digital transformation processes often have the following aspects in common:

Digitale Transformation Strategy  im Unternehmen
Die Transformations-Prozesse (unter Wasser) sind viel tiefgreifender als die damit einhergehenden technologischen Veränderungen (über dem Wasser)!

Companies often underestimate the willingness to change, especially among the workforce. Successful digital transformation processes often have the following aspects in common:

• The creation of a common understanding within the company regarding the strategies, reasons, opportunities and challenges of digitalisation

• Enabling employees to personally "experience" digitalisation in everyday life through new working methods and environments

• The ability to cope with change and uncertainty in the face of rapidly changing parameters and to promote a positive climate with regard to future opportunities

• The promotion of behaviours, skills, attitudes and beliefs that are typically associated with highly innovative companies

• A leadership that embraces digital changes in the company and proactively practices them rather than delegating them

Digitalisation initiatives can hardly unfold their full potential if employees lack the ability and ambition to participate fully in the organisation's digital journey, which is why digitalisation is a C-level priority.

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Companies in transition – digital business strategies & organisational considerations

Digital transformation starts with the development of a strategy. This discussion should mainly involve top level management, in close coordination and consultation with the board. Ideally, CEOs themselves should lead these efforts, but in some cases CIOs (provided they have strong backing from the board) or CDOs can also oversee them on their behalf. In this process, it may be useful to ask yourself the following questions:

• What are the driving forces behind our digital business aspirations – competitive pressures, new competitive threats, the transformation of the industry, new opportunities, customer expectations, etc.?

• Realistically, what is the willingness of our company to engage in digital business in terms of technology, leadership, openness to change, mindset and culture?

• To what extent are we able and willing to invest in a long-term strategic digital business strategy?

• Would a "do nothing" approach pose a risk to our business?

In principle, digitalisation initiatives fall into two categories:

Digitale Transformation (outside-in approach)

Transformation is about changing one or more of the four elements of a company's business model – customer engagement, the financial model, the value proposition or its skills/competencies. This almost always involves lasting changes to the company's market-oriented activities and is therefore also known as the outside-in approach.

Digitale Optimierung (inside-out approach)

This is the second and more cautious approach to digitalisation. If a company's risk appetite or the scale of the available opportunities do not justify a comprehensive transformation approach, significant benefits can still be achieved by implementing digital initiatives "from the inside out" (i.e. by using digital technologies internally to the benefit of the business) to increase revenue, profitability, employee capabilities or customer loyalty. For example, a manufacturing company could use IoT and predictive analytics to become more profitable by increasing equipment uptime and preventing unplanned downtime. Digital workplace technologies can likewise significantly improve the productivity of the workforce.

The table below provides a comparison of the two approaches with respect to the four elements of the business model:

Digitale Transformation: Herangehensweisen in Bezug auf die vier Elemente des Geschäftsmodells
Digitale Transformation: Herangehensweisen in Bezug auf die vier Elemente des Geschäftsmodells

When it comes to developing new or optimising existing business models in the context of digital transformation, answering the following questions can serve as an initial starting point:

Entwicklung oder Optimierung Geschäftsmodelle in der Digitalen Transformation
Kleiner "Leitfaden" zu Optimierung oder Entwicklung der Geschäftsmodelle im Rahmen der digitalen Transformation.

Airbus is an example of an organisation that has invested in digital optimisation while simultaneously promoting digital business transformation. Airbus has created a digital platform called Skywise that processes large amounts of data and provides integrated analytical capabilities for linking the entire aviation ecosystem and speeding up the resolution of complex maintenance problems. This has enabled the company to optimise its existing business models. Airbus' digital business transformation, on the other hand, focuses on creating new, value-added business models. For example, Airbus also uses Skywise to offer preventive maintenance to its customers, which in turn may also include new products and services.

Regardless of a company's approach or the pace of its digital business initiatives, it will inevitably undergo a transformation, which needs to be integrated into its digital business strategy. This requires the development of specific plans for including culture and cultural change as an integral component of its digital activities.

Without a doubt, companies will face shortfalls in skills and competencies that need to be addressed. Likewise, strategies that may seem unconventional (such as establishing partnerships with relevant companies and start-ups or targeted networking within the start-up community) should also be considered. Finally, companies also need to define a comprehensive communication plan to integrate all stakeholders into the process through transparency and information sharing.

An analysis of leaders in the field of digitalisation management shows that they are all have dedicated digitalisation teams that report directly to top management. What's also apparent is that digitalisation can only be successful if it involves both IT and business and is therefore treated as a multidisciplinary task.

Mastering the digital transformation is a multidisciplinary task that can best be solved by a dedicated digitalisation team.

Digital Transformation / Business Transformation with dedicated Teams
Die Digitale Transformation ist eine multidisziplinäre Aufgabe die am besten mit einem dediziertem Digitalisierungsteam zu lösen ist.

Digital transformation of business models

Transforming business models involves using digital technologies to do new things in new ways that ultimately create innovative added value for employees, customers or partners in the business environment.

For established industry players this often means the creation and introduction of new business models. This clearly shows that digital transformation affects everyone and is not an issue that can be pursued "in secret" by a single department. In this journey of change, the entire organisation needs to be brought on board.

Managers frequently confuse digital transformation with "digital business optimisation". As mentioned above, the digital transformation is aimed at establishing completely new products and services and/or new business models, such as platform business, that are made financially viable and technologically possible by digitalisation.

While it is advisable to separate the two types of approaches, digital business optimisation is nevertheless an important field of activity that digital strategies can and should take into account.

Applying established business models from other industries to new use cases is often a promising way to advance the innovation process. Rather than inventing a completely new approach, many of the most successful innovators in the field of digital business models have adapted models from other industries to their own use cases through a clever combination of technologies, market knowledge, initiative and ambition.

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Business transformation: Digital workplaces bring the digital transformation to life

Bringing digitalisation to life and improving the quality of the user experience are two of the key factors behind successful digital transformation initiatives. How can employees be expected to support change if they have not experienced for themselves how digitalisation can make their daily lives easier?

The gulf between private and business use of digital media and tools is still far too wide in some places, which can quickly jeopardise the credibility of digital initiatives. As a result, in-house programmes for digitalising work environments and processes should take centre stage within company-wide digitalisation strategies. Digital workplace and process excellence or hyper automation initiatives should serve as the foundation for digitalisation, from which it can then evolve into products and customer-oriented services.

Conversely, however, this also means that these individual projects need to be aligned with the goals of the overall digital strategy, with clearly defined options for improving productivity and effectiveness.

New technologies help to facilitate collaboration: Integration with the cloud, digital experience platforms, video, artificial intelligence, insight engines, workstream collaboration, process mining, business process automation, robotic process automation and new options for data analysis – to name just a few – are some of the novel and useful tools for building the digital workplace. However, the relevance and efficiency of these tools first have to be checked and they need to be selected and integrated into an overall, company-specific concept.

A quote from Gartner sums up this connection in one sentence: "You cannot become a digital business unless you have a digital workplace." (Source: Gartner)

Three key questions that managers of digital workplace programmes should address:

  • Strategic planning and business alignment – identifying, defining, prioritising and communicating the business-relevant potential of the digital workplace and establishing a digital workplace management organisation to monitor the programme strategy and work hand in hand with the business team.
  • Employee experience and governance – developing a digital workplace roadmap, including governance, best practices for change management, and new ways to optimise the user experience to increase engagement and digital literacy.
  • Change management, performance indicators and operations – moving from traditional operating models to modern models that are responsive, agile and KPI-driven, such as continuous delivery.

Examples of digital transformation: What are the challenges that companies face?

In the course of digitalisation, companies and their IT departments are caught between the pressure to change and their ability to change. IT departments have to undergo a comprehensive re-alignment in order to meet the growing demand for a uniform, context-dependent user experience that extends across work areas, organisational boundaries and new ways of working. In particular, IT departments are struggling to meet the following challenges:

• To keep costs under control as user expectations grow

• To effectively manage new applications and the data they generate

• To introduce new applications and train users

• To track vendors' product roadmaps and align them with the company's own organisational strategies while deciding which new technologies to prioritise for maximum impact

• To collaborate closely with new stakeholders, such as HR executives, business managers, security managers and infrastructure managers, when making digital workplace decisions

Organisations need to promote digital literacy by moving towards more collaborative, agile, mobile, analytical, innovative and creative ways of working. At the same time, there is often a lack of guidance, commitment, support and willingness to acquire new skills and expertise at all levels of the workforce.

Within the framework of their digital transformation strategy, companies have to identify all these different challenges in a transparent manner and then address them through targeted measures.

Conclusion

By now, awareness of the enormous potential of digitalisation for optimising operations and ensuring long-term competitiveness has reached the top echelons of companies. However, mere recognition of this fact and the delegation of the complex digitalisation task to IT departments is simply not enough. In the context of the digital transformation, strategy development, planning and the associated change processes require the full attention and support of the company leadership.

Digital transformation is not a project, but takes the form of a long-term strategic, organisational, cultural and mental change that will alter a company forever. Strategic planning and business alignment require a holistic rethinking of the organisation, including its processes and working methods, while prioritising the implementation of the necessary changes. It is only by adopting an appropriate and structured approach, which must have management backing, that the enormous potential of the digital transformation can be unleashed.

As things stand, only a few industries or sectors will be able to resist this change. Given the opportunity of maximising their profitability and gaining a competitive edge, companies should take a proactive and professional approach to digital transformation, including the use of external know-how.

Sources:

1.      Leverage Business Models to GuideDigital Business Transformation, Gartner, 17. April 2020.

2.     Ein digitaler Arbeitsplatz ist entscheidend fürdie digitale Transformation, 26. April 2019).

3.     Understanding the Individual, Team and Leadership Attributes That DriveDigital Success, Gartner 2020.

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