In a business context, “digital transformation” can be understood as the all-encompassing shift in business activities – and the development of new business models for exploiting this shift – that is driven by existing and upcoming digital technologies. Against this background, the goal of a digital transformation strategy is to identify the potentials of “digital capabilities” (that is, digital technologies and the intelligent application of these technologies), to evaluate these potentials and to prioritise them within the framework of a sustainable and, where necessary, new business model. On the basis of this potential-based prioritisation, a roadmap for systematic digital transformation can then be drawn up. The following framework gives an overview of the three core aspects of the above-mentioned goal:
Figure 1: Digital transformation strategy framework
I.) EMPOWERING DIGITAL COMPETENCES
Digital competences form the prerequisite for a company to empower itself and to redevelop or sustainably transform its business model for the digital age. Particularly in regard to the drivers of digital transformation (i.e. customer experience, operational excellence and organisation & culture), the following digital competences are indispensable:
- (BIG) DATA – that is, the central availability of high volumes of data in a range of formats and from a range of sources (e.g. ERP & CRM systems, etc.) for (real-time) analysis purposes
- TECHNOLOGY – that is, existing and upcoming technological developments, from cloud systems and the Internet of Things to artificial intelligence, machine learning and many more
- APPLICATIONS – that is, the connection of data, technologies and existing kn0w-how to (intelligent) applications; for example, large amounts of data can be analysed using a combination of big data and artificial intelligence/machine learning, enabling hidden patterns, correlations and connections to be discovered. This gives rise to decision-relevant information, optimisation potentials and the most enduring competitive advantages available.
II.) DRIVERS OF DIGITAL TRANSFORMATION
II.1) CUSTOMER EXPERIENCE
Digital technologies (and the use of these technologies) have become a defining feature of both our private and professional day-to-day lives. This development is nothing new; however, it is now occurring with increasing intensity in terms of both its scope and speed. Particularly in regard to customer experience, this means that companies must adapt to the growing digital savviness of their target groups in order to avoid losing market shares to agile competitors with digital customer access; at the same time, these companies must expand their business with existing and new customers. In the context of a digital transformation, it is the following three areas, in particular, that are crucial to ensuring good customer experience:
- Customer intelligence – that is, using data-based analyses of customer behaviour to optimise target group segmentation. This enables customers to be targeted more precisely in accordance with their needs and additional growth to be achieved
- Digital value chains – that is, enriching major contact points on the customer journey (e.g. sales, marketing and fulfilment) with digital services, thereby guaranteeing the customer a seamless multi-channel experience (smooth movement between offline and online channels)
- Customer relationship management – that is, providing cross-channel, data-based customer service as a way of managing the central consideration of long-term customer retention
II.2) OPERATIONAL EXCELLENCE
Alongside improvements in customer experience, the topic of operational excellence is a central one in the context of digital transformation. Here, the primary objective is to achieve sustainable increases in efficiency – both time and cost-wise – through the digitalisation of work steps and entire processes. Efficiency gains of this nature are generally realised by means of the following three areas:
- Performance management – that is, systematic support for decision-making through real time-based analyses that enable not only wide-ranging transparency regarding the status quo, but also the simulation of possible changes in various scenarios in real time
- Process digitalisation – that is, the customer benefit-oriented enhancement and expansion of services and the simultaneous reduction of costs through the systematic digitalisation of processes
- Process automation – that is, systematic increases in efficiency (performance and costs) through the intelligent automation of transactional processes
II.3) ORGANISATION & CULTURE
Digital transformation is not exclusively a technological matter; rather, it’s much more about how technologies and the various applications of these technologies are established within an organisation and, ultimately, are accepted by the existing culture and actively made use of. Within the scope of digital transformation, the following areas, in particular, are relevant in relation to organisation and culture:
- Digital empowerment – that is, the continued education of employees and the provision of a fit-for-purpose digital infrastructure. This might include tools for communication, data processing, etc.
- Networking – that is, the establishment of new, agile forms of cooperation between employees, customers and partners
- Innovation – that is, systematic support for a culture of innovation in which existing know-how is combined with new technologies and applications to develop new ideas
III.) BUSINESS MODEL TRANSFORMATION/CREATION
In practice, the three drivers described above often give rise to transformation approaches for existing business models, sometimes also resulting in expanded or completely new business models. Broadly speaking, the drivers influence the following aspects of the business model:
- DIGITAL/PHYSICAL INTEGRATION – that is, the connection of the physical and digital worlds, e.g. through the convenient digital ordering of physical products with return options in brick-and-mortar stores, or the provisioning of physical objects via digital channels (e.g. car sharing).
- CUSTOMER ACCESS – that is, tapping new opportunities for customer access through digital solutions that act as gatekeepers between consumers and providers (e.g. the MyTaxi app).
- INTELLIGENT EXPANSION – that is, the intelligent provision of relevant information, e.g. displaying nearby restaurants in a tailored fashion depending on time of day and customer needs and wishes
The framework described above illustrates merely one way of structuring the wide-reaching undertaking of digital transformation. Our cross-industry experience shows that companies frequently tend to lack unity on the topic of digital transformation, and that solutions – where they exist at all – are of a stand-alone nature as opposed to being part of a proper transformation strategy. Generally speaking, the consequences of this only become apparent once the threat of disruption is no longer avoidable. In light of this economic reality, which has the potential to disrupt whole industries, it makes sense to act early. Our experts will be pleased to support your company in its digital transformation – by assisting in the sustainable improvement of business processes and working with you to develop new digital capabilities and business models.
Contact one of our experts
Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.Learn more