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Blog Digital Transformation

Digital Transformation: Are We There Yet?

If digital transformation were a soccer match, most companies would have already lost both half-times (e-commerce, data economy). However, they still have the chance to catch up in the areas of Internet of Things and AI.

So maybe an analogy to hockey would have been better, because then most companies would have only lost two of the three periods. The first period would have been about data economy and the second one about e-commerce, multi-channel, and customer experience in B2C.

No overtime, no second chances

Companies can only hope to catch up in the third and final period, where it is about who will become market leader in Internet of Things (IoT) and AI. No time to lose, then, as pressure is mounting for companies to develop new IoT-based business models and to successfully position them in the market.

One of the reasons for this high pressure is the speed at which customers and rival companies adopt new technologies. Traditional value chains collapse under the weight of digital transformation, and new providers are often faster to adapt.

The success of digital business models is tied to access to data. Europe shot itself in the foot with the General Data Protection Regulation (GDPR) while China and the United States continue to move forward. GDPR is massively impacting the advance of digital transformation.

According to the most recent Luenendonk study, every fifth European company currently has postponed data-based business models because of data protection laws. 30 percent of respondents even expect a drop in sales because of regulations like GDPR.

Customer-oriented processes

Besides 5G technology, the digitalization of customer and partner interfaces is an important success factor for new business models. Furthermore, companies need continuous distribution processes and order processing.

In the automobile, energy, and logistics industry, the majority of companies is already considering the implementation of data-based business models. Consequently, they want to be able to compete with disruptive start-ups.

Platform-based business models, meaning a combination of products and added services, are gaining popularity. For customers, this results in higher customer experience because they can access all information, products, and services on one platform.

For such a digital platform to be a success, however, modifications of IT landscapes are crucial. Microservices lead to more agile IT processes; APIs to a simpler integration of new digital solutions and software-based products.

Customer expectations are changing due to digital transformation

Customers expect ever-more from digital interfaces and process chains. At the same time, many industries (trade, financial services, media) are struggling with customers’ high willingness to change providers.

Furthermore, it’s now easier than ever to change providers as start-ups and technology companies reduce the threshold with new and innovative solutions. Customers are also able to compare prices through online platforms like Verivox, Check24, or Google Products.

Digital pioneers like Amazon, Airbnb, or Zalando have raised customer expectations. Many industries are also seeing disruption by (former) start-ups which have successfully leveraged continuous digital solutions: Netflix, Flixbus, Delivery Hero, Spotify, myTaxi, Wirecard, and so on.

Customers are becoming more powerful

According to the most recent Luenendonk study, two thirds of surveyed managers see customers growing ever more powerful. Additionally, 15 percent said that their relationship with customers had changed.

Changing customer expectations are most visible in the banking industry as the number of (primarily younger) customers that prefer online banks is growing. Banks are also feeling the pressure concerning mobile payment. New providers like Wirecard or N26 are flooding this market sector.

Therefore, 93 percent of responding managers think that customers are becoming more powerful.

Interestingly, every second respondent working in trade has not been seeing any changes in customers’ power. Only 47 percent said that they do feel pressure to adapt. These findings are the opposite of what we’ve been seeing in the industry because of the disruption through e-commerce.

In manufacturing, this number is equally low: only 44 percent see customers growing more powerful. One reason for that could be that many manufacturing companies are leaders in what they specialize in, meaning they can trust that customers will not change providers.

Furthermore, technology cycles in the capital goods business are significantly longer than in other industries because of longer product lifecycles.

Respondents have risen to the challenge of digital transformation and are currently working on implementations and improvements. One motivation certainly was to be able to meet changing customer expectations and challenge digital competitors.

Luenendonk also asked respondents about their investments in the last twelve months. The results indicate that the past focus was restructuring operating models; meaning improving processes, digital transformation of business processes, and overcoming corporate silos.

Corporate investments in digital transformation

Three out of four respondents said that in 2019, they will make high investments in optimizing customer communication channels and automating customer processes.

Consequently, process modernization for higher customer experience as well as the redesign of customer-centric processes will become more important.

Companies will also invest more in customer journey analytics, rollout of marketing and customer services applications with AI functionality, and consolidation of CRM systems and their connection to ERP systems and business apps. Furthermore, 60 percent of companies also want to invest massively in digital marketing.

They also plan to invest in online-based distribution channels. Here, it is crucial that companies build up web portals as digital customer interfaces which are API-capable and seamlessly connect to platform ecosystems.

Such ecosystems are, for example, operating systems from Apple or Google, IoT platforms, or platforms from Amazon, Alibaba, or Zalando in retail.

In conclusion, companies will continue to focus on processes in 2019. Only every second company is planning to develop new business models and invest in them.

However, 65 percent are planning to add digital services to their core business to react to higher customer expectations and to create new revenue streams.

Conclusion

Companies that are still not digital will not be able to develop new, disruptive business models. However, they can leverage successful traditional business models and add data-based services, IoT, and AI.

In 2018, the majority of companies focused on improving their products through digital and data-based services and will continue to do so in 2019. However, this model also has some weaknesses which could hinder digital transformation.

For example, digital transformation often takes place while old organization structures are still in place.

Customer experience is something that companies from the old economy have to master, otherwise they will not survive in today’s market. Companies therefore have to start investing in massive restructuring projects now to be able to adapt.

Source:
E-3 Magazine April 2019 (German)

About the author

Mario Zillmann, Luenendonk

Mario Zillmann is a partner of Luenendonk and an expert in management and IT consulting as well as outsourcing.

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