The Digital Transformer's Dilemma

How to Energize Your Core Business While Building Disruptive Products and Services

Karolin Frankenberger, Hannah Mayer, Andreas Reiter, Markus Schmidt, Andreas Reiter

• Publisher: Wiley
• Year: 2020
• Print ISBN:
  9781119701309
• eBook ISBN:
  9781119719489
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Emprendimiento

Bring your company into the digital era without compromising your core business

In The Digital Transformer's Dilemma: How to Energize Your Core Business While Building Disruptive Products and Services, the authors show companies how to go digital while also advancing their core business. The book emphasizes how to strike a difficult balance between establishing a new (digital) business and re-vitalizing – and digitizing – the legacy business.

The core of the book is focused on the actual implementation of the digital transformation across both businesses, providing concrete tips, tricks, tools and action plans across six key dimensions:

• Crafting a flexible organization
• Using technology as a driver
• Designing the necessary processes
• Building transformational leaders
• "Right-skilling" the workforce of the future
• Galvanizing cultural change

The Digital Transformer's Dilemma is a very visual  book, filled with dozens of engaging illustrations that bring the contained concepts to life on the page.

Based on 100+ interviews with senior executives at leading companies (such as Nestlé, Novartis, Volkswagen, BNP Paribas, BASF and Michelin) and smaller hidden champions, numerous illuminating case studies, and the authors' own experience from working in international management consulting and years of academic experience, the book highlights the fundamental principles required for executives and businesspeople to transform legacy organizations into digitally empowered companies.

Part 1
WHY TO ACT

Chapter 1
ACT OR DIE, PRETTY SOON

In this chapter we investigate different reasons for embarking on a digital transformation and analyze why so many companies have failed to act timely and get it right. We also explain why a dual business that allows exploiting traditional business activities (1st S‐curve) and exploring ways of reaping the full digital potential (2nd S‐curve) is necessary (see Figure 1.1).

Figure 1.1 Key visual with focus on Why

Source: S‐curve graph adapted from Gabriel Tarde. The Laws of Imitation. New York: Henry Holt and Company, 1903.

REALIZE THE “WHY” CHALLENGES YOUR COMPANY MUST TACKLE

Incumbents that aim to digitally transform their businesses face the dilemma of maintaining profitability in the core business and at the same time establishing a new (digital) business. What might sound trivial and like an intuitive approach is a challenge for many organizations, even before incumbents get to work on the transformation. Before they dive right in, they need to reach an agreement about the importance of a dual business approach. This requires them to build up awareness for the environmental factors that threaten their current business and any emerging opportunities for a new business model. Hence, incumbents need to ask themselves: How does digitization affect the core business in the short‐, medium‐, and long‐term? Who are the players, and what are opportunities and threats that need to be considered?

While the need to act and transform the core business is often straightforward, things are not always so clear on the 2nd S‐curve. Hence managers might also ask themselves: How can they reach alignment and clarity about the need to act on both S‐curves? What needs to be done if management and supervisory boards do not agree on the importance of the new (digital) business? In fact, concerns around the current business often overwhelm other efforts that focus on new (digital) business opportunities. That's how numerous firms end up focusing most of their transformational efforts on the existing core business, putting insufficient emphasis on future growth opportunities. This begs the question: How can incumbents avoid ending up with an unbalanced approach and conflicts between the two S‐curves? Prior to that, why should incumbents act at all if their core business is still doing well? And even more importantly, how should managers convince their boards to prioritize the new (digital) business, when their core business is struggling and requiring all available resources? And how does the urgency differ between industries? These questions should be answered at the very beginning of every digital transformation.

Once the organization has reached agreement about the need for a dual business approach, new questions emerge. For example, what are the common pitfalls that need to be considered in this phase? Why do so many organizations struggle to act timely and transform successfully? Lots of organizations have already tried to transform themselves, so is there something to be learned from past failures of others, and how can these mistakes be avoided? Many more could be asked and we are just at the very beginning of the transformation. But don't worry – we have you covered.

FIGURE OUT YOUR OWN “WHY” BEFORE YOU DO ANYTHING ELSE

“Self‐awareness is the way to improve oneself,” says an old proverb. The same holds true in the context of digital transformation. The first step is the realization that there is a need to act to begin with. The answer to the WHY question then forms the basis for all subsequent decisions. Understanding how digitization affects the industry and the business model is a good starting point to raise awareness about the necessity of a transformation and inform the required change in direction. Of course, realizing the need to act is first and foremost a responsibility of the top management. But this does not mean that this chapter is only relevant for them. In fact, it is often employees at lower levels who have an ear to the market and can therefore provide valuable answers to the starting question and initiate the transformation process in the first place. The WHY may be motivated by many different reasons. Based on our 100+ interviews, we have collected and sorted the reasons why incumbents felt the need to act and embark on a new, digital journey. Let's look into the various reasons.

Threat from new competitors

While incumbents are used to competitors of the same kind, digitization brings two new types of players to the table: big tech players and start‐ups.

Companies such as Facebook, Amazon, Apple, Netflix, and Alphabet from the United States or Baidu, Alibaba, and Tencent from China are examples of so‐called “big‐tech” players that have radically changed the competitive landscape over the past few years. These firms, originally focused on the commercial internet (Apple being the exception), are now pushing into traditional industries, posing a real threat to the long‐established business of many incumbents. They benefit from the fact that new technologies tear down barriers between established industries, allowing them to expand more easily into adjacent industries and domains. This leads to an unprecedented global competition between “old”‐world companies and new digital players, as tech players are reshaping one industry after the other.

Big‐tech players are not the only new threat in the competitive landscape. More and more start‐ups try to break into established industries. Global hubs such as those located in Silicon Valley, Tel Aviv, Shenzhen, Berlin, Paris, and elsewhere form an ecosystem where new business ideas are born and raised. These start‐ups enter into the traditional domains of incumbents and threaten their leading position, often with remarkable success. Just think about the large number of digital disruptors (or digital attackers) that we have seen in recent years. Online direct bank N26 or intercity coach service operator FlixBus are famous European examples of start‐ups that have very successfully stolen substantial market share from incumbents in traditional industries. In the United States, Uber, Airbnb, and the like have started their triumph over established asset‐heavy industries. Looking at the success of these start‐ups, their compelling stories are often based on a relatively simple but smart combination of new technologies and business model innovation.

What large‐tech players and start‐ups have in common is their focus on the customers' end‐to‐end experience. Looking at customers' needs through a digital‐first lens allows them to tap into unserved needs that have been ignored by established players.

Threat from existing competitors

While it's often new players that increase competition within established industries, forcing incumbents to react, the need for a digital transformation can also be triggered by other established players that set the tone for the entire industry. A global survey among 1,600 executives found that “reinvented incumbents” – established players competing in new and digital ways – are out‐performing their traditional peers in terms of growth and returns.¹ The results of this study show that incumbents that truly embrace digital business opportunities in their investment and strategic decisions are just as big a threat to established players as digital native companies. Firms that act as leaders and shape the digital agenda put their counterparts under pressure to follow suit. Compared to their peers, the digital reinventors are more likely to make radical changes to their strategy and business models, to use new technologies at scale, and to make bolder investments into digitization efforts.

New or shifted industry and/or customer trends

In addition to competitive threats, the need to act can be propelled by new trends that fundamentally reshape the way businesses operate. The digital revolution is altering customer expectations and industry boundaries at a faster pace than ever before. Customer‐centric value propositions connect previously separated industries and create new experiences that were unthinkable until recently. Just think about your smartphone, your smartwatch, your smart‐home device, or the interactive control cockpit in your car, to name just a few examples. Blurring industry barriers lead to many incumbents facing competition from players they never considered before. Consequently, organizations have to define their business models not just in the light of industry peers, but they need to consider how effective these business models are in competing against rapidly emerging ecosystems, which can comprise a variety of businesses across different sectors. All of this has important consequences for incumbents' existing business models, as Onur Erdogan, former General Manager at Estée Lauder, the leading luxury and cosmetics company, tells us. He explains, “The digitization of our business is really driven by customers. Customers want personalized products, advertising, and communication. And if you want to deliver on this, you need to change the whole way you work and operate.”² The trend toward customer‐centric end‐to‐end solutions has a number of implications for incumbents. First, products and services need to become better, cheaper, more flexible, and more customized than ev...

Table of contents

• Cover
• Table of Contents
• Introduction THE DIGITIZATION OF YOUR CORE BUSINESS IS NECESSARY, BUT THE FUTURE OF YOUR COMPANY LIES IN ITS NEW, DISRUPTIVE BUSINESS
• Part 1: WHY TO ACT
• Part 2: WHAT TO DO
• Part 3: HOW TO DO IT
• Part 4: WHERE TO SEE RESULTS
• Conclusion: Reinvent Your Organization by Putting the Pieces Together
• Notes
• Resources
• Acknowledgments
• About the Authors
• Index
• End User License Agreement