3.6 How to kick-start digital transformation
Digital transformation is on everybody’s lips, and the design thinking mindset, co-creation, and the radical collaboration of interdisciplinary teams on new solutions and customer experiences constitute a first step for initiating this transformation. Marc is already working in this mindset with his team. For him, an agile and iterative way of working is something obvious and part and parcel of the culture his team lives. In the preceding chapters, we have already shown some tools and methods for how even traditional companies can participate in this mindset. It was shown how we can
- define new paths with strategic foresight,
- (further) develop business models,
- realize new value streams by thinking in business ecosystems, and
- collaborate in an agile and networked way in new organizational forms, and so on.
There are many other categories that are equally important but, in most cases, very specific to the respective industry. It starts with our collecting and analyzing data and goes all the way to the maturity of automation or our willingness to drive forward decentralization and intelligence in open systems.
For product-centered and traditional companies, a design thinking workshop is frequently the initial leap across the digital divide and thus the kickoff to the transformation into a digital business. Digital leaders have a clear vision, have mastered the technology enablers, live a new mindset, and act with teams of teams when implementing their strategy.
For the various teams to be able to act on a self-organizing basis yet still with a distinct direction, a clear vision is required, from which the digital strategy can be derived. The direction in which the company should develop must be clear to all involved.
The new mindset will be crucial for the transition from a previously more deductive way of thinking to a design thinking mindset, the attitude of every individual and the entire team must match. For the interdisciplinary teams to achieve outstanding results, a positive energy is absolutely essential.
Every company and industry must define which technologies and technology enablers it needs and which will be a part of the value proposition. It’s best if the knowledge of these key technologies be reliably available in the company itself or in the business ecosystem. One possibility here is the collaboration of start-ups or universities. Talent development with skills in the digital area must be ensured. Along with technical expertise, methodological knowledge and collaboration in interdisciplinary teams must be developed.
As mentioned, traditional companies must, metaphorically speaking, overcome a digital divide to bring about digital transformation. Previously valid assumptions no longer apply, including product-centered development, traditional hierarchical organizational structures, and a strong focus on market share and physical transaction chains with intermediaries. In many industries, this means a transformation of the whole organization. Possible steps to develop these skills might be:
- Building up a new mindset with design thinking. New solutions and customer experiences are developed together with the customers (co-creation).
- This type of work/collaboration is extended to the organization. As many teams as possible should be able to collaborate in agile and transverse fashion. Teams of teams are formed, and the organization changes from the inside out.
- Many things can be scaled better if network effects are taken advantage of and integrated digital business ecosystems are developed instead of individual products and services with singular unique selling points.
- This way of thinking can help, in a next step, to transfer the intelligence to decentralized structures and to implement business processes and transactions without intermediaries. Agile, transversal collaboration does not occur any longer solely on teams within the organization but across the whole company.
It takes courage to peer into the depth of the digital divide for the first time. The world of digital business is complex, and diverse, and it demands a new type of networked thinking on our part.
Too many times over the last few years have we had to witness how digital transformation was handled just like any other change management project: thought out, planned, and implemented from the top down. Measures were defined by the leadership team and taken into the organization by implying urgency. Unfortunately, none of these approaches were successful. For this reason, we should begin digital transformation with design thinking and then tackle it, as described, transversally across all company silos, involving everybody. At the end of the day, we want to have a system in which people work and have an effect. In our experience, it is good to give the people in the organization room so they can go through the cognitive process on their own and shape a new shared understanding in common—a mindset that matches the respective organization and its employees. In the “Business Ecosystem Design” chapter, in the context of the validation and realization loop, we pointed out the importance of the people in the respective companies, whose attitude and motivation are pivotal for the desired business ecosystem to develop positively.
However, the first necessary step is always to throw one’s own assumptions overboard and exercise mindfulness. We can refer to this first phase as the phase of reflection. The following steps are in sync with our well-known design thinking principles.
It is also a fact that technology time and again provides us with opportunities for major upheavals. Digital and technological upheavals have already changed the world, and they will do so on a faster and more far-reaching basis in the future. We are at present in a phase in which blockchain, for example, as a technology enabler might herald in the next revolution. New market actors form up, and new value streams are defined. But it also means that industries that persist in their old patterns and individual intermediaries will be pushed from the market in the medium to long run.
Anybody wanting to survive in a blockchain world must have the skills and the mindset to engage in an ecosystem and shape this role actively. Most companies are still in a phase in which digital transformation is coming into being in randomly enacted and ad hoc initiatives, mainly driven by the automation of processes. We already mentioned that, for a higher level of maturity, large parts of the company should be involved in the exploration of new opportunities.
In individual cases, products and services are created this way that already have digital functionalities (e.g., sensors). With the steady dissemination of the design thinking mindset, a greater focus on customers and their needs will take hold. Digital solutions with a high level of customer focus make it possible to enter the market as a digital player, which is innovative on a transversel and networked basis. Opening up to the outside, including a heightened collaboration with partners, in order to set up innovative digital offers is decisive if you want to position yourself as a digital ecosystem player. From our experience, companies move on different S-curves when it comes to a digital orientation. Within the individual S-curves, the performance increases in the shape of an S. Combined forces and positive energy are needed between the respective orientations, however, to target the next S-curve of digital transformation.
At the moment, Marc is pondering exactly these considerations about the actors in his business ecosystem. He has analyzed how this transformation process runs on the S-curve for health insurers and discovered from which point on he will be able to establish a profitable value stream with insurers on the basis of his blockchain solution and data analytics on metadata. Marc has observed the following phases with respect to one health insurance company:
1st phase: Process optimization and cost savings as a result of digitization (e.g., automation)
2nd phase: Active penetration of multidimensional digital channels and digital processes; the digitization of process chains
3rd phase: Digital products and data-driven services are offered; the data generated this way is monetized and shared with other actors.
4th phase: Building a networked and trustworthy ecosystem in order to offer complete solutions that ensure market and scaling success
We have pointed out that, for many companies, a design thinking workshop is a good way of initiating digital transformation. Of course, there are countless ways to bring the design thinking mindset to life. In our experience, specific questions work very well; other possibilities are to start with strategic foresight or deal initially with the business ecosystem design. What ultimately counts is in which industry the company operates and which “leaps across the digital divide” have already been made. We would like to present one example using Peter.
Peter also has the goal of exploring the potential of various companies with regard to blockchain. To do so, Peter has developed a two-day workshop that helps to get the opportunities of blockchain across to his industry partners; in addition, use options and business opportunities are discussed in the workshop. With his approach, Peter mainly addresses executives, and innovation and technology managers as well as other decision makers who are interested in the possibilities of blockchain and new models in business ecosystems. In addition, he invites actors and start-ups from the respective ecosystem so that a solution is developed in common right from the onset. Peter uses design thinking and the design thinking mindset for his workshop and combines them with business ecosystem design. At the end of the workshop, a decision is to be made on how the developed solution will be tested on the market.
In a digital economy, the challenges are similar across all industries. The four most prominent are dealing with uncertainty, the multidimensionality of the business models, participation in business ecosystems, and the scaling (growth) that is necessary to achieve significant sales in these models. We have already shown possibilities for the definition of a forward-looking strategy. However, the question remains: What strategies can we apply in the short term if we have not yet managed to leap over the digital divide and the digital tsunami is already looming near.
The first challenge is uncertainty about how the future will develop. Uncertainty seems to rise in all industries. The good news is that “embrace ambiguity” is a crucial element in design thinking and its mindset can help us in dealing with it.
The second challenge is multidimensional business models. They usually serve several customer segments with completely different value propositions. We know such approaches in the form of multisided models such as Google. The customer usually “pays” with his digital traces in the network,such as with data he leaves in transactions and interactions. Other business models (e.g., freemium models) might be free of charge at the outset, and payment is only required for the use of additional offers. Such digital revenue models are somewhat complex; for many traditional companies, they are uncharted territory. In most cases, IT platforms, APIs, data analytics, and business ecosystems with the right partners for a target- oriented implementation are needed.
The third challenge, namely the handling and the design of ecosystems, was described in Chapter 3.3.
The fourth challenge consists of scaling the models and generating sustainable growth. Digitized business models are often not limited to national borders. Due to the shorter cycles, growth must be faster and have a broad basis. This also means that the infrastructure, structures, and processes must grow accordingly.
Many companies use one or more strategies to respond to these challenges, which we describe. It is advisable, though, to address the issue not only reactively and defensively but, instead, with a proactive stance.
(1) Blocking strategy
We attempt to prevent or slow down the disruption at all costs, such as by means of patent claims or the announcement of copyright infringements, putting up legal hurdles, and using other regulatory barriers.
(2) Milking strategy
We get the greatest possible value out of vulnerable business units prior to the unavoidable disruption (i.e., we milk the business as well as we can).
(3) Investment strategy
We invest actively in the threat. This includes investments in “disruptive” technologies, skills, digital processes, and possibly the purchase of companies with these attributes.
(4) Cannibalization strategy
We launch a new product or service that directly competes with the previous business model in order to build up inherent strengths ourselves for the new business, such as size, market knowledge, brand, access to capital, and relationships.
(5) Niche strategy
We concentrate on a profitable niche segment of the core market in which disruptions are less likely to occur (e.g., travel agencies with a focus on business trips or complex travel routes; booksellers and publishers focusing on the academic niche).
(6) Redefining the core strategy
We build up a new business model from scratch. It might even be in an adjacent sector if such a move makes optimal use of the existing knowledge and skills (e.g., IBM to consultancy, Fujifilm to cosmetics).
(7) Exit strategy
We get out of the business and return the capital to the investors. Ideally this is done by selling the company as long as it still has any value (e.g., sale of MySpace to News Corp.).
(8) Greenfield strategy
We start a new company in tandem with the old one on a greenfield site, which is then equipped with the necessary skills, infrastructures, and processes for digitization. We milk our old core business in order to build the new venture and switch as soon as we have successfully initiated the scaling.
If we opt for a redefinition of our current core strategy, for instance, it can be done on different levels. We can take a closer look at our specific value proposition and how it is generated, and optimize it. In so doing, we should always have an eye on the entire business ecosystem and our partner network because digitization facilitates new business models based on partnership or open business models. Alongside the constant screening of new technologies, heed must be paid to innovations and breakthroughs in the lower market segments (jugaad or frugal innovation). The drivers can be identified by the respective signals that are relevant to the industry in question (e.g., IoT and Industry 4.0); by trends in business models (e.g., shared economy); or technological revolutions (e.g., blockchains). The transformation of the employees is something not to be underestimated. We need new digital skills and must find ways for our workforce to acquire them.
When we want to design a new digital model for our company, four elements are absolutely critical to success from our experience alongside the focus on the needs of people: the operating model, the adapted technology, the digital business model per se, and, increasingly, the business ecosystem.
We can outsource a sub-function, for example, from our core business to an actor in the ecosystem in order to benefit from an expanded customer access. Or we already have established partnerships that we can profitably use for testing an MVE (minimum viable ecosystem). In addition, some thought should be expended on how complementary advantages through the combination of established platforms and digital services might be realized (e.g., a combined offering through a centralized touch point with the customer). In the definition of the model, it is vital to keep an eye on the big picture and at the same time explore it with minimal functions (MVP and MVE).
We have talked a great deal about fitness and, in the end, we might be able to cross the mountain pass with customer orientation, the right skills, motivated employees, and a good implementation plan. Companies that have higher ambitions and want to be among those who come in first in their own particular Race Across America should bank on “8 wins” (see p. 290). The Race Across America is one of the toughest bicycle races in the world. For such a race, it is not enough to tend toward aimless action in individual forms. What is required is the perfect match of material, willingness, and vision, all the way to the ability to integrate new technologies from an extended ecosystem. For our own organization, we must reflect on the question of where we are in terms of the individual forms. In the end, we must decide for ourselves whether we want to go on a leisurely ride on our bicycle or whether we have the willingness and the vision to compete with the best in the world. In 2015, it was David Haase who optimized his Race Across America using sensors, weather data, artificial intelligence, and big data/analytics. With this, David’s performance reserves could be adapted to the conditions, and decisions were optimized.
