Setting the right incentives is another important step. Goal‐setting with a focus on longer‐term success instead of short‐term profits represents a cornerstone for digital transformation. Only if goals such as the number of client touchpoints on digital platforms or successful digitalization of internal processes make up a sufficient portion of the overall bonus, managers and their teams will be incentivized to change behavior substantially. “At the beginning, our top management strictly opposed including goals dependent on the results of neighboring departments,” a chief human resources officer of an international services company remembers. “A year later, this was fully accepted and made collaboration much more commonplace in our company.”
Similarly, a large manufacturer introduced so‐called “stretch goals” that are impossible to reach by one single employee, such as introducing a certain number of new business models or opening up new sales channels. It required individuals to pull together throughout divisions and hierarchy levels. Silo mentality was reduced and collaboration enhanced, which is a key ingredient for digital success [20]. Setting such ambitious goals typically brings about another benefit: They help spread a sense of ownership and shared responsibility for entrepreneurial success.
Become Attractive to New Talent
Large corporations tend to entertain pin boards for internal openings in some common area. An international consumer goods company is no exception here: Just outside the headquarters’ cafeteria, dozens of positions are offered on letter‐size pages. It is worth taking a closer look: Almost two‐thirds bear headlines such as “Data Scientist”, “Data Engineer” or “User Interface Designer”. It is hard to fill such newly created positions with current employees but not much easier to attract external talent with fresh degrees into a corporate position.
The attractiveness to digital talent is dependent on the employer’s reputation and branding as well as individual working models. Particularly when hiring graduates for jobs in data analytics or software development, it is hard to compete with attractive digital giants such as Google or with start‐ups that provide sweat equity. To get it done nonetheless, (a) employer branding needs to be enhanced, (b) screening of candidates must be improved using data‐based methods and (c) hiring processes have to provide lessons and lasting experiences even for those who don’t make the threshold.
In times when employers are rated on platforms such as Glassdoor or Kununu, it is equally important to make sure that companies keep promises made during the recruiting process. Offering a flexible working environment, like at media and investment conglomerate Virgin, with self‐determined weekly working hours and number of holidays, is only part of the story [21]. Most importantly, corporations need to offer a working environment that leaves enough freedom of decision to staff on all levels.
Online retailer Zalando sets an example with its management method of radical agility. After an internal analysis showed high employee turnover and low productivity growth, traditional hierarchy levels were abolished and developers got more decision power, e. g. which programming languages to use. As a result, job applications for tech profiles more than quadrupled since 2014 and departures dropped by 35% [22].
11.2.3 Corporate Processes & Structure
When an international industrial company introduced an entirely new and powerful data management structure across all units, protests were immense. Some departments had invested millions to keep legacy systems running and wanted to keep them. Others didn’t see the need for such a system in the first place. In the short run, streamlining processes made things more cumbersome as many units had to adapt their internal processes. The benefits of integrated data storage and accessibility would only become visible at a later stage.
So, when is the right time to introduce such a far‐reaching change in technology, and how do you go about it? How do you make sure all relevant stakeholders are taken on board for the journey? Implementing a digital strategy is only possible if corporate processes and structures are reformed. How can corporations align numerous digital initiatives into a holistic transformation process?
Determine Your Digital Maturity and Act Accordingly
As mentioned previously, an important stepping stone is the definition of an organizational setup that allows maintaining traditional business models as long as they are profitable while getting future ready at the same time. Becoming an integrated digital company should be the goal for all, regardless of whether it is a B2C or B2B company. Typically, the latter ones show lower levels of digital maturity, with some digital initiatives in place but little coordination and a lack of consideration at the holding level. Our framework (Fig. 11.3) helps corporations to determine the level of digital maturity already reached and to act accordingly.
Fig. 11.3Structural steps in a digital transformation process
Many traditional companies are now at a stage where some early flagship initiatives have been started and some digital business models have been tried out. Here, it is important to collect and assess them, measure their success, continue the ones performing well and discontinue others. At the same time, digital knowledge and experience gained through these projects should be collected at a corporate level.
To enter the second stage, it is helpful to install a digital unit within the strategy or business development department. This unit should be staffed by a mix of resources from the outside – people who’ve worked in online‐only businesses, or at least in digitally more advanced B2C corporations – and some insiders who know the processes, can guide the newcomers through the corporate jungle and are able to build alliances for them. Such a digital unit will play a key role in developing guidelines for successful digital products and preparing a digital strategy and vision for the board. This is also the time when bi‐modal structures might still be beneficial, such as innovation labs that spill over culturally to the main company.
“Our job is temporary,” said a digital unit head of a large mobility company. “We’re here to help the entire organization reinvent itself, and if we’re successful, we’re making ourselves obsolete.” Typically, at the beginning of the journey, dependence on external agencies for implementation is rather high. For the next level, it is important to build up relevant internal structures, particularly in IT, in order to provide a steep learning curve to employees and keep the knowledge and experience gained within the corporation itself.
At a later stage of digital development – some consumer‐facing companies are about to reach this level already – digital resources have to be evenly distributed across all relevant units. For example, product development teams will then develop digital‐first products only, rather than adjusting existing offline products to online business models. Marketing departments will develop digital channels first, with offline channels being phased out gradually, as target groups move completely online. At that stage, digital thinking has become an integrated part of the corporate DNA and the company is fully transformed and even able to disrupt its competitors.
Make Cross‐Functional Teams the Norm
For decades, one of the key trends in business was to build separate profit centers for each line of business. In large corporate holdings, this might be without alternative. However, even there, and in somewhat smaller companies as well, digital transformation requires thinking and acting across units instead of thinking in silos and short‐term individual gains [23]. In the medium term, this will deliver a positive contribution to everyone’s bottom line.
Integrated knowledge tools, information streams and communication processes will speed up product development and help businesses keep up with shorter product life cycles. Integrating teams is also a necessity when it comes to distributing digital talent across the corporation. For example, having a
user experience specialist on every product development team will help with seizing opportunities and implementing tools for its exploitation right away.
Take the example of a consumer‐products company which realized during a workshop about the internet of things that some of its business was massively threatened by new competitors. They tore down the traditional horizontal structure that was built along value and organized the company around vertical spaces such as the home, the car and the office, allocating support functions to all of these individual divisions. This move helped them to innovate faster and to create interconnected products with a higher use for customers [24].
Agile project management methods, such as rapid prototyping or daily collaboration, are key for digital success, not only in IT departments, but across all units. An agile team is cross‐functional by definition and constantly readjusts to meet the needs of the marketplace, not the corporation. The “Agile Manifesto”, published in 2001 by a group of leaders in the discipline, contains twelve key rules for agile software development. It states that responding to change is more important than following a plan, and a working product is more important than comprehensive documentation: “Simplicity – the art of maximizing the amount of work not done – is essential.” Some of these notions are difficult to entertain in a corporate context, but starting today, not tomorrow, is a good idea [25].
Build Strong Partnerships
At a time when it takes just a few months for a new technology to become mainstream, it is important to join forces and learn from each other, particularly in complex environments where vertical integration is too costly. Partnerships can take on several forms. Companies can jointly fund expensive research and development efforts. They can build joint ventures that represent an entire value chain for a certain line of product. Another model is joining forces in using digital technology and data‐oriented customer data to jointly promote and distribute non‐competing products and services. Similarly, cooperating with innovative start‐ups might be an attractive alternative to a risky acquisition.
As an example, in September 2016, corporate technology giants Amazon, Google, Facebook, IBM and Microsoft announced an Artificial Intelligence alliance. Primarily, the partnership aims at clarifying ethical values of new technologies by exchanging best practices and publishing the obtained results. The cooperation indicates that even the largest and most innovative, cutting‐edge corporations are aware that large benefits can be reaped from knowledge exchange with peers [26].
Just a few months earlier, IBM and SAP announced a large program to drive the modernization of clients’ systems and processes and “accelerate them into the digital economy”. The alliance focuses on providing efficient cloud‐computing services and real‐time maintenance and support of enterprise solutions. “We’re formalizing a complementary set of capabilities to simplify and speed outcomes for clients,” an IBM senior manager explained [18].
So, how do you know if a digital partnership is successful? The exchange of knowledge should spill over into the individual companies themselves. Motivation of the workforce should increase by opening up to the outside world. New markets are accessed. And, most importantly, products and services will be delivered to the customers faster and more closely to their needs.
11.3 Summary and Outlook: Key Success Factors for Surviving the Digital Transformation
The previous chapters introduced a variety of measures for corporations to assure the successful digital transformation of their organizations. It is important to keep in mind that the three dimensions of leadership & vision, culture & people, as well as corporate processes & structure are highly interdependent. Successful change in one area doesn’t mean that the job is done across the entire corporation.
All things considered, what can we conclude about traditional corporations’ chances of survival in a digitalized world? A study from the John M. Olin School of Business at Washington University estimated that 40% of today’s Fortune 500 companies will no longer exist in ten years due to digitalization [27]. Similarly, John Chambers, the CEO of Cisco, one of the leading network providers worldwide, explains that 40% of Cisco’s business customers will not exist anymore in ten years [28]. This is the paradox of transformation. Urgency is high, yet it might take time to reap the benefits: Every decision‐maker is aware that building a new factory entails substantial investments and time to break even, while new digital projects are expected to return positive cash flows right away. It is important to think in longer cycles instead of short‐term gains in order to survive digital transformation.
However, this does not mean that there’s still some time left to start the process. Companies that want to be in the driver’s seat of the transformation vehicle must start to radically alter their organizations on all levels now. The alternative, waiting for the burning platform phenomenon, is worse: Initiating radical cuts when the threat to existence is no longer deniable will be too late.
Even from a shareholders’ perspective, adjusting to a digital world is the right step. Tech companies enjoy high valuations primarily because of their future potential, while more traditional peers are valued by their current performance. Why not change this rule? Any car maker, airline or engineering company will be able to improve its valuation by laying out a concise digital strategy for the next five to ten years and delivering examples of success sooner rather than later.
On the flip side, corporations must resist the temptation of using digital transformation as a scapegoat. In the next economic downturn, a corporate tendency to cut costs on behalf of digital transformation will most likely emerge. Robotics and automatization will definitely decrease the headcount needed in some areas. However, building up a digital‐savvy workforce in other areas will have to outweigh this reduction. Simply reducing costs and increasing efficiency in a legacy business will not make any organization more digital after all.
Maximilian Hoffmann, The Nunatak Group, contributed to this article.
References
1.
Handelsblatt, “Die deutsche Karte,” 26 August 2016.
2.
CNN, 21 October 2016. [Online]. Available: http://money.cnn.com/2016/10/17/technology/netflix-earnings-subscribers/.
3.
R. Todnem By, Organisational change management: A critical review, Bd. 5, Journal of change management, 2005, pp. 369–380.Crossref
4.
S. Woodward und C. Hendry, Leading and coping with change, Bd. 4.2, 2004, pp. 155–183.
5.
E. Cameron und M. Green, Making sense of change management: a complete guide to the models, tools and techniques of organizational change, Kogan Page Publishers, 2015.
6.
P. Bullock und D. Batten, It’s just a phase we’re going through: a review and synthesis of OD phase analysis, Bd. 10.4, 1985, pp. 383–412.
7.
McAllen Williams Consulting, 28 August 2016. [Online]. Available: http://www.mcallenwilliams.com/wpcontent/uploads/2016/02/Change-Management-2nd-Edition.pdf.
8.
C. Deuringer, Organisation und Change Management: Ein ganzheitlicher Strukturansatz zur Förderung organisatorischer Flexibilität, Springer Verlag, 2000.Crossref
9.
J. Kennedy, 31 August 2016. [Online]. Available: https://www.siliconrepublic.com/enterprise/ryanair-digital-disruption-myryanair.
10.
McKinsey, 30 August 2016. [Online]. Available: http://www.mckinsey.com/business-functions/business-technology/ourinsights/adapting-your-board-to-the-digital-age.
11.
The Telegraph, 31 August 2016. [Online]. Available: http://www.telegraph.co.uk/finance/newsbysector/industry/11909721/Thevisionary-rebuilding-GE-from-scratch-to-become-a-digital-powerhouse.
html.
12.
Capgemini, 30 August 2016. [Online]. Available: https://www.capgemini-consulting.com/resource-fileaccess/resource/pdf/embracing_digital_technology_a_new_strategic_imperative.pdf.
13.
eMarketer, 30 August 2016. [Online]. Available: http://www.emarketer.com/Article/Chief-Digital-Officers-Continue-Global-Explosion/1012489.
14.
Wirtschaftswoche, 28 August 2016. [Online]. Available: http://blog.wiwo.de/look-at-it/2015/10/01/digital-loser-statt-leader-nur-jeder-12-manager-in-deutschland-fit-fur-digitale-transformation/.
15.
S. Chaudhuri und G. Rajashi, Reverse mentoring a social exchange tool for keeping the boomers engaged and millennials committed, Bd. 11.1, 2012, pp. 55–76.
16.
A. Kaspar, 31 August 2016. [Online]. Available: http://versicherungswirtschaft-heute.de/koepfe/munich-re-vorstand-siehtgeschaftsmodell-gefahrdet/.
17.
Hasse Plattner Institut, 09 September 2016. [Online]. Available: http://hpi.de/pressemitteilungen/2015/design-thinking-erste-grosse-studie-weisterfolg-in-unternehmen-nach.html.
18.
Gartner, Inc., [Online]. Available: https://www.gartner.com/doc/2798217/bimodal-it-digitally-agile-making. [Accessed 26 October 2016].
19.
M. Hammer und J. Champy, Reengineering the Corporation: Manifesto for Business Revolution, Zondervan, 2009.
20.
McKinsey, 12 September 2016. [Online]. Available: http://www.mckinsey.com/businessfunctions/organization/our-insights/making-collaboration-across-functions-areality.
Digital Marketplaces Unleashed Page 15