From digitalization to digital transformation

Few subjects have preoccupied businesses, experts, and futurologists in recent times more than the megatrend of digitalization.

Digital transformation’s effects on business, society, and politics and the associ- ated opportunities and challenges have been examined at length in countless articles and discussions, and not without controversy. In discussions of digitaliza- tion or digital transformation (terms that are often used, somewhat inaccurately, as synonyms), striking metaphors are rapidly used to bring the effects of digital- ization to life. One of these is the enormous wave surging toward the global econ- omy like a tsunami that will wash away any company that does not quickly manage to surf this wave as if on a surfboard to the new shores of the digital economy. In this metaphor, surfing stands for using game-changing technologies such as big data & analytics, artificial intelligence, robotics, augmented reality, IoT (Internet of Things), and blockchain in order to address new business potential and keep the competition at bay.

Digitalization is changing the rules of the game

The metaphor of the destructive wave is certainly an exaggeration of the reality. Nevertheless, experiences and developments in recent years give reason to as- sume that the entire economic landscape will undergo a sustained, if not, in some cases, radical change within the next five to ten years. Indeed, many companies have already adjusted their business models and plans or are redesigning them right now. The disruptive force of the game-changing technologies is making it possible for competitors from outside the industry to quickly enter established markets previously protected by barriers to entry in order to redefine the rules of the game in those markets.

Some industries have already felt the full disruptive effects of digital transforma- tion; others are on the brink of profound changes in their business models and customer relationships.

Digital transformation in customer relationships

Alongside game-changing technologies, the customer relationship is therefore another key element in the context of digital transformation. In the age of digital- ization, it is becoming a much more critical factor for success. Consumers are of- ten well ahead of companies when it comes to using digital technologies. The ha- bitual use of the Internet and social media via PCs, smartphones, and tablets has given rise to an everything-everywhere-now mentality that businesses must satisfy if they want to be successful.

Digital living and working as standard

Every year, there are more and more people in the world who do not know a life with- out the Internet. Their consumer behavior is therefore influenced very strongly, if not predominantly, by the Internet. This presents many companies with major chal- lenges, as the customer journey, i. e. the individual stages customers pass through before and after making a purchase decision, has to be adapted to this change.

More than four billion smartphones 1) around the world have completely changed the way how people find information, communicate with each other, and interact with companies. Mobile Internet on smartphones enables a permanent connection to social media and the web regardless of time or place. Customers are communi- cating with companies via a widening range of channels and expecting their pre- ferred channels to be served appropriately. The new customer requirements for omnichannel communication, which often happens in real time, therefore have fundamental effects on marketing, sales, and service. In addition, demand for per- sonalizable products and services will increase sharply. Purchase decisions are already being based on the services offered around a product rather than only the physical product itself. This new generation of Internet-savvy consumers prefers to research and buy online. They expect companies to provide digital products and services that are available quickly, easily, and at all times.

According to the study “eCommerce Austria 2018”, nearly five million Austrians (+2 % year-on-year) made purchases in Austrian and international online trading in the period analyzed, spending a total of approximately EUR 7.2 bn (+6 % year- on-year). This equates to more than one-tenth of total consumer spending relat- ed to retail. The momentum of online shopping is being surpassed by the boom in smartphone shopping: One in four Austrians already uses their smartphone to buy online.The downside to this trend, however, is that 57 % of consumers now buy from foreign online retailers; loyalty to domestic providers continues to wane.

Not least because of this change in consumer behavior, the development of smart services, for example, has an important role to play. Smart services are provided to customers based on data and as an individually configurable range of digital services and physical products via integrated platforms (marketplace or apps). However, the provision of such online offerings requires the companies and their suppliers to be highly flexible and agile. And this can be achieved only if process- es are comprehensively digitalized on both sides so that data can be exchanged and customer requirements thus responded to in real time.

Laying the foundations for digital transformation

Examples such as this show that it is becoming an ever more critical success factor to identify the effects of digitalization on one’s own company and business model in good time and to find and implement a strategic response. For example, a study by Contrast Ernst & Young (2016) states that more than 50 % of the companies surveyed said that they do not consider their current business model fit for the future, and more than 60 % of the companies did not have an in-depth strategy for dealing specifically with digital transformation at that point in time.

The shift to digitalization is not a „conventional“ IT project

In contrast to many change processes that have improved efficiency in recent decades, digital transformation affects extensive parts of corporate processes, if not the entire business model. This makes it a complex change project that aims to secure the company’s competitiveness and market success in the digital world.

In order to make this change process a success, a company’s digital agenda must concentrate on the acquisition and development of new skills with a focus on changing customer requirements, digital business models, agile conceptual development, and the technological implementation of corresponding products.

Digital transformation begins in the mind

The corporate culture is a central aspect of this process. An open digital mindset is a particular requirement in management in order to win employees over and get them excited about digital transformation. Teamwork, trust, and agility are the cornerstones of success. Creating an environment that promotes innovation and creativity is just as important as transparency with regard to implementation. Many companies are becoming increasingly aware that an actively implemented, digitally inspired corporate culture can be a significant competitive advantage, as it cannot simply be copied by others.

Digitalization or digital transformation?

The original meaning of the term digitalization can be traced back to the 1980s. It described the digitalization of analog signals into binary, digital formats so that they could be processed with information technology. The universal digitalization of all information in the production environment and associated processes, in- cluding customer interfaces, enables companies to increase efficiency enor- mously (no discontinuity of media, data available in real time, omnichannel cus- tomer touchpoints, etc.) and therefore also provides potential for sustainable cost reductions.

As soon as such a “digitalization of the company” and its processes has taken place, the interconnection of all activities and participants – internal and external – can begin. This is when the real digital transformation begins and we can talk about a “smart” company, in which all the people, components, machines, tools, services, and products involved can interact in real time. The communication is often facilitated by sensors in the Internet of Things (IoT), which constantly supply data on production processes, maintenance requirements, logistics, sales, and much more.

Tens of thousands of IoT sensors are already installed in many industrial compa- nies supplying millions of data points around the clock. According to estimates, there will be as many as 80 million sensors in Austria alone in 2020 that will be connected via the Internet of Things and interact with each other or with people. This takes us directly to the topic of big data. Only the digitalization and intercon- nection of systems and applications enable the availability of information com- prised of all the company’s activities relevant to value creation.

Digital transformation is here to stay

Digital transformation is not a passing fad but a megatrend (“Industry 4.0”), which is persistently, dynamically, and at rapid intervals spawning new genera- tions of digital technology. These are being used not only by start-ups but also by established companies in order to develop innovative business models and thus safeguard their competitiveness or secure new competitive advantages. The game-changing technologies are paving the way for digital transformation in vir- tually every sector of the economy. And regardless of whether the individual busi- ness models turn out to be a disruptive breakthrough, the management agenda of practically every company will be heavily influenced by digital transformation for a long time to come. It is now more than obvious that digitalization is creating enormous potential for customerfocused services; economic growth; equal op- portunities in society with regard to information, education, and knowledge as well as sustainability, and preserving resources.

1) Ericsson Mobility Report (2018)