Digital transformation could still be considered a buzzword encompassing a blurry range of definitions and diverse mindsets. But beneath the surface it holds a wealth of potential. Essentially, digital transformation is an organisational change that happens when new digital technologies are used to enable innovation and next-generation business models to gain, or regain, a competitive edge.
Businesses, particularly small and midsize, perceive it as a chance to adjust their processes and renew their customer experience. Some are even taking it a step further and innovating their operating model or creating entirely new business models.
In a recent study, “Digitising IT: Catalysts for Growth,” The Economist Intelligence Unit (EIU) revealed that 63% of senior executives from companies with annual revenue between $250m and $500m consider digital transformation to be the highest or relatively high in strategic priority.
Of the top digital initiatives undertaken in the last three years, these ranked highest:
- Addition of new customer-facing digital channels (61%)
- Launch of new products or services made possible by digital technology (63%)
- Promotion of digital collaboration among employees (57%)
- Prioritisation of digital marketing over traditional forms (50%)
- Application of digital technology to improve internal operations (41%)
From a company-wide leadership perspective, 49% believe their IT department should lead (29%) – or, at least, take an active role (20%) – in managing business model change enabled by digital technology. Surprisingly, though, only 19% see management of business model change as the most critical success factor of their organisation’s digital initiatives.
True digital transformation challenges the status quo
There are many cases of initiatives that digitise existing processes, but only a few are adding game-changing customer value. In fact, only 17% of respondents surveyed in the EIU study consider their digital initiatives over the last three years to be highly effective. It appears that many small and midsize businesses make the mistake of just automating what they have, instead of redefining current business processes – no matter if they are strategic for new revenue streams or will likely cease in a couple of years.
As the host of a recent SAP CIO Summit event in Frankfurt, Germany, I had an inspiring conversation with Peter Gantner, CIO of MAPAL Group. Like many component parts suppliers, the precision tool manufacturer recognised a significant challenge two years ago: how can MAPAL remain relevant in the long-term when the digital quality of its products are becoming increasingly important, at least as important, as their physical qualities? Moreover, how can it ensure the long-term continuance of the company?
To address these concerns, the MAPAL senior management team decided to approach digital transformation holistically based on three work streams.
- Digital lean: Geared towards efficiency gains due to digitalisation and internal process automation, this work stream includes all activities needed to secure interconnectedness and consistency for significant data throughput. Existing lean programs were integrated into this approach, as well as a focus on generating high-efficiency results.
- Digital twin: To create value-add and differentiating capabilities effectively, MAPAL created a digital twin of the real work stream – created and maintained just like the digital lean version. Aggregating all relevant information for technical descriptions and handling, as well as commercial and lifecycle data, helped evolve MAPAL into a data content provider on top of their traditional hardware business. The digital twin is the heart of the company’s digital strategy to significantly improve the production process. If the machine knows the ideal cutting speed of a tool, the workflow can be optimised towards cutting performance. If the machine is aware of the cycles a tool has already performed, the remaining operating distance can be predicted. The digital twin becomes the prerequisite for meeting the requirements of external partners and process contributors.
- Digital services: This mindset focuses on the development and implementation of new business services through a platform business model. MAPAL developed an open, cloud-based approach for the efficient handling of their tools and tool-related digital services by building on the vast and growing volume of available master, process, and inventory data generated from every product. For example, the entire lifecycle of their inventory of tools can be tracked and optimised for performance through mobile devices. With this insight, operations managers can determine the best time to regrind their tools. Production site managers can also analyse how and why local production approaches differ from other company sites worldwide – such as which cuts lead to lower tool wear. As a result, best practices can be productised, shared, and rolled out across the globe with real-time machine data.
Lessons learned from MAPAL
There are many lessons we can learn from MAPAL’s digital transformation approach. First, technology investments should always enable the re-imagination of business processes, operations, and business models. Second, strategies may call for better access to real-time, accurate insights; actionable decision-making; or streamlined processes; but ultimately, a scalable, reliable infrastructure is needed to power it all.
Digital transformation does not mean that a company must replace existing business operations entirely. Such a decision will only disrupt cash flow and upset customers. Instead, organisations must assess how emerging opportunities and risks can be addressed through agility, technology-driven intelligence, and ambitious innovation to pave the way to untapped incremental revenue streams and additional competitive advantage.
Based on my learnings from more than 150 CxO meetings on digital transformation each year, I can recognise a successful leadership pattern in a small and midsize business with the ambition to remain a champion over the long term. Separating digital leaders from digital laggards is the combination of making a strategic bet and executing with determination.
The changing role of the CIO
The challenges posed by digital transformation are opening the door for IT leaders to prove what they have known all along: technology is the enabler, not the motivator. Moreover, as executives scramble to meet the demands of an increasingly digital present and future, the CIO’s value becomes even more apparent. According to the EIU survey, 44% of respondents cite that the ideal role for IT is to help devise and implement a digital transformation strategy.
The sole purpose of IT can no longer reside in the development, implementation, and maintenance of technology. Otherwise, the CIO and his team would only be regarded as a back-office role while others lead the company’s digital journey. By combining generated technology expertise with the business side of the executive table, CIOs can provide valuable insights and ideas that enable the entire executive team to map the best course for revenue generation and proactive, disruptive innovation.
By embracing entrepreneurial and transformational leadership, CIOs have a unique reason to rise into prominence as they spearhead competitive innovation, create a unique value proposition for the brand, and set a clear road map that delivers the full promise of digital transformation.
Carsten Linz is a business development officer at SAP
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