DIGITIZATION AND ITS … intrinsic  V A L U E

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DIGITIZAZION POFITABILITY: GOALS AND SURPRISES

 

The biggest sticking point for our digitization goals often does not lie in the IT issues 

by Christian Bachmann, Managing Partner, CreValon AG, Basel


«In hindsight, we should have made our digitization a top priority much earlier.

Equipped with a more realistic budget.

Focused on fewer initiatives.

However, holding all areas accountable for this.

And with an even higher business benefits target level, to be measurably delivered by digitization».

 

Operations manager of a manufacturing division, review of the pilot project «Digitization of production line repairs», December 2021.

WHAT IS THE VERY BENEFIT of this digitization project? Most companies have been working on their digitization for a long time. Have gained diverse experiences in it. In different dimensions and degrees of maturity. In many cases, initially started as exploration in various places, scattered across the company. With resourceful experts at the helm of inquisitive teams. Committed colleagues who dare to experiment with something that has not been possible before, but would be very valuable. After that, at a higher level, detailed on models and studies.

With a variety of attractive potential in mind. Further concretized, based on pilots and proofs of concept. By then at the latest, the areas of friction caused by digitization in the company will also take on clear contours. Also with a look at the external interfaces to your own business ecosystem: partners, suppliers, framework conditions, existing facilities, systems, resources, etc.

There is one thing that becomes a real “acid test” then: the proof of scalability. For this purpose, a robust framework usually must be created first. With the often eye-opening realization of a lot of basic work ahead, and hard nuts to be cracked. This also sharpens the requirements for networking and consistency, for integration and cultural change. Along with the actual costs and investments for the digitization project. With the necessary reviews and sprints, the adjustment of schedules and quality criteria, the required resources and risk assessments.

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The Author, Christian Bachmann, has been dealing with the design and implementation of valuable business transformation in companies for 20 years.

 

His customers are successful midcaps, corporations, the federal environment or private equity. They know their core business inside out.

 

Yet, for the purpose of repositioning themselves in times of change, with a time-tested approach and no prejudice - they bring him on board as a solid partner.

It is clear to everyone: Collecting and evaluating data is not valuable by itself. New data-based insights also require corresponding decisions. Even that alone is not valuable. These decisions, upgraded with new, data-driven insights, must also be effectively actionable. Above all, it should pay off «on the bottom line».

This was the conclusion of an integrated manufacturing company: «We have experimented and learned a lot with digitization. However, where we misjudged the most was what it takes to make digitization work at all. In the end, it went much further and deeper than we had initially assumed. The system requirements and IT issues, on the other hand, seemed to be easier to solve than all the rest». But what exactly is meant by these framework conditions? And what needs to be considered so that a digitization initiative is really valuable?

 

Data-based evidence is a learning process and,  as such, is itself prone to errors. It just covers part of the criteria relevant for decision. Building a digitized business model entails a lot of work. Yet, the key lies in its ongoing development. Calculation models and its embedded benefit functions are to be linked to the real dynamics of customer needs and markets. Special events, such as failures in the supply chain, or available alternative partners; contractual and legal restrictions; the adaptability of human and machine interfaces across the operating model.

 

This shifts decisions directly to the experts who also have the appropriate knowledge. But it also requires new approaches in management culture. What exactly are line managers responsible for in such business models and what are they not? Who ensures that the desired result is actually achieved? This may require new organizational forms.

Entire hierarchical levels might no longer be necessary in their current form.

Data-enriched decisions require adapted internal and external processes. This also includes consistently coordinated new roles, rules, and system support. Employees who are trained and entitled to adopt their job approach. But also empowered to make decisions, and motivated. Performance specifications are to be redefined here. Compensation must be calibrated against new assessment criteria. Setting up new career paths, putting in place succession planning, aligning the recruitment pipeline with the new talent requirements. Do we even have people with such competencies: in our top leadership? In middle management? What is needed, and how long does it take to get such types and profiles on board. Are we already actively involved, and have we realistically estimated the lead up to onboarding?

The driving question in all of this is: To what extent does the customer benefit from our investments in data intelligence and systems, its enriched processes, and organizations? Which new customers can we acquire, which needs of existing customers can we better address as a result? And, finally, after deducting the necessary costs and investments: How valuable is our digitization strategy for our company?

Investments in digitization are en vogue. As such, sometimes, it is waved through by company management as a development step «with no alternative». This alone does not position your company as a brilliant innovation leader. It is advisable, instead, to design also digitization programs based on a sober consideration of costs and benefits. With the aim of evaluating the scope and depth of required changes, early in the project. That was what was meant before with the “realistic framework conditions” and is briefly explained in more detail below.

Many companies have learned the hard way with digitization projects. Due to escalating scope creep (inside the company, but also at the interfaces to key partners). Or, during the implementation waves, by overburdening the organization, or by suffering resource bottlenecks. With increasing lack of clarity and control grip on the envisaged business goals. Sometimes with the result of a poor benefit realization, at bottom line.

Ultimately, the advantages of digitization should be measurable. At best, in an improved customer attractiveness and competitive positioning of the company's value proposition: increased customer satisfaction, acquisition of new customers or new business, cost reduction, increase in profitability.

It is in the nature of hyped topics that they ground on highly advanced promises. It is therefore not surprising that some companies have already invested millions in digitization without following up on a specific benefit analysis. Even companies with notoriously high budgetary discipline. Let's briefly recall some glaring case studies of failure from the dot-com bubble, at the millennium turn. Occasionally, of course, succumbed to a too vague spirit of optimism. Still, not always these targeted business disruptions were shallow fizzles. Sometimes they actually failed once they came up against (infra-)structural limits. In what environment, for example, did cryptocurrency start-ups like Flooz try to compete in a growth race? We are in the late 90s. At that time, first ever, masses of computers could be networked around the globe. At that time, however, via telephone, with 56 kilobytes per second. With the infamous dial-up tone, you may recall, and relatively unstable network connection. Cryptocurrencies may have seemed like an absurdity back then, and maybe this idea was ahead of its time. But it was probably simply the lack of digital infrastructure and computing capacity that brought these pioneers to an abrupt end at the time. Many companies, which back then in 5 years hyped sheer size and growth without looking at profitability, then crashed into collapse in the 10 months after the turn of the millennium. Burned billions of loosely funded capital.

During these times, also companies such as amazon, Microsoft, Google, Apple and Netscape emerged. Players that were characterized by their active efforts to develop a sustainable and at the same time innovative business model. The era of digitization is certainly different from that of the dotcoms. In both eras, however, companies are well advised to avoid toxic naivety. The tulip fever of the vague «me too».

The investment in your digitization must be right for your company. Stored with a measurable goal, precisely selected, designed and prepared. How is your company positioned for this? The attached diagram on digitization profitability enables you a rough self-calibration. In it, those aspects are highlighted in light blue where, in our experience, unplanned surprises arise in the business reality of digitization projects of many companies. What about the intrinsic value of your key digitization initiatives?

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01.05.2022, © CreValon AG, All rights reserved – christian.bachmann@crevalon.com