What Is Digital Transformation?

Digital transformation refers to an ongoing process of change triggered by digital technologies and affecting companies, individuals and communities, science and politics. Companies, in particular, can benefit from this change by realigning their business models. This is then referred to as digital business transformation. Digitalization is made possible by technologies, so-called enablers. These include infrastructures (e.g. cloud computing, block chain, mobile internet and end devices), applications (e.g. mobile apps) and the resulting business potential:

The combination of these and other technologies creates a variety of new digital business models and digital value-creating networks. The decisive factor for the selection and use of digital technologies for further or new development of a business model is what benefits will be created for users through the change.

Three Building Blocks and Three Dimensions of Digital Transformation

Prof. Dr. Key Pousttchi describes the impact of digital transformation on companies in three dimensions:

It’s especially challenging for large companies to find a new orientation for providing services. A process-oriented, holistic reorganization is required with the goal of increasing productivity in terms of costs-time-quality (the magic triangle). To take on this task, the appointment of a Chief Digital Officer (CDO) is becoming increasingly common. This person is responsible for the operational impelementation of the digitalization strategy at the C-level.

Digitalization, Digital Transformation und Disruption

CC: Alain Veuve, Digital Transformation Modell

1. Technological development
2. Adaptation of the technology by customers
3. Adaptation curve of average companies
4. Adaptation curve of moribund companies
5. Social digital transformation
6. Digital business transformation

What Is a Business Model Innovation?

Oliver Gassmann, Professor of Technology Management at the University of St. Gallen, found that over 90 percent of all innovation in business models involves recombinations, refinements or adaptations of 55 existing business model patterns. This means that only about 10 percent of business model innovations examined were really new (e.g. freemium, long tail or hidden revenue). Companies often succeed in innovating by creatively imitating business models from other industries. Gassmann summarized all the models from the study in the St. Gallen Business Model Navigator.

A business model answers four questions from the Navigator. An innovation in a business model modifies at least two of these four dimensions.

However, according to Gassmann’s analysis, over 70% of change project fail due to mismanagement. Mistakes can be avoided by following these points:

• Only implement one business model innovation at a time
• Clearly communicate the innovation and its reasoning to everyone
• Don’t focus on short-term indicators
• Top management stands behind the innovation and promote it
• Overcome “not-invented-here syndrom”

How Does IoT Influence Business Models?

The Internet of Things is slowly dissolving the separation between the physical and the digital world. Here the connection between these two worlds is no longer only created by humans, but also by things. This results in hybrid objects, suchas sneakers that measure calorie usage and speed. In addition to their local functions (for example, protecting the feet), objects have digital services (collecting data) that can be used beyond the local situation and often at a low cost. This connection between a physical object and the internet generates value in the form of digital services. Such products are sometimes called Digitally Charged Products. Suppliers of physical goods are being increasingly challenged to develop complete services from their product range.

From a business perspective, smart objects are particularly interesting for digitally capturing additional information about the condition of objects and processes. The precise measurability of business activities enables so-called High Resolution Management. Management tasks such as planning, leadership and controlling are supported by automated data acquisition. As a result, the questions from the business model can be answered even more precisely.

Guidelines for Change

What’s the best way to create change in an organization? Is there a method? Yes. Business Analysis is the process of making change possible for an organization by analyzing and defining needs (problems or opportunities) and recommending beneficial solutions to stakeholers accordingly. Since industry and internet culture are becoming increasingly intertwined in companies, business analysts also play an important mediating role between specialist departments and IT.

The Business Analysis Core Concept Model (BACCM™) depicts the defining concepts of a business model. The interdependencies between the individual elements show how procedures and evaluations of results influence each other. The six core concepts are:

• Change – the act of transformation in response to a need
• Stakeholders – have needs
• Context – circumstances that influence or are influenced by
• Needs – can be a problem or an opportunity for change
• Solution – fulfills need(s) in a context
• Value – for a stakeholder in a context

Business analysts use these six core concepts to check the completeness and quality of their work. Questioning each of the components is important and especially necessary when one of the concepts changes. Each part of this foundation must be stable in order to build up a valid analysis.

Agility as a Driving Force in Digital Transformation

Markets are more dynamic than ever before. VUKA (volatility, uncertainty, complexity, and ambiguity) must also be dealt with in digital transformation projects. Value creation is no longer a linear progression. Circumstances, stakeholders, needs and contexts (for example, interfaces and regulations) change much too quickly. This has an effect on needs and the resulting complex web of requirements. For these reasons, you need to be able to react quickly and flexibly to volatility. Here an agile approach is indispensible. It works with iterations and increments. Minimum Viable Products (MVPs) are created in short cycles and rigorously tested by real and potential users to determine their value and benefits. Today, this is the only way to create real innovation.

But how do you become agile? Follow these insights from veteran agilists:

• Agility implies cultural change throughout the entire organization, not just in individual departments (e.g. development)
• It isn’t enough to adopt the rolls, artifacts and activities of agile methods; the principles and values of agility must be accepted and lived by everyone
• Teamwork in agile teams works best with direct communication; for that reason, teamwork in distributed, multidisciplinary teams is inhibitive for agility
• Agility can’t be introduced merely through software and processes. Agile values must be in play to ensure that such tools are implemented succesfully
• Failure must be understood as a chance. Discarded prototypes serve as a positive impulse for improvement
• There must be willingness to constantly question and learn. Lessons learned are essential – even in succesful projects
• New ideas need a safe space where creative experiments can be made. That’s why many companies separate their digital labs both physically and in relation to the main organization.
• The parts make up the whole. Anything developed on the small scale should contribute to the overall strategy. That also means that everyone needs to be familiar with the overall strategy so they can independently and proactively make a relevant contribution.