Part 6 of the “Leading through Digital Transformation” series
Digital transformation is still a blurry topic of varied definitions and diverse mindsets – but a wealth of potential. Essentially, it is an organizational change that happens when new digital technologies are used to enable innovation and next-generation business models to gain, or regain, a competitive edge.
This view is very similar to how many small and midsize businesses perceive it – namely as a chance to adjust their processes and renew their customer experience. Some are even innovating their operating model or creating entirely new business models.
In a recent study “Digitizing IT: Catalysts for Growth,” The Economist Intelligence Unit (EIU) revealed that 63% of senior executives from companies with annual revenue between US$250 million and US$500 million 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%)
- Prioritization 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 organization’s digital initiatives.
True digital transformation challenges the status quo
There are many cases of initiatives that digitize 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 (C-parts) suppliers, the precision tool manufacturer recognized 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 the three work streams:
- Digital lean: Geared towards efficiency gains due to digitalization 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 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 optimized 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 optimized for performance through mobile devices. With this insight, operations managers can determine the best time to regrind their tools. Production site managers can also analyze 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 productized, 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 reimagination 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, organizations 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 recognize 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 so 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.
To learn how your business can embrace the promise of the digital economy, check out The Economist Intelligence Unit’s recent report “Digitizing IT: Catalysts for Growth.” Be sure to check every Tuesday for new installments to our blog series “Leading through Digital Transformation,” to explore the various leadership roles in today’s growing small and midsize companies.