Digitalization in a Company Context

Digitalization in a Company Context - Study Notes

• Digitalization is not a new concept, its definition varies depending on the source
• Digitization began with the conversion of Arabic numerals into binary characters by Gottfried Wilhelm Leibniz in 1646-1716
• The first telegraph was developed by Samuel Morse in 1833
• The introduction of mainframe computers in the 1960s marks a significant step
• Digitalization, in its narrower sense, involves converting analog data (images, text, sounds) into digital format
• This conversion allows for low-cost and lossless reproduction, along with rapid distribution
• Digitalization significantly influences information and communication technology, business models, and society as a whole.
• The Fourth Industrial Revolution (Industry 4.0) is driven by the transition from analog to digital data, leading to new possibilities
• The shift to digitalization fundamentally alters the operating conditions of companies, particularly impacting production, marketing, and sales.

Global Megatrends 2022 (PMI)

• Key trends impacting companies: digital disruption, demographic change, labor shortage, climate crisis, economic changes, and civil/equality movements.

Digitalization as a Megtrend

• Megatrends develop over decades, potentially lasting over a century
• Megatrends originate from past developments
• They are omnipresent, affecting all areas of life
• They show global tendencies despite regional differences
• Megatrends are resilient, enduring even setbacks.
• Digitalization is a megatrend characterized by its transformative potential and lasting impact.

The "ABCD" of Digitalization

• A stands for Automation and Algorithms—Using algorithm-based software and hardware to automate tasks previously carried out by humans
• B stands for Broadband Internet—Global network of smaller networks where computers communicate
• C stands for Computer—Hardware and Software used for data processing and storage
• D stands for Data—Basic building block of digitalization, representing information and collected through sensors or by humans.

Effects of Digitalization on Companies and Customers

• Digitalization reduces market entry barriers and disrupts existing business models
• Companies gain the opportunity to access new target markets regardless of geography or time zone
• Customers' expectations have changed, and the gap between "digital natives," "digital immigrants," and "digital outsiders" has widened.

Proposal for a Uniform Understanding of Digital Transformation

• Digital transformation is the introduction or use of innovative digital technologies to enhance productivity and social welfare.
• It involves a proactive and continuous development of companies, business models, and methods, on both strategic and tactical levels
• This goes beyond mere digitization of resources, leading to new values and sales possibilities.

Objectives of Digital Transformation

• Companies need to adapt and revise existing business models.
• Productivity and overall performance must increase.
• Develop new advantages/options concerning customer communication.
• Develop new functions and applications relating to established functions
• Implementing an innovative and collaborative company culture
• Encouraging and adapting learning environments with respect to the adoption of new technologies.
• Building communication infrastructures that are maintainable, affordable, and readily available.
• Emphasize and support data protection and security measures in an increasingly digital world
• Aim to increase availability and quality of services provided to customers using digital means by public entities.

Characteristics of Digital Transformation

• Digital transformation is inevitable and provides support in global and social change
• Digital transformation is irreversible and better than other methods, replacing them
• Digital transformation requires continuous reevaluation and adaptation.
• Digital transformation is marked by uncertainty and constant technological advancement.

Germany's Level of Digitalization Maturity

• DESI (Digital Economy and Society Index) measures the digital development of EU member states
• The German government established its own digitalization index

Digital Economy and Society Index (DESI)

• A measurement of digital progress across EU member states, launched in 2014.
• Includes aspects of connectivity, human capital, internet use, and digital public services.
• Measures the digitalization of the economy and society by evaluating specific areas of focus
• Germany scored 56.1 out of 100, placing the country in a middle-range position relative to other member states

Digitalization Index of the Federal Ministry for Economic Affairs and Climate Protection

• A survey-based index created to evaluate Germany's level of digital maturity in the business sector.
• The survey assesses companies' level of digital maturity and networking methods.
• Factors considered include digitalization maturity, digital services, and digital business models.

3 Reasons for Slow Digitalization in Germany

• Political decision-makers are sometimes unaware of the importance and implications of digitalization or prioritize short-term political goals.
• The advisory board on young digital economy has existed since 2013, and the Digital Agenda committee was formed in 2014.
• Many ministries were/are in charge of digital issues (e.g. Ministry of Economy, Ministry of Interior, Ministry of Transport) which hinders an effective policy approach.

Summary of Learning Unit 1

• Digitalization can be considered in a narrower sense (conversion of analogue to digital) or broader sense (conversion of processes, actions into a format read by machines)

• Digital technologies greatly increased the efficiency in information reproduction and distribution

• Digitalization is transforming existing business models, and impacts how information and communication technologies are used

• A combination of relevant factors defines what is a "Megatrend".

Summary of Learning Unit 1 (continued)

• Digital transformation and digitization are distinct concepts.

• Digital transformation involves changes in a company driven by digital technologies with specific goals

• Companies must adapt their business models to new technological contexts.

• Digital Transformation is characterised by four key characteristics: Inevitability, irreversibility, and requirement for continuous adaptation, and uncertainty.

• The Digital Economy and Society Index (DESI) quantifies the level of digitalization in EU member states.

• Germany's digital maturity is assessed using a unique index developed by the German Federal Ministry responsible for Economic Affairs and Climate Protection.

• The need for greater digitalization knowledge and political will was identified as a crucial element

Summary of Learning Unit 1 (continued)

• Trends in technological development, such as “hockey stick curve,” are now discussed. This model helps to understand the fast technological development over time and its expected impact

• The Gartner Hype Cycle model tracks the lifecycle of technology and can help companies to predict the maturity of relevant digital technologies

• "Tech Radar” is a tool to categorize technologies that can be used, which is a useful tool to monitor technological development, for companies to evaluate their current maturity

Selected Key Technologies of Digital Transformation

• Cloud Computing: Using outside IT infrastructures and services that are rented

• Artificial Intelligence (AI): Mimicking human intelligence in machines, including learning and self-correction

• Internet of Things (IoT)/Industry 4.0: Increased interconnectivity between objects and machines

• Virtual Reality (VR) and Augmented Reality(AR) : Creating interactive, virtual environments

• Big Data: Handling large amounts of unstructured and semi-structured data effectively

• Blockchain: A continuously growing list of records linked using cryptography for secure transactions

Cloud Computing

• Historical: Individual, large computers were expensive, requiring specialized personnel to operate

• Nowadays: Centralized resources on the internet (cloud) are cost effective and easily accessible

Business Model Canvas

• A visual tool that maps elements of a business for planning and understanding operational aspects

• Key Activities: What key activities does the value proposition require?

• Key Partners: who are the essential suppliers and partners?

Business Model Canvas (continued )

• Key Resources: What key resources are needed for value creation?

• Customer Relationships: What type of relationship does each customer segment expect?

• Customer Segments: Who are the most important customers?

• Channels: How to best and effectively reach the customer segments?

• Customer Relationships: How costly are the customer relationships, and how to integrate them?

• Value Proposition: What value are offered to customers?

• Revenue Streams: How each revenue stream contributes to total sales?

Value Proposition Canvas

• Products and Services: A depiction of products and services based on gains, pains, and customer benefits/jobs.

• A depiction of products and services and their characteristics on factors such as physical, intangible, digital, or financial

• Gain Creators: How products/services deliver positive benefits

• Pain Relievers: How products/services address customer pains or problems

• The importance of identifying which needs each customer segment has from the value proposition

Characteristics of a Good Value Proposition

• The value proposition needs to fit into the business model's overall structure

• The focus needs to be on the customer's most essential needs and pain points. This includes both the functional and emotional levels

• The value proposition needs to outdo that of competitors by providing greater value for customers

• The value proposition is more effective when addressing a limited number of tasks rather than trying to resolve broader solutions

How Can a Good Value Proposition be Achieved?

• Clearly communicate the value proposition using concise and precise language

• Collaboration with prototyping or test customers is important, and companies should not be too attached to their own ideas

• Adapt and iterate based on feedback to improve the product

Digital Business Models - Different Levels of Maturity

• Completely Analog: Analog processes without digital influence

• Analog Model with Digital Processes: Utilizing digital tools to enhance internal workflows

• Digitally Enhanced: Using digital technologies to broaden the business model

• Digital Business Models: Platform-based offerings, data-driven approaches targeting broader networks

Digital Business Models - Definition

• Digital business models facilitate transactions and interactions over digital networks, enriching value for one or more target groups.
• Examples include Amazon, Google, and social media apps like Spotifi and WhatsApp

Pipeline vs. Platform Business Models

• Pipeline: A linear model including phases, such as retail, wholesaling, and the supplier

• Platform: A model for interactions between providers and buyers. Both sides benefit from the platform and value creation.

Advantages of Platform Business Models

• Value-capturing opportunities within the platform for interactions

• Access to a large pool/network of data for understanding customers

• Gaining control through interaction with customers leads to competitive advantages

• Easier access for customers to find offerings, and cost comparative review

• Greater income/revenue from customer interactions

Platform Actors

• Consumers to Consumers, consumers to business, business to business, administration to business and administration to consumers— Different interactions and transactions facilitated by digital platforms

• Public Procurement: Deals between the administration and businesses facilitate procurement services

• Digitalization of products and services facilitates the further development of products and services through digital technologies

Variants of Platform Business Models

• E-Commerce: Sales of goods and services on the internet. Either open, accessible through others, or closed, where only the platform's products are available

• Functional/IoT Platform: Provides a functional infrastructure for others

• User Platform: Facilitates distribution of applications, which can adapt to different technology partners

Phenomena of Platform-Based Business Models

• Chicken and Egg Problem: The increasing value of a platform is linked to increased participation numbers from suppliers and customers

• Self-Reinforcing Growth Dynamics: Sufficient buyers and suppliers create self-reinforcing growth environments

• The Winner-Takes-All Effect: Highly successful platforms often marginalize competitors, creating a dominant market position

Revenue Generation in Digital Business Models

• Transaction-dependent Model: Income generated from transactions, such as transaction fees, connection fees, or usage fees

• Transaction-independent Model: Income generation through methods such as setup fees or basic fees

Revenue Systems of Digital Business Models

• Margin Model: A targeted pricing model based on estimated costs of service, which aims to cover all associated costs

• Commission Model: Fees are generated from other companies/individuals passing on products/services to customer partners

• Basic Fee Model: Non-transactional fees are charged for use of services

Digital Transformation Strategies

• Market Development: adapting strategies to accommodate customer needs

• Business Transformation: developing business processes to accommodate the use of new digital technology

• Disruptive Business Models: Creating compelling competitive advantages through modifications in business models

• Digitalization of Products/Services: Optimizing existing products/services via digital technologies

Ambidexterity: Acting Efficiently and Flexibly

• Exploration involves focusing on innovation and disruptive ideas

• Preservation involves maintaining current operations and efficiency

• Integration is a balance between exploration and preservation, enabling organizations to act efficiently and flexibly at the same time

Incremental vs. Disruptive Changes

• Incremental changes involve a linear improvement based on existing technology and demand

• Disruptive changes involve non-linear improvements, using new technology, and often disrupting the existing market design

Ambidexterity

• Exploration: Emphasis on innovation and development of adaptable procedures

• Exploitation: Focused on implementing strategies to generate efficient, high-quality products and performance

• Culture and leadership styles vary, where leaders with visionary views help to take risks and maintain quick implementation

Overview of Selected Process Models for Digital Transformation

• Mastering Digital Transformation: A complete strategy plan from Roland Berger & Federal Association of German Industry.

• Reference Model: A framework for examining the digitization of elements of a company, from Appelfeller and Feldmann

• Digital Maturity Model (DMM): From Deloitte & TM Forum, it allows for a maturity-level analysis of a company's digitization.

Digital Transformation Master Plan

• Analyzes the influence of digital technologies on specific industries

• Compares current operational aspects to the target state

• Develops an implementation plan based on various scenarios

Reference Model, Maturity Model and Process Model in Context

• The reference model shows the different elements of a digital company, supporting the identification of what aspects of existing processes and resources are suitable for digitization

• Maturity models: The levels of digitization a company has achieved; 1 to 4 levels

• Process models are used to implement digital transformation—by analyzing aspects of current operations, comparing to the target state, identifying and implementing critical steps, and finally reflecting on future vision

Digital Maturity Model

• Customer: Customer engagement, experiences, trust, and perception

• Strategy: Brand management, ecosystem management, finance, investment, market, and stakeholder management

• Technology: Applications, connected devices, data, analytics, delivery, governance, network, security, and technology architecture

• Operations: Agile change management, automated resource management, integrated service management, real-time insights and analysis, and process standards and governance

• Organization & Culture: Culture, leadership and governance, organizational design, talent management

Success Factors/Recommendations for Action to Address Digital Change

• Corporate Culture & Leadership: Fostering creativity and adaptability, and having a decisive vision

• Organization: Reworking organizational practices and creating new structures to implement digital transformation

• Customers: Defining target audiences precisely and implementing customer-centric strategies

• Technology: Adapting, expanding and implementing current and innovative digital platforms and technologies

Explore the evolution of digitalization and its impact on businesses and society. This quiz covers key developments from early digitization by Gottfried Wilhelm Leibniz to the influence of Industry 4.0. Understand how the transition from analog to digital shapes modern business models and operations.