on the digital evolution

BY TEMEL KAHYAOGLU

(Published in The Produktkulturmagazin issue 3 2017)

For many companies, the topic of digitalisation is becoming existential – particularly for the firms that fail to acknowledge this fact. One might also debate whether the topic should be referred to as digital transformation, or what disruption of the markets means in the individual case. The theoretical debate, however, offers little to gain, and mainly an opportunity to lose. To lose time and market share, for instance. What are the topics businesses are tackling instead, what are possible points of departure, and what recommendations are there, based on experience? 

Digitalisation is omnipresent, and yet, for many companies, it still presents a big question mark. How do you explain what it means to your customers? And where does the investment pressure come from?

There are lots of companies in which top managers are quite aware that digitalisation has significant meaning for the enterprise – but without knowing what that might be. Some take action with more or less clear goals while others are content to wait and see for the time being. Neither approach is very promising, as there is an increasing risk of losing market share. The rapid entry of manufacturers and large platforms such as Amazon Business or Alibaba are creating a major shift in visibility. Rather than wait or ignore, it is all the more important to analyse your own company. And in this regard, lots of companies are rediscovering themselves. As a technology provider, we can’t dictate to our customers what digitalisation has to mean to them, because every company first has to find its own response and speed. We assist with the process and support the paths to solution with new technologies. But it is ultimately a company’s customers, its culture and employees, that constitute a digitalisation strategy. So each transformation is an individual one.

In your view, does digitalisation mean more evolution or more revolution?

Evolution for all and revolution for some. It's mostly just about how the process of digitalisation is started. We have clients that are daring to spark a revolution here, for instance by creating their own spin-offs. These firms can opt for an additional market approach of their own without having to allow for existing processes. In the best case, this is a way to open up new markets without cannibalising existing business along the way. Zamro, a subsidiary of the Eriks Group, specialises in the sale of technical components and tools. Its separate business model is a good example of this. A team that has built up an independent IT landscape, rolling out its own marketing and country-specific sales, complements the offer of the parent company. An online service to accomplish this was rolled out for three countries in just a few months’ time. This is often much more harder to do within existing structures. For other clients, evolution is the better starting point, for instance in the form of additional services or information offerings for their customers, or even just optimisation of an existing distribution channel. The criterion for the path ahead must be the customer’s needs. What is crucial is not the radical nature of the measure, but rather to really know what these needs are, and to maintain a consistent focus on these. But evolution awaits everyone, as digitalisation is an ongoing process of optimisation. 

What is the current situation? What are the points of departure?

We are seeing very different levels of maturity in companies’ digitalisation processes. Many are only now really beginning to broach the subject. For some, digital document management is uncharted territory; for others, it is the introduction of online sales. For business customers, for instance, selling is still a matter of framework agreement, material catalogue, central purchasing and faxes. But to create added value to the customer and bolster one’s own efficiency, lots of processes beyond the online shop must be established, systems must be coordinated, and employees involved correspondingly. It’s worth the effort, as the potential is just as immense as the bare necessity. Not just for sales, but also because this is how customers’ habits, preferences and needs can be analysed and the offer optimised accordingly. Therefore, this forms part of the maturation of a digitalisation strategy. In this strategy, companies expand the integrated processes beyond sales and marketing – through the supply chain that leads to the production operation, for instance. 

What are the most common objectives of digitalisation strategies?

Digital customer loyalty is an important key issue. According to a study by Roland Berger, just under half of the companies in the wholesale sector are currently working to address this. This, in turn, implies the second major topic area: big data. Because naturally, I can serve customers best if I know their requirements and preferences. An entire array of systems has to interact with each other here: CRM, the eCommerce solution, call-centre integration, merchandise-management system or order management, logistics integration, accounting, returns processing, etc. The list could be expanded considerably. Today, the amount of data generated is viewed as a form of raw material, but it is of little use without a clear strategy as to the organisation, security and accessibility of the data. It calls for clear definitions of targets, and the technology helps meet these targets efficiently. Which in turn leads to the third current focus: efficiency through organisation of digital processes. 

Why are eCommerce projects often the focal points of digitalisation strategies?

Companies often undergo fundamental change if they consistently put themselves in their customers’ shoes. It is no accident that digitalisation projects are driven by sales and marketing, because all of the digitalisation initiatives have to revolve around the customer. In online sales, this works very directly, so feedback can return to the organisation quickly through its market success. Data obtained there should not only form the basis for the obvious strategies of personalisation aligned with the customer or customer-loyalty campaigns. Instead, in the next step, product development and the service portfolio need to align themselves accordingly; the same holds true for accounting, merchandise management and personnel management. eCommerce projects give rise to a variety of starting points for further digitalisation steps.

Does digitalisation replace the topics of improved efficiency and cost control?

As individual topics, it does, because a consistent customer focus is at the heart of meaningful digitalisation. But that doesn’t mean ‘at any price’. The aim is to serve customers in the best, most efficient way possible. The best solution approaches in this regard are offered by customer portals with sophisticated self-service functionalities. This is an area in which I already know my customers, so I can present them with personalised offers. So in the best case, I present the product sought, including the preferred delivery and payment method, and can place additional offers as well. If this is set up to be convenient, I can boost customer loyalty and learn how to improve or systematically broaden my own offer. This is how I increase efficiency. Incidentally, clear measurability often defies the traditional ROI view – because a series of measures frequently interact here. This is also an area in which companies need to relearn during the digitalisation process. 

Why is the wholesale sector predestined for radical digitalisation approaches?

Demanding customers who inform themselves independently from manufacturers transfer their requirements in terms of service, availability and price transparency from private online shopping to the business world and are changing this business model a lot. Added to this is the above-mentioned market entry of the manufacturers that, on the one hand, offer marketplaces and expertise, and the omnipresence of Amazon with its sophisticated logistics. It all adds up to enormous innovation and price pressure. In light of this, wholesalers have to expand their portfolio and their service offerings quickly and in a customer-oriented manner, or else decide to specialise in niches and conquer markets there. The aim is to hone their own added value for the customers. On the other hand, the process complexity in the wholesale sector is considerable. This presents the opportunity to increase the degree of automation through clever strategies and skilful use of technology to create tremendous efficiencies. And that has been the point of wholesale all along: keeping transaction costs between the vendor and the end user as low as possible, for the benefit of one’s own narrow margins. 

Digital transformation in one’s own company – how does that work? 

The individual strategy for transforming a company, must be distributed across four pillars: employees, customers, operating processes and innovation. Within each of these pillars, there should be an evaluation as to how digitalisation can be implemented, and what costs and process changes must be factored into the equation. With regard to a company’s own employees, the question is how they might work more effectively. What skills should be developed, what tools procured? Digitalisation in the customer sector means exploring and tapping the possibilities of digital interaction. To do this, I may have to take the business customers’ vendor network into account. Perhaps operating processes can be automated further after a phase of optimisation. And ultimately, even among traditional companies, there are always new product ideas that make use of the Internet of Things, converting extracted data into service offerings and thus permitting growth and a boost in sales.

What advice do you have for companies that want to embark upon a digitalisation project? 

That’s easy: Begin! Digitalisation is a transformation process in which the share of transformation can come in different sizes, but in which the share of process mustn’t be underestimated. Initial analysis is important, of course: a comparison with companies in one’s own industry, overall industry trends and the positioning within that. Use this to define short and medium-term targets that represent milestones for the ultimate goal of a ‘customer-centric enterprise’. Which technologies present themselves in this regard? Are these scalable without incurring any outsized operating costs? Seek expert advice to gather speed in the first phase of implementation, and establish leaders who want to and are able to shape the company. Dare to develop a corporate culture that truly puts the approach of ‘trial and error’ into practice, because sustainable success can only be achieved in the further process. 

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25 years ago, Intershop Communications AG came up with the first standard eCommerce software, triggering fundamental changes in the retail trade. Since then, Intershop has helped medium-sized and large companies worldwide restructure their sales strategies and business processes. Its clients include HP, BMW, Würth and Deutsche Telekom.

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