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July 27, 2015
Beginning with the end in mind
By: Clemens Oertel

It’s often assumed that Europe lags the United States in digital business models. In truth, that’s not entirely true, as our recent Digital Density Index revealed. I look at things in Austria, Switzerland and Germany. How are companies in these markets doing? From the conversations I have with business leaders here, I would hazard a guess that two thirds of all companies in Austria, Switzerland and Germany are under pressure from the disruptive impact of digitization.

The digitization message has been received by the leaders of top companies here. Yet few companies have a holistic strategy for making digital part of their DNA. Instead, they pursue multitudes of smaller digital initiatives.

A paradigm shift is necessary: Executives in the region need a vision for a consistent, fully-fledged digital strategy. And that strategy must make it crystal clear how the company will rewrite the rule book of how to do profitable business—digitally—in their particular industry.

Therefore companies should have a clear view on the following three strategic options:

  • Partial Digitization: Realize EBITDA growth opportunities through digitization of the existing value chain and its corporate functions

  • New Digital Business Models: Realize EBITDA and revenue growth opportunities through development of new revenue streams enabled by new value chains

  • Business as Usual: Manage risks arising to existing business model(s) from the digital activities of competitors

Where do we stand now?

Perhaps it is fear of making missteps that holds some leaders back: Are we investing in the right digital initiatives and areas? And how is this all going to come together to bring us forward as a company? What will our business model look like when it is completely digitized?

As I like to say, based on the Chinese proverb, those who don't have the end in mind have trouble finding the right path.

That's why leaders need to chart the path, understand the potential that a holistic digital strategy brings with it, and communicate that grand vision.

This point is one of six recommendations for Germany's Top 500 companies that comes from a study we conducted with Die Welt newspaper.

For me, it is the most important point in the study because digitization needs investment, in some cases huge investment. An investment without a clear view on the reason why to invest is inherently risky.

The risk of business as usual

Let's look at the idea from the other side of the coin as well. I say managers must also have a full understanding of the risks that face their business models if they do NOT make the model digital. Cannibalizing your own business is less of a risk than doing nothing — and giving the competition a chance to make a full meal off your plate.

The pharmaceuticals industry provides a good example. As I’ve mentioned above, if I was the leader of one of these companies, I would have a full understanding of the EBIDTA potential of digitizing the current business model. This first step would include knowing how much EBIDTA the company can generate through the digitization of:

  • Marketing and sales

  • R&D

  • Manufacturing and supply chain management

  • Corporate functions

Secondly, I would need to know the potential of new digital-based business models by having a strategic roadmap for top and bottom-line growth.

Examples for the pharmaceutical industry would include understanding how personalized health care or predictive health care are impacting traditional pharmaceutical markets, or how convergent markets (e.g. those markets that can be addressed in addition to a company's traditional markets) are changing e.g. through so-called "live healthy" business models.

Live Healthy business models focus on educating the end customer on how to stay fit and healthy—with the right food, right exercises, less stress, for example—via wearables or other devices. My company might be able to develop a new business model in this area by being the most valuable information provider, for instance.

Third and finally, what would I do to speed up the digitization that has already begun? I would need new structures in the areas of innovation, investment and talent planning.

This third imperative—accelerate digital innovation—is an idea I want to talk about in an upcoming blog.

Courage to say it like it is

Recently, I read a news article in which the boss of a DAX 30 company said he does not know how digitization will impact his company's business. I think he had a lot of courage to make this statement publicly. It shows an understanding and respect for the Herculean task ahead of him.

Designing a holistic digital strategy is a complex undertaking. It's not something that a few board members can draw on the back of a napkin having lunch together.

More on how leaders can accelerate the digital transformation of their company up next.

 

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