Digital transformation clearly means more than digitization

In addition to digitizing their processes, SMEs must further develop their business models...

In addition to digitizing their processes, SMEs must further develop their business models

The discussion about digitization and digital transformation has shaken up the economy. The success of the digital transformation is now often seen as a question of fate for German industry, because the latest leaps in technology have created a potential for the disruption of business models that has probably never existed in this form before. In this storm of rapid change and the disruption of existing business models, large parts of the German SME sector will have to hold their own existentially. Jörg W. Fischer, Head of the Steinbeis Transfer Center for Computer Applications in Mechanical Engineering and Professor of Production Management and Virtual Factory at Karlsruhe University of Applied Sciences. 

Almost unnoticed by the public and largely independent of the discussion about digitization, a profound change has been underway in SMEs for some time now: the transformation from engineer-to-order (ETO) to configure-to-order (CTO). Up to now, classic machine and plant engineering has been characterized by ETO. This means that an individual solution is custom-developed for the customer in the form of exactly the machine or system he needs. Now, the ETO approach is in line with the trend toward individualization, but it brings with it a number of problems.

Since the respective customer bears the high development costs incurred alone, the machines or systems ordered in this way often become too expensive. Added to this is the long delivery time of often nine or even twelve months owed to this approach. In today's dynamic market, this is too long, because potential customers can usually no longer plan in these long cycles and then order the required machines or systems from companies with shorter delivery times. For companies operating in the ETO, this can quickly result in situations that endanger the company.  

CONFIGURE-TO-ORDER: ADVANTAGES AND CHALLENGES

One solution to this problem is the shift to CTO: The CTO approach gives customers predefined choices so that they can configure their product according to their requirements. The possible configurations are thereby preconceived and ideally already developed in advance. If this transformation is successfully achieved, delivery times can be reduced from months to just a few days, and at much lower cost.  

The transformation from ETO to CTO requires the implementation of entirely new process patterns that entail changes throughout the entire company. These process patterns can only be implemented with the help of state-of-the-art IT systems, which necessitates extensive digitization of product creation and order fulfillment processes. In many medium-sized companies, which are generally still characterized by classic functional organizational structures, such a change usually stagnates at the existing departmental boundaries. Companies that have recognized this problem then often discuss the implementation of a process organization. This often involves the introduction of overarching departments, such as a PMO (Project Management Office), process management or organizational development. This weakens the previous dominance of the classic functional departments. 

Since the transition from ETO to CTO now entails cross-departmental digitization, central departments are then established if necessary to shape the digitization process as a whole, or even a CPO (Chief Process Officer) or a CDO (Chief Digital Office) is installed to shape the entire digitization centrally.  

DIGITALIZATION VS. DIGITAL TRANSFORMATION

These measures are all important and often set the right course for the future. Nevertheless, such digitization measures must not be confused with the necessary digital transformation, as they do not help a company in the event of the disruption of its previous business models. This is where the difference between digitization and digital transformation becomes apparent.

While digitization refers to the (partial) automation of business processes through the use of modern software solutions, digital transformation aims to transform a company toward new digital business models. At its core is the question of how a company can earn money in the future if today's business models break away. What if, for example, traditional product sales with direct customer contact change to service sales, as is the case in many industries? Is the midmarket ready for this? What happens if the ability to integrate a delivered product in new scenarios suddenly becomes a central argument for the purchase decision?  

What this means is illustrated by the scenario car, parking space search and parking garage: No driver is interested in a time-consuming search for a parking space. One foreseeable expectation of the customer will therefore be that the vehicle will do this itself. In the future, this will result in an interaction scenario of vehicles, parking space providers and a central platform that communicate with each other in order to then bring the vehicle to a free parking space on its own. For companies that want to offer products in such a scenario, it is necessary to anticipate this in order to prepare their products and services for it today.

The process-oriented map for digital transformation

SMEs are therefore facing multiple challenges: On the one hand, the transformation from ETO to CTO requires the digitization of central processes; on the other hand, the disruption of business models may fundamentally change the necessary action on the market. There is no patent remedy for this situation. However, a few points can be summarized that a company should definitely consider:   

  • the digitalization of internal processes, which is necessary anyway, 
  • the continuous forethought of possible evolving Changes in business models, 
  • The willingness of shareholders and management to quickly also to make courageous entrepreneurial decisions including the Providing the necessary financial resources,
  • An organization capable of action with flat hierarchies in order to implement decisions quickly to be able and then finally a flexible digital core for create the company, which links all the necessary information with each other end-to-end.

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