Well-established companies and industries must respond to disruptive innovations from new suppliers. Every organization must face the challenge of the digital shift head-on. Businesses must develop new, additional digital services and solutions and find smart ways to tie them in with their existing products.
Only then can established companies succeed in warding off the threat posed by new, often purely digital competitors and defend their own market lead. Integration plays a central role within the context of digital transformation and will be the topic of this article.
The digital revolution is bringing about far-reaching changes in many sectors. In many industries, the new, purely digital providers in particular represent the strongest competition for established companies. This is a new phenomenon. Until now, the principle of “big always wins out over small” held true. In the future, however, the approach of “flexibility/speed overcomes inflexibility/slow-paced change” will dictate the world of business.
The business models used by the new, purely digital providers are often based on radically lower costs than those of established companies. This is clear, for example, from the industries illustrated in the diagram:
The digital shift in the retail sector
Both traditional retailers and those purely with an online presence must continue to digitize their business processes – even if they are approaching this from different angles and therefore have different priorities. In any case, an intensive price war as well as a certain degree of alignment in their business models can be currently observed in the sector between these two competing groups.
The traditional competition between online and offline business is a thing of the past. Nowadays consistently integrated contact points and new ideas are a prerequisite for trade as a whole. Thus many online retailers are, for example, currently moving to city centers to open stores. A recent market study carried out by the Cologne-based EHI Retail Institute shows that every second one of the 1,000 largest online shops also operates street-side stores. On the other hand, driven from the Internet by the competition, bricks and mortar businesses hope to achieve new growth potential through the use of digital technologies on site. These technologies offer the retail sector the opportunity to make shopping an exciting experience and to win back the smartphone generation.
The use of digital technologies is increasing in stores as a result. This includes wearables for store staff, coupons for online/offline purchases, inventory management (automatic restocking/refilling of shelves using robots), omnichannel options, electronic payments at the POS, digital price tags, sensors and beacons (to track customer behavior in the store, personalized Bluetooth push notifications on customers’ smartphones).
In general, it is clear that both online startups and traditional retailers must continue to invest in digital technologies that link up all of their sales channels in order to move their companies forward.
The digital shift in the Financial Services Industry (FSI)
Traditional retail banks are also struggling with the costs arising from their many branches. A large number of bank customers have already stopped going to their local branch and prefer the flexibility of online banking. However, the online services offered by conventional banks are still wholly inadequate in many cases.
In this sector, the competition comes from various fintech startups which are based on digital apps for modern and alternative financial services. These digital apps are the core component of all fintech solutions and can be used for all types of financial transactions. The products and services offered range from mobile account management to loans, sponsoring and charitable activities through to investment strategies and crowdfunding.
According to a recent study by McKinsey, to date, European retail banks have only digitized 20 to 40 percent of their processes and 90 percent of banks invest less than 0.5 percent of their total spending on digital. As a result, most banks so far have relatively shallow digital offerings focused on enabling basic customer transactions.
Neither customers nor digital upstarts are likely to wait for retail banks to catch up. Once a credible digital-banking proposition exists, customer adoption will be fast and digital laggards will be left exposed.
The digital shift in the automotive segment
For decades, the automotive industry was an oligopoly dominated by a small number of very large car manufacturers. In the last 20 years, the few smaller manufacturers have either been taken over by the large ones or have totally disappeared (e.g. Saab) in line with the principle that “big always wins out over small”.
Now new players are suddenly emerging in the form of Tesla and Google giving traditional car manufacturers pause for thought. Or established companies are being bought up by new, very powerful players; for example, Samsung’s take-over of Harman Automotive. These are the pioneers of the principle that will dictate the future; “flexibility/speed overcomes inflexibility/slow-paced change”.
The trigger for this radical change are new megatrends. The new players are following an entirely different business model and view the car itself as merely the “hardware” that allows them to translate their business ideas into a reality. This will result in further upheaval:
Electric mobility: The move away from the combustion engine has given rise to new car manufacturers (e.g. Tesla) and new component suppliers as many of the parts supplied for the combustion engine are no longer required.
The connected car: The car itself is being demoted to merely the “hardware”, the buyer is increasingly choosing a car based on the software & services offered. And the manufacturer can simply implement new features “over the air” or enable them after the vehicle is purchased (e.g. engine performance, battery capacity).
Autonomous driving & new mobility concepts: The trend towards the self-driving car is also set to redefine car “ownership structures”. Car sharing and pay-per-use services will expand. New players will emerge.
The digital revolution and associated (e)Mobility megatrend will bring about far-reaching changes in what has been until now a firmly established industry. This will affect both car manufacturers and parts suppliers alike.
The digital shift in the area of logistics
Traditional logistics companies provide vehicle fleets, storage facilities and the supporting staff. eLogistics suppliers have none of that. They view themselves more as agents for logistics services offering a number of clever, differentiating additional features that traditional logistics firms either do not supply at all or inadequately. Yet in their role as agents, eLogistics service providers increasingly become the important point of contact with the customer while established logistics companies are reduced to acting merely as the “operating unit” – with no customer contact in the worst case scenario. This must be avoided at all costs.
How can the individual companies now succeed in meeting the challenges of digital transformation?
Digital technologies offer enormous opportunities for new ways of value generation and better communication with partners, clients and target audiences. What is required to achieve this is continuous integration of all involved areas sharing data, providing services or performing transactions.
In this context, digital transformation most importantly means integration—of people, processes, machines, data, and services, both in your company and across companies.