The Drivers of Digital Transformation

Could all of the estimated 85 million pet owners throughout Europe use an app to track the activities of their pets? How could smart pills improve healthcare for over 26 million chronically ill people in Germany (German Foundation for the Chronically Ill 2015) by providing them with more personalized treatment? How can a firefighter quickly find the information he needs—building plans, hydrant locations, interactive location maps—at any time of day so that he can get straight to the scene and save lives? How can over 100,000 employees in a global company work together effectively across national borders and local IT barriers? The scenarios could not be more different. But they have one important thing in common: The solution relies on the cloud.

The digital transformation of the economy and society could be called a digital revolution—one with as far-reaching an impact as the Industrial Revolution of the nineteenth century.

Mobile Internet, social media and digital services have become part of our daily lives. The era of the Internet of Things—the network of products and machines—is just beginning. Entire value chains are being transformed by digital technology, some of it evolutionary, some of it disruptive. Anything that can be digitized will be digitized. Are Germany and Europe at the forefront of this movement? A study by Roland Berger Strategy Consultants on behalf of the BDI concluded that the digital transformation could add around 1.25 trillion euros to Europe’s industrial value creation by 2025—but could also diminish it by 605 billion euros.

Companies are alarmed by the buzzword “digitalization” and don’t know specifically what to do. They are hearing about the threat of new business models, reading about the enormous sums paid for startups which haven’t yet made a single dollar of profit and watching their competitors join in the chorus of scaremongers who say their sector is making the big change to Industry 4.0 or is about to be replaced by e-business. And here’s the problem: All of this could, or will be, true—the massive attack on the status quo has already started! The following 11 theses on digitalization explicitly describe how a company should actually respond to the new competitive environment in order to succeed in the market.

No other industry is changing as quickly as the auto industry. And nobody—apart from the IT and telecoms sector—is pushing harder toward the cloud. Automobile manufacturers and marketers are under great pressure to become mobility service providers. This change is being driven by trends such as the electrification of the drive train as well as the political and social pressures to make mobility as sustainable as possible. And for some time now, innovation in the industry has not come from the core areas of mechanical engineering, thermodynamics, chemistry or physics, but from electronics and software development. The German auto makers are aware of this. But are they doing anything about it?

The cloud is a trendsetter, an enabler of new business models and the engine driving digitalization. But what does a cloud model capable of actually leveraging this new potential for businesses and the economy at large really look like in practice? An awareness of digital strategies in the minds of decision-makers is just one side of the coin—although it is a very important one. Beyond this, however, the right organizational setup—both technical and strategic—is also essential, and this is an issue that affects both IT service providers and all other companies alike. Partnerships (both inside and outside the company’s own sector) are a key element here, as is having the right sales strategy across new digital channels. Last but not least, a foundation must also be laid that enables future-proof digital models in the first place: data center technology in the form of virtual IT resources, provided as Infrastructure-as-a-Service (IaaS) to appropriately serve the principles of simplicity, security and affordability. Here, the factors of availability and scalability also play another important role. Digital sales concepts, partnering, IT delivery models and security and/or data protection issues are therefore topics that must be scrutinized closely in the context of new ideas and innovations before these can grow into successful business models. This chapter takes a two-pronged look at these topics.

Like many food and drink companies, Heineken’s top IT priority is to tackle big data. It will form the foundation for all of our digital innovation and support our strategy of developing a deeper understanding of the customer. Heineken is a consumer brand, but its activities are predominantly selling business-to-business, so we have typically been one step removed from the consumer. As a result, it has been difficult to truly understand how, when and where our beers are drunk. But now that is changing.

It only takes a few weeks in Silicon Valley to gather ideas and establish long-lasting relationships—with some well-calculated culture shock included. But what exactly do German executives take home with them after visiting this epicenter of global innovation?

If we take a moment to consider how digitalization is affecting industry or our own personal lives, the vast majority of us would probably think of the self-driving car, smart homes, the factory of the future or—more generally—the Internet of Things and its parallels in Industry 4.0.

IT islands—they rise up from the flood of data in every corporation and every medium-sized company. As sunny as they may sound, they cast a long shadow over a company’s flexibility. In this dynamic age of digital transformation, effective administration is wrecked on the shores of these islands. In reality there are often local databases, each of which has grown independently for years and now holds layer upon layer of a quarter century of IT history. These IT landscapes are almost impossible to manage efficiently, and their complexity leads to inefficient and opaque processes which waste the valuable energy of IT employees and CEOs alike. It starts in day-to-day business: Existing data is needlessly recorded multiple times, and relevant information is not taken into account in new developments because no one knows it exists—or where it can be found. Ergo, even as companies merge and become one, their IT remains fragmented across different sites. This was the case at ThyssenKrupp—and we wanted to change it. International companies in particular require agility, flexibility, global communication and cooperation in order to gain a competitive advantage. One of ThyssenKrupp’s goals, therefore, is to consolidate and harmonize its existing IT landscape worldwide.

In the summer of 2015, we learned that Chancellor Merkel’s PC had been infected by a virus. At the same time, the entire Bundestag network—including the computers belonging to all the members of parliament, was infected by a Trojan. The initial assessment by experts was that it would take 18 months to completely remove the malware from the IT infrastructure. What can be done to prevent attacks like these? Can we not expect the highly sensitive networks operating at the heart of our democratic process to be 100 percent secure? In an era of smartphones, social media, big data and the cloud, security and confidence are issues of increasing concern to IT managers. There are many technical answers to these questions, but there are other issues of a more philosophical nature about the digital world 2.0 that cannot be solved simply by bringing in more IT, more control or more laws.

What is driving digitalization today and why is the cloud such an integral part of it? The analyses in this book by respected and experienced experts from industry, business and the media show that the disruptive force of digitalization is radically changing the way in which business works. Many analog business models and processes are being replaced by digital concepts. The transformation has been affecting all business sectors for some time—from publishing and the music industry, to commerce, manufacturing and logistics (cf. Kempf 2014).