Digital transformation: A vision for success

In 2015, John Chambers, chairman and CEO of Cisco Systems, declared his credo: “Disrupt or be disrupted.” Anyone unable to produce innovations and displace existing technologies, products, and services will be pushed aside themselves. Digital transformation and artificial intelligence is the key to keeping your own company from fading away into oblivion.

Chambers’ forecast is already coming true today. “Digitalization is the main reason why more than half of all Forbes 500 companies from the year 2000 have now disappeared,” explained Pierre ­Nanterme, CEO of leading consultancy Accenture, to the World Economic Forum. Bright ideas and disruptive technologies have long been able to put significant ­pressure on entire business models within a very short period, as has been demonstrated by companies such as Uber in the taxi business or Airbnb in the hotel industry.

Are small and medium-sized enterprises falling behind?

Global players are being affected and to a greater and greater extent small and medium-sized enterprises as well. Today’s customers are very demanding and lose their patience quickly. That is why not only products but also the underlying production processes must be made available and visible to end customers in a more customized, intelligent and rapid manner – while maintaining consistent quality at the lowest possible price. This means the pressure is on – yet many SMEs are still hesitating to effectively implement or even to initiate a digital transformation of their companies. Concern over the high capital expenditure involved, problems with data security, and the lack of qualified specialists act as a disincentive. In the long run, this may result in small and medium-sized enterprises losing ground.

However, at the same time, the profit margins of those who are willing to make targeted investments and transform their businesses are rising. In a recent study, the consultancy McKinsey concluded that “by 2025 ­consistent digitalization of Germany’s small and medium-sized enterprises will increase German economic growth by 0.3 percent a year.” That corresponds to an additional value-added potential of €126 billion. The most significant opportunities for SMEs are above all in production optimization based on data entry and analytics, and in the development of new business models and expanding their own portfolios (the graphic at the beginning of the article depicts the opportunities for SMEs and the areas where they can improve).

The moment for the operator

If small and medium-sized enterprises want to take advantage of these opportunities and remain compe­titive, they have to undergo an internal and external transformation. On the one hand, they need to add digital solutions and services to their portfolio. This is the only way they can continue to satisfy customer requirements in the long term. On the other hand, they must also gear their internal processes to reflect the requirements of digital transformation. This does not mean that every business must quickly carry out this transformation to a digital enterprise at immense cost, as Siemens managing board member Klaus Helmrich explains in an interview. However, a clear commitment by the company to a digitalization strategy is essential.

How quickly a commitment to digitalization pays off is demonstrated by the examples of the tool manufacturer Gebr. Heller Maschinenfabrik GmbH and the detergent and disinfectant manufacturer Calvatis. Both companies have opted for access to MindSphere, the open, cloud-based IoT operating system from Siemens to connect their machines and physical infrastructure with the digital world. This opens up new possibilities for them to analyze data from production and operations and draw critical conclusions based on this. By doing so, they can boost the production efficiency of their customers and minimize downtime, for example through predictive maintenance. At the same time, they can develop innovative and profitable business models.

These examples are consistent with the trend that widely respected institutions and consultancies have identified in studies of small and medium-sized enterprises: Digitalization is not primarily a threat; it is an opportunity for SMEs to continue their success story and reinvent themselves. However, it takes clear commitment to digitalization on the part of the companies. It is up to them what they do with this opportunity.

2017-11-13

Picture credits: Publicis Pixelpark

All companies are affected by digitalization – including small and medium-sized enterprises (SMEs). However, it is hard to get these companies interested in digitalization because it involves meeting several challenges: Reliable data security is a considerable hurdle for 41% of SMEs, 40% have difficulties recruiting qualified staff, and 35% are hesitant about the high capital expenditure required. However, optimal use of digitalization also opens up a number of opportunities for small and medium-sized enterprises: 79% of SMEs see potential for optimizing production, 50% want to develop new business models with digitalization, and 38% see opportunities for improving customer service.

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