Welcome to the past
BY THOMAS LUCAS-NÜLLE & DIRK JURKOWSKI
What can be digitised will be digitised, this is the message from Silicon Valley in the United States, the centre of digitisation. Ever more new businesses models are bringing companies or even entire industries and their long-standing respective business traditions under attack and disruptively changing conditions permanently in a very short time.
But what about the digital reality of the businesses of the “old” world? Let us look back.
Over the last 20 years, German enterprises, particularly upscale SMEs, or the so-called ‘Mittelstand’, have climbed the ranks of the world’s top international companies. With growth rates beyond 10 or even 20 percent, these companies have grown into global players that are active in nearly all markets around the globe. Hardly any other country has had success such as this worldwide. The title of ‘world’s export champion’ indeed seems to rightfully belong to Germany. Instead of concentration like in the US, where a few companies are driving growth, Germany’s growth lies on a larger number of smaller shoulders, which continue to keep internationalisation as a stable growth engine for the country’s economy.
As a result of digitisation, markets are ever closer connected. Therefore, the question arises: What have individual companies done to digitise their markets? The answer: Little has changed in the past decade in the field of digital information supply chains. In most companies, gathering information and data collection for communication about products and services is still the sole responsibility of the marketing department, which often works with methods already applied in the 1990s. While Internet and e-commerce departments have recently been established, followed by content marketing departments, many companies and their marketing and IT departments still do not recognise digital information flow as their core activity or competence. Instead, they hand over these issues completely to specialised service providers such as agencies. This approach is based on misjudgement, for full delegation of complexity ‒ in order to get rid of it in an elegant manner ‒ does not pay off in the end.
Service providers are almost always focused on and dedicated to individual channels or topics such as e-commerce. Hence, a view over the total chain of information flow is missing. Neither the commissioning company nor the individual service provider as a contractor has it. However, if service providers act as major agency networks, which may have the overview over the entire process chain, the commissioning companies bear the risk of becoming fully dependent on the agency’s services in the field of communication. The consequences of such dependence are almost always exponentially rising costs, as models like these are less about continuously optimising the information processes but rather about optimising agency revenue instead. Furthermore, this set-up aggravates the silo-like processing of information in the enterprise, since the individual units act as gatherers and hunters, so to speak. This means a company’s data management moves away even further from the principle of a single point of truth.
Very similar processes were observed in the 1980s ‒ especially within the automotive industry. There, the former vehicle manufacturers sought to evade the production complexity by almost completely outsourcing development and production to suppliers. This was an absolute fallacy ‒ and so today, it is the carmakers with a lot of internal expertise and high transparency throughout that have resumed dominance over the supply chain once more, including the suppliers.
Fact: Information on products and services can be exclusively generated by the company itself, it can be released, translated and transformed channel-specifically and thus controlled. The involvement of external partners and service providers only makes sense as a second step as these agents arrange for distribution of the information. Here, however, it is necessary to break up and adapt the existing corporate structure. And not just at marketing level. If information processes are figuratively seen as a supply chain just like any other supply chain management (SCM), it becomes apparent that streams of data of all kinds pass through various divisions on a daily basis. In most cases, they are initially issued by the purchasing department of a company or in product development. Product or category management then bundles the information with respect to commercialisation, in order to be able to pass it further on to the dedicated colleagues of marketing, sales and after sales. Here, it is finally converted into channel and user-specific information. Only a comprehensive Information Supply Chain Management (ISCM) allows for the adjustment of the organisation’s processes according to the dynamics of digitisation, as only then department-related action (silo mentality) no longer works.
Since this is “uncharted territory” so to speak, the solution is almost always sought in the implementation of a new IT system such as PIM, MAM, e-commerce or CMS. The supplying software companies get correspondingly long “wish lists” with aspects of solutions that are expected from the selected supplier. However, few dare to even touch the very core, namely the internal organisation.
Hence, this classic approach repeatedly leads to the same series of conceptual errors; while they still allow for a small step in the digitisation process they do not permit a leap forward. But that is exactly what many companies urgently need in order to secure business. Through precisely this digitisation of access to markets it has become easier than ever to attack business models and to make them obsolete in a very short time.
Thus, even the steel trade sees itself under threat from digital platforms from Silicon Valley: Klöckner, a global player of the steel industry, put his own long-standing business model, which had worked for over a century, under scrutiny himself, in order to prevent a takeover from the outside. The vision: digitisation of the steel industry. The tool trade sees its sales model based on smaller resellers at risk because of Amazon. The Amazon Market Place first offers retailers a platform for their own marketing offers, then analyses the products sold there in a second step before ultimately taking over the top-selling product ranges in the third step. And also the classic retail business of grocery retail is facing an attack by mail order. German retailer REWE would see its market power dwindle and access to its customers in acute danger if AmazonFresh were to launch in Germany. Perforce, REWE has now taken up the topic of delivery business itself so as not to leave the whole field to the competitors. Much too late. Actually, one could have occupied the market place as a local player beforehand, even if that could have possibly cannibalised one’s own traditional business.
Thus, for almost all industries regardless of whether they are commercial, industrial or mail order, the risk of disruptive changes from the outside exists. It is therefore becoming increasingly important for a company to ask itself the following question: which digitised concept could jeopardise my basic business model and disruptively cannibalise it?
To answer this question, a company has to look at its information flows and take a holistic approach that spans all departments, possibly even crossing corporate boundaries at times. This is the right approach in order to identify new, possibly digital business models, which can serve as a base for building new processes and a matching corporate organisation. We must not forget: a holistic data flow, processes and organisational models count for 70 to 80 percent of reaching set targets during this kind of transformation of a company. The required systems required provide the platform ‒ i.e. the instruments for the company’s orchestra, which ultimately have to be mastered by its employees.
Thomas Lucas-Nülle & Dirk Jurkowski
Thomas Lucas-Nülle and Dirk Jurkowski are Managing Directors of Xtentio GmbH and are considered leading experts on the topic of digital product communication. As Founder and Chief Analyst of the Group of Analysts, for more than a decade, Lucas-Nülle has analysed almost all ISCM software solutions currently active in the marketplace. Dirk Jurkowski has over ten years of project experience on both the software publisher’s site as well as from the perspective of Xtentio, and is thus one of the most experienced project managers in the ISCM market.
The Xtentio GmbH supports companies in designing their digital transformation through its holistic ISCM analysis and recommendation for action followed by project management.
This article was published in The Produktkulturmagazin issue Q2 2015. Picture credit: © Mirko Plha/Xtentio GmbH