Why Digital Optimization And Industry 4.0 Is Not Enough!

When we talk about Digital Transformation, many of us still think about optimization first. Let’s digitize our workflows. Let’s save production time using Industry 4.0. Let’s pimp our ERP system to be yet faster. Cloud technologies may help us run our systems in a more economical or efficient manner. Digitalization makes us faster at what we already do.

I just read an interesting German book called “Deutschland 4.0: Wie die Digitale Transformation gelingt,“ which, when translated, says “Germany 4.0: How the Digital Transformation succeeds.” If you speak German, I highly recommend this book. The author made a stunning point: would Kodak have survived in a today’s environment if they had optimized their business processes, their ERP systems, if they would have applied industry 4.0 etc.? Of course, not! Inefficient business processes or production lines were not their problem. It was the product—the celluloid film—that presented the problem.

Source: http://digicamhistory.com/1989.html

The tragedy of this was that digital photography was actually invented by Kodak (Steven Sasson) in 1975! “They were convinced that no one would ever want to look at their pictures on a television set,” Sasson told The New York Times. In 1989, Kodak presented the first DSLR, called ECAM (see NYT article above). However, Management did not see the disruptive character of their own brilliant product and allowed new competitors to disrupt their business model. The rest is history. (I loved the Kodachrome 64 slide film! I had 20 rolls with me during my first trip to the US in 1991/1992.)

I wonder why I took this picture on December 16th 1991 using a Kodachrome 64…

Back to the topic. If Digital Transformation had been as popular then, a company like Kodak would have most likely invested heavily in Industry 4.0, digitalizing their production and business processes. Consider how Digital Transformation might have affected their products and services.

It’s the products & services, stupid.

It is very obvious that Digital Transformation helps us become more efficient, more economical, and much faster. For instance, many SMBs need to catch up when it comes to fully leveraging their ERP systems. Optimization yields rewarding results, yet is not too difficult to achieve.

The question we must ask is how can we use Digital Transformation, or digitalization, to improve our products and services. What new products or services can we offer to our customers?

However, there is a lot more to Digital Transformation than just optimization . People still talk about disruption; some don’t even like to hear the word anymore. Nevertheless, looking at your business from a customer’s point of view will reveal a lot. What does your customer see when he looks at your business? Does he see your work toward the optimization of your business processes? Maybe not. What your customer does see are your products and services. That’s it. Well, he also sees your competitor’s products and services. The question we must ask is how can we use Digital Transformation, or digitalization, to improve our products and services. What new products or services can we offer to our customers?

Let me give you some examples. When we look at companies like Airbnb, Uber, Hotels.com, and TripAdvisor, we see totally new business models that would not be possible without the Internet and without scalable cloud solutions. These businesses don’t sell physical products—they provide platforms and services. By doing so they disrupt quite a few markets.

Let’s have a look at taxi driving and Uber, for instance. In the past, I usually needed cash to pay my driver. Many of them didn’t accept credit cards. Of course, this has changed over time. Here in Germany, the tax office expects you to have perfect receipts, but taxi drivers usually don’t provide one that states where you started and where you reached your destination.

Uber has changed an entire industry:

  • You “call your cab” by tapping on your smart phone. You no longer need to know the phone number for a taxi service in cities you have never been to before.
  • If the driver doesn’t find you immediately, he’ll call you. He automatically has your name and phone number—you have his name and license plate.
  • You no longer have to carry cash—or even your credit card. All payments are processed directly through the app. (I tip the driver using cash though.)
  • After you reach your destination, you will automatically receive a detailed and  very transparent receipt, which even includes the route the driver took!

For customers, using Uber is a much more convenient and affordable service than regular cabs. Uber looked at the industry from a customer’s point of view, and figured out how to make it better. They are now disrupting their own existing business model by developing self-driving cars.

Another disruptive approach came from platforms like Hotels.com or TripAdvisor. In the past, booking a hotel was a painstaking task, especially if you have never been to that area before. But today’s new platforms provide double benefits—they not only give you a clear overview over availabilities in your destination city, but they also provide guest reviews as well. Despite a few fakes thrown into the mix, most guest reviews have helped a lot in my decision-making.

These are new business models that digitalization made possible.

The question is—what about your products and services? How can Digital Transformation, or digitalization, improve your production services or make a new business model possible? Do you think there will be a demand for your products in the coming years? Are you sure?

As I said on a Financial Times panel discussion about manufacturing in the future in Berlin last year,

Unleash Digital Transformation

What we can learn from the many stories in magazines and newspapers is that greater efficiency will not necessarily help your business if your product does not satisfy customers. Boasting, “We are the market leader in […] for many decades,” won’t help you when a competitor shows up and totally disrupts your business or industry with a new idea.

Get out of your comfort zone and scrutinize your products, services, and the entire market you are in. Forget about your achievements over the past 30 years. With fresh perspective, imagine what a competitor could do with a digitally driven approach. And finally, be the one who disrupts your competitors ! You may even come to the conclusion that a related but totally new idea will ensure your survival. Maybe it’s a platform that connects the products you and your competitors use, or maybe you abandon the products you were proud of during the last 50 years and transform your business to a platform only.

When I talk to people at conferences and in business, I find that it is a very difficult thing for them to accept that their products might not be in demand in the near future. This is why out of the box thinking is ever so important. Support the mavericks in your company! They are often the people to find solutions that aren’t visible to the rest of us. Sometimes, new business models can be the basis for your survival.

The purpose of this blog is to start a discussion. Please leave your comments, whether you agree or if you disagree. I hope to hear from you!

About Alexander

Alexander Buschek is passionate about Digital Transformation and the opportunities it gives businesses—especially MSEs. He is convinced that every business has to embrace Digital Transformation in one way or another in order to survive. The sooner a business begins its Digital Transformation, the better. Alexander was the CIO / CDO of Braunschweiger Flammenfilter and CIO of Cherry GmbH. Prior to that he was an entrepreneur, consulting MSEs about IT strategies, providing external project management, and overseeing various IT projects (e.g. ERP and CAD implementation and migration). Working with many MSEs gave him a deep understanding of this market. Alexander is now Senior Director, Analyst (MSE) at Gartner.