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Digital Transformation: Obstacles and Possibilities

August 20, 2015 by Andreas Schmitz 91

According to a study by Roland Berger, digital transformation could bring an added value of €1.25 trillion for the European industry. However, IT departments in most companies still have to fight for the necessary budget. Their goal is next-generation IT.

Generating profit in and of itself is pretty straightforward — a company brings a product to the market that customers like. They spread the word, so more and more people want to have this innovation as soon as possible.

This is where things get complicated. The company usually doesn’t realize immediately how popular its product is and does not step up production. It is only days or even weeks later that the company registers the growing demand and asks their supplier to increase production. But then the supplier doesn’t have enough parts in store and even more time is lost. The rigid value chains of today prevent a second supplier from jumping in to help meet demand and keep companies from reacting on time since there are no digital platforms. The digital transformation will mean companies no longer have to wait on suppliers, nor customers on companies.

Strategy consultancy Roland Berger calls this the “logic of digitalization.” Dynamic value chains will take over control of companies in the future.

Next-generation IT will become the key technology for innovation

A look at the findings of a recent study conducted by the consultant firms Roland Berger and Crisp Research shows why we are not quite ready yet.

1. Industries think they are ready when they are not

There is a large gap between how advanced many companies think their digital technology is and how high their chances actually are. Roland Berger’s analysis shows that the difference can be from 12% to 28%. Analysts found the largest “penetration gap” of 28% in energy management, followed by logistics, automobile manufacturing, and machinery and plant engineering and construction at 18% each. This means even well prepared companies might have some catching up to do.

2. Risk of losing out on €600 billion added value

Industries could miss out on this great potential growth if companies don’t invest more in information and communications technology (ICT). According to Roland Berger’s study, digital transformation has an especially “strong or even disruptive impact” in the automobile and logistics sectors. ICT would have to expand 17% on average to avoid missing out on an added value of €350 billion by 2025. The influence of ICT is not as strong in other sectors. However, European industry would still be passing up on €600 billion by not investing in the digital transformation that could potentially bring about €1.25 trillion in growth by 2025.

3. Digital transformation saves money?

According to Roland Berger, one of the greatest obstacles in Germany is cost cutting. Most of the managers surveyed (43%) admitted that the primary goal of a digital transformation to them would be reducing costs. Increasing revenue from existing or new products were lower on the list at 10% and 32% respectively. A survey conducted by Crisp Research found that over 80% of Germany’s IT managers believe the budget needs to be raised by more than 10% to address the pending digital transformation. However, there is evidently a large gap between hope and reality as an insufficient IT budget ranks number one on the list of obstacles with 29%. It is followed by an inflexible organizational structure in IT (23%) and outdated data centers (20%).

4 .The majority is merely dragged along by the digital transformation

Even though 93% of respondents consider themselves well prepared for the coming digital era, only 39% think of themselves as the avant-garde (called profiteers/innovators by Crisp Research), and just 42% been involved in successful projects of this kind. Yet nearly two-thirds let themselves be dragged along by the digital transformation. They are busy looking at others’ mistakes and only do what’s necessary to keep up with the competition.

5. Business departments drive IT, but not digital transformation

Business departments expect IT to come up with results ever more quickly, but only rarely actively support digital transformation. A mere one out of 10 respondents (12%) considered business departments as a driving force, compared to the IT department (69%), and management (39%). In the eyes of Crisp Research, these are prime conditions for putting IT at the core of every company and for it to take over more important strategic and operative roles. Two-thirds of respondents think of IT as innovators, strategists, and implementers.

6. Next-generation IT brings innovation

IT is likely to take become a key factor in business innovations. According to Crisp Research, the development, integration, and use of new applications, as well as product development and proofs of concept will all become more and more a part of IT in the future. Next-generation IT will make this possible with modern platforms such as the SAP HANA Cloud Platform and new applications such as SAP’s new business suite, SAP S/4HANA. Apart from security, there are two other big expectations IT managers expect the IT-platforms of tomorrow to drive innovation through speed and agility. Nine out of 10 of those leading Crisp Research’s study agreed on this point.

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