Alchemy of Digital Transformation

The ancient alchemists were looking for a Philosopher’s Stone able to transform everything into gold. They wanted to find out a universal principle of transmutation of elements. Something similar is happening now with many organizations striving to transform their traditional businesses into digitally enabled bimodal enterprises. They also are looking for a “killer app” able to add value to their products and services.

The notorious Digital Transformation is ringing out. Being inspired by the success of some stunning startups, the traditional businesses keep trying to become digital somehow in their own way.

Nonetheless, any universal formula is unavailable. Besides, the lack of the comprehensive how-to manuals and appropriate experts allows newcomers to take a cursory glance at the digital transformation instead of possessing a deep understanding of the phenomenon.  Many gave up trying to become digital – the Philosopher’s Stone appeared out of their league.

However, figuring out the causes of failure we can achieve a sudden epiphany regarding a right recipe and modus operandi. In addition, the illustrative cases of some successful “alchemists” of the digital transformation can shed light on the stash where the Philosopher’s Stone is hidden.    


What is commonly confused?

Since a generally accepted definition of the digitization is desirable rather than available, three basic issues are often confused.

  1. Fourth Industrial Revolution or 4IR is propagated by Dr. Klaus Schwab together with other numerous participants of Davos Economic Forum. The peculiarities of this movement were described in one of our previous posts. 4IR emphasizes the necessity and even inevitability of combining machines with humans as the next logical step in the evolution of both humankind and industry. The current stage of 4IR is focusing on robotics, artificial intelligence, IoT, and 3D printing.
  2. Industry 4.0 or I4.0 is a concept of several German industrial leaders supported by the German Government. The main objectives along with the general agenda of Industry 4.0 are contained in its policy document “Digital Strategy 2025”. The main idea of I4.0 comes to the so-called “smart factory” where cyber-physical systems provide the complete management of the whole production process making human intervention redundant.
  3. Digital Transformation or DT. Wikipedia explains it as a cultural shift in the perception of existing business models, socio-economic structures, and organizational patterns caused by the total digitalization and which leads to the overall societal effect.

When two first postulates describe processes, the third one indicates an effect. And this is the clue: the digital transformation reflects the cumulative effect of various actions which can reform the entire business by means of saturating it with digital technologies. A clear understanding of this conclusion can prevent organizations against confusing cause and effect.


Various models of the digitally transformed enterprises

  1. Traditional product + digital service
    Let’s assume a hardware manufacturer which is eager to add value to its products by transforming the current business model into digitally enabled one. Belonging to machine tool manufacturer Trumpf, startup Axoom can represent a good living example of such an approach. Axoom maintains an open ERP system aimed at planning the entire production process of Trumpf by using both in-house and third-party applications. Trumpf is transforming its traditional role of a hardware vendor into a bimodal enterprise offering software services by means of its own digital division Axoom. Thus, a traditional hardware manufacturing is complemented by a software service.
  2. Traditional service + digital service
    Another type of digital transformation can apply a digital service to a traditional off-line service. For example, a German healthcare provider Epitope Medical launched a specific web app for their rich Middle Eastern patients. In order to avoid a complicated and expensive procedure of ordering medical flights by telephone, the application offers a quick access to a ticket service via both desktops and mobile gadgets. In such a case, a healthcare provider adds value to its business model with a new digital service appreciated by the patients due to the better customer care.

  3. Product-as-a-Service
    Probably the most radical “transmutation of elements” is observed when a traditional product merges with a digital service within a Product-as-a-Service formula. The consumer electronics manufacturer Philips equips its traditional dishwasher machines with Wi-Fi-enabled chips following the notorious IoT agenda. In this case, Philips becomes a service provider indirectly empowering its products to act almost independently when maintenance or repair are required. The similar model of IoT-ization belongs to Tesla Motors whose electric cars can upgrade their capabilities “on air” through the mobile Internet.   


The Main Challenges

The above-mentioned cases look seemingly simple and enough comprehensible being worth replicating by any interested follower. However, all of the examples describe rather the external agenda than the internal transformative process through which all of the organizations have had to come. It is hard to imagine what tectonic shifts take place inside the organizations before the whole staff accepts the new modus operandi.

And it’s not just about the subjective mental inertia resisting any innovation. The objective challenges face everyone looking for a way to digital transformation. Even the highest ranked DT experts have to admit the following hurdles able to steer the traditional business away from the transformative digitization.

  1. Experts. The lack of specialists having an appropriate combination of skills remains the biggest problem when organizations are striving to combine a traditional business model with the digital. Detlef Kayser, Director at McKinsey indicates only 10% of German companies feel prepared to enter new digital business models while 91% of them realize the future lying in the digital transformation. And this is despite Germany is one of the global leaders in digitization.
  2. Standards. Many companies are still waiting for the unified standards able to prevent their investments against wrong decisions regarding the digital transformation. Probably IoT is the only segment of DT where this problem is settled more or less.  The first useful guidance for IIoT (Industrial Internet of Things) connectivity appeared in February 2017 when the Industrial Internet Consortium (IIC) published the ‘Industrial Internet Connectivity Framework’ (IICF).
  3. Security. Such a common procedure for a digital agenda as placing a company’s data in a cloud remains a definite hurdle for many organizations worrying about their security issues. The current hype around hacking affects everybody somehow. Selecting between public cloud, private cloud, and no-cloud solutions, companies are puzzled with how to cope with the risk of losing their valuable information. The lack of appropriate digitization experts and standards makes them hesitate with regard to protecting their systems, machines, and intellectual property against both competitors and manipulation.


When appealing to a professional alchemist matters

Since we found the actual meaning of the digital transformation in the shift, appearing in a corporate culture due to the digital technologies applied to traditional business models, a course of necessary actions remains the issue to be clarified. Successful stories and illustrative showcases from the global leaders can hardly work as a fitting-to-all formula. In order to arrange an effective “transmutation” of business elements, a professional alchemist is required. Logic suggests that the “pure” IT experts seem appropriate for playing such a role.

Digital service providers, as well as software developers, possess a deeper understanding of all digital phenomena than ordinary business vendors do by default. Sharing digital transformation ideas with the software alchemists instead of acting by guess seems much more meaningful for business owners. Such collaboration can create the desired Philosopher’s Stone in the form of a step-by-step “to-do” list which can cover the whole procedure of the business transmutation.

Everything necessary will appear in the magic formula beginning from modeling of a new bimodal workflow up to developing of that very “killer app” able to place an organization on a par with Bosch, Tesla, Philips, and other monsters of the contemporary digital transformation.

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