Digitalization enables companies to chart a new course
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Digitalization enables companies to chart a new course

Karl-Heinz Streibich — September 2016
Disruptive innovation is blurring industry lines — and CIOs can help their organizations profit from that by taking them in new directions, says Karl-Heinz Streibich, CEO of Software AG.

A postal service is building electric cars. An online retailer is developing drones. Smartphones are making payments

The digital world is enabling new combinations and permutations of business that would never have been possible, or even thought of, before. Even five years ago, no one would have envisaged that a postal service like Deutsche Post DHL would be designing and building its own cars and drones to use in its delivery services. The idea that Africa could lead technology and usage for payments using a mobile phone would have been thought unlikely.

Karl-Heinz Streibich, CEO, Software AG
Significantly, these types of strategies are possible only in the digital world where software is king. The basic rule of this new world is simple: become digital or have a dying business model and even a dying company. There is no way to avoid this natural law in modern digital societies

Any traditional company, regardless of its focus, must deal with two major threats. The first is a loss of competitiveness to any competitor that masters the transformation to the digital enterprise in its industry sector and gain huge costs and efficiency advantages. The second is that competitors will provide a digital customer experience that attracts customers to change the new player

In the case of Deutsche Post DHL, the organization will use its self-built electric cars and drones to improve logistics, lower energy costs, and contribute to reducing the carbon footprint

This is good news for Deutsche Post DHL, the society and the environment. But it is also good news that a large and established organization can master the challenge of reinventing itself as a digital enterprise. The first step in doing so is the beginning of the transformation journey — to paraphrase a Chinese proverb. As a result of this transformation process, industry lines are being redrawn. This is also changing the competitive landscape in three fundamental ways: it generates competition from so-called ‘digital natives,’ ‘digital babies’ and ‘digital phoenixes.’

“Businesses must develop new mechanisms and strategies to respond to the new digital environment.”

In the past decade, a number of digital natives such as Google and Amazon have transformed other industries. To cite one prominent example, Apple has reshaped the music and mobile phone industry. Netflix has similarly reconfigured the video and TV markets. Meanwhile, Samsung and LG, better known for their TVs and mobile phones, are challenging traditional appliance providers such as Whirlpool and Electrolux.

New start-ups — the digital babies — that take advantage of technological changes are emerging as another form of competition in every sector. For example, GPS devices from Garmin and other manufacturers are experiencing competition from mobile navigation apps on smartphones, live traffic reports and other enhancements offered through auto companies

Technology is also allowing many incumbent enterprises to redefine themselves. In some cases it even enables them to emerge from oblivion as digital phoenixes. Deutsche Post DHL transformed itself from a national mail carrier into one of the largest global logistics companies by acquiring DHL, Van Gend & Loos, Exel, Airborne Express and other delivery services and by making prudent investments in new technologies. Making its own electric delivery trucks and using drones for postal deliveries will be another chapter in its transformation process

These examples show that businesses must develop new mechanisms and strategies to respond to the new digital environment. In doing so, it becomes clear that new technologies are a key enabler for new success stories. Digital players therefore become major threats to classic companies by steadily redrawing industry boundaries. They can defy the shackles of analog and take another route — the digital way — to success.

• Karl-Heinz Streibich, CEO and chairman of the management board of digital business platform company Software AG, is the author of The Digital Enterprise: The Moves and Motives of the Digital Leaders.
First published August 2016
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