Brief summary of the key content and findings regarding the drivers and implications of the digital transformation – with download of the study in full and the executive summary.
Germany as a venue for business and industry is all about providing a range of high-quality – and with it relatively expensive – products and services to meet a need, both in its domestic market and at the international level. The need for mobility, for example, can be met by the transportation function of a vehicle or by the transport service of a logistics company. The products and services offered are the result of provision processes (including development, production and the actual satisfaction of the need, depending on the nature of the product or service concerned) that are simultaneously knowledge-intensive and cost-intensive. The companies involved have developed organizational structures, corporate strategies and business models optimized for these provision processes.
Digitalization as a driver of changes in competition
Irrespective of whether a function satisfying a need is performed by a product or a service, changes in the market can lead to a reduction in demand for the provision of the corresponding function and thus to the demise of the product or service. Possible mechanisms for this include:
- A different function satisfying the need with a more attractive value proposition becomes available.
- A different function satisfying the need with an equally attractive value proposition becomes available at a lower cost.
- A different function satisfying the need with a less attractive value proposition becomes available at a very much lower cost.
The possibility of a competitor from the same segment catching up has not necessarily been perceived as a threat in manufacturing and in the automotive industry in particular – fields in which companies depend on a knowledge-intensive provision process and are set up to target their products and services at the high-quality and high-price end of the market. The high levels of expertise required were regarded as barriers that could always be raised even higher through the continuous development of core competencies.
Improved functions with more comprehensive value propositions, especially the combination of traditional functions with customer-centered business models, are viewed as a much more pertinent source of actual threats. Established competitors with their roots in software platforms, such as Apple, Google and SAP, are among the key players to be mentioned in this connection.
The findings of the current survey suggest, however, that this situation is not universally appreciated. The risk that software capabilities and the power to enable new business models will increasingly become the decisive factors and that competition will increase as a result is recognized, but there appears to be very little understanding of the strategic significance of possible new revenue models and the fact that these may well be based on different value creation architectures.
There is though more to the digitalization of industries than simply building up the software capabilities necessary to provide functions in new ways: digitalization substantially rewrites the rules in established markets, most notably as a result of the way emerging product service systems melt the boundary between products and services. This has been particularly evident in the digitalization of operating processes and the associated automation of organizational workflows (as in the case of internal logistics): it does not take long for the combination of complex algorithms and high data volumes to yield high levels of flexibility and individualization and a high level of efficiency in the provision of services.
Platforms stand at the heart of digital ecosystems
High levels of automation bring within reach previously unprecedented scale effects that dramatically reduce the significance of marginal costs. These effects can be amplified by physically separating the preparation of a function from its provision and simultaneously extended – as in online retail – to end customer business as well. Platforms play a key role here in the establishment of business models as a keystone of value creation networks that bring together users, suppliers and service providers. The scale effects accentuate the positive relationship between the scope of the service provided through a platform and its attractiveness: a platform operator with an established platform finds it easier to acquire new users and providers and hence to build on its leading position.
The automated coordination of organizational workflows by platforms makes it more straightforward to integrate individual functions seamlessly into more comprehensive business processes with a more attractive value proposition. One particularly significant consequence of this development is a change in the balance of power in business models in favor of the platform operator and the platform it controls. The actual provider of the service is reduced to the role of supplier.
The aforementioned scale effects and the data transparency that exists within the value creation network also enable shifts in the revenue model: functions (the provision of intermediary services for/the processing of an activity or, as in the case of Android, the functions of the platform itself) are cross-financed by direct or indirect revenues, usually involving a combination of different participants. This can extend so far as to create the appearance of a free service for the end customer.
The techniques and information resources now widely available, including the ability to extract predictions as to customer wishes automatically from large volumes of data (for example using statistical learning methods), have greatly enhanced these possibilities once again in recent times and made possible an even higher level of individualization. The ability to extract information from large volumes of data, in turn, further amplifies the importance of platforms and the emerging ecosystems based on them. The more individual data sources – whether people or machines – are integrated, the more accurate the predictions to be obtained from generalization become. This applies across all manner of predictions, from purchasing intentions and transport requirements to machine breakdowns and cost-optimized operation.
Disruption associated with the digital transformation
The automation of operating procedures triggered by digitalization has made it possible to scale up the flexibility and efficiency of processes and is increasingly changing a growing group of industries. The original methods used to automate physical processes (that is to say the use of mechanical-electrical technologies) did open the door to highly efficient control, with short production times and low production costs for large numbers of units in manufacturing or rapid, optimized management of motor control, for example, but they offered few options in terms of the breadth of control, with possible responses generally limited or generic. Human intervention was still needed to realize the complex aspects of control required for high flexibility.
The advance of digitalization into different application areas, including the area of operating processes, makes it possible to achieve both a high level of automation and a high degree of flexibility in a way that would often have been impossible in the past. The use of generalized – and thus less expensive – hardware (including sensor and actuator systems) and flexible software solutions opens up scale effects in cost models. Outgunned on both functionality and cost fronts, mechanical-electrical solutions face a quick demise.
Much more significant than the automation of physical processes as such, however, is the creation – through digitalization – of complex value creation processes. Digitalization enables digital measurement and control technology to be combined with complex information processing in local and global networks such that technical and organizational processes can be unified in new cyber-physical systems. These cyber-physical systems, in turn, make it possible to integrate the function provided by a technical system into a complex value creation network seamlessly in the form of a service. One consequence of this development is that it changes the provider of the technical system into a supplier of activities for the network.
It seems reasonable to assume, moreover, that this transformation will not be limited to the business sphere and that the political world and, in particular, the interface between society, business, research and politics, must also digitalize. It is here that the underlying conditions for the digital transformation should be shaped in future. The effect of the digitalization of the political processes through which opinions and decisions crystallize and the use of associated tools, processes and relationships will be to drive forward the transformation from representative democracy to direct democracy.
Originalauszug aus dem Dokument:
The fact that there are virtually no barriers to the entry of new players into the marketplace is seen by many companies as a threat – it can however also be perceived as an opportunity, given that new interfaces and innovative offerings may emerge. The challenge for companies is to recognize the changes in usage habits and the new opportunities open to them for analysis, and to involve customers, for example, more closely in the value add process.
We will now look in more detail at these changes and describe the motivation and aims associated with this project. We will also explain the structure of the present study, to make the individual topics easier to access.