How digitalisation starts: the spark (1/5)

Part of the How digitalisation works series, this first article looks into what sparks digitalisation. For some companies, it’s about finding solutions to an incoming crisis; for others, it’s about their passion for technology; and then, there are the regular context/opportunistic projects that only use/deploy technology to fulfil a market need.

We will therefore try to clarify how company size and new technologies impact the outcome of a digitalisation project.

Crisis-based digitalisation, a.k.a. optimisation through digitalisation

Looking back at the last 20 years’ crises, we can see that they are all different, both in their causes and the effects they had on the economy, technology and digitalisation:

  • The Dot-com crash of 2002 “was a stock market bubble caused by excessive speculation of Internet-related companies in the late 1990s, a period of massive growth in the use and adoption of the Internet”. (source: Wikipedia) Relative to our topic, the main effect was the understanding that not everything should be online, and -if it is online- it should deliver actual value.  
  • The worldwide financial crisis of 2007-2008 “sparked the Great Recession, which, at the time, was the most severe global recession since the Great Depression”. (source: Wikipedia) For our article’s purpose, we think the most important learning was bootstrapping: projects/companies need to start without (much) external financing and quickly build resilience against environmental bumps (/non-industry-specific /non-company-related).  
  • The ongoing COVID-19 pandemic has been a major quake for the global economy. To date, it resulted in millions of lost jobs (i.e. less capital in the markets), wiped-out tourism, and supply chain breakdowns (i.e. fewer available services/products, therefore less consumption). The learning appears to be that digital tools could be built to compensate for the lack of in-person access, both on the production side (manufacture, services) and the consumption side (commerce) of the economy.

When scratching the event horizon to see into the future, a recent research (Future of Supply Chain, Gartner, January 2021) includes supply chain digitalisation and e-commerce shifts among the most important five changes to watch in the near future.

So, what kind of companies can benefit the most from crisis-sparked digitalisation? In theory, it is the big, strong ones that have the urgent need, the capacity and the resources. However, last years’ democratisation of e-commerce means that even the smallest companies, that previously were heavily dependent on Amazon & similar, can now fight with equal chances in global commerce. (Shopify literally says: “Anyone, anywhere, can start a business”).

…And what about the technology? Backed by the cloud, there has been a blooming of ERP and CRM solutions, both from the major software/solutions providers (as standard suits) and from smaller competitors (as custom-made systems). We think that the main tech-related issue is not the availability of software solutions, but rather using them to increase value all along the value chain – and that’s a lesson we have already learned some 20 years ago.

Passion-based digitalisation

Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.” (Think Different, Apple, 1997)

Yes, Steve Jobs (and Apple’s) genius for digital innovation can be seen as the best definition for passion-based-anything. But one does not need to work for Apple in order to be passionate and change the status quo in the process. Quite the contrary.

Going back to Shopify: back in the early 2000s, Tobi Lütke was passionate about two things: coding and snowboarding. When starting his own snowboard e-shop, he found no good-enough tech platform, so he built his own using Ruby on Rails. On top of selling boards, he started getting requests to open-up his shop platform – which eventually, 15 years later, snowballed into powering more than 1 million businesses across 175 countries.

Even smaller: back in 2014/2015, a couple of fresh graduates from Vienna’s Technische Universität started toying with Machine Learning in imagery applications, specifically on automated removal of backgrounds from pictures. (Very mundane, right?) With no clear usage case in mind, they kept playing, until they stumbled upon e-commerce – i.e. a high-volume/high-speed market that consumes clean pictures on bread. By 2020 they got competitors (Adobe Photoshop launched a competing tool), and by February 2021 they were big enough to be acquired by Canva.

Our learning? Stay passionate while building your solution and while looking for the most perfect product-market fit.

“Opportunistic” digitalisation

There are situations, though, where neither a crisis nor an entrepreneur’s passion plays a role in digitalisation. Especially in larger companies, where the hard focus is on growing the business, there’s an acute need to deploy digital technologies for the targeted goals of staying competitive, and increasing revenue and profits.

In theory, it is simple: know what the needs are, decide where resources should be allocated, chose the technological solutions, then roll.

In practice, however, there are several caveats:

1. There is a clear difference between sustaining technologies (existing/known tech that improves the performance of established products) and disruptive technologies (new technologies that have the potential to change the market completely, based on new value proposition sets). While sustaining technologies can support a constant (yet slow) growth, disruptive technologies have the potential of completely changing an industry/market.

Random example: in the medical field, for the last 15-20 years there has been a “run to the top” that resulted in the most tech-advanced, feature-stacked anaesthesia machines from American and German companies like GE Medical, Dräger and Heinen+Löwenstein. “Lower”-end competitors, such as the Shenzen-based Mindray Bio-Medical, remained focused on the basics (e.g. robustness, precision, safety) at a lower price, which eventually got them a big chunk of the market.

2. By the very nature of a large company (bound to serve large markets for big money), they cannot look into the up-and-coming breakthrough technologies (which are usually small until they grow abruptly; then catch everyone on the wrong foot). At the very beginning of disruptive technology, its value and market(s) are not at all clear, and it takes a while to get mainstream traction. For all this time, large companies will be mostly blind, then it gets slightly too late for them to catch up.

Random example: in a famous (/debunked) story that’s now part of modern technology “mythology”, back in 1979 Steve Jobs and his team visited the Xerox PARC innovation centre where they “discovered the mouse, windows, icons, and other technologies that had been developed at PARC”; then had them copied by Apple. Although not 100% true, this is at least a story of how Xerox (a very large company) apparently did not understand the true potential of new/disruptive technology.

3. Last but not least, companies are not happy about cannibalising their own products. “If something is not broken, why fix it” – right? Except that, if the organisation does not take voluntary, focused steps to stress-test (and possibly deconstruct) their product line, someone else will do it – possibly with greater “success”.

Second-to-last random example: at the peak of their business, Kodak was part of the photo film duopoly, while at the same time literally inventing the digital camera in 1975(!) only to “kill it” years later. The reason: it would have cannibalised the main business. The result: Kodak filed for bankruptcy in 2012. What did the competition do: Fujifilm successfully pivoted to digital photography, was one of the early adopters of mirrorless, and now one of the main camera manufacturers.

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While large companies might not have an easy way forward into digitalisation, there actually are solutions:

  • First of all, the right mix of technologies, markets and strategies cannot be known beforehand. Therefore, exploration/discovery should be part of the planning.
     
  • A company’s market(s), processes and values will be stress-tested. Therefore, building a resilient, agile organisation that can pivot easily is very important.
     
  • Both because of a large company’s size (/inertia) and internal processes, digitalisation (/disruptive technology) is better tackled by creating a separate team and/or organisation. The Lean Startup and The Startup Way, for example, provides one of the best frameworks of how to build an internal “startup” team that successfully validates, adopted and scales innovation/technology.

Last random example: in 2016, after 127 years since foundation, Dräger (the fore-mentioned medical equipment company) has started The Garage. This is literally a refurbished, 24/7-open garage where employees bring up ideas and projects that can potentially shape-up the company’s product line. All projects go into a shark-tank type of competition, with the most promising ideas receiving the green light to proceed into deeper research and (possibly) development.

Conclusion

There are many ways and reasons why a digitalisation project can start within a company. While the spark is important, we think that a company’s readiness and attitude towards innovation are essential. And if it all comes down to delivering value for stakeholders (clients, employees, investors), then continuous exploration and advancement are essential.

In the next articles, we will look into value assessment and resource allocation; software product development/management; go-to-market and lifecycle; and eventually scaling. Stay tuned!

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