the impact of digital transformation on corporate performance_kamann_sivri_2012

The impact of DIGITAL TRANSFORMATIONon corporate performance

New ways, new markets

T e c h n o l o g y T r a n s f o r m a T i o n

2

The world is transforming towards digital

The Digital Revolution

The world is embracing a new era of digitalization. Within a short time frame, digital innovations increasingly transformed individual behaviors and steadily redefined enterprise realities. Through the wide adoption of digital opportunities, new product and services emerged, customers now have broader pro-duct choices, market competitionintensified across industries, and suppliers’ relationships have beentransformed. Digitalization trans-formed existing market structures, enhancing the necessity for enter-prises to respond to the current vital market changes.

As Fig. 1 shows, this digital revolu-tion is triggered by the abundance of available information, social con-nectivity, the rise of true mobility, and the emerging fusion of the digital and physical world.

“In the 1930’s, the cumulative codified knowledge base of the world doubled every 30 years, today it doubles every 11 hours.”

The high internet adoption increased the range of available information. With over 270 million websites, over 12 million wikis, billions of videos and blogs, a wide range of content is available at digital users’ fingertips. People increasingly communicate, share knowledge, build opinions and undertake shopping decisions via social networks.

With over 800 million global users, social networks now have tremen-dous impact on enterprises, influ-encing customer shopping decisions, reshaping workforce communication and revolutionizing supply chain processes.

Figure 1: The digital revolution

© 2011 Capgemini Consulting

Furthermore, the true mobility of services eliminating the boundaries of time and location plays a crucial role in our new era. Over 300 million smartphones, 20 million tablets and 12 billion mobile applications already reached markets. Customers, workforce and partners aim to be connected everywhere at anytime.

The upcoming digital era will be additionally shaped by the emergence of the digital-physical reality. Inno-vative applications such as Augmen-ted Reality or Machine-to-Machine communication will enrich physical environments with context aware services and valuable information.

To approach the digital revolution, enterprises need a structured digital agenda. This publication illustrates digital impacts, opportunities and strategies which are vital parts of a digital agenda.

Digital Transformation DriversDigital-Physical Reality

True Mobility

Information Advantage

Social Connectivity+

++

Adoption

Time

Email

E-Commerce

IM Handy PCFixed phone

Adopted technologies

New emerging technologies

Adopted technologies Adopted technologies


Adoption

Time

Social networks

E-Commerce

IM Emails

Adoption

Time

M2M

Connected car

Digital ID

Tablet

Smart- phone

Social networks

Smart-phone

Tablets

Technology Hype cycles

The 90‘s digital acceleration 2000 – Present Digitalization Future Digitalization

Society use of Digitalization


3The impact of DIGITAL TRANSFORMATION on corporate performance

Digitalization impacts markets and businesses

Digitalization of markets

Business structures have been revo-lutionized by digital opportunities. As Fig. 2 shows, the digitalization of our society transformed product & services, customer requirements, competition and organization models.

New products & services

The emergence of digital technolo-gies transformed product & service offerings. Innovative internet-based services emerged, providing customers new dimensions of entertainment, shopping experience, communication and sharing.

Nowadays, the extension of existing offering portfolio with new product & services does not necessarily require ground-breaking innovations. With business model innovation, firms reshape existing eco-systems, generating new customer experience and increasing sales. For example, enabling customers to access an un- limited range of multimedia content at their fingertips, Apple revolutions the music, video and gaming retail industry.

Also, the rise of true mobility trig-gered the adoption of mobile services and apps, where new services emerge every day. The number of mobile apps already surpassed 500 thousand, generating global revenue of $2.2 billion in 2010.

“In 2003 Apple launched its music store and sold over 1 million songs in the first week. Seven years later, the store served its 10 billionth song download.”

Thus, innovative firms leveraging digital opportunities can improve their top-line with new product & services offerings. New customer requirements

The digital revolution impacts customer behaviors and requirements. With the high internet penetration and the resulting information advantage, customers now have a wide range of new choices. The existing information abundance shifted the bargaining power towards end-customers in most industries. Customer decisions are increasingly based on social network opinions, where product or service experience, popular marketplaces, videos, or photos are widely shared.

Additionally, with the wide adoption of mobility, customers expect service readiness regardless of time, location and handset.

Thus, enterprises neglecting mobile services may lose market share.

Higher market competition

The wide internet penetration and mobility adoption widens the geo-graphic market and intensifies the global competition. Also, in most industries, online opportunities re- duced market entry barriers, eliminating the need for physical sales forces, physical assets and reducing traditional administration costs.

Figure 2: Impact of digitalization on market drivers


New products

& services

Digital markets

New organization

models

New customer

requirements

Higher market

competition

4

“In 2005, Blockbuster was the biggest US video rental store. While in 2010 Blockbuster went bankrupt, Netflix passed the 20 million subs-criber mark with its on-demand online rental.” For example, a wide range of pure online retailer such as Amazon, Zalando1 or Mymuesli2 revolutioni-zed traditional retail business models and found a wide market acceptance. These pure online retailers have high cost advantage compared to traditi-onal retailers, since they can save on personal, facility and administrative costs. The rise of pure online offerings also represents a threat for traditional banks. Bank of Scotland, a purely online based bank has a very slight administrative structure with less staff, physical assets or related expenditures. Through its cost efficiency, Bank of Scotland can provide attractive interest rate to its clients which surpass traditional banking rates.

Digitalization enables firms to improve process efficiency, become more competitive and reduce market entry barriers in most industries.

New organization models

Digitalization increases the importance of service differentiation and cost efficiency, raising the necessity for supplier integration. Since customers increasingly require full services on one hand at their fingertips, competi-tors increasingly become cooperators and conjointly participate to value creation. For example, Amazon US now integrated Facebook Connect in its recommendation engine to improve its recommendation results based on social media information. Fressnapf3 and Mars integrated their sales data to optimize demand fore-casts and reduce inventory costs. Also, considering potential workforce as knowledge supplier, digitalization transformed recruiting processes, with Enterprise 2.0. For example,

1 Zalando is a German online retailer selling shoes2 Mymuesli is a mass customization website enabling customers to create their breakfast by choosing own ingredients 3 Fressnapf is a German franchise selling pet food

social media is highly vital for talent identification and brand reputation.Digitalization also increases the necessity of a digital organization which can deliver digital capabilities to the firm. The digital organization delivers digital technologies with expertise to the firm and supports the transformation process. To trans-form to the full power of digital, LOréal formed a team of 300 power users with the goal of providing digital expertise at strategic points of the firm. Nissan and Deutsche Bank extended their IT organization with a social media sub-unit which delivers social media opportunities such as marketing or customers support to the enterprise.

Thus, digitalization requires new integrated processes and delivery models.


Digitalization can be leveraged

Opportunities

A coherent understanding of the digitalization and its impact can be translated into opportunities.

This potential value of the Digital Transformation affects both the top-line as well as the bottom-line of an enterprise, while both dimensions have dedicated value drivers that present avenue to leverage the digitalization. Fig. 3 provides an over-view of Digital Transformation value drivers.

Top-Line Value Drivers

Considering the top-line dimension, business enrichment represents the extension of existing offerings to increase customer satisfaction and brand value perception. BSkyB enriched its business by digitalizing its customer interaction from service acquisition, over support to billing. BSkyB ensured a transparent re- lationship with the customer, enabled customer to control service interactions and adapted its services towards customer behaviors. As, result, BSkyB improved its customer satisfaction, brand reputation and customer value perception.

Additionally, digitalization enables business expansion that can be achieved by the identification of new customer segments to enable business growth. Further expansion can be permuted by the integration of digital leaders or targeted dissociation from partners to leverage the advantages of the digital world. The targeted recommendation engine of Amazon US coupled with Facebook Connect represents an example of partner in-tegration leveraging synergies.

Business growth can be also achieved with business innovation. Enter-prises fostering the opportunity to deliver digital value through inno-vative customer-driven products & services can expand towards completely new markets. Additional value can be attained through the re-adaption of the current market approach to the new digital market spaces, with business model innovation.

For instance, Pages Jaunes in France offered new digital services by shifting the business model from traditional printed media to digital and mobile services. As benefit, Pages Jaunes created new revenue streams offering new services within new platforms.

Figure 3: Value drivers of digitalization


Society use of Digitalization

Business Innovation

Business Enrichment

Business Expansion

Business Control

Business Process Automation

Business Flexibility

Digital Business

Model

Top-line value drivers Bottom-line value drivers

6

As Fig. 4 shows, specific actions across top-line value drivers can be realized to improve revenues with digitalization.

“In 2007 Amazon launched its eReader kindle. In 2011, Amazon sold 3x as many ebooks for its kindle platform as it sold hardcovers.”

Therefore, digitalization top-line drivers enable enterprise to expand their business, acquiring new

and reduce operative costs. The digitalization of business processes reduces media interruptions, data losses and optimizes processes.

Furthermore, with the current volati- lity of markets, enterprises increasingly need to be flexible. Business flexibility can be enabled by “Process-on-the-Fly”, which represents the shift from fixed processes towards the use of innovative technologies to enable ultra-flexible and ultra-manageable processes. An EU trans-action bank transformed its country-specific operating model based on a flexible digital platform. Using a single and flexible platform for business processes, the transaction bank aims at a cost per transaction reduction of 30%. Beside the benefit to realize cost reductions by means of flexibility, digital technologies also improve the required flexibility of organization structures. For instance, enterprise 2.0 tools can release knowledge transfers from the rigid process view, enabling new better ways which need to be flexibly adapted to existing processes.

Lastly, digitalization facilitates the business monitoring process for business control. Bombardier saved 9 million $US by digitalizing its manufacturing monitoring process. As Fig. 5 shows, specific actions across bottom-line value drivers can be realized to improve margin with digitalization.

Figure 4: Action toolkit top-line improvement


Business Innovation

Business Enrichment

Business Expansion

n Digital business model

n Digital innovation radar

n Digital enabled workforce

n Digital customer innovation

n E-commerce

n Digital sales channels

n Portfolio digitalization

n Digital marketing

n Digital customer support

n Mobile services

n Digital customer integration

n Digitalized user experience

Figure 5: Action toolkit for bottom-line improvement


n Digital integrated value chain

n Supplier collaboration 2.0

n Enterprise 2.0

n Digital processes

n Digital efficiency

n Digital flexibility

n Process on the Fly

n Scenario Driven processes

n Customer insight

n Digital integrated forecasts

n Business Intelligence

n Digital monitoring

n Reporting dashboards

Business Control

Business Flexibility

Business Process Automation

customer segments, extending their offerings and growing towards com-pletely new markets.

Bottom-Line Value Drivers

On the other hand, digitalization can also be leveraged on the bottom-line by improving productivity and reducing costs. This can be accomplished by the automation of business pro-cesses. Business process automation represents the use of digital techno-logies to digitalize business tasks


Digital Agendas need to be created

Capgemini Consulting’s Offering Portfolio

Capgemini Consulting developed a core competency defining the Digital Agenda together with our clients. Capgemini Consulting enables across sectors to successfully develop the DIGITAL AGENDA i.e. business strategies considering digitalization drivers, and supports firms transfor-ming their technology landscape to the full power of digital.

Digital Strategy & Transformation

Capgemini Consulting addresses growth and productivity challenges for enterprises, by re-designing business models and formulating winning value propositions utilizing digital innovation. A transformation strategy outlines the path for state-of- the-art implementation.

Technology Strategy & Transformation

Capgemini Consulting uses its state-of-the-art and in depth insight into valuable technology innovations to help clients develop technology innovation radars, build strategic roadmaps to the power of digital and re-organizes the IT organization according to new technology challenges.

Digital Customer Experience

Capgemini Consulting supports the digital transformation of marketing, sales and service processes. Our highly-experienced professionals help clients in identifying consumer behavior, developing targeted multi-channel presences and optimizing the provision of after-sales support.

Digital Operations and Organization

Capgemini Consulting jointly developed the operating model of hundreds of global clients. With its


Digital Customer Experience

Partnership/ Ecosystem

Digital Strategy & Transformation

Technology Strategy & TransformationConnected

Workforce

Figure 6: Capgemini Digital Transformation Framework

Digital Operations and Organization

broad expertise on digitalization, operating model and efficiency, Capgemini Consulting helps clients by leveraging new digital opportunities.

Connected Workforce

Capgemini Consulting combines its strong understanding of people and digital opportunities to empower workforce productivity, communication and optimize talent management.

Partnership/ Ecosystem

Capgemini Consulting assesses the business potential of partnerships and supplier integration by means of their value proposition. In addition, Capgemini Consulting help to manage existing partnerships and evaluates potential collaboration opportunities.

In summary, Capgemini Consulting is your optimal partner to transform your business to the full power of digital.

8

Digitalization impacts corporate performance

Digital Transformation

Digital transformation is happening, but not at the pace of hype. Tradi-tional industries are not moving as fast as the media would seem to demand, but they are moving. Companies in all industries and re- gions are experimenting with – and corporate performance is benefiting from – digital transformations.

“Digitalization drives both; employee productivity and company’s competitiveness.” Fig. 7 depicts this positive impact of digital agendas on corporate performance. As not to be neglected, common management approaches, those focus on negotiated goals

and on provided managerial balance between top-down control and bottom-up autonomy of actions contribute to the rise of corporate performance. While the prediction of the future is a part of a good management, the difference to a performance leadership in any industry is the creation of the digital future by means of a customized digital agenda.

“Digital Transformation accelerates exponentially and improves corporate performance.” These digital transformations enable the leverage of digital value drivers and change the trajectory of corpo-rate performance from a mere “rise” to a digital boost. Whether it is in the way individuals


Figure 7: Impact of Digital Transformation on corporate performance

n Think digital and build on a digital agendan Leveraged value of digital operating modeln Leveraged value of digital marketsn Digitalized customer lifecycle

Digital impact oncorporate performance

n Support business processes with ITn Reduce operative costs with IT n Meet budget and schedulen Predict the future and redirect

Common trajectory of corporate performance

Implementation launch of the digital agenda

Time

Performance

work and collaborate, the way business processes are executed within and across organizational boundaries, or in the way companies understand and service customers, digital technology provides a wealth of opportunity to those willing to change their businesses to take advantage of it.


Time

References

Acision Analysis: “Mobile Advertising - 2020 Vision”, 2009

AllFacebook.com: “Facebook and Amazon Join Forces For Social Shopping”, http://www.allfacebook.com/facebook-amazon-recommendations-2010-07, 07/27/2010

Booz&Co Analysis: “The Rise of Mobile Application Stores: Gateways to the World of Apps”, 2010

Capgemini Analysis: “Mobile Payments: Are you Ready for the Early Majority?” Telecom & Media Insights, 2008

Capgemini Analysis: “Mastering Social Media: The 21st Century challenge of consumer information”, Business Information Management, 2011

Capgemini, The Royal Bank of Scotland, European Financial Management& MarketingAssociation: “World Payments Report 2010”, 2010

eWeek.com: “Smartphone Shipments to Hit 850 Million Units by 2015: In-Stat”, http://www.eweek.com/c/a/Mobile-and-Wireless/Smartphone-Shipments-to-Hit-850-Million-Units-by-2015-InStat-422416/, 01/25/2011

Forrester Research: “European Mobile Media Forecast, 2008 to 2013: Identifying Revenue Growth in a New and Challenging Ecosystem”, 2008

Forrester Research: “Predictions 2010: Enterprise Mobility Accelerates Again”, 2009

Forrester Research: “Welcome To the Empowered Era”, 2010

Forrester Research: “BT 2020: IT’s Future in the Empowered Era”, 2011

Forrester Research: “The M2M Market Is A Blossoming Opportunity”, 2010

Gianvito Lanzolla & Jamie Anderson: “Digital Transformation”, Business Strategy Review, Vol. 19 (2), 2008

KPMG Analysis: “The Digital Bubble: balancing Operational Challenges with Growth”, Information, Communications & Entertainment, 2007

Michael E. Porter: “Strategy and Internet”, Harvard Business Review, Vol. 79 (3), 2001

Michel Krauch: “Noch kaum Realität: Wann Unternehmen fit fürs digitale Zeitalter sind“, http://www.cio.de /strategien/analysen/2268577/, 03/23/2011

Portio Research: “Worldwide Mobile Market Growth 2000-2020: Analysis of the past, present and future growth of the worldwide mobile industry”, 2009

Renub Research: “Worldwide Tablet PC Present and Future Market Scope (2010 – 2015) and its Impact on Various Sectors”, 2011

Contact

Dr. Guido KamannVice President Phone: +49 151 4025-2115 E-Mail: [email protected]

Serdal SivriConsultant Phone: +49 151 4025-0688 E-Mail: [email protected]

About Capgemini

With more than 115,000 people in 40 countries, Capgemini is one of the world‘s foremost providers of consulting, technology and outsourcing services. The Group reported 2010 global revenues of EUR 8.7 billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fit their needs and drive the results they want. A deeply multicultural organization, Capgemini has developed its own way of working, the Collaborati-ve Business ExperienceTM, and draws on Rightshore®, its worldwide delivery model. Learn more about us at www.de.capgemini.com

Rightshore® is a trademark belonging to Capgemini.

About Capgemini Consulting

Capgemini Consulting is the Global Strategy and Transformation Consulting brand of the Capgemini Group, specializing in advising and supporting organizations in transforming their business, from the development of innovative strategy through to execution, with a consistent focus on sustainable results. Capgemini Consulting proposes to leading compa-nies and governments a fresh approach which uses innovative methods, technology and the talents of over 3,600 consultants world-wide. For more information: www.de.capgemini-consulting.com

DE

111

0-17

-007

8

Capgemini Deutschland GmbHKarolinen KarreeKarlstraße 12D-80333 MunichTel. : +49 89 9400-0 – Fax: +49 89 9400-1111www.de.capgemini-consulting.com

Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group