Digital Business – Agenda for the digital transformation

Digital Business – Agenda for the digital transformation

Digital Business has established itself as a collective term for digitized business models and processes. In this article we will explain the typical characteristics of companies in digital business. Thus, the basic features of a business administration of digitization and digitized companies are outlined.

Digital Business

A central question for the presentation of digital business is how strategic management and decision-making processes in digital companies are changing. The effects on the operative level, along the value chain, also shape the image of digitalised companies. This also affects the organisation, management and leadership of companies. Their specific aspects can best be illustrated with the model of the platform economy and the economic mechanisms of digital platforms.

Digital Business – a definition

The term digital business covers companies with business models and processes that use information technologies in essential aspects of production, customer relations and organisation to realise and increase added value. Prototypical companies are those that develop and sell IT products or whose service provision is essentially realised with the help of IT. This definition therefore includes hardware manufacturers such as Apple and IBM, software manufacturers such as Microsoft or SAP as well as younger Internet groups such as Google, Facebook or Amazon.

Typical business models in digital business

Even though digital business and digitization seem to be still in their infancy in many areas of the economy, there are business models that have been established for decades. These are on a global level

  • Development and distribution of
    • Hardware
    • Software
    • digital content
  • E-Commerce
  • Online marketing
  • Service functions in digital business.

Today, the leading companies of the Internet age appear to be particularly formative and dominant. In a period of about 20 years, they have developed to the top of the rankings of the most valuable companies. As these companies were founded in a comparatively late phase of digitization, they exhibit the highest degree of digitization and a special degree of innovative ability. The prerequisites for these significant competitive advantages are to be found at the strategic level and in the corporate culture of these companies.

Corporate culture and strategies in digital business

The formative aspects of digital business are determined at the strategic level and in the culture of the company. The more the characteristics and success factors of digital technologies are implemented in the strategy and culture of a company, the higher the degree of digitalization.

Strategic factors

In their book “How Google works”, Rosenberg and Schmidt have identified central factors of digitisation. These are the comprehensive availability of information, the increase in computing power for processing information and the ubiquitous access to this computing power in mobile cloud computing. These factors result in typical strategies and show specific cultural aspects. At the strategic level, digital companies primarily pursue the implementation of digital innovations in order to be able to participate as much as possible in the benefits of digitization.

The digital character of software-based innovations not only has the advantage of improving qualitative aspects of service provision, but also has a decisive quantitative-economic advantage. This advantage is reflected in economies of scale, which in turn result from typical cost structures of digital technologies. This extremely advantageous economic effect can be expanded even further if digitised companies benefit from networking not only on the cost side but also on the user side. Then network effects that accelerate the growth of the platforms will take effect.

Change in corporate culture

The easier access to information made possible by digitization is also associated with an important change in the corporate culture of many companies. The increase in transparency in many areas of the company has led to a shift in the value axis of successfully digitized companies. The focus of companies is shifting from the shareholders to the customers. They not only have an almost comprehensive insight and overview of all offers and providers in a market, but also evaluate them publicly. A company in digital markets with a high level of transparency can no longer afford to neglect customers and give priority to the interests of other stakeholders. Instead, more and more digitized companies are orienting themselves towards customer centricity as a cultural response to high transparency in the markets.

But transparency is not one-sided. Rather, the provision of digital platforms for users and customers means the potential to let user and usage data flow into a process of permanent organizational learning. The central term here is Data Driven Marketing. Usage data is used to make information and communication with users more efficient, targeted and cost-effective.

It can be shown that these four key factors of digitalization

  • Digital innovation
  • Economies of scale
  • Customer centricity
  • and Data Driven Marketing

are essential for success and rapid growth in leading companies in the digital economy. These factors contribute significantly to the strategic and cultural orientation of these companies and are also decisive in redefining operational functions as part of the establishment of digital business.

The Digital Value Chain

The change in strategies and cultures has mainly resulted in a shift in the weighting of the operational value chain. If we consider the four central value-added functional areas

  • Development
  • Procurement
  • Production
  • Paragraph

the shift in the corporate focus from sub-processes based on real economic principles to processes based on information and data can be clearly seen. It can be assumed that in the course of digitization the value-added areas of development and sales will gain in importance, while procurement and production will become less important. However, one exception to one central procurement topic must be explicitly emphasized: the procurement of highly qualified employees for the design of development tasks is not diminishing in importance but rather increasing.

Status of digitisation of the value chain

Looking at the state of digitisation of value chains in many sectors of the economy, the picture is mixed. In the first phase of the digitisation of the value chain, administrative control tasks of the companies were simplified with the help of IT and extended by new quality.

In the course of the Internet revolution, the next step was the digitisation of marketing and sales, which is reflected above all in the progressive expansion of e-commerce. With the increasing presence and dominance of large digital companies, however, their cultural and strategic success factors are also spreading. As a result, many companies have realized that the core of digitization lies in the development of digital innovations. To this end, new processes are being established that are associated with terms such as agility and lean startup.

As success factors in software development, these are also leading to changes in non-software companies. In strategic terms, the development and expansion of digital platforms is moving to the forefront. These can be set up quickly, flexibly and with learning. Learning means taking a high level of error tolerance as errors offer opportunities for improvement.

With a digital platform, every company has the potential to quickly link and network with customers, partners and suppliers. Ideally, these lead to network effects and, as the logical end point of the platform economy, to monopolies. This may sound promising from a company’s point of view, but from a general welfare perspective it is more likely to cause discomfort.

Digital recruitment and cooperation

With the increasing need to develop digital innovations and to implement them in the company and in the range of services offered, recruitment and management tasks within the company are changing. Human work is less and less executive and more and more formative. Accordingly, employees must be found who can contribute conceptual and creative skills in interdisciplinary teams.

The digital change is also making itself felt in recruitment and leadership. For the employees, the transparency with regard to employers is increasing, which can shift the balance of power in the job market. It is becoming increasingly possible to organize freedom, which at the same time increases the responsibility of individual employees.

As a further aspect of the digital development process, partnerships in digital business are also changing. The challenges and degrees of difficulty of innovation have reached such a high level that small and medium-sized companies in particular can no longer manage without cooperation within the framework of development and value creation partnerships. The great advances in information and communication technology make it easier to carry out networked developments and to operate development and technology platforms. However, this also increases the complexity of legal, organizational and cultural issues in corporate partnerships.

Digitized procurement and production

In the middle of the 2010s, the digitisation of production and, in connection with this, of procurement is now becoming apparent. This process, sometimes referred to as Industry 4.0, will not only further expand the automation and data-based control of production, but will also have a significant impact on production and development cycles. An acceleration of technical progress in industrial production can be expected. However, this will also be accompanied by a loss of employment in the meantime.

This is particularly acceptable if resource consumption and product and production quality continue to increase through the use of digital networks technology in production. Procurement, warehousing and logistics can also expect a boost in efficiency if the use of computers and data processing increasingly reduces inefficiency.

New challenges are emerging for management in digital business. The decisive strategic and cultural factors in digital business must be addressed. Established companies do this in competition with young companies that are already focused on developing software innovations. For the companies of the so-called old economy, digital business is about transferring the success factors of digitization to industrial production and upstream and downstream stages of the value chain. This is linked to the central aspects such as openness, transparency and agility. The training of managers for digital business must also take this development into account.

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