Digital business models ▷ A new definition of digitalization

When we speak about digital transformation, we have to describe, understand and implement it more holistically, says Bernd Gross. The CTO of Software AG illustrates what this means with two case studies from his daily practice.

Few subjects in recent years have been so hotly debated as digital transformation. In was only in mid-2018 that Bitkom – Germany’s association representing players in the digital economy – concluded following a study that a growing number of companies are now pursuing digital business models and responding to market changes through digital transformation. In other words, the German economy has slowly but surely understood that digital transformation is not a “nice-to-have” extra. It’s an imperative for any organization wishing to stay competitive in an increasingly global and fast-paced market economy. So far, so clear. But are we not a different point today, in terms of both the economy and technology, than five years ago? When we talk about digital transformation today, do we still mean the same thing as ten years ago? The debate could do with a fresh take on the much-quoted – and much-misunderstood – concept of digital transformation, not least to seed greater awareness among enterprises in Germany that even the present level of advancement will soon not be enough. Whatever we call it – connected, augmented or enhanced – a new digital transformation is imminent.

Bernd Gross is CTO of Software AG and CEO of its subsidiary Cumulocity GmbH, the world’s leading independent Internet of Things (IoT) software platform provider. With nearly 25 years of international experience in the IT industry and in management roles, including in the UK, Finland and Silicon Valley, USA, Bernd Gross is one of Germany’s pioneers and thought leaders in the fields of digital transformation, cloud computing, the Internet of Things and Industry 4.0. Software AG employs over 4,700 people, operates in 70 countries and in 2018 generated revenues of 866 million euros.

Injecting meaning into digital transformation

A few years back, digital transformation was generally understood to be about optimizing business processes. Innovations in technology have since moved the meaning to a different place. When we speak of digital transformation today, the term embraces much more. It’s an overarching, connected landscape of all entities relevant to the business: software tools, for instance, smart devices or the machines a company uses, or the data – internal and from external sources – that it collects in the Internet of Things. To illustrate this abstract concept, here’s an example from condition monitoring. To report a problem with a device, customers used to have to queue in a hotline with elevator music playing, before finally speaking to a support person who might not even have been able to help. Today, devices self-report when service is needed, and do so well ahead of any problem. An automated, integrated ticketing tool takes care of real-time scheduling of a service visit by the engineer, who can take whatever action is necessary, preventing wear-related breakdowns from happening in the first place.

To stay competitive in the long term, it is no longer enough to “go digital” by optimizing just processes.

These scenarios are not some pipe dream of the future: they are happening how, framed by fully connected and integrated digital transformation initiatives. Take the company Lyreco, for example, a provider of office and workplace solutions that also supplies its customers with high-end coffee machines and capsules. To monitor its customers’ stocks of capsules and check that machines are always in good working order, Lyreco uses Software AG’s Cumulocity IoT platform for an IoT solution that oversees capsule stocks and machine operating parameters in real time. The machine data is fed into Lyreco’s resource planning system, enabling fully automated inventory management – as well as delivering cost savings. Lyreco can top up customers’ stocks before they run out, and automatically dispatch an engineer in the event of a technical fault. With the IoT solution, Lyreco’s customers are way less likely to run out of coffee or suffer total outage of machines. Whereas systems used simply to break down and engineers could only intervene after the event, machines can now be serviced before a part fails. This saves time for customers and reduces the annoyance factor.

The true core: new digital business models

As mentioned at the outset, according to Bitkom, digital transformation has now arrived on C-level agendas in German companies. However, the study also found that a sizeable majority are failing to invest in innovative digital business models, with time and funding cited as key reasons for holding back. And this is precisely the fundamental error in the way decision-makers in 2019 commonly engage with digital transformation. To stay competitive in the long term, it is no longer enough to “go digital” by optimizing just processes. Rather, organizations must leverage the technological opportunities of a highly fragmented and connected world to unlock new areas of business.

The “new digital transformation” focuses on overarching integration and connection of all the services used by a company.

Take the family-owned company Sensor-Technik Wiedemann (STW), based in Kaufbeuren in South Germany. They started out in 1985 with development and production of pressure measuring devices. Today, the company’s portfolio includes electronic products and software solutions for digital transformation, automation and electrification of mobile machines – with sales revenues of over 80 million euros in 2018. STW executed an IoT project for the Greater London Authority to monitor emissions from the city’s public transport buses. The aim is to get over 5,000 buses equipped with the technology by 2021 as part of London’s Ultra Low Emission Zone initiative to improve air quality. STW is implementing remote bus monitoring based on our Cumulocity IoT platform, which in this case is used as a white label solution. It enables technical data, faults, routes, locations and fuel consumption to be monitored and visualized in real time. STW illustrates perfectly what can be achieved by growing the core business along the trajectory of a coherent digital transformation strategy.

The “new digital transformation” focuses on overarching integration and connection of all the services used by a company. Companies that are slow to engage with this change of direction are risking more than just missing out on the latest trend.

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