Three paths to digitalization: Which one suits your SME?
Jonas Reuter
Is your company also at the point where you are wondering how you can effectively leverage the benefits of digitalization without falling into the trap of short-term solutions that do not offer long-term value creation?
The key is to understand the difference between simple digitalization measures and a comprehensive digital transformation. Below, we will look at the different approaches to digitalization and discuss how these can not only bring your company up to date with the latest technology, but also prepare it for the future in a sustainable way.
Necessary basics
Regular readers of the MORGEN Blog know the basics needed to properly understand this article on digital transformation. For occasional visitors, we summarize the necessary basics for understanding the article here.
Digitalization vs. digital transformation: a fundamental difference
In an era where digital technologies are fundamentally changing the business environment, mid-sized companies in particular face the challenge of taking the right steps to digitize their operations and processes. While digitalization focuses on the integration of digital technologies into existing business processes, digital transformation encompasses a more profound change that redefines the way companies operate and create value. Not every digitalization therefore leads to a transformation, but every transformation includes digitalization as one of its core aspects.
You can find more on this topic in our article on the differentiation of digitalization vs. digital transformation from the MORGEN Blog.
Digital strategy vs. digitalization strategy: clear differentiation for effective implementation
In small and medium-sized enterprises, no distinction is often made between digital strategy and digitalization strategy, which can lead to misunderstandings. However, it is crucial to understand the differences in order to effectively exploit their potential.
The digital strategy integrates digital technologies holistically into the business model with the aim of fundamentally transforming the company through technological innovations and opening up new opportunities for value creation. This involves not only improving internal processes and the customer experience, but also developing new, innovative business models to make the company fit for the future.
The digitalization strategy, on the other hand, focuses on implementing digital technologies to increase the efficiency of existing business processes, with the main goal of reducing costs and improving operations without fundamentally changing the business model.
Find out more about how you can effectively implement these strategies in your company in our blog post on digital and digitization strategy.
What is part of the business model?
A business model is the basic logic of how a company creates, delivers and captures value. It includes the way in which the company offers its products or services on the market, how it generates revenue, what cost structures it has, and how it interacts with its customers, suppliers and partners. A business model also defines who the target customers are, what benefits the company offers these customers and how it differentiates itself from competitors. In the digital era, business models often include the use of digital technologies to create new sources of value or transform traditional business models.
Excursus customer centricity
Customer centricity is an approach in which the needs and expectations of customers are at the center of all company activities. It is about developing a deep understanding of customer needs in order to create products, services and experiences that precisely meet these needs. Customer centricity requires a consistent focus of product development, marketing, sales and customer service on creating an outstanding customer experience. This approach promotes customer loyalty and retention by ensuring that the company's offerings are closely aligned with the wishes and needs of the target group. Customer centricity is often the recipe for success for change or new business models.
Digitalization: What type are you?
Individual measures
- isolated systems
- at the request of the specialist department
- fast and cost-efficient
This method focuses on individual, isolated systems and addresses specific requirements of individual departments without considering an overall strategy or integration. It is fast and cost-efficient, but only aims to achieve small cost savings, often by automating specific areas. This can lead to inconsistent solutions that contribute little to process optimization or digital transformation.
Digital strategy
- networked systems
- from the existing infrastructure
- cost-intensive and difficult
This strategy aims to create a network of connected systems based on a system map. It focuses on digitalization and linking existing systems, but is lengthy and cost-intensive, which often leads to project abandonment. Despite the goal of integration, many projects can lead to isolated solutions without achieving significant process optimizations or improvements in the customer experience.
Customer-centric
- Systems with added value
- at the customer touchpoints
- increase sales
This strategy focuses on digitalization along the customer journey, with the customer experience at its core. Digital solutions directly create added value and enable faster amortization. This leads to more efficient process reengineering and true digital transformation. Business model and customer interaction are sustainably improved by consistently focusing on customer needs.
Most medium-sized companies digitize with the salt shaker: unrelated individual measures at the request of the specialist department to save costs. A purely internal view, without a customer perspective. I would look for revenue-relevant measures!
Jonas Reuter
Individual measures - digitalization without an overarching strategy
One-off digitalization measures are often the first port of call for SMEs that want to address specific, immediate needs. They offer a quick, cost-effective way to automate or improve certain areas.
Fast implementation without extensive pre-planning or complex integration.
Cost-efficient for initial introduction with a focused area of application.
Addresses specific problems of individual departments or processes.
Often leads to isolated solutions without overarching links.
Limited to small cost savings through automation.
Limited contribution to the overall digital transformation of the company.
This approach focuses on the implementation of individual, isolated digital solutions aimed at addressing specific problems or requirements within specific departments. By focusing on individual aspects of business operations, individual measures enable rapid implementation and offer the opportunity to achieve immediate improvements. They are particularly attractive for companies that want to react quickly to market changes or increase internal efficiencies without aiming for a comprehensive digital transformation.
However, this approach can also have disadvantages. Limiting oneself to selective solutions often leads to fragmentation of the system landscape, which makes integration and interaction between different areas of the company more difficult in the long term. In addition, although individual measures offer short-term cost savings, they rarely contribute to a fundamental improvement in competitiveness or contribute to the strategic realignment of the company in the course of the digital transformation. The risk of isolated solutions that are not embedded in a holistic digital strategy can therefore impair a company's efficiency and ability to innovate in the long term.
Networking digital strategy - all-encompassing digitalization
Developing an interconnected digital strategy is a crucial step for companies aiming for a comprehensive digital transformation. It goes beyond piecemeal solutions and aims to create a coherent, integrated digital infrastructure that encompasses the entire company.
Creates a networked system landscape for the entire company.
High implementation costs with risk of project termination.
Uses a digital map to plan system integration.
Slow implementation with focus on internal details.
Despite the goal of integration, many projects end up as isolated solutions.
Strives for complete digitalization without achieving transformative change.
Such a strategy begins with a thorough analysis of the existing system landscape and business processes to identify areas where digital technologies can enable or improve transformation. The approach focuses on integrating different digital systems and technologies to ensure seamless, efficient and flexible operations. This often includes the introduction of new platforms, the automation of processes and the improvement of data analysis and utilization. The aim is not only to optimize internal processes, but also to improve the customer experience and develop new business models based on digital opportunities.
However, companies pursuing a connected digital strategy face challenges such as high initial investment and the need to change existing corporate cultures and ways of working. While the potential benefits of a fully integrated digital environment are significant, realizing such a vision often requires considerable time, financial and organizational resources. In addition, continuous adaptation to new technologies and market developments is required to ensure the long-term relevance and effectiveness of the digital strategy. Despite these challenges, implementing a networked digital strategy offers the opportunity to significantly increase competitiveness and make the company fit for the future.
Digitization in the company
Does your customer ?care?
digital travel expense report
digital time recording
InternalKnowledge database
Software
Automated payroll accounting
digital personnel management
Industry 4.0
Cloud computing
Paperless office
Home office
Customer-centric digital strategy - digitalization from the customer's perspective
Implementing a customer-centric digital strategy represents a paradigm shift that places the customer experience at the center of all digital initiatives. This approach recognizes that the true value of digitization lies in the ability to build closer and more meaningful relationships with customers.
Customer experience is at the heart of the digitalization strategy.
Rapid increase in value and amortization through direct added value.
Efficient revision of processes along the customer journey.
Optimizes processes from the customer's perspective, not internally.
Strengthens customer interaction and business model in the long term.
Leads to real digital transformation and process improvement.
By aligning digital efforts with the needs and expectations of customers, a customer-centric digital strategy enables companies to rethink and redesign their processes and services. This includes the implementation of technologies that create personalized experiences, improve the customer journey and optimize customer interactions across different channels. The aim is to create direct added value for the customer through digital solutions, which in turn leads to greater customer loyalty, higher customer satisfaction and ultimately an increase in sales. Digital tools and data analytics play a crucial role in gaining insights into customer behavior and continuously improving offerings based on this.
However, a customer-centric approach also requires a rethink within the company. Teams need to be agile and flexible in order to be able to react quickly to changes in customer preferences. Close collaboration between different departments is also necessary to ensure a consistent and seamless customer experience across all touchpoints. Despite the challenges, the customer-centric digital strategy offers an excellent opportunity to differentiate in a highly competitive environment and ensure long-term success by focusing on the customer.
Effective digitalization is visible to the customer
Effective digitalization has a direct impact on the customer. Instead of just optimizing internal processes for a few employees, customer-centric digitalization measures achieve a broader effect: improvements have an impact on many customers at the same time and create new added value. This added value can often be easily capitalized and can form the basis for new business models. This is how digitalization becomes visible and value-enhancing.
This is hindering the digital transformation of SMEs
Digitalization poses a number of challenges for SMEs that managing directors need to overcome.
A key obstacle is often operational blindness, which arises from long-standing business practices and processes and can limit openness to new, digital solutions. Added to this is resistance to change within the workforce, which is fostered by uncertainty and fear of the unknown.
Another significant problem is the lack of digital skills and resources, which can hinder the development and implementation of digitalization strategies Furthermore, insufficient strategic planning and the absence of a clear digitalization strategy can lead to digitalization projects being implemented without fixed goals or KPIs, which jeopardizes their success.
These challenges make it clear that digitalization in SMEs is not just a question of technology, but also requires a profound cultural and structural change. Managing directors must therefore take a proactive and strategic approach to overcoming these obstacles and successfully leading their companies into the digital future.
From the field: Effective digitalization measures
You should check these measures
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Which customer-centric digitalization measures really help companies move forward? MORGEN provides insights into proven strategies from other companies.
online
Customer portals
Product configurators
Help and training platform
Support chatbots
Feedback and evaluation systems
digital production status
CRM systems
Online appointment bookings
Spare parts and service platforms
new communication channels
Can you still be helped?
You are....
and fight with....
Impulse questions: Is your digitalization customer-centric?
Start the check of your digitalization strategy with these eight essential key questions. They will help you evaluate whether your digital initiatives are truly aligned with your customers' needs. Take the time to answer these questions honestly to ensure that your digitalization efforts are not only efficient, but also effective and customer-centric.
Digital initiative: Standstill is a future competitive disadvantage
Taking digital measures is a crucial step, especially for SMEs that want to remain competitive in today's fast-paced, technology-driven world. The first step towards digitalization can already create considerable added value and is always better than remaining passive.
The implementation of digital technologies, whether through one-off measures, a comprehensive digital strategy or a customer-centric digitalization initiative, marks the beginning of a journey towards more efficient, responsive and ultimately more profitable business models. Every digital action, no matter how small it may seem, helps to lay the foundation for future success. However, it is essential for SMEs not to stop at the first steps. It is not enough to simply digitize or automate existing processes. Rather, these initiatives should be used as a springboard to ask deeper questions about their own business models, customer loyalty and the possibility of tapping into new revenue streams.
In particular, SMEs should continuously question their digital measures and evaluate how digital transformation can not only optimize internal processes, but also open up new revenue streams. This includes exploring innovative business models, adapting to changing customer needs and being prepared to consider digital technologies as an integral part of the corporate strategy. The key to success lies in going beyond mere digitalization and promoting a culture of constant innovation and change. The customer-centric perspective is particularly valuable here, as it enables companies to differentiate themselves in a saturated market and develop closer customer relationships.
Further articles on digitization
01.04.2024
Three paths to digitalization: Which one suits your SME?
26.02.2024
Digital strategy vs. digitalization strategy: A guide with practical examples
15.02.2024
Digitalization in SMEs: the customer at the heart of the transformation
18.12.2023
Shaping the future: The role of digitization for companies in 2024 - Active strategies and opportunities
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Jonas Reuter
About us:
MORGEN is a specialized management consultancy that focuses on the development of new business models for medium-sized companies. In particular, it supports owner-managed companies in their future-proof transformation. Knowledge transfer is at the heart of its consulting activities, which is why the MORGEN Blog regularly publishes articles on key topics such as digitalization, transformation, customer centricity and sustainability.