How digitalisation can ruin your business model

The fact that we should digitalise our business models and processes is on everyone's lips. And that professionals and especially managers should master the techniques of leadership in the age of digitalisation is also on everyone's lips.

But digitisation may well ruin our entire business model - if we don't lay a crucial foundation.

To clarify what foundation we should lay for successful digitalisation, let's first ask ourselves: what exactly does digitalisation actually mean? And why should we do it?

The origin of the term digitisation lies, as so often, in the Anglo-Saxon world. The verb "digitize" was first used in 1954. Then, at the latest since the mid-1980s, the term digitisation was used in Germany, obviously derived from this.

 In technology, one speaks of analogue and digital signals. The conversion from an analogue to a digital signal is then digitisation. This is most vividly comprehensible if one considers the development in music: the analogue sound signal on a vinyl record was first converted into the digital signal on a CD and nowadays in the form of a likewise digital file.

The term digitalisation, on the other hand, is distinguished by some companies from the term digitisation above in such a way that this term is now about the transformation of business processes or even entire business models.

In this respect, it is a matter of expanding the term: if before it was only about the transformation of analogue technology into digital technology, now it is about completely transforming entire business processes as well as entire business models on the basis of digital information technology. It is about re-imagining, re-constructing and re-evaluating how we do business. Analogous arguments can be made for society as a whole, which is already happening extensively.[1]

The best way to explain this is with an example: SAP News explains it this way: "If I scan a document, I digitize it. But I would digitise a factory."[2] Both English terms flow in German into the concept of digitisation. Technically, for example, one can digitise the scanning of a document; organisationally, one can digitise an entire factory or production.

This already makes it clear that whenever we talk about digitisation, technologies must always be digitised as a basis. The latter topic is a debate all of its own: just think about the fact that digital technologies not only have to be developed, but should also productively improve the work processes of people and organisations.

There is still a long way to go here, just think of the many web conferences, trainings and meetings in the online sector that are sometimes barely audible or even interrupted due to poor internet connections. Nevertheless, great progress has already been made in these areas: the use of Microsoft Teams, for example, has increased more than fivefold in just one year. 

But digitisation obviously means much more than digital technologies alone. It is about bringing entire workflows, entire business processes and even entire business models into a digital form, based precisely on digital technology.

This is really where two worlds collide. On the one hand, developments are foreseeable that will really turn our world upside down: globally active digital players such as Amazon, alphabet (the parent company of Google) or Tesla are applying digital technologies in business processes and business models that are new to them, which is causing what is known as disruption: it is already foreseeable that they will market these new business processes and models very successfully, at least through cooperation, if not alone. Think, for example, of Amazon Care, which makes online doctor's appointments possible, or the new Microsoft initiative Mesh, which will soon make it possible to discuss business initiatives, processes and products together on shared server platforms and via applications such as teams in augmented reality, for example as a hologram.

It is different when one executive shows another a recently developed report as a shared document on teams, or whether both are looking together at a virtual hologram where the columns of a diagram now protrude from the floor of a virtual room in 3-D technology."[3]

Attentive viewers of science fiction film movies are reminded of such.

All these developments will undoubtedly open up great possibilities in collaboration independent of time and place. Similar to the development of smartphones, I am sure that we will find these developments in our everyday working lives much sooner than expected. The crucial question, however, is what impact these new possibilities will have on professionals and managers.

I would like to contribute a few thoughts on this in this post and in further posts, and of course I welcome any feedback to get a lively exchange going.

Heavily focused by the development of the pandemic, in 2020 we have seen an enormous spread of so-called collaborative technologies in companies and also in society. Tools such as Microsoft Teams or Zoom, for example, and many web-based technologies are now being used and their use promoted by companies without much reservation.

Now that we have clarified what digitisation actually is, the question is why do we want to digitise at all? The answer certainly lies on the one hand in the above-mentioned threats from new players who are already very experienced in digitalisation and are now threatening to conquer the own terrain of companies that are not yet so strongly digitalised.

In coaching, we always speak of two basic motivations: one is the so-called towards motivation and the other is the away from motivation. We know from investment and money theory that humans always find it much harder to bear losses than to miss out on potential gains. We all find it very difficult to cope with the loss of anything we have been used to and, in a fascinating way, when we change we always go through the change curve that has already been developed in the context of loss of people and bereavement.[4]

Therefore, my thesis is that organisations only move when people in the organisation move - and that the latter do so primarily when they are threatened with loss. This is one away from motivation. We want to move away from the pain of loss. The loss of one's own business, or the loss of a business in terms of P&L loss. Possibly also the loss of one's power position or influence, possibly even the loss of one's job.

At the same time, there are also people who think more opportunity-oriented, who may even think two or three steps into the future. This is one towards motivation. But towards what exactly? And here we are at an important fork in the road.

German engineering has taught us over decades to keep optimising the existing. The question of when we have reached the point where the existing should possibly be replaced by something entirely new calls entire paradigms of thought into question. One only has to consider that Volkswagen, for example, is in the process of becoming the world's leading player in electric cars. And at the same time ask the question of how this came about. When, at the same time, the threat of disruption from the competition - see Tesla, for example - and a comprehensive change in the environment, such as that favoured by Fridays for Futures and other developments, come together for an orientation away from the combustion engine and towards electric mobility, then there is often no other choice but to flee forward.

The difficulties often arise when the question of acceptance by the people concerned is neglected or even ignored when new technologies are used and processes and business models are converted to these new technologies. Thus, when introducing self-service systems based on digital technology - for example, in the area of using chip cards for payments or also in the health sector - it is of crucial importance to first clearly formulate what vision or goal image is being pursued with the use of these new technologies, what concrete goals are being pursued with what resources (time, manpower, budget) and what the implementation planning looks like.

We have already seen in Kotter's change management model[5] that every strategic management step has a parallel step in the leadership area: for example, it is absolutely critical to give appropriate orientation to employees and managers in the management phase of planning and to take them along on the journey.

So, for example, if I am going for digital payment models, then it is crucial to identify the important axes and interfaces in the person of the relevant specialists and managers in advance when setting up a corresponding pilot and to involve them proactively. Digitisation in the sense of digital business processes and business models in the form of top-down planning is extremely limited. Too often, when a business case is introduced, only a little feedback is still sought from the people involved and then the implementation is still driven top-down by project management. Counter-current planning with responses by feedback from the person concerned would not only allow the experiences in the operational area to flow in at an early stage. It would thus, in the above example, for example in the area of credit card transactions, not only promote the process, but also proactively promote acceptance and commitment at the same time. 

Furthermore, it is still too often a matter of simply improving the existing, i.e. of optimising it further and further, similar to the car example above. Of course, I can set up a self-service with digital technologies, for example in the area of credit card acceptance. I can also support this by using technologies that automatically recognise the keywords and questions mentioned by the customer and then suggest appropriate solutions. But the bottom line is that the basic processes are still the same and might have to be replaced by something completely new.

Sure, the processes are varied to the extent that parts of the processes can be automated or converted to self-service. This is already being done very successfully. But if you think the path of digitalisation through to the end, a very decisive question arises: will a retailer, for example, still want to accept credit card payments from its customers in the same way as in the past - or will completely different transaction options already play a role here?

A year ago, hardly anyone expected how strong the position of cryptocurrencies such as Bitcoin would become. Without being able to go into the current economic drivers of this development, the use of cryptocurrencies in payment transactions, as already practised or planned by providers such as PayPal or even financial institutions such as Morgan Stanley, can certainly open up or actively promote other payment options for end customers. And what about the issues in the context of the Money Laundering Act when payments are made anonymously via cryptocurrency? 

The reason why I am elaborating on these lines of thought here is not to go into them in depth, but rather to show that it can make sense not only to think about optimising what already exists, but to first consider what the customer's requirements are in this age of digital technologies, and then to consider how to serve these needs. This requires a way of thinking in which we first think about the output, i.e. what is to be achieved, and only afterwards about how we will achieve the goal, i.e. the input: what we have to do for it, what resources we need for it and so on. 

 As early as 1988, William Samuelson and Richard Zeckhauser published a real milestone with their article "Status Quo Bias in Decision Making"[6]: in short, they found in a study that we humans have a strong tendency to consider our status quo as the basis for evaluating the opportunities and risks of innovations. What has also been described by many other works as leaving the comfort zone has a much stronger meaning in Opportunities and Risks: it is about the fact that we prefer the status quo when in doubt. It is our basis for comparison, to which we are only too happy to return when in doubt. It attracts us like a magnet. 

This is often reflected in the fact that the status quo is often not shown as an alternative in decision papers for board members, managing directors or department heads - for example by consulting firms.

However, the status quo is always an alternative: for every decision, the opportunities and risks of the current situation should always be assessed. For this is precisely where the above-mentioned bias comes into play. And there are not only opportunities, but often great risks in remaining in the current state - even if it is further optimised. The current state is therefore often used as a jumping-off point. For many people, the aim is to optimise it further. This is much easier and more convenient in the thought process of decision-makers than to first consider, on the basis of requirements from customers and legislators, for example, which future solution should be compared to these requirements.

After all, a new solution may no longer have anything to do with the current status quo. It may not even be a further development of the current status. 

Conversely, there is a risk that digitalisation, which we only pursue in order to further optimise what already exists, can ruin our entire business model. To put it the other way round: successful digitisation requires thinking back from the output: first of all about what we want to achieve and only secondly about what a corresponding (organisational-technical-personal) solution looks like. It is often no longer sufficient, especially with digitisation projects, to continue thinking along the same lines as before and to further optimise existing products and services. Because these are possibly "exhausted". Every life cycle of a product or service comes to an end at some point - and a completely new solution for future and current challenges of our customers must be conceived, tested, developed, rolled out and trained. 

So our business model or business process may have already done itself in. It/it is from a time when there was a different technology base. For example, in insurance, if I want to achieve truly virtual sales, to put seller and buyer in a virtual space, it is not enough to give both sides endless documents with complex T&Cs and legal terms to decide. Rather, this virtual space could be much better used to visualise existing risks for the buyer, to make complex diagrams much quicker to grasp as a hologram in 3-D format, and to capture joint opportunities to cover the identified risks in virtual form as well.

If I want to improve virtual collaboration by digitising it, is it enough to digitise the previous analogue meeting processes using digital technologies? At present, this is done by one person explaining their individually developed results to the other not in the meeting room on a video beam, but by file sharing via a collaboration app such as Teams, Zoom or similar.

Or should I rather use the opportunity to digitalise the entire process of idea development, then as "digitalisation"? This could lead to the idea of connecting a moderator on demand for an important meeting, developing solutions through management techniques such as mind mapping or root cause analysis, for example via fishbone diagrams or similar, together in an appropriate online tool in the web session.

All of this may already be under development, but that is not what is important here: it is about proactively involving professional and managerial staff in organisations: It is about designing work with new technologies in such a way that people can decisively play out their core competence: their intelligence and their creativity.

The pandemic was often used to catch up on urgently needed missed steps, such as equipping with laptops, VPN connections (which are still often far too slow and do not really replace web-based technologies) or the collaboration tools described, such as chat software.

But: with these, we have only caught up with what should have happened long ago - and have not yet taken a step forward. The initial euphoria often quickly gives way to a new routine, motivation slackens again, professional and managerial staff complain, for example, about the constant video conferences in which they are in the "cinema" module. In which, by the way, exactly the mentioned old work processes are repeated as described.

How much more effective would it be for all of us to really think 2-4 steps forward, and in the example above, to consider how we can, for example, adapt the whole creative process, for example in strategy meetings, in workshops etc. to the new requirements?

I don't mean introducing Scrum, Six Sigma, Agile etc. in the online workshop. because these techniques are not digital per se, even if they are used to develop digital software; these techniques existed before the demands of digitalisation. By this I mean that we could, for example, as payment service providers, consider whether and, if so, how we can integrate cryptocurrencies. We could experiment with using digital technologies to have what is said in a meeting transcribed automatically to bring in colleagues who could not be there and participate in decisions. We could, by involving employees in customer contact, give them the chance to voluntarily (!) ask for feedback on their conversation through on-demand coaches to decisively improve their results and satisfaction.

We believe that restrictions such as data protection, acceptance or technical equipment of the customers would block us.

But, on the contrary, this is where the opportunities often lie to improve precisely these aspects: the supposed blockades can become our guard rails to give our solutions the necessary quality: Encouraging creativity in the home office instead of the need for control due to uncertainty about performance at work. More involvement for employees, which allows for more effective leadership. Faster introduction of innovations through creative process on demand and more market success. The list of possibilities is endless.

The key is to think backwards: first to what is demanded by market forces, in the future, not today: and then to derive from that what needs to be done today. To counter these demands with a solution.

This requires a different way of thinking. 

My question to you, dear readers, is: 

What is your opinion - to what extent is this thinking from the side of the possible requirements of the customers already present among professionals and managers today? And to what extent do you think it is promoted by companies? Or to put it the other way round: to what extent are we still in the process of simply further optimising what already exists?

Do you have anything to say or ask? I look forward to your feedback, suggestions and further questions! Gladly also on [email protected]. For many more tips & tricks of this kind, simply send an e-mail with subject: "Tips and Tricks" to [email protected].

1] Cf.: Karabasz, Ina: The digitalisation push by Corona is a myth, in: Handelsblatt, 30.12.2020

2] See: Jacqueline Prause: Digitization vs. Digitalization - Wordplay or World View? https://news.sap.com/2016/05/digitization-vs-digitalization-wordplay-or-world-view/

3] Cf.: Postinett, Axel: "Digital Revolution: How Microsoft wants to bring holograms into the world of work" in: Handelsblatt, 10.02.2021.

4] Cf. Kübler-Ross, Elisabeth / Kessler, David: On Grief and Grieving, 2004. The author had already developed the change curve in 1969.

5] Cf. Kotter, John P. (1996). Leading Change. Harvard Business School Press.

6] Cf. Samuelson, William / Zeckhauser, Richard in: Journal of Risk and Uncertainty (1988): Status quo bias in decision making.