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Digitale Transformation

The connected Economy: digital or bust

Digitization is no respecter of size, with big names like Kodak, Neckermann and, most recently, Nokia all becoming casualties of their own failure to embrace the digital transformation. The connected economy is changing the ground rules with gathering speed in all industries. And with major consequences.

23 Feb. 2015
d!conomy vernetzte Wirtschaft

For decades, designers and fashion experts have found it necessary to ship dyed fabric swatches around the world for color matching purposes. It's a time-consuming and expensive exercise they could soon be spared. With multispectral analysis, it is now possible to generate special color codes that can be transmitted digitally. This "fax machine for the textiles industry" is an invention by the German Fashion Institute (DMI) that has disruptive potential and which was recently awarded the Digital Transformation Award by WirtschaftsWoche, T-Systems and Strategy&.

This example shows just how quickly the connected economy can change industrial value chains – and why no company can afford to ignore the digital transformation. According to the technology market research firm Gartner, by late 2016 at the latest we can expect to see further companies lose major market share as a result of failure to engage with the digital transformation.

The return of single-lot production

Manufacturing, in particular, is poised for disruption as the vision of Industry 4.0 becomes reality and brings total integration. In logistics and production, materials, machines and equipment will be equipped with cyber-physical systems that can "talk" to one another via the Internet. Warehouse racks will report when they’re running low on stock and automatically re-order, and production lines will synchronize their throughput rates across the globe. All of which is music to the ears of sectors like the automotive industry with its hordes of subcontractors.

So, while today factories are still mostly centrally controlled, tomorrow they'll be pretty much running themselves. The productivity gains could be as high as 30 percent. And, after decades of mass production as the dominant model in the manufacturing industry, one-off production will make a comeback as single items become much easier and cheaper to produce.

Transformation from the top down

This trend is still in its infancy, even though industry heavyweights like Bosch and Festo have already realized a number of pilot projects. However, Industry 4.0 is, according to the Experton Group, still the most important new trend in business and ICT in Germany.

"If you want to remain globally competitive into the future, you have to invest in the right ICT solutions."
Bernhard Rohleder, BITKOM

Technologies like social media, mobile Internet and cloud computing are all feeding into this trend. They are changing consumer behavior faster that it has ever changed before, while at the same time opening up new opportunities for businesses to get to know their customers better and offer more individualized products and services.

Mastering the strategic transformation does, however, require clear strategic direction. The technical possibilities are just too many and diverse for a company to be able to navigate them profitably without that. Management, CIOs and business departments need to formulate transformation plans collaboratively. The digital transformation experts at the German management consulting firm neuland GmbH & Co. KG recommend that companies enshrine awareness of digital transformation in their corporate strategies and avoid delegating responsibility for the transformation process. Transformation from the top down, in other words. The roadmap should also include a clean-out of IT structures that have passed their use-by date.

Not that digital networking is changing only logistics and production. More than anything else, it's also transforming marketing, with businesses now able to respond in a more targeted fashion to their customers’ wants and needs because they now know precisely what those wants and needs are. In concrete terms: each person who visits a company's website effectively offers up information on his or her shopping interests and habits, preferences, friends and income bracket. The company can use predictive analysis and various big-data applications to mine this information and tailor its offering directly to the customer. This process also yields information and insights which can then be fed back up the chain and into the production process.

So the possibilities and opportunities are virtually unlimited, and all it takes to harness them is accurate market intelligence and technological development. Things that Kodak, Neckermann and Co apparently lacked.