Digital transformation

Major ambitions and practical challenges

Participants in the Innovation survey Netherlands 2018 have major ambitions when it comes to digitalisation. What is their current level of digitalisation and which hurdles do they expect when realising future ambitions? Ron Martinek, director Digital Transformations at PwC, explains.

Five levels of digitalisation

We have identified five archetypes in digital business models. These five levels gradually increase in complexity from technology-enabled to open digital.

Most respondents would place themselves in one of the first three levels. Half of them consider themselves as technology-enabled and are thus at the beginning of their digital transformation. A handful of companies consider themselves as solution-oriented or open digital, which are the two final phases. Ron Martinek also says that, in his experience, the majority of Dutch companies work with business models that are in the first phase. "Technology-enabled means they unite the online world with the offline world. This has a considerable impact on every facet of the organisation.”

Being a customer-oriented organisation implicates a lot more than just implementing a CRM solution

Almost all of our respondents expect to rise at least two levels in their digital transformation process in the coming fives years. Of the many companies that currently consider themselves as technology-enabled, three quarters want to have reached customer experience level. Martinek acknowledges that many companies still have to get started. “There is a possibility that various respondents have underestimated the transformation. Being part of an organisation that focuses on customers (customer experience) involves more than just implementing a CRM system. It is possible to modify the supply chain, as well as the manner in which customer contact takes place and customer relationships are maintained. In addition, rather than being structured as separate silos, organisations will be designed to create added value for customers. This means changes in organisation structures, processes, systems and required skills."

Make conscious decisions

Martinek points out that the five-level model does not mean all organisations must eventually become open digital. "Although the ongoing digitalisation process will be unavoidable for most organisations, they can decide to be and remain tech-enabled. But they must make a conscious decision and effectively implement the implications. Although many companies think digitalisation is mainly about technology, it is primarily about where you want to go as a business and the experience you want to give to customers.” Martinek has a few tips for implementing the digital transformation: "Set your course and take small steps when validating the market and assumptions. Make sure the success of projects is measurable and base projects on an effective decision-making process."

Leaders: consider your ‘day after tomorrow’

Martinek advises organisations to focus on three horizons during transformations: "60% on incrementally improving existing business, 30% on future business with new technologies and 10% on the disruption you will face. You can also take action now to identify the disruption you will encounter in the future. Leaders do not do this enough in practice; almost all their focus is on actions aimed at realising incremental improvement. Make time to consider The Day after Tomorrow together with other directors, and let leadership present actions and lead by example."

Digital strategy in order?

It is noteworthy that three quarters of the respondents believe their digital strategy is fully in line with their overall business strategy. In our experience, this is one of the main factors for a successful digital transformation. Companies answered the following four questions to determine whether their digital strategies were sufficiently crystallised:

What impact will digitalisation have on our business model and our positioning in the value chain for our sector?
How can we identify the markets where value is being created and how can we enter these markets?
Which parts of our business model are susceptible to disruption caused by new arrivals, and how do we respond to it?
Which skills do we need to be a leader in our markets?

Processes and systems important obstacles

Almost half of the surveyed companies, which are spread across all sectors, expect their existing business models to change strongly to very strongly. A third expects very little to no change in their existing business models. However, half of all respondents also said they did not possess the processes and systems needed to realise their ambitions.

Fix the basics

In our practice, we have also noticed that many companies are struggling with outdated and legacy solutions, which are often renewed in long and expensive processes, of which the added value is not always transparent. We recommend taking a careful look at the business case for renewing back-office systems, just to mention one example. Martinek: "Invest in platforms that help to, for instance, improve customer value, productivity and employee experience, instead of a new financial system and/or ERP solution. Give priority to front-office solutions, such as CRM, business intelligence and the digital workplace.”

Experimentation and validation

Martinek also points out that a process-based approach towards digital innovation must be adopted. "For instance, consider building a digital incubator to enable fast and frequent experimentation, learning and validation: does innovation offer a solution to your problem – is there a problem-solution fit? And do enough people experience the problem in question – is there a product-market fit?"

Other knowledge and competencies needed

Over 40% of respondents face challenges when it comes to creating an appropriate culture and involving the right people. However, we believe this aspect is being underestimated. Although STEM skills (science, technology, engineering and mathematics) are not mentioned in the top five of important future skills, they form the basis of most technological innovations. For example, expertise concerning blockchain and artificial intelligence is currently difficult to find.

Creative intelligence

Besides specific knowledge, companies will increasingly need employees capable of adding value in, for example, the field of smart automation and robotics. There is now greater need for social and creative intelligence, to deal with tasks that are difficult to automate. In line with this, our respondents regard creativity, innovative capacity, cooperation and problem-solving capacity as the most important skills for the future.

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For the fourth year in a row, PwC researched the innovation climate in public and private organisations in the Netherlands. The Innovation Survey Netherlands 2018 involved interviewing almost one hundred participants about five themes: challenges, process and core values, cooperation, trends and the digital transformation. A third of all respondents work at C-level and another third occupy positions that involve innovation or R&D. A sizeable majority work for organisations with a turnover ranging from at least fifty million euros to one billion euros. Two thirds work for organisations with more than 250 employees.