Nine Uncomfortable Truths for Industry

• Digitalisation is not a saviour, but just the first step to a successful business model.

• You need to be close to your customers and understand their problems.

• Your organisation must be ready for digitalisation.

It is THE topic in companies and the core of quite a few inquiries that we are receiving at present: Everyone wants to use digitalisation to develop completely new – and as disruptive as possible – business models. In most cases, 'digital value-added services' are intended to supplement the product-related core business. As Zühlke has been helping industrial customers make the next innovative leap forward for almost 50 years and has implemented many successful digitalisation projects for medium-sized businesses and global players over the last 10 years, we are one of the preferred partners.

Still, it's not my purpose in this article to show off our success stories, but rather to summarise for you some uncomfortable truths that we, as experts in digitalisation, come across time and again. Let yourself be 'dis-illusioned' in the best sense of the word, so that you can start the adventure of digitalisation with realistic expectations. I promise that you will then be better equipped to lead your company successfully into the digital future.

Let's start with a basic insight – the first of nine uncomfortable truths:
 

1. With your digitalisation strategy you are not disruptive, but just part of a herd.

I know that sounds harsh, but it's true: All general managers today want the Internet of Things and data analytics. Everyone wants a platform and talks about 'MVP' (Minimum Viable Product). They all demand 'fail fast!' from their teams and have held Design Thinking courses. Smaller companies are creating 'Digital Business Innovation' jobs, while larger ones are setting up an entire incubator and taking the obligatory beeline to Silicon Valley.

That's all good. Unlike just a few years ago, however, measures such as these are already mainstream now. It is right and important to really deal with these issues. But even so, you didn't initially achieve any more than the competition. If you look these uncomfortable truths in the eye, however, the chances are good that your implementation will be more successful than the herd.

When it comes to digitalisation, I also notice an often-overinflated expectation of new methods. Many managers overlook the second uncomfortable truth:

2. There is no such thing as a new super method that enables you to implement new and guaranteed-radical ideas.

Unfortunately, one need is voiced again and again: 'You've told us about Design Thinking, about Lean Startup and Scrum. But we've heard all that already. Don't you have some new method that we don't know about yet?' At this point I have to yell 'Stop!' It is not important to use a method that no one else has yet. A structured approach is important and sensible – but much more critical to success are team composition, top-management support and a positive failure culture.

Perhaps many managers long for new and productive methods because they are acutely aware of the following uncomfortable truth:

3. Working Agilely and following Lean Startup methods is much more strenuous than it sounds.

Agility and Lean Startup sound like a casual and fun way to work. The burdens of the dull everyday working life – such as precision and discipline – seem finally to disappear. This quickly gives the impression that anyone can work like this: all it takes is to be sufficiently motivated, and trained in a 'hip' method.

Unfortunately, these methods are anything but easy to implement and, firstly, require a great deal of discipline from all those involved – e.g. thorough formulation and validation of hypotheses. Secondly, fundamentally different management styles and a corresponding culture are necessary.
The new, creative forms of working from the start-up world seem tantalisingly simple. A prime example is the much used Business Model Canvas, to which unfortunately the following truth applies:
 

4. A completed Business Model Canvas is not yet a business model.

It is both a curse and a blessing of the Canvas principle: each team can fill out a Business Model Canvas in a 60-minute brainstorming session and go home with the good feeling of having created something really cool. After all, you always have a result. And everything so nice and tidy in one glance. I maintain: 98% of the Business Model Canvases end right here and are therefore no more than nice finger twiddling, because the tedious work is just beginning: deriving hypotheses, formulating tests, arranging appointments with users, validating hypotheses, iterating the Canvas, etc. This costs a lot of time, ties up resources and is usually quickly lost in the pressing daily business of the team members.

Another reason to save yourself the laborious validation of hypotheses could also be the following problem:

5. You know your customers much less well than you think. This becomes clear with digitalisation.

When a manufacturer wants to digitalise his business, it is almost always a matter of developing digital value-added services around the product. And what most people don't consider: when you offer your customers valuable (i.e: chargeable) services, you then need to know the big and the small problems that your customers have every day in the context of usage, even beyond your product. However, this is completely different knowledge from the knowledge that you have needed up to now for developing and selling your products. There are many treacherous 'unknown unknowns' here, meaning that you don't even know what you don't know about your customers. And you didn't even need to know it until now, because things like multi-stage sales or tendering standards around the 'product view' were sufficient. But suddenly it's all about a service view, networking and new 'Customer Touchpoints'.

The processes that are suitable here are Design Thinking methods for generating ideas, for example, and the User Centered Design Process for implementing them. But much easier, and something that everyone should do: just go out for a day with the service technician. You'll learn more about your customers than in all the training courses and studies together. I promise you.

Understanding your customers' requirements in the context of digitalisation is a challenge for your entire organisation: from development, through product management and sales all the way to service. But that's not all, because the uncomfortable truth applies:
 

6. Digitalisation doesn't fit into your existing organisation chart.

Digitalisation projects are always accompanied by the great challenge that they are inherently interdisciplinary. This makes the implementation of digitalisation projects very strenuous, tough and time-consuming. At the same time, the 'company's defences' prevent really radical new ideas from being generated within the organisation – or they ensure that these ideas are constantly watered down during the implementation process, so that in the end not much real radicality or even novelty is left. I don't even want to talk about the problems that a sales force has when, accustomed to selling products, it suddenly has to sell services, or the challenge when a manufacturer's ERP system cannot represent and invoice the sale of services - perhaps even on a pay-per-use basis.

If you sense these tendencies in your organisation, then the next truth may even come as a relief for you:
 

7. Disruptive business models of the Uber and Airbnb calibre do not stem from Germany.

Many industrial companies would like to land the big punch in their industry, preferably right away. No wonder, since in every lecture the usual suspects from the consumer world are quoted as models of disruption. But it is no coincidence that the biggest ideas come from Silicon Valley, because no other place in the world has such a high concentration of innovation drivers: the deep-rooted and actually serious claim to make the world a better place (Google, for example, only addresses problems that affect at least one billion people); the availability of venture capital and the willingness to invest enormous sums (65 times as much as in Germany); the pursuit of 'moon shot projects' (Elon Musk: 'I want to die on Mars.'); the openness to the exchange of ideas and acceptance of failures (in this form in Germany today unfortunately – still – unthinkable); the density of top research facilities, the tolerant lifestyle in beautiful surroundings and many more.

Only rarely does a disruption worthy of the name come from another part of the world. Can you think of an example? None at all from Germany? As you see, the country's strengths lie elsewhere: for example in quality, thoroughness, safety and a long-term orientation – to name but a few.

The following truth may explain why the USA, with its pioneering and exploratory tradition, is more successful than all the others:
 

8. New business models are not designed, they are discovered.

In the digitalisation process, most customers expect a clearly defined path to success. But there is no such thing. Take a look at how your company arrived at the business models of today. You'll notice the following: in more than 2/3 of cases, the founders started with something completely different and only gradually discovered and satisfied the customer needs that today make up your core business.

Typically, digitalisation projects also follow this development path: you start at a point with a (supposedly) good idea and go out to the customer – only then to discover what the customer really needs. From the very beginning, therefore, the goal must be to discover persistent problems at the customer's site: problems that your company can make a significant contribution to solving. This is the core of the 'Lean Startup' approach.

A problem is 'persistent' if someone is willing to pay enough money to solve it. Often, however, customers are only willing to use digital value-added services if you don't have to spend money on them. You only have to think of the many free apps on your smartphone.

The question arises as to how digitalisation projects can nevertheless become a business case. This is often the situation with monetisation, because:
 

9. Companies cannot 'fit' the business models of digitalisation into their current business logic.

The companies know that digitalisation will fundamentally change their business. However, they still want to present the result in their conventional business logic. Crazy, right? This is only possible with incremental innovation, where past experience is available and there are assured expectations for the future. Then an ROI, for example, can be calculated quite reliably.

In digitalisation, however, the main issue is about two completely different things: about data and about the customer interface. Neither of these can be easily monetised through the industry's existing distribution channels. Much more often, the success factors exist in the development and use of multi-sided markets, in the realisation of network effects as well as in fast scaling and wide reach. Digitalisation creates the basis for new business models that cannot yet be foreseen through logic and reasoning. Appetite comes with food, as it were, and the best ideas are born in cooperation with third parties.
 

What do we do with this knowledge?

I believe in digitalisation, and you as an industrial entrepreneur should engage with the topic intensively. I would like to encourage you to reflect on the above points and ensure that your expectations of yourself, your company and your innovation partners are resting on firm foundations. You will definitely benefit from a realistic view of your projects and your organisation.

As a partner for digital business innovation, Zühlke tries every day to find the right answers, the correct answers, to digitalisation. We too have not found the ultimate wisdom yet, but we have tested many routes in the last 50 years and learned quite a bit. In my view, five factors are particularly important:
 

Rent a Startup is one possible approach for successful digitalisation projects.

We have combined our experience with digitalisation projects into our Rent a Startupprogramme: A mixed team made up of your domain experts and our methods/technology experts work together to implement the innovation – agilely, outside the organisation and within just a few months.

Success factors for entering the digital future

• The deeply-rooted conviction in top management that digitalisation makes new paths possible and necessary – and the willingness to take these paths with boldness.
• Interdisciplinary teams that are given sufficient freedom and distance from day-to-day business and are allowed to break new ground and make mistakes in the process.
• First find customer problems before thinking about solutions. There is usually no lack of ideas, but rather a lack of well-understood customer problems.
• The ability to learn openly, and together with customers and partners, what the individual path to digitalisation looks like for one's own added value.
• A positive error culture and the agility to move quickly and iteratively from the initial solution idea to a viable business model – and before the project runs out of money.

If you are interested in how we nurture the culture of innovation at Zühlke in order to shape digitalisation, I can recommend the Innovation@Zühlke poster.