Despite all of its advantages, globalization has an inherent disadvantage: It is increasing competitive pressure and forcing companies to continually become better and more efficient – at an ever-faster pace. Companies marketing their products and services on the international stage aren’t the only ones that are affected; globalization also means that foreign competitors are showing interest in entering into our domestic market. The strongest competitor is no longer necessarily from the familiar town round the corner, coming instead from Sao Paulo or Bangalore. This is thoroughly intentional; all trade agreements in a model of this kind engender a macroeconomic win-win situation. More recently, since the confusion surrounding Brexit, we have been able to anticipate the dramatic consequences that an economy without a sensible trade agreement could face.
The digital age has further increased global competition. Who would have thought a few years ago that a trader from Hangzhou would grow to become one of the largest e-commerce vendors in the world, even selling t-shirts, hair curlers, garden furniture, and also machine parts for the manufacturing industry? Where is Hangzhou, anyway?
There’s a promising solution to the increasing global competitive pressure: ‘digital transformation’. This stands for: optimizing processes, accelerated product development, reduced costs, better customer interactions, and a greater degree of market flexibility. The global economy has recognized that digitalization is not an option, it’s now an essential requirement needed for success in international markets.
And this is where it begins to get interesting.
To quote the findings of Dell Technologies’ latest market survey, the Digital Transformation Index (DT Index): “Despite the inexorable move towards a digital world, many business’ digital transformation programs are still in their infancy.”
That’s expressed quite nicely. The survey was completed by 4,600 business decision-makers around the world; it indicated that only five percent of companies make up the group known as ‘digital leaders,’ a group which regards digitalization as an integral part of their DNA. A quarter of the companies consider themselves to be on the right path, having made concrete plans to digitalize and even allocating budgets already; however, more than 70 percent are proceeding rather hesitantly, cautiously testing different approaches or simply waiting until they see a need to take action.
The economy has been ushering in digital transformation for many years, so this finding is rather disappointing. Five percent is not an impressive figure! Of course, there are some major hurdles when it comes to reorganizing IT (this is, in effect, what it is really about). The lack of funding is the biggest hurdle. Many companies are also concerned because they believe they won’t be able to store customer details securely any longer and don’t know how they could effectively protect themselves from cyber attacks after undergoing a process of digitalization. Another serious problem is a lack of in-house expertise, as the job market simply doesn’t have a sufficient supply of IT experts, never mind IT security experts. Running parallel to this is an often intangible cultural transformation which is necessary to drive digital transformation forward successfully. By way of example, interdisciplinary and cross-departmental cooperation puts many people off because they see their much-loved positions jeopardized by virtual project teams.
The good news is that awareness has risen; after all, the vast majority of those questioned in the DT Index survey believe that digital transformation should play a considerably larger role in their companies. On the other hand, many people are also apprehensive of not being able to meet the requirements of their customers. Incidentally, one in three is pessimistic and feels left behind in the digital age.
The fact that digital transformation is a complex process is nothing new. The most radical requirement is perhaps the need for management to change their way of thinking and question old models and processes. As a concept, that is obvious. But, as is often the case, the reality is different. At any rate, digitalization mustn’t fail as companies will fail without it. Markets are unforgiving; the lack of a budget doesn’t change this. Organizations must ultimately be capable of reallocating monetary funds to support digital transformation, even if that has never been done before. They must also be capable of protecting themselves against cyber attacks, because – regardless of whether they have initiated a process of digitalization or not – they don’t have any other option. They must also be capable of finding external partners when internal expertise is not enough.
Five percent is not a lot of digital leaders but, on its own, this figure is certainly a good start. That being said, it’s actually quite alarming as the category of digital leaders also comprised exactly five percent of examined companies in the first Digital Transformation Index survey conducted two years ago. Not moving forwards within two years is actually a huge step backwards in the IT world. But that’s not all: German companies even saw their share drop from six to five percent. If no progression is regression, then what does that make regression?
This is no reason to stick our heads in the sand. But in light of increasingly strong competition together with the greater and greater number of digitally proficient startups which are addressing markets with more flexibility and success than ever, companies had better step up their digitalization efforts quickly. As the DT Index puts it: “The time to act is now.”