“Keep it up” doesn’t go on like this

Change is inconvenient, but necessary. There are situations in which we cannot determine all the factors that influence our coexistence and economic activity. The corona crisis is such a situation. It relentlessly reveals deficits and forces change. Digitization has entered the public debate more strongly. In order to be better prepared for crises, it becomes a necessity.

Most companies have felt this – from the stationery store around the corner to Dax-sized companies, even if the complexity and extent differ. The management consultancy Roland Berger recently showed: Those who invest in digital innovations now will be better prepared for the future and be able to react more flexibly to changes.

For concrete implementation, companies must use the boost created by the headwinds of the pandemic. Technologies such as artificial intelligence and machine learning give impulses, provide opportunities and open up paths. In short, they create new scope for business model and process innovations.

Ten years ago, consumer goods manufacturers, financial services providers, and pharmaceutical companies were the most valuable brands. Today, digital companies are at the top of the list. According to the Foundation for Economic Education, of the 500 companies with the highest turnover worldwide in 1955, 89 percent have completely disappeared from the scene today. New business models not only influence individual market positions, they also change entire markets

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The platform index developed by Holger Schmidt compares the performance of the largest listed digital platform companies with the Nasdaq, Dow Jones and Dax stocks. The result: the business models of digital companies are highly scalable. Although they cannot be compared with manufacturing companies, they do force the latter to take action. Three main trends make it clear which requirements business models will have to meet in the future.

Vendors don’t just sell products

First, digitization creates opportunities to stand out from the competition. Product and service-centered approaches promise greater added value for customers. Increasingly, providers not only sell products, but also services and digital services, sometimes in packages. Technical solutions form the basis for enabling consumption-based or membership-based business models.

A machine manufacturer will not only sell machines or household appliances, but also services such as installation via video conference, remote configuration, and predictive maintenance. This is not a dream of the future, but a reality.
Second, customers are inundated with information and offers. One way to attract and retain their attention is with individually tailored products. “Hyperpersonalization” is the keyword – from personalized soccer shoes to individually configured complex machines.

Third, the customer experience doesn’t stop with the purchase, especially when it comes to online retailing. How the goods are packaged, how the delivery takes place, how a possible complaint or return process works, shape the customer experience more clearly than the actual purchase. It also has a significant influence on future purchase decisions. Stable and sustainable supply chains have become a differentiator. After buying is before buying.

Resilience is the magic word

In order to do justice to the three trends, companies have to transform themselves into digitized companies. The technical solutions are there, but that’s not enough. Corona has shown how fragmented and fragile linear supply and value chains can be. Resilience is the magic word. In order to achieve them, however, you don’t need magic, but cooperation, i.e. agile and cooperative working models in your own and with other companies.

That is why we have to learn to rethink. The idea of ​​platform-based, cooperative approaches can be transferred to the manufacturing industry, especially German medium-sized companies as the backbone of our economy. In terms of networked value creation, the Federal Ministry of Economics refers to a merger of Thuringian machine builders – they rent equipment to each other, can better utilize capacities together and thus overcome their own limits.
The Thuringian example shows: Value chains have to become value networks. Three trends describe what defines new networks:

1. The expertise “Value-added networks in times of infection crises” recently published by the German Academy of Science and Engineering identifies four resilience drivers: anticipation, preparation, transparency and speed.

A good 70 percent of the companies surveyed rated the following measures to contain the effects of potential infection crises as (very) important: close cooperation with suppliers and customers, standardized data exchange with suppliers, customers and logistics service providers, and multiple sourcing.

Eliminate the need for product recalls

With such value-added networks, those involved can make faster, more agile and flexible decisions based on transparent insights.
2. Catena-X, an association founded last year, aims to create continuous data chains for value-added processes in the automotive industry. Manufacturers, suppliers and IT companies – from large corporations to medium-sized companies – hope that Catena-X will provide scope for new value-added services and overall a strengthening of the automotive industry.

Large-scale recall campaigns due to a defective component could be superfluous in the future because the information basis would be available to offer owners of individual, actually affected vehicles a workshop appointment directly instead of recalling entire model batches. This has a positive effect on customers and also has a welcome economic effect.

3. We cannot continue as before. To meet the current demand for natural resources, we would need 1.6 times the size of our earth. Regulators, investors and consumers are calling for concrete measures to reduce emissions and energy consumption. This increases the pressure on companies and their supply chains, whose emissions are on average more than five times as high as those of the company itself.

“Keep it up” doesn’t go on like this. Value networks help to make operational processes more sustainable, because it becomes clear which emissions are generated by the procurement, manufacture and distribution of products.
Conclusion: The digital change lays the foundation for new business models and value creation networks. It creates transparency and creative freedom in order to operate more sustainably. Those who do not face change are doomed to failure. However, those who accept the challenges will grow on and with them.

The author: Thomas Saueressig is a board member of the software company SAP, responsible for SAP Product Engineering.

More: Industry is dead, long live industry

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