The Transformer’s Dilemma
In fall 2016, executives at Saubermacher — a waste management company headquartered in the quaint Austrian town of Graz — executed the first step of their digital transformation and ecosystem strategy. They had created “Wastebox,” an app-based waste disposal platform, connecting construction companies with waste disposal firms. As CMO Andreas Opelt told us, Wastebox garnered a significant valuation only two years after inception and led one of the global industry leaders, Veolia of France, to seek out a partnership with them.
But Saubermacher faced one core dilemma: how could they maintain profitability in their legacy business activities while reaping the full potential of this new digital ecosystem business?
This transformer’s dilemma is something that all incumbents face. (That’s if they manage to successfully implement such a transformation in the first place. After all, a McKinsey study finds that 83% of all transformations fail.)
How can companies survive this dilemma? We conducted interviews with almost 100 Chief Transformation Officers, Chief Digital Officers, and other top executives at over 80 global companies —all notably established firms with a long history, as opposed to startups — asking them about their best practices for tackling the digital transformer’s dilemma. We found that success requires five elements:
Leaders understand there’s a pressing need to pursue a dual business approach. Leaders first have to realize why their organizations must transform, in order to lay out a strategy for how to act. Companies may need to respond to newly emerging competition or changing customer preferences. They may need to play catch-up as they see their market share dwindling, or they may seek to proactively create novel value propositions for new customer profiles.
Companies have complementary strategies and business models for their legacy and new businesses. First, organizations need to focus on how digitization can help safeguard competitiveness of the core business. Second, organizations need a strategy for the inception of disruptive digital business to generate additional growth. Third, organizations need to consider interactions between the core and the new digital business.
Most existing strategy tools are ill-fitted to this exercise. The majority of them focus on within-industry competition and are of little help when organizations must execute strategies involving multiple players and industries. What is needed are new approaches to strategic portfolio management and digital initiatives. It can help to visualize the company’s entire portfolio of digital initiatives as a matrix of existing and new products, markets, and internal and external players. Such a visual can help leaders quickly grasp where digital transformation efforts are concentrated, allowing them to judge whether they are in line with the strategy that has been defined and what other stakeholders should be involved in executing initiatives going forward.
Companies have the right talent and mindset. Digital transformation is only possible with the right staff and leaders. Across both businesses, the most important levers in this respect are retraining and hiring. For instance, leaders of a steel company we spoke with built a dedicated digital academy to upskill employees in digital proficiency, investing in their employees’ as well as the company’s long-term development.