Software Solutions in the Age of Digitalization – Part 1

Digitalisation changes, destroys and generates business models – so far abstractly. Today, companies that have undergone successful digital transformation, which are now at least millions of major companies, are always mentioned in this context. These include the usual names such as Amazon, Airbnb and Uber, who have revolutionized the entire industry and put classic business models to the test. They all have one thing in common: they only provide a digital platform and have no physical resources at all. The driving and transforming force behind all this is software.

According to a recent study by the Institute for Management and Economic Research (IMWF), 663 companies in Germany are now digital champions. However, most of the software solutions that we find in established German companies today are no longer suitable for reaching the pinnacle of digitalization. As a result, new software solutions have to be developed and legacy systems have to be replaced. How this can work is explained in our three part blog series “Software Solutions in the Age of Digitalization”. In Part 1, we discuss the key challenges of the transition.

In Part 2 we will show you the five most important criteria that lead to successful digitalization from a technical point of view.

Part 3 then concludes with the question “Best of Breed or everything from a single source?“

The challenges of digitalization

Using scientific methods, I could now quote a number of reports and studies to prove that there are basically three main challenges in IT to achieve a transition:

Focus on business models
Our Thesis: IT specialists do not understand the orientation towards new business models and conversely technical specialists do not understand the potential of modern IT concepts and technologies.

In order to meet the challenges of digitalization, it is first of all necessary to put one’s own business model and its strategic orientation to test. One thing should be noted here: the digital mapping of existing processes, for example the digitalization of an ordering process from placement of an order to payment, does not entail any transformation of the business model as such. But many people who talk about digitalization today mean exactly this – the automation of processes through software.

At the outset of a “true” digital transformation, on the other hand, there are big data analytics and lighthouse projects revolving around Industry 4.0 or the Internet of Things, always with the aim of generating more in-depth information. Because data is the gold of the new, digital age. Intelligent algorithms are becoming a decisive production factor and are creating completely new opportunities for business value creation.

And this is exactly where the crux often lies. Business models are not sufficiently defined and furnished with a business plan plus the necessary software development measures. Achieving a uniform understanding is therefore usually difficult, especially since a thought leader is either not available or not empowered to make decisions.

The Factor “Man”
The Thesis: IT specialists in a company prefer to engage with the familiar and are not able to understand innovative technologies and concepts in depth.

Every company has IT specialists who are open to new ideas. However, in the past, IT departments were primarily responsible for the operation and delivery of IT services, and traditionally they were not oriented towards innovation. This represents a significant cost block for a company. Even with the introduction of a CIO or CDOs, which can only be found in large companies, innovation is not automatically pre-programmed as long as these positions are not directly linked to the growth of the company. A study by the US IT service provider Insight Enterprises shows that 87% of all IT decision-makers see it as a challenge to meet the new demands. It is still a question of operating existing systems effectively and at the same time aligning them with the requirements of the agile, digital world.

Successful digitalization is hardly possible without external help. The integration of a consulting and IT service provider who has knowledge of the deployment and benefits of new technologies and the ability to implement them is essentially a must. The end-to-end approach, in which the sparring partner not only provides consulting services but also implements the project and, ideally, operates the solutions, has proven its worth.

The Factor “Time & Money”
The Thesis: There is a lack of time and money for sustainable changes in IT.

Unfortunately, this argument cannot be dismissed entirely. Overall, however, IT expenditure is rising because more and more processes are being supported by software solutions, the vertical range of manufacture in IT is too high and legacy systems are not being consolidated. This is also confirmed by figures from Gartner, who forecast an increase in global IT expenditure by 3.2% for 2019 compared to the previous year.

In a survey on the general status of digitalization, the digital association Bitkom found that one in three managers considers the shortage of time due to everyday business as an obstacle to the use of new technologies. One in five of the 604 companies surveyed proclaimed the lack of financial resources.

The Lean Startup Method MVP (Minimal Viable Product) is often used to quickly implement innovations and achieve competitive advantages. True to the motto “Keep it short and simple”, initially only that many functions are developed that the first users can use it smoothly and are satisfied. The launch of the product or service takes place almost in the raw state and is optimized step by step during operation with the help of customer feedback.

However, if a software solution is part of the USP – and this is not unlikely in the age of digitalization – then custom development is in many cases the best approach. You can find more about the topic “Make vs. Buy – when should you buy out-of-the-box and when is a custom solution worthwhile” in my last blog post.

Many traditional industries are facing fundamental changes due to the disruptive changes of recent years. New digital technologies and services are turning the market upside down and creating completely new customer requirements. The extraction of data and information is the oil of the digital age. In this new world, software is winning over hardware.

I would like to conclude the first part of our blog series with this Chinese wisdom: “When the wind of change blows, some people build walls, others build windmills.” So my appeal is: Don’t miss the connection and start building the “windmills” early. The development in the area of digitalization cannot be stopped. The Internet of Things is continuously making its way into our lives.