Article

After our first episode focused on how to structure digitalization, we will now look at value-oriented set up and steering before examining anchoring and dynamic further development in the third episode.

The Digital Value study by Horváth & Partners, for which around 300 decision-makers in the DACH region were surveyed, demonstrated that by now more than 36 percent of companies allocate their entire investment budget in digitalization projects. At the same time, 73 percent stated that they actively steer their investments in digitalization using a dedicated approach. Nearly half (46 percent) use department-specific steering approaches, which are lightweight and no doubt effective, but do not offer a holistic view of corporate digitalization. Below we are therefore presenting an approach which is both lightweight and holistic.

Corporate digitalization is often perceived as unstructured and multifaceted. It is initially structured through a split into Value Levers and Enablers, e.g. applying our Digital Transformation Framework (see part 1 of our series). To operationalize and create a steering approach, instruments are needed which create transparency and enable specific measures to be implemented. This can be done with a portfolio approach designed in modern way. Or norm strategies can be set which help with setting the generally right priorities.

Contemporary steering of digitalization is based on a modern portfolio approach that organizes the steering field based on two dimensions.

The primary steering dimension comprises the split into Value Levers and Enablers and the related general strategic direction. Value Levers represent market- and competition-oriented corporate digitalization. The focus is clearly on strengthening the market position, as well as the value circulation, real goods, and management processes – consistently in a way that makes sense economically.

Enablers relate to strategic resources, i.e. strengthening the company's internal performance in relation to technology, information capital and human resources – from a perspective of the status quo and requirements.

The secondary steering dimension is split into digitalization measures with a present and future focus. Future-oriented measures tend to result in direct costs; no direct fund return is expected. By contrast, present-oriented measures aim at realizing a short-term fund inflow.

Classifying current and planned digitalization projects along these axes provides transparency of a company's digitalization portfolio. At the same time, the distribution itself can be used to draw conclusions about balance and possible priorities. Investment priorities as well as "blank spots" can be easily identified and classified.

An investment in technology (Enabler) without investing in market-oriented Value Levers at the same time (e.g. automating the value chain processes) means that e.g. economic benefits are not, or only insufficiently, exhausted.

Having created transparency and adapted the portfolio, if applicable, norm strategies for steering the portfolio can be deduced. A dynamic approach opens the strategic options of exploratory, future-oriented strategies ("Invest & Try Out") as well as exhaustive, present-oriented strategies ("Earn & Perform").

Invest & Try Out describes investments in Value Levers, i.e. market- and competition-oriented factors with the aim of later exploitation. These primarily include investments in long-term initiatives, such as setting up a new digital business model or digital product. On the other hand, investments can be made in Enablers which cannot be exploited immediately, such as basic technology, large data volumes or the potential for a partner network. All activities are aimed at learning and trying out with the purpose of later use.

Earn & Perform on the one hand comprises investments in Value Levers which allow for immediate monetary exploitation. This can e.g. involve the automation of support processes to reduce costs ("Earn"). On the other hand, investments can be made in Enablers which lead to a result to be exploited immediately. To give an example, employees can be extensively trained in digital skills which can be used in their professional daily lives ("Perform").

In addition to the portfolio distribution mentioned above, portfolio overviews and norm strategies can be used to deduce several simple but honed instruments.

This makes it possible to visualize resource allocation (funds, person days) so that the digitalization portfolio does not get out of hand. The project status can also be labelled, e.g. using colour coding in the traffic light colours, to quickly see progress and identify any projects that might be falling behind.

Moreover, the created portfolio can be dynamically used to display the life cycle of a project or of several related projects. With the help of this, expectations of the move from the investment to the exploitation phase can be stabilized and, if necessary, adjustments can be made (more resources, terminate project). In the context of this perspective, a monetary evaluation can be used to deduce any expected incoming and outgoing payments, thereby merging this approach with traditional corporate performance management.

Having looked at basic principles and management, the third and last episode of our series of articles will outline the implementation of extensive corporate digitalization. Just get in touch with us if you want to discuss these topics!

Dr. Burmester, L.