The Role of IT as an Enabler of Digital

Transformation 2
Christophe Châlons and Nicole Dufft

The digital transformation of the economy and society could be called a digital
revolution – one with as far-reaching an impact as the Industrial Revolution of the
nineteenth century.
This digital revolution takes a number of guises, however. It essentially began
60 years ago with the first computer. Data processing, or information technology,
then gradually spread to nearly every process and every industry with the goal of
automating processes and making them more efficient. This evolution was largely
made possible by continuous technological development.

2.1 The Digital Revolution

One essential step was taken in the 1990s with the spread of the nascent Internet and
World Wide Web. These technologies revolutionized communication both within
companies and between companies and their partners, suppliers and clients. Above
all, however, they changed how companies communicate with their end customers.
In this respect, the development of e-commerce and e-business at the end of the
1990s laid the groundwork for today’s digitalization. At the time, however, infor-
mation technology was still used mostly to support existing processes, such as
logistics, purchasing and sales, marketing and customer relationship management.
The digital transformation of today goes much further. Companies are now using
information technologies to develop fundamentally new business models, products
and services.

C. Châlons (*)
Pierre Audoin Consultants (PAC) GmbH, Holzstraße 26, 80469 Munich, Germany
e-mail: [email protected]
N. Dufft
Pierre Audoin Consultants (PAC) GmbH, Oranienburger Straße 27, 10117 Berlin, Germany
e-mail: [email protected]

# Springer International Publishing Switzerland 2017 13

F. Abolhassan (ed.), The Drivers of Digital Transformation, Management for
Professionals, DOI 10.1007/978-3-319-31824-0_2
14 C. Châlons and N. Dufft

IT innovations not only provide support, they actually enable the radical re-
development of processes and value chains. This has given rise to new value networks
and to changes in the structures and power relations of entire industries. The tradi-
tional boundaries between industries are becoming blurred.
Examples of this are plentiful. In the travel industry, for instance, travel agencies
have redefined their added value, while transportation providers such as train
companies and airlines, along with hotels and tour operators, had to adapt to the
new transparency in pricing and customer satisfaction as well as to the power of
portals such as Booking.com or Opodo.
Successful new companies are popping up everywhere, while existing com-
panies have to make substantial adjustments or face being squeezed out of the
market – either because they haven’t changed quickly enough (if at all), or because
they simply haven’t managed to adapt their business models to the new competition
they face from digital companies and services such as eBay, Facebook, Instagram,
Wikipedia, Booking.com, Airbnb, Uber or Spotify.
Incidentally, the music industry is a good example of just how quickly this
change can happen: Barely ten years ago, Apple revolutionized the industry with
iTunes. But today, streaming services (such as Spotify, Deezer and the new Apple
Music) are making the once-successful iTunes model irrelevant – and not just
among the youth. Apple has gone from a pioneer to an imitator.
These changes are not only affecting consumer markets (B2C); digitalization is also
exerting a massive influence on B2B markets. Business customers and consumers alike
now expect personalized interaction via various channels, both online and offline, along
with individualized, networked products and offers as well as data-based services. As a
result, product manufacturers are forced to evolve into solution providers.
And the next upheavals are already on the horizon: The new technologies
associated with the Internet of Things will radically change the business models in
other industries in the coming years – including the automobile industry, mechanical
and plant engineering, and energy.

2.2 Technological Drivers and Effects

These upheavals are being driven largely by the following technological

developments:

– Mobile technologies, which make it possible to access information, and thus to

interact or make decisions, at any time, from anywhere.

– Social media, which are massively changing the opportunities for interaction
within companies as well as with customers, partners and the general public.

– Analytics and big data, which enable companies to make well-founded decisions
(sometimes in real time) and to develop data-based business models.
2 The Role of IT as an Enabler of Digital Transformation 15

– Cloud computing technologies, which guarantee highly flexible access to

applications and data under reasonable financial conditions.

– And finally, the Internet of Things (IoT), which promises unlimited opportunities
for interaction and new business models by connecting products and sensors.

Of course, it is not the digital technologies themselves that are causing the
upheavals described earlier, but rather the economic effects of how these technologies
interact.
For example, the use of digital technologies dramatically increases market
transparency. Never before have customers had real-time access to so much infor-
mation about quality, functionality, prices, alternatives or customer service. Pur-
chasing decisions are increasingly being made on the basis of the recommendations
and experiences of other consumers. This applies to everything from books to
financial products which require extensive consultation with customers. And
never before has it been easier for customers to switch to an alternative provider
at the click of a mouse. Customers are using a growing number of digital and
non-digital channels to find information, interact with providers and eventually
make a purchase. They expect a seamless, coordinated purchasing experience
across all channels and devices (“omnichannel” is the keyword here) as well as
equally coordinated processes for billing and logistics, for instance.
Purchasing decisions are also increasingly being made on the basis of the
services that come with a product. In many cases, services have become a more
important market differentiator than the product itself. This applies to networked
sporting goods which use apps to analyze athletic performance, networked house-
hold goods which can be controlled via apps, and machines whose maintenance
status can be analyzed remotely. Connecting applications with devices via IoT
technologies, or with other users via social media, is becoming increasingly impor-
tant to the added value of an offer. At the same time, products do not necessarily
have to be owned anymore; instead, they can be used as a service. Sharing models
now exist not only for cars and bicycles but even for complex machines.
Above all, however, customers now expect personalized experiences and offers
which are tailored to their individual preferences. But because individual prefer-
ences can continually shift, companies must be able to react to customer expec-
tations or changing demand in real time – or, ideally, in advance. At the same time,
price pressure has tended to increase rather than decrease in nearly every industry.
Individualized products at a low cost are only possible with a high degree of
automation. In light of this, mass customization is a key challenge when it comes
to differentiation in the digital age.

2.3 The Three Stages of Digital Transformation

Digitalization is fundamentally changing our economy. There are three different

stages to this:
16 C. Châlons and N. Dufft

1. The digital workplace: The spread of smartphones and other mobile devices such
as tablets; collaborative tools such as video conferencing and chat; using social
networks in a corporate environment; “consumerization” or the growing pene-
tration of technologies (hardware and software) originally designed for private
users which are miles ahead of the old IT landscape in terms of their ease of use.
Together, these developments have radically changed the user experience of the
IT user.

2. The digital customer experience: The second stage no longer affects IT users in a
company, but rather the customer. In a networked, digital world, where
customers share their experiences with everyone and can switch to a competitor
in the space of seconds, the optimal customer experience has become the key to
remaining competitive. This is because a negative customer experience will
directly and immediately affect a company’s brand perception and sales.
Companies must therefore shift their strategic focus to the comprehensive,
individualized optimization of the customer experience across all digital and
traditional contact points. Design plays an important role here in terms of both
graphic presentation and the design of the user experience. Simplicity, intuitive-
ness and reactivity are key characteristics. Up until now, most companies have
focused mainly on the digital transformation of their front end to the customer
and neglected the integration with the back office. But an optimal customer
experience demands the company-wide digitalization and integration of all
processes as well as a comprehensive focus on the customer. This is because
back-end processes – in logistics, accounting, warehousing or product develop-
ment, for example – can have at least as much impact on the customer experi-
ence as customer-facing areas. Therefore, in addition to transforming marketing
and sales, digital transformation must involve the customer-focused digita-
lization and integration of all front-end and back-end processes in a company.

3. Digital business models and ecosystems: The third stage encompasses new sales
models as well as new products and new business models which often lead to
new digital ecosystems. In the medium to long term, companies will not be able
to withstand the growing competitive pressure on their own. This is why
traditional value chains are increasingly being replaced by digital ecosystems
and service networks. A variety of stakeholders from different sectors will work
together in these networks to develop collaborative business models. They will
share data and information (and even predictions and correlation analyses) so
that they can jointly offer a better service or assert themselves against a compet-
itor. Such digital ecosystems are already beginning to emerge, particularly in the
Internet of Things – or, to be more precise, the Internet of Things and Services,
because the services surrounding networked products are what offer added value
for the customer. There are already numerous examples of this in areas such as
the connected car for the automobile industry, predictive maintenance in
mechanical and plant engineering, smart meters and the smart grid in the energy
industry, and smart health via remote access to, or even the remote control of,
medical devices in the health sector.
2 The Role of IT as an Enabler of Digital Transformation 17

2.4 What Digital Transformation Requires from Information

Technology

Digitalization opens up limitless possibilities, but it also calls for a profoundly

different way of thinking and an extensive transformation of organizations, pro-
cesses and corporate culture. This is because companies are facing considerable
new requirements in the digital age – particularly when it comes to information
technology.

2.4.1 Agility

The most important requirement – or challenge, more likely – is agility and adapt-
ability. The pace of change has picked up dramatically in the digital world. As a
result, agility has become an essential factor for success. Companies must not only
identify and respond to the opportunities and risks of digitalization, they must also
adapt quickly to changing market and competitive conditions. They must be able to
implement, test, refine – and then potentially abandon – new ideas very rapidly.
Agile IT is absolutely essential to this. The new approach is “build – measure – learn
– improve”, or even “try – fail – learn – improve.” Contrary to the approach taken by
traditional IT organizations, the goal here is not to develop the optimal system for the
next ten years, but rather to implement an idea as fast as possible and optimize it in a
continual learning process. Speed, reactivity and flexibility are the keywords here.
And when an idea takes off, it has to be scaled up very quickly.
Even though technology can’t solve every problem, cloud computing is ideal for
ensuring the agility, scalability and flexibility required here.
First of all, software-as-a-service (SaaS) makes it possible to implement and
launch applications very swiftly and easily. SaaS also eliminates many maintenance
and operational concerns. And SaaS developments are generally based on open
standards, which usually makes them easy to integrate – either with the back office
or with other applications and data sources. Alongside traditional, comprehensive
applications, the SaaS model is increasingly offering a number of “micro apps”
which can be put together like a puzzle and expanded if necessary.
If a required application is not available as a standard in the SaaS model, the
PaaS approach (platform-as-a-service) makes it possible to develop it efficiently,
test it in the target environment and then – most importantly – implement and
launch it quickly and smoothly. Finally, infrastructure-as-a-service (IaaS) ensures
the scalability needed to carry out individual tasks such as processing and analyzing
larger amounts of data.
The strengths of any cloud model include agility, scalability, flexibility, simplic-
ity and speed – from implementation to integration, maintenance and operations. At
the same time, cloud solutions must meet the requirements of security, reliability
and data protection. Hybrid approaches which combine the public cloud, a hosted
private cloud or even an in-house private cloud facilitate the creation of
18 C. Châlons and N. Dufft

differentiated environments for different applications, users and data profiles and
their corresponding requirements.

2.4.2 Ability to Innovate

The ability to innovate is another essential challenge in the age of digitalization.

While many companies in the past focused on creating and marketing existing
products and services more efficiently using (IT-based) process optimization, we
now need a radical change in thinking: Innovations are in the spotlight, and
established companies have to act like startups. A fundamental cultural shift and
new forms of collaboration and leadership are required in order to mobilize all of
the innovative power in a company. Organizations must revise their conventional
ways of thinking and working, their traditional management approaches and their
control mechanisms.
Above all, the need for rapid innovation places new demands on IT because IT is
often at the heart of innovations, thus playing an important role as an enabler.
The ability to innovative therefore requires the corresponding IT architectures,
IT working environments and development approaches.
As a result, iterative approaches based on the lean startup concept are becoming
an increasingly important alternative to conventional waterfall models. The main
goal of methods such as Scrum or DevOps is to significantly boost speed and agility
when it comes to the development (as well as the implementation, operation,
maintenance and further development) of new products and services. At the same
time, these methods demand and promote a new kind of culture which focuses on
customer-centered activities, continuous change and sharing. Interactivity is the
keyword – both within a company and with customers. Developers must be able to
react promptly to customer feedback and the evaluation of user data, and partners
and customers are frequently being included in the innovation and development
process.
It is tremendously difficult to apply such methods to companies that have always
been organized along conventional, industrial lines, and the only way to do so is
step by step. What’s needed first are incubators which test these approaches in
multidisciplinary teams, develop them further and then actively support their
dissemination to other areas. An IT department is the ideal organization to initiate
such multidisciplinary teams and coordinate their work because IT-driven
innovations are increasingly at the core of new services, products and business
models in the digital age.

2.4.3 Simplicity

Another key aim of these new development approaches is to produce simple,

intuitive applications and products. Simplicity and user-friendliness are demanded
at every stage of digitalization, starting with the digital workplace (user experience)
2 The Role of IT as an Enabler of Digital Transformation 19

and going all the way to the digital transformation of the customer front-end
(customer experience). No one these days wants to have to read a manual in
order to be able to use a product or a website.
The demand for simplicity is not restricted to the front office, however; the
back office should and must be simplified as well. Most IT departments today are
struggling to maintain and operate their legacy systems, so they have limited
resources available for innovation. They suffer under the complexity of their IT
landscape which has evolved over the years through adaptations, expansions and
integration measures. Furthermore, most systems were developed to support
existing organizational units. The new IT must be lean IT, meaning that it should
encompass simple, efficient, appropriate processes and forms of organization.

2.4.4 Intelligent Use of Data

Digital interaction channels are opening up entirely new ways of collecting cus-
tomer information and using it to expand and optimize the customer experience.
For example, the price of a product can be adapted to the competitive environment,
or the right product for a campaign can be selected on the basis of the (expected)
weather conditions. A logistics service provider in Germany has developed a
new business model for fast-food restaurants: The provider analyzes the correlation
between weather conditions, events (such as soccer games) and delivery volumes
and now sells demand forecasts to its clients.
The opportunities are even greater when products themselves can provide
individualized usage information via the emerging Internet of Things.
It is critical to make intelligent use of this growing volume of data, which is the
basis not only for the individualized optimization of the customer experience, but
above all for the optimization of processes, for making operational and strategic
decisions and for business innovations. Companies must be able to centrally collect
and store this mass of data from different sources, analyze it in real time and make it
available for a variety of uses.

2.5 How IT Can Become an Enabler of Digital Transformation

Nearly every German company has acknowledged that digitalization is an impor-

tant issue, but most companies are only carrying out isolated digital projects
without pursuing a uniform, company-wide strategy. As a result, digitalization
often resembles a patchwork of ambitious but uncoordinated initiatives. But
companies need a digital strategy and a digital agenda in order to establish guide
rails so that they don’t get lost in the jungle of possibilities.
IT has to play a key role here from both a technical and an organizational per-
spective, because digitally successful companies are unthinkable without centrally
positioned IT. Ultimately, a central authority is needed which can
20 C. Châlons and N. Dufft

– Coordinate digital initiatives on the basis of a comprehensive digital strategy and

ensure that the applications developed in this context mesh with one another;

– Bundle together data streams throughout the company, orchestrate them and
prepare them for further analysis;

– Maintain and monitor the observance of security, compliance and data protec-
tion regulations; and

– Coordinate and shape collaboration with technology suppliers, including hardware,

software and cloud providers as well as traditional IT service providers and resellers.

But in order to fulfill its strategic role in the digital transformation and position
itself as a pioneer and service provider for other departments, the IT organization
itself has to change fundamentally. Much like a startup, it must view itself as an
agile, interactive, learning system in which planning and control are replaced by a
step-by-step approach to solving problems. At the same time, IT officers must
create an environment in which this “IT 2.0” can flourish.
This calls for the creation of latitude. IT organizations that are “trapped” in
operational tasks and primarily occupied with maintaining and operating an
existing IT landscape and managing IT costs lack the breathing space needed to
drive the necessary change. Consolidating, standardizing and modernizing the
legacy IT landscape and using technologies and business models such as cloud
computing, outsourcing and offshoring can create latitude. This will be financial
latitude, in that the money saved on legacy operations can be applied to new
projects, and it will also be personnel latitude, in that well-trained employees will
be freed up from routine tasks and can work on innovative sandbox projects instead.
Large, established corporations often have a two-part system these days: a
system for historical products which is optimized for stability and efficiency
(system of record), and a system for new digital offerings which is optimized for
innovation and speed (systems of engagement). Here, too, there is an urgent need
for (at least partial) integration to prevent the creation of new silo solutions.
If they want to meet the demand for agility and innovation, IT organizations
should also review their performance management and KPIs. Experience has shown
that there is little use in appealing to the innovativeness, agility and cooperativeness
of employees if they are managed using conventional efficiency criteria. Leadership
in agile organizations is not based on strict hierarchies and micro-management, it is
built on trust and latitude for the employees on the one hand, and on managers
actively communicating and exemplifying the organization’s goals and visions on
the other. Even in an IT department, the employees need coaches, not control freaks.
Agile approaches should also include suppliers and partners. This is all the more
important when it comes to establishing digital ecosystems – that is, digital value
creation networks which, according to Pierre Audoin Consultants, will become very
important in the medium term. Appropriately designed contracts and incentive
systems are required here. Agile developments and high standards of flexibility
are not fully compatible with rigid work contracts or outsourcing agreements.
2 The Role of IT as an Enabler of Digital Transformation 21

Companies should check to see whether risk- and profit-sharing mechanisms can be
built into their contract systems. It is also advisable for provider management to be
oriented more towards the end result and the view of the end customer.
Last but not least, the IT organization must do more to embrace one particular
issue: customer orientation, or a focus on the needs of the end customer. The IT
organization has to position itself as the central coordinator, technical consultant
and integrator of projects at the interface to the customer, and even as a trailblazer
for an optimal customer experience. However, this requires that the IT organization
seek out – and even moderate – dialogue with every other department (including
marketing, sales and customer service). An IT organization is in the best position to
develop and implement a multi-channel strategy and thus guarantee an optimal
customer experience across all contact points.

2.6 Conclusion

Digital transformation is profoundly changing our economy and society. Every

company needs a dedicated strategy and a digital agenda if it wants to move
forward efficiently. Technologies such as cloud computing, analytics and agile
methods can help implement this strategy. Speed, agility, flexibility and reactivity
are absolutely essential. Above all, however, the ability to innovative is the critical
factor for success in the digital age. This calls for latitude, new forms of cooperation
and the integration of partners and customers. Information technologies are the
heart of digitalization. Agile and innovative IT is essential to the agility and
innovative capability of the entire company.
In light of this, the IT organization has to play a central role in digital transfor-
mation – and it has to change fundamentally as well!

Christophe Châlons has been the Chief Analyst of the

PAC Group since 2009. After earning a degree in mechanical
engineering, he began his career in 1986 as an assistant to the
system manager in the R&D department of the EDF Data
Center in Saint Denis, France. In 1989 he was appointed
Managing Director of the newly founded PAC office in
Munich. Under his leadership, PAC developed into one of
the leading market analysis and consulting firms in the Ger-
man IT industry. Christophe Châlons is also a member of the
Management Board of the PAC Group. As Vice President
Quality, he is responsible for company-wide quality assur-
ance and customer-specific studies and consulting services as
well as PAC’s standard studies in the context of its renowned
SITSI® program. His work revolves around software and IT
services at a global level, outsourcing and STIE (scientific, technical, industrial & embedded IT),
consulting projects for IT service providers and sourcing advice for IT users.
22 C. Châlons and N. Dufft

Nicole Dufft is the Independent Vice President Digital

Enterprise at PAC Germany. In her more than 20 years in
the IT and financial industry, she has served as Managing
Director of Berlecon Research GmbH in Berlin, Senior
Portfolio Manager at Metzler/Payden, LLC, in Los Angeles
and as an analyst with B. Metzler seel. Sohn & Co. in
Frankfurt. She holds a degree in economics and is an expert
in new workplace strategies in the digital world and the
digital transformation of companies. She leads consulting
and research projects which focus on the optimization of the
competitive strategies, market positioning and business
development of IT suppliers and software providers.