Challenge Business Transformation

Prof. Dr. Karolin Frankenberger supports companies in transition and gives tips on how to find their way out of the "digital transformers’ dilemma". The right strategy helps with successful business transformation. An interview with Karolin Frankenberger.

1. Karolin Frankenberger, you talk about the “digital transformers’ dilemma” in your new book. What do you mean by this?
The “digital transformers’ dilemma” is emerging in organizations that need to maintain their traditional business activities (“first S-curve”) and at the same time realize their full digital potential (“second S-curve”). The aim is to achieve ideal interaction between these two curves, so as to ensure a balance between core profitability and the simultaneous development of digital business. Last but not least, the dilemma also entails conflicts of interest, as the traditional business has to co-finance the development of the digital business to start with.

2. What does digital transformation mean for a company?
With digital transformation, firms first have to understand what this means for them and their business. Digital transformation is not just about digitizing some processes or products or implementing breakthrough technologies. Rather, the existing business model has to be revised with the help of a two-stage strategy. This is not about throwing the old business model overboard immediately. The first stage is to consider how the traditional core of the company can benefit from digitization and the second is to think about how new digital ways of creating value can be opened up.
For firms, this means that two business models (traditional and digital) have to be managed at the beginning of the transformation. The traditional model should continue to generate the largest economic turnover in order to finance the digital model, which will ideally be managed in a more agile and error-tolerant way. This will continue until the digital business model reaches the potential for full market introduction and sustainable revenues can be skimmed from it. By this means, the maximum potential of both business models is tapped.

3. What do successful business model innovations have in common?
The realization that a business model innovation is needed already represents the first step to success. The more important thing is to act promptly and purposefully afterwards. This includes a fundamental analysis and understanding of your current business model. This is crucial because 90 percent of business model innovations consist of combinations of existing factors, capabilities and processes, not completely new business models. As a result, successful business model innovations join up the two “S-curves” meaningfully and cleanly. Of course, all the thinking must include the customer perspective. The goal should always be the continuous improvement of customer satisfaction.

4. You often talk about “Culture Eats Strategy”. What does it mean? What would be your top 5 tips for successful strategy implementation?
Every company that implements business model innovations already has a corporate culture aligned with the traditional business model. This culture can be an obstacle to the digital business model in the transformation process, therefore a cultural transformation also has to take place. First of all, management teams are assigned a role model function. They have to be able to exemplify the new values and principles for employees and communicate them authentically. Secondly, fault-tolerance also has to apply here. Employees should not regard mistakes that they learn from during the transformation as negative or even a career brake, but as an opportunity to continuously improve the business model. This leads to the third tip: employees must be empowered rather than controlled. Active participation in cultural transformation is called for. Fourthly, ideas should be treated impartially. Even if ideas seem irrational at first, they may still be a source of inspiration for more effective ideas. Finally, the last tip: “Fail early, fail cheap”. Approaches should be tested as soon as possible, because you can see early on whether an approach is worth pursuing further. ~This can prevent high investment in an idea that proves to be unsatisfactory in practice.

Executive School Programmes:
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Executive MBA HSG

The Executive MBA (EMBA) at the University of St.Gallen (HSG) is one of the oldest and most popular postgraduate general management degree programmes in the German-speaking world.

5. New employees, new leadership, new processes and organizations – how can you tell that you are on the right track?
The success of the digital transformation can be measured using predefined key performance indicators (KPIs). These can be quantitative or qualitative. It is important for these KPIs to be communicated transparently, to be easily understood by everyone and internalized by every employee. Employees can also be incentivized on the basis of these KPIs, so that the implementation of the company’s vision is ensured.

6. What is the most important message you would like give companies as they move into the digital age?
The essence lies in the mindset: digital transformation must be lived. All employees must pull in the same direction and pursue the same goal. This requires the right leadership, corporate culture and infrastructure. Digital transformation is therefore a holistic process, and does not only take place on a small scale. Of course, the customer is also part of it.

Portrait Karolin Frankenberger

 

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About the author
Martina Müri Martina is responsible for all public relations activities at the Executive School. Before joining ES-HSG, she worked as a PR consultant and communications specialist. She is a graduate of the University of St.Gallen and holds a Master's degree in International Affairs and Governance (M.A. HSG).