Digital Transformation As A Path To Growth PDF
Digital Transformation As A Path To Growth PDF
Digital Transformation As A Path To Growth PDF
Many companies have yet to explore the full potential of Industry 4.0 and
digital transformation as a growth driver. This article, third in a series, out-
lines a stepping-stone approach to help leaders bridge the business of today
and tomorrow.
D
ISRUPTIVE TECHNOLOGIES, INTRODUCED Hitachi Vantara is another example of a company
at an unprecedented rate, are driving the undergoing a transformation while seeking growth
Industry 4.0 revolution, and companies
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opportunities in helping its customers transform.
that can successfully harness the potential of these COO Scott Kelly explains: “I’ve read that around
technologies can enjoy exponential growth. Yet a 85 percent of companies have yet to build an ‘offi-
recent Deloitte study suggests a disconnect cial’ digital transformation strategy. What really
between Industry 4.0’s market potential and its resonates with our customers is the fact that we are
attainability, and most companies are using recognized as doing what IDC describes as an
advanced technologies for near-term business ‘authentic’ digital transformation. This means we
operations rather than truly transformative oppor- bring real-life experience of transformation as well
tunities. Thus, even executives who are ready to
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as digital solutions to support our customers on
invest in digital industrial transformation may see their transformation journeys.”8
it more as a defensive move rather than an offen-
sive or growth-oriented play.3 For companies ready to explore harnessing digital
transformation for growth, this article outlines how
But a growing number of digital industrial compa- to frame the opportunity by defining the playing
nies are looking forward by viewing their internally field, or the markets and segments in which they
focused, efficiency-driven transformations as a choose to play, and outlining the winning moves,
stepping stone to future growth. In fact, organiza-
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or the services and solutions to offer and how to
tions can view their productivity-focused monetize. (See figure 1 as reference for our overall
transformations as a set of training wheels when digital transformation framework.)
seeking new opportunity, finding and training new
talent,5 and defining agile ways of working. We After articulating the transformation north star,
explain this concept in the previous article of our defining the business model is the next step for a
digital industrial transformation series, in which company on the digital transformation journey.
we discuss how to set a digital transformation Decisions around target customers; use cases; and
north star.6 delivery, monetization and support models have
broad implications for a company’s capabilities,
Daimler Trucks Asia is one example of a company operating model, and supporting systems. Without
undergoing its own internal transformation while addressing these specifics, companies risk execut-
entering new growth areas with new products and ing on a transformation fated to fall short of
services. Its transformation started with the quality delivering on leaders’ growth ambitions.
management department implementing proactive
sensing solutions, powered by data, to reduce war-
ranty and recall costs. And the journey is Defining the playing field
continuing, with the company using its internal
transformation to jump-start its broader ambitions Because new digital markets are in many instances
around connected fleet services.7 still nascent, determining where to begin can be
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Digital transformation as a path to growth: Capturing new market opportunity
FIGURE 1
DIGITAL
ADOPTION
Business Operating
model model
AGILE CUSTOMER
MINDSET SUCCESS
challenging. Potential applications for the and use cases. A focus on a longer time horizon
Industrial IoT, for example, are virtually limitless. may seem counterintuitive in a rapidly changing
When faced with choice overload, companies can world, but it can help executives understand just
easily get stuck in endless “science experiments” or, how differently their companies will need to oper-
worse, remain frozen in place. 9
ate in the uncertain markets of the future, in
addition to the tactical adjustments they need to
So how do leaders determine where to start, in make to accommodate today’s market shifts.
terms of which segments of the new markets to Without a sufficiently wide aperture, companies
claim as their own? They need to combine an out- may again find themselves trapped in incremental
side-in lens with an inside-out one. initiatives focused on short-term events, at the risk
of being disrupted rather than being the disruptors.
An outside-in lens focuses on isolating the industry When taking the outside-in lens, executives should
verticals and use cases that have the greatest mar- ground their thinking in how customers—and the
ket potential, based on projected market size, ecosystem in which they interact with customers
market growth rate, and competitive intensity. and partners—may evolve. Other tactics to support
When taking the outside-in lens, it is important to outside-in thinking include scenario planning and
take a sufficiently broad view, both in time horizon hiring external thought experts, futurists, and
and in the definition of relevant industry verticals provocateurs.10
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Digital transformation as a path to growth: Capturing new market opportunity
An inside-out lens helps companies understand subset of the company’s most strategic customers
their own ability to lead in any market segment. and partners.
This can be approximated through assessments of
the company’s current domain expertise, proximity Layering both lenses on top of each other yields an
to commercialization of innovation efforts, internal intersection of verticals and use cases that form a
capabilities, brand credibility, and the strength of playing field for the company’s areas for growth.
its ecosystem. When evaluating these points, lead- What happens when the areas of biggest opportu-
ers need to be realistic. For example, many nity do not seem to intersect with a company’s
incubation efforts require significant refinement current domain expertise? While this could suggest
and hardening to make them market-ready. a misalignment between ambition and reality, the
Moreover, customer interest in an incubation right application of this outside-in plus inside-out
experiment alone is insufficient evidence that it can approach enables leaders to find the right balance;
be scaled to become a commercially viable busi- they can think of their immediate focus areas—
ness. Luckily, many of these dimensions can be leveraging their current strengths—as stepping
easily tested—for example, brand credibility can be stones that bridge to opportunities further afield.
gauged through interviews and focus groups with a The key is to identify adjacencies between the
FIGURE 2
Deprioritized opportunity
Market growth rate
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Digital transformation as a path to growth: Capturing new market opportunity
existing business and the desired opportunities, By starting industries and use cases closer to its
such as horizontal technologies or capabilities. core business and rounding out its own capabilities
Figure 2 offers a conceptual representation of with those partners, HPE made a credible first step
this approach. in its IoT growth journey.
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Digital transformation as a path to growth: Capturing new market opportunity
new ecosystems you need to forge, and new part- upfront would drive the focus across the organiza-
ners to recruit? tion required to move quickly. To define the
company’s IoT strategy, leaders conducted exten-
How will you get paid? Will you charge a subscrip- sive benchmarking of competitors against a
tion, or charge based on consumption or outcome? comprehensive set of dimensions. They researched
not only competitor offerings but bundling and
Figure 3 summarizes the winning moves—called packaging, pricing models and pricing tiers, routes
such because they define how you can capture mar- to market, and monetization models. This exten-
ket opportunity. And because your strategy is as sive competitor scan across all these dimensions
much about what you do as what you don’t do, each revealed the market’s true white space, allowing
choice has associated trade-offs and associated the company to define a truly unique offering and
implications that are important to understand. build a more robust business case.14
One leading cloud computing and platform virtual- Your winning moves will have profound implica-
ization company seeking to enter the IoT market tions for your operations and your organization.
knew that it had to define all business model com- For example, shifting from a subscription- to a con-
ponents, not just “what to sell.” Leaders had also sumption-based monetization model affects
hoped that defining all business model components everything from new sales enablement training to
FIGURE 3
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Digital transformation as a path to growth: Capturing new market opportunity
new finance and accounting processes to new back- To start, define your playing field, or your markets
end systems. In our previous article in this series, and customer segments of focus. Balance ambition
we discussed how to set the transformation north and realism by layering a market- and customer-
star, specifically outlining the transformation’s driven, outside-in lens, with an inside-out lens that
long-term vision and short- and medium-term pragmatically assesses your organization’s capabili-
objectives, and what the transformation means for ties. If no overlaps currently exist, identify stepping
your customers.15 After defining your winning stones, or adjacencies to your current business,
moves, it is important to conduct a “feedback loop” that can help bridge your organization from its cur-
check to your transformation north star, to ensure rent strengths to the desired future
that the two are consistent. At Hitachi Vantara, the opportunity areas.
shift from a term license model to a subscription
model resulted in a decrease in revenue in the ini- Next, outline your moves by defining your business
tial year; the management team’s ability to model. It is not enough to simply define what you
strategically communicate this impact to internal will sell (your target customers and what you will
and external stakeholders offer to them)—consider how
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Digital transformation as a path to growth: Capturing new market opportunity
Endnotes
1. Susanne Hupfer, Jeff Loucks, and Paul Sallomi, Succeeding in the age of digital transformation, Deloitte Insights,
May 8, 2018.
2. Tim Hanley et al., The Industry 4.0 paradox, Deloitte Insights, October 10, 2018.
3. Mark Cotteleer, Monika Mahto, and Timothy Murphy, The strategy paradox: A defensive position on digital
transformation, Deloitte Insights, October 10, 2018.
4. Maximilian Schroeck et al., Digital transformation strategy: Setting the north star, Deloitte Insights, June 24, 2019.
5. Andy Daecher and Brenna Sniderman, The innovation paradox: A balance between optimization and uncharted
waters, Deloitte Insights, October 10, 2018.
7. Ashwin Patel, Aref Khwaja, and Derek Snaidauf, “Proactive insights in truck manufacturing case study: Daimler
Trucks Asia client spotlight,” Deloitte, accessed May 1, 2019.
9. Ruth Schmidt, Frozen: Using behavioral design to overcome decision-making paralysis, Deloitte University Press,
October 7, 2016.
10. John Hagel and John Seely Brown, Zoom out/zoom in: An alternative approach to strategy in a world that defies
prediction, Deloitte Insights, May 16, 2018.
11. Patrick Moorhead, “Could Hewlett Packard Enterprise be an IoT sleeping giant?,” Forbes, May 15, 2017.
12. Deloitte, “Deloitte announces joint IoT offerings with HPE to serve manufacturing, retail, workplace and
entertainment venues,” June 7, 2017.
13. Deloitte Insights, The Fourth Industrial Revolution is here–are you ready?, 2018.
Acknowledgments
The authors would like to thank Julie Shen of Deloitte Consulting LLP for her research and dedication
to bringing this article to life. The authors would also like to recognize Cristina Stefanita and Deepak
Sharma of Deloitte Consulting LLP for their contributions to the digital transformation practice.
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Digital transformation as a path to growth: Capturing new market opportunity
Maximilian Schroeck is a principal in the Technology, Media & Telecommunications practice of Deloitte
Consulting LLP. He has more than 25 years of experience leading organizations in private equity, cor-
porate development, and new business development. Focused on the high-technology sector, Schroeck
advises clients on growth, portfolio optimization, and transformational strategies. He is based in San
Jose, California. Connect with Schroeck on LinkedIn at www.linkedin.com/in/maximilian-schroeck
-0891571/.
Anne Kwan is a leader in Deloitte’s Technology, Media & Telecommunications practice. She advises cli-
ents, evolving their growth strategies with new flexible consumption-as-a-service business models. Her
recent engagements include the design and launch of new Internet of Things businesses. Kwan has
more than 18 years of technology industry and management consulting experience. She is based in
San Francisco. Connect with Kwan on LinkedIn at www.linkedin.com/in/annekwan/.
Jon Kawamura is a managing director in Deloitte’s Technology Strategy and Architecture practice. He
has more than 20 years of experience leading IT and operational projects across multiple industries
with a recent focus on serving high-tech clients. Kawamura is based in San Francisco. Connect with him
on LinkedIn at www.linkedin.com/in/jonkawamura/.
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Digital transformation as a path to growth: Capturing new market opportunity
Contact us
Our insights can help you take advantage of change. If you’re looking for fresh ideas to address your
challenges, we should talk.
Industry leadership
Maximilian Schroeck
Principal | Deloitte Consulting LLP
+1 408 704 4158 | [email protected]
Maximilian Schroeck is a principal in the Technology, Media & Telecommunications practice of Deloitte
Consulting LLP. He has more than 25 years of experience leading organizations in private equity, cor-
porate development, and new business development.
Anne Kwan
Managing director | Deloitte Consulting LLP
+1 415 783 6379 | [email protected]
Anne Kwan is a leader in Deloitte’s Technology, Media & Telecommunications practice. She advises cli-
ents on evolving their growth strategies with new flexible consumption-as-a-service business models.
Jon Kawamura
Managing director | Deloitte Consulting LLP
+1 415 419 4735 | [email protected]
Jon Kawamura is a managing director in Deloitte’s Technology Strategy and Architecture practice, with
more than 20 years of experience leading IT and operational projects across multiple industries.
Deloitte Consulting LLP’s Digital Transformation practice has advised clients in the technology
sector (e.g., hardware and software) as well as those in the industrial sector (e.g., manufacturing,
construction, and energy) to enter and compete in new growth areas. Our work includes defining
customer-first strategies, building new business and operating models, and launching the critical
capabilities required to swiftly drive scale—all to achieve optimal results from limited resource
pools. Contact the authors for more information.
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