CASE STUDY

DIGITAL
TRANS­FORMATION
AT DHL FREIGHT
The Case of a Global Logistics Provider
DHL Freight is embarking on a journey of digital transformation to set a new stan-
dard regarding customer orientation, innovation, and efficiency. Having taken a
completely new look at business models, processes, roles, and IT architecture, they
collected fresh ideas that will help them prepare for the future. The digital capability
framework played an important role in defining the new strategic approach.

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by Amadou Diallo, Kim MacGillavry, and Axel Uhl

The Deutsche Post DHL (DPDHL) Group provider, employer, and investment of
was formed as a result of a number of ac- choice in its industry.
quisitions made by Deutsche Post (see
box on page 76). DHL Freight is the Road Re-Inventing the Oldest Business in
Freight division of DPDHL. It provides the World
a full service range of Less than Truck- The logistics business is probably one of
load (LTL), Part and Full Truckload (PTL the oldest professions in the world (see
and FTL), Intermodal (e.g., transporta- figure 1). It made some of the biggest en-
tion combining Rail and Road) and Cus- deavors of mankind possible, such as the
toms Services, as well as a variety of spe- construction of the pyramids in Egypt. It
cial services, such as Tradefair and Event also formed the basis for some countries
Logistics. to develop vast military and trade oper-
Up to the year 2007, DHL Freight went ations over the centuries. For example,
through a series of internal integrations in the 17th century the Dutch East India
and disintegrations. The continuous pro- Company employed 50,000 employees
cess and organizational redefinitions as- who sailed the world shipping more than
sociated with the (dis-)integrations di- 2.5 million tons of Asian goods to Europe.
verted management attention to internal Road Freight is the oldest of all logistics
matters and prevented decisions of a disciplines. Despite the invention of the
more structural nature. After 2007, when airplane and the ocean freight container,
DHL Freight became a self-managed overland transports still make up the vast
and independent unit within the DPDHL majority of the logistics business around
group, its focus returned to growth, prof- the world. At least the first and last mile
itability, and employee engagement. The of a journey must be covered on the road;
business could be stabilized and has most goods even stay on the ground from
since developed strongly into being the source to market.
 CASE STUDY

Box: Introduction to DHL Freight

With revenues of over EUR 55 billion, an EBIT of EUR 2.7 billion, and almost
450,000 employees, the Deutsche Post DHL (DPDHL) Group is one of the
world’s leading logistic services groups.
The Group has two main brands: Deutsche Post and DHL. Deutsche Post is Eu-
rope’s leading provider of standard letter mail services for private and business
customers.
DHL includes the Express, Forwarding/Freight, and Supply Chain corporate di-
visions. It is the world’s largest air freight forwarder and second largest ocean
freight forwarder, one of Europe’s leading road freight forwarders, one of the
world’s leading courier and express service providers, and the world’s largest
contract logistics service provider. DHL operates in more than 220 countries and
has around 280,000 employees.
DHL Freight specializes in road transportation. More specifically, as a leading
provider of international road transportation solutions in Europe and beyond,
DHL Freight offers specific road freight expertise and sector competences that
simplify its customers’ most complex transportation processes.

76
76 The logistics freight business model is the technological advances to improve
fairly straightforward. There are custom- their business, making more complicated
ers with goods and suppliers with a truck products faster and more efficiently, while
fleet. Customers focus on their own core sourcing freely around the world. Ac-
business and entrust a road freight com- cordingly, the logistics business has be-
pany with moving their goods from wher- come more complicated and is therefore
ever they are to wherever they need to be. forced to rethink its business model. Here
By combining the volume of many cus- are some of the challenges the industry is
tomers, a road freight provider can create facing:
a win-win situation for all parties involved; −−Productivity and Efficiency: The logis-
customers get their goods moved with tics business is a complicated task.
less costs because they can share the It requires a lot of data – on the one
carriage which is brokered efficiently by hand for internal operational purpos-
the road freight company, while the sup- es and on the other hand because
pliers can share the business risk of filling they are needed by customers and
their trucks. The difference is what con- legislators (e.g. for customs declara-
stitutes the profit margin of the forwarder. tions). When systems do not interact
Margins are typically very thin, but high- seamlessly, data must be entered and
ly rewarding in terms of return on capital. often complemented manually. Such
The art of Road Freight Forwarding is do- internal costs do not offer immediate
ing it in an intelligent way by optimizing customer value and therefore cannot
supply chain networks, maximizing loads be reflected in the prices. The three
on trucks, and by combining modes such biggest cost blocks are: human re-
as road and rail. The key to the success of sources, transportation and ware-
this business model is the decentralized house equipment, and fuel. As these
approach of ensuring that revenues and resources are becoming scarcer, the
costs are closely matched and managed. industry needs to rethink its business
But the world has changed dramatically in model to make a step increase in pro-
the last few decades, largely through in- ductivity as well as in efficiency.
ternational division of labor, globalization −−Reliability and Quality expectations:
and digitalization. Companies leverage As consumer demands are chang-
 CASE STUDY

Fig. 1: A brief
Today: Supply chain management is viewed as a holistic history of logistics
consideration of key business processes that extend from
2000 the supplier to the end user.

Around 1990: Introduction of QR/ECR (Quick Response

and Efficient Consumer Response) technologies turned dis-
tribution centers from storing into moving good facilities.
1500
Around 1970 - 1980: Kanban and just-in-time enabled link-
ing logistics to other operational functions.

1956: Invention of the sea container significantly contributed

1000 to globalization and the new consumption patterns.

Around 1940: Military logistics during the world wars in-

spired the business world.

500 Around 1800: Discovery of new road conveyances and the

railroad thanks to the invention of the steam engine and the
discovery of crude oil.

A.D.
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77
Around 1500: Progressive postal service in Europe be-
tween, for example, Paris, Vienna and Spain.
B.C.
Around 1200: Establishment of the Hanseatic League as
cooperation for transport bundling and international sea
transport.
500
Around A.D. 700: Construction of the Mezquita Mosque in
Spain with pillars from the Islamic empire.

1000

Around 300 B.C.: Revolutionary Greek rowing vessels built

1500 a new foundation for intercontinental trade.

2000

Around 2700 B.C.: Material (stones) handling technology in

pyramid construction.
2500
 CASE STUDY

ing faster, product lifecycles are get- er who has unprecedented access
ting shorter. There is increasing to relevant information and can com-
pressure towards reducing working pare and select between offerings
capital by cutting inventory or even very easily. Once your customers per-
doing without warehouses, i.e. distrib- ceive how easily interchangeable you
uting directly to end-users. As a con- are, your growth and profits will inevi-
sequence, there is greater need for tably falter. Only those companies will
speed of transportation, but – even do well which can distinguish them-
more important – it raises the expec- selves through innovation and cus-
tations concerning quality and reli- tomer service. This is especially true
ability. Typically, higher speed and for Road Freight providers. Studies
more reliability come with higher pro- have shown that in the eyes of the
duction costs. customers all logistics providers offer
−−Visibility and transparency: The fact more or less the same services. This
that so much data is involved in the lo- reduces the relationship to the sim-
gistics chain makes it difficult for the ple discussion of price versus prod-
right people to have access to the uct quality. Creating loyal customers
right information at the right time. But who promote your company requires
customers want to know where their not only a more customer-centric or-
shipments are at any time and also ganization, but also the instruments to
expect any exceptions and issues to serve them better.
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78 be resolved immediately and proac- In addition, the decentralized Road
tively. In the data area the logistics Freight business model leads to a very
business is not as well developed as fragmented company that makes it even
some of their customers are who live tougher to deal with the afore-mentioned
already in the digitally enabled world. challenges. Its heterogeneous way of
−−Volatility: The economic and financial working:
crisis of 2008 and 2009 or the effects −−is usually rooted in local legacy orga-
of the natural disasters such as the nizations and system environments,
volcanic outburst in Iceland or the tsu- −−drives a lot of complexity and costs
nami in Japan shed light on how sen- that do not bring any immediate value
sitive companies really are to such to the customer,
changes, be it banks, manufacturers, −−stands in the way of delivering consis-
or service providers. Business rele- tent operational and service quality,
vant events happen more often, are −−demotivates people and distracts
more erratic and bigger than ever be- them from being truly customer-cen-
fore, a trend which is not likely to stop. tric.
Particularly logistics companies need These issues are not new to any road
to be able to respond immediately and freight company, and it is clear that sub-
effectively. Failing to do so may lead stantial improvements and harmonization
to a serious dent in your income state- cannot be achieved without transforming
ment. Reaction time is short, in partic- the entire company.
ular for freight forwarding business-
es where revenues and costs are Preparing DHL Freight for a Business
very carefully balanced. The ability to Transformation
scale your business flexibly is not only As a prerequisite for successful transfor-
an advantage, but is becoming a ne- mations, a company must have a clear vi-
cessity. sion of what it wants to become and of its
−−Customer centricity: Across all in- own particular current and future com-
dustries there is a tendency for busi- petitive advantages. The future product
nesses to become commodities. The portfolio can be derived from this vision.
power is shifting towards the custom- Processes must be harmonized and
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standardized throughout the entire com- pany’s purpose, its value added for the
pany to ensure consistent product and customer and what the company should
service quality and to achieve a uniform- look like in the future. In many compa-
ly high customer satisfaction. Following nies, however, this is neither well defined
this logic, DHL Freight has developed nor fully documented. If you ask the man-
a clearly structured program to prepare agement what the company stands for
the company for the a possible business you are likely to get as many answers as
transformation. This includes the follow- there are board members. In this case it
ing steps: would be pointless to move on. Even if a
1. There must be a clear vision, a com- company has a strong brand and culture,
mon purpose and a shared value prop- it is a huge challenge to agree on a future
osition. vision, a common purpose, and a value
2. The next pillar is a single, uniform prod- proposition for the company. Therefore,
uct portfolio. to get the transformation of DHL Freight
3. It is necessary to have harmonized, on the right track, its Vision of the future
standardized processes and standards was developed using the Digital Capabili-
across the company to be able to deliv- ty Model, as it will be explained in the next
er consistent product quality and cus- paragraph.
tomer experience. The Common Purpose is equal to the
4. A single, state-of-the-art IT platform is DNA of the company. It defines “who” the
required. company is, and it is the glue that holds
5. All this has to be provided by an aligned the organization together. Especially in
organization with clearly distributed a transformation it is very important that
roles and responsibilities. everyone knows what the transforma-
tion rationale consists of. It is not some-
Defining the Vision, Common thing that can be drawn up by one isolat-
Purpose, and Value Proposition ed department or an external agency and
To implement a transformation success- then force-fed to the organization. In the
fully, it is critical that everyone in the orga- case of DHL Freight, the management in-
nization shares the same view of the com- vested a lot of time for discussing and de-
 CASE STUDY

fining the one sentence which perfectly achieved. Especially in the services busi-
captures the Common Purpose – until ev- ness and in companies which are man-
eryone could give their consent. aged locally, there is a risk that the prod-
The Value Proposition is a set of claimed ucts and services that are sold to the
benefits a company promises to its cus- customers differ from one place to the
tomers. These claims constitute the most other. Even services that share the same
desirable experiences for its customers, name label and/or are considered as be-
and set the company apart from its com- ing identical are often very different in
petitors. The challenge when defining the practice. This drifting apart is something
Value Proposition is to really understand that simply happens over time when or-
the customers’ wants and requirements. ganizations believe that tailoring things to
In the case of DHL Freight, 700 custom- the local level makes the company more
ers were asked to describe their ideal flexible and adapted to specific customer
road freight provider. Interestingly, while needs. But the thus increased complexi-
an acceptable price and reasonable qual- ty usually outweighs the benefits while
ity are considered as the ticket of entry, creating an inconsistent customers ex-
what really drives customer satisfaction perience. For example, look at the diffi-
and loyalty is the ease of doing business culty of managing quality levels, both op-
with their provider. erationally as well as from a customer
Today, the Vision, Common Purpose, and service perspective. A lack of standard-
Value Proposition together form the guid- ization might be easy to carry for a while,
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80 ing principle for DHL Freight and set the but it becomes a real issue when a com-
direction for the three Business transfor- pany needs to transform towards a com-
mation workstreams described in the next mon vision.
sections. The challenges are not restricted to the
customer-facing part of the product and
Creating a Uniform Product Portfolio service portfolio. Real end-to-end think-
To materialize the benefits from transfor- ing is required, including the service el-
mation, a certain level of standardization ements and functional capabilities that
of the business needs to be accepted and need to be provided. At the end of the day,
 CASE STUDY

the products and services that the cus- ness you had before with something that
tomers buy are a combination of the dif- is more or less the same, without adding
ferent capabilities of a company. A deep any new value. In such a case elaborating
understanding of the relationship be- a business case that will justify the invest-
tween the customer-facing side of prod- ment and risk that comes with Business
ucts and their production is essential to transformation will be difficult. Therefore,
translate commercial values into function- it is key to define the business benefits as
al requirements for a successful transfor- clearly as possible, so that they can be
mation. quantified and compared to the costs of
business transformation.
Harmonizing Processes and
Standards across the Company Designing the Future IT Architecture
Standardized products and services are This workstream concerning the IT archi-
based on harmonized processes. A com- tecture considers how the processes of
mon pitfall is to only take a functional view delivering the future product and the ser-
and carve up the processes along the vice portfolio can be supported. The aim
functional organization of the company. is to sort out and reduce the system land-
Most processes are connected in some scape as much as possible to avoid du-
way with several other functions. The so- plication and redundancies. DHL Freight
lution is to define the key end-to-end pro- has over the years acquired several com-
cesses that determine the business mod- panies that use legacy systems. Lo-
el. Some of them are obvious as they are cal needs were given priority and have 81
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very similar in every business – typical- sparked the development of various cus-
ly, the finance or HR processes, like or- tomizations of core applications. When
der-to-cash and payroll processes. What undertaking a business transformation
makes a company unique, however, are it is as much an opportunity as a neces-
its core business processes. In case of sity to standardize the IT platforms and
DHL Freight those are the operational to rid the company of the complexities
processes. which stand in the way of delivering a har-
It will be impossible to define all process- monized product and service portfolio
es in one go and at the granular level through standardized processes.
which is usually needed to start any sort Again, at an early stage of business trans-
of IT development. But this is also not formation it is not necessary yet to have a
necessary at an early stage of a business definitive view of the target landscape and
transformation. At the beginning it is usu- the precise migration path. But, based on
ally sufficient to map some high-level pro- a first view of it, getting a ballpark estimate
cess flow charts. Getting an agreement of the cost of change should be possible.
on those will be difficult enough to start
with. At a later stage, the processes can Aligning the Organization with Clear
be elaborated in more detail. Roles and Responsibilities
It is important to figure out where a com- Last but not least, the organization will
pany’s pain points are which need to be need to be overhauled as a consequence
addressed. Then the innovators to be of the business transformation. The stan-
built into the future business have to be dardized processes require standardized
defined. All ideas and suggestions need roles and responsibilities. The process
to be tested against the Vision, Common blueprints imply certain roles, and this
Purpose, and Value Proposition set out workstream has aims at organizing them.
before. Transformation takes quite some In most companies, each entity is orga-
time. If you do not have enough innovative nized somehow differently from the other.
and future-oriented thinking embedded in In order to work efficiently together, much
your transformation processes, you might of these differences have to be ironed out.
find you have simply replaced the busi- But it is risky to start this workstream too
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soon, as the people needed for it might be and execution of change management,
unsettled and this might impair their work. and the provision of training.
As mentioned above, the vision for the fu- The greatest problem in the area of inno-
ture of DHL Freight was drafted based on vation management is the lack of man-
the Digital Capability Framework of the agement commitment. As a result, the
Business transformation Academy. This competences in the organization to de-
process is now explained in more detail. velop complex, cross-functional prod-
ucts and services are rather inadequate.
How DHL Freight Leveraged the Innovation in process and IT manage-
Digital Capability Framework (DCF) ment was even considered a disturbance.
The management of DHL Freight was Furthermore, the topic of innovation was
aware of the importance of the digital not addressed by any organizational en-
world for its current and future business. tity nor training measure. Innovations are
That is why they chose the Digital Capa- mostly implemented on a decentralized
bility Framework (DCF) to support the vi- basis, and even successful innovations
sion setting of their transformation. The remain limited to individual markets.
DCF provides a holistic picture of the dig- While customer centricity is highly valued
ital capabilities that a company requires within the company and employees al-
for long-term success. These capabili- ways do their very best to help their cus-
ties are: customer centricity, operational tomers, there is no clear understanding
excellence, having effective knowledge of the nature of the added value that cus-
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82 workers, IT excellence, capacity for inno- tomer centricity represents for the com-
vation, and capacity for transformation. pany. Furthermore, the fragmented IT
The basic assumption of the DCF is that landscape is seen as an important imped-
sustainable profitability will logically re- iment for customer centricity. In the eyes
sult from these digital capabilities. How- of the customers, there is a lack of trans-
ever, if a company focuses solely and ex- parency in the collaboration process.
cessively on profitability itself, this is often The effective knowledge workers’ capa-
to the detriment of other capabilities, such bility of DHL Freight was rated high. The
as innovation, customer focus, or IT ex- company is considered to have a competi-
cellence. tive advantage in terms of employee quali-
The DCF was used to initiate a process – fication and motivation. Given the unfavor-
involving the management of DHL Freight able perception of graduates, who think
– in which the actual levels of the six dig- that the road freight industry is not the
ital capabilities were assessed first. Not most attractive place to work, it is impor-
surprisingly, prior to the transforma- tant to ensure that the work environment
tion the management team did not attri- is inviting, and that employees can focus
bute DHL Freight top marks for any of the on the most fulfilling, value-adding tasks.
above mentioned dimensions, but rather Operational excellence was rated rel-
the following levels: atively high, too. However – as is typical
Like in most large companies, the per- for the road freight industry – DHL Freight
ceived strength with regard to the trans- discovered significant problems in the fol-
formation management capability cen- lowing areas: the high cost related to a
tered on value management. Corporate large number of manual activities, the het-
governance demands a strict adherence erogeneous operational business mod-
to well-defined decision processes such els, processes, and related data, and a
as presenting a business case and secur- lack of access to relevant information at
ing the prescribed approvals. In the case the right time at the right places.
of important projects, change and training It therefore comes as no surprise that IT
requirements are also considered. How- excellence does not score well. The often
ever, this stands in contrast to the disci- outdated legacy systems are restrictive.
plines of value realization, the planning The poor IT landscape is typically blamed
 CASE STUDY

for lowering the scores of almost all of the −−Organizational entities are intercon-
other capabilities. IT was therefore con- nected and aligned.
sidered to be a strategic enabler for the −−For customers it is easy to do busi-
future competitiveness of DHL Freight. ness with DHL Freight.
After the assessment of the as-is levels of −−The IT solutions in place are com-
the capabilities, the discussions about the pletely sufficient for the job required.
DHL Freight business vision for the future −−The business is run by proud, happy,
and target values for the various capabil- and ambitious people.
ities were very intense and quite contro- While for some capabilities agreement
versial at times. In simple terms, the vi- was reached quickly and a high level of
sion for the future can be put as follows: to-be excellence was aspired to, it was
−−Everything that can be automated is more complicated with other capabilities.
automated. For example, the perceptions and opin-
−−Logistics terminals are fully integrated ions concerning the future innovation ca-
and they deliver consistent quality. pability varied widely. But in the end, the

Key Learnings from the CEO office

►► The management board needs to be a ►► Demonstrate change and innovation

winning coalition and fully engaged. day in, day out. The best way to cultivate
Before acting a strategic road map out, it willingness for transformation in others is 83
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is important to ensure that it is completely to regularly demonstrate changes and the
supported by the board. This can only be benefits associated with these changes. Also
achieved by means of a collaborative process, minor changes can be used to do this.
with clear leadership by the CEO. If 80% of
your team is behind you and 20% is not, go ►► Leverage your best people. It is neither
ahead. If it is the other way round, change good nor necessary to distract everyone
your strategy. from their day-to-day jobs when preparing
for transformation. It is important, however,
►► Trust within your organization is a key to have the right people on board. Appoint
success factor. Employee trust in the someone in the management board to
management team of the company is crucial drive things and give everyone in the board
for success. Only in a trustful atmosphere a role in the project so they have “skin in
can problems and conflicts be surfaced the game”. Let everyone put forward their
and dealt with openly and properly. When most knowledgeable experts to staff the
there is a lack of trust among employees, workstreams. Change must come from within.
problems are either not addressed at all, or
they become evident to the outside world. ►► The CEO has only one chance to make
In both cases, successful problem resolution history. CEOs are particularly visible and
is jeopardized. subject to scrutiny. The image and messages
projected externally must be consistent.
►► Transformation is like a steeplechase. Sudden changes of direction in response to ex-­
Like in a steeplechase, the transformation ternal factors make a CEO appear unreliable.
team must know exactly when to jump and
when not. Timing is essential for certain ►► You do not know your future competitors
actions. This applies as much to phases yet. Nowadays, you can no longer be sure
of high performance as to the necessary about who your competitors are. The age of
recovery phases. No one can work at full digital capabilities means that companies from
throttle all the time. completely different industries with a high level
of expertise can suddenly enter your market!
 CASE STUDY

discussions could be concluded with sourcing and producing their products.

suitable capability target values for DHL This increases the complexity of sup-
Freight. There is clearly an ambition to ply chains. With “DHL Door to More®”
close the significant gaps between actu- DHL Freight offers its customers a seam-
al and target levels. lessly integrated direct distribution solu-
The DCF maturity model is useful for tion which helps reduce the complexity
such debate as it indicates the steps that and give them a competitive advantage.
need to be taken and helps the manage- Based on a streamlined end-to-end pro-
ment team to have a structured discus- cess, the exclusive web-based DTMi ap-
sion as well as reach an agreement about plication allows customers to consolidate
the most fundamental aspects of the busi- their products at the source, for example
ness. in China, so they can be shipped cost effi-
Digital use cases are another useful part ciently across continents, while the deliv-
of the DCF. Since not all managers and ery will be deconsolidated for distribution,
employees have in-depth IT knowledge, for example across Europe. Customers
specific use cases are helpful to illustrate benefit from speed to market from Asia
and represent the future vision in con- with direct delivery straight to their final
crete terms. Based on use cases, people, consignee in Europe, with reliable end-
process, and IT requirements can be de- to-end lead times and shipment visibility,
rived from the vision. with reduced inventories through bypass-
The following three sections introduce ing local warehouses and faster cash-cy-
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84 each a digital use case for DHL Freight. cles. The DTMi application allows cus-
tomers not only to organize the pick-up
Active Tracing Mobile App (AcT) online, but also prepares the customs
In the past, DHL Freight used various clearance and provides track-and-trace
tools in different countries to allow their information along the entire shipment
customers to track their deliveries. To route in one single application.
simplify the access of shipment informa-
tion for customers, all track-and-trace in- My Ways Parcel Delivery TM
formation was made available through a DHL Freight launched the new MyWays
single web-based tool, and DHL Freight platform to facilitate last-mile deliveries
was the first to make the data visible on of parcels in Stockholm, Sweden, involv-
any mobile device. The mobile app “AcT” ing the city’s residents. With the pilot plat-
(ActiveTracing) provides DHL Freight cus- form, anyone can now deliver packages
tomers with the full event-scanning his- directly to other end-consumers for prod-
tory, the history of shipments for up to six ucts ordered online. An especially de-
months and even an automatic shipment veloped mobile app connects those who
search in further DHL transport modes want flexible deliveries with others who
(i.e., link to Ocean Freight, Air Freight and offer transporting parcels for a small fee.
Parcel/Express track and trace databas- DHL is the first logistics company using
es of other DPDHL business units). Reg- the crowd to offer a delivery that is flexi-
istered customers benefit from addition- ble in time and location. MyWays is orga-
al features such as getting an overview of nized via DHL Freight’s network of ser-
their most recent shipments, a reporting vice points (parcel holding stations) in
functionality, and direct access to proof of Stockholm where the MyWays couriers
deliveries (POD’s). pick up and deliver the parcels.

DHL DOOR-TO-MORE®
More and more companies are going
global to meet increased customer ex-
pectations, to reach new customers and
markets, and also to lower the cost of