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Implementing a digital shift
Heike C. Wörner, Fabian Sempf, Dr. Fabian Dömer, Volker A. Pfirsching

Every company today wants to become digital – but what
does it actually mean to be digital? What does it mean foryour industry, the size of your company, and the competitiveenvironment you are currently operating in? Essentially, how
can you find the right degree of digitalization – your digital“equilibrium”?
Many traditional companies have embarked on the digitaljourney and started to adapt to a more customer-centric
environment by modeling themselves after companies
such as Amazon and other tech
giants. However, this is unlikely
to be the right approach – asevidenced from their internal
processes and infrastructure, theselegacy companies are far fromthe efficiency levels and effective
structures that new entrants canbuild from scratch.
The management team of acompany in an asset-heavy
service industry pointed out tous recently that their organization would never become a“digital company.” They had looked at Amazon and believed
the company would need to only sell digital products, thus
completely changing its business model. However, thisis not necessarily the case – being digital takes multiple
forms. This article sets out a roadmap to help companies
understand what becoming a “digital company” means forthem and how a digital equilibrium can be achieved, based on
experience with traditional, “non-digital” businesses. The key
question is, “What should your company look like in the ageof digitalization?” We will explore some of the key problems
traditional businesses face on their digital journeys, as well asshare insight and outline ways to overcome them, in order forthem to realize the digital shift and create equilibrium.

Today, every company
wants and needs
to become digital.
However, what thisactually entails will bedifferent dependingon the industry, sizeof the company,and competitiveenvironment. Businesses
essentially need tofind the right degreeof digitalization – theirdigital “equilibrium”. By
exploring some of the
key problems traditional
businesses face on
their digital journeys,and how to overcome
them, this article outlines
how every business canrealize the digital shift
and create equilibrium.

ent,The theory: What makes a digital company?
A digital company makes use of digitalization in a way that
increases its value. Achieving this requires a holistic approach,which covers:•	The business model•	Processes and organization•	
Digital enablers such as data and technology•	
Employee skills and company culture
Equilibrium needs to be found for each category. The rightdegree of digitalization is the degree that optimally supports
company goals. Most companies have many digital initiatives
running, but several of these may be disconnected from
corporate objectives. Finding out which add value andcontribute to company goals is key to finding the digitalequilibrium.
But how can companies start the digital shift? Moving from afew digital “lighthouses” to a digital company brutally reveals
the complexity that every large corporation has accumulated
over many years. To get some tangible impact, a lot ofgroundwork needs to be done. Many legacy companies alsoneed to overcome severe structural obstacles. In Germany,for example, a logistics company wanted to equip its vehicles
with GPSs and gather data to give customers better estimatesof delivery times. However, employee representatives saw
this as illicit staff surveillance and prevented it.
We also witness a lot of “human interference” by employees
or units that fear they will lose their power or status to new
departments, or even to computers. In some cases, especiallyin manufacturing industries, employees are so trained andfocused on continually delivering the highest-quality products,that the digital concept of failing and testing until a solution isestablished is against their very nature. In those companies,
the only way to begin the digital shift is to start small andanalyze where the most benefit is to be expected. On top of
that, they need to heavily invest in digital competencies inthese areas, as well as in changing overall company culture to
make it more open and adaptive.

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Five areas to address to enable a digital shift
To help traditional organizations deliver digital shifts andachieve equilibrium, we have identified five key aspects thatneed to be incorporated into strategy and execution.
1. Worry about getting the data before introducing
the technology
Digital shifts are mainly driven by new digital technologies.
This means staying on top of the latest innovation is a basic
requirement for all other initiatives. However, mastering
most of those new technologies requires reliable data, which
is a problem in many companies today. A good example iswhen a company employs artificial intelligence within someof its processes. First, it can prove to be very difficult tocollect and access certain data pools, and second, the qualityof data is still a major concern to many legacy companies.
While human beings are often able to interpret fuzzy oreven false data correctly, computers are not. Defining gooddata structures and supplying high-quality data is therefore
a crucial foundation for successfully introducing new digitaltechnologies.
2. Reengineer processes – Don’t just digitalize them
One of the core tasks for a company when digitalizing its
value chain is to digitalize its processes. This is the biggest
driver for efficiency gains, as well as for forming the basis of
new products and services. However, with many successful
traditional companies, a lot of processes are driven by
pre-digital ideas combined with some digital aspects. This
results in gaps and a need for manual “repair steps” to patchprocesses. Many company processes would benefit fromhigh automation with the least human interference possible –but achieving this often requires processes to be redesigned
end-to-end, with clear focus on external or internal customers.
Standardization is also key to establishing digital processes,
which has more to do with focusing on the groundwork thanwith simply introducing digital technologies. Reengineering
also needs to incorporate the previously mentioned
acquisition of data, its analysis, and related value-adding
process steps.

3. Smash the silos
Another important pillar in realizing a digital shift is to invest
in the company’s governance and organizational set-up.
Functional silos can be one of the biggest obstacles todigitalizing companies. End-to-end processes need to be
the main drivers for creating the organizational structure. In
the case of purely digital companies, this is built around theproducts delivered to the customer, not the functions behindthe delivery. As part of this, the organization needs to be set
up in a way that encourages collaboration, with clear focus
on results and benefits. Building teams dynamically, withfocus on the product, is a way to move forward and strongly
supports the digital shift. Even though it is simple to form
virtual teams, we have found that companies realize thehighest impact when these are co-located. Another importantsuccess factor is to offer a lot of freedom to the teams and letthem self-organize. However, this freedom does have limits –a small number of strict boundaries and guidelines should bedefined, with teams free to operate within them.
4. It’s all about the business model
In the digital age, the business model moves center stage
as companies innovate around how they offer value to theircustomers, the ways they have established their value
chains and, in many cases, how they have set up theirrevenue models. Two trends have accelerated this change– customers now have a stronger role in the value creationof companies, and the range of potential business models
is increasing through the advent of digital technologies
and collaboration with digital companies or start-ups. New
business models also need to complement existing ones
if they are to offer full customer journeys, providing theclient with an end-to-end experience. In the digital world,
they also need to be flexible enough to adapt to changing
environments. This is a big change – for most traditional
companies, business models have been static for long
periods. However, these are now in constant motion andshould be expanded and re-evaluated regularly.

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5. People first, technology second
Employees play a key – if not the most important – role
in realizing the digital shift. If traditional companies do not
manage the transition process for their employees and takethem along on their digital journeys, employees can end up
being one of the biggest obstacles to becoming (more) digitalcompanies. Digital and IT competence therefore not only
are required within IT departments, but also form an integral
part of companies’ core business processes and require all
employees to develop their IT skills. Today’s workforce needs
to be more flexible and willing to invest and develop theircapabilities constantly. In this environment employees takeon more responsibilities, but in return are more demanding,selecting their employers based on the working environments
they provide. The new leadership style required for the digital
shift will be one of empowerment and servant leadership toenable employees to grow and thrive. In a world where it has
become more difficult to switch off due to constant exposure
to emails and apps, work-life balance will also be a decisive
factor when staff choose employers.

Case study: How to get there
A major player in the transportation and logistics industry
recently conducted a digital shift over an extended period.
The program was initiated by the IT department, with theclear goal of making the organization more digital and finding
its digital equilibrium. This introduces a key question – is theIT department really the best place to start when it comesto digitalization? It does have advantages, as there canbe a “natural” affinity between technological trends andtechnology expertise. However, the IT department is mostly
known for its legacy role as an executor of strategy, or as acost center, which makes it inevitably much harder to embark
on such an important journey and take the organization along.
Therefore, in parallel to the digital company shift, the major
player started enhancing the performance as well as image of
the IT department, increasing its collaboration with business
units. From this starting point, it seemed logical to follow abottom-up approach comprising four essential steps.

The digital shift

Digital check &benchmark
Initial transparency andrough assessment ofdigitalization potential, e.g.,
Organization, architecture,process and cost analysis

Digital championDigital masterplan

Digital business models& products, e.g.,

Digital foundation

Implement digital vision& roadmap, e.g.,

Invest & prepare
the organization
for digital, e.g.,

Digital heatmap &implement short-termlighthouses

Fast pilot testing and value
increase through digital
innovation (e.g., RPA,blockchain)

Technology skills anddata quality

Innovate system landscapeand increase automation

Leverage existing assets
to offer complementary
products and services
to the customer

Establish and build
digital culture

Definition of strategic
targets for the next phasesWith an increasing degree of maturity, the value generated from digitalization increases exponentially!
Figure 1: The digital shift: Four steps to becoming a digital champion

Step 1: Digital check & benchmark
Initially, the company conducted a digital check & benchmark
to gain greater transparency into processes, costs andinnovation/digital projects that had already started. The goal ofthis first step was to define a clear starting point. This stage
uncovered a great deal of complexity and a lot of potential
for optimization. After a high-level analysis, the organization
decided to initially focus on where it could get the most“bang for its buck”, especially compared to its competitors.
It therefore dug deeper into both administrative processes(especially in finance) and asset maintenance. Before thestart of the digital shift program, digitalization initiatives had
primarily been launched opportunistically, which meant teams
had trouble presenting convincing business cases. Thisbenchmarking phase was therefore essential for the overall
journey of building a digital company.

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Step 2: Digital foundation
When traditional companies move towards digital, theyneed what we call a “digital foundation”. Essentially, many
companies start digitalization projects without solving basic
underlying challenges. One of the most often experienced isdata availability and data quality. In manual processes, humans
are creative enough to interpret false or incomplete data
correctly most of the time. For digital processes, this can be adeath blow.
On the human side of the digital foundation, while many
employees are experts in their areas of expertise, they do notpossess sufficient skills to excel in digital companies. This isbecause company culture is more focused on doing the things
employees have always done perfectly instead of thinking
about how to achieve the same goals in very different, moreefficient ways.
While training courses can help, in this case they had proveninsufficient for this fundamental transformation of skills
and culture. A more top-down approach had to be taken.
The company therefore established multiple unofficial
meetings in meeting rooms that were set up as “creativeareas”, with cozy and inspiring environments. Preparing top
management for the digital shift was a key success driver, as
they would need to lead by example. The organization alsobegan stand-up meetings, involving everyone in particularareas, irrespective of their seniority, in order to increase
collaboration.
Step 3: Digital masterplan
Once the foundation was in place, the next step was toestablish a digital masterplan. This looked to answer thesequestions in the following order:•	
Why? – Why are we doing this and what is the goal?
•	What? – What digital levers do we need to use?
•	How? – How will we achieve our goals?

The case study company went through this process with
top management and employees in several workshops, anddeveloped a “digital heatmap” that showed the biggest
potential for digitalization. Some “lighthouse” projects
were then strategically selected and mapped to implement
the vision for the digital shift. It is critical to stress that thismasterplan is not a general template, but has to be very
specific to individual companies, as it is based on the current
process landscape, as well as the organization’s strategic
targets.
Step 4: A digital champion
After “fixing the basics” and defining the digital masterplan,
the organization was mature enough to develop new businessmodels and products to build on that digital foundation. This
company developed a business model based on selling usage
time on assets that the organization had not fully utilized.
This new business model created a complementary productfor customers, which enhanced their end-to-end usage
experience.
The overall process took more than two years, and wasaccompanied by extensive change management. Many items
from the agile tool box were used, such as a fixed sprint cyclewith review meetings at the end, which were attended by all
hierarchies up to board level. Extensive management supportand involvement was a key success factor for the entire
endeavor. In the end, the operational improvements resulted
in an average cost decrease of 15 percent in the optimized
processes, with increased quality at the same time. The new
business model is projected to contribute substantially to thecompany’s revenues after full roll-out.

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The case example organization experienced some of
the typical barriers, which slowed down the speed andeffectiveness of its digital shift:•	In the beginning, the company found that it wasengaged in multiple projects with overlapping content.
Though it proved to be beneficial to have an innovative
spirit across the organization, too many initiatives
that had started in different corners of the company
had resulted in roadblocks due to a need for constantalignment meetings. This removed the focus fromaction and content. The leadership team assigned clear
responsibilities, and then stepped back and let teams
operate within their boundaries.
•	
Even though management realized that experimenting
with digital technologies was essential and required
some freedom, especially in the beginning, it wasalso crucial to steer and manage the digital innovation
process. The company found that the best way forward
was to implement decision and quality gates to ensurethat investment was directed towards projects with themost impact on business value. If clear business value
cannot be derived, attention should be redirected tomore promising initiatives in the digital portfolio.
•	In the case example, the cost of the digital foundation
was spread across multiple business units anddepartments. This typically would result in long
discussions about how funding for digital initiatives
without direct business impact should be split. To
counter this, the company set aside central funds tobuild modular platforms that could be used across theentire organization. Now that the company has invested
in a common infrastructure, security standards remainhigh and synergies (such as around license costs) canbe achieved.

Insight for the executive
Operating in today’s competitive environment, everycompany, whatever its industry, needs to make use ofdigital technologies and find its digital equilibrium. Acrossprojects in multiple industries, we have seen that a digital
shift is a journey, that can be fuzzy at first, but with aholistic and structured approach, can significantly exceed
expectations in the end, with great impact on business value.
A digital shift is no self-driving process – it needs a lot ofgroundwork and investment in a digital foundation to makethe entire organization mature and ready to benefit fromnew technological possibilities. In our case example, wesaw that the digital shift was a senior management task but
needed to be taken forward by the entire organization. The
IT department played an essential role by laying the digitalfoundation, supporting with its technology know-how andproviding platforms and infrastructure.
Overall, leveraging digitalization is not a question of “if”, but“how”, and will be the key to survival. In order to move theircompanies towards becoming digital champions, leadersneed to focus on three pillars:• D igital leadership and empowerment of theorganization: Establish a clear digital vision and ensurethat employees are empowered to realize the digitalshift. Invest in change initiatives to take the employees
along, and introduce a “digital-friendly” culture and agile
ways of working.
•	Unify digital and IT, but also strive for further
fusion of business and IT: We recommend avoiding
separating IT and digital into parallel units. Moreover,business departments need stronger alignment withIT, while the company must invest in digital skills andcompetences across the entire organization.

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• Invest in a digital foundation and establish end-toend processes: The digital shift will not be possible
without the underlying foundation. Investment indigital platforms, data infrastructure and end-to-end
processes with clear customer focus is required to fully
support and realize the digital shift. This will enable new
business value and boost performance to a new level.
Senior leaders therefore need to understand that for a digital
shift to be successful, they need to search for new ways of
doing business, but equally invest in their digital foundations
to further streamline and automate their processes. Special
focus must be given to development of a company culturethat is flexible enough to continuously adapt to new
surroundings, whatever the sector.

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Heike C. Wörner
is a Principal at the Frankfurt office of Arthur D. Little and amember of the Technology & Innovation Management and Travel& Transportation Practices.
Fabian Sempf
is a Principal at the Frankfurt office of Arthur D. Little and amember of the Technology & Innovation Management Practice.
Dr. Fabian Dömer
is Managing Partner at the Frankfurt office of Arthur D. Little andhead of the Technology & Innovation Management Practice inCentral Europe.
Volker A. Pfirschingis a Partner at the Munich office of Arthur D. Little and a memberof the Technology & Innovation Management Practice.