Digital transformation process at SMEs – How to proceed

Digital transformation is on the agenda of many companies. It is a continuous trend, which is constantly renewed by new generations of digital technologies. In almost every industry, there are digital winners, but also losers. Many companies are currently working on new, innovative business models. A digital transformation process is now inevitable, irreversible, tremendously fast and clearly also fraught with uncertainty. This makes it clear that digital transformation is a process that cannot be slowed down. Companies should take advantage of the opportunities offered by new technologies in order to pursue and exploit potential with regard to the further development of existing business models.

However, digitization is not just about installing software or commissioning a networked production plant with a high degree of automation. The central questions that SMEs must ask themselves are:

• Which technology should the company choose to generate the appropriate benefits, how can the technology be meaningfully integrated into operational processes, and also how can the use and acceptance of employees be ensured.

The introduction of new digital solutions is therefore more than just a technical issue; it must be understood as an overall complex design task. Because technology alone never solves the problem. In addition to the technical level of the company, the organizational and social level or sphere is also influenced. The organizational sphere includes context-specific regulations such as laws, standards or company agreements, while the social level includes the regulation of communication and information exchange with employees, for example in the home office. On the technical level, in addition to the technology to be introduced, dependencies on existing systems and compatibility with hardware and software must also be taken into account. The interactions of the three spheres mentioned must be designed and taken into account accordingly. This is the only way to create the basis for digital transformation in the company.

The three levels of digital transformation as a complex design task Source: Bosse & Zink, 2019, p. 16

In the process of digital transformation, two fundamental success factors can be defined for companies: “On the one hand, adequate material and resource equipment that enables the change to take place according to the situation, and on the other hand, a structured approach that involves all employees in the company in the digital transformation.

Accordingly, digitization projects are far-reaching changes in companies, where it is imperative to take into account the interrelationships between technical, organizational and employee-related aspects. The aim is to guarantee effective use of the new technology and to exploit the full potential of the digitization solution.

As a first step, the company needs to ask itself some questions regarding the digital transformation process:

• How must existing processes and organizational procedures be further developed for the best possible use of the technology?
• How can employees benefit from the use of the digitization solution? What training courses make sense?
• What contribution can the use of technology make to improving working conditions?
• Does digitization offer the potential for new business models?
• When do we need to inform the works council about the planned change and how should we involve it in the further process?

SMEs usually lack the empirical values and clear selection criteria to choose the appropriate technology for the company.

The five phases in the digital transformation process

The transformation process with its five phases is crucial for the implementation of digitization projects.

Source: Bosse & Zink, 2019, p. 18

1. Phase: Inspiration phase

The inspiration phase is the starting phase in the digital transformation process. In this phase, those responsible find out about technologies and solutions. Practical examples from their own or other industries can be used to obtain input for specific challenges within the transformation process. The goal of the inspiration phase is to develop a picture of the future or a vision for one’s own company. In the process, opportunities and challenges arising from the digital transformation are to be identified and analyzed. This image of the future should not only be regarded as a guideline within the company, but should also be communicated to customers and partner companies.

In this first phase, the aim is to develop a vision and strategy of where the company wants to go digitally. Put simply, this is where the digital ideal state of the company is worked out, e.g., the paperless company.

2. Phase: Orientation phase

After developing the image of the future, the second step focuses on determining the current status of the company. The aim here is to identify the digital maturity of the company by means of a maturity model. This is also done in comparison with other companies in the same or other industries. Based on this comparison, the fields of action within the digital transformation are derived. The fields of action show the development direction of digitization.

Based on the establishment of the central fields of action for the own company, a digitization strategy is to be developed. This forms the basis for implementing the individual digital transformation processes. It defines long-term corporate goals and thus provokes a discussion of the strengths, weaknesses, opportunities and risks of the company.

Development of digitization strategy

On the one hand, digitization opens up many opportunities and possibilities for SMEs, but on the other hand, the costs incurred and the resulting benefits of the future use of technology are difficult to assess. Since they usually have a manageable budget for digitization projects, bad investments are to be avoided. Therefore, it is an urgent necessity to plan digital transformation processes carefully and thoughtfully. A clear vision or picture of the future is needed, and the focus should be on opportunities and potential. Aligning the corporate strategy with digitization topics is essential for SMEs and should be designed for the medium and long term.

The development of the digitization strategy provides SMEs with a rough roadmap through which set goals or interim goals can be achieved.

As can be seen from the following figure «Strategy House», a strategy can be represented in a house form:

Source: Bosse & Zink, 2019, p. 129

This representation builds on the overarching vision, followed by the mission, then the strategic goals are defined and finally the measures developed. The defined measures form the operational level of this model. They include the implementation or realization of the strategic goals. Finally, they are achieved through the initially defined vision.

The development of the digitization strategy should be viewed as a continuous process: The initial situation is described, the options are then weighed up, the strategy is formulated on this basis, and it is implemented and continuously improved with the help of strategy controlling. This is based on a renewed status quo or actual analysis and then triggers the process again.

To set the starting point for implementing the digitization strategy, it is important to plan follow-up activities, prioritize the measures and define a time sequence. This can be done, for example, in the form of an action list of projects for implementing the digitization strategy. Urgent measures and those with the greatest impact should be taken first.

3. Phase: Planning phase

In the third phase, the planning phase, initial pilot projects should be defined in order to be able to fulfill the set goals of the digitization strategy on schedule. The aim of the third phase is to define the target state. This can be defined on the basis of the company’s digital vision and strategy. The definition of the target state already provides initial indications of the measures that will be required to move from the analyzed current state of the orientation phase to the target state.

During the planning phase, the company should ask itself the following questions:

• What requirements do we place on the new technology to be introduced?
• What are the general conditions for the use of technology in the company?
• Which pilot projects do we want to implement?
• Which pilot project should be chosen to increase motivation for further implementation through rapid implementation and the generation of visible successes?
• Which indicators should be used for monitoring the projects?

4. Phase: Realization phase

In the realization phase, the planned measures are implemented. The technical changes should always be implemented together with the organizational changes. The implementation of the measure processes should be designed in a participatory manner, because a lack of approval or involvement of employees can lead to the failure of a digitization project. It is therefore important to involve employees in the processes at an early stage in order to increase acceptance of the new technology and the change. But their integration is also essential, since they know and can best assess their working environment and their activities. The employees can therefore provide the key information on the functionalities and ways of using the new technology. During the implementation phase, qualification measures must also be taken at an early stage. These should primarily include training courses. However, if these are lacking, the new digital solutions cannot be used optimally and the potential of the digitization project is accordingly not implemented and exploited efficiently. In order to implement the realization phase in a targeted manner, classic project management methods should be used.

In the realization phase, the PCDA cycle is a good companion as a path to the target state Source: Harwardt, 2019, p. 148

This approach because, despite the goal, the realization and the defined vision, the way there is not always completely clear. This is due to complex system landscapes within SMEs or a technology that is not yet 100% mature or proven. Therefore, the target states must be broken down into intermediate goals, since several steps may be necessary to implement the defined vision.

The individual steps according to the PDCA cycle are as follows:

Plan:

The target state is to be concretized and the measures for implementation are to be defined.

Do:

The measures are carried out or implemented.

Check:

The new actual condition is re-evaluated.

Act:

Based on the evaluation from «check», a decision is made about the next steps. It is about the decision to stabilize the performed transformation, to initiate further steps and to start again according to the PCDA cycle.

5. Phase: Evaluation and adjustment phase

The digital transformation process should only be completed after the evaluation and adaptation phase. The knowledge gained from the process steps in the previous phases can be used to establish potential for improvement and follow-up projects. Looking back on the planning phase, it can be recorded in this phase how the digital maturity of the company has developed and whether positive development trends can be derived based on a current industry comparison. It is also decisive whether the findings from the evaluation result in inputs and changes to the digitization strategy and whether it must be adjusted accordingly. Basically, the business environment is on the move: New competitors enter the market, customer needs change, the legal framework shifts or new technologies emerge. It is therefore immensely important for a company to constantly reflect on its visions and strategies and adapt them to these framework conditions.

If you need our help in any of the phases – we are here for you!