Digitalization: 5 Insights

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This week was all about digitalization for me. I spent most days this week at three companies in different parts of Europe and spoke at the excellent Digitalization seminar at Chalmers (see here for my slides). Two of the companies that I worked with this week are traditional “metal bending” companies that are in the midst of the transformation towards becoming digital companies whereas the third is a younger startup working hard at riding the digitalization wave in its industry and capitalizing on it. Between the time at these companies and all the hours on the plane, I spent some time reflecting on what I had learned and I thought I’d share my insights.

#1 Digitalization is about business development and transformation: Digitalization has major implications for the R&D organization. This is especially true in companies where mechanical and electrical engineering were the central disciplines and software was only a small part up to recently. However, at most companies that I meet, the folks outside R&D often believe that digitalization is a R&D challenge and fail to see that the transformation affects everything in the company. This includes business models, sales and marketing, delivery and support organizations, manufacturing and supply chain management and even internal functions such as HR and finance. I still meet many senior leaders outside R&D that worry and complain about the R&D organization, but fail to see that they need to step up to the challenge as much if not more than R&D. Digitalization is about business development (exploit the opportunities) and transformation (align with the new reality).

#2 Speeding up the heartbeat of R&D is still a challenge: Most companies have traditionally had a slow release cycle of yearly releases of new products and product upgrades. Software and digitalization allow for much faster deployment cycles and several embedded systems companies have adopted continuous deployment of software where new releases are pushed out every couple of weeks. However, for the majority of companies that I work with, speeding up the heartbeat of R&D is still a major challenge. The typical arguments include (1) our customer is not asking for it (or even actively resists it), (2) we can’t guarantee quality or (3) we want to but our ecosystem partners are unable to comply. All these arguments are real, but it doesn’t absolve you from the responsibility to still implement continuous deployment!

#3 Thinking outside the product portfolio is hard: During the discussions, the focus of the companies was almost exclusively on the effects of digitalization on the current product portfolio and occasionally on new products in the same category that could benefit from the new technologies. However, the opportunities around data-driven and digital services or pure software products were hardly ever mentioned. It’s clear that thinking outside the current product portfolio is very difficult for many in industry, even in the cases where it is obvious that great promises exist.

#4 It’s about data and about software: Another observation this week is that most of the people that I talk to either talk about data or they talk about software, but the understanding that it is about both is less appreciated. The idea that continuous deployment of software also allows us to constantly evolve the data streams that we collect. Or the fact that the data from deployed products allows us to significantly improve the effectiveness of our development practices. As well as that there is significant synergy between the two ideas. The understanding of the relationship between these two perspectives is limited across the industry and when it exists, the conclusions are often not internalized to the point that these materialize in the company.

#5 Irrational fears and unvalidated beliefs: Finally, many harbour irrational fears about the impact of digitalization and have beliefs about the expected impact that are not based on any serious intellectual thinking. It seems like the uncertainty associated with such a major transformation causes so much uncertainty that people jump to conclusions in an attempt to create a false sense of certainty, even if these conclusions have little to do with reality. Accepting that we don’t know how things will play out while acting based on our best understanding and adjusting when new information becomes available is a skill that we all need.

My main reflection is, though, that digitalization is the latest technology that, as most of the transitions before it, will materially improve life for all of us. The risk is, though, for companies as the risk of disruption, as evidenced by the constantly decreasing tenure of companies on the Fortune 500, has never been greater. Accelerating the pace of transformation is the key insurance against disruption and the highest priority for senior leaders.

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