With a global pandemic affecting all aspects of our lives, it has become increasingly difficult to simply “overcome and adapt” these days. Apart from the personal challenges we are facing, such as social distancing and not seeing our loved ones, we are also faced with the harsh reality of business continuity. This affects both the employee and employer. Will I still have a job if the company doesn’t open again soon? Will I lose everything I have worked so hard for over last years? These are questions that’s keeping many of us awake at night, irrespective if you are working as a hairdresser or running a multinational company. The problem stays the same: How do we get through this and how do we still strive for sustainable business growth in these uncertain times?
However, it is important to understand that adapting your business to meet the current safe measures is by no means the same as sustainable business growth. We are talking here about fundamental changes driven by the change in the marketplace to ensure your company’s longevity.
In recent years, sustainability has evolved from just being an internal investments for a leaner and cleaner (environmentally speaking) production of goods and services, to the inclusion of communities, technologies, and growth strategies. McKinsey and Co. states that when technologies are indeed referred to as sustainable, it is due to the fact that Artificial Intelligence (AI), Bots, and CRMs are seen as “key sustainable drivers” for the digital era. It is in “our” belief that this concept of digital key drivers for a sustainable growth, will even evolve one step further into a broader concept – into something that is already defined: Digitalization – the way in which many domains of social life are restructured around digital communication and media infrastructures.
With COVID-19 forcing us to change the way we think about business and conduct business unusual; we find ourselves in the midst of our own digital revolution. If we wanted to or not. In a blink of an eye, businesses had to adapt the fundamentals of everyday working life. Home office is not only a luxury to select few anymore, but a way of life. Zoom calls are a daily activity and even virtual coffee breaks are all the rage now. Universities switched over to online classrooms and Bayer AG was the first DAX company to have a virtual annual shareholder meeting. Businesses are adapting digital operations models at an alarming rate to try and stay in business and some are even better off that before. The big question you are probably asking yourself now is “what can I do?” If you are a business owner or employee, it is always good to know what options are available and what would determine your strategy to implement and leverage digitization for a sustainable business growth.
To answer this question is no easy task and would need you to drill down and very clearly identify your core competencies of your company or your own capabilities. When facing the downfall of the analog photo industry, Fujifilm was faced with a similar dilemma: digitize or die. While their competitors were still hoping for the market to turn, they focused on their core competencies and turned a traditional film company into one of the world’s leading image-, healthcare & material-, and document solutions companies, while competitors, such as Kodak, went bankrupt.
Already identifying this digitalization dilemma in 2018, a friend and colleague of mine, wrote his MBA thesis on the topic. He has been active in the digital industry for over 12 years and has been on both sides of the table when it came to digital implementations. At the time when he was writing the thesis, he was working for a remote support company that offered smart-glass solutions to big service companies and found it remarkable how different companies approached the implementation of such a massive digital transformation in a usually very traditional analog industry.
His thesis addressed the following question: “Determining the optimal method for developing digital tools to implement into industrial service operations: Internal Development vs. Outsourcing”. In short, if you want to digitize, should you outsource, or should you develop the operational model internally? This does not only apply for big businesses, but for all SME’s alike. The determining factor would be your business strategy. Do I need something quick for now or do I want to make sure that if this pandemic continues or happens again, I am ready for it?
For his primary research, he compared two very large global players in the service industry and interviewed the two heads of service to identify their strategy and long-term goals for their digitization efforts. The one company’s strategy was to neat their competitors to the market and the other’s was to shape the market itself. After identifying their strategies and goals, both gentlemen were asked to complete the IMPULS Readiness Model for digitization, which addresses topics, such as Strategy and Organization, Smart factory, Smart operations, Smart products, Data-Driven services, and Employees to compare if what they say is what they do.
Findings – Internal development
If you have a long-term strategy, you probably want to keep the development of a new digital strategy and business model inside the business.
The advantages will include:
- Companies will develop the skills that will provide in-house expertise for future projects and further internal improvements.
- The learning and information stay inside the company.
- Projects are easy to expand and scale-up as per internal or future requirements.
- Solutions are tailor made to the business.
- There will be a first mover advantage inherited with the completion of the project
However, there will be some disadvantages identified as well:
- Such a strategy would require vast and fast learning that might not be in-house.
- Some projects can be easily underestimated, due to the lack of experience and expertise.
- Some employees will have double work or be reassigned from their original positions – Capacity issues
- Sourcing new employees to fill the gap will require cost-time investments.
Findings – Outsourcing
If you have a more short-term strategy and just want to be quick to the market, you will probably want to go the outsourcing route.
The advantages will include:
- This would be the fastest route the market, by letting the experts do what they do best.
- Costs will most certainly be cheaper and once-off.
- The company can remain focused in the core business.
- Expertise can be rapidly available to re-scope the project and improve the outcome.
However, there we some disadvantages identified as well:
- Current employees might feel threatened by the 3rd Parties.
- There is no absolute control on the development of the project.
- Security/intellectual property of the firm might be compromised.
- The opportunity cost of not developing internally raises as the projects grow larger.
- The service provider can demand share of the value created if it reaches a broader proportion of the product/ company as it was originally envisioned.
Conclusion and discussion
After a second round of interviews, both gentleman concluded that both strategies can well serve for any given company, as long as the scope and strategy of the project has been clearly defined. They admitted that without a clear strategy, their projects would have failed and identified that as the key starting point for any new digital endeavor.
So, to recap:
- Make use of outsourcing if you need a quick deployment into the market.
- Take the internal development route when you want to ingrain the changes into your company and create a whole new digital business model.
I started by asking the question: How do we achieve sustainable business growth in these uncertain times? The easy answer would be the digitalization of your business model, however, the path remains dependable. Digitizing is “easy” if your industry allows for it. It might be more difficult if you own a restaurant or are the head of a university. Luckily, people can be very creative and achieve great things by answering the fundamental questions. For the man with the restaurant, he wants to be fast to the market, so outsourced his orders to Foodora. On the other hand, a business school in Cologne changed their entire setup internally, to accommodate online lectures and even exams for these times and the future. This would even allow them to enroll remote students across the world.
This thesis built a corner stone, from where an uncertain path to digitization (outsourcing or internal development) only requires a quick question: Do you require a quick launch to the market? or Are the skills to be built also required in the long term? In truthfully answering these questions, businesses have the best chance to stay competitive.
So, my final question to you: Do you want to adapt, or do you want to grow?
(1) McKinsey & Company (2011) The business of sustainability. Retrieved from: https://www.mckinsey.com/business-functions/sustainability/our-insights/the-business-of-sustainability-mckinsey-global-survey-results on 26.04.2020
(2) Hoque, Faisal. (2015) The 7 Fundamentals Of Sustainable Business Growth. Retrieved from: https://www.fastcompany.com/3049856/the-7-fundamentals-of-sustainable-business-growth on 26.04.2020
(3) McKinsey & Company (2106) The new world of sales growth. Retrieved from: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-new-world-of-sales-growth on the 26.04.2020
(4) Bloomber, Jason (2018) Digitization, Digitalization, And Digital Transformation: Confuse Them At Your Peril. Retrieved from: https://www.forbes.com/sites/jasonbloomberg/2018/04/29/digitization-digitalization-and-digital-transformation-confuse-them-at-your-peril/#43b276af2f2c on 26.04.2020
(5) Impuls (2020) Industrie 4.0 – Readiness Check. Retrieved from: https://www.industrie40-readiness.de/?lang=en on 26.04.2020