Digitalization in Europe and its challenges
Digital strategy implementation challenges
One major strategic internal challenge ceasing from digitalization is the unfamiliarity of company stakeholders of how and when to use the technology and where to apply it. Surprisingly, studies showed that managers and directors are unable to assess the impact of digitization on their businesses. Furthermore, they are unable to grasp the complexity of the strategic challenges when taking the next steps into digitalization[1].
By the same token, the lack of knowledge management and awareness utilizing and leveraging digital strategies, as well as the lack of top management know-how, and the absence of definition of change impacts, and little to no understanding of current and future needs pertinent to innovation, are pushing companies to be cautious about digital strategies. All reasons above are slowing down, investments, decisions and strategic actions [2].
Stakeholders digitalization know-how
On the other hand, many companies’ stakeholders are trying to disrupt their strategy by acquiring technology companies in order to go digital. Whereas, that approach might go wrong as companies need to disrupt their business model internally rather than disrupt it externally. Similarly, a 2013 study found that 70% of companies that are trying to acquire digital companies are failing. This failure is caused by an excess of many integration and governance issues as well by differences in the organization, talent model, policies, processes and procedures[3].
Therefore, strategy and not the technology which drives digital transformation. Indeed, digital success isn’t all about technology, but it’s strategy identification. In the long run, that would be the key driver in the digital arena (MIT Sloan Management Review and Deloitte’s) [4].
Future prospect of digital Europe
Following, the future of digital transformation is very promising. The Digital Single Market could add €375 billion–415 billion per year to annual GDP by 2022. As well by 2025, digitization of companies and industries could add €2.5 trillion to European GDP[5].
Nevertheless, the disruption was never easy, especially when it goes digital and where the pace is faster than ever[6]. Adding to that, there is no doubt that many challenges are facing companies and slowing them down to act strategically. That includes competitive intensity which is stronger than ever.
Particularly, digital competition is brought by the digital entrants and is shrinking revenue yield per unit sold by 2% a year. In fact, those digital challenges are additional pressure on existing companies to adapt their strategies digitally[7].
Therefore, the more digitally an industry is advancing, the larger the negative impact on the revenue growth of incumbents that don’t respond to digital disruption, especially in retail and transport where the impact is 50% higher than the average[8].
Technology disrupts strategies
On the other hand, not all digital strategies are successful. On the contrary, most digital strategies don’t reflect how digital is changing economic fundamentals, industry dynamics, what it means to compete [9], or even where to apply the technology to disrupt their business.
According to Porter, in order to enhance the company’s strategy, the five competitive forces must be re-analyzed in the industry. It should be underlying its structure in order to be correctly reshaped. In a word, that should happen by analyzing the five competitive forces in order to assist companies being able to gain a complete picture of what’s influencing profitability and understand the game-changing trends early so companies can swiftly exploit them and update its strategy accordingly[10].
Sources:
[1]Andersson et al., Managing Digital Transformation.
[2]Axel Uhl and Lars Alexander Gollenia, Digital Enterprise Transformation : A Business-Driven Approach to Leveraging Innovative IT, accessed July 21, 2018, https://books.google.de/books?id=LIYGDAAAQBAJ
[3]Peter Bendor-Samuel, Where Most Companies Go Wrong In Digital Transformation, 2018, https://www.forbes.com/
[4]DAVID KIRON AND NATASHA BUCKL GERALD C. KANE, DOUG PALMER, ANH NGUYEN PHILLIPS, “Strategy, Not Technology, Drives Digital Transformation,” 2015, https://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/.
[5]Bughin et al., “Digital Europe: Pushing the Frontier, Capturing the Benefits.”
[6]Organisation for Economic Cooperation and Development, “Going Digital: Making the Transformation Work for Growth and Well-Being,” Meeting of the OECD Council at Ministerial Level, no. June (2017): 1–33, https://ec.europa.eu/futurium/en/system/files/ged/going_digital_longflyer_jan_2017.pdf.
[7]Bughin and Zeebroeck, “The Best Response to Digital Disruption The Best Response to Digital Disruption.”
[8]Bughin and Zeebroeck.
[9]Paul Willmott Jacques Bughin, Tanguy Catlin, Martin Hirt, “Why Digital Strategies Fail | McKinsey & Company,” 2018, https://www.mckinsey.com
[10]Miachel E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review 1 (2008).
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