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Digital Transformation – How to Become Digital Leader Study Results February 2016 . Arthur D. Little . www.adlittle.com
Digital Transformation – How to Become Digital Leader Study Results

February 2016

Arthur D. Little www.adlittle.com

Table of Contents

1

Executive Summary

2

Deep Dive

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 2

Executive Summary – Study Overview

Arthur D. Little conducted the Digital Transformation Study globally and cross-industry. The key findings are summarized in this document.

120 hrs Expert interviews with management representatives

1+7 Sections have been assessed

Automotive

100+

7

Global players have participated

Major industry clusters have been covered

Telecom & Media Energy & Utilities Consumer & Life Science Financial Institutions EPC1 & Manufacturing Travel & Transport

Source: Arthur D. Little Digital Transformation Study 2015 1) EPC = Engineering, Procurement & Construction 3

Executive Summary – Study Overview

Turning Digital has become a well understood imperative. Whilst Digital has commonly found its way into corporate strategies, the path to transform adequately remains unspecified

surveyed companies are 80% ofdigital adaptive only

17% Progress in Digital Transformation is measured via the Digital Transformation Index (DTI)1

3.92 DTI 15%

50%

of companies have comprehensive digital transformation strategies in place

have dedicated central units for Digital strategy development and implementation

perceive lack of digital knowledge across the value chain as their major challenge to overcome

Source: Arthur D. Little Digital Transformation Study 2015 1 Logic: The higher, the better. Measured on a scale from 0 to 10 4

Executive Summary – Why Digital Transformation?

Digital Transformation is everywhere and impacts everything and everyone

Our biggest challenge is to understand the customer and his new

behaviors. The market is changing:

Clients are pushing us towards digital transformation: If we don't transform they will move to our competitors.

partners are becoming competitors. Products and services need to undergo a digital transformation: we cannot just take physical products and put them online.

Productivity related to new technologies such as cobots, predictive analytics and additive manufacturing will increase by a factor of 100 over the next 5–8 years, while costs will be reduced by a factor of 100.

New entrants and fast-moving competitors increasingly capture

digital opportunities, indicating the potential of “digital” in the market.

Our world has been changed by the expectations of our customers, while our basic service continues to be the same:

We need to transform in order to maintain customer satisfaction.

Source: Arthur D. Little Digital Transformation Study 2015 5

Executive Summary – Study Overview

Some of the below key findings we anticipated beforehand, whereas others have been surprising and astonishing

1. Digitization will change the competitive environment of all industries significantly 2. Most industries are already affected by digital disruption or realize that they will be soon 3. Few companies yet follow a consistent digitization approach for their whole business model 4. Companies underestimate opportunities in Operations and in Business Model Redesign 5. There is a huge demand and backlog for the majority to deal with “Digital” properly 6. No industry can claim to be a digital front-runner; however, each industry has its outperformers 7. Most companies are either not aware of or ignore potential threats from digital disruptors1 8. Companies are too slow in transformation, though facing rapidly evolving digital competition 9. Third-party integration is often underrated as companies still try to solve problems on their own 10. The usage of “smart data”, and thus also personalized offerings, lag behind

Source: Arthur D. Little Digital Transformation Study 2015 1 Also too little imagination for a renewal resp. overhaul of their business model in a future digital world 6

Executive Summary – Trends

Some major digital trends change yesterday’s realities – these “game changers” facilitate great opportunities and will inevitably generate some highly digitized champions Yesterday’s Realities

Digital Disruption

Digital Trends Automotive

Physical product

Consumption Points of usage Mass production Ownership

Telecom & Media

Product-as-a-service

Active creation

Consumer & Life Science

Energy & Utilities

Service everywhere

100+ Study Participants

Personalization Shared across community

Travel & Transport

EPC1 & Manufacturing

Disconnected

Embedded into ecosystem Financial Institutions

No updates

Continuous improvement

Vertical integration

Value chain disintegration

Source: Arthur D. Little Digital Transformation Study 2015 1 EPC = Engineering, Procurement & Construction 7

Executive Summary – Trends Impact on Industries

Prominent examples of digitalization can be found in every industry. By nature, each trend’s impact varies and so does the industry-specific progress on digital transformation Industries

Automotive

Telecom & Media

Energy & Utilities

Consumer & Life Science

Financial Institutions

EPC1 & Manufacturing

Travel & Transport

8 Digital Trends Cloud Services

Product-as-a-service

3DPrinter

Active creation Hybrid Advisory Model

Service everywhere Running Shoes Individ.

Personalization

Car Sharing

Shared across community Smart Home Appl.

Embedded into ecosystem Continuous improvement

Wifi SWUpgrade for Car

Value chain disintegration

Google Car

P2P Money Transfer

Sourcing via Alibaba

Source: Arthur D. Little Digital Transformation Study 2015 1 EPC = Engineering, Procurement & Construction 8

Executive Summary – Overview “Digital Transformation Framework”

The survey followed a holistic approach to analyze the relevant sections for digitalization; the questions raised have been mapped to these sections  Opportunities and challenges  Changes in the firm  Changes in competitive environment

Drivers & Challenges

 Digital client share  Share of digital sales and interaction  Digital marketing share, customer data analytics

A Strategy & Governance

 Maturity of digital strategy  KPIs on Digital approach  Roles and responsibilities for concept and implementation

 Product and service portfolio adaption  Share of digital sales  Changes in development process

 Maturity of digital operations  Target picture and transformation roadmap  Degree of dynamic adaption

B

Products & Services

C

Customer Management

 Flexibility of IT landscape to provide digital capabilities  Role of IT function in digitalization  Budget dedicated to digital

F Information Technology D

Operations & Supply Chain

G

Corporate E Services & Control

Workplace & Culture

Business Model

 Impact of digital on transparency  Maturity of digital support processes  …  Maturity of communication and collaboration  Mobility  Agile working methods

Source: Arthur D. Little Digital Transformation Study 2015 9

Executive Summary – Overview “Digital Transformation Framework”

The majority of participating companies are digital adaptive only

Digital aware

Digital adaptive

Digital oriented

Digital centric

Company Ranking

Rank 1

Rank 103

Overall average = 3.92 0

1

2

3

4

5

6

7

8

9

10

Digital Transformation Index (DTI)1 Source: Arthur D. Little Digital Transformation Study 2015 1 DTI calculated as average of scores for each section 10

Executive Summary – Cross-Industry DTI

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” Digital Transformation Index (DTI)1 10

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 1 DTI calculated as average of scores for each section 11

Executive Summary – Cross-Industry DTI per Sections

Average DTI is most advanced in the section “Strategy & Governance” as well as “Information Technology”, with a score of 5 – however, it still lags behind the virtual star performance Digital Transformation Index (DTI) per Section Strategy & Governance Products & Services

Workplace & Culture

Information Technologies

Corporate Services & Control = Cross-Industry Virtual Star

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= Cross-Industry Average

Source: Arthur D. Little Digital Transformation Study 2015 12

Executive Summary – DTI Views per Industry

The different progresses of industries in Digital Transformation can be investigated when looking at the radar charts, reflecting the 7 sections of the model Cross-industry

Automotive Industry

Telecom & Media Industry

Energy & Utilities Industry

Ø 3.92

Ø 5.02

Ø 4.20

Ø 4.11

Financial Institutions

Consumer & Life Science

EPC1 & Manufacturing

Travel & Transport

Ø 3.86

Ø 3.71

Ø 3.53

Ø 3.51

Source: Arthur D. Little Digital Transformation Study 2015 1) EPC = Engineering, Procurement & Construction

= (Cross-) Industry Virtual Star

= Cross-industry average

= Industry average 13

Executive Summary – Average DTI per Industry

On average, all industries are “digital adaptive” only; however, each industry contains “digital-oriented” companies, whereas two industries contain one “digital-centric” company Average Industry-Specific DTI

Automotive

min

Telecom & Media

min

Energy & Utilities

min

Overall average

min

Financial institutions

min

Consumer & Life science

min

EPC & Manufacturing

min

Travel & Transport

min

max

max

max

max

max

max

max

max

4.06 6.52

Insight

σ = 0.92

5.02

1.54 6.62

4.20

2.13 7.73

4.11

σ = 1.18

σ = 1.30

1.07 7.73

3.92

σ = 1.38

1.52 7.55

3.86

σ = 1.54

1.84 6.16

3.71

σ = 1.24

1.07 5.30

3.53

σ = 1.09

2.24 6.62

3.51

σ = 1.51

Source: Arthur D. Little Digital Transformation Study 2015 σ = Standard Deviation; Ø = Average

 On average most companies (~60%) are in the Digitaladaptive area  All industries are impacted by Digital Transformation and show ability to play in the higher leagues of the DTI  Most industries show an extreme spread: Participants score among the weakest and best at the same time

Ø 3.92 14

Executive Summary – 5 Core Messages

Examples from failures as well as success stories show: Some key rules help to navigate through the digitalization journey Five Core Messages to Benefit from Digital Disruption

1

Today, Digitalization is a strategic imperative for corporates: It cannot be avoided!

2

Digitalization is not the final goal, but a capability and a way to achieve business objectives

3

The Digital Transformation entails challenges and opportunities for all parts of the company

4 Every company needs to find its own ideal Digital Transformation approach

5

For a proper Digital Transformation a company has to be aware of its own capabilities and competences; new models of sourcing evolve

Source: Arthur D. Little Digital Transformation Study 2015 15

Executive Summary – Case Examples

Please let us know which case examples you would like to learn more about

A

Strategy & Governance

B

Products & Services Cyber-Physical Product

Nike x-functional Digital Sports Division

Service with Peer-to-Peer Component

Coca Cola “Co-Founders” Network

D

Operations & Supply Chain

E

Corporate Services & Control

adidas Speedfactory In-Store Production

Coca Cola Brand Dashboard

Vision Picking using Augmented Reality

Digital Business Launch Factory

Cold Chain Quality Management

Cloud-Based Project Staffing

SBB GoodBox Rail-Transport Smartization

F

Information Technology

European Telco

Layered IT Architecture for Quick Process Implementation

C

Customer Management Burberry Integrated Customer Experience Real-Time Dynamic Pricing for Profit Maximization Quicksilver Personal Pricing & Rewards

G Workplace & Culture

Gamification in Project-based/ Knowledge Environment

ICT to Support Industry 4.0

Source: Arthur D. Little Digital Transformation Study 2015 16

Table of Contents

1

Executive Summary

2

Deep Dive

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 17

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 18

Deep Dive – Drivers & Challenges

Drivers & Challenges Overview

Key Learnings Drivers & Challenges

Strategy & Governance

Products & Services

Customer Management

Information Technology

Operations & Supply Chain

Corporate Services & Control

 Most critical challenges for Digital Transformation are 1. lack of knowledge, 2. lacking sense of urgency and 3. excessive complexity  Consideration of the continuous increase of digital customer needs and expectations will be key to succeeding in the future competitive landscape  The primary impact of the Digital Transformation is reflected in changes in distribution channels and adaptations to existing products and services  A prevailing number of the surveyed companies see the acquisition of new customers as a major opportunity brought by digitalization

Workplace & Culture

Business Model Source: Arthur D. Little Digital Transformation Study 2015 19

Deep Dive – Drivers & Challenges

Most critical challenges for Digital Transformation are 1. lack of knowledge, 2. lacking sense of urgency and 3. excessive complexity Major Challenges for Digital Transformation Automotive Telecom & Media

Energy Consumer Financial EPC & & Utilities & Life Institutions ManufacScience turing

Travel & Transport

Share of participants

50%

Lack of knowledge 45%

Sense of urgency Excessive complexity

40% 39%

Goal definition Lacking control system

32%

Legal requirements Lacking financial resources Lacking mgmt. Support

27% 23% 23%

Source: Arthur D. Little Digital Transformation Study 2015

1

1

2

1

3

3

1

3

2

1

2

6

2

3

4

3

4

6

1

1

7

7

7

3

3

4

4

2

5

4

5

4

2

7

8

8

5

6

7

5

8

4

2

6

7

8

7

6

6

6

8

8

5

8

5

5

Numbers indicate frequency of answers among companies in given industries Highest

20

Deep Dive – Drivers & Challenges

Consideration of the continuous increase of digital customer needs and expectations will be key to succeeding in the future competitive landscape Changes in the Competitive Landscape due to Digitalization Automotive

Telecom & Media

Energy & Utilities

15

58

33

Consumer & Life Science

Financial Institutions

EPC & Manufacturing

Travel & Transport

20

64

28

39

All Industries Existing customers with new needs resp. behaviors New competitors New ecosystems Existing competitors with new products/business models New partners within value chain New customer groups and markets

x = # of quotes Source: Arthur D. Little Digital Transformation Study 2015 21

Deep Dive – Drivers & Challenges

The primary impact of the Digital Transformation is reflected in changes in distribution channels and adaptations to existing products and services Changes of Your Company’s Business Model due to Digitalization All Industries

Automotive

Telecom & Media

Energy & Utilities

11

57

42

Consumer & Life Science

Financial Institutions

EPC & Manufacturing

Travel & Transport

32

68

32

40

Distribution channels and CI Existing products & services Business model overhaul Internal processes New business segments Production and logistics

x = # of quotes Arthur D. Little perspective: Companies are underestimating potential in new business segments and operations / processes Source: Arthur D. Little Digital Transformation Study 2015 CI = Customer Interaction 22

Deep Dive – Drivers & Challenges

A prevailing number of the surveyed companies see the acquisition of new customers as a major opportunity brought by digitalization Major Opportunities in the Digital Transformation Journey Automotive Telecom & Media

Energy Consumer Financial EPC & & Utilities & Life Institutions ManufacScience turing

Travel & Transport

Average ranking

Acquisition of new customers

1

2

1

1

1

5

3

Differentiation from competition

5

5

2

4

2

1

5

New sources of revenue

2

1

3

2

5

2

6

Increase of customer loyalty

3

3

5

3

4

6

1

Increase of agility and flexibility

4

6

4

5

3

3

4

Cost savings

6

4

6

6

6

4

2

Arthur D. Little perspective: Companies are underestimating potential for cost improvements, agility and flexibility increase Source: Arthur D. Little Digital Transformation Study 2015

Numbers indicate frequency of answers among companies in given industries Highest

23

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 24

Deep Dive – A. Strategy & Governance

Strategy & Governance Overview

Key Learnings Drivers & Challenges

A Strategy & Governance

Products & Services

Customer Management

Information Technology

Operations & Supply Chain

Corporate Services & Control

 In most cases, CxOs govern both strategy development and implementation for the Digital Transformation – the topic has definitely arrived at the top of their agenda  A cross-functional digital governance unit on corporate level can ensure cross-functional digitalization of the End-toEnd value chain  Across all industries, the levers “hiring digital talent” and “training and further education” dominate when it comes to capability building effort in all industries  Going beyond “corporate borders” allows for matching experienced entrepreneurs with corporate resources, e.g. on dedicated venturing platforms

Workplace & Culture

Business Model Source: Arthur D. Little Digital Transformation Study 2015 25

Deep Dive – A. Strategy & Governance

Section-specific DTI “Strategy & Governance” across all industries

A 10

Section-Specific DTI Strategy & Governance

9 8 7 6 5

102 103 10 86 72 91 43 11 82 63 41 36 100 64 94 90 54 52 88 61 53 13 40 26 97 83 96 98 95 101 76 58 79 80 85 78 75 39 16 87 38 93 65 99 19 67 59 33 69 27 6 92 51

9 35

4

60 50 89 77 55 4 21 28 25 15 45 68 42 56 48 84 17 29 12 8 57 37 14 3 74 73 44 81 71 18 62 66 32 24 47 22 34 5 49 30 31 70 20 2 7 46 1 23

Each # represents a specific company

Average

3 2 1 X-Axis = Indexed at Cross-Industry Ø 5,12 0

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 26

Deep Dive – A. Strategy & Governance

In most cases, CxOs govern both strategy development and implementation for the Digital Transformation – the topic has definitely arrived at the top of their agenda Digital Strategy Development & Implementation Top management

Dedicated central unit

Several departments

No specific unit

Top management

No dedicated responsibilities

Central Unit

Dep #1

… is/are responsible for developing the Digital Strategy

Dep #2

Dep #3

Dep …

… steer(s) the implementation of the Digital Strategy No specific unit

No specific unit

14%

14%

45% Top management

Several departments 17% 59%

Several departments 26% Top management

9% Dedicated central unit

15% Dedicated central unit

Source: Arthur D. Little Digital Transformation Study 2015 27

Deep Dive – A. Strategy & Governance

Across all industries, the levers “training and further education” and “hiring digital talents” dominate when it comes to capability building effort in all industries Measures Applied to Catalyze the Digital Transformation Automotive Telecom & Media

Energy Consumer Financial EPC & & Utilities & Life Institutions ManufacScience turing

Travel & Transport

Share of participants

Training and further education

53%

Hiring Digital talents

51%

Strategic alliances w/ digital co.

44%

Own corp. incubator/ accelarator

31%

Acquisition of digital co. VC arm/ capital provision for incub.

11%

5%

Source: Arthur D. Little Digital Transformation Study 2015

3

2

3

1

1

1

1

1

1

1

2

2

3

2

2

3

2

3

3

2

3

3

4

4

4

4

4

4

4

5

5

6

5

5

5

5

6

6

5

6

6

6

Numbers indicate frequency of answers among companies in given industries Highest

28

Deep Dive – A. Strategy & Governance

Going beyond “corporate borders” allows for matching experienced entrepreneurs with corporate resources, e.g. on dedicated venturing platforms Best Practice Coca Cola “Co-Founders” Network Early Stage  Co-Creation (3) Co-Founder team creates a new legal entity (100% ownership)

Description

Late Stage  Partnering Partnering Example

Coconut Water Drink

 Platform launched in 2013 for creating seed-stage startups  Idea Pitch Parties, Failure Conferences, Fast Concept Prototype Workshops to test new ideas with least cash  Ca. 1,000 of the total 129.000 employees involved

(2) Invite the founders to join our Co-Founder Network (1) Search for experienced entrepreneurs in startup communities

Home Eat Home – Healthy gourmet meals in 30 minutes

(5) Once the team validates that the business is ready to scale, Coke converts investment to a minority share of equity based on market valuation

(4) Startup gets full access to Coke’s assets (relationships, resources and reach), a senior manager acts as mentor

iHydrate – Biosensor to manage health and sports performance

RedGarage Predictive Analytics for Vending

Co-Creation Examples

WoNoLo – Work Now Local On Demand Staffing

Implications & Benefits  Teams are currently operating in Bangalore, Berlin, Buenos Aires, London, Mexico City, Singapore, Rio de Janeiro, San Francisco, Sydney and Tel Aviv  Early access to new markets with proven high growth opportunities  May 2015: 11 startups founded

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 29

Deep Dive – A. Strategy & Governance

A cross-functional digital governance unit on corporate level ensures cross functional digitization of the End-to-End value chain Best Practice Nike x-functional Digital Sports Division

Description

CEO Mark Parker: “It used to be ‘Here’s some product, and here’s some advertising’ … Connecting today is a dialogue.”

The Digital Sports Division….  …provides resources, budget & coordination for cross-functional digitization projects across enterprise

Governance function: Nike Digital Sports Division

R&D

Product develpmt.

Production

Marketing

 … ensures that the vast amount of data e.g. from the NIKE+ community is used as strategic asset for marketing and product development Sales

Aftersales

Implications & benefits big data from customer

NIKE 3D

NIKEiD

digital design process

mass customization



NIKE+ big data insights

 Unified consumer experience through big data based synchronization of supply chain

Community with > 10 mn users

Optimization of resource allocation, e.g. Nike’s spending on TV and print advertising in the U.S. has dropped by 40%

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 30

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 31

Deep Dive – B. Products & Services

Products & Services Overview

Key Learnings Drivers & Challenges

 Most companies have neither agilized nor digitized their product and service portfolios Strategy & Governance

B

Products & Services

Customer Management

Information Technology

Operations & Supply Chain

Corporate Services & Control

 The majority of companies only involve their customers in the product development process occasionally – industry leaders typically involve their customers  It is worthwhile to experiment with the smartization of classic “Brick & Mortar” business – in order to protect core business and increase attraction  For digitized products, the user experience can be enhanced through remote SW-upgrades and data collection to automatically inform on repair and service requirements  Introduction of products and services with peer-to-peer components can increase competitiveness and growth of customer base

Workplace & Culture

Business Model Source: Arthur D. Little Digital Transformation Study 2015 32

Deep Dive – B. Products & Services

Section-specific DTI “Products & Services” across all industries

B 10

Section-Specific DTI Products & Services

9 8 7 6 5 4 96

3 2

93 97 85 87 42 95 82 88 51 18 84 29 86 80 41 36 100 61 26 74 81 21 57 76 38 25 45 34 37 52 102 78 94 103 101 65 83 77 28 31 10 79 63 39 16 99 40 92 60 62 49 98 91 59 47 22 17 58

90 69 44 66 70 23 67 13 71 56 12 72 19 48 7 9 55 11 3 32 5 4 43 53 27 89 30 46 54 33 73 24 20 14 75 68 2 64 50 8 6 35 15 1

Each # represents a specific company

Average

1 0

X-Axis = Indexed at Cross-Industry Ø 3,42 Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: Due to the design of the survey, multiple companies have reached equal scores within this section 33

Deep Dive – B. Products & Services

Most companies have neither agilized nor digitized their product and service portfolios

Agilization in P&S Development vs. P&S Digitization

+

Telecom & Media

Energy & Utilities

Consumer & Life Science

Financial Institutions

EPC & Manufacturing

Full adaptation Need for changes in product development process

Digitization

1

3In full movement

Major

2

11

14

2

Simple

6

33

12

More effort required



Automotive

No adaptation

6

2

Need for adaptation of products & service portfolio

6

2 Travel & Transport

No changes planned



Selective process acceleration

Source: Arthur D. Little Digital Transformation Study 2015

Agilization of development

Agilization

Full agilization of development

+

= Bubble size reflects no of companies 34

Deep Dive – B. Products & Services

The majority of companies only involve their customers in the product development process occasionally – industry leaders typically involve their customers Customer Involvement in Product Development Automotive Telecom & Media

Energy Consumer Financial EPC & & Utilities & Life Institutions ManufacScience turing

Travel & Transport

Share of participants

Occasional involvement

58%

No involvement of customers

22%

Frequent involvement Strong involvement

16%

3%

Source: Arthur D. Little Digital Transformation Study 2015

40%

77%

60%

27%

60%

72%

46%

20%

9%

20%

56%

16%

10%

46%

40%

5%

13%

17%

24%

18%

8%

0

9%

7%

0%

0%

0%

0%

Numbers indicate frequency of answers among companies in given industries Highest

35

Deep Dive – B. Products & Services

It is worthwhile to experiment with the smartization of classic “Brick & Mortar” business – in order to protect core business and increase attraction Best Practice SBB Speedshop Rail-Transport Smartization

3 mn registered customers 1,700 Ticket Vending machines

Description  Daily food (1000 Migros products) shopping using smartphones on the train or at work. The customer receives a QR code.

Top 3 website sbb.ch

 The customer can go directly to the my post 24 boxes, at ZH SBB main station to open their locker with the provided code and pick up groceries

>800 retailers in stations

 Credit card or postal card payment

Implications & Benefits

4 bn CHF non-cash transactions

CHF 17.8 average transaction

1mn Pax / day

Groceries: food & near food



First pilot with SBB owned lockers and broad offering terminated in 2014



New pilot project started in 2015 for a 9-months trial phase

63 min per guest & day

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 36

Deep Dive – B. Products & Services

For digitized products, the user experience can be enhanced through remote SW upgrades and data collection to automatically inform on repair and service requirements Best Practice Cyber-Physical Product

Description

Example: Over-the-Air Update Model S March 2015 New Features: Valet Mode - places Model S into a

functionality

restricted mode, limiting speed, locking the glove box, etc.

Software

Trip Planner - navigates you to destination by integrating best charging options into your route

Hardware

Hardware sold

Range Assurance – running in the background, assuring you never run out of range

 All newer Teslas are already equipped with the needed hardware  The car either autonomously calls for a remote repair via software or sends a notification to the customer  New features can be retrofitted easily, without visiting the workshop  User can to control and track vehicle features such as energy consumption

Implications & Benefits 

Decoupling SW & HW: • The car can be launched and sold even before some softwareintensive features are developed • Hardware is already installed in & enabled remotely, as soon as software is ready and tested



Many problems are solved remotely

Active Safety - automatic emergency braking, blind-spot warning, side collision warning

Over-the-air updates

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 37

Deep Dive – B. Products & Services

Introduction of products and services with peer-to-peer components can increase competitiveness and growth of customer base Best Practice Service With Peer-to-Peer Component

Description  Customers build groups (“friends”) and share minor risks  In case of minor claims, friends cover for each other  If the friend’s premium pool is used, regular insurance covers the claims  Insurance premium is reduced over time when no claims arise

Implications & Benefits 

The new peer-to-peer business model reduces insurance premiums for clients



The new model poses a threat to traditional insurance policies



Introducing peer-to-peer products & services can attract customers

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 38

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 39

Deep Dive – C. Customer Management

Overview Customer Management

Key Learnings Drivers & Challenges

 Despite a diverse understanding of the nature of the “digital customer”, companies expect a significant increase in the share of digital customers within the next 3 years

Strategy & Governance

Products & Services

C

Customer Management

Information Technology

Operations & Supply Chain

Corporate Services & Control

Workplace & Culture

Business Model Source: Arthur D. Little Digital Transformation Study 2015

 The share of customer interactions through digital customer service is constantly growing – great opportunities lie ahead  Digital technology can be leveraged to transform from wholesale to a retail-led growth strategy based on an integrated customer experience across all channels  Current low share of digital marketing expenditure correlates with a low share of digital channel sales – both are mostly still below 25%, but predicted to grow  There is still huge potential for many companies to capture client information from digital interactions and increase the benefit for better business decisions  Real-time dynamic pricing can be used to optimize revenues by driving in an average profit boost of ca. 25%  Integrated solutions with sophisticated analytics are meanwhile available across the customer journey and history 40

Deep Dive – C. Customer Management

Section-specific DTI “Customer Management” across all industries

C 10

Section-Specific DTI

Customer Management

9 8 7 6 5 4

65 98 72 99 96 52 81 53 61 35 82 97 84 51 46 69 86 101 38 17 8 91 78 68 30 41 95 60 55 103 57 23 102 66 93 79 49 54 100 94 73 83 87 39 71 85 70 74 59 89 62 44 76 25 36 92 63 24 47

3 2

34 77 42 90 32 13 5 7 64 80 31 45 43 67 26 56 10 22 15 11 40 2 58 88 27 48 9 20 28 37 16 14 29 21 19 75 12 50 18 4 3 33 6 1

Each # represents a specific company

Average

1 X-Axis = Indexed at Cross-Industry Ø 3,65 0

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 41

Deep Dive – C. Customer Management

Despite a diverse understanding of the nature of the “digital customer”, companies expect a significant increase in the share of digital customers within the next 3 years Share of ‘Digital’ Customers1

Companies Consider Customers ‘Digital’ if … … they use self-service and paperless communication

100%

… they are attracted and treated online

Below 10%

90% 80%

… they are steered and served through digital channels

10 to 20%

70%

… they use the internet to consume content

60% 50%

… they use digital hardware and media

Below 10%

… they manage key processes digitally

40% 30%

20 to 30% 10 to 20% 20 to 30%

30 to 50%

30 to 50%

20%

… the customer’s lifecycle happens in a digital environment

Above 50%

10%

Above 50%

0%

Today

In 3 years

Source: Arthur D. Little Digital Transformation Study 2015 1 Related to a company‘s total customer base; sums may not add up as some participants have voted for n/a 42

Deep Dive – C. Customer Management

The share of customer interactions through digital customer service is constantly growing – great opportunities lie ahead Current situation in respective industries

Digitalization of Customer Service Interaction All industries

Automotive Telecom & Media

Energy Consumer Financial EPC & & Utilities & Life Institutions ManufacScience turing

Travel & Transport

100% Below 10%

90% 80%

Below 10%

70% 60%

20%

20%

35%

55%

58%

70%

40%

40%

39%

43%

27%

12%

29%

30%

40%

25%

0%

9%

17%

0%

11%

20%

15%

21%

9%

12%

0%

19%

Up to 25% Below 10%

50% Up to 25%

40%

Up to 50%

30% 20% 10% 0%

Up to 25%

Up to 50% Above 50%

Up to 50% Above 50%

Above 50%

3 years ago

Today

In 3 years

Source: Arthur D. Little Digital Transformation Study 2015

%

Percentage share of companies by given answer in respective industries 43

Deep Dive – C. Customer Management

Digital technology can be leveraged to transform from wholesale to a retail-led growth strategy based on an integrated customer experience across all channels Best Practice Burberry Integrated Customer Experience

Description  Full focus on digital supported increase of customer experience in integrated physical and online store

(1) Burberry – smart augmented reality mirrors RFID triggers related catwalk footage & product background info - original sketches, runway edits, craftsmanship & personalization images - when products are taken into a fitting room, or near a video screen

 supported by social media marketing (60% of marketing budget = 3x industry average)  Digitalization of retail stores: iPads in-store and collect-in-store program

Implications & Benefits

(2) Digital Nail bar : Customers can choose their skin tone and nail color and “virtually” experience the selected nail shade

(3) Staff with iPads • Product Information • Previous purchases • Sales staff as mobile cash point



Ca 4x revenue from 2006 (640 mn Eur) to 2014 (2.450)



70% of retail store revenue generated by stores with digital commerce offers



Twitter, Facebook and YouTube sites now attract millions of viewers

Integrated Customer Experience = Online + Mobile + In-store + Social M. Source: Arthur D. Little Digital Transformation Study 2015, Company Information 44

Deep Dive – C. Customer Management

Current low share of digital marketing expenditure correlates with a low share of digital channel sales – both are mostly still below 25%, but predicted to grow

+



Share of marketing expenses for digital channels

Impact of Digital Marketing Expenditure on Digital Channel Sales Automotive

Telecom & Media

Energy & Utilities

Consumer & Life Science

Financial Institutions

EPC & Manufacturing

Utilization > Collection

1

3

>50%

High effort, still low impact

Future Equilibrium

3

25–50%

1

20

10–25%

13

3

To be improved area

39

<10%

1

Low effort, high impact

6

2 Travel & Transport

<10%



10–25%

25–50%

Share of sales through digital channels

Source: Arthur D. Little Digital Transformation Study 2015

>50%

+

= Bubble size reflects no. of companies 45

Deep Dive – C. Customer Management

There is still huge potential for many companies to capture client information from digital interactions and increase the benefit for better business decisions

+



Data usage with Business Analytics

Obtaining Customer Information and Using it Automotive

Telecom & Media

Energy & Utilities

Consumer & Life Science

Financial Institutions

EPC & Manufacturing

Utilization > Collection

3

Significant

2

(i.e. Predict)

4

Advanced

20

2

16

3

(i.e. Optimize)

Simple

39

(i.e. Facilitate)

6

No usage

8 Collection > Utilization

No collection



Limited

Advanced

Total

(i.e. Transactional)

(i.e. Informational)

(i.e. Client needs)

Data collection from digital interaction

Source: Arthur D. Little Digital Transformation Study 2015

+

Travel & Transport

= Bubble size reflects no of companies 46

Deep Dive – C. Customer Management

Real-time dynamic pricing can be used to optimize revenues by driving in an average profitboost of ca. 25% Best Practice Real-Time Dynamic Pricing for Profit Maximization

Description  Pricing is changed according to customer group, time, real-time demand pattern and supply capability

Walmart is adjusting prices in real time based on realtime monitoring of online & offline transactions and logistics data

Eur /unit

White area = profit left on the table

Price 1 Price 2 Cost

Profit 1

Profit 2

# units sold

Empirical data: 1. Walmart, 50,000 price changes / month -> +30% global online sales (> Amazon!) 2. Amazon: 1 change / 10 minutes on average -> 27.2% increase in sales 3. Best Buy’s -> + 25% online sales 4. Sears -> + 17% increase in online sales

 This strategy can be enhanced by real-time monitoring of on/offline and logistics supply chain (e.g. Walmart), using electronic price badges in stores (e.g. C&A) or on displays (fuel stations)

Implications & Benefits 

Total revenues are increasing and retail profits are up ca. 25% on average.



The practice has to be carefully applied as there is a risk of PR backlash, expecially in markets where the sales cycle is >1day

Profit: +25% on average Source: Arthur D. Little Digital Transformation Study 2015, The Wall Street Journal, Company Information 47

Deep Dive – C. Customer Management

Integrated solutions with sophisticated analytics are meanwhile available across the customer journey and history Best Practice Quicksilver Personal Pricing & Rewards (1) Customer Analytics by integration of social media profile information

Description

(2) Individual communication with customers

(5) Offer of personal rewards and promotions

 Combination of shopper journey data with social data and purchase history

(3) Dynamic adjustment of price for individual customer

(4) Product finder: real time store availability check

 Capture data across devices and channels e.g. from Facebook post, webshop view, try in store, purchasing and sharing, e.g. via Instagram

Implications & Benefits 

Full understanding of individual customer needs, likes, dislikes



Individual communication to customer



Dynamic adjustment of prices



Significant conversion increase



Reduced markdown cost

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 48

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 49

Deep Dive – D. Operations & Supply Chain

Overview Operations & Supply Chain

Key Learnings Drivers & Challenges

Strategy & Governance

Products & Services

Customer Management

Information Technology

D

Operations & Supply Chain

Corporate Services & Control

 70% of the participants have no clear view and perspectives on trends and the impact of new digital technologies on their Operations & Supply Chain  Most companies underestimate radical innovation capabilities and full digitalization of technological components in Operations & Supply Chain  Leading Companies have a clear understanding of how digital and new technologies will impact Operations & Supply Chain and have set up a process for rapid deployment  Prototypes already allow for de-central in-store and just-intime productions, i.e. customized products with individual colors, sizes, etc. with a few minutes’ delivery time  Tests of Augmented Reality in warehousing resulted in significant efficiency increases and reductions in errors

Workplace & Culture

Business Model

 Cloud-based Machine-to-Machine (M2M) solution and RFIDbased asset tracking solution can help ensure product quality

Source: Arthur D. Little Digital Transformation Study 2015 50

Deep Dive – D. Operations & Supply Chain

Section specific DTI “Operations & Supply Chain” across all industries

D 10

Section-Specific DTI

Operations & Supply Chain

9 8 7 6 5 4 3

99 100 75 85 88 89 96 102 40 81 91 84 41 87 62 82 90 103 94 98 61 67 101 83 46 92 59 68 70 86 43 72

28 57 49 21 47 73 93 60 29 65 99 78 45 74 38 97 56 76 50 64 95 51 54 23 77 32 52 55

8 37

69 63 17 80 25 27 31 36 10 79 18 12 16 6 7 14 39 1 9 2 15 11 53 42 66 44 3 33 48 19 71 58 35 26 24 4 20 22 30 34 13 5

2 Each # represents a specific company

Average

1 0

X-Axis = Indexed at Cross-Industry Ø 2,88 Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: Due to the design of the survey, multiple companies have reached equal scores within this section 51

Deep Dive – D. Operations & Supply Chain

70% of the participants have no clear view and perspectives on trends and the impact of new digital technologies on their Operations & Supply Chains Target Picture & Transformation Roadmap

Leverage of Technologies & Digital Methods

Share of participants

Share of participants

Continuous and incremental optimization Current work on Digital agenda and roadmap

44%

Clear view on trends and industry impacts (5-10 yrs) Target picture and roadmap for E2E operations (5-10 yrs)

Focus on well established technologies and processes

25%

26% 5%

12%

Increase of digitalization is planned

52%

Performance already high and on peer-level Competitive advantage through state-of-the art

24% 12%

Source: Arthur D. Little Digital Transformation Study 2015 52

Deep Dive – D. Operations & Supply Chain

Leading Companies have a clear understanding of how digital and new technologies will impact Operations & Supply Chain and have set up a process for rapid deployment Best Practice Strategic plan for Innovating Operations

Description  A manufacturing company has developed a 10-year vision about technology usage in operations & supply chain  A self-financing project pipeline for deployment is set up and will be frequently updated to extend coverage and to leverage new technology opportunities  Partner-Networks have been set up for mission-critical technologies and applications to create competitive advantages

Implications & Benefits 

Cost improvement potential above 20% in relation to value add



Higher customer and staff satisfaction

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 53

Deep Dive – D. Operations & Supply Chain

Prototypes already allow for de-central in-store and just-in-time productions, i.e. customized products with individual colors, sizes, etc. with a few minutes’ delivery time Best Practice Adidas Speedfactory In-Store Production

Logo

Delivery of custom product (color & size) within 15min

Customer in shop: “I like this shoe but I want it in blue with black stripes, and I need size 9 for my left foot and size 10 for my right.”

Description  New Adidas stores will be directly linked to in-store production facilities  Production from design final product  The client can order his/her model in their preferred color and size with delivery time of 15min

Implications & Benefits

SPEEDFACTORY SPEEDFACTORY partners

SPEEDFACTORY characteristics 

Automated custom in-store production



Humans and machines working together in a common environment



Produce sports goods in the shortest possible time, from design to final product, low-cost and high flexibility

    

Adidas Group (project lead) Johnson Controls (automotive supplier) KSL Keilmann Sondermaschinen (specialist for 3D robotic stitching) Fortiss - TUM Technical University Munich (robotics & embedded systems) ITA RWTH Aachen – (textile institute)



Full personalization “segment of one”



High flexibility and very short lead time



Low WIP/Stock and therefore supply chain cost reduction

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 54

Deep Dive – D. Operations & Supply Chain

Tests of Augmented Reality in warehousing resulted in significant efficiency increases and reductions in errors Best Practice Vision Picking Using Augmented Reality

Description  Smart glasses provide workers with work instructions for commissioning Easy QR user login

 Workers are able to scan barcodes of stock pieces hands-free  Detailed task information is displayed in front of the workers’ eyes

Barcode scanning

Task & trolley information displayed in front of workers’ eyes

Implications & Benefits 

More than 25% performance increase



Staff is able to operate much faster and error-free, eliminating the need of lists and handheld scanners



High acceptance score among the staff

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 55

Deep Dive – D. Operations & Supply Chain

Cloud-based Machine-to-Machine (M2M) solution and RFID-based asset tracking solution can help ensure product quality Best Practice Cold Chain Quality Management

Description With a combination of M2M-, Cloud- and RFID technology not only is the location of a product in the logistic chain tracked, but also environmental conditions data are collected during its shipment

 Cloud-based solution that measures temperature, humidity, energy consumption, CO2  Tracks the location of products  Analyzes that data, and makes it visible on a personal dashboard accessible securely over the web from any internet-enabled device

Implications & Benefits 

Undisputable evidence and proof of product quality for temperaturesensitive products



Compliance with local health regulations, and fully automates the mandatory registration



“one-click” access to the data about the whole supply chain

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 56

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 57

Deep Dive – E. Corporate Services & Control

Overview Corporate Services & Control

Key Learnings Drivers & Challenges

Strategy & Governance

Products & Services

Customer Management

Information Technology

Operations & Supply Chain

Corporate E Services & Control

 Participants expect their companies to heavily invest in advanced digital solutions to create transparency and comprehensive controlling  Companies plan to utilize complex digital solutions to support and automate their processes  Brand dashboards can integrate Web Analytics, CRM and share of voice at a single glance  Highly standardized and thus professionalized “launch factory” approach can be seen as starting point for mastering execution  A cloud-based HR model can foster high employee performance and efficient global staffing

Workplace & Culture

Business Model Source: Arthur D. Little Digital Transformation Study 2015 58

Deep Dive – E. Corporate Services & Control

Section-specific DTI “Corporate Services & Control” across all industries

E Corporate 10

Section-Specific DTI

Services & Control

9 8 7 6 5 4

99 100 75 67 101 92 70 97 80 81 73 55 63 31 71 88 68 87 56 78 45 66 58 20 15 62 90 103 94 85 89 102 84 82 95 98 91 93 37 42 48 79 83 86 28 64 32 74 33 24 30 40 72

23 27 96 41 76 51 65 69 17 19 35 14 39 34 54 43 57 52 25 12 6 26 13 21 7 50 77 61 46 49 47 60 11 53 44 18 4 22 1 5 59 38 29 8 3 16 36 9 2 10

3 Average 2

Each # represents a specific company

1 X-Axis = Indexed at Cross-Industry Ø 3,74 0

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: Due to the design of the survey, multiple companies have reached equal scores within this section 59

Deep Dive – E. Corporate Services & Control

Participants expect their companies to heavily invest in advanced digital solutions to create transparency and comprehensive controlling Use of Digital Solutions to Achieve Transparency and Control All industries

Current Situation in Respective Industries Automotive Telecom & Media

100%

Energy Consumer Financial EPC & & Utilities & Life Institutions ManufacScience turing

Travel & Transport

Marginal use

90% Marginal use

80%

Simple use

20%

41%

13%

9%

28%

45%

46%

20%

41%

47%

50%

32%

36%

23%

60%

13%

27%

33%

32%

10%

31%

0%

5%

13%

8%

8%

9%

0%

70% 60% 50%

Simple use

Advanced use

40% 30% 20%

Advanced use Complex use

10% 0%

Complex use

Today

In 3 years

Source: Arthur D. Little Digital Transformation Study 2015

%

Percentage share of companies by given answer in respective industries 60

Deep Dive – E. Corporate Services & Control

Companies plan to utilize complex digital solutions to support and automate their processes Use of Digital Solutions to Automate Management Processes All industries

Current Situation in Respective Industries Automotive Telecom & Media

Energy Consumer Financial EPC & & Utilities & Life Institutions ManufacScience turing

Travel & Transport

100% Marginal use

90%

Marginal use Simple use

80%

0%

27%

8%

17%

28%

36%

38%

20%

50%

35%

50%

44%

19%

16%

80%

18%

43%

25%

20%

45%

46%

0%

5%

14%

8%

8%

0%

0%

70% 60% Simple use Advanced use

50% 40% 30% 20%

Advanced use Complex use

10% 0%

Complex use

Today

In 3 years

Source: Arthur D. Little Digital Transformation Study 2015

%

Percentage share of companies by given answer in respective industries 61

Deep Dive – E. Corporate Services & Control

Brand dashboards can integrate Web Analytics, CRM and share of voice at a single glance Best Practice Coca Cola Brand Dashboard Media

Description  The dashboard can show reach, engagement, brand impact, cost efficiency and precision marketing within one interface

Analytics

 One set of digital goal dimensions & KPIs across all markets & brands

Buzz CRM

Survey & sales (Q3)

 Technical API-based data uploaded through standardized file uploads & centralizes them in one dashboard

Implications & Benefits

Insights Optimized UI based on customer behavior

TV presence drives Twitter activity

Facebook activities drive brand engagement

Positive buzz drives NPS

QR codes are key success driver of site visits Out of home advertising drives search



Intuitive integration of real time reporting, interpretation, KPI alignment and data management



Improved decision making based on stakeholder-specific insights

Source: Arthur D. Little Digital Transformation Study 2015, M. Drüner, Social Media Night, Company Information 62

Deep Dive – E. Corporate Services & Control

Rocket internet uses a standard steering model gaining quick control on new ventures Best Practice Rocket Internet: highly standardized steering model

Description  Rocket Internet applies a highly standardized steering model to new venture  The Steering model includes metrics, analysis systems and reporting logic and tools

Implications & Benefits  Quick process to add partners and get full transparency on performance  Automated and analytics based approach enabling quick decisions

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 63

Deep Dive – E. Corporate Services & Control

A cloud-based HR model can foster high employee performance and efficient global staffing Best Practice Cloud-Based Project Staffing

Description

“We need a team of 2 Linux experts + 1 project leader, Russian speaking, with retail experience, on Aug 15th in Moscow” Blue Talent Cloud  Global internal talent  Home manager identifies vacancies  Host managers approve self-registration of employees in blue talent cloud  Internal talent recruiters allocate workforce

Local core employees

“BeLiquid” Talent cloud  Global external talent  Project-related “hiring” based on auction model (e.g. top coder)  Rating system secures quality  Core employees lead, coordinate, perform customer relations tasks

Freelancers

IBM employees Proposal for “Best” Project Team within seconds

 Application of Supply Chain Management principles to workforce management  Few leading employees manage project teams (incl. hiring of freelancers from cloud-based pool) and customer relations

Implications & Benefits 

More efficient allocation of human resources



Higher employee performance due to competition-based “hiring” of freelancers



Increase in flexibility



The approach is ideal for activities that require no relocation or change of the employee’s contracts

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 64

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 65

Deep Dive – F. Information Technology

Overview Information Technology

Key Learnings Drivers & Challenges

Strategy & Governance

Products & Services

Customer Management

F Information Technology

Operations & Supply Chain

Corporate Services & Control

 The role of IT departments is still passive – The majority “enables” Digital Transformation only. The leaders also have a budget share of 50% dedicated for Digital  IT departments need to balance their technical capabilities and redefine their operating models in order to become coleaders in the digitalization process  Layered IT architectures enable even large companies to realize an omnichannel solution in less than 6 months, with a massive impact on footfall and revenues  IT infrastructure-enabled Industry 4.0 solutions can help to increase productivity and profits for contractors

Workplace & Culture

Business Model Source: Arthur D. Little Digital Transformation Study 2015 66

Deep Dive – F. Information Technology

Section-specific DTI “Information Technology” across all industries

F 10

Section-Specific DTI Information Technology

9 8 7 6 5

90

50 88 101 71 97 74 47 80 64 83 78 81 87 33 102 70 7 15 57 53 46 44 95 48 37 45 93 67 35 99 89 103 100 96 92 77 91 94 86 68 84 69 65 66 76 43 75 98 73 62 25 55 32 14 26 21 56 34

79 51 60 52 39 63 9 12 36 31 16 59 20 3 30 23 8 42 2 5 17 11 72 82 38 40 54 85 58 19 22 29 41 61 24 18 49 13 6 27 10 28 1 4

4 Each # represents a specific company

Average

3 2 1 0

X-Axis = Indexed at Cross-Industry Ø 4,71 Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: Due to the design of the survey, multiple companies have reached equal scores within this section 67

Deep Dive – F. Information Technology

The role of IT departments is still passive – The majority “enables” Digital Transformation only. The leaders also have a budget share of 50% dedicated for Digital The Role of IT in the Context of Digitalization

IT Budget Dedicated to Digital

Share of participants

Leader

7%

Driver

More than half 21%

Enabler

Up to half 55%

Reactive N/a

Share of participants

15% 2%

13% 21%

Up to 25% Up to 10% None

26% 19% 21%

Source: Arthur D. Little Digital Transformation Study 2015 68

Deep Dive – F. Information Technology

IT departments need to balance their technical capabilities and redefine their operating models in order to become co-leaders in the digitalization process

Flexible

Flexibility of the IT Landscape

Maturity of the IT Operating Model

Share of participants

Share of participants

Very high

6%

Balanced

Rigid

High

22%

Complex

58% 13%

8% 28%

Medium Low

50% 13%

Source: Arthur D. Little Digital Transformation Study 2015 69

Deep Dive – F. Information Technology

Layered IT architectures enable even large companies to realize an omnichannel solution in less than 6 months, with a massive impact on footfall and revenues Best Practice Layered IT Architecture for Quick Process Implementation

European Telco

(3) Supported sample omnichannel Customer Journey: (2) Capabilities developed for store and in backend IT

(1) Layered architecture with high frontend flexibility enabled the setup of Hybris/SAP platform within 3 months, Beta version of in store and back-end capabilities live within 2 months

1. Customer finds & selects order 2. Customer chooses pick-up in store, chooses store, device is reserved 3. Shop agent is alerted, prepares pick-up, customer is informed & visits shop 4. Shop agent sells addon, e.g. MTV music, & item is added 5. Customer travels abroad and books roaming in self-service

Description  Multichannel approach to accelerating offline business through online services, without cannibalizing it  “plug-in” to existing platform  Radical standardization of processes and reduction of tariffs  Rollout to hundreds of shops within 12 months

Implications & Benefits 

Quick development of new capabilities, e.g. bundle , through integration of partners



Reduction from >500 to <50 tariffs



Massive impact on footfall in shops



Massive impact on up- and cross-sell effects

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 70

Deep Dive – F. Information Technology

IT infrastructure enabled Industry 4.0 solutions can help to increase productivity and profits for contractors Best Practice ICT to Support Industry 4.0

Description  At harvest time, a fleet of vehicles must be coordinated in a short time: the solution integrates data, location data and machine data  Full transparency of vehicle-location, remaining capacity, crop quality  Real-time logical integration of all players involved in harvesting

Implications & Benefits 

Up to 15% increase in productivity thanks to reduced fuel consumption, more efficient deployment of machinery, larger yields



In-sync fleet selects the quickest routes, avoids empty movements, protects the ground



Less downtime, higher profits

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 71

Table of Contents

1

Executive Summary

2

Deep Dive Drivers & Challenges A. Strategy & Governance B. Products & Services C. Customer Management D. Operations & Supply Chain E. Corporate Services & Control F. Information Technology G. Workplace & Culture

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 72

Deep Dive – G. Workplace & Culture

Overview Workplace & Culture

Key Learnings Drivers & Challenges

 Today simple concepts for communication and collaboration, as well as for agile methods, seem to prevail Strategy & Governance

Products & Services

Customer Management

Information Technology

Operations & Supply Chain

G

 This is unfortunately not yet the adequate playground for catalyzing the digitalization of business  Internal innovation capability generally lags behind due to little usage of agile methods  A gamification-based workplace culture can attract talent from all over the world

Corporate Services & Control

Workplace & Culture

Business Model Source: Arthur D. Little Digital Transformation Study 2015 73

Deep Dive – G. Workplace & Culture

Section-specific DTI “Workplace & Culture” across all industries

G 10

Section-Specific DTI

Workplace & Culture

9 8 7 6 5 4

59 93 92 98 77 57 103 91 99 101 60 83 88 73 76 80 48 96 35 64 74 90 42 22 75 46 100 95 84 97 56 69 87 34 89 36 102 79 86 68 71 54 81 30 49 13 72 66 26 44 29 55 58

53 94 78 39 52 45 32 20 47 40 23 37 14 24 65 9 17 25 19 18 4 11 8 7 1 82 43 85 61 67 70 62 63 50 15 38 51 27 21 33 12 31 41 5 16 6 2 3 28 10

3 Each # represents a specific company

Average

2 1 0

X-Axis = Indexed at Cross-Industry Ø 3,88 Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 74

Deep Dive – G. Workplace & Culture

Today simple concepts for communication and collaboration, as well as for agile methods, seem to prevail Concepts for Communication and Collaboration All industries

Agile Methods Integration All industries

Innovative Classic

Comprehensive

5%

6%

No

19%

21% Advanced 23% 34% Advanced

42% Simple

49% Simple

Source: Arthur D. Little Digital Transformation Study 2015 75

Deep Dive – G. Workplace & Culture

A gamification-based workplace culture can attract talent from all over the world Best Practice Gamification in Project-based / Knowledge Environment Employees get Badges to acknowledge their special abilities

Description

Every department reports its high score when they reach their KPIs (celebration eMail) Every month 10% of profit goes to employees via bonus checks => full visibility of financials

Nomination for The Bell of Awesomeness to acknowledge remarkable success

Gamification

Easter Eggs: e.g. Starbucks coffee for everyone, free t-shirts, gifts, roses

Everyone votes for The Community Leader Board– evaluating how well they contributed to getting things done Sending a Token of Appreciation to another employee to show gratitude

 Mindwalley has created an inspiring workplace for young talent using engaging methods of co-working  The methods are based on various concepts such as gamification and profit sharing

Implications & Benefits 

Improve sales performance by motivation and goal tracking (KPIs)



Higher employee engagement and empowerment



Innovative workplace attracts talent from all over the world

Source: Arthur D. Little Digital Transformation Study 2015, Company Information 76

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Authors: Michael Opitz, Bernd Schreiber, Volker Pfirsching, Alejandro Gonzalez, Thomas Gnirs, Gabriel Mohr, Stefan Peintner

77

Table of Contents

1

Executive Summary

2

Deep Dive

3

Appendix

Source: Arthur D. Little Digital Transformation Study 2015 78

Appendix – Automotive Industry

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” DTI for Automotive Industry 10

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: DTI calculated as average of scores for each section 79

Appendix – Automotive Industry

Automotive belongs to the most developed industries in terms of digitalization. The field of Operations & Supply Chain is perceived as the weakest point DTI for Automotive Industry per Section Strategy & Governance Workplace & Culture

Information Technologies

Corp. Services & Control = Automotive Virtual Star

Products & Services

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= Automotive average

Source: Arthur D. Little Digital Transformation Study 2015 80

Appendix – Telecom & Media Industry

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” DTI for Telecom & Media Industry 10

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: DTI calculated as average of scores for each section 81

Appendix – Telecom & Media Industry

Although the Telecom & Media Industry is strong in digital strategy there is no clear industry pattern, but significant room for improvement in some sections for each company DTI for Telecom & Media Industry per Section Strategy & Governance Workplace & Culture

Information Technologies

Corp. Services & Control = Telecom & Media Virtual Star

Products & Services

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= Telecom & Media average

Source: Arthur D. Little Digital Transformation Study 2015 82

Appendix – Energy & Utilities Industry

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” DTI for Energy & Utilities Industry

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: DTI calculated as average of scores for each section 83

Appendix – Energy & Utilities Industry

There are rather strong differences between respective enterprises in Energy & Utilities, but the industry generally lags behind in terms of products and operations DTI for Energy & Utilities Industry per Section Strategy & Governance Workplace & Culture

Information Technologies

Corp. Services & Control = Energy & Utilities Virtual Star

Products & Services

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= Energy & Utilities average

Source: Arthur D. Little Digital Transformation Study 2015 84

Appendix – Consumer & Life Science Industry

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” DTI for Consumer & Life Science Industry 10

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: DTI calculated as average of scores for each section 85

Appendix – Consumer & Life Science Industry

The Consumer & Life Science industry has large potential to digitize customer management, operations and corporate services DTI for Consumer & Life Science Industry per Section Strategy & Governance Workplace & Culture

Information Technologies

Corp. Services & Control = Consumer & Life Science Virtual Star

Products & Services

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= Consumer & Life Science average

Source: Arthur D. Little Digital Transformation Study 2015 86

Appendix – Financial Institutions Industry

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” DTI for Financial Institutions Industry 10

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: DTI calculated as average of scores for each section 87

Appendix – Financial Institutions Industry

Financial Institutions focus on digital strategy, governance and IT while only few actually have adapted products and operations DTI for Financial Institutions Industry per Section Strategy & Governance Workplace & Culture

Information Technologies

Corp. Services & Control = Financial Institutions Virtual Star

Products & Services

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= Financial Institutions average

Source: Arthur D. Little Digital Transformation Study 2015 88

Appendix – EPC & Manufacturing Industry

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” DTI for EPC1 & Manufacturing Industry 10

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: DTI calculated as average of scores for each section

1) EPC = Engineering, Procurement & Construction 89

Appendix – EPC & Manufacturing Industry

Few EPC1 & Manufacturing companies have set a digital strategy, while no company in our sample has significantly transformed its products or operating model DTI for EPC1 & Manufacturing Industry per Section Strategy & Governance Workplace & Culture

Information Technologies

Corp. Services & Control = EPC & Manufacturing Virtual Star

Products & Services

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= EPC & Manufacturing average

Source: Arthur D. Little Digital Transformation Study 2015 1) EPC = Engineering, Procurement & Construction 90

Appendix – Travel & Transport Industry

The Arthur D. Little Digital Transformation Index (DTI) shows that today few firms can be considered “digital oriented” or “digital centric” DTI for Travel & Transport Industry 10

Digital centric 9

[score above 7.5]

8 7

Digital oriented

6

[score between 5 and 7.5]

5 4

Digital adaptive [score between 2.5 and 5.0] 102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 103 101 99 97 95 93 91 89 87 85 83 81 79 77 75 73 71 69 67 65 63 61 59 57 55 53 51

49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Each # represents a specific company

3

Average

2 1 0

Digital aware

X-Axis = Indexed at Cross-Industry Ø 3.92

[score below 2.5]

Y-Axis = Company-Specific Deviation to Ø

Source: Arthur D. Little Digital Transformation Study 2015 Note: DTI calculated as average of scores for each section 91

Appendix – Travel & Transport Industry

Travel & Transport is lagging behind in Digital Transformation – products and services as well as operations have especially not seen relevant changes DTI for Travel & Transport Industry per Section Strategy & Governance Workplace & Culture

Information Technologies

Corp. Services & Control = Travel & Transport Virtual Star

Products & Services

1 2 3 4 5 6 7 8 9 10

Customer Management

Operations & Supply Chain

= Travel & Transport average

Source: Arthur D. Little Digital Transformation Study 2015 92

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