Digital @ Scale. Swaminathan Anand

are still developing, placing high demands on agility and innovation.

      At the beginning of 2017, Deutsche Telekom sold its share in Tolino to the Japanese-Canadian group Kobo, the third-largest online retailer in the world after Amazon and Alibaba. The move further strengthens the Tolino alliance because Kobo has its own generation of e-readers and e-books. Unlike Deutsche Telekom, Kobo, a subsidiary of Rakuten, has global reach, and is therefore an ideal partner for the Tolino alliance in its rivalry with Amazon’s Kindle.

      TOLINO IS NOW PRESENT IN MORE THAN 1,800 GERMAN BOOKSTORES

      The success has not helped all Tolino partners. Weltbild applied for insolvency, and Bertelsmann ended its book clubs in late 2015. However, the media group is still on board with Tolino Media, the wholesaler for e-books, and new partners have joined. For example, the wholesaler Libri brought with it 1,300 bookstores, and with two strong regional groups, a further 70. Today, the Tolino can be bought in more than 1,800 out of a total of 6,000 German bookstores, and the open system has even expanded to Belgium, Italy, Holland, Austria, and Switzerland.

      Furthermore, the success of Tolino and the associated prospects for booksellers is likely to have contributed to Thalia being sold for a nine-figure sum in 2016. One of the new owners is CEO Michael Busch. He expects further double-digit growth in e-book commerce with nine million Germans using e-readers by 2020. The Thalia boss sees them as good customers. If they like an e-book, they often also buy the print copy because they still want to flip through an actual book.

      The Tolino adventure has taught Busch something: “It doesn’t matter where you come from or how big or small your company is. If you have enough imagination and strong willpower, you can achieve just as much with digitization as the giants in Silicon Valley.”

      The Tolino success can therefore serve as a blueprint for all those companies whose business models are threatened by digitization. The answers to three questions provide a model for digital transformations – including for your company:

      1. Why does a company need to change in light of the digital challenge, and how critical is the topic of digital for the company’s business?

      2. What precisely needs to change – from the overall business model and the central elements of value creation such as product development, marketing, and the supply chain, through to basic functions such as technology, organization, and corporate culture?

      3. How will the company organize the digital transformation and change structures, processes, IT, and management instruments?

      This book provides concrete answers to these questions, and includes numerous success stories, putting you and your business on the path to a successful digital future.

      1

      DIGITAL IS CHANGING OUR WORLD, QUICKLY AND IRREVERSIBLY

      FROM CUSTOMER RELATIONSHIPS and production control to communication with suppliers: In the digital age, companies need to rethink their entire business models. Those who don’t risk failure and extinction.

      The successful battle of the traditional booksellers and their Tolino e-reader with the Internet giant Amazon and its Kindle device not only inspires courage, but is also rich in lessons. Even the most cursory of analyses is enough to dispel a widely held belief that, contrary to popular opinion, digitization is not primarily an information technology (IT) issue. Effective IT is just the foundation on which the digitization of the entire company is built. It’s about far more than simply implementing digital technologies – the ultimate goal is to develop completely new business models. This takes us to the heart of the issue: digitization starts with the CEO.

      1.1 WHAT IS A DIGITAL TRANSFORMATION?

      A digital transformation leverages the opportunities presented by technology – from IT to advanced analytics, sensors, robotics, and 3D printing – to drive business forward. The entire ecosystem of the company is affected, including employees, customers, suppliers, and partners. Companies that want to digitize successfully can either improve their current business model and processes, add new sources of revenue to their business model, or replace their old business model with a new superior model. In doing so, companies realize new customer experiences, generate new value propositions, and raise the organization to new levels of effectiveness and efficiency. Digitization thus changes structures, processes, and IT, as well as the people who live and work in this new reality.

Digital Players Conquer and Disrupt All Industries

      However, this wonderful new world has a dark side: those who refuse to change, lose. Digitization triggers creative destruction, a term popularized by economist Joseph Schumpeter. The new combination of production factors ousts and destroys old structures and traditional business models.

      Digitization claimed its first prominent victim when the Internet was still in its infancy, when smartphones belonged to the realm of science fiction and apps were still unheard-of: Compaq was the undisputed global leader in personal computer (PC) and server sales in 1996, with a market share of more than 50 percent in the business customer segment. Compaq built its computers in the old-fashioned way, and delivered them to distribution partners for sale in their stores. That same year, the then 31-year-old Michael Dell launched direct sales of his Dell PCs via the Internet without the need for brick-and-mortar stores. And it wasn’t just the order process that was revolutionary: Dell’s customers were able to assemble their own customized PCs using a kit on the website. Thus, computers were no longer built according to the Compaq principle of “build to stock,” but rather “build to order,” and were tailored to the needs of the individual customer.

      Although not immediately apparent to its competitors, Dell’s business model was superior to the business model of Compaq and the rest of the industry. Online sales and lean mass production according to the build-to-order principle made the difference between earning and losing money in this hard-fought market with tight margins. Compaq didn’t dare to change its business model because it feared a channel conflict, and ultimately stayed true to its existing model. In 1997, Compaq was acquired by Hewlett-Packard, and Dell rose to become the world market leader.

      Since Dell’s digital revolution of the PC industry, many industries have had their foundations shaken. Video libraries, CD stores, travel agents, and local banks are just some of the endangered species in a world where we now stream our movies and music via Netflix and Spotify, book our flights and accommodations via portals like Expedia and Airbnb, manage our bank accounts online, and can even secure classic banking services like loans via crowdfunding sites like Prosper.

Digitization Is Relevant for All Industries – Only Scale and Speed Will Vary

      Anyone who hopes one’s own industry will not be affected by digitization and chooses to continue along as before in blissful oblivion is making a risky assumption. Essentially, all sectors are affected; the only difference is the severity and length of time until the old business model is rendered obsolete.

      Companies face dramatic challenges in many industries. Who is to say that tomorrow’s driverless cars will still be built by Ford, BMW, Toyota, and the like, and not by Tesla, Google, or Apple? And in a few years, who will equip our smart homes with Internet-connected robot vacuum cleaners and ovens? Who will deliver the groceries that our smart refrigerators automatically order online? Kroger or Amazon?

      Naturally, the topic of digitization is on the agenda of most companies. Many companies have started digital initiatives, for example in customer communications, in production, or in supplier interaction. However, most CEOs currently admit they do not have an overarching digital strategy. Their ideal transformation toward becoming a digital company often lacks definition, and all too often they have too narrow an understanding of the term digitization. It is not just IT and technology. These are only the foundation. Rather,