How to make creative destruction something positive
A term on many people’s lips these days is “digital transformation,” which actually encompasses a number of processes that run in parallel. These will have a lasting impact on society in the years to come. According to Dr.-Ing. Jürgen Jähnert, director of bwcon, which is a member of the Steinbeis Network, to succeed in the future companies will have to think and act in terms of value-creation networks.
Digital transformation has basically already been happening for decades and digital solutions have been signposting the future direction since the introduction of data processing, driving innovation in the economy as well as public administration and other areas of society. At the moment, however, this transformation process is taking place hand in hand with a number of other technology trends, all of which are more or less directly linked to information technology, and even among themselves, they’re undergoing a convergence process. The most important trend relates to future travel solutions, or mobility. This does not just mean ongoing developments that we already know about today in the field of transportation (automobiles, public transportation, and passenger travel), but also the next-generation mobile communication infrastructure (5G), including mobile end device developments. Another trend worth highlighting is cloud computing. This refers to the “recentralization” of IT resources along with the industrialization of IT. As a result of this process, IT services are developing into standardized mass products. A further new trend relates to big data/data analytics. This is about the systematic gathering of data from a wide variety of sources. This data is linked to individual application scenarios and evaluated efficiently. It is then used as a basis for acquiring new knowledge through data analytics and in turn, this forms the basis for services with the potential to add value. Cloud computing and big data/ data analytics are thus a fundamental starting point for new, datadriven business models. The next trend in this area revolves around cyber-systems and physical systems. This is where sensors and actuators are connected to the internet to create an internet of services and physical objects – the Internet of Things, or IoT. It’s the overall interplay between the communication infrastructure, cyber/physical systems, and the cloud/big data/data analytics that then provides a foundation for new value-creation models. These converging technologies will enter into use in almost all areas of our society in the future. For instance, in the textiles industry, items of clothing will be fitted with sensors that are linked to the internet, new ways to add value will emerge based on data-centric business models, and – as we’re already witnessing in the traditional field of mechanical engineering – entire value chains will undergo sweeping change. In industrial markets, another trend that is emerging is 3D printing and in combination with the trends outlined above, this will open the door to completely new realms of opportunity.
All of these developments are going full steam ahead, providing an entry point for nearly all companies, government authorities, and indeed any area of society to unveil major opportunity in the future. This will entail a rethink for companies and new ways of operating, especially in a country like Germany, which has such high outlays on salaries and where businesses face the increasingly difficult challenge of standing their ground against the global competition. The new technologies are coming face to face with established industries and rigid value chains, but they do make it possible to make incremental improvements, for example through further process automation. The fact that so many German companies have succeeded in becoming global leaders in niche markets shows that these incremental innovation processes have already been taking place in many areas for some time. They have been highly successful.
Then there’s an aspect already identified by Schumpeter: the “creative destruction” of innovation. This typically happens when a new technology makes it possible to ambush and replace established value-creation models through a completely new way of thinking or acting. Treading this typically more disruptive path of innovation is extremely challenging, especially for companies with a successful history and an established company culture. Indeed, many companies have not trodden this path in the past, or not trodden it enough, despite their comfortable market position – or perhaps precisely because things are so comfortable. There are a number of leading companies that have been partially or completely routed by the competition within a very short space of time. Examples include Alcatel, Kodak, Nokia, and the communications division of Siemens. So what challenges will companies have to deal with in this time of technology transformation? It’s worth noting that these (and other) technology trends will need to converge and be introduced to specific application areas together if established approaches to value creation are to be moved forward. This could and indeed will lead to further fragmentation. This is a multifaceted problem. The complex nature of this problem is not just due to factors such as company culture, but also how firms collaborate with other firms (even potential competitors – sometimes called frenemies). It’s also due to the actual process of entering new fields of business.
In recent decades most companies have continuously become more specialized and extended their core competences. This provided a solid foundation for their extraordinary success in global competition. But this approach and the skills firms have acquired will no longer be enough to grasp the new opportunities that will arise, or to defend the position they’ve fought for. In the future, the central challenge for all companies will be to remain the successful specialists they were until now and find a way to think and act beyond the horizon – both inwardly and outwardly. The only companies that will succeed in the future will be those that can think and act in terms of value chains and know how to systematically seize the opportunities this behavior leads to. This doesn’t just apply to global companies, which are already able to think and act in networks (especially within the organization), but small and mediumsized companies will also have to find ways to network, and they will have to do this much more intensively than they have until now. Doing this takes a multidisciplinary approach and thus a new way of communicating within the company. It also calls for a different mode of interaction with customers and suppliers, plus a completely different approach to competitors. It can also be expected that completely new partnerships will be entered into between different enterprises. Innovation processes will then not be primarily restricted to the four walls of a company, they will also take place between companies. For many business enterprises this requires a major leap forward in the established corporate culture. Especially contact between major companies and smaller firms can and will provide essential and fruitful ideas for everyone involved. But for this to work, people will have to enter into a partnership of equals – something few have achieved until now.
Networks, especially when they’re formal and well organized – and if possible spanning technologies, industries, and different sizes of companies – are an important factor in establishing new levels of trust, which will be crucial for this new way of collaborating. Things first start to work when people line up and set up personal contacts. This instills trust, providing a basis for a kind of openness that has been uncommon until now. It not only takes a change in company culture; a firm also has to “import” the right experience, knowledge, skills, and ideas. To leverage this mediator role, which instills trust and grants companies access to knowledge, skills, and new ideas, networks make use of special techniques, a means of introducing and working alongside collaborative innovation processes. These techniques are methods such as design thinking, effectuation, and even LEGO Serious Play. This brings different parties together and allows them to focus on topics in an atmosphere that permits the representatives of the different companies to interact and generate ideas. And this allows new methods of value creation to develop.
When people embark on this process, other specialist skills are needed, as are alternative organizational structures. Frequently, more financial resources are required, too. This is another area in which networks have an important contribution to make, becoming a proactive facilitator and orchestrator of the required resources. Networks also face another challenge during this process, because they also have to develop themselves. Until now, networks were often organized around a technology or sector of industry, but given the diversity of the challenges and possibilities described above, the next task will be to allow markets to develop and become bilateral or multilateral. In these markets, it will no longer be possible to make such clear distinctions between providers and users. Also, different players from within the network will generate creative ideas for their own future development. As a result, it will become increasingly important for a company to get involved in networks and proactively provide input to the innovation processes taking place in those networks. It will also need to assume the simultaneous role of a consumer and a producer (prosumer). This way, and only this way, a company can turn the relentless process of creative destruction into something positive.
Dr.-Ing. Jürgen Jähnert is a director of bwcon GmbH, a member of the Steinbeis Network. The services of the enterprise provide support with the application of strategic technology. bwcon manages a variety of networks spanning different technologies, companies, and organizations. It also advises individuals, enterprises, and organizations; it coordinates research and innovation projects and stages events; and it organizes projects that help with networking, thus providing support with business startups. bwcon organizes the transfer of knowledge from the public domain into networks and is especially active in commercial transfer between different areas of knowledge in the private economy.