Demystifying Digitization:How Germany’s Top500 overcome digital hurdles

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ForewordThe German Top500 have already shown us how leading companies can come out of recessions stronger than before. How they can become market leaders in significant, emerging countries. And how they can continually improve quality to strengthen the “Made in Germany” promise. And now? It appears that many of Germany’s largest companies are re-orienting themselves.

All over the world, Germany is recognized for making superior products. Its strong reputation stems from a time when consumers focused on the quality of goods produced and the mechanical precision that underpinned their development— not on the quality of web-based services. Now it’s time for German companies to revitalize their reputations in the digital age. This is what the best of the best among the 500 largest companies in Germany have realized.

Accenture has been analyzing the performance of the 500 largest companies in Germany for approximately 10 years. During that period, we have regularly analyzed the revenues and profitability of “Germany’s Top500”, as identified by the German daily newspaper DIE WELT.

In fiscal year 2014, the Top500 demonstrated a trend reversal. With average revenues increasing by 4.1 percent, they are returning to a path of growth. But how will they achieve their goals?

To date, the flow of investments to digital transformation is rather slow. There are several reasons, but one involves the high degree of uncertainty about what customers are willing to pay for. It is time for the companies to gain a better understanding of their consumers’ digital desires. In short, companies need to review and redesign the customer experience, with the help of digital technologies. In this study, Accenture describes five obstacles the Top500 need to overcome to become digital companies. Our goal is to provide valuable information for those companies wanting to become digital champions.

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The Growth Champions are more profitable and have higher growth rates than the rest of the Top500. Accenture defines them as those companies exceeding the average revenue growth of all Top500 companies (as well as their industry peers) and realizing higher profits than their respective industry average over the past five years.

A year-on-year review of the Growth Champions line-up demonstrates just how difficult it is for companies to maintain their top positions among the competitors. Of last year’s 19 Growth Champions, only 10 can be found among this year’s winners:

• Clariant• Dürr• ElringKlinger• Fuchs Petrolub• Hugo Boss• Knorr-Bremse• L. Possehl• Trumpf• United Internet• Volkswagen

Only two companies succeeded in becoming Growth Champions consistently over the past six years:

• Hugo Boss• L. Possehl

Only two companies have appeared in the Growth Champions line-up five times:

• United Internet• SAP

The complete list of Growth Champions:

accenture.de/growthchampions

A detailed breakdown of the Growth Champions by industry indicates the sectors that dominate (see Figure 1). Leading the charge is the engineering industry, which produced nine Growth Champions. Six Growth Champions are from the automobile industry and five are from the chemical industry.

In determining which companies ought to be considered Growth Champions, Accenture compared the strategies applied by the particularly successful Top500 companies with the strategies of companies that achieved below-average success rates. Additionally, we looked for correlations between the Growth Champions and those companies standing out in terms of digital transformation. The Accenture Digitization Index helped us identify the pioneers in the field of digitization.

The Growth Champions among the 500 largest German companiesFor the sixth time, Accenture has identified the Growth Champions among Germany’s Top500. This year, 43 companies managed to overcome all obstacles to achieve that status. The number of Growth Champions has never been higher.

PLACEHOLDER

Figure 1: Distribution of 43 Growth Champions (GC) by industry

Communication

Engineering

Automotive

Chemicals

Consumer goods

Retail

Electronics & High Tech

Utilities

Pharma & Healthcare

Construction

ServicesWholesale

IT

91 1 1

6

5

4

3

3

3

3

2

2

Growth Champions are defined as those companies with: 1) an above-average revenue growth from 2010 to 2014 (as measured by the Compound Annual Growth Rate), compared to the Top500 average and to their industry cluster average; and 2) an above-average return on sales between 2010 and 2014, compared with their industry cluster’s return on sales. All averages are calculated as unweighted averages.

Sources: Accenture Research based on BvD Orbis, CapitalI , business reports, Bundesanzeiger

Germany’s leading industries

43 GC in 14 industries;20 GC from Germany’s leading industries

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A proven method for assessing progress in digitizationAccenture used its Digitization Index to analyze the transformations happening in the Top500 companies. This analysis revealed that companies are engaged in digital transformation initiatives at all levels. However, companies are not yet taking advantage of all the transformation opportunities that digital technologies provide.

For the third time, Accenture assessed the largest German companies in terms of their digital strategies, digital offerings and digital processes. By doing so, we gained valuable insights into the progress of digitization in individual industries, as well as among the Top500 cohort as a whole (see Figure 2).

This year, we refined the system of analysis to measure the digitization progress in four areas:

• Strategy: In this area, we examined to what extent the Top500 have a strategy for digital transformation in place.

• Product: Here, we assessed whether the companies are transforming their products into “intelligent” products or developing digital services.

• Sales: We also looked at the companies’ abilities to re-shape the customer experience with the help of digital technologies.

• Processes: Furthermore, it was important to find out to what extent the Top500 used digital technologies to optimize the efficiency of their internal processes and functions.

Table 1 below depicts these four core business areas, along with their representative actions. For the purpose of our analysis, we assessed the companies’ actions and rated each on a 1 to 4 scale.*

Table 1: The Digital Index approach across industries

Strategy Product Sales Processes

Digital transformation

in strategy

Digital transformation of

the product

Digital transformation in

sales and customer experience

Digital transformation of corporate

functions and processes

Recognize digital as a decisive trend for your own business and the industry

Design with the help of digital technologies and innovative approaches

Engage and reach customers through digital means

Assess the condition of digital culture, the cyber infrastructure and the performance

Plan strategies and budgets for digitization

Create digital and digitized products and services

Sell through various integrated channels and touchpoints

Improve the operative efficiency through digital applications

Take action to increase digitization inside and outside your own organization

Practice optimized activities with suppliers with the help of digital solutions

Serve customers in order to ensure positive and smooth after-sales experiences

Renew resources through digital means

Core business areas

Fields of action

*1 = clearly below the industry average; 2 = below the industry average; 3 = above the industry average; 4 = clearly above the industry average

Figure 2: Digital Index—by industry cluster

Utilities 1.92.1 2.2 1.9 1.6

Sales Product Strategy Processes (1) Unweighted average of the four dimensions (processes, sales, product and strategy).Extended methodology compared Digital Index 2015 and 2014 findings

Source: Top500 Digital Index Germany, Accenture 2016

Ø Digital Index Value (1)

Pharma & Healthcare 1.71.6 1.8 1.6 1.7

Media & Entertainment 2.12.7 1.8 1.9 1.8

Engineering 1.71.9 2.0 1.5 1.5

Logistics & Transport 1.92.0 2.2 1.9 1.7

Consumer goods 2.01.9 2.2 2.1 1.6

Communication 2.93.1 3.1 2.9 2.5

IT 2.93.1 3.3 2.5 2.8

Industry Raw Materials and Resources 1.41.3 1.5 1.3 1.4

Electronics & High Tech 2.82.8 3.1 2.6 2.7

Retail 2.62.8 2.8 2.7 2.2

Services 2.12.4 1.8 2.4 2.0

Chemicals 1.41.3 1.4 1.5 1.4

Construction 1.51.6 1.7 1.5 1.4

Automotive 2.32.3 2.7 2.0 2.0

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Timetable for comprehensive digitizationAccenture’s analyses, based on the Digitization Index, show that the largest German companies are thus far only pursuing a partial digitization of their business. In many cases, they have not yet devised a plan on how to integrate their digital activities and use digital to enable new business models.

Nearly all companies are engaged in groundbreaking projects aimed at either launching or furthering their digital transformations. However, the extent to which companies are deploying digital technologies in a comprehensive way to optimize processes or enable new business models varies. Figure 3 reveals some patterns that explain to what degree the Top500 companies have fulfilled their digital ambitions.

Leveraging the Accenture Digitization Index, we set out to better understand the course companies want their digital transformations to take. For this purpose, we plotted the assessment of digitization for “processes” on the x-axis and a summarizing assessment for the areas of “product” and “sales” on the y-axis.

The further a company is plotted to the right and top of the point cloud, the further its digital transformation has advanced. As shown in Figure 3, many companies from among the Top500 are still found at the bottom left-hand corner. No company, in fact, has made it to the top right-hand corner.

That means that the German companies we analyzed are far from deploying the full panoply of digitization options.

The findings of this study confirm that the Top500 differ significantly in terms of the breadth of activities they are undertaking to achieve digital transformation. The majority of the Top500 companies are pursuing partial digitization. However, there are still some companies biding their time and opting to maintain a “business as usual” course.

Our analyses of the Digitization Index indicate that the path to becoming a digital company can be cut shorter when the activities in the “product”, “sales” and “processes” areas are well balanced. Concentrating solely on digital to improve internal processes does not suffice. Companies that are too focused on this area are unable to take advantage of the opportunities arising from new digital business models.

However, if companies focus too much on the areas of “product” and “sales,” they do not have the required internal structures necessary to implement digital business models efficiently. For this reason, the Top500 should set the following goals on their path to digitization: increase the efficiency of their internal structures and redesign customer experiences with the help of digital technologies.

Figure 3: Digital Matrix

Digital customer Digital business

Source: Top500 Digital Index, Accenture 2015

Growth Champion Peer

New business models

External

focus

Internal focus

Digital customer

experience

Digital processes

Disrupt markets

(partially)

DigitalcompanyPartial digitization

Business as usual

More about the Digitization Index:

accenture.de/surveyresults

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Digitization is a C-suite imperative Accenture interviewed 247 top managers from large German companies and asked them to assess the digitization progress in their own company and in their industry.

In most companies today, digitization is a “top-level” issue. 42.3 percent of the interviewees stated that, in their companies, it is the CEO who is in charge of the digitization strategy (see Figure 4).

Accenture also asked about the proportion of overall investments that are dedicated to digitization.

It transpires that the amount of funds invested in digital initiatives is still rather moderate. As illustrated in Figure 5, 53.8 percent of the companies dedicate less than 10 percent of their overall investments to digitization. In three years, only 20.5 percent want to spend less than 10 percent on it.

At present, digital business models do not contribute significantly to the turnover in the majority of companies.

Exactly half of them indicated digital’s contribution was less than 5 percent.

We also asked interviewees to speculate on the value of digital’s contribution in three years’ time. At that point, only 21.2 percent intend to generate less than 5 percent of their turnover from digital activities.

It is interesting that companies consider themselves driven to digital transformation mainly because of the demand for new products. 27.3 percent of the interviewees stated this reason.

You can find selected results from the survey here:

accenture.de/surveyresults In our analyses of companies across all industries, we were unable to discern any patterns indicating a coherent approach to digitization. As a result of this study, we have identified five obstacles that companies must overcome to fully enter the digital age.

Figure 5: Investments in digitization

Figure 4: People responsible for planning the digitization strategy

9.3 %

14.1 %

4.2 %

6.4 %

42.3 %

21.5 %

2.2 %

What person or organizational unit in your company is responsible for planning the

digitization strategy?

Head of Strategic Planning

CIO (Chief Information Officer)

Other organizational unit (e.g. Digital Lab)

oint responsibility of several executive officers

Other executive officers

CEO (Chief Executive Officer)

CDO (Chief Digital Officer)

N=247, one possible answer

Source: Top500 Digital Survey Germany 2015, Accenture Research & IMD Lausanne

How high do you estimate the current and the future (in three years) investment needs (in % of the overall investments)

in connection with your company’s digitization?

Source: Top500 Digital Survey Germany 2015, Accenture Research & IMD Lausanne

N=171 (today), N=190 (in three years) one possible answer

not specified

23.2 %

14.6 %

>70 %–100 %

2.6 %0.0 %

>60 %–70 %

2.6 %2.9 %

>50 %–60 %

3.7 %0.6 %

>40 %–50 %

4.2 %2.3 %

>30 %–40 %

6.8 %3.5 %

>20 %–30 %

10.5 %5.3 %

>10 %–20 %

25.7 %

16.9 %

>0 %–10 %

20.5 %

53.8 %

In three yearsToday

19.3 %

16.4 %

In three years >0 %–10 %

>0 %-2 %

>3 %-5 %

>5 %-10 %

20.5 %

4.7 %5.3 %

10.5 %

Today>0 %–10 %

53.8 %

18.1 %

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Overcoming five obstaclesNew growth opportunities emerge when companies transform both their customer experiences and their internal processes.

To date, few companies are setting up digital business models consistently or following a structured digitization plan. Some of the successful Top500 companies choose to deploy their digital strategies over time, continuously modernizing and

digitizing their internal processes and infrastructure. They do so with the understanding that new digital business models can only reach maturity if their digital strategies consistently take the end customer’s viewpoint into consideration. They also harness

complex data and develop simple processes that satisfy digital customers’ needs. Those that consider both the internal processes and the customer experiences—and digitize them in a structured way—can truly claim to be digital companies.

The development of new digital services does not depend on flashes of inspiration alone. To develop new business models and unlock new potential, the Top500 should do five things.

There is nothing mystical about digitization. A master plan for everybody does not exist. Every company has to find its own digital path—and that path should lead to the customer. There are numerous starting points. In Germany, companies primarily digitize their internal processes. In the United States, companies concentrate on the development of new customer-focused business models. Both approaches can help companies become a digital player.

Improving efficiency is a good thing, but optimizing the customer experience is even better. Germany’s Top500 have to

learn what the Internet companies from Silicon Valley have demonstrated: Digital technologies provide completely new opportunities to not only understand what customers want, but also to satisfy their needs.

People say that data is this century’s raw material. And raw materials are valuable. Companies have to handle them efficiently. They have to learn to work with them on a broad scale. It is important for the Top500 to seek out new opportunities for harvesting data. However, at the same time, data is only valuable when companies can analyze and understand it. Experts in this field, like data scientists, are in high demand in the digital age.

The new competitors of the Top500 are companies that don’t need to digitize. That’s because they are emerging now and have never known anything other

than digital infrastructures and business models. They are disruptors and have the ability to grow enormously. If the Top500 companies want to meet the challenge these new entrants present, they have to eliminate complexity from their processes and streamline and digitize their structures.

New competitors are suddenly stepping out of the fog and conquering markets with disruptive business models. The Top500 need “radar” that will allow them to identify these new competitors as soon as possible.

The quicker companies can recognize the threats, the greater their chances of successfully defending their market positions. On the other hand, new markets might also appear on the horizon and out of the blue when companies digitize their existing product portfolios. Incubators and accelerators in the start-up scene may fulfil this “radar” function.

Conclusion

1. Simply start; do not over-plan!

2. Rediscover the customer and optimize his or her experience!

3. Do not be afraid of data!

4. Increase efficiency, reduce complexity!

5. Identify new competitors and new markets!

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About Accenture

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Walter Hagemeierwalter.hagemeier@accenture.com

Peter Pfannespeter.pfannes@accenture.com

Matthias Wahrendorffmatthias.wahrendorff@accenture.com

Micaela Feldmannmicaela.feldmann@accenture.com

About the IMD World Competitiveness Center

The IMD World Competitiveness Center ‘is the world pioneer in the study of how nations and enterprises compete to lay the foundations for future prosperity. The Center focuses on supporting government and corporate decision-making through special reports, executive education and training programs, and its reference publication—the IMD World

Competitiveness Yearbook, published since 1989 and recognized as the leading annual report on the competitiveness of nations. The Center is based at IMD— a top-ranked business school located in Lausanne, Switzerland. www.imd.org

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