Digitalization has the potential to shake up value chains and distribution, with a considerable impact. However, companies can improve their existing positioning, and develop new business models, by introducing product and process innovations:

1. Optimizing current business models, for example through digitalization of products and services in the established portfolio. This can be done by networking of the supply chain beyond company boundaries or through the use of artificial intelligence to improve flexibility and the capability to react to changing markets.
2. Expansion of the business model, for example through further development of the product and service portfolio in the context of autonomous driving or electrification of the powertrain.
3. Development of a new business model, for example through the creation of novel transport solutions and the development of direct (end) user access.

The multifaceted drivers of digitalization in industrial manufacturing, including the Internet of Things, Industry 4.0, mobile devices and Big Data, affect companies in the supplier industry with varying degrees of relevance and urgency. This means that an in-depth discussion about the importance of digital transformation becomes necessary in every company, in order to make use of opportunities and identify risks as early as possible and be able to take the relevant countermeasures.

In this context, organizations are increasingly asking themselves to what degree the existing company culture allows for managing high-complexity digitalization. Small and medium-sized suppliers are on the verge of missing the boat here. Company culture is often still organized along traditional lines and can work against the need for agility, flat hierarchies and self-managed teams in digital transformation projects. Even “trial and error” methods and short development cycles with the close involvement of external partners are often difficult to carry out within a long-established culture.

Although the relevance and urgency of digitalization is accepted, hardly any companies have a real masterplan for carrying it out. It is not immediately apparent what the future direction of the business should be and to what extent digitalization is going to change the company. The question that often remains is whether the company can continue to exist as a component or system supplier or whether an entirely new business model must be developed. For many companies it is simply not possible to identify and use the opportunities that are arising, for example from the application of Big Data. For this reason many medium-sized companies focus primarily on process and cost optimization instead. The fact that digitalization can offer direct customer access is often overlooked.

As a result, there is a lack of understanding about the opportunities created by new products, services or digital business models, and the existing potential for new sources of revenue is more or less ignored. Many suppliers’ financial resources are also insufficient to meet the cost of digital transformation and there is a shortage of people with the right digital skills.

Despite these factors, existing company culture is often cited as the most frequent reason for a non-existent masterplan and a lack of comprehensive discussion about digitalization.

Berylls’ Company Culture 4.0 survey shows company culture to be a significant success factor and many suppliers are indeed working intensively on that: management teams discuss and reflect on their perceptions of culture, describe values, norms and basic beliefs about leadership and co-operation, and in many cases train their staff in how to deal with these. So why is commitment not leading to a comprehensive discussion about digitalization?

Berylls believes the following factors are behind the lack of progress:  

• The continuing success of the existing business model and concentration on established, direct competition reduces readiness to make changes within the company.
• Understanding of digitalization varies widely in existing organizations and no common definition of digitalization has been worked out.
• Discussion about company culture concentrates too much on traditional cultural values that have been effective so far: quality, reliability, thoroughness and thrift, combined with a down-to-earth approach. It is not in the participants’ DNA to storm ahead without careful planning or to regard investments as an experiment.
• To a large extent, business owners and senior leaders live out these traditional values. In discussions about digitalization they often act based on their experience, do not argue enough about the best objective solution and shy away from investments outside their traditional areas of opportunity.
• Within a company there is still relatively little knowledge about digital skills and approaches. This means that no shared vision can be developed regarding the cultural strengths and weaknesses needed for digitalization. Consistent promotion of strengths and limitation of weaknesses becomes more difficult.

To achieve success, the necessary culture patterns of digital transformation need to be identified to define the right measures to be taken for organizational development. Is the existing company culture a help or a hindrance when it comes to the complex demands of digitalization? The company cultures of many organizations show a lack courage to take new pathways, are closed to innovative ideas, favor a culture of debate rather than a pursuit of harmony, and lack the strength to implement change in the face of resistance. Courage as a quality is often dismissed as recklessness and determination as obstinacy. But both of these are attributes without which a fundamental change cannot be tackled.

This is why Berylls Strategy Advisors has established a set of recommendations for adapting company culture to meet the needs of digitalization – for medium-sized companies in particular – without losing the elements that make them successful right now. Our recommendations are continually being redeveloped, with the help of company culture experts and collaboration partners:

• Berylls recommends a pragmatic pathway and emphasizes the importance of systemic and systematic management. It is leaders who determine culture development in a company. However, it is by no means a question of reinventing the leadership. Instead, it should be adapted to meet the needs of organizational development. For example, agility is not only a method, but an attitude. The skill lies in implementing existing company approaches in an appropriate and meaningful way.
• It is also important to consider the cultural perspective at the point where a company-wide digital strategy is being worked out. As well as strategic and structural initiatives, digital transformation above all requires cultural initiatives that can mobilize the entire workforce. The clear creation and allocation of responsibilities at top management level are helpful for the successful implementation of company-wide and centrally controlled measures for digital transformation.
• Most importantly, the development of a comprehensive masterplan for digital transformation needs to be right at the top of the decision-makers’ agenda. Both the potential and risks of digitalization must be looked at as a whole in order to reach the right conclusions for the company concerned. The basis for this is a clear definition of what digitalization actually means. The strength and effectiveness of applying knowledge of digitalization to the business model is enormous, but the path to get there is not easy, as the Berylls Company Culture 4.0 survey shows. If knowledge gaps are to be reliably closed, as for example with Big Data expertise, focused involvement is needed from external experts.
• However, as the recommended ways of working may not be compatible with the existing culture, work to develop the organization’s digital mindset is necessary. One pillar for this is the creation of appropriate training opportunities. When it comes to important personnel decisions such as recruitment and promotion, attention should be paid to those skills needed urgently by the company for digital transformation. Sometimes breaks from the norm must be accepted or even consciously implemented. Digital transformation demands a cultural rethink from established companies if they want to secure their success. Such a rethink starts at organization’s very heart.