22. April 2020

How to scale new digital businesses

What are the measures companies are taking today to exploit the possibilities of Industrie 4.0? Where do they fail, why, and what do they need to pay particular attention to in order to succeed with digital business models? These and other questions are answered in our article “Successfully scaling digital business models” in the latest part of the series “Handbuch digitaler Mittelstand”. The book combines author contributions on the topic “Transformation & Innovation in the field of digital change” and is now available free of charge. Please note: The article is only available in German at the moment.

Between internal optimization and competitive pressure

Many companies have so far only used the potential of Industrie 4.0 for internal optimization purposes or to supplement business areas that they have already developed. However, those who dare to break new ground with the help of the new  technologies are facing great challenges: They often lack a clear vision and definition of what they wish to achieve, or they want too much at the same time and try to open up several new business fields at the same time in order to create a competitive advantage. Often, they lose sight of how their new business model can be integrated into the already existing organization Рwith the result that the activities fail after a short time, because the digital business model does not survive on the market. When implementing innovative business ideas in Industrie 4.0, companies must not lose sight of their actual core competence, instead, they should use it to their own advantage that they can draw on experience in already familiar areas.

Using core competence to accelerate innovations

In order to develop new business models as part of a digitalization strategy, some companies are pursuing an inward-looking approach that focuses on internal resource utilization and optimization: They try to manage the core business as efficiently as possible and respond to innovation opportunities with a high level of flexibility. Others create actual innovation vehicles, for example in the form of spin-offs, innovation labs or cooperations, in order to realize new digital business models. By involving third parties, they hope to avoid internal conflicts and increase the speed of innovation. However, operating outside of one’s own core competencies sometimes means that potential synergies with the core business are overlooked, and the digital subsidiaries do not generate the desired turnover.

In order to successfully establish digital business models, companies must therefore pay attention to several things: They should be clear about what constitutes their core competencies, where there is potential for optimization, what goals they want to pursue with their digitalization strategy and where strategic partnerships might be useful. On the other hand, they must also be in a position to compare the new digital business model with existing ones and to weigh up whether pursuing digital business outside the existing corporate boundaries in a legally independent entity or within the parent organization is more promising. The decisive factor is a precise analysis:

  • Which dependencies and similarities of the business models exist?
  • What deviations or contradictions can be identified?

The more independent the business idea is, the more suitable it is for outsourcing to an independently operating company. Nevertheless, it must be examined whether valuable synergy effects can be achieved by combining the competencies of parent and subsidiary companies, such as the joint use of support processes, the exchange of domain-specific knowledge or customer access. The example of the SMS Group shows how this can be achieved: The company successfully founded the digital spin-off SMS Digital because it ensured both the necessary distance between the two business models and the well-founded organizational anchoring of the new business in the already existing parent company.

Are you also facing the challenge of creating a new digital business, implementing it into established company structures or evaluating a reorientation of an existing spin-off? Get in touch to see how we can support you!