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Digitalisation drives growth

If companies want to grow, digitalisation is an inevitable step. But when and how do investments make sense? Researchers recommend setting clear goals, and taking one step towards digitalisation at a time. Regional examples show: this is a promising strategy.

written by Yvonne von Hunnius

It all starts with the Excel table. ‘The more customers and employees we had, the more difficult this solution became, so we had to look for a professional system,’ says Oliver Stahl. Stahl is co-founder and managing director of Früchtebox Express AG, a company founded in 2009 which delivers snacks and fruit in Liechtenstein and Switzerland. In this organisation, a software solution for subscription management, logistics and finance laid the foundation for further growth. By now, digitalisation also impacts the other end of the value creation chain: with customers like SIX and UBS snacks and fruit can be paid for digitally by using the payment app Paymit/ Twint.

Digital façade in the transition to growth
The important thing is a stepwise approach to digitalisation – this way companies stay flexible and can respond most effectively to the requirements of customers and suppliers.

This development is typical for companies like Früchtebox AG, whose business model is not rooted in digital technologies and infrastructures from the early beginnings. In the growth phase, companies have to juggle numerous things at the same time. Researchers from the Institute of Information Systems at the University of Liechtenstein and the Terry College of Business at the University of Georgia have joint forces to study the role of digital technologies in the phase of rapid growth. Sanja Tumbas, Stefan Seidel, Jan vom Brocke and Nicholas Berente have conducted interviews with over 40 persons in executive positions in various industry sectors.
One of the insights: in order to get through the growth phase successfully, firms frequently rely on the “digital façade”. And this is not in any way meant negatively. “First of all you minimally invest in a IT system that is customer or partner facing. This enables companies to make a professional impression right from the start, while at the same time building up digital competencies,’ explains Sanja Tumbas. The findings were communicated in an article that won the Best Paper Award at the International Conference on Information Systems (ICIS) in Texas, USA, in December 2015.


Digital competencies - step by step

Young companies are advised to develop their infrastructure with care and to decide on building up specific digital competencies wisely.“ The nature of work is changing and becoming more and more digital – this calls for thinking early on about the ways digital technologies create value for the emerging business” Ms Tumbas says.

With the young Vaduz-based company Frooggies, for instance, the main focus is on a smoothly running and efficient online shop as well as internet-based customer support. The company was founded in 2015, however, until just a short while ago, the bags of fruit powder were still for the most part being filled by hand. With growing quantity and number of transactions, the task was outsourced. Co-founder Philippe Nissl says: “A complete IT infrastructure would be great, with all processes, stock levels, purchasing and customer service data being linked together. But when we will get that far is an open question.”

The researchers suggest that for so called “grown digital” companies digitalisation comes into play during the rapid growth phase. They then look for a strategy, as a reaction to new markets or distribution channels. The exact point at which it becomes worthwhile investing in expensive systems, however, is a question each company decides for itself. Sanja Tumbas outlines that it is not a specific time estimation but rather about the approach:
“The important thing is a stepwise strategy. This way companies can formalise their processes but at the same time also stay flexible and respond most effectively to the requirements of customers and suppliers.” Digital technologies allow organisations to transition through the multiple conflicting imperatives brought by organisational growth. The “digital facade” is a mechanism by which organisations carve out time to become professional.

Structures in flux

In large, well established organisations, digitalisation is often seen as a means for accelerating innovation cycles – an aspect that is becoming increasingly important both to the region and to the work of the Institute of Information Systems. In this context, the role of the newly established executive role - Chief Digital Officer (CDO) has gained significance. The CDO role is often established to drive digital strategy.

For both young and well established companies, organisational processes are increasingly inseparable from digital technology: “Work is becoming digital and calls for new ways of thinking in traditional organisations,” says Ms Tumbas.


Born digitals are wired differently

Some companies already have digitalisation in the genes. Their founders are often representatives of Generation Y – those born after the year 1980. Such companies function differently from those like Früchtebox Express AG, which only get more intensively involved with digitalisation in their growth phase. The researchers refer to the latter as “grown digitals”. “Born digitals,” on the other hand, frequently have a business idea that is based on digital solutions.

This is true for the start-up company investory.io. The platform takes over investor communications for companies, sending out reports regularly with standardised key statistical figures. In this case digitalisation is an integral component of the business model. The managing director and co-founder is Florian Tausend, a graduate of the Master’s degree programme in Entrepreneurship. He has a clear view of his prospects: “Thanks to digitalisation, it has never been so simple or so cheap to acquire know-how and build up infrastructure, required for starting a company.” But here again a stepwise approach is recommended. In his experience, flexibility is crucial when developing the start-up idea, as well as for the development of future products. Start-ups which put all their eggs in one basket at an early stage lose their chance of this kind of flexibility.


Growth needs knowledge

But is it actually easier for born digitals to grow, since they have more digital competencies? Sanja Tumbas says: “With their technological resources, these companies are more tuned to experimentation. But being fully digitalised does not automatically lead to success. Whether it is a matter of financing, logistics or communication, only those who have a convincing grasp of their business are ready for growth, and can then in fact benefit from the advantages of digitalisation in the most skilful way.”

 

* This article was first published in the science magazine Denkraum in November 2016.