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Business Leader, avoid the temptation of “buying new sneakers” for your IT department!

Digital transformation begins with the business core, not with technology

Middle-market companies are the backbone of the European economy, but they are feeling the pressures of digitalisation from the direction of global giants as well as from agile startups. Sofigate’s Business Core Renewal Lead Jussi Poikolainen reveals where to find the right capabilities to succeed in digital transformation.

What does a typical middle-aged person have in common with most middle-market companies? Both feel an urgent need to renew and improve their everyday health and lifestyle.

People are threatened by belly fat and Type 2 diabetes – and companies are threatened by digitalisation. This is not an exaggeration but a cold fact: a forecast published by Gartner in 2018 predicts that 60 per cent of all mid-market companies will be wiped clear off the business landscape by 2026 due to the effects of digitalisation. We should feel alarmed by this prediction, because these companies employ almost 70 per cent of the workforce and form approximately 60 per cent of the GDP in the western world.

There is not a single area of business that digitalisation leaves untouched. I see no reason for there not suddenly appearing an Uber of the architecture business or an Airbnb of retail logistics. Digital transformation has the power to multiply a company’s business by a hundredfold in a year – or render it obsolete overnight. Middle-market firms are especially vulnerable to these risks because they face pressure from two contrasting directions: on the other hand from global platform giants, and on the other hand from agile startup innovators.

Focus on the core!

The only way to survive the competition brought on by digitalisation is to improve one’s capabilities for renewal. What is frustrating, though, is that so many companies respond to this renewal challenge in the same way as when a middle-aged couch potato begins their fitness project by going shopping for new sneakers. Ever so often a company’s response is to authorise their IT department to purchase a new technology that is then supposed to revolutionise the entire business from the ground up. I’d say that is quite an unreasonable demand for a humble ERP solution!

The word ‘digitalisation’ tricks us into believing that technology is central to transformation. However, if you consider my earlier examples of Uber or Airbnb, they had nothing earth-shattering about their technology – the key to their success was a change in people’s behaviour.

A mid-market company striving for competitiveness should thus not start their journey with renewing their technology, but with renewing their business core. This requires four essential steps:

  1. Breaking down the company’s strategy and vision to form a clear value-chain map
  2. Charting the competences that serve this value chain, developing existing competences, and training and recruiting new ones
  3. Executing technology solutions that support these competences
  4. And developing the change leadership within the organisation

Sweating it out with Business Core Renewal

Only when an organisation’s current business core has been tweaked to support its chosen strategy and its desired transformation can the organisation move into the next phase. This is the moment when the company gets to start fighting the competition brought on by digitalisation! It is the moment that is getting close to the actual digital transformation of the company’s core business.

At Sofigate, this business core fitness drive I have been describing goes by the name Business Core Renewal. It is a process that brings clarity to a company’s strategy, breaks down silos between business functions and strengthens the leadership team’s commitment and ownership in the transformation. The process results in a model that enables true digital transformation in the next phase: it opens up possibilities for quicker innovations, more results-oriented resourcing, shorter time-to-market schedule and higher skill and motivation levels for employees.

These Business Core Renewal workouts are seldom easy. Sometimes they are even dramatic. But as an investment, they are always profitable because they lay a foundation for long-term survival and success. It is much easier to start shopping for the right sneakers or the proper ERP solutions when the core itself is prepared for renewal.

About the author

Jussi Poikolainen is a Business Executive at Sofigate. Jussi joined Sofigate in early 2019 after a decade of leading sales and marketing and captaining Nordic, European and EMEA business areas for several global electronics brands.