More than 80% of companies globally have made investments in "digitalisation" - investing in digital technologies to change business models and drive revenue - in the past three years, yet less than 25% have achieved topline growth as a result.
In other words, the digitalisation efforts of three out of four companies have failed, according to the latest survey released today by Simon-Kucher & Partners, the global pricing strategy consultancy.
Partner at Simon-Kucher & Partners, Dr Peter Colman explained: “Many companies are investing heavily in digital transformation programmes, but their efforts ultimately didn’t bring in more revenue.
“Often this was because they failed to recognise the full extent of benefits that the technology brought to their customers and so priced their offering too cheaply.
Many didn’t create a dedicated digital lead to champion the initiative and help navigate it through the complex organisational structures and resulting internal politics,” said “They also tended to invest in the wrong digital initiatives.”
The Global Pricing and Sales Study (GPSS) is undertaken biannually, and this year involved surveys almost 2,000 companies across major industries in more than 40 countries. It captured a comprehensive picture of their pricing, sales and digitalisation strategies, as well as their overall business environments.
Dr Peter Colman is a discussion leader at this year’s Manufacturing Finance Summit.
This one-day event will convene a select group of manufacturing leaders to collaborate and develop strategies for growth and investment, and to prepare for the impact of global trade factors like Brexit.
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Dr Colman continued “Many of the opportunities posed by Industry 4.0 have clear internal benefits, such as efficiencies and cost reduction. What is more interesting and often under-appreciated is that from a profit improvement perspective these dramatically change the value equation between a manufacturer and its customers.
“This opens up possibilities to create new and premium offerings with significantly higher prices, better margins and the potential to introduce innovative revenue models.”
“Based on our findings, we believe CEOs and C-suite decision-makers should focus on opportunities to monetise their digital products and optimise prices using big data. These were the two digitalisation initiatives that we found produced topline growth most frequently – but were also among the most neglected initiatives. Currently there is too much emphasis on efficiency and cost cutting rather than on growing revenues.”
The GPSS also found that:
Companies who succeeded at digitalisation were twice as likely to start costly price wars – Digitalised companies that reported increases in topline growth from digitalisation were twice as likely as others to initiate price wars. Dr Colman noted that, “In most price wars, there is only one winner: the customer. So, it is important to have a well-thought-out digital strategy to not let digitalisation become a curse.”
Mixed picture regarding investment in digitalisation – Not all sectors invested equally in digitalisation. The highest investments were from sectors such as Healthcare and Telecommunications. Industrials investment varied by subsector with machinery companies being in the middle of the pack and industrial services and paper & packaging being among the lowest from an investment perspective.
Pricing pressure will continue to increase – The top three drivers of increased pricing pressure identified by the GPSS – low-price competition, increased customer negotiating power, and increasing price transparency – can all be linked to digitalisation. This means that digitalisation can be a growth risk and may lead to price pressure.
Value selling skills are priority – Companies see a need to improve sales force effectiveness and put high hopes in digitalisation. Companies, however, do not see that digitalisation will “kill off” the sales person and relational and value-based selling will become more important in the upcoming years. As a consequence, the most important skill will be the ability of the sales force to communicate the value of their product/service to their customers.
Only 18% of companies were “digitalisation heroes” who transformed their business models with digital technologies the right way – Companies who invested in digitalisation and successfully drove topline impact were identified as “digitalisation heroes”. These companies employed 3.75 times more people in full-time pricing-related roles, had 28% higher pricing power, and outpaced the market by 37% in EBITDA margin.
However, only 18% of companies fit this category, showing that a wide majority of businesses could benefit from following the practices set by these exemplary companies. “These digitalisation heroes can be considered best-in-class,” said Dr Colman. “They act as role models for the entire market.”