Digital Strategy

Corporate strategy for a digital age

Mannheim, 11. November 2019

 A G E N D A

So, who is Andersch?

What is (or might be) digital strategy?

What is driving the digital transformation?

How to come up with a digital strategy?

How does Andersch deal with digital transformation?

So, who is Andersch?
 Who we are and what we do

About us

Pierre Stengel Friedrich Kunst

Senior Manager Senior Consultant
▪ Expertise: ▪ Expertise:
So, who is business intelligence, restructuring concepts,
digital transformation M&A transactions
Andersch? ▪ LL.M. (WWU Münster), ▪ M.Sc. in Business
B.Sc. in Business Administration
Administration (University of Mannheim)
(ESB Reutlingen)

Contact: +49 160 166 4641 Contact: +49 170 363 9061
pierre.stengel@andersch-digital.de kunst@andersch-ag.de

4
 Overview

Andersch at a glance

Strong international partner network

>100 Andersch has the

strongest restructuring
700+ 4 partner companies | 100 locations | 5,000 consultants
worldwide
team in Germany
years of team
experience in
restructuring
…

So, who is Typical sales volume

Andersch? Others, e.g.

Real Estate,
Automotive,
Engineering
of our clients

Services,
etc > €m
250
>400
projects Offices

Trade/ Transport
Retail and logistics 2012 Spin-off from a
BIG 4 auditing
firm
Frankfurt/Main Hamburg Düsseldorf

5
 Who we are and what we do

We support clients in challenging situations

Transparency Crisis Management

▪ Elaborate restructuring ▪ Implement short-term
and future concepts/ cash management
IBRs(1) ▪ Facilitate crisis
▪ Develop and sensitize communication and
business plans reporting
▪ Develop independent ▪ Insolvency and
So, who is opinions and
investigations
contingency planning

Andersch? Operational Supplementing Services

Restructuring
▪ Manage creditor
and Transformation negotiations
▪ Implement cost ▪ Quarterback
reduction/efficiency Restructuring Process –
enhancement CRO business
▪ Accelerate and control ▪ Support stressed
turnaround management transactions and M&As
▪ Evaluate restructuring
options
Supplementing Services

(1) IBR = Independent Business Reviews

6
 Typical timing of Andersch services

Andersch mostly enters restructuring projects in advanced stages

of crises

Development affected by Threats to Acute threats to Insolvency

inappropriate strategic alignment going concern going concern
▪ Crises stages are
not independent;
they normally
build upon each
pressure to act
other
So, who is
Threat level/

▪ Contents of
Scope of Pressure restructuring
Andersch? action to act concept and the
degree of detail
Typical stage of entry are determined by
the stage of crisis
Time ▪ A restructuring
concept must deal
with the causes of
Stakeholder Strategy Product and Results Liquidity all crisis stages
Insolvency
crisis crisis sales crisis crisis crisis the company
reached
Difficulties in identifying

Source:IDW S 6: Tz 20ff

7
What is (or might be) digital strategy?
 Digital strategy

What a digital strategy is depends on whom you ask

Academics might say Practitioners might say

What is “…organizational strategy formulated and

executed by leveraging digital resources to
“Digital strategy is how to deploy social
media and web channels.”
(or might create differential value...”
Bharadwaj et al. (2013): “Digital business strategy:
Marketing executive

be) digital Toward a next generation of insights”

“Digital strategy is how to replace our on-
premise data bases with cloud-based
strategy? “…thinking strategically and planning for the
effective long-term management and
services.”
IT executive
optimal impact of information in all its forms:
information systems (IS) and information
technology (IT)…” “Digital strategy is how to develop online
Ward and Peppard (2016): “The Strategic products.”
Management of Information Systems: R&D executive
Building a Digital Strategy”

9
 Digital strategy

Discussion around digital strategy sometimes resembles the Indian

parable of the blind men and the elephant

What is (or
might be)
digital
strategy?

Source: Wild Equus

10
 Digital strategy

Our take on digital strategy

What is (or
Strategy is… Digital Strategy is…
might be) …a plan of action …a plan of action designed
digital designed to achieve
a (long-term) goal
to achieve a (long-term) goal
in a digitalized world

strategy?
▪ Digital strategy is not about the use of a specific technology;
technology is a means not an end

▪ Digital strategy is not a subset of business strategy –

it is the corporate strategy in a digitalized world

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What is driving the digital transformation?
 Digital transformation/change

Our economy and society are likely to change more in the next
10 years than in the previous 100 years (1/2)

Holistic transformation

What is changed expectations

driving
the Companies Individuals
& Society
Pervasive use of
technology in almost
every industry
digital Enabler
(agriculture,
construction, etc.)
trans - Digital Technologies and every aspect of
(Infrastructure/ society (education,
formation? Applications) politics, etc.)
Digital Approaches
Science (Business Models/ Government
Networks)

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 Digital transformation/change

Our economy and society are likely to change more in the next
10 years than in the previous 100 years (2/2)

Exponential change

What is loT and smart machine

driving Big Data, analytics, visualization
the
Cumulative capability

Accelerating speed of
Web 2.0,
digital transformation
digital cloud, mobile
through
Web 1.0, combinatorial effects
trans - eCommerce of technological
advancements
formation? Client-server
and PCs
?

Mainframe Artificial
Intelligence

Time
1950 1960 1970 1980 1990 2000 2010 2020 2030
Source: World Economic Forum
14
 Drivers of digitization

Digital change of the last two decades has been well

anticipated by Downes and Mui in 1998

Driver Description Phenomenon

What is ▪
▪
Digital technology gets relentlessly faster, smaller, and cheaper
Observation by Gordon Moore originally made in 1965 (updated in 1975)
▪ Mobile
Moore’s ▪
computing
driving Law ▪
Every 18 months, processing power doubles while cost holds constant
Moore’s prediction accurate for several decades; since 2015 slowing pace of
▪ Cloud
computing
advancements
the
digital Metcalfe’s
▪ Communication technologies and networks get more valuable as number of
users increases
▪ Marketplaces
(e.g. Amazon)
▪ Observation by Robert Metcalfe in 1980s with regard to Ethernet
trans - Law
▪ Usefulness, or utility, of a network equals the square of the number of users
▪ Social networks
(e.g. Facebook)

formation? ▪ Firms become smaller and part of complicated webs of relationships with
▪ Open Source
business partners (customers, suppliers, employees etc.)
Law of Libraries
▪ Prediction by Downes and Mui in 1998
Diminishing ▪ Startup culture
▪ Development contrary to Coase’s argument (“The nature of the firm”, 1937) driven
Firms ▪ (Digital)
by use of technology; reduction in transaction costs and emergence of public goods
Ecosystems
(information)

Source: Downes and Mui (1998), Unleashing the Killer App – Digital Strategies for Market Dominance
15
 Law of disruption

As technology changes exponentially, organisations change

logarithmically and struggle to keep up

Law of disruption - schematic representation Dealing with digital change

What is 1▪ Incremental change

Change
Technology
Examples:
driving − Agile Development, SCRUM
− Continuous Process Improvement
the
digital 2
2▪ Transformative/disruptive change
Examples:
trans - − New business model
1 − New software (e.g. machine learning)
formation? − New hardware (e.g. machines)
Organisation /
Processes

Time

Source: Downes (2009), The Laws of Disruption

16
 Symptoms of disruptive change

Transformative/disruptive change: digital transformation leads to

shortening of product lifecycle and corporate longevity (1/2)

Product lifecycles now and then

What is Steam vs. diesel locomotive Tube vs. flat screen TV

driving
the
digital 1923 1957 1990 2010
~35 years ~20 years
trans - VHS vs. CD-ROM Film vs. digital camera

formation?

1995 2013 1977 2016

~20 years ~40 years

Source: statista, Handelsblatt, Innosight

17
 Symptoms of disruptive change

Transformative/disruptive change: digital transformation leads to

shortening of product lifecycle and corporate longevity (2/2)

Average company lifespan on S&P 500 index

What is years, rolling 7-year average

driving
the
digital
trans -
formation?

Source: statista, Handelsblatt, Innosight

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 Symptoms of disruptive change
Technological change is cause and remedy for the VUCA world
What is
driving
the
digital Volatility
trans - ▪ Speed and magnitude of
change is unpredictable.
▪ Events and outcomes are
▪ Technology amplifies
formation? fluctuations in demand but
also helps address
▪ Technological advances
challenges from
shortening of product
lifecycles through changes
in R&D, production,
logistics, and marketing
etc.
V U C A
Uncertainty
unpredictable, history is
▪ Multiple interdependent
not a guide to the future.
lead to new business
opportunities but also may ▪ Technological develop-
destroy existing ones
rapidly.
Complexity Ambiguity
variables leading to
▪ Several possible and
equally valid valuations
multifaceted effects which and interpretations that
are difficult to analyze and
interpret.
are mutually contradictory.
▪ Business risk arising from
ambiguity can be
ment increases level of adressed by outsourcing
data available and to technology partners.
opportunities for analyzing
and drawing conclusions
on data but also massively
boosts complexity.
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 Success factors

Axioms for success in the digital world

Axioms for success in the digital world

What is
driving
the
digital
trans - Customer centricity Agile development Speed

formation? ▪ Putting the customer first and at
the core of the business
▪ Providing a positive customer
experience before and after the
sale in order to drive repeat
business, enhance customer
loyalty and improve business
growth
▪ Being able to respond and adapt
quickly to changes in demand,
competition, technology, and
regulation
▪ Reconfiguring strategy, structure,
processes, people, and
technology toward opportunities
that create or protect value
▪ Achieving speed through
systematic execution and
discipline
▪ Using dynamic practices related
to processes and strategy in
order to maintain sufficient speed

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How to come up with a digital strategy?
 (Standard) Strategy Development Process

„Classic“ strategy development process can be applied to the

digital world

Phase I: Corporate or business area level Phase II: Company level

Analyse Analyse
Analyse corporate Analyse business
Create analysis units strategic options strategic options
How to structure
on corporate level
unit structure
on company level

come up Key questions along the strategy development process:

with a A Where are we

today?
C Where do we want to go and which strategy should we choose?
(concept to win)
(internal analysis)
digital B How does our
„Value Creation“ Competitive /
Parenting Advantage
business
strategy? environment
develop? For whom With what How do
▪ Customer
advantage
(external analysis) do we want do we want we want ▪ Supplier advantage
to create to create to create ▪ Sustainability
value? value? value?
▪ Leadership and
synergies

D How do we get there?

(measures and actions)

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 (Standard) Strategy Toolbox

„Classic“ strategy toolbox also applies to the digital world

A Where are we
today? Analysis of Analysis of
(starting point) Customer Value Core Competencies

How to
B How does
come up our business
environment
(Macro-)
Trend Analysis
Industry analysis
(Porter‘s 5 Forces)
Extended Industry
Analysis (“Profit Pools”)

with a develop?
(changes) Peer Group
Analysis of
SWOT Analysis Sustainability of
Benchmarking
digital Customer Value

strategy? C Where do we
want to go and Business Model
4P Analysis
Market Expansion
which strategy Canvas Analysis (Regions)
should we
choose? Innovation Diversification Value Drivers,
(concept to win) Analysis Analysis Synergy Analysis

Portfolio Analysis Portfolio Analysis M&A M&A Activity /

(market based) ROCE (value based) Disinvestments

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 Example: Porter‘s 5 Forces

But: classical frameworks such as Porter‘s Five Forces do not seem

to be a perfect fit if there is high uncertainty and/or high volatility

How to Threat of
come up New Entrants
What if your industry is undergoing
fast and disruptive change?
with a
Bargaining Rivalry among Bargaining What if your company does not
digital Power of
Suppliers
existing
competitors
Power of
Buyers
have a product market fit?

strategy? What if it is not clear who your

customers are or should be?
Threat of
Substitutes

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 Strategy development in VUCA-World

Lean startup approach: find a new strategy through constant

iterations in product development

How to
come up Why? Vision

with a
digital How? Strategy 2 Pivot or Persevere

strategy?
What? Product/Service 1 Continuous Optimization

25
 Build-Measure-Learn Feedback Loop

Fast product development through application of Build-Measure-

Learn Feedback Loop – test of one Minimum Viable Product per loop

Ideas
How to
come up Learn Build

with a Goal:
Minimize total
digital time through
the loop
strategy? Data Product MVP (Minimum Viable Product)

Measure

Source: Ries (2011), The Lean Startup

26
 Minimum Viable Product (MVP)

Minimum viable products are designed to collect the maximum

amount of user feedback with the least amount of effort

Definition Good/bad example of MVP

How to
come up Minimum
Raw product
Viable
Viable product
(that customers (that you think
with a do not need/want) should be built)

digital
strategy? MVP
Good enough product
(solving customer‘s core problem ▪ Solves customer’s
and having limited number of features) ▪ Too many features
core problem
▪ Value proposition?
▪ Only needed features

Assumption: early users of the product/service can see

vision or promise of final version and provide valuable
feedback needed to guide development process

27
 Lean Canvas

Lean Canvas is a one-page template to deconstruct a business

idea into its components and to gather strategic building blocks

Problem Solution Unique Value Unfair Advantage Customer

List your Top 1-3 Outline a possible Proposition Something that can’t be Segments
problems solution for each Single, clear, compelling easily copied or bought List your target
How to problem message, that turns an
unaware visitor into an
customers and users

interested prospect
come up
with a Existing
Alternatives
Key Metrics
List the key numbers
High-Level Concept
List your X for Y analogy
Channels
List your path
Early Adopters
List the characteristics
(e.g. Youtube =
digital List how these problems
are solved today
that tell you how your
business is doing Flickr for Videos)
to customers of your ideal customers

strategy?
Cost Structure Revenue Streams
List your fixed and List your sources
variable costs of revenue

Product Market

Note: Developed by A. Maurya, Adaption of Business Model Canvas by A. Osterwalder. Same 9 block concept with slight modifications to suit needs/purposes/requirements of a Lean Startup
Source: Croll and Yoskovitz (2013), Lean Analytics
28
 Lean Analytics – measuring the progress and the health of the business is key

Data collection and analysis is central for product optimization and

strategy development

How do users become aware?

Acquisition
How to Metrics: e.g. traffic, mentions, cost per click (CPC), cost of acquisition (CAC)

come up Activation
Do drive-by visitors subscribe, use, etc.?
Metrics: e.g. enrolments, signups, completed onboarding process subscriptions

with a Does a one-time user become engaged?

Retention
digital Metrics: e.g. engagements, time since last visit, daily/monthly active use, churn

strategy? Revenue
Do you make money from user activity?
Metrics: e.g. customer lifetime value, conversion rate, basket size

Do users promote the product?

Referral Metrics: e.g. invites sent

Source: Croll and Yoskovitz (2013), Lean Analytics

29
How does Andersch deal with digital transformation?
 Case study furniture industry: change in consumer expectations

In Germany’s furniture industry online media gain in importance

for research and sales

Research sources for furniture purchases 2017 IKEA Germany visitors 2017
(consumer survey, multiple answers possible) (million)

How does Values

71 47 29
Andersch 66
2014

54
deal with 42
23 22
10 98
digital Furniture Internet Advertising Magazines Friends / TV
(27%)
Store

trans - store Family

formation? 69
46 45 263 Online
(73%) (ikea.de)
23
4 2
Search Online Online Furniture Furniture Blogs
engines retailer retailer magazines websites
general furniture

31
 Case study furniture industry: change in consumer expectations

In the global tech ecosystem new business models are evolving

and challenging the traditional structure of the industry

Furniture industry: disruptive business models arising in the tech ecosystem

How does
Andersch
deal with
digital
trans -
formation?

32
 Case study furniture industry: situation and challenge of German manufacturer

Majority of sales generated through declining sales channel

Value Chain (simplified)

How does Sales Sales channels Market shares 2017 vs. 2025

Andersch >95% 1
Brick & Mortar
retailers
~70% <50%?

deal with
Web retailers
digital <5% 2 (online shops / ~10% >20%?
platforms)
trans - Manufacturer Consumers
formation? 0% 3 IKEA ~20% >30%?

0% Direct sales ?

33
 1. Brick & Mortar retailers

Brick & Mortar retailers are hit by a constant decline

in (offline) store visits

How did store visits by consumers develop in the last two years?
(Retailer survey, in %)

How does
>50% saw decrease
Andersch in store visits

deal with 41 42 40
2017:
∑ 57%

digital 25 24 25

trans - 15 15 16 17 16 17

formation? 2 3 2

strong increase increase same decrease strong decrease

Survey date: 2015 2016 2017

34
 2. Web retailers (online shops / platforms)

E-Commerce revenues of furniture and household goods show

steady growth – leading online retailers show double digit CAGRs

E-Commerce Furniture / Household goods, Revenues of leading online retailers 2011-2017

Germany (€ billion) (€ million)

How does +9,4%

304
276
244
Andersch 5,0
5,5
5,9 234 233
219
250

4,5
deal with 3,7
160
145
183 190

digital 2016 2018P 2019P 2020P 2021P

92
93 110
73 63
trans - Share of Online-buyers by sex
(in %)
45
26
41
♂
formation? ♂ 2011
1
2012 2013 2014 2015 2016 2017
80
IKEA.de home24 Westwing
60 ♀ 37,5% 48,2% 57,2%

40 CAGR 2011-17 (Westwing: 2012-16)

2005 2007 2009 2011 2013 2015 2017

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 3. IKEA

Market leader IKEA is responding to change in market condition

and is shifting strategy towards online channel

Revenues IKEA Germany Strategy realignment

(€ billion)

How does Selective store growth

3 new stores in Germany 2017,
Andersch but: new focus on smaller stores
in inner cities; show room for

deal with 5,0 4,9

online buyers

digital 4,5
CAGR:
4,3%
True Multichannel
Technology upgrades: digital
trans - 4,0
IKEA
network in stores (Click&Collect),
virtual reality and performance
formation? marketing / sales steering in Web
3,5
3,2
Innovation and anorganic growth (M&A)
3,0
2007 2009 2011 2013 2015 2017 Creation of start-up hub and
takeover of US platform
TaskRabbit to expand service
portfolio

36
 Case study furniture manufacturer: Strategic Building Blocks

Digital strategy for furniture manufacturer comprised of four

strategic building blocks

Transform and optimise core business Build new business/

create growth opportunities
How does
1 2 3
Andersch Digitise internal and
external processes
Digitise existing
products / services
Develop new
products / services

deal with
digital Efficiency gains through
automation and
Reaction to change in
consumer needs
Diversification of
core business
complexity handling (Satisfaction / (Revenues)
trans - (Costs) Revenues)

formation?
4 Change organisational setup,
Change IT & manage change process, Foundation for successful
organisation acquire new talents business transformation

37
 Case study furniture manufacturer: Restructuring measures in the context of digital transformation

Program of measures includes sustained EBIT-improvement

until 2021

A Operational restructuring B Furniture 2.0 C Financial stability

How does Reduction of structural costs

▪ Staff cuts, new site security
Digitization of processes
▪ Order intake and processing, product
Securing short- and medium-term
financing

Andersch agreement 2018 ff., Reduction in cost

of materials and other operating
expenses
deal with Reduction of part complexity
▪ Adjustment of product portfolio,
configurator, extranet for B2B partner,
business intelligence infrastructure
▪ Sale of developed land at locations
XY
E-Commerce
▪ Establishment of E-Commerce team,
volume increase

digital reduction of quality costs

Increase in prices
Branding
▪ Brand marketing, communication
▪ Increase in selling prices B2C, brand change
trans -
formation? Effect (€ Mio.) 2019 2020 2021
EBIT … … …
Effect (€ Mio.) 2019 2020 2021
EBIT … … …
Effect(€ Mio.) 2019 2020 2021
EBIT … … …
Cash … … … Cash … … … Cash … … …

D Business Development

Goal: Increase capacity utilization (fixed cost degression) by developing new sales channels
(B2C, real estate development, carpenter and craftsmen)

38
 Digital services at Andersch (selection)

Andersch helps clients driving the digital transformation and

increases transparency using a state-of-the-art tech stack

Digitization Analytics Solutions

Shape successfully the Use the wealth of data to Software for challenging
How does transformation make better decisions situations

Andersch Digital Strategy Sales Analytics Procurement Analytics Finanziererportal

Define roadmap for Identify and untap Identify and untap Manage restructuring
deal with digital transformation sales opportunities savings opportunities processes efficiently

digital Digital Maturity

Determine status quo of
Working Capital
Analytics
Process Mining
Uncover and eliminate
Liquidity Planning
Gain transparency on
Identify and untap
trans - digital transformation
liquidity reserves
process inefficiencies liquidity situation

formation? Digital Footprint

Increase visibility in the
Implement
BI-function
Establish reporting
digital world
structures

Digital Landscaping
Identifying the
opportunities/threats from
the digital ecosystem

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 S UMMA R Y
Digital strategy is is not a subset of business strategy.
It is the corporate strategy in a digitalized world.

Three axioms of success in the digital age are customer centricity,

agile development and speed.

Classic strategy frameworks can be applied in the digital world, but…

…dynamic approaches to strategy better address environments of

high uncertainty and/or high volatility.
Andersch AG

Neue Mainzer Straße 80

60311 Frankfurt am Main
Stephansplatz 2-6
20354 Hamburg
Speditionstraße 21-23
40221 Düsseldorf