Transformation is here to stay:

Executive Summary
SMEs are changing. We want to talk about how the change can be successful and encourage companies to get started.

What is required in order to cope with change? Values, a willingness to take risks, speed, market knowledge, competent partners, continuous enhancement of products and processes. But it’s actually quite simple: It requires the right attitude. An open mind. And the right people. So exactly what sets SMEs apart.

The core message? Five clear lessons that we have derived from our work at the centre of our customers’ strategic, visual and cultural transformations and examples from all over the world:

• Transformation requires identity

• Transformation requires risk-taking

• Transformation requires communication

• Transformation requires cooperation

• Transformation requires agility

Introduction
In a recent discussion with me, the owner of a large family company cited Schumpeter’s idea of creative destruction through innovation. This turned into an interesting debate. In my view, process-driven digitalisation is just ONE component of the radical transformation that companies and society are currently going through – albeit a very important one. The change begins at a deeper level and reaches out from there.

It is not about new programs, but new operating systems – this IT analogy is the clearest illustration of the scale. How can SMEs properly wield this power of innovation; what is required in order to be not the hammer but the anvil in this disruptive change?
International Data Corp. (IDC) estimates that companies invested USD 1.3 trillion in digital transformation in 2018. At the same time, it forecasts that investments will grow to USD 2.1 trillion by 2021. This equates to an increase of over 60 % in just three years.
The associated change pressure is just as real in corporations as in SMEs. It acts on a wide variety of areas – technology and processes, but also on the recruitment of new employees and the motivation of existing ones. Innovation and, let’s call it “technological creativity”, are key reasons why so many SMEs have become successful.
They are simply good when it comes to processes. Knowledge-intensive services are their domain; they account for the majority of SMEs by sector. In terms of digitalisation, SMEs are therefore better – often much better – positioned than their competitors.
Owners and executives of SMEs have clearly recognised this situation.

Lesson #1: Transformation requires identity

When Jorge Mario Bergoglio became Pope, he did not move into the Papal Apartments, but instead into a residence that he shares with 50 other priests. He does not wear fur-trimmed velvet capes, and his ‘staff car’ – besides the popemobile, of course – is a Ford Focus. In short, he not only preaches humility but lives it too, and sets a good example. He has thus revived the identity and purpose of the world’s oldest global company.

If one does not precisely determine the inner motive for the transformation or define a clear (intermediate) goal, one quickly runs the risk of losing track. Transformation requires identity.

The challenge is that, when transformations are as fundamental as the ones were are going through now, results can only be planned to a very limited extent. There is little empirical data to go on, and when employees are truly included, when they work and make decisions autonomously, old management models also increasingly lose their validity. So what must be done to ensure that the desired speedboat does not turn into a rolling and pitching ship?

Creative thinking and bold approaches are required in order to develop a strategic vision based on the strengths of the present organisation, so as to turn this step by step into a mission for the future. This gives rise to the interplay of strategy, structures and culture. The vision must be based on the company’s values; they must be formulated and communicated clearly. Because values guide behaviour. Therefore, a conscious examination of the values of the company must be part of every radical change.

In practice
The Otto Group took this step by changing its mission statement and is pursuing a cultural transformation involving all employees of its 123 individual companies – driven by the knowledge that the company can only survive in the global competition with Amazon and Alibaba with a high rate of change. Radical dismantling of hierarchies, targets instead of instructions, FuckUp Nights and courage festivals – key success factors for the Otto Group’s economic success.


Lesson #2: Transformation requires risk-taking

Jeff Bezos was not really under pressure to take a risk – the Princeton graduate had got himself a highly paid position on Wall Street as Senior Vice President of a hedge fund. Nonetheless, he quit his job in 1994 to found Amazon. “I imagined myself at 80 years old, looking back on my life. I didn’t want an endless list of ideas and projects that I should have carried out,” says Bezos. Amazon’s continuous change since it was founded is evidence of Bezos’ constant courage to take risks. No ‘what if …?’, just do! Not rashly and unplanned, but with a well-founded business plan. Risk-taking does not always pay off so spectacularly, but it is always worth a try.

SMEs are excellently equipped to cope successfully with change processes. They can ‘do’ technologies and processes.
And they have brilliant employees. However, the willingness to take risks is often lacking. This is precisely what characterises today’s start-ups: They just do it and are therefore faster – but also disappear from the market faster if the business model does not prove economically viable. For SMEs, things are quite different: They have a responsibility to customers, employees and owners, be they family or other investors, and are aware of this. They cannot ‘just do it’.
But they also have crucial advantages over start-ups, especially the substantial knowledge and experience of both technology and processes.

If these two worlds are combined – the courage to take risks and yes, the associated possibility of failure, and the substance in planning and development – undreamed-of potentialities and forces are unleashed.
Transformation requires risk-taking. The most important things in this context are the commitment of the company’s management and the provision of protected spaces in which employees can freely develop new digital business models.

In practice
Wagner, a firm from near Lake Constance, is a good example: The plant manufacturer, which operates in the sector of applying paints and coatings to surfaces, has its own incubator to give employees the opportunity to test out new ideas and ultimately bring them to market in the form of corporate start-ups. The first start-up, Ioniq, is already in the realisation phase.


Lesson #3: Transformation requires communication

Obama’s speeches and his vision of a different America secured him the support of millions of formerly cynical and disillusioned voters. He had the ability to inspire people. Obama revitalised the art of the political speech and also used new technologies for his campaign, including YouTube, SMS messages and predictive analytics, in order to orchestrate and spread messages to specific target groups. The power to inspire, the intuitiveness of the targeted messages, Obama’s personal accessibility – these were core components of a change in America’s politics that had not previously been thought possible.

SMEs have many brilliant employees who are often bound to their companies for many years. This is both a blessing and a curse. People tend to reject new things spontaneously or at least respond warily and with caution. Peter Senge, a leading thinker on the learning organisation, put it this way: “People don’t resist change. They resist being changed.” Employees do understand that change is necessary – but they must always have the security of being part or ideally the driver of this change. Communication plays a crucial role here. Openness, honesty and transparency are taken for granted, but their importance cannot be emphasised enough, as they are ultimately responsible for engendering feelings such as trust and confidence. Another powerful lever is managers’ personal communication and the involvement of executives or directors in face-to-face formats.

In practice
Alexander Bürkle, an electronics wholesaler from southern Germany, has been implementing a substantial transformation for two years, extending from the definition of business models and the digitalisation of processes to the redesign of sales. Meetings, information, participation: The management is an active driver and the employees are directly involved in the change. For example, many of the measures come up with are directed inwardly in order to make employees enthusiastic about and desirous of the transformation. The ‘new Alexander Bürkle’ is being created together. A transformation campaign for employees provides information and motivation, including with mobile installations and surprises, a future magazine and an ideas book, workshops, presentations, a transformation diary and last but not least a container village as the physical location of the transformation. After all, change should be fun.


Lesson #4: Transformation requires cooperation

Microsoft has changed massively since Satya Nadella took the helm. To send a signal and show how serious he is, Nadella made a speech at Dreamforce, Salesforce’s customer conference. This was symbolic because the two firms share a history of years of hard-fought court cases. In his speech, Nadella sketched out his vision of a new kind of cooperation. He called it ‘frenemies’, a portmanteau of friend and enemies. Microsoft of course continues to compete fiercely with other providers, but the company is now also cooperating even with direct rivals – whenever it makes sense because the customers want it.

The success of SMEs is often down to them being a global market leader in a niche technology, a small and therefore manageable space. The complexity of new technologies, from blockchain to AI, combined with the sheer speed of their development, is no longer comprehensible and much less manageable for a single company. This makes it not only sensible but absolutely necessary to enter into strategic alliances. The industry giants are leading the way with their partnerships across all sectors, the latest examples of which are Volkswagen’s cooperations with Ford and Microsoft. This can also work on a smaller scale.

Awareness of their own limits is also something that we believe distinguishes SMEs. Nowhere is the willingness to bring external experts to the table greater than here. These experts bring the company onto the ball faster and with their outsider’s perspective can often identify and tackle weak spots better than insiders.

In practice
ALSO AG, a wholesale and service company in the IT and telecommunications sector, has established competence centres for 3D printing and the issue of cybersecurity, which is extremely important for many SMEs. Several plant manufacturers are cooperating with ALSO, e.g. on prototype manufacturing or the remote production of replacement parts. The results speak for themselves: more competence, greater speed and lower costs.


Lesson #5: Transformation requires agility

In 2010, Capital One, one of the most successful and dynamic banks in America, realised that it was not equipped for the future. Traditional work in accordance with the waterfall model is not expedient in the world of digital banking. Capital One therefore invested massively in development, UX and UI experts and implemented agile processes throughout the company. The company introduced Scrum at the end of 2011. Initial pilot projects were launched and the talents that were needed in the agile teams were hired at the same time. The pilot projects initially related to purely digital issues, but the management very rapidly realised that ‘agility’ is in many respects a universal method for working with constant iterations, continuously matching own developments to market and customer requirements and thus constantly enhancing products or services.

Digitalisation means that many developments no longer go in a straight line. We are seeing technological leaps that break the bounds of our linear beliefs and systems with their scope and capacity for change. Voice-controlled systems such as Alexa and Cortana are good examples of how AI systems, which were initially said to be mundane and disappointing in their abilities, can suddenly become highly effective tools. This exponential technological growth is virtually always associated with a drastic reduction in production costs. The parallelism of these two developments is crucial, as it no longer allows a step-by-step, linear approach. If you do not act today, and quickly, the opportunity to react will often be gone by tomorrow. Willingness and openness to taking action now, the sense of urgency, is critical for success.

At the same time, we must wave goodbye to the idea that transformations are one-time efforts that, when the target state is attained, are finished. There is nothing more constant than change. That is nothing new – what is new is the breadth and depth of the change that is not only embracing individual sectors but all branches of the economy and that will result in radical changes in cooperation and ultimately in social coexistence. We must meet such a disruptive force with agile processes.

In practice
The best example of this is our own work. In terms of planning and management, corporate design and communication in general were for a long time very much in the ‘waterfall’ mould. The corporate design rules had to be developed quickly, the deadline met. This is not wrong per se, but in many cases good is the enemy of better. An agile process with a minimum viable product and a subsequent continuous improvement process, based on customer feedback and defined KPIs, yields results that are faster in the short term and better in the long term than a supposedly perfect product for which there are no control or optimisation mechanisms.

Just start – and never stop!
5 rules for transformation

#1: Transformation requires identity
Do not just set the transformation clear goals, give it obligatory values.

#2: Transformation requires risk-taking
SMEs knew what ‘entrepreneurial spirit’ was long before there were garages in Silicon Valley. Be bold and take risks.

#3: Transformation requires communication
Employees will have ideas. Let them.

#4: Transformation requires cooperation
Master the switch from testing to rollout. Work closely with your customers and external partners.

#5: Transformation requires agility
Transformation is only partially plannable. Loss of control is part of transformation.

About the author
Philipp Brune has been Managing Director of STRICHPUNKT since 2012. Digital transformation is the catalyst or driver for nearly all projects that STRICHPUNKT works on as a strategy and design agency. With over 15 years of experience in strategic brand consulting, Philipp passionately guides mostly SMEs through strategic, visual and cultural change processes. His credo is that transformation requires identity. With over 150 employees, STRICHPUNKT is one of the leading design agencies in German-speaking countries. Founded in 1996 and owner-managed, the brand, experience, culture, and business-design specialists based in Stuttgart, Berlin and Shanghai work for SME customers such as Alexander Bürkle, GEZE and Progroup, corporations such as Audi, Deutsche Post DHL Group, Otto Group and Porsche as well as Asian brands such as Weltmeister and Deli.