Digitalization usually refers to the use of digital technologies to change business models and realize new opportunities for income flow and value creation. Digitalization, which enables the development of information and communication technologies, thus means the processing, transmission, and storage of information in a form understood by computers, which results in a wide-ranging economic and social change.
Digitalization affects the economy in different ways as physical products become digital services and digital value-added services appear alongside physical products. Digital platforms improve efficiency and globalize previously locally operated services, with the Internet enabling a ubiquitous distribution channel. With information systems, companies can fully or partially automate various routine tasks and affect the amount of work. At the same time, new jobs are being created in new businesses and related tasks. In digital economy, data generated in different systems is a valuable raw material that can be created, combined, and processed to create new business opportunities.
According to research, companies that invest in the digitalization of their business and successfully develop new innovations achieve, on average, 18% better gross margin than their competitors.
Digital transformation means the change brought by digitalization to the company's core business - The company changes from a user of digital systems to a provider of digital services. Thus, instead of just introducing information systems to use, digital transformation means a fundamental change in the company's operations and thinking - that is, the company's strategy and operating culture, and the consequent digitalization of products and services.
The digital revolution is also challenging industry service providers to create new business models. In the past, industrial companies sought to integrate backward in the value chain to keep control of manufacturing resources and invested in product development and market share to take advantage of economies of scale. In the industry, new business has been achieved by expanding in the value chain towards the customer: Services have become a significant and profitable way to earn money. What is essential in is how value is created with the customer. In this way, the importance of service and customer focus comes to the fore.
In the traditional Porter value chain, value consists of the product or service structure formed by the company's own parts and subassemblies purchased from subcontractors, as well as overheads. In digital transformation, value can instead consist of solving customer problems where the customer is willing to pay for access to the target state. The value is created by the information that the company has more than the customer, and the amount of value depends on the size of the difference in the amount knowledge.
In the digital solutions business, value consists of products, services, and their benefits. Customers can be active actors and value creators together with the service provider instead of recipients. The company supports customer value creation instead of creating value at different stages of the value chain in a traditional value chain model. In the digital transformation, industries are moving from value chains to value networks. A value network creates value by enabling the direct or indirect exchange of resources or information between parties.
Digital transformation typically has five stages:
1. Base: The company automates internal processes, such as sales, manufacturing, or finance, by implementing an ERP system.
2. Silos: Individual operations or business areas are beginning to take advantage of new digital solutions, bringing about even significant improvements. A company’s comprehensive strategy is lacking, and development typically depends on an individual enthusiastic leader.
3. Partial synchronization: At an influential level, the company has identified the beneficial impact of digital technologies and defined the company’s digital vision for the future. However, company-wide support and an agile, fail-tolerant innovative culture remain lacking.
4. Fully synchronized: A company-wide business model or platform is in place. There is still work to be done in business and the organization’s digital capabilities require strong development.
5. Successful digitalization: The level of sustainable transformation has been reached.
The digital service offering development model typically comprises four steps:
1. Service offering development
2. Entry into the industrial services market
3. Expansion of industrial services to customer relationship-based services and/or expansion to process-centric services
4. Comprehensive takeover of customer operations
In customer-centric thinking, marketing is the foundation of a business and applies to all operations and the entire staff. This differs from the traditional view that marketing is one function of a business. Some companies are established to provide digital services, in which case the operation offered by the customer companies must meet the requirements of excellence already at birth.
The DigiProcess project interviewed about thirty companies producing digital industrial services in the Northern Finland region. According to the interviews, the challenges for companies in developing their business follow the model of developing the digital service offering. The challenges for companies are related to the valuation of the service and thereby the productization of services, the organization of sales, and pricing. Development needs can be identified in the innovation of business models, in the building and organization of cooperation networks, and in practical sales arrangements. The challenges for start-ups do not differ from other industries, with sales organization, internationalization needs, market analyzes and start-up financing emerging.
Companies engaged in digital industrial services in the northern region provide high-expertise services related to artificial intelligence, industrial sensors, digital twins, information security, machine vision, blockchain technologies, machine learning, and virtual reality. Northern service companies thus produce advanced digital services of their quality, which are also in demand not only in the region's process industry companies but also in the international market.
Based on interviews with large companies, challenges and development needs are also solved with start-up companies, as long as the level of innovation is high, the product meets the needs and processes, and the providing company has the maturity to act as a service provider. Maturity is often achieved by integrating the skills and resources of multiple actors through either a merger or a value chain. The software industry has a good chance of succeeding in the North. When experts from different fields get together and make their magic together, this is when world-class service innovations are born.
Main contact and inquiries:
Liisa Koivisto, Digitalization Expert, Digipolis - Kemi technology park, liisa.koivisto@digipolis.fi
