by Klaus Bürg, Managing Director & General Manager, AWS DACH region
Businesses across industries in Germany, Austria and Switzerland (DACH) have been challenged by reducing profit margins for some time. CEOs can unlock revenue growth by driving increasingly customer-focused cultures in their enterprises, empowered by agile technologies. Here Klaus Berg explores key challenges in the DACH region and best leadership practices for establishing lasting and profitable change, while mitigating the risks.
How can CEOs put their organisations on the path to new revenue at a time when disruption is squeezing down on profits? This is a common dilemma for the business leaders I work with across the DACH region.
In his ebook Cloud for CEOs: Measure innovation with one metric, my colleague Adrian Cockcroft, VP Cloud Architecture Strategy, outlines the challenges facing boards worldwide. He highlights that companies have suffered the effects of ‘compressive disruption’ where profit streams have become squeezed over time.
That’s certainly been true of our region, across sectors, for some time. Peer into the historic retail performance figures for Switzerland, for example, and you’ll find that in 2017 sales increased by just 0.1% after two successive years of decline. A minor recovery in 2018, was followed by stagnation again in 2019.
The challenges of 2020 have, of course, exacerbated these trends. In German manufacturing, production is expected to fall by between 10% and 15% in real terms, according to Deutsche Bank.
From the conversations I have with companies across DACH, I see three major ways in which business leaders can best respond to a historic compression of profits: firstly, the most successful CEOs are those who have been quick to appreciate the increased competitive environment driven by faster businesses that use digital assets as their main lever to disrupt.
Secondly, these leaders hear all of the “buzzwords” – digitalization, cloud, machine learning – but also take the time to truly understand how those technologies can help them to become more agile and create differentiation, new business models and revenue streams.
And thirdly, these CEOs also no longer see IT as a cost-centre, just because it was a traditional support function in the past. You can see that evidenced in the businesses where the CIO no longer reports to the CFO.
Developing a digital mindset
The adoption of a new mental model is essential if leaders are to harness digitalization – and in turn the business transformation necessary to deliver new forms of business and customer value.
So how can CEOs ensure this mind-set, and put themselves on the right path to success? The pain points of CIOs across the DACH region are evidence of some of the hurdles that must be overcome – in a recent report by Gartner, 51% cited insufficient IT-business resources as the biggest barrier to achieving their digital transformation objectives, while 46% blamed a change-blocking business culture.
In his ebook, Adrian points out that leaders must overcome what he describes as the “four blockers of innovation: culture, skill, organization, and risk” and he goes on to say that “culture starts with the CEO, and will be reflected in who they hire and promote, as well as how they manage incentives, goals and decision making across the organization.”
Without a doubt, every decision within this cultural change must be built around a renewed focus on your customer, so you can find new routes to value. In a truly global economy choice has increased, so to differentiate from the competition you must center your thinking on your end user and work back from there. This will ensure innovation and experimentation with the customer at the forefront, and without fear of failure. As Adrian writes, “The digital connection to each customer is the new capability driving digital transformation. Netflix knows what its viewers are watching, Amazon knows what its customers are buying.”
As Amazon founder Jeff Bezos said in 2016 letter to shareholders: “There are many advantages to a customer-centric approach, but here’s the big one: Customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”
Organising for customer-centricity
We have strong examples of companies we work with in the region that have built this culture to great success. Take Zalando, the Berlin-based online fashion platform, which has nurtured a spirit of innovation around a drive to improve customer experience. The company wanted to deliver improved customer experience by serving more relevant offers and, working back from this goal, partnered with AWS to increase the value they see from their SAP system. This was achieved by enabling near real-time data flow and embedded machine learning to develop a model that continually learns about, for example, the customer’s tastes and sizes.
A majority of companies in our region today believe that they have this level of customer focus, but the figures suggest that is not the case – according to a survey by Capgemini, 80% German companies are positive about their customer-centricity, but only 50% of their customers agree.
The time to bridge that gap is now. For the many CEOs are still reluctant to lead a fundamental organisational transformation because of their perceptions of the inherent risk – we propose the real risk lies in not taking action. To those leaders fearful of the implications of business transformation, I would advise two things:
Firstly, the “blast radius” of transformation is much smaller today than you may have experienced before. Cloud enables fast, controlled experimentation of potentially ground-breaking new ideas that could then be scaled organisation-wide – with the risk-mitigation of being able to quickly and easily close them down again if you need to, applying the lessons learnt to future experimentation.
Secondly, align your leadership team on the vision and goals for transformation. The transformation initiatives of the past were often embarked on without the metrics to support them – monolithic projects were begun without clearly defined milestones and target business value. Indeed, it would often be impossible to tell if a project had succeeded in delivering business value until it was completed. Today, in a business that uses cloud, CEOs must align their leadership teams around a clear vision for the future, and the customer-centric goals to support it.
In summary, it is imperative that CEOs lead their organisations in taking on a new customer-centric mindset. The techniques and advantages of adopting this philosophy are explored in more detail in Cloud for CEOs: Measure innovation with one metric. Meanwhile, myself and my AWS team here across DACH are here to help you on every step of the journey to unlocking greater value for customers, and your business.
About the author
Managing Director & General Manager, AWS DACH region
Klaus Bürg was appointed as the Managing Director & General Manager for AWS DACH region (Germany, Austria, and Switzerland) in July 2018. Since then, he has embarked on a mission to accelerate the region’s digital development, supporting and fueling the growth by partnering with organizations to advance their innovation, time to market, competitive differentiation and business value creation, leveraging AWS cloud.