Digital transformation is transforming areas of companies through the Internet of Things, Blockchain, AI, Wearables … Research and development is no exception

Innovation is also the most important driver of economic growth worldwide in digitalization. No wonder companies spend a lot of energy supporting, expanding and using this. The outsourcing of such efforts into a separate area of research and development is therefore a logical step.

Like no other department, R&D stands for understanding, evaluating, and benefiting from new technologies. It is therefore only understandable that digital transformation fuels these efforts and increases their importance: research and development without a dedicated digital focus seems absurd today.

But what can digitalization,in concrete terms, look like for research and development areas in different industries? Here is an overview

General effects

Digitisation has a dramatic impact on the innovative power of different companies and not all of them are positive. If we look, for example, at global corporations with more than 2 billion in sales, the following statements can be made on the basis of current studies:

  • Over the next 17 years, there is a 50% chance that these companies will not even be part of the Fortune 1000.
  • They are investing less and less in basic research in the assumption that universities and state institutions will take on this task.
  • The efficiency of their internal Research&Development units is steadily decreasing
  • Their business is growing incrementally, but larger increases are either impossible or only made through large sacrifices.
  • Competitors are literally sprouting up and attacking the business model with new, previously unthinkable ideas and systems.

The reason for this gloomy outlook is the fact that business model innovation and innovation in general not only experience too little focus, but also do not follow the signs of the times: R&D must be deeply rooted in the insights of digital transformation in order to create sustainable value even today.

The rapid, unbiased integration of new technologies and models – not to mention the important socio-cultural changes – is the foundation for lasting entrepreneurial success. However, by abandoning research in the hope of outsourcing this task to universities, many companies are achieving exactly the opposite, as they leave the use of new insights to courageous start-ups.

Larger companies therefore usually have only two options:

  1. Seek such start-ups, collaborate with them or set them up themselves, or
  2. Buying up already mature newcomers or looking for cooperation

In any case, however, the value is produced outside the company and then rather cumbersomely internalized. The much more efficient tactic is to create and use this innovation yourself.

This shows clear differences between leading companies and those that do not focus on research and development: while the effectiveness of R&D efforts in general is steadily decreasing, it is increasing dramatically among the top 10% of companies. In particular, it is the seemingly simple ideas that produce the greatest effects – but are also the most difficult to manage and market.

From this it can be concluded that the importance of research is unabatedly high or even increased by the digital transformation. Research&Development is seen by many experts as the driving force of digitalization, which in turn seems to be the only recognizable path to lasting success. Abandoning one of the two concepts has catastrophic consequences.

In order to enable a fundamental transformation, it is necessary to understand the direct and indirect value-creating effect of research. In order to exploit this potential, the use of technology, platforms and the user base is necessary. Three concepts that can be found in many aspects of digitalization. In this way, companies can take up users’ ideas, create a platform for these products and then optimize them, for example through the use of artificial intelligence.

It has been shown that avoiding mental or technical restrictions is particularly important. Anyone who rejects a new business model because it does not correspond to the company’s self-image or because the necessary tech know-how is not yet available has clearly not understood the signs of the times in terms of research and development. This seemingly radical philosophy is the only approach to securing a leading market position in the long term.

How digitalization affects R&D

The power lies with the customer

The end customer has long since taken over the helm of product and market policy. Thanks to smartphones, laptops and co., information about a service or product is available anywhere and anytime. Full-bodied claims made by the marketing department are given an immediate “fact check.” The offers of the competition are checked for cheaper alternatives and even the image of a company is examined before a purchase decision is made.

Extreme examples include financial and insurance benefits. Here, every contract detail is analyzed by the mostly male customers in often hours of research, discussed in relevant forums and compared with the competitors. The result is strong performance pressure, lower margins and a huge success of young start-ups, which have gained huge market share in no time with transparent offers and open policy, while the traditional banking and insurance sector is stumbling in many places. ETF Investments or P2P loans are a prime example of this.

This development, which is being driven by digitalization, is problematic for companies and poses major challenges (in addition to marketing)in particular in the area of research & development. Since the historical market position and reputation have hardly any long-term significance and can no longer conceal it if one’s own product falls behind the competition, the new and further development must be faster and direct successes.

These shorter development cycles can be realized – and this is the good news – with exactly the means that made them necessary: the dominance of the customer and the use of the ubiquitous data is the key to success. At ever tighter intervals, ideally even in real time, the opinions and wishes of the customers are queried. Together with the information available through the extensive use of big data, a detailed picture of the customer base is created and their interests and needs are immediately satisfied by their own products.

This direct communication and rapid implementation requires the R&D departments themselves to make extensive use of technology and modern work concepts. Without the help of artificial intelligence, agile working methods, cloud computing, and other solutions, it is becoming increasingly impossible to keep up with this pace. The Research Departments are increasingly becoming pioneers in the field of digitalization – for a pure end in themselves.

New Products – New Skills

The products that are successful in our digitized present are different in many ways from those that dominated the market only a few years ago. Digital technology, software development, artificial intelligence programming and other disciplines now dominate the labour market, as they have become indispensable for the offerings of many companies.

An excellent example is the automotive industry: while it has traditionally relied on engineering and the development of new materials, the demand has changed almost completely in recent years. With the increasing electrification and the subsequent digitization of the vehicles, completely new expertise was required. Modern connected cars are developing further, especially in terms of software, computing power and digital sensors, and hardly any more in the field of mechanics.

The role of the automotive engineer has also changed and is increasingly being supplemented or even replaced by software and AI experts. One in terms of digitalization The largely abandoned, classic engineering nation such as Germany, which not only invests significantly less in innovation in international comparison, but often also in the wrong areas, feels this effect: the German carmakers, once the world’s dominant carmakers, have disappeared internationally in insignificance, as their products did not meet the changed requirements of customers, while those of the competition did so.

This serves as an example of a lack of communication with customers (see 1st) as well as for changed technical requirements. The research and development department of a car manufacturer, which continues to focus primarily on mechanical innovation instead of investing more in the areas of digital competence and AI know-how and to demand customer opinions and wishes whenever possible, no longer meets the current requirements. Similar examples can be found for other industries.

Flexible business models and services instead of products

In the past, research and development products were developed that were marketed by companies. However, as digitalization progresses, services that include the actual product plus X are offered in their place. This affects R&D in various dramatic ways.

To stick to the example of car manufacturers, the business model here is not the sale of cars; In fact, the comfortable, flexible movement is sold without the need to get close to other people (public transport). However, the acquisition of a car is by no means necessary for this concept. Ride-sharing services have proven this by offering their customers the core of the “car” product as a service: rent a vehicle when, where and for how long you need it. This eliminates the high acquisition costs, the search for a safe parking space, maintenance and other time-consuming side effects.

Only the underlying customer’s need for easy movement is met. In this way, such services demonstrate a better knowledge of the market and its potential than classic car manufacturers can claim. It is therefore not surprising that these offers have been significantly successful.

A former product became a service – a perfect example of the change that was to take place in the Research and Development Departments: through the use of digital interconnectivity (in this case: GPS, ride-sharing app, electronic payment methods), knowledge of customers and their needs, and the use of state-of-the-art technology (artificial intelligence calculates travel prices and availability in real time).

Processes put the customer at the centre

No, this is not the place for the old “The customer is the focus of us – and thus always in the way” joke. This is because the end customer is in a much stronger position than in the past, thanks to the access to information that allows a competitive comparison or the review of testimonials, as mentioned above.

It is therefore not surprising that in an Accenture study, 83% of managers surveyed reported that digitalization is increasingly transforming a once supply-driven market form into a demand-oriented one. In this context, there is also repeated talk of ’empowered customer’. It is appropriate, as it turns out, because the customer actually has more and more the threads in his hand.

Manufacturers of products and providers of other services need to be more connected to the customer and his wishes, and this is best achieved when it is reflected in the work processes. Regular, or even better: permanent, customer surveys are among the absolute minimum of modern research departments.

The ride-sharing provider has successfully conquered a part of the transport market; However, he can only keep it if he constantly meets the wishes of the customers. Nothing prevents a user from checking the offers of the competition after the journey has been completed and then trying out another service provider. If the service is better there, the customer will not come back. The days of brand loyalty are long gone.

Conclusion

The digital product policy begins and ends with the customer and his wishes. This must be reflected in the processes and self-image of a research and development department if lasting success is to be generated.

If this understanding of the customer is supplemented with the use of modern technology and also does not shy away from changes in its own business model, the R&D sector can become the digital driving force of a company and build on past successes.

While the pressure for digitization is also high in other departments, it can be said without exaggeration that it decides on the right to exist in the research area. Those who do not follow the currents of digital transformation quickly become superfluous and the effects for the entire company are catastrophic. Research and development can therefore in most cases be described as the department with the highest need for the concepts of digitalisation.