Digital Transformation

johner-institute.com/articles/health-care/digital-transformation

Digital technologies are fundamentally changing the medical device industry. But not all
manufacturers are aware that, to keep up, they don’t just have to develop devices that can
keep pace with advances in digitization, their company also has to go through a digital
transformation.

A digital transformation affects every area of a business: from the technologies used to the
management style through to the company's basic self-image.

A digital transformation is a major undertaking that fails all too often. To help you
succeed, this article will explain:

What exactly “digital transformation” means

How you can benefit from it
Which mistakes you should avoid at all costs
How you should approach the process

1. A digital transformation means more than digitization

Digital transformation describes a process of transformation within a company based on
the use of digital technologies. However, it doesn't just affect aspects such as the range of
services offered or communication between employees, it affects all areas of a business.

In this respect, the digital transformation of a company is very different from its

digitization.

Digitization

analog technologies with digital technologies
Replacement of

Example: Storing data in the cloud rather than in a ring binder.

Digital transformation
Continuous and fundamental
change at all levels of the company, based on digital
technologies

Digital transformation primarily affects the following levels:

1. Strategy

At the strategic level, the digital transformation primarily affects the company's
orientation. For example, manufacturers are starting to consider new digital
products, business models and markets.
Examples: From software manufacturers
to car manufacturers (Apple, Tesla) from
IVD device manufacturers to digital service providers

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 2. Products and tools
Products and tools can be affected by digital transformation in a variety of ways. For
example, medical device manufacturers could focus on software or introduce a
cloud-based customer management system (CRM).
3. Processes

Digital transformation can have a particularly big impact on processes because it

can make a lot of processes obsolete or introduce completely new ones.
Examples: If devices stop being sold, the sales process is eliminated; in
personnel
management, onboarding is now done on a digital platform.
4. Corporate structure
Corporate structures are
also affected by digital transformations. These effects range
from digital and remote working through to the establishment of, e.g., network-like
structures instead of hierarchical organizations.
5. Culture

transformation must be rooted in the corporate culture for it to succeed.
The digital
This requires a change in mindset, beliefs and attitude. A command and control
management style is just as unsuitable as complicated voting processes or a fear of
contact with new technology.

2. Why the digital transformation is important for manufacturers

a) Reasons for the digital transformation

The pace of the digital transformation has increased in recent years. This is not just due to
the coronavirus crisis, which led to increased remote working and made quickly
analyzable data indispensable.

In recent years, technical progress has ensured that more and more industries have
“become digital”: Computing speed, network speed or the availability of AI and the
associated automation of a lot of processes, for example, make new technologies
attractive. Only the people who make the change are able to keep up with the competition.

b) The competition never sleeps

Manufacturers of medical devices in particular should prepare for the digital

transformation and the transformation of their own companies. Because one thing is
clear: The current challenges are imposing, and the competition is not sleeping.

Competition from abroad and from the digital industry

In other countries, digitization has been going on for several years. However, Germany is
one of the industrialized nations lagging behind. According to the EU’s Digital Economy
and Society Index (DESI), Germany is underperforming with regard to the integration of
digital tools.

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However, medical device manufacturers’ competition doesn’t just come from other
countries, it also comes from other industries. Companies with access to enormous data
sets, such as:

Google, Apple and Amazon are currently expanding into the healthcare sector.

Staying competitive through digital transformation

However, it isn’t just this competition that is causing difficulties for the medtech industry.
The shortage of skilled workers and regulatory upheavals, such as EU Regulation
2017/745 on Medical Devices (MDR) or EU Regulation 2017/746 on In Vitro Diagnostic
Medical Devices (IVDR), are also taking up resources.

A digital transformation of a company can help remedy the situation: Digitization saves
costs and personnel and brings innovations. This means it can help ensure that
manufacturers remain competitive despite challenges.

The industry is changing, manufacturers must keep up

Even if you disregard the above, you can still see that the entire healthcare sector is in a
state of flux. Politicians and regulatory authorities, particularly notified bodies, are also
adapting to the digital age.

New technologies offer enormous potential in these areas as well: If the majority of data
and documents are available in digital form, they can be analyzed and used completely
differently.

It could, for example, lead to better laws (if problems are identified, particularly using
regulatory science), to better healthcare (for example, through more effective resource
management) or safer medical devices (as, for example, clinical data become available).

The authorization process will also be transformed by the digital transformation and be
made simpler and faster. For example, the Johner Institute is already working with TÜV
Süd on a digital solution for the conformity assessment procedure.(German)

In the future, medical practices and clinics will increasingly rely on digital technologies.
Digitization can help solve several of their problems: from the shortage of personnel to
the constantly aging society.

This means that manufacturers who miss out on the digital transformation run the risk of
losing out in their own sector.

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 The driving forces of digital transformation in the medtech industry

3. Digital transformation Not an easy task

a) A project that often fails

It is almost impossible for manufacturers to get out of digitally transforming their own
companies. But this transformation has to be well thought out and well planned: A study
by McKinsey (albeit from 2018) found that even in tech-savvy sectors, such as the high-
tech and media industries, a good 75% of digital transformation projects fail. In
traditional industries, such as the pharmaceutical industry, as many as 89-96% of projects
fail.

After the major cuts resulting from the coronavirus pandemic, these numbers may well be
lower. Nevertheless: anyone who stumbles blindly into a transformation should expect to
waste resources unnecessarily and miss out on huge opportunities.

b) What causes digital transformations to fail

One of the biggest hurdles in corporate digital transformations is the development of a

viable concept. It is not enough to look at individual business units. A digital
transformation must be a holistic process that fundamentally changes a company at all
levels.

Therefore, the approach to this kind of transformation has to be adapted to “digital
thinking”:

Just using digital tools (software instead of a ring binder) is not enough.
 

The company culture needs to change. Not changing the culture at all, or overdoing
it, is one of the most common mistakes in the transformation process.
 

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 The digital transformation should not be underestimated. It is a lengthy process that
has to be well coordinated – and that, in principle, never ends.

4. How the digital transformation can succeed

Companies that prepare well for their digital transformation have a good chance of
success despite all the hurdles. The effort and costs pay off, because it opens up new
business opportunities and offers excellent prospects for the future.

The biggest mistake surely is not even considering a digital transformation in the first
place. Sooner or later, the market will leave these companies behind.

a) Which factors determine success?

The most important factors for the success of corporate digital transformations are
ultimately the same as for other transformation processes: good management,
(acquisition of) know-how, the correct (digital) tools, a change in corporate culture and
togetherness, and good communication.

“leadership, capability building, empowering workers, upgrading tools, and

communication”

 Source: McKinsey

b) Management
The digital transformation should first take place at the management level, first and
foremost in the minds. If the management team takes a half-hearted approach to the
digital transformation, the workforce is likely to have the same attitude.

Moreover, the transformation process cannot be outsourced to consultants. It is true that

consultants can help scout trends and technologies, assess markets and risks, and design
processes and structures. But the transformation itself must take place within the
company.

Senior management must support or even initiate this transformation. Creating various
“nuclei” is recommended as a first step:

Entrepreneur in residence

Management brings an innovator into the company to identify opportunities and suitable
comrades-in-arms. Together with this team, they develop an ever-expanding division
within the company that embodies the post-transformation model.

 Accelerator, incubator

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With the accelerator, the company creates a division within the company that is allowed
to operate independently. Employees and students should and are allowed to try out new
ideas within this division. An infrastructure ensures that the founders can fully focus on
their internal startup.

Fenced startup

Like the accelerator, fenced startups are given the freedom to develop and implement new
ideas quickly. Without this freedom, new ideas are often suffocated in a company's
paralyzing structures and processes.
To avoid regulatory problems, these
startups are regularly spun off as subsidiaries. Unlike
incubators, fenced startups are created with a specific idea in mind, which means they
come into play at a later stage of development than the ideas in an incubator.

You should also consider appointing a chief digital officer (CDO), a person or team solely
responsible for the transformation process.

What does a CDO do?

The chief digital officer (CDO) is responsible for planning and managing a company's
digital transformation. They are responsible for the overall strategic alignment needed to
successfully survive the digital transformation. This includes both market positioning and
internal processes and infrastructure. As a result, the position of CDO is generally a board
or executive management level position.

b) Creation of know-how
A digital transformation will not succeed without the required know-how. Having the best
tools is no use if employees don't use them because they don't know how to. Agile product
development will fail if no one understands how the process works.

This means you should:

Train your employees and do not assume they have the skills required.
Make sure they are given support on technical issues, even after the initial
transformation.
Invest in CPD and retraining.
Invest in talent from relevant fields.
Encourage innovative ideas and projects.

c) Digital tools – but the right ones

Naturally, a digital transformation also needs digital tools. But be careful:

Technology is a means to an end, not a panacea. It can only support other processes.
The environment has to be right for a digital tool to add value.
Take the time to familiarize yourself with the tools you are introducing and to
understand how they work and what problems they might cause.

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  Avoid quick fixes! Don’t just follow recommendations or fads. Identify your needs
precisely, test and only then decide. Whether it's the new internal communications
tool that potentially disrupts all your workflows or the automated post-market
surveillance system that ends up adding time and cost.
The same applies to the user-friendliness factor: Always remember that not
everyone at your company and not all your customers are technology wizards; there
are also employees and customers who have little affinity for new technologies.
That's fine. Adapt to it instead of trying to convert your team.
Customers will also quickly bail out if the platform or contact
options you offer are
too cumbersome. Therefore, your top priorities should be functionality, user-
friendliness and ease of use.

Examples of where digital tools can be used by manufacturers

d) Corporate culture and cooperation

For your digital transformation to be successful, you may have to change the entire
corporate culture. Digital thinking does not mix well with traditional management
structures and skeptical attitudes towards technology.

Think about developing the right culture right from the start and actively work on it
rather than ignoring it.
Take a critical look at everything: including your company's self-image, values and
the way decisions are made.
Offer employees new ways to shape work and collaboration.

e) Communication
Communication is one of the basic but also most important factors for a successful
transformation process.

Communicate internally frequently and in detail about the transformation process.

This helps your employees to feel more involved.

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 Focus on modern channels where communication is not just one-way (as with email
distribution lists) but runs in multiple directions (as with internal social media).

5. Five steps to digital transformation

You can use the following five steps as a guide to ensuring that the digital transformation
of your company is successful. They summarize the points already made above.

a) Step 1: take stock

The first step is to work out the potentials a digital transformation offers for your
company.

Is your business, the market or a particular product at risk of disruption?

Does digitization offer an opportunity for you?

Identify potentials

The classic SWOT analysis will help you identify potentials. But you should go further:

Let your imagination run wild: in an ideal world, what would your company, its
products and way of working look like?
Don’t just think about digitizing existing processes. Instead, think: Do we even need
these processes anymore? Can intermediate steps be skipped? Can intermediaries
be leapfrogged and the product sold directly to patients?

Think about how you can fully exploit the potential of digitization. Take a leaf out of
the book of digital companies in other industries.

Example: Platform providers such as Airbnb and Uber don’t just charge their
customers commission, they also charge their property owners and drivers; Google
and Apple use the data they collect for research and development as well as
improving their products.

Of course, you shouldn’t copy all the behaviors of certain companies.However, the
basic idea of making the most of digital opportunities can also be implemented
ethically and in a way that allows you to save resources and make a profit.
Include feedback from employees and customers in this step.

b) Step 2: work out the necessary consequences

Work out the necessary consequences of your analysis, e.g., the development of new
products or business models.

c) Step 3: work out the requirements for the company

Work out the required preconditions and requirements for the digital transformation
process at your company: what does the digital transformation mean for purchasing,
production, sales?

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d) Step 4: establish the required structures

Create structures that will facilitate the transformation process and establish an
appropriate culture in the company.
Create a team responsible for the transformation process.
If necessary, create the position of CDO.
Get outside advice and help.
Lead by example and use agile project management and digital tools.
Analyze digital data to support your findings.
Establish the communication tools that will be used during the process.

Take feedback and suggestions and incorporate them into your project. Establish a
platform for this.

e) Step 5: start the change

Pilot project

It is best to start with a pilot project first.

Select a team that is tech-savvy and enthusiastic about the digital transformation.
Their enthusiasm could inspire other employees further on down the line!

Upscaling

You don’t have to try to implement all the changes at the same time.
Support the transformation through coaching, redesigned spaces, different meeting
formats, your behaviors and new leadership models.
When introducing new tools, processes, etc., start with the ones that will provide the
biggest benefit for employees and customers.
Do not impose anything on employees or customers. Forced change leads to
rejection and ultimately to failure.
Instead, make sure that everyone involved recognizes the benefits of the digital
transformation and offer them opportunities to help shape it.
Make the process and its status transparent (and digital!).
Communicate frequently and be open about the transformation process.

f) Stay switched on: a digital transformation is a long-term process!

Even when you have succeeded in making the transformation, your work is not complete.
Technologies and management systems are constantly evolving. That's why a digital
transformation is never finished.

Create “post-market surveillance” for your transformation process.

Check its status at regular intervals: Is everything working? Do you need to adjust
anything? Do tools need to be replaced? Are there any new technologies now
available that would be better for you?

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5. Conclusion
A digital transformation not only offers enormous opportunities, it is increasingly
becoming a necessity. If you want to survive in the face of international competition and
not be left behind in your sector, you can’t avoid the digital transformation.

A digital transformation is a process that fundamentally changes companies in the long-

term. Manufacturers should not underestimate the risks and hurdles involved. Lots of
transformation processes fail as a result of half-hearted approaches or a lack of planning.

Review the potentials, opportunities and risks of a digital transformation at your company
and approach this major task carefully.

We sincerely thank Dr. Apel for his help writing this article.

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