Business Strategy – Dr. Gerd Niehage

How do companies formulate and implement digital transformation strategies?

“Born-digital companies”, i.e. companies that are founded on digital platforms and exploiting digital technologies as core components of their business models, have no need for a digital transformation. Unlike “pre-digital” organizations, which are established companies belonging to traditional industries that have been financially successful without digital technologies and capabilities (Tumbas, Berente and Brocke 2017) (Ross, et al. 2016) (Chanais, Myers and Hess 2019). In recent years, these companies have started digital initiatives to explore and exploit the benefits of emerging technologies. The first steps entering digital business models are usually characterized by a high level of uncertainty as this affects products and processes and transforms key business operations as well as organizational structures and management concepts. The digital transformation is very complex and has company-wide impact. The formulation and implementation of a digital transformation strategy has therefor become a key concern for many pre-digital companies and a systematic approach is crucial for success. (Matt, Hess and Benlian 2015) (Hess, et al. 2016).

Getting to a digital transformation strategy has two perspectives. First, the process: how to develop, implement and evaluate the digital transformation strategy considering the new aspects digitalization brings to the organization. Because digital transformation is a continuous effort of high complexity that can reshape a company and its operation, it is important to clearly define and assign roles and responsibilities for the formulation and implementation of a digital transformation strategy. Second, the process of defining a strategy along the dimensions and building blocks of a digital transformation strategy, but this also includes decisions on the necessary resources to be able to execute the strategy and achieve the company goals. (Matt, Hess and Benlian 2015)

Chanais, Mayers and Hess (2019) describe in a case study research 7 main phases of digital transformation formulation and implementation:

Phase 0: Recognizing the need for digital transformation
Phase 1: Setting the state
Phase 2: Initially formulating the digital transformation strategy
Phase 3: Preparing for the digital transformation strategy implementation
Phase 4: Starting the digital transformation strategy implementation
Phase 5: Finding a working mode
Phase 6: Enhancing the digital transformation strategy

Barann et al. (2019) did a structured literature review of articles from the databases EBSCOHost, ScienceDirect, AISNet and Scopus resulting from the search of keywords in the area of business model innovation, digital transformation, digital innovation, data-driven innovation for SME. They identified requirements for a procedural approach and synthesized these findings into a procedure model for digital transformation in SME, cf. Figure 1.

The following requirements have been the basis for the procedure model: (R1) Integration of external supporter like innovation labs, research institutes and consultancies, (R2) provision of practical orientation based on best-practices, real-life examples and incorporating domain-specific knowledge, (R3) creation of a supportive environment like the awareness of the need for digital transformation which needs to be ensured before any implementation starts, (R4) consideration of tangible goals, i.e. clearly defined and measurable goals, (R5) provision of an individual roadmap, (R6) enabling a stepwise implementation, (R7) identification of opportunities, (R8) assisting reflection & measurement, (R9) balancing strategy and operation, (R10) supporting all levels of digital and data-driven innovation, (R11) consideration of open innovation, i.e. ideas and resources should be shared between internal and external entities, e.g. start-ups. (Barann, et al. 2019)

Figure 1: A Procedure Model for Digital Transformation in SME, adopted from (Barann, et al. 2019, 4981)

The synthesized procedure model from Barann et al. (2019) consists of two phases. Phase I is about the formulation of the digital transformation strategy, while phase II is about the implementation.

Phase I, Orientation, has two steps:

Position company: (a) establish a planning team, (b) understand the business model, (c) analyze the as-is-situation, (d) reviewing digitalization topics, and (e) analyze digital maturity.
Create digitalization roadmap: (a) generation of ideas, (b) alignment of the ideas with the strategic goals, (c) evaluation of the ideas, and (d) development of a digitalization roadmap.

Phase II, iterative transformation, has three steps:

Create supportive environment: (a) create awareness, (b) involve employees, and (c) create digitalization culture.
Prepare digitalization project: (a) select digitalization goal, (b) identify opportunity, (c) select opportunity, (d) perform resource and project planning, and (e) build expertise.
Implement solution: (a) design solution, (b) refine solution, (c) realize solution, and (d) monitor solution.

Terstegen et al. (2019) researched between July and October 2018 various articles about procedural approaches for the formulation and implementation of a digital transformation strategy with the focus on Industry 4.0 and the manufacturing industry, automotive, electrical engineering, medical devices. They synthesized the identified procedural models into five phases:

Information Phase, transparency and creation of a common understanding
Strategy Phase, as-is-analysis, digital vision and strategic direction
Tactical Phase, determination of targets and deduction of projects
Operative Phase, implementation of projects
Controlling, measurement of target achievement

The focus of these procedure models are in three phases of “why” (strategy phase), “what” (tactical phase) and “how” (operative phase), cf. Figure 2.

A detailed overview of the identified procedure models can be found online www.arbeitswissenschaft.net/vorgehensmodelle-digitalisierung (2019).

Figure 2: Overview and categorization of identified procedure models, adopted from (Terstegen, Hennegriff, et al. 2019, 4)

Feichtinger (2018) also compared various models and identified that they can be aligned into these three major phases:

Phase 1 (Analysis) asks the question “why” and contains the current status and the analysis phase. The starting points could be a digital maturity assessment (DMA), an evaluation of customer requirements, emerging technologies and industry/market trends.
Phase 2 (Definition) starts with the question “what”. Here the vision and goals will be defined, the design of the digitalization determined, and the necessary changes deducted.
Phase 3 (Planning) answers the question “how”. Feichtinger (2018) found out that the third phase is not consistent in the literature. It is not clear whether it is still the planning of the digital transformation or already the implementation as for example this phase had been summarized under operative tasks by Terstegen et al. (2019).

Table 1: Comparison of strategic process phases, adopted from (Feichtinger 2018, 43)

Digital Transformation Strategy has different perspectives and each perspective tries to reach different goals. Matt, Hess and Benlian (2015) speak of four perspectives: use of technologies, changes in value creation, structural changes, and financial aspects. Von Leipzig, et. al. (2017) add to the perspective that the ability to digitally change the value creation is not all about the technology and structural changes, but rather about a radical strategic and cultural change in the organization. The purpose of a digital transformation strategy is to exploit the benefits of emerging technologies to improve productivity, decrease costs and come to innovative products, services and business models. But there is still no coherent alignment in the research where a digital transformation strategy should be allocated (Hess, et al. 2016) (Matt, Hess and Benlian 2015). In analogy to the manufacturing strategy Mills, Platts and Gregory (1995) have given a classification of “strategy” in the business context:

Corporate Strategy: What set of businesses should we be in?
- Business Strategy: How should we compete in XYZ business?
- Functional Strategy: How can this function contribute to the competitive advantage of the business?

Some argue that a company’s IT strategy can evolve from a functional strategy to a corporate strategy. But IT strategy is about the efficient management of IT infrastructure and applications, where digital transformation strategy incorporates all areas of the organization (Hess, et al. 2016). Sebastian et al. (2017) brings the business strategy and the functional strategy in relation:

Digital Transformation Strategy: How can we integrate existing business capabilities with new capabilities made possible by emerging technologies?

The characteristic of integrating corporate, business and functional strategies makes it mandatory to align, coordinate and prioritize the many independent dimensions of digital transformation across all other strategies. If these tasks are executed half-heartedly, the formulation and implementation of the digital transformation might lose the scope with possible serious effects on operations. Therefor it is necessary that the person responsible for the digital transformation strategy has enough experience in business transformation and is aligned with the strategy´s targets (Matt, Hess and Benlian 2015).

Singh and Hess (2017) compare the new role of a Chief Digital Officer (CDO), as one option being responsible for the digital transformation, with other existing roles for different levels of strategy within the company, cf. Table 2.

Table 2: Comparison of CDO and other CxO Positions, adopted from (Singh and Hess 2017, 34)

Being responsible for the digital transformation strategy Singh and Hess (2017) identified five skills and competencies necessary: (1) IT Competency, (2) Change Management Skills, (3) Inspiration Skills, (4) Digital Pioneer Skills, and (5) Resilience, which is in “traditional” companies even more important as digital transformation requires profound organizational-wide changes.

Singh and Hess (2017) also identified in their research three different types of roles, Chief Digital Officers play:

The Entrepreneural Role, with a strong customer focus, exploring IT-enabled innovation and pointing towards a fast-paced technological environment sometimes even with the adoption of whole business models.
The Digital Evangelist Role, with the focus on inspiring and training people in the organization to prepare them to deal with the challenges and corporate changes in the process of digital transformation.
The Coordinator Role, with the focus to initiate and design the controlled organizational shift from decoupled silo functions to cross-functional cooperation, which affects many stakeholders of the company on functional (IT, HR), business (marketing & sales, production) and corporate level (executive/advisory board).

It is important to understand that being responsible for the digital transformation strategy does not mean to replace all other strategies and the ones being responsible for them. The company should experiment with emerging technologies and explore the related opportunities across all functional and organizational borders. Therefor being responsible more means acting like a coordinator to ensure collaboration between the different strategic disciplines and that the targets of the digital transformation strategy can be reached with a strong focus on business transformation. (Singh and Hess 2017) (Matt, Hess and Benlian 2015) (Hess, et al. 2016) (Sebastian, et al. 2017)

Also, Westermann et al. (2011) come to the conclusion after studying 157 executive-level interviews in 50 companies in 15 countries that the lead for the change need to come from the top, but top level visions seldom leads to bottom-level actions when not supported by top-down communication and governance backed-up by incentives and measurable targets and coordination. They see four different coordination models for digital transformation, cf. Figure 3:

Silo: No coordination effort as each business unit runs their own digital strategy
Digital hub: Digital strategy defined by a central digital unit. Each business unit can have their own strategy but must coordinate with the central digital unit to use their solutions and resources.
Central coordination: Digital strategy defined, funded and coordinated at enterprise level, digital operations developed and managed on business unit level
Global: Digital strategy allocated to a central digital unit which coordinates strategy and budget. Digital operations are developed and managed on business unit level, but must use solutions and resources coming from the central digital unit

Figure 3: Coordination models for digital transformation, adopted from (Westermann, et al. 2011, 54)

Knowing the procedural aspects and the key participants in the digital transformation strategy, there are several starting points for the transformation journey.

Berman (2012) proposed three different strategic approaches to transformation:

The “what”: Reshaping the customer value proposition
The “how”: Reshaping the business model
Combining both approaches by transforming operating model and customer value proposition at the same time

No organization, even “pre-digital” companies, will start their digital transformation from “zero”. Usually providing information digitally or digital sales channels like e-commerce are existing. Berman (2012) says that “from this starting point, a company’s strategic approach to transformation typically follows one of the three paths”, cf Figure 28.

The paths depend on strategic objectives, industry type, competitive pressure and customer expectations. Companies, who has the business model “Business-to-Business” (B2B), usually start with reshaping operations and then address the customer value proposition to achieve full transformation (Path 1). Companies with the business model “Business-to-Consumer” (B2C), where the focus on the customer value proposition provide immediate benefit, will first focus here and then integrate digital operations (Path 2). Companies seeking industry leadership or companies adding the customer value perspective to their operations (going from B2B to B2B2C) will try to do both at the same time (Path 3). (Berman 2012)

Figure 4: Paths to digital transformation, adopted from (Berman 2012, 18)

Sebastian et al. (2017) identified in their empirical studies two different types of digital transformation strategies: a customer engagement strategy and a digitized solutions strategy.

“A customer engagement strategy typically aims to create a seamless, omnichannel experience that makes it easy for customers to order, inquire, pay and receive support in a consistent way from any channel at any time” (Sebastian, et al. 2017, 199). It focuses on personalized, innovative and integrative customer experiences. This kind of a strategy is based on collecting customer data and the use of data analytics to better understand and anticipate customer demands.

“A digitized solutions strategy aims to reformulate a company’s value proposition by integrating a combination of products, services and data” (Sebastian, et al. 2017, 199). It is driven by R&D to create digital products and services by combining existing capabilities with digital capabilities. This may result in the shift from selling a product to offering services with the effect of recurring revenues like Porter describes it in “how smart connected products are transforming competition”. (Porter and Heppelmann 2014)

Kaltenecker, Hess and Huesig (2015) researched the effect of shifting from product-selling to service offerings on the example of the software industry changing from selling licences for on-premise usage to offering their software on-demand out of the cloud. Their assumptions are based on the “Innovator’s Dilemma” (Christensen 1997), as well-established companies are facing this dilemma when they hold on to their technologies, even though emerging technologies with a potential of disruption are already available in the market. Kaltenecker, Hess and Huesing (2015) summarized different management strategies adopted by the software industry to prevent potential disruption using the example of shifting towards offering software-as-a-service out of the cloud, cf Table 3.

Table 3: Nine management strategies, adopted from (Kaltenecker, Hess and Huesig 2015, 247)

The media industry faced already the digital disruption as the digital change is undeniable when the customers shift from buying a newspaper to opening a news app, from renting a DVD to online streaming, from buying a cookbook to getting customized recipes onto the smartphone (World Economic Forum 2019). Hess et al. (2016) researched media companies and their digital transformation strategies. As a result, they suggested guidelines for formulating a digital transformation strategy based on four aspects where key strategic decisions have to be made, cf Table 4 : (1) use of technology, (2) changes in value creation, (3) structural changes, and (4) financial aspects.

Table 4: Key Decisions for a Digital Transformation Strategy, adopted from (Hess, et al. 2016, 138)

While the use of technology, structural changes and financial aspects are not necessarily industry specific, the value creation is different in each industry. To get also to an industry specific formulation of the value creation, Porter proposed to define the strategy along the value chain (Porter and Millar 1985) (Porter 2001).

Bughin and Zeebroeck (2017) identified besides disruption a second challenge in the transformation of the value creation: Based on their survey of 2000 incumbent companies across all major industries and countries, they see that for the majority digital initiatives show only little effect. On the other side top-performing companies could achieve up to 80 percent higher revenues than the industry average and achieve a digital return on investment (ROI) that is 10 times higher than the above mentioned low-performing companies in their survey. The outperformer usually had offensive strategies, i.e. commitment to radical changes, e.g. willingness to cannibalize their current revenues and to invest into digital technology. Bughin and Zeebroeck (2017) classified the digital strategies found into six types, where the first three are primarily offensive and the second three defensive, i.e. meant only to improve the existing operating models, cf. Table 5.

Table 5: The six types of digital strategy, adopted from (Bughin and Zeebroeck 2017)

As a summary, the formulation and implementation of a digital transformation strategy demand huge efforts as all strategic areas of the company are related and it takes a revolutionary approach for fundamentally changes. The leading must come from top, but the difficulty is to bring the visions and goals to the bottom. Therefore being responsible for the digital transformation is the role of a coordinator across the organization with experiences in business transformation. The formulation of the strategy has four aspects: use of technology, structural changes, financial aspects and especially changes in the value creation. There are differences in the transformation journey, type and management of the digital transformation strategy depending on industry type, business model and boldness of the company, i.e. whether to choose an offensive or defensive strategy. To answer the question how to formulate and implement the digital transformation strategy, there are at least three core phases: Analysis, Definition and Planning.

Works Cited

Adlmaier-Herbst, D. Georg. “Die Bausteine der digitalen Transformation.” KMU Magazin. 08 10, 2017. https://www.kmu-magazin.ch/digitalisierung-transformation/die-bausteine-der-digitalen-transformation (accessed 08 09, 2019).

Barann, Benjamin, Andreas Hermann, Ann-Kristin Cordes, and Friedrich Chasin. “Supporting Digital Transformation in Small and Medium-sized Enterprises: A Procedure Model Involving Publicly Funded Support Units.” Proceedings of the 52nd Hawaii International Conference on System Science. Grand Wailea, Maui: University of Hawaii at Manoa, Shidler College of Business, 2019. 4977-4986.

Berman, Saul J. “Digital Transformation: opportunities to create new business models .” Strategy & Leadership, 40 (2), 2012: 16-24.

Bollard, Albert, Sanjay Kaniyar, Elixabete Larrea, Alex Singla, and Rohit Sood. The next-generation operating model for the digital world. Report, McKinsey & Company, 2017.

Bughin, Jacques, and Nicholas Van Zeebroeck. 6 Digital Strategies, and Why Some Work Better than Others. 07 31, 2017. https://hbr.org/2017/07/6-digital-strategies-and-why-some-work-better-than-others (accessed 08 19, 2019).

Chanais, Simon, Michael D. Myers, and Thomas Hess. “Digital transformation strategy making in pre-digital organizations: The case of a financial service provider .” Journal of Strategic Information Systems, Vol. 28 (1), 03 2019: 17-33.

Christensen, Clayton M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press, 1997.

Esser, Marc R. Chancen und Herausforderungen durch Digitale Transformation. 2014. http://www.strategy-transformation.com/digitale-transformation-verstehen/ (accessed 08 09, 2019).

—. Digital Maturity Assessment (DMA). 2017. http://www.strategy-transformation.com/digital-maturity-assessment/ (accessed 08 09, 2019).

Feichtinger, Gudula. “Digitalization in SME : a framework to get from strategy to action.” 2018. http://repositum.tuwien.ac.at/urn:nbn:at:at-ubtuw:1-115120 (accessed 08 09, 2018).

Hess, Thomas, Christian Matt, Alexander Benlian, und Florian Wiesböck. „Options for Formulating a Digital Transformation Strategy.“ MIS Quarterly Executive, 06 2016: 123-139.

Kaltenecker, Natalie, Thomas Hess, and Stefan Huesig. “Managing potentially disruptive innovations in software companies: Transforming from On-premise to the On-demand.” The Journal of Strategic Information Systems, Vol. 24 (4), 12 2015: 234-250.

Lancry, Ouriel, Ryan Morrissey, Tom Shannon, Andy Bankert, and Lucy Cummings. Digital Strategy for a B2B World. 02 08, 2017. https://www.bain.com/insights/digital-strategy-for-a-b2b-world (accessed 08 09, 2019).

Matt, Christian, Thomas Hess, and Alexander Benlian. “Digital Transformation Strategies.” Business & Information Systems Engineering, 05 14, 2015: 339-343.

Mills, John, Ken Platts, and Mike Gregory. “A framework for the design ofmanufacturing strategyprocesses: a contigency approach.” International Journal of Operations & Production Management, Vol. 15 (4), 1995: 17-49.

Peter, Marc K. “KMU Transformation: Als KMU die Digitale Transformation erfolgreich umsetzen.” 2017. https://kmu-transformation.ch/wp/wp-content/uploads/2017/11/FHNW-HSW-Digitale-Transformation-KMU.pdf (accessed 08 09, 2019).

Porter, Michael E. “Strategy and the Internet.” Harvard Business Review, March 2001: 62-78.

Porter, Michael E., and James E. Heppelmann. “How Smart Connected Products Are Transforming Competition.” Harvard Business Review, November 2014: 64-88.

Porter, Michael E., and Victor E. Millar. “How Information Gives You Competitive Advantage.” Harvard Business Review, July-August 1985: 85-103.

Ross, Jeanne W., Ina M. Sebastian, Cynthia Beath, Martin Mocker, Kate G. Moloney, and Nils O. Fonstadt. “Designing and Executing Digital Strategies.” Thirty Seventh International Conference on Information Systems. Dublin: Association of Information Systems, 2016. 1-17.

Schallmo, Daniel R. A., and Christopher A. Williams. “Roadmap for the Digital Transformation of Business Models.” In Digital Transformation Now! Guiding the Successful Digitalization of Your Business Model, by Daniel R. A. Schallmo and Christopher A. Williams, 41-68. Cham: Springer, 2018.

Sebastian, Ina M., Martin Mocker, Jeanne W. Ross, Kate G. Moloney, Cynthia Beath, and Nils O. Fonstad. “How Big Old Companies Navigate Digital Transformation.” MIS Quarterly Executive, 09 2017: 197-213.

Singh, Anna, and Thomas Hess. “How Chief Digital Officers Promote the Digital Transformation of their Companies.” MIS Quarterly Executive, 03 2017: 31-44.

Terstegen, Sebastian, Simon Hennegriff, Holger Dander, and Patrick Adler. “Vergleichsstudie über Vorgehensmodelle zur Einführung und Umsetzung von Digitalisierungsmaßnahmen in der produzierenden Industrie.” Bericht zum 65. Arbeitswissenschaftlichen Kongress vom 27. Februar – 1. März 2019. Dortmund: GfA Press, Gesellschaft für Arbeitswissenschaften e.V., 2019. C.3.13, 1-6.

—. Vorgehensmodelle zur Einführung und Umsetzung von Digitalisierungsmaßnahmen in der produzierenden Industrie. 02 27, 2019. https://www.arbeitswissenschaft.net/vorgehensmodelle-digitalisierung (accessed 08 17, 2019).

Tumbas, Sanja, Nicholas Berente, and Jan vom Brocke. “Born Digital: Growth Trajectories of Entrepreneural Organizations Spanning Institutional Fields.” Thirty Eighth International Conference on Information Systems. South Korea: Association of Information Systems, 2017. 1-20.

Von Leipzig, T., et al. “Initialising customer-orientated digital transformationin enterprises.” Procedia Manufacturing, 8, 2017: 517-524.

Wade, Michael. “Digital Business Transformation.” IMD. 06 2015. https://www.imd.org/uupload/IMD.WebSite/DBT/Digital%20Business%20Transformation%20Framework.pdf (accessed 08 09, 2019).

Westermann, Georg, Claire Calméjane, Didier Bonnet, Patrick Ferraris, and Andrew McAfee. DIGITAL TRANSFORMATION: A ROADMAP FOR BILLION-DOLLAR ORGANIZATIONS. Study, MIT Center for Digital Business and Capgemini Consulting, 2011.

World Economic Forum. Four digital trends reshaping the media industry. 2019. http://reports.weforum.org/digital-transformation/digital-trends-in-the-media-industry/ (accessed 08 19, 2019).

What do we know about the dimensions of digital business transformation strategies?

Digitalization started already in the 1960s with the introduction of mainframe computers, followed in the 1980s with the personal computers and the internet in the 1990s (Schwab 2016). Venkatraman described in 1994 five levels of IT enabled Business Transformation, cf. Figure 12 (Venkatraman 1994, 85), summarized by (Ismael, Khater and Zaki 2017, 10) in Table 2.

Table 1: Five Levels of IT-Enabled Transformation (Venkatraman 1994), adopted from (Ismael, Khater and Zaki 2017, 10)

Porter said already in 1985 “The information revolution is sweeping through our economy” (Porter and Millar 1985) when he was describing how this gives us a competitive advantage. More than 30 years later we might think that this is obvious, but in the 1980s the decision makers struggled with the introduction of information technologies. In 2001 Porter argued that not the internet is changing everything, but it is an enabling technology “a powerful set of tools that can be used wisely or unwisely, in almost every industry and as part of almost any strategy” (Porter 2001, 64). Not the newest technology like by that time the internet gives us a competitive advantage, but it “provides better opportunities for companies to establish distinctive strategic positioning than did previous generations of information technology”. Therefor the question is not whether to deploy a new and possible disruptive technology as according to Porter companies have anyway no choice if they want to stay competitive, but how to deploy it. He formulated 6 principles of strategic positioning (Porter 2001, 71):

Start with the right goal: long-term return on investment
Deliver a value proposition different from the competitors
Have a distinctive value chain
Robust strategies involve trade-offs (sacrifice existing ways of competing)
Define how all elements of the value chain fit together
Continuity of direction

Porter’s approach is – like Venkatraman (1994) calls it – revolutionary and focusses on business process (end-to-end value chain processes) redesign and business scope (value proposition) redefinition. For Porter the value chain gives the dimensions of strategic importance with the nine generic main processes inside a company: (1) firm infrastructure, (2) human resource management, (3) technology development, (4) procurement, (5) inbound logistics, (6) outbound logistics, (7) marketing & sales, (8), service.

Figure 1: The value chain, (Porter and Millar 1985, 4)

As an example, Kandermirli (2018) describes the digital strategy of Amazon.com using Porter’s value chain model, cf. Figure 20.

Figure 2: Amazon.com Value Chain Analysis, (Kandermirli 2018)

Today new technologies are developing exponentially. This creates a disruptive gap which effects not only the global economy, but also societies, and now determines the fourth industrial revolution (Schwab 2016). This gap is described by Downs and Mui (1998) as the “law of disruption”, because “social, political, and economic systems change incrementally, but technology is changing exponentially” leaving an opening which will be closed either by the next generations or by todays organizations which need to learn from them.

Figure 3: The Law of Disruption, adopted from (Downes 2009)

To overcome the “Innovator´s Dilemma” of incumbent businesses in terms of disruptive innovations (Christensen 1997), McKinsey has introduced the three horizon model, featured in the book “The Alchemy of Growth” (Baghai, et al. 1999). This framework provides companies the opportunity for growth coming from future technologies without neglecting the present. The first is a horizon of 3-12 months, focusing on improving performance to maximize the remaining value. The second is a 24-36 months horizon to extend the existing business models and competencies to new opportunities. The third is 36-72 months horizon for the development of new capabilities to prevent disruption. Blank (2019) argues this does not longer apply today as start-up’s are not burdened with any legacy and can develop horizon three as fast as existing businesses deal with horizon one due to declining costs of creation, information and experimentation (Downes and Nunes 2014). Downes and Nunes (2014) say that the most important strategic dimension are leadership skills, it demands courage.

Threats are coming from the market with better and cheaper products and services, some of them will not be recognized until it is too late to counteract. And threats are coming from the inside as organizations are naturally resistant against any kind of change.

Nunes and Breene (2011) argue that sooner or later companies are at the stage of maturity of the S-Curve (cf. Christensen 1992). Now they have three possibilities: (1) they successfully jump from one business to the next by reinventing themselves, (2) they try to jump, but fail, e.g. because they waited too long with their decision, or (3) they decide not to jump. In order to be able to successfully jump, companies need to understand the change of competition in their industry, must nurture a ready supply of talents and close the capability gap between the technology cycles by either external leverage or self-development (Nunes and Breene 2011) (Tse 2015).

Figure 4: Jumping the S-Curve, (HAN 2019) adopted from (Tse 2015)

While jumping is the process of digital transformation, the gap does define the dimensions of the missing capabilities needed for the new technology cycle.

Holotiuk and Beimborn (2017) researched “Critical Success Factors of Digital Business Strategy”. They analyzed 21 relevant industry reports published between January 2011- July 2015, which they found via online search of the terms “digital business strategy”, “digitalization strategy” and variations of it. Among others the documents had been coming from “research centers like MIT Center of Digital Business, research firms like Gartner, technology advisory firms like Accenture or Capgemini, and strategy consultancies such as McKinsey, [Boston Consulting Group] BCG, and Bain” (Holotiuk and Beimborn 2017, 991). The documents had been scanned for their strategic implications, relevance for strategy in general and usefulness to develop a framework. In order to identify and determine information and actions which are most need to reach a defined outcome or goal (Bullen and Rockart 1981), they used the “critical success factor method” (Bullen and Rockart 1981).

As a result Holotiuk and Beimborn (2017) synthesized a framework, consisting of 8 dimensions with clusters of 40 identified critical success factors (CSF). The top two dimensions with the highest counts of critical success factors had been Sales and Customer Experiences and Organization. This reflects also the external market- and society-oriented triggers as well as the internal organization faced motivation.

Figure 5: Digital Business Strategy Framework, adopted from (Holotiuk and Beimborn 2017, 996)

The top 3 critical success factors are seamlessly integrated (physical) and online (digital) channels (Sales and Customer Experience), use data and information from central source (Data and IT), and data-driven and digitally automated processes (Operations), cf. Table 3.

Seamlessly integrated offline (physical) and online (digital) channels, e.g. China Alibaba´s AI powered Hema stores. Customers on top of the online retail shopping experience can even interact and pay with their mobile apps while they are inside a classical brick-and-mortar-store. The merit is higher offline store efficiency, increased customer loyalty and even more shares in online orders (Biggs, et al. 2017). Augmented reality (AR) also provides customers with a seamless experience by closing the gap between the offline and online touch points (Hilken, et al. 2018). Another aspect of bringing the offline and digital world together is the fact that “Smart Connected Products Are Transforming Competition” (Porter and Heppelmann 2014). And even beyond the sales and customer experience, the Internet of Things (IoT) has today a deep impact on operations by gathering data, analyzing it to optimize production, address customization requirements, generate customer insight and more intelligently manage the business (Sistu 2017).

Use data and information from central source. Porter and Millar said already 1985 (How Information Gives You Competitive Advantage) that the benefits of data and information only exist when they are compatible and that a decentralized design will hinder these possibilities. Part of the challenge is the increase of data and together with multiplied data sources can result from inaccurate data to incorrect filing of compliance information. Centralizing assures access to a common source of trusted data for increased productivity, optimized collaboration and more confident decision making by turning that data into useful business knowledge (Price 2018). But data is also a concern for security and a fundamental rights compliant use and can have negative impacts. Most obvious is privacy and data protection, but also other rights might be affected as poor data quality can prevent fair trials, result in discrimination against women, ethnic minorities and other groups. Data is the basis for AI related technologies like voice assistants, image analysis, search engines, speech and face recognition. Low data quality can come from incomplete data, i.e. the data does not cover what it should cover, and wrong data, i.e. data does not measure, what it should measure (European Union Agency for Fundamental Rights 2019). Capgemini says there is no digital transformation without cybersecurity as technologies are vulnerable against outages and access which can lead to the loss of data integrity (Hoorweg and Graaf 2012).

Data-driven and digitally automated processes grow today beyond operations. The next level is intelligent process automation and its five core technologies: (1) Robotic process automation (RPA), (2) smart workflows, (3) Machine learning/advanced analytics, (4) natural language generation (NLG) and, (5) cognitive agents to combine NLG and machine learning to build a completely virtual workforce (Berruti, et al. 2017).

Table 2: The dimensions and CSFs as identified by analysis of industry reports, adopted from (Holotiuk and Beimborn 2017, 997)

Critical success factors that are missing and which should be considered as part of the building blocks are the downsides or the exponential development of technology

Feichtinger (2018) had a similar approach and compared digitalization frameworks and models to identify building blocks resp. dimensions of the digital strategy.

She synthesized different approaches from Capgemini together with MIT Sloan Management (Westermann, et al. 2011), Cognizant (Corver and Elkhuizen 2014) ,(Wade 2015), (Adlmaier-Herbst 2017), (Esser 2014), (2017), Bain & Company (Lancry, et al. 2017), (Peter 2017), University St. Gallen (Back and Berghaus 2016), BCG (Reichert and Hutchinson 2019), McKinsey & Company (Bollard, et al. 2017) into seven dimensions which are most commonly used (Feichtinger 2018, 50):

Business model (including the business ecosystem and new markets),
Products and Services,
Processes (both internal and customer related processes),
Customer Experience & Relationships (including e-commerce and customer acquisition),
Structure & Organization (including governance & transformation management),
IT & technology (including cloud & data),
People & Culture (including know-how and leadership).

Table 3: Comparison of dimensions of selected digital strategy frameworks, adopted from (Feichtinger 2018, 49f)

Ismael, Khater and Zaki (2017) synthesized a framework for “Digital Transformation Strategy Content” based on strategic decisions a company is required to do in seven key areas:

Business (long term objectives, business scope, revenue streams from digitally enhanced products, services and customer interaction)
Technological (investment decisions; being market follower by adopting already established technologies or market leader by innovating and introducing new technologies)
Customers (customer experience, changes in the digital enhanced customer journey or products and services integrating physical and digital touchpoints)
Managerial (financing of the digital transformation; change to innovation and agile working; companies’ digital capabilities and assets for an operational backbone to ensure efficiency and reliability of core operations and for a digital service platform to support business agility and rapid innovations)
Organizational (decision about employees, culture, talent and skillset; development of a digital mindset and a collaborative work environment supporting employees to adopt quickly to change)
Structural (internal governance, a strong company-wide coordination along with KPIs ensuring the firm is on the right path to transformation; external collaboration through partnerships or acquisitions and whether new operations will be incorporated into existing structures or new separate units)
Operational (adaptions to current business processes due to new technology integration; use of data inside processes and decision making to optimize digitally enabled supply chain and interaction with customers)

Ismael, Khater and Zaki (2017) distinguish between business level content to compete in the business and functional level content to contribute to the competitive advantage of the business, cf. Figure 24.

Figure 6: Digital Transformation Strategy Content, (Ismael, Khater and Zaki 2017, 16)

The dimensions that had been identified so far have no focus on any specific industry, especially in manufacturing industries the digitalization of production is a specific strategic topic (Geissbauer, et al. 2018). “Industry 4.0” is a term coming from Germany as part of the high tech strategy 2025 (Wikipedia, Industrie 4.0 2019) meaning the connection of the systems involved in the production flow with software components and internationally also referred to as “cyber-physical systems”, “advanced/smart/digital manufacturing”, “smart factory” or “advanced/smart/digital production/industry” (Wissenschaftliche Dienste 2016). Also, China has a very strong focus on manufacturing industry in digitalization, their strategy is called “Made in China 2025” (MIC2025). This is part of a long-term state regulated strategy for innovation. The predecessor was the “National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)” (MLP2020). Made in China 2025 followed the German Industry 4.0 initiative, but goes beyond the state support of innovation, instead planning the complete transformation of the Chinese value chain under the keywords of digitalization and automation (Angbauer and König 2017). The digital model of the USA is based primarily on creative destruction on a global scale with fresh innovative ideas adding competition to established companies, Steiber (2016) calls this “The Silicon Valley Model”.

The described building blocks and dimensions of the digital transformation strategy also have no specific regional characteristic, but we have to take into consideration that the drivers for digitalization are in the USA destructive capitalism focused on disruptive business models with a short-term perspective, in China state regulated focused on industrialization with a long-term perspective and in Europe and Germany technology driven focused on traditional European skills (Arnold 2018).

To sum up what we know about the dimension of digital business transformation strategy:

We need measurable goals or objectives to determine the financing and investments of the digital transformation and expected revenue streams,
it affects the company culture as digital transformation is a revolutionary approach where to sacrifice existing ways of competing,
this demands leadership, as the revolutionary approach and the change of the company culture demands courage, and
new ways of working and a collaborative work environment to consider the necessity for the fast adoption of the employees to change due to the exponential development of innovations and new technologies.
New emerging and exponentially developing information technologies are the enablers of digital transformation and there is no digital transformation without cyber-security to ensure accessibility and integrity of data.
Industry 4.0 is about the operational backbone to ensure efficiency and reliability of core operations especially in production
Data is the oil that keeps the digitalization running, it need to be collected in a high quality, centrally stored, processed and analyzed. It is the basis for information systems and artificial intelligence and will be used inside processes, for new or digital enhanced business models, products/services and decision making.
The processes itself have strategic importance as they are the driver of the company value and need to fit seamlessly together.
People, as human resources are the main drivers of digital transformation, but a digital mindset and new skills and talents must be developed to close the capability gap to deal with new ways of working, innovation and emerging technologies.
New possibilities in the Customer Relations with digitally enhanced customer journeys and seamlessly integrating the offline and online channels leading to exponentially developing new customer experiences based on
Products/Service innovations and
Business model innovations exploiting the opportunities of emerging technologies, data and the changing society.
With the seamless integration of the physical and digital world inside and outside of the company, the Network and Platform economy as here people, things and businesses have their common touchpoints.
Europe, China and USA have different approaches towards digital transformation in terms of objectives and perspective of time that makes it worth considering differentiating between different markets.

Works Cited

Angbauer, Christoph, and Thomas König. “Von „Made in China“ zu „Invented in China“ – China auf dem Weg zur Industrie-Supermacht?” In Chinas Innovationsstrategie in der globalen Wissensökonomie, by Joachim Freimuth (eds.) and Monika Schädler, 45-60. Wiesbaden: Springer Gabler, 2017.

Arnold, Heinrich. The European Path to Digital Transformation. 10 21, 2018. https://www.theglobalist.com/europe-germany-digitalization-technology-data/ (accessed 08 11, 2019).

Back, Andrea, and Sabine Berghaus. “Digital Maturity & Transformation Studie.” Universität St. Gallen, Institut für Wirtschaftsinformatik. 11 2016. https://aback.iwi.unisg.ch/fileadmin/projects/aback/web/pdf/digitalmaturitymodel_download_v2.0.pdf (accessed 08 09, 2019).

Baghai, Mehrdad, Steve Coley, David White, and Stephen Coley. The Alchemy of Growth: Practical Insight for Building the Enduring Enterprise. Basic Books: New York, 1999.

Berruti, Federico, Graeme Nixon, Giambattista Taglioni, und Rob Whiteman. Intelligent process Automation: The engine at the core of the next-generating operating model . 03 2017. https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/intelligent-process-automation-the-engine-at-the-core-of-the-next-generation-operating-model (Zugriff am 05. 08 2019).

Biggs, Chris, et al. How Companies in China Blend Digital and Physical Commerce, The New Retail: Lessons from China for the West. 10 30, 2017. https://www.bcg.com/de-de/publications/2017/retail-technology-companies-china-blend-digital-physical-commerce.aspx (accessed 08 05, 2019).

Blank, Steve. Disruptive Innovations: McKinsey’s Three Horizons Model Defined Innovation for Years. Here’s Why It No Longer Applies. 02 01, 2019. https://hbr.org/2019/02/mckinseys-three-horizons-model-defined-innovation-for-years-heres-why-it-no-longer-applies (accessed 08 04, 2019).

Bollard, Albert, Sanjay Kaniyar, Elixabete Larrea, Alex Singla, and Rohit Sood. The next-generation operating model for the digital world. Report, McKinsey & Company, 2017.

Bullen, Christine V., and John F. Rockart. A Primer on Critical Success Factors. Working Paper No. 1220-81, Boston: MIT, Sloan, 1981.

Christensen, Clayton M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press, 1997.

Corver, Quido, and Gerard Elkhuizen. A Framework for Digital Business Transformation. Report, Cognizant, 2014.

Downes, Larry. The Laws of Disruption: Harnessing the New Forces that Govern Life and Business in the Digital Age . New York: Basic Books, 2009.

Downes, Larry, and Paul Nunes. Big Bang Disruption: Strategy in the age of Devastating Innovation . New York: Penguin, 2014.

Downs, Larry, and Chunka Mui. Unleashing the Killer App: Digital Strategies for Market Dominance. Boston: Harvard Business School Press, 1998.

Esser, Marc R. Chancen und Herausforderungen durch Digitale Transformation. 2014. http://www.strategy-transformation.com/digitale-transformation-verstehen (accessed 08 09, 2019).

—. Digital Maturity Assessment (DMA). 2017. http://www.strategy-transformation.com/digital-maturity-assessment/ (accessed 08 09, 2019).

European Union Agency for Fundamental Rights. Data quality and artificial intelligence – mitigating bias and error to protect fundamental rights. Report, Publications Office of the European Union, 2019.

Feichtinger, Gudula. “Digitalization in SME : a framework to get from strategy to action.” 2018. http://repositum.tuwien.ac.at/urn:nbn:at:at-ubtuw:1-115120 (accessed 08 09, 2018).

Geissbauer, Reinhard, Evelyn Lübben, Stefan Schrauf, and Steve Pillsbury. Global Digital Operations Study 2018. Digital Champions. How industry leaders build integrated operations ecosystems to deliver end-to-end customer solutions. Study, PWC, 2018.

HAN, Zheng. “Session 10 – Business Model.” Marketing Management. Shanghai: Tongji SEM, 03 2019.

Hilken, Tim, et al. “Making omnichannel an augmented reality: the current and future state of the art.” Journal of Research in Interactive Marketing, 12 (4), 05 2018: 509-523.

Holotiuk, Friedrich, and Daniel Beimborn. “Critical Success Factors of Digital Business Strategy.” In Proceedings der 13. Internationalen Tagung Wirtschafsinformatik (WI2017), by J. M. Leimeister and W. Brenner (eds.), 991-1005. St. Gallen, Schweiz: Universtität St. Gallen, 2017.

Hoorweg, Erik, and Patrick de Graaf. No digital transformation without cybersecurity. Report, Capgemini Consulting, 2012.

Ismael, Mariam H., Mohamed Khater, and Mohamed Zaki. “Digital Business Transformation: What Do We Know So Far?” University of Cambridge. 11 2017. https://cambridgeservicealliance.eng.cam.ac.uk/resources/Downloads/Monthly%20Papers/2017NovPaper_Mariam.pdf (accessed 07 26, 2019).

Kandermirli, Bahadir Murat. Amazon.com’s Digital Strategies. Case Study Report, The University of Manchester, 2018.

Nunes, Paul, and Tim Breene. “Reinvent Your Business Before It´s Too Late.” Harvard Business Review, January-February 2011: 80-87.

Porter, Michael E. “Strategy and the Internet.” Harvard Business Review, March 2001: 62-78.

Porter, Michael E., and James E. Heppelmann. “How Smart Connected Products Are Transforming Competition.” Harvard Business Review, November 2014: 64-88.

Porter, Michael E., and Victor E. Millar. “How Information Gives You Competitive Advantage.” Harvard Business Review, July-August 1985: 85-103.

Price, Nicholas J. The Benefits of Centralized Data: A Single Source of Information for Your Business Entities. 04 26, 2018. https://insights.diligent.com/data-management/the-benefits-of-centralized-data-a-single-source-of-information-for-your-business-entities/ (accessed 08 05, 2019).

Reichert, Tom, and Rich Hutchinson. The Four Pillars of Digital Transformation. 2019. https://www.bcg.com/de-de/digital-bcg/digital-transformation/overview.aspx (accessed 08 09, 2019).

Schwab, Klaus. The Fourth Industrial Revolution. Cologny/Geneva: World Economic Forum , 2016.

Sistu, Phani Bhushan. “Connecting Physical and Digital Worlds to Power the Industrial IoT.” Cognizant. 12 2017. https://www.cognizant.com/whitepapers/connecting-physical-and-digital-worlds-to-power-the-industrial-iot-codex3083.pdf (accessed 08 05, 2019).

Steiber, Annika, and Sverker Alänge. The Silicon Valley Model. Heidelberg: Springer Cham, 2016.

Tse, Edward. China´s Disruptors. New York: Penguin, 2015.

Venkatraman, N. “IT enabled business transformation: From Automation to Business Scope Redefinition.” Sloan Management Review, Winter 1994: 73-87.

Wade, Michael. “Digital Business Transformation.” IMD. 06 2015. https://www.imd.org/uupload/IMD.WebSite/DBT/Digital%20Business%20Transformation%20Framework.pdf (accessed 08 09, 2019).

Wikipedia, Industrie 4.0. 06 28, 2019. https://de.wikipedia.org/wiki/Industrie_4.0 (accessed 07 15, 2019).

Wissenschaftliche Dienste. “Industrie 4.0.” Aktueller Begriff. Deutscher Bundestag, 09 26, 2016.