One of the inherent system risks for family-owned businesses is the lifecycle (May 2012). Schumpeter (1939) explained why doing business in capitalistic markets is a cycle of economic growth and recession. Especially for companies with the aspiration to sustain over many generations this is a huge challenge. May (2012) suggests family businesses to outwit the lifecycle by following a few simple rules: (1) operate in long-lasting markets, i.e. chose a product portfolio which is independent from short-term trends, (2) introduce a lifecycle radar, a combination of strategic tools and KPIs, (3) continuous adjustments to such an extent to constantly eliminate products which are at the end of the lifecycle and to invest into innovation, (4) make bold decisions, e.g. radical changes like cannibalizing the current revenue and jumping onto new technologies to overcome the innovators dilemma (Christensen 1997).
Bartels, von Hochberg and May (2017) interviewed 50 owners of large family businesses among others related to disruptive trends. They identified that companies that had already survived several generations and had been faced with the downfall of their original business areas have developed strategies to diversify their business and change the business models. Some do not operate in their original business area any more, but others had been able to adopt their business model from selling their product to offer their product-as-a-service (cf. Digital Transformation Process). The common challenge today is the increasing dynamic and speed of change. These changes are not only of technical nature, but especially a question of changing the culture. A possible success factor might be the opportunity of succession as the following generations are already digital natives (cf. Digital Transformation Context).
These considerations demand transformation capabilities in family-owned businesses. Cassia, Massis and Pizzurno (2012) researched “strategic innovation and new product development in family firms” due to the fact that little is known about leading and managing complex transformations in family businesses and with the aim to offer a better understanding of the influence of “familiness” (cf. Family Businesses) in particular the strength and weaknesses. They found out that the advantages are long-term orientation, human resources and dedication to “progression”, tendency to be close to their customers and being focused. Their disadvantages are being conservative and risk averse, a lack of openness, readiness to change, conflicts within the family and the economic rationality of decision-making processes.
Gouillart, Kelly and Gemini Consulting (1999) say that the business models originate from the industrial age and are influenced by mechanical engineering. In the digital age these business models come to a limit. Business transformation means a fundamental change, where a company needs to redefine all dimensions (cf. Digital Transformation Content). Gouillart et al. (1999) researched how companies in industries like chemistry, electronics, pharmacy, automotive etc. managed the change and synthesized these approaches into the “four R of transformation” that need to be achieved:
Reframing, i.e. change of attitude by achieving mobilization of the employees, creating a vision and setting the goals and KPIs;
Restructuring by constructing a value adding business model, aligning the necessary infrastructure and redesigning the business processes;
Revitalizing by becoming customer centric, inventing new business and changing the rules with the help of emerging technologies;
Renewing by creating a reward structure, encouraging individual learning and renewal of the organization.
This business transformation approach follows the basic principle of change management described by Lewin (1947, 34): “Unfreezing, Moving, and Freezing of Group Standards”.
The most prominent model underlying the research of Lewin are Kotter´s “8 step process for leading change” (Kotter 1995), summarized here only on headline level: (1) establish a sense of urgency, (2) form a powerful guiding coalition, (3) create a vision, (4) communicate the vision, (5) empower others to act on the vision, (6) plan for and create short-term wins, (7) consolidate improvements and produce more change, (8) institutionalize new approaches.
Kotter never claimed to have developed this model, he captured it by observing more than 100 companies going through transformational change (Farell 2017). One prominent example is the digital transformation of IBM after the company lost more than US$ 16bn and needed to change their business model from selling and running mainframe computers to an e-business company (Farrell 2017).
Although evidently successful for many large enterprises, Oxley (2017) claims that “Kotter’s change framework doesn’t work for large family businesses”. He argues that on the one hand, steps 1 to 5 of Kotter’s model are based on the assumption that no individual leader can enforce change and followers must be convinced to change. On the other hand, the underlying message of steps 5 to 8 is that those who do not comply with the change must leave the organization. Oxley (Oxley 2017) says that this is contradictory to the “familiness” and therefor special characteristics of a family business: (A) dominant ownership, often combined with the existence of a figure who is followed unquestioned by the organization and (B) individual loyalty, i.e. a very strong commitment to the employees and the sense of obligation to take care of them (cf. Family Businesses).
Figure 1: Success Factors of Digital Transformation, adopted and translated from (Müller-Seitz and Weiss 2019, 51)
An alternative approach for family business and hidden champions will be provided by Müller-Seitz and Weiss (2019) who describe five success factors for cultural and structural change to manage digital transformation, cf. Figure 1:
Self-organization: Change to agile ways of working as the central guiding principle to give space for innovative thinking due to interdisciplinary teams and flexible work environments. Self-organization demands a respectful understanding of people, in which employees are fully trusted.
Dealing with uncertainty: “Across many industries, a rising tide of volatility, uncertainty, and business complexity is roiling markets and changing the nature of competition” (Doheny, Nagali and Weig 2012). VUCA as an acronym referring to volatility, uncertainty, complexity, and ambiguity has recently found its way into business lexicons (Bennet and Lemoine 2014). To deal in a VUCA world demands curiosity and the attitude of “fail early and fail often”.
Work, organization and communication: A customer and innovation centric company culture as the basis for success and strengthen the strength of the people as a guiding principle for HR.
Add value with cooperation partners: Valuable partnerships create the basis for common success as well as building of intercompany networks and linking of work.
Organizational learning and knowledge management: Implicit knowledge is difficult to handle, but worthwhile to transfer within the organization. Knowledge platforms inside the intranet are possible solutions.
Work Cited
Bartels, Peter, Peter von Hochberg, and Peter May. Strategien erfolgreicher Familienunternehmen 2017. Report, PWC, 2017.
Bennet, Nathan, and G. James Lemoine. “What VUCA really means for you.” Harvard Business Review, Vol 92. (1/2), 01 15, 2014: 27-29.
Cassia, Lucio, Alfredo de Massis, and Emanuele Pizzurno. “Strategic innovation and new product development in family firms.” International Journal of Entrepreneural Behaviour & Research, Vol. 18 (2), 03 2012: 198-232.
Christensen, Clayton M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press, 1997.
Doheny, M., V. Nagali, and F. Weig. “Agile operations for volatile times.” McKinsey Quarterly. 05 2012. https://www.mckinsey.com/business-functions/operations/our-insights/agile-operations-for-volatile-times (accessed 09 20, 2019).
Farell, Adrian. John Kotter – Leading Change Guru. 04 28, 2017. http://candowisdom.com/change/change-management/john-kotter-leading-change-guru (accessed 09 01, 2019).
Gouillart, Francis J., James N. Kelly, and Consulting Gemini. Transforming the organization <dt.>. Wien: Ueberreuter, 1999.
Kotter, John P. “Leading Change: Why Transformation Efforts Fail.” Harvard Business Review, May-June 1995: 59-67.
Lewin, Kurt. “Frontiers in Group Dynamics: .” Human Relations, Vol 1 (1), 1947: 5-41.
May, Peter. Erfolgsmodell Familienunternehmen. Das Strategie Buch. Hamburg: Murrmann, 2012.
Müller-Seitz, Gordon, and Werner Weiss. Strategien zum Umgang mit der digitalen Transformation … aus der Sicht eines mittelständigen “Hidden Champions”. München: Vahlen, 2019.
Oxley, David R. Why Kotter’s Change Framework Doesn’t Work for Large Family Businesses. 07 11, 2017. http://www.davidroxley.com/kotters-change-framework-doesnt-work-large-family-businesses/ (accessed 09 01, 2019).
Schumpeter, Joseph A. Business Cycles – A Theoretical, Historical and Statistical Analysis of the Capitalist Process . New York, Toronto, London: McGraw-Hill Book Company, 1939.
“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:
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
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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),
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.
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Around 70,000 years
ago, during the first revolution homo sapiens went through the development of
language, which distinguished us from all other species. This revolution helped
us to cooperate, to share information and in the end to build complex social
systems.
Since then several technological
revolutions followed in the areas of agricultural development, weapons
development, communication, transportation and industrialization, but mankind
has gone through two fundamental civilization phases. While the first, the
Neolithic Revolution, took place 20,000 to 15,000 years ago, where among others
the wheel, agriculture, woven fabric and construction was invented, and people
started to domesticate animals. This revolution led to the occurrence of first
villages and small-scale societies. The second, the Industrial revolution,
started a massive accumulation of knowledge. The invention of
machine-supported, labor-saving work enhanced manual skills and capacities, led
to a massive increase of productivity and had a huge social, economic and
political impact on humanity (TWI2050 – The World in 2050 2019) (Gregersen n.d.) (Loendorf 2010).
Within the industrial
revolution we went so far through three waves of modern technology enabled transformations.
During the first industrial revolution it took three generations from 1780 to
1850 to completely change the face of England, who became a role model for
industrialization worldwide (Fremdling 1996). The second
industrial revolution started in the late 19th century and lasted into
the early 20th century with the invention of electrical power
generation and led to mass production and assembly automation. The third
industrial revolution, also called the computer or digital revolution began in
the 1960s with the introduction of mainframe computing, followed 1980 with the
personal computing and in the 1990s the internet (Schwab 2016)
(Gregersen n.d.).
The transformations of
the 1980s and 1990s was IT enabled and resulted in the digitalization of
processes by the introduction of information systems. Information was
recognized to give companies a strategic competitive advantage (Porter and Millar 1985).
Internally, in the
micro economy, there are three main aspects of an organization: (1) internal, i.e.
run production and operations, (2) external, i.e. analysis and reaction to the political,
economic, social, technological, legal and environmental (PESTLE) situation,
and (3) co-ordinating, i.e. to mediate between internal and external aspects and
to process the related information for the organization. Here the benefits of
computers started from data processing over “office automation” to information
processing with huge impacts on the organization due to business process
redesign or reengineering (Noble 1995).
The focus was to increase the efficiency (Venkatraman 1994).
Externally, in the
macro economy, the benefits come from the improved productivity, network
effects like reduced transaction costs and accelerating innovation. “The
network advantage does not depend on the operation of a given company and its
business strategy” (Sasvari 2011, 77). As it is possible to show the benefits
on the macro-economic level, it is unequally difficult on the micro-economic
level. The secondary effects of changed processes, social interaction, decision
making due to information access are hardly measurable. It even shows a “productivity
paradox”, a discrepancy between IT investments and productivity outcome as the
effects on productivity depend on longer or shorter learning curves (Sasvari 2011) (Bakis, Kagioglou and Aouad 2006) (MacDonald 2002). Moore´s law1 is one
indicator for the rapid technological development which lead to a
commoditization of IT: As a result, the later an investment will be done, the
cheaper and more advanced the technology is. Carr (2003) argues that IT is
essential to competition, but inconsequential to strategy. IT becomes an
operational risk, when an IT outage “can paralyze a company´s ability to make
its products, deliver its services, and connect with its customers, not to
mention foul its reputation” (Carr 2003, 11).
1Moore´s law is the empirical
observation that the number of transistors in an integrated circuit-close
related computational performance – has for several decades doubled approximately
every two years.
The three waves of
industrial revolution changed the world from executing manual physical tasks to
automation driven by machines providing the physical power with added value of
information and human mind (Bilton, et al. 2017). The World in 2050
Initiative (2019) quotes a not yet published
report from the German Advisory Council on Global Change (WBGU) that the Digital Age
can be characterized by three major dynamics going from transformation to
sustainability. All three dynamics are emerging in parallel with different
intensities and with no strict chronological order. The first dynamic describes
the IT enabled transformation, the digitalization of existing procedures and
the automation of manual work. The second dynamic describes the transformation
towards a digitalized society. Digital technologies like virtual reality (VR)
and augmented reality (AR), additive manufacturing, artificial intelligence
(AI), Internet of Things (IoT) can much faster than ever before enable a
disruptive revolution by promoting circular or shared economies and the
automation of cognitive work. The third dynamic describes the future of the
homo sapiens as governance will be urgently needed. “The disruptive dynamics of
digitalization are challenging the absorptive capacities of our societies,
possibly multiplying the already alarming trends of eroding social cohesion” (TWI2050 – The World in 2050 2019, 9). The World in 2050
Initiative (2019) see four major
challenges: (1) inequalities within society, (2) economic, and with it
political, power concentration, (3) data sovereignty and civic rights (4)
governance capacities as it is very difficult up to impossible to regulate big
digital businesses within virtual environments.
To get to the stage of
sustainability the minimum requirement of digitalization is to comply with
corporate social responsibility initiatives and goes up to a “business strategy
that serves to drive social and economic benefits for the organization and its
consumers, employees, shareholders and the greater community” (Kaufmann
und Horton 2015, 64).
Figure 1: Three possible dynamics of the Digital Age, (WBGU 2019 (forthcoming))
The difference between
the actual digital transformation and the IT enabled transformation of the
1980s and 1990s is, that it is not about computer hardware, software and
networks anymore. “Technology is growing exponentially, and since 1400 has
doubled every 200 years (analogous to […] Moore’s law, applied across all
technology)” (Lee 2013). Lee (2013)
also says, that the technological change will accelerate with such a speed that
“society will spend less and less time at any particular technological level”.
Figure 2: The accelerating growth of technology, (Rej 2017, 8) adopted from (Lee 2013)
Schwab (2016)
argues these technologies becoming more sophisticated and integrated into
existing physical, digital and biological domains and as a result are
transforming societies and the global economy: New business models, disruption
of established businesses, reshaped production, delivery, consumption and
transportation, changed social behavior, new ways of working and communicating,
reshaped government and institutions as well as education and healthcare. “In
this [fourth] revolution, emerging technologies and broad-based innovations are
diffusing much faster and more widely than in previous ones” (Schwab 2016,
12).
Another explanation for
this massive appearance of innovations, which can be discussed as the starting
point of the fourth industrial revolution, is the financial crisis from 2007 to
2009. This hypothesis is based on the theories of Nikolai Kondratieff. He
observed long-term economic fluctuations in cycles of 40 to 60 years. These
cycles begin with technological innovations, an extended period of economic
upturn and end with a sudden or longer downturn of the economy. Since the
industrial revolution five waves could be identified. (Allianz 2010)
Figure 3: Kondratieff cycles – long waves of prosperity, (Allianz 2010, 6)
Schumpeter (1939)
investigated the first three Kondratieff cycles. His hypothesis of the
existence of these business cycles is that innovation and technology influence
economic growth. Innovations had not been distributed equally over time and
clusters of major innovations create new opportunities that accelerate economic
growth. Mensch (1982) added to Schumpeter’s
observations that more innovations occur during recessions due to investment
behavior. He argues that during times of economic prosperity investors do not
take high risks. In times of recession are only a few low-risk opportunities
available which leads to the rise of equity markets and venture capital. Costs
of higher interest rates are not a problem at the beginning of each new cycle as
entrepreneurs are able to increase their earning due to innovation. Later the
commoditization of new technologies results in a high level of financial
capital in comparison to physical capital, which leads to a financial bubble
and then to a collapse (Allianz 2010).
At the same time as
the financial crisis 2007 to 2009, a first generation of digital natives came
to age. People of the Generation Y or also called Millennials were born between
1980 and 1994. They are “Technological Savvy” (Sa’aban, Ismail and Mansor 2013) as they are the
first generation which has been growing up with digital technology and it has
become part of their life, although the technology has been developed from the
Baby Boomers and Generation X. Millennials are open-minded towards Industry 4.0
and the sharing economy (Brkljač and Sudarević 2018). Employees of all
generations want to work for digital maturing companies and expect digital
fluency from their leaders, which “requires the ability to articulate the value
of digital technologies to the organization’s future” (Kane, et al. 2015, 4)
But while Baby Boomers prefer autonomy and hierarchies, the Generation Y challenges
management and likes to collaborate and work in teams (Helyer and Lee 2012).
As Customers, the
Millennials will be part of the “Third Wave” of the Internet (Abeyratne 2017), which Steve Case (2016)
calls “The Internet of Everything” (Internet of Things), connecting the
physical and the digital world driven by people, products, platforms,
partnerships, policy and perseverance. The first two waves have been the static
internet, which supports online consumer business, followed by the mobile
internet, which allows business in real-time and anywhere. The fourth wave will
be AI & Robotics (Fujitsu 2016), which makes perfectly sense as with
the connection of everything data becomes available instantaneous, widespread
and cheap. And “data is to the information economy like oil to the industrial
economy” and became a critical enabler for automation and AI (Bilton, et al. 2017). Porter (2014)
explained how “Smart Connected Products Are Transforming Competition”. He also made
the statement, that “Competitive advantage grows fundamentally out of the value
a firm is able to create for customers” (Porter 1985, xiv). Today Customers expect
that companies not only respond to their expressed needs but want them
proactively anticipating their evolving needs before they even have realized it
by themselves. This proactive customer orientation is the most consistent
driver of customer value (Blocker, et al. 2011). Innovative start-ups
take advantage by creating and serving new customer demands and/or establishing
new forms of customer engagement and relationships. By Exploitation of the competitive
advantages and low barriers of the digital era they disrupt the business models
of incumbent companies (Lucas, Jr., et al. 2013).
Disruption is possible
when companies stop being customer-focused and become product focused. In a
growing stage companies are focused on the customer as they are gaining for
acceptance and still searching for the largest possible market. Sales and
profit are growing due to the benefits from economies of scale. Once reaching a
stage of maturity, further sales growth will be achieved by focusing on the
product as profitability reaches the peak due to the production of higher
volumes at lower costs, because of product standardization and a high level of
efficiency (Luna 2019).
Christensen (1992) defines the period
of increasing product performance until maturity state the “technology S-curve”
referring to Sahal (1981). Disruption happens
when at the same time when a first technology is in the product-focused stage
of maturity a second technology is in the growing phase offering similar customer
value. To be able to avoid disruption, companies would need to innovate and
enter a new technological cycle, while they are still profitable and before the
stage of maturity. Christensen (1997) calls this strategic
decision the “Innovator’s Dilemma”.
Figure 4: Technological S-Curve, adopted from (Christensen 1992, 340)
These had now been given
the context of micro- and macro-economic drivers why companies digitally transform.
They can be divided into internal motivation and external triggers.
Internal motivations: competitive
advantages or with the commoditization vanishing advantages with the result of
decreasing sales and financial pressure; cost savings due to the increase of
productivity, efficiency or better decisions through information access; employees,
especially younger generations, who like to collaborate and want to work in a
digital enabled environment; strive for sustainability and corporate social
responsibility.
External triggers: exponentially
accelerating emerging technologies, especially IoT, AI, AR and VR; disrupting potential
coming from the speed of new technology cycles and innovative start-ups who faster
exploit these digital technologies; tech-savvy and pro-activeness demanding
customers; pressure coming from the society and government regulations related
to inequality, power concentrations, data sovereignty and civic rights.
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Brkljač, Milan, and Tomislav
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Carr, Nicholas G. “IT
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Case, Steve. The Third
Wave: An Entrepreneur’s Vision of the Future. New York: Simon &
Schuster, 2016.
Christensen, Clayton M.
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Luna, David C. Why
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MacDonald, Stuart. “The
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E. Heppelmann. “How Smart Connected Products Are Transforming
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Reis et. al (2018)
did a systematic literature evaluation related to digital transformation using
the peer-reviewed database of the
Institute of Scientific Information – Web of Science (ISI).
The search with the
term “digitalization” resulted in over 2000 documents and to be able to filter
the most important research topics, they also analyzed the keywords cited. This
revealed that the terms related are Digital Transformation, Digitalization,
Management, Internet of Things, Internet, Strategy, Government, Industry 4.0,
Innovation, Technology, Enterprise Architecture, Competitive Advantage,
Information-Technology, Systems, Educational Technology, Digital Business. (Reis, et al. 2018, 415f.)
They reviewed more
than 200 articles and discovered that the number of published papers had been
significantly increased after 2014, the most contributors are the USA with 21%,
followed by Germany 19% and China 5%. Based on their analysis the terms
“Digital Transformation” and “Digitalization” will be used similar. Both
applying to “services, processes and organizational structures throughout
information technology (IT) / information systems (IS) and web-based enablers”.
(Reis, et al. 2018, 416)
Reis et al. found various definitions of digital transformation, which can be categorized containing three elements: (1) Technological, (2) Organizational, (3) Social. Digital transformation is based on the use of digital technologies, it requires a change of organizational processes or new business models and it is influencing the human life, e.g. enhancing the customer experience. (Reis, et al. 2018, 417f.)
While Reis et al. see
that “Digitalization” and “Digital Transformation” are used similar, Savić (2019) assert that
“Digitization” and “Digitalization” were used almost interchangeable. He tries
to give a definition of the terms due to the “practical need that humans have
to communicate clearly and to be properly understood. […] confusion still
exists about the meaning, scope and use of these terms” (Savić 2019, 37)
Digitization: Converting from analog to digital
format
Digitalization: Automating business processes
Digital Transformation: Creating a digital
company
Figure 1: Digitization, digitalization, and digital transformation reviewed through five facets: focus, goal, activity, tools, and challenges, with examples of each; adopted from (Savić 2019, 37)
Venkatraman described
already in 1994 in a paper the five levels of “IT enabled Business
Transformation: From Automation to Business Scope Redefinition” (Venkatraman 1994). It starts from a basic one for “Localized
Exploitation” of IT functionalities, which is what Savić calls digitization. The next ones are “Internal Integration” and
“Business Process Redesign”, analog Savić’s
digitalization. And goes to “Business Network Redesign” and “Business Scope
Redefinition”, what matches with Savić’s digital
transformation. According to Venkatraman the reason for business process
redesign can be the exploitation of IT functionalities for the reason to “seek
efficiency” by automation or to “enhance capabilities, which aims to create
strategic capabilities for future competition” (Venkatraman
1994, 85).
Figure 2: Alternatives Approaches to Business Process Redesign, adopted from (Venkatraman 1994, 85)
Exploiting technology
is “important strategically, because evolution […] brings with it changes in
the source of competition.” (Porter 1979, 144). Porter (1979) explains that before
you create a business strategy, you first have to identify the company´s
strengths and weaknesses by assessing the five forces affecting competition in
the related industry: the power of the buyers, the power of the suppliers, the
threat of new entrants, the threat of substitute products, and the rivalry
among existing competitors. Then the company can plan how to position to defend against the
competitive forces, how to influence the balance of the forces, and how to anticipate
“shifts in the factors underlying the forces and responding to them, with the
hope of exploiting change by choosing a strategy appropriate for the new
competitive balance before opponents recognize it” (Porter 1979, 143)
Porter has identified
over the time three shifts in IT functionality change: (1) “How Information
Gives You Competitive Advantage” (Porter and Millar 1985), (2) “Strategy and
the Internet” (Porter 2001), (3) “How Smart, Connected
Products Are Transforming Competition” (Porter and Heppelmann 2014)
In (1) and (2) the
competitive advantages had been coming from increased efficiencies along the
value chain processes, which Savić calls
digitalization. But in (3) the competitive advantage is the “changing nature of
products [which] is disrupting value chains and forcing companies to rethink
nearly everything they do, from how they conceive, design, and source products;
to how they manufacture, operate, and service them; to how they build and
secure the necessary IT infrastructure” (Porter and Heppelmann 2014, 65). This is following
the definition of digital transformation from Savić.
On the contrary to
Porter, Carr (2003) argues in his
article “IT Doesn´t Matter” that the competitive advantage vanishes over time.
For first movers it will mean huge investments, while later capacities are
increasing and leading to falling prices and commoditization. Kane, Palmer et
al. (2015) conclude that rather
focusing on technological opportunities, companies should focus to use
technologies to achieve strategic goals. One of their findings from the 2015
digital business global executive study and research project is that “nearly
90% of respondents say that business transformation is a directive of their digital
strategies” (Kane, Palmer, et al. 2015, 6)
Muzyka, Koning and
Churchill (1995) use a definition for
business transformation created during a conference convened by the Corporate
Renewing Center at INSEAD: “A fundamental change in organizational logic, which
resulted in or was caused by a fundamental shift in behaviors” (Muzyka, Koning and Churchill 1995, 348).
“Digital
transformation is a more complex type of technology enabled business
transformation” (Ismael, Khater and Zaki 2017, 6). The authors of this
study reviewed and consolidated the actual knowledge found in the literature.
They identified in the discussions about digital strategy key decision areas
and synthesized them with the frameworks found into one guiding framework. In
the following they analyzed the rational behind the context, content and the
processes of content formulation and strategy implementation of digital
transformation.
Figure 3: Literature Synthesis Framework, (Ismael, Khater and Zaki 2017, 8)
A digital
transformation strategy, or digital strategy, has far reaching consequences and
need to coordinate and prioritize the different dimensions of digital
transformation. It should be aligned with other operational or functional
strategies. (Hess, et al. 2016) (Matt, Hess und Benlian 2015)
Figure 4: Relation between digital transformation strategy and other corporate strategies (Matt, Hess und Benlian 2015, 340)
Works Cited
Carr, N. G.
(2003, May). IT Doesn´t Matter. Harvard Business Review, pp. 41-49.
Hess, T., Matt, C., Benlian, A., &
Wiesböck, F. (06 2016). Options for Formulating a Digital Transformation Strategy. MIS
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Ismael, M. H., Khater, M.,
& Zaki, M. (2017, 11). Digital Business Transformation: What Do We Know
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Philipps, A. N., Kiron, D., & Buckley, N. (2015). Strategy, not
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Deloitte University Press.
Matt, C., Hess, T., &
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