Digital Transformation, Change Management and Family Businesses

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. (accessed 09 20, 2019).

Farell, Adrian. John Kotter – Leading Change Guru. 04 28, 2017. (accessed 09 01, 2019).

Farrell, Adrian. Lou Gerstner – IBM’s Digital Transformation Change Master. 05 21, 2017. (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. (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.

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 (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. (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. (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. (accessed 08 09, 2019).

—. Digital Maturity Assessment (DMA). 2017. (accessed 08 09, 2019).

Feichtinger, Gudula. “Digitalization in SME : a framework to get from strategy to action.” 2018. (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. (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. (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. (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. (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. (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 using Porter’s value chain model, cf.  Figure 20.

Figure 2: 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:

  1. We need measurable goals or objectives to determine the financing and investments of the digital transformation and expected revenue streams,
  2. it affects the company culture as digital transformation is a revolutionary approach where to sacrifice existing ways of competing,
  3. this demands leadership, as the revolutionary approach and the change of the company culture demands courage, and
  4. 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.
  5. 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.
  6. Industry 4.0 is about the operational backbone to ensure efficiency and reliability of core operations especially in production
  7. 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.
  8. The processes itself have strategic importance as they are the driver of the company value and need to fit seamlessly together.
  9. 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.
  10. 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
  11. Products/Service innovations and
  12. Business model innovations exploiting the opportunities of emerging technologies, data and the changing society.
  13. 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.
  14. 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

Adlmaier-Herbst, D. Georg. “Die Bausteine der digitalen Transformation.” KMU Magazin. 08 10, 2017. (accessed 08 09, 2019).

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. (accessed 08 11, 2019).

Back, Andrea, and Sabine Berghaus. “Digital Maturity & Transformation Studie.” Universität St. Gallen, Institut für Wirtschaftsinformatik. 11 2016. (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. (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. (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. (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. (accessed 08 09, 2019).

—. Digital Maturity Assessment (DMA). 2017. (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. (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. (accessed 07 26, 2019).

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

Lancry, Ouriel, Ryan Morrissey, Tom Shannon, Andy Bankert, and Lucy Cummings. Digital Strategy for a B2B World. 02 08, 2017. (accessed 08 09, 2019).

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

Peter, Marc K. “KMU Transformation: Als KMU die Digitale Transformation erfolgreich umsetzen.” 2017. (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.

Price, Nicholas J. The Benefits of Centralized Data: A Single Source of Information for Your Business Entities. 04 26, 2018. (accessed 08 05, 2019).

Reichert, Tom, and Rich Hutchinson. The Four Pillars of Digital Transformation. 2019. (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. (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. (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.

Wikipedia, Industrie 4.0. 06 28, 2019. (accessed 07 15, 2019).

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

Why do companies digitally transform?

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.

Works Cited

Abeyratne, Ruwantissa. „Millennials and Disruptive Innovation.“ In Megatrends and Air Transport, von Ruwantissa Abeyratne, 201-211. Cham: Springer, 2017.

Allianz. The sixth Kondratieff – long waves of prosperity. Analysis & Trends, Fankfurt am Main: Allianz Global Investors, 2010.

Bakis, Nick, Mike Kagioglou, and Ghassan Aouad. “Evaluating the Business Benefits of Information Systems.” ICONDA(R)CIBlibrabry. April 2006. (accessed 07 30, 2019).

Bilton, John, Shrenick Shah, Patrik Schöwitz, Michael Albrecht, and Brian Bovino. The impact of technology on long-term potential economic growth. Portfolio Insights, JPMorgan Chase & Co., 2017.

Blocker, Christopher P., Daniel J. Flint, Matthew B. Myers, und Stanley F. Slater. „Proactive customer orientation and its role for creating customer value in global markets.“ Journal of the Academy of Marketing Science, Vol. 39, 2011: 216-233.

Brkljač, Milan, and Tomislav Sudarević. “Sharing Economy and “Industry 4.0″ as the Business Environment of Millennial Generation – A Marketing Perspective.” Proceedings of the 29th, B. Katalinic (Ed.). Vienna, Austria: DAAAM International, 2018. 1092-1101.

Carr, Nicholas G. “IT Doesn´t Matter.” Harvard Business Review, May 2003: 41-49.

Case, Steve. The Third Wave: An Entrepreneur’s Vision of the Future. New York: Simon & Schuster, 2016.

Christensen, Clayton M. “Exploring the limits of the Technology S-Curve. Part I and II.” Production and Operations Management, Vol 1 (4), Fall 1992: 334-366.

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

Fremdling, Rainer. “Industrial Revolution and Scientific and Technological Progress.” Research Memorandum GD-30. Groningen: University of Groningen, the Netherlands, 12 1996.

Fujitsu. Fujitsu Technology and Service Vision 2016 (Book 1). Vision, Tokyo: Fujitsu Limited, 2016.

Gregersen, Erik. History of Technology Timeline. n.d. (accessed 07 29, 2017).

Helyer, Ruth, and Dionne Lee. “The twenty-first century multiple generation workforce.” Education + Training, Vol. 54 No. 7, 2012: 565-578.

Kane, Gerald C., Doug Palmer, Anh Nguyen Philipps, David Kiron, and Natasha Buckley. Strategy, not Technology, Drives Digital Transformation. Research Report, MIT Sloan Management Review and Deloitte University Press, 2015.

Kaufmann, Ira, und Chris Horton. „Digital Transformation: Leveraging Digital Technology with Core Values to Achieve Sustainable Business Goals.“ The European Financial Review, December-January 2015: 63-67.

Lee, Mike. Meeting aliens will be nothing like Star Trek – fact. 05 08, 2013. (accessed 07 31, 2019).

Loendorf, William. “The social, economic, and political impact of technology: An historical perspective.” 2019 Annucal Conferences & Exposition. Washington DC: American Society for Engineering Education, 2010. 15.1255.1-9.

Lucas, Jr., Henry C., Ritu Agraval, Eric K. Clemons, Omar A. El Sawy, and Bruce Weber. “Impactful Research on Transformational Information Technology: An Opportunity to Inform New Audiences .” MIS Quarterly, Vol. 37 (2), 2013: 371-382.

Luna, David C. Why Companies Need to Eat Their Children: A Comprehensive Guide to Disruption. Article, Berlin: Gamma Digital & Beyond, 2019.

MacDonald, Stuart. “The IT productivity paradox revisited: Technological determinism masked by management method?” International Journal of Information Technology and Management 1 (1), 01 2002: 1-29.

Mensch, Gerhard. Das technologische Patt: Innovation überwinden die Depression. Frankfurt am Mein: Umschau , 1982.

Noble, Faith. “Implementation strategies for office systems.” Journal of Strategic Information Systems, Volume 4, Issue 3, September 1995: 239-253.

Porter, Michael E. Competetive Advantage: Creating and Sustaining Superior Performance. New York: Free Press, 1985.

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.

Rej, Mateusz. “A Critical Assessment of Planning Approaches for Uncertain Futures.” ResearchGate. 12 2017. (accessed 07 31, 2019).

Sa’aban, Syahira, Noraisah Ismail, and Mohd Fitri Mansor. “A Study on Generation Y Behavior at Workplace.” International Conference on Business Innovation, Entrepreneurship and Engineering 2013 (ICOBIEE2013). Pulau Pinang, Bayview Beach Resort, Batu Feringgi, Malaysia: School of Business Innovation and Technopreneurship(PPIPT), University Malaysia Perlis, 2013. 549-554.

Sahal, Devendra. Patterns of Technological Innovation. Addison Wesley: London, 1981.

Sasvari, Peter. “The macroeconomy effect on information and communication technology in Hungary.” International Journal of Advanced Computer Science and Applications, Vol. 2, No. 12, 2011: 75-81.

Schumpeter, Joseph A. Business Cycles – A Theoretical, Historical and Statistical Analysis of the Capitalist Process . New York, Toronto, London: McGraw-Hill Book Company, 1939.

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

TWI2050 – The World in 2050. The Digital Revolution and Sustainable Development: Opportunities and Challenges. Report, Laxenburg, Austria: International Institute for Applied Systems Analysis (IIASA),, 2019.

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

WBGU. The Sustainability Transformation in the Digital Age, (quoted from TWI2050 – The World in 2050, 2019). Berlin: German Advisory Council on Global Change, 2019 (forthcoming).

Digitalization and Business Transformation: Disambiguation

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 Quarterly Executive, S. 123-139.

Ismael, M. H., Khater, M., & Zaki, M. (2017, 11). Digital Business Transformation: What Do We Know So Far? Retrieved 07 26, 2019, from University of Cambridge:

Kane, G. C., Palmer, D., Philipps, A. N., Kiron, D., & Buckley, N. (2015). Strategy, not Technology, Drives Digital Transformation. MIT Sloan Management Review and Deloitte University Press.

Matt, C., Hess, T., & Benlian, A. (14. 05 2015). Digital Transformation Strategies. Business & Information Systems Engineering, S. 339-343.

Muzyka, D. F., Koning, A. d., & Churchill, N. C. (1995, 12). On Transformation and Adaptation: Building the Entrepreneural Corporation. European Management Journal, pp. 346-362.

Porter, M. E. (1979, March-April). How competitive forces share strategy. Harvard Business Review, pp. 137-145.

Porter, M. E. (2001, March). Strategy and the Internet. Harvard Business Review, pp. 62-78.

Porter, M. E., & Heppelmann, J. E. (2014, November). How Smart Connected Products Are Transforming Competition. Harvard Business Review, pp. 64-88.

Porter, M. E., & Millar, V. E. (1985, July-August). How Information Gives You Competitive Advantage. Harvard Business Review, pp. 85-103.

Reis, J., Amorim, M., Melão, N., & Matos, P. (2018). Digital Transformation: A Literature Review and Guidelines for Future Research. In Á. Rocha, H. Adeli, L. P. Reis, & S. Costanzo, Trends and advances in information systems and technologies (pp. 411-421). Cham, Switzerland: Springer.

Savić, D. (2019, Jan|Feb). From Digitization, through Digitalization, to Digital Transformation. Online Searcher, pp. 36-39.

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