Navigating the Digital Revolution - A Roadmap to Business Transformation - Part One

While many companies are experimenting with digital transformation, recent studies of success stories have shown that the enhanced competitive positioning of successful firms does not depend solely on the technologies they adopt, by more importantly, builds on the strategies that their leaders deploy. Nonetheless, there is still a wide gap between executives’ intentions and the realisation of successful digital transformation initiatives and the consequent need to demonstrate the embedded strategic considerations. To help mangers through the formulation and implementation of their firm’s digital transformation strategies, this blog looks at the context, content, and the process of a business undergoing digital transformation both internally and externally.

Digital Transformation Context - Why do companies digitally transform?

The information revolution has recognized this strategic importance of integrating information systems to enable companies to gain and maintain a competitive advantage. Internally, the business environmental focus has been on cost savings. There has also been an increased emphasis on achieving improved operational efficiency, effectiveness through the proper management of information needs and a strategic differentiation from competitors. Externally, companies have reaped the benefits of improvements in technology cost and performance, which has led to emergence of new IT/IS-based products and services. We identify an agile response to changing industries and market volatility, to client expectations and to competitive rivalries. Similar to the notion of start-ups today, the stress is on the emergence of new IT/IS-based competition to compete with already existing companies. Also, examining other industries and the business relationships with the outside business world to potentially share the benefits from new technologies.

Many drivers unfold when trying to contextualise why companies digitally transform, and these can also divided into internal motivations and external triggers. Internally, companies are motivated to transform themselves as a result of decreasing sales and financial pressure on the current core business. They also strive to drive social and economic benefits for their stakeholders, with special emphasis on their employees, who actively seek to interact and collaborate more effectively with the customers they serve. Employees now want to work for digitally enables organizations and require improvements in the company’s IT and greater flexibility in their working environment. Operational drivers are also linked to why companies endeavour to digitally transform, in order to gain efficiency growth or the closely related productivity improvements. Furthermore, many companies aspire to the innovations and the competitive differentiation that digital transformations deliver. Although these internal motivations are mostly proactive approaches, digitally integrated organizations sometimes passively transform to formally comply with corporate social responsibility initiatives as a minimum requirement imposed upon them.

Externally, emerging technologies play a pivotal role as a trigger for transformations. In particular, their speed of development, their market-changing and industry-disrupting potential demand that firms quickly respond and assemble their digital resources. Because, of the resulting connectivity, mobility and social networks that digital technologies are equipped with or enable, tech-savvy connected customers across all facets of society have completely changed their behaviours and expectations from the companies they interact with, which is a common theme identified in numerous instances. More importantly, they expect firms not only to react ot their demands but also to anticipate their future needs before identifying them themselves, putting immense pressure on companies to respond accordingly.

Customers aside, common pressure is also exerted from increased digitally focussed competition in a highly globalised world, which is another reason for companies to speed up their transformation. Innovative start-ups are additional triggers; they are seen to disrupt the business model of many incumbent firms as they take advantage of low barriers. These drives for transformation converge together making digital transformation an inevitable business endeavour. The representation shows that they cannot be strictly categorised as internal versus external drivers, as there is no concrete distinction between these two interconnected concepts. For example, although innovation mostly stems form internal aspirations it can slo be a response to external triggers in the competitive environment in some cases. Observing the drivers, we find that there is an emergent need to respond to people’s expectations, namely, tech-savvy employees, wo want to work for digitally transformed organizations, and tech-savvy customers, who expect to companies to keep pace with new technological trends in order to remain on the competitive landscape. Moreover, the emergence of small start-ups known for their speed in acquiring and even developing emerging technologies for competitive advantage, are a critical factor adding to the importance of embarking on digital transformation initiatives.

Digital Transformation Content - What do we know about the dimensions of Digital Business Transformation?

We examine the content by looking at areas of transformation tackled in previous IT-enabled transformations and by contrasting them with digital ones. The seminal work on strategic alignment and on it-enabled transformation has initiated an excessive investigation of the potential of information systems in enabling organisational transformation. There are five different transformation levels with varying degrees of change and potential benefits.

In a Localised Exploitation, the role off information technology is limited to supporting functional requirements, where the IT value can be restricted informational and transitional benefits such as faster and easier access to information, reduced operating costs or enhanced employee productivity.

Internal integration shifts it’s back office role and brings it more to the fore by integrating existing systems and linking different functions into organization-wide networks, thus removing departmental barriers and aligning more closely with the rest of the business for improved performance. Yet, these mere evolutionary levels, where it processes are left intact, explain the concerns that information systems managers have regarding the measurable impact of it investments on organisational competitiveness.

Business Process Re-Engineering has gained popularity which describes it as a ‘fundamental rethinking and radical design of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality, service and speed. At the heart of this radical approach is the emotion of discontinuous thinking, breaking away from the outdated assumptions of the old operational design. Consequently, a number of companies have resorted to this approach while migrating to an e-business planning (eRP) systems or Customer Relationship Management (CRM) systems.

Business Network Redesign goes beyond the organisational boundaries by leveraging information technology to transform the value activities with external stakeholders such as customers, suppliers and other business partners with the objective of improving firm performance, radically different organisational forms take shape such as downsizing, corporate venturing and building strategic networks. As integration between the firms takes place more complexity arises for technological, as well as political, reasons.

The role that it plays in Business Scope Redefinition directly influences the logic of business relationships within the extended relationships within the extended business network, allowing forms to offer entirely new services and to enter new markets. As a consequence of this role companies transcend from the secure confines of their stable business and invent business models that take full advantage of the growing centrality of it.

It is important to note that we differentiate between areas that companies intentionally transform and areas that are subsequently impacted by the transformation process. The proliferation of digital technologies has opened the door to potential business opportunities, enabling organizations to create new business models. This transformation varies in scale, as it can be in the form of a digital modification to the existing business or the creation of an entirely new digitalised business model. We use Porter’s (1991) value chain and value system framework to classify the rest of the dimensions. A firm’s value chain includes the various activities within the firm’s own boundaries, from inbound logistics to services, and also consists of supporting activities to facilitate and the end-to-end production process. A firm’s value system, on the other hand, extends to suppliers upstream and also to channels and end-customers downstream.

There are two areas within the firm’s value chain that are being transformed or impacted - an operational and a human element. Transforming the operational element targets key business operations and processes as companies seek to streamline their operations and to integrate their processes with digital performance management. When transforming operations, companies further disseminate new digital technologies for improved decision-making. As a consequence, the human element is impacted by the newly shaped company culture, especially when companies create a more flexible and employee-friendly work environment and enhance knowledge sharing as a result of virtualised offices, for instance.

There are also two other areas within the firm’s value system that are being transformed or impacted - a customer element and a network element. The customer element focuses on transforming the customer experience, which ranges from a better customer understanding through designed analytics to seamless and enhanced customer engagement across all touch-points and digitally enhanced communication tools. In line with attempts to reshape customer value propositions are initiatives to digitally enhance the products and services offered to customers. Companies exploit digital technologies beyond their borders, which ultimately impacts their supply chains, allowing for novel ways of interactions with their industry network.

Conclusion

Although deploying these technologies enables strategic alliances, partnerships and complex relationships to be built with the wider network, this cal also lead firms to cut away unnecessary layers in the value system. It is important to highlight the strong interplay between the transformed and impacted dimensions. For example, if companies transform their customer experience, they might have to transform their operations, which might also affect their interactions with their value networks. Thus, there is a blurred boundary between the the transformations and the consequently impacted areas as they cross firm’s value chains and their entire value system. At Celeix Digital, we argue that the business model transformation is the most difficult area to transform, as it is likely that it touches upon all elements within a firm’s value chain and value system. In the next part of this series, we are going to be looking at digital transformation process itself and how do businesses formulate and implement their digital business transformation strategies.

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