Session 7_Digital Strategy Execution_Students PDF

Session 7: Building digital capabilities and creating digital leadership Digital strategy Two-year MSc Course coordinator: Nabila BOUKEF Ph.D Associate Professor in information Systems and digital transformation...

Session 7: Building digital capabilities and creating digital leadership Digital strategy Two-year MSc Course coordinator: Nabila BOUKEF Ph.D Associate Professor in information Systems and digital transformation SKEMA Business School Course schedule  Session 1: Rethinking strategy in the digital era  Session 2: Digital strategy formulation  Session 3: Strategy approaches and ambidexterity strategy  Session 4: Digital platforms strategies  Session 5: Differentiation strategies and competition in the sharing economy  Session 6:Digital strategy and Business process transformation  Session 7: Building digital capabilities and creating digital leadership  Session 8: Digital strategy execution in practice: Fostering innovation in the digital era The three steps of our digital journey 3- How ? 2- What? 1- Why?  1- Understanding the new rules of the game and the new capabilities 3- enabled by the technology How ? 2- D.Rogers What? framewo rk 1- Customers Why? Competition Data Innovation Value What has changed so far in the digital era that trigger companies to rethink their strategy? 2- Create a competitive advantage with digital 1- Digital ambition technologies that is sustainable 2- Three options to 3- transform business with digital How ? technologies (enhancing customer 2- experience, operational What? excellence, Reinventing 1- business Model) Why? 3- Strategy approach (the extent to which the environment is predictable and malleable) 4- Ambidexterity (balance between Focus on the specific case of digital platforms 1- Platforms are light in assets 3- 2- The importance of How ? the network effect 3- The importance of orchestrating the 2- relationships What? between producers and consumers of the platform. 1- 4- Different risks and Why? higher failure 5- The differentiation strategy (user experience, technology, partnership) 6- Incumbent companies need to 3- Execute the digital strategy 3- How ? 2- What? 1- Why?  Why Customers Value Drivers of digital disruption ? Data Innovation Competition Create a Strategy approach Digital growth competitive - advantage   Switching Customer Classical approach What   Self-organizing experience Adaptive approach -   Separation Operational Visionary approach   Ecosystem (acquisition, Shaping approach ? excellence - BM   partnership, incubator). Renewal Leverage existing capabilities Transform your business with digital technologies End-to-end approach to redesign customer experience How (improve customer experience and change processes) ? Digital capabilities Digital leadership Session 7 Questions addressed during this session  How do companies cope with the constraints related to their legacy systems? How do companies create digital capabilities?  How do companies promote digital workplace necessary to foster digital transformation?  Why managing an ecosystem create a competitive advantage in the digital era? Outline for this session 1. Building digital capabilities 2. Managing digital leadership  Digital workplace: the missing piece  Digital leadership through ecosystem 3. Digital maturity framework 1. Building digital capabilities Lego case study (Digital capabilities) El Sawy et al., 2016, «How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership », MISQ executive, (16:2), pp. 141-166 Class discussion  Explain why does Lego need two different platforms? Digital capabilities Digital capabilities consist of: 1- An operational backbone: in the case of Lego the company has an ERP system. The aim of the ERP implementation was the standardization of the processes. However, the company was facing some challenges related to its IT system (existence of silos and lack of visibility related to some activities). The company has to handle these issues to successfully execute its digital transformation. In that sense, different initiatives were realized that aim to: Enhance data sharing and analytic capabilities Streamline processes Improve visibility of operations. The need to fix Lego’ s operational backbone Jørgen Vig Knudstorp, LEGO’s CEO, highlighted the problems related to the supply chain: “One of the things that dawned on me when I arrived at the LEGO Group was that basically you have an allocation problem. You are producing 100,000 components every minute, 24 hours a day, 365 days a year. And you have to allocate them in optimal quantities at different sites, so that you can deliver a set of finished products at Walmart in Arkansas on Tuesday at 5:00 p.m. (and not 5:00 a.m.) in optimal order quantity, optimal transportation quantity, optimal manufacturing batches and so on.” LEGO addressed its crisis by leveraging an under-used ERP system to get its supply chain processes under control. 2- A well-structured digital platform: A digital platform is needed in order to handle customers interactions. This digital platform has some characteristics:  Digital interaction and availability 24/7  User driver experience  Experimentation  Quickly added functionality  Intuitive interface This digital platform is necessary to manage the relationships with the different partners of the ecosystem.  Enterprise and engagement platforms El Sawy et al., 2016, «How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership », MISQ executive, (16:2), pp. 141- 166 Illustration: Loan process (Practice exercise, session 6) Loan process  A sales force agent calls the insurance headquarters to issue a loan request for a customer. A sales clerk types in the information into a computer system and checks the liability of the customer. This clerk writes down the results of the liability check and hands it over to the next link in the chain: the contracting department.  This department is responsible for customizing the standard loan contract for the customer. The department uses its own computer system. After having finished this work, a contracting agent staples together the request form with the special conditions.  As a next step, a pricing agent in the contracting department enters the information into spreadsheet software and calculates which interest rate applies to the customer. The agent notes this rate on a sheet of paper and hands it on together with the material from the sales department.  Finally, a sales department agent creates a proposal and sends it back to the sales force agent via express mail. Loan process: Probmems related to the process and need to review the process (BPR) 1. Sales force calls the insurance 2. A sales clerk types the information into a computer system 3. He checks the liability of the customer 4. The clerk writes down the results of the liability 5. The clerk hands it over to the next link 6. The contracting department customizes the standard loan contract 7. A contracting agent staples together the request form with the special conditions 8. A pricing agent in the contracting department enters the information into the spreadsheet software 9. He calculated wish interest rate applied to customers 10. He notes this rate on a sheet 11. He hands it over 12. The sales department agents creates a proposal and send it back to the sales force agent via express mail IMPROVED PROCESS FLOW (this is a proposition) 1. The customer logs into the insurance online application, and fills all required information for requesting a new loan 2. Sales clerk checks the liability of the online information provided by the customer (this can be done automatically) 3. If it is valid, a notification is sent to the contracting department, if not, the customer is asked to meet a sales agent to provide further information. 4. The contracting department customizes the contract loan and then attaches it to the special conditions all found online (the use of the same ID for the customer enables better customization of the contract) 5. Based on the special conditions, the system calculates the interest rate. 6. The pricing agent check the interest applied. 7. A proposal is created and a notification is sent to the sales department 8. A sales department agent check the proposal online, if it is ok, a notification is sent to the customer 9. The customer logs into the insurance online application to get the result of its request ( a meeting with a sales agent is proposed). How can digital technologies improve A digital technolo business process? gy that fosters engagem ent 1. The customer logs into the insurance online application, and fills all required information for requesting a new loan 2. Sales clerk checks the liability of the online information provided by the customer (this can be done automatically) 3. If it is valid, a notification is sent to the contracting department, if not, the customer is asked to meet a sales agent to provide further information. 4. The contracting department customizes the contract loan and then attaches it to the special conditions all found online (the use of the same ID for the customer enables better customization of the contract) A digital technology 5. Based on the special conditions, the system calculates the interest rate. that 6. The pricing agent check the interest applied. fosters coordinati 7. A proposal is created and a notification is sent to the sales department on and 8. A sales department agent check the proposal online, if it is ok, a notification is sent to the customer control 9. The customer logs into the insurance online application to get the result of its request ( a meeting with a A digital sales agent is proposed). technolog y that fosters engageme nt Building Technological capabilities  Operational backbone is prerequisite for incumbent companies to engage in a digital transformation.  Digital platform: Born-digital companies outperform incumbent companies in analytics capabilities and their ability to provide personalization thanks to their digital platforms.  Operational backbone:  Companies that implemented an enterprise system (ERP, CRM, Supply chain management system) benefited from process integration.  Operational backbone enables companies to automate processes and enhance speed and data accuracy.  It is not sufficient to execute a digital strategy. It does not enable speed and flexibility. Sebastion et al., 2017 « How Big Old Companies Navigate Digital transformation ”, MISQ executive, (16: 3), pp. 197-213. What is an ERP?  Modular, integrated software applications that span (all) organizational functions and rely on one database at the core. (Laudan & Laudan, 2016) Understanding ERP and the challenges of process integration Core Business Processes  Traditional business functions:  Marketing and sales  Supply chain management  Accounting and finance  Human resources  Not distinct independent silos, but instead highly interrelated  Business processes cross boundaries of business functions. (Valacich et Schneider, 2017) Companies are constrained by their legacy system. Legacy spaghetti is: IT3 IT2  hard to manage (complex)  expensive (costly) IT5 IT1  Inefficient (inaccurate data, data IT4 redundancy, higher risk of errors)  Hard to make it evolve Example of legacy spaghetti Legacy systems  Each department has its own system.  Infrastructure specific  Inefficient processes  Potential for inaccuracies  Too many “rocks in the river” Enterprise System Approach  Integrated suite of business applications for virtually every department, process, and industry (Valacich et Schneider, 2017) Supporting Business Processes  Internally focused systems  Support functional areas, business processes, and decision making within an organization  New information (value) is added at every step. (Valacich et Schneider, 2017)  Creating new business capabilities through digital platform  Digital platform creates new business capabilities:  It allows to perform advanced analytics capabilities  It provides companies with a single view of customers  It enables company to engage with customers and personalize their interactions.  It enables the ecosystem users to create value for other users (it can improve customers, employees and partners experience). The need for well-managed and well- defined platform  Strong leadership ensures the coherence of the digital platform.  Unnecessary requests add complexities to the platform and hinder its efficiency.  Complex platforms are hard to change and expensive to run effectively. Close IT-business relationship is necessary Communication Trust Shared understanding Cooperation 2. Digital workplace: the missing piece Digital transformation is also about new ways of working  New Digital technologies  New ways of doing business (New Business models, New products, new services)  New ways of working Digital workplace definition  « the physical, cultural and digital arrangements that simplify working life in complex, dynamic and often unstructured working environments » Derry et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. 135-152. The digital workplace dimensions Derry et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. 135-152.  Promote employees connectedness silos Connected Command-and-control “Connectedness refers to the environment inhibits extent to which employees can connectedness (across functional or engage with each other, with product silos, geographies stakeholders and customers, with and company boundaries). information and knowledge, and Derry with ideas” (P.136). et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. Employee connectedness: Diamond or Graphite? Connections matter! How to promote connectedness in the workplace?  Changing the physical space in order to create opportunities for employees to meet face-to-face (Saying « HI » still matters).  Investing in new ITs that improve employees experience  Connecting employees through collaborative platforms Derry et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. 135-152. Responsive leadership: promote and develop employee experience Creativity and Knowledge sharing Good relationships innovation and collaboration Well-being and happiness Employees empowerment Speak up Leadership is needed to foster digital transformation  Communicate very clearly and effectively about the motivation of the digital transformation (a priority within the company’s strategic vision and make regular reports on the progress made). Absence of information create anxiety and thus foster resistance. Communicate clearly about the new workplace design and its link to the strategic objectives.  Increase employees’ engagement by empowering them and giving them a voice. Digital technologies enable you to engage employees at scale.  Promote a learning culture that encourages experimentation and trial (Promote a culture that encourage and value innovation). McConnel J., 2018, « How digital leaders inspire engagement », Blog MIT Sloan Management Review, 27th avril 2018 Audi Case study Digital workplace Teamwork: Read Audi case and answer the following questions: 1- Analyze the workplace strategy and explain how does it contribute to digital transformation outcomes. 2- How does the company foster employee connectedness? 3- How does leadership contribute to transform workplace? Class discussion 3. Digital leadership through ecosystem Ecosystem  Successful companies partner with other companies to provide better value for their customers.  This partnership can either be inside or outside the company’s industry.  Change in mindset: from managing a portfolio of products and services to co-creation of capabilities and managing a set of relationships across ecosystems. Example of ecosystem Partnership Car Entertainment Coordinate services to provide better value for customers Audi  Audi differentiation from its  Developers competitors  Property managers  Residents of luxury residences New ways to win in the digital era through ecosystems  Companies should identify the relevant ecosystems that enable them to provide better value for their customers (which capabilities can be acquired through the ecosystem?).  What are their roles in this ecosystem (leader/ participant)?  Ecosystems are evolving depending on new opportunities (integrate new participants, change in the leadership). Conclusion  1. Building digital capabilities  Incumbent companies are constrained by their legacy system.  To successfully embark in a digital transformation, incumbent companies need to have both :  An operational backbone  A well-defined digital platform :A digital platform should be capabilities driven not technology driven.  Digital capabilities should be developed through close IT- business relationships.  2. Managing digital leadership  Competing in the digital age requires new set of capabilities (creativity, agility), new ways of working, and managing relationships with other companies.  Promoting new ways of doing business is key to go successfully through digital transformation.  Digital workplace encompasses both employee connectedness and responsive leadership.  Successfully managing an ecosystem is a strategic advantage in the digital era. Why Drivers of digital transformation Analyzing the new rules of the games and opportunities ? enabled by the digital technologies Use the Framework of D. Rogers (Data, customers, Value, Innovation, competition) Create a competitive Strategy approach Digital growth advantage  Classical approach  Switching What Customer  Adaptive approach  Self-organizing intimacy  Visionary approach  Separation operational  Shaping approach  Ecosystem (acquisition, ? excellence reinvent BM  Renewal  partnership, incubator). Digital Platforms strategy Transform your business with digital technologies End-to-end approach to redesign customer experience How (improve customer experience and change processes) ? Digital capabilities  Operational backbone Digital leadership Digital workplace (employee  Well-designed digital connectedness and platform responsive leadership)  Close relationships Manage your ecosystem between IT and business people.  Customers Value Why Data Innovation Competition Drivers of digital disruption ? Create a Strategy approach Digital growth competitive advantage Foster innovation What New BM (both Adaptive customer intimacy approach internally (hackathons) and operational (experiment) Incubating companies ? excellence). Leverage capabilities existing Transform your business with digital technologies Agile and scalable digital operations How New digitally enabled customer experience (higher affordability, greater accessibility and wider social connectivity). ? Digital capabilities Robust and flexible platform Digital leadership Relying on an ecosystem (interactions with customers, (incubating digital data analytics, digital products innovations). and services can be delivered) Digital workplace Reconfigurations of IT (development of digital skills functions. required for digital Why Customers Value Drivers of digital disruption ? Data Innovation Competition (sharing economy pure players and competitors) Create a Strategy approach Digital growth competitive advantage Differentiation What (Create competitive a Adaptive (Experimentation) Creating a separate company (separation and integration ? advantage through new BM) (through people and Leverage existing IT) capabilities (premium cars) Transform your business with digital technologies Tranform you Business (New BM, new value for customers, How different processess) ? Digital capabilities Creating a platform (build new Digital leadership Relying on an ecosystem technological capabilities) Digital workplace (cross Hybrid teams functional competence network, agile teams, collaboration spaces, employees empowerment).  Customers Value Why Data Innovation Competition Drivers of digital disruption ? Create a Strategy approach Digital growth competitive advantage A digital officer What Differentiation Reduce cost and (Create a new BM appointed for each competitive (Renewal) business area). ? advantage through Innovation process is new BM) distributed and close to Leverage existing the business expertise. capabilities Partnerships Transform your business with digital technologies Tranform you Business (New BM, new value for customers (new How products, omnichannel move, augmented reality), different processess) ? Digital capabilities Enterprise platform (ERP) Digital leadership Relying on an ecosystem Engagement platform (users, employees, Close collaboration of IT developers) people with business units and Digital workplace (new way of external partners. recruiting, knowledge sharing, playfulness and fun culture…). Digital mastery: different levels Four levels of digital mastery Invest in new trendy technologies Excel at both but they lack digital the digital Fashionista Digital capabilities leadership s Masters and digital necessary for leadership their digital transformation Digital capabilit y Cautious approach At the start of Beginners Conservatives regarding new their digital technologies. journey (Wait and see strategy) Leadership capability Source: Westremann G., Bonnet D. and McAfee A., Leading digital », p. 15. Digital masters generate more revenue than others +6 Fashionista Digital +9 % s Masters % Digital capabilit y Beginners Conservatives - -4% 10% Leadership capability Source: Westremann G., Bonnet D. and McAfee A., Leading digital », p. 18. Digital masters are more profitable Fashionista Digital +26 - s Masters 11% % Digital capabilit y - Beginners Conservatives 24% 9% Leadership capability Source: Westremann G., Bonnet D. and McAfee A., Leading digital », p. 18. Reflect and apply Teamwork  What is the level of digital mastery for each of the following companies (Novartis and Hotel Bellazur)? (justify your answer)  Case study 1: Novartis The pharma industry has not been at the frontline of the digital revolution, taking advantage of the opportunities that it brings. Companies have taken different initiatives to benefit from the digital transformation but they are at the start of their digital transformation journey. For instance, Navartis has introduced digital approaches across all parts of its business: “Embracing digital and data is a top priority for Novartis”. However, investment in advanced digital capabilities is still limited and there is no effective transformation of the management in place. https://www.mobihealthnews.com/news/europe/how-novartis-embracing-digital-and-data-revolution Case study 2: Hotel Bellazur Hotel Bellazur has invested massively in a large amount of digital technologies to further interactions with its customers. Executives believe they must move fast to keep up with the fast-moving world of consumer electronics, but do not necessarily have a clear vision for how these different initiatives will collectively create value. AT HOME WORLDWIDE* * Chez vous, partout dans le monde