Digital Transformation Article PDF

Stuvia - Koop en Verkoop de Beste Samenvattingen Week 1: Digital transformation: A multidisciplinary re"ection and research agenda (Verhoef et al.) Digital transformation = a change in the way a company uses digital technologies, to develop a new digital business model that helps to create and capt...

Stuvia - Koop en Verkoop de Beste Samenvattingen Week 1: Digital transformation: A multidisciplinary re"ection and research agenda (Verhoef et al.) Digital transformation = a change in the way a company uses digital technologies, to develop a new digital business model that helps to create and capture more value for the company. - digital transformation is multidisciplinary in nature because it involves changes in strategy organization, information technology, supply chains and marketing. As digital technologies advance, companies are increasingly being confronted with the need to explore market boundaries and change agent roles. Digital transformation has fundamentally changed consumer expectations and behaviour, put pressure on traditional businesses, and disrupted numerous markets. The flow model (Fig 1) identifies the drivers, phases or levels, and requirements of digital transformation: 2 Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen There are three major external factors driving the need for digital transformation: 1. Digital technology - The presence of big data and emerging digital technologies, like Artificial Intelligence (AI), are expected to have far-reaching effects on business - the wide entrance of new digital technologies clearly signals the need for firms to transform their business digitally. - Moreover, these new digital technologies may also affect the firm’s cost structure through replacing costlier humans during service delivery with the help of robots reducing supply chain costs using AI and blockchain. 2. Digital competition - Due to new digital technologies, competition is changing dramatically - Big data rich firms (Apple, Amazon, Facebook) are starting to dominate numerous industries 3. Digital customer behaviour - Consumers are shifting their purchases to online stores - Consumer behaviour is changing as a response to the digital revolution - When firms cannot adapt to the digital changes, they become less attractive to customers  likely to be replaced by firms that do leverage such digital technologies. The phases of digital transformation The article identifies three phases of digital transformation: digitization, digitalization, and digital transformation. Most of the literature endorses that the first two more incremental phases are needed to achieve the most pervasive/penetrating phase of digital transformation. 1. Digitization - Digitization is the process of encoding analog information into a digital format (i.e., into zeros and ones) so that computers can store, process, and transmit such information. - Digitization primarily digitalises internal and external documentation processes. 2. Digitalization - Digitization primarily describes internal describes how IT or digital technologies can be used to change existing business processes - In digitalization, IT serves as a key enabler to seize new business possibilities by changing existing business processes, such as communication - Companies apply digital technologies to optimize existing business processes by enabling more efficient coordination between processes, and/or by creating additional value for the customer by improving the user experience. For example, cost savings as well as enhanced customer experiences. 3. Digital transformation - Digital transformation is the most penetrating/pervasive phase, describing an enterprise-wide change that leads to the development of new business models - This can help achieve a competitive advantage by transforming the organization to leverage existing core competencies or develop new ones. 3 Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen - The company's core business model is subject to change using digital technology (e.g., "product-as-a-service"). Digital transformation is especially relevant for incumbent companies(=established). Established companies will face challenges and barriers when seeking and implementing business model innovation for digital transformation, given their heritage. They are often forced to deal with conflicts and trade-offs between existing and new ways of doing business. Strategic imperatives of digital transformation 1. Digital resources - Resources represent a firm ’s ownership and control of assets and capabilities. - Assets represent the firm ’s resource endowments in physical and intellectual assets The four needed digital assets and capabilities for digital change are: 1.1. Digital assets Firms need digital assets, such as data storage information and communication infrastructure, and associated technologies to effectively compete in the digital age. 1.2. Digital agility. Digital agility concerns the ability to sense and seize market opportunities provided by digital technologies. - - To achieve digital transformation, digital agility is needed to recombine digital assets with other organizational resources to change the way of doing business. By continuously sensing and seizing market opportunities, digital agility fosters the recombination and development of new products, services and business models that enhance the value created for the customer This capability becomes increasingly important when a firm shifts to more advanced phases of digital transformation; that is, from digitization to digitalization, and from digitalization to digital transformation. 1.3. Digital networking capability. The digital networking capability, which refers to the firm’s ability to bring together and link distinct users to address their mutual needs via digital means, becomes more important in digital settings. 1.4. Big data analytics capability. In the phase of digital transformation, the capability to acquire and analyse big data for decision making is crucial, given that the functionality of digital technologies all rely on digital data. 4 Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen 2. Organizational structure Apart from the digital resources needed to achieve digital transformation: A key issue to consider is the organizational changes needed to adapt to digital change, especially regarding organizational structure that is flexible for digital change. 2.1. Separate business units.  As incumbents tend to be slow when it comes to detecting valuable technologies, recognizing the need to react fast, and/or overcoming the often conflictive and competence-destroying nature of digital technologies is critical 2.2. Agile organizational forms.  The use of standard, more hierarchical organizational schemes, with multiple layers of management and a strong top-down approach, may no longer be effective in rapidly changing digital environments, as the associated bureaucracy reduces responsiveness and innovativeness.  To stimulate their digital agility firms, require flexible organization forms that allow for fast responses to constant digital change. 2.3. Digital functional areas.  The employees’ digital skills in marketing and service operations also need to be upgraded to enhance value creation.  An important feature of digital transformation is the increased reliance on IT and analytical functions 3. Digital growth strategies A variety of digital growth strategies exist for digital firms, but the most prominent growth strategy involves the use of digital platforms. There are two key drivers behind the impressive growth of platform’s: high scalability and reinforcing network effects.  Platforms can grow rapidly and handle a growing number of users, including customers, suppliers, and ancillary service providers, because the cost of serving additional users is low and, in the case of digital platforms, sometimes even negligible  Next, the platform model implies that a growth in the number of users on one side (e.g., customers or suppliers) attracts users from the other side, as they receive higher utility from using the platform, due to increasing network effects (!!!) that create virtuous loops To describe how platform business grow we rely on the Ansoff matrix, which identifies the growth strategies: (1) market penetration, (2) product development, (3) market development and (4) diversification. 5 Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen The Ansoff matrix shows the opportunities for revenue growth through the development of new products, new markets, or both, representing two traditional dimensions of Ansoff’s original work: market penetration and (product-based) market development.  Platform-based market penetration, introducing a platform consisting of various existing products into a new market that are offered by external parties.  Product development: Digital companies can often develop and launch new products more efficiently in a platform environment, as platforms allow for stronger synergies between products.  Co-creation platform enables external users to actively co-create value by giving them the authority to perform certain activities on the platform themselves.  Platform diversification: Some firms are able to combine all approaches in a single strategy. Often deployed by large, successful platforms that want to create additional growth in unexplored markets with new products. 4. Metrics and goals To realize the full potential of digital transformation, digital firms need to measure the performance improvements on key performance indicators (KPIs) to facilitate learning and fine-tune the business model. Differences between traditional incumbents and new entrants to the digital market are that: - - Many traditional incumbents stick to profitability as a financial metric, while digital companies focus on growth rates (e.g., growth in the number of users, customers, and sales) rather than profitability. Primary objective of digital companies: achieve growth in the number of users of the digital ecosystem (e.g., suppliers, customers, etc.) to create reinforcing network effects that enable further growth of the platform. 6 Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen?