1. Two Perspectives on Digital Transformation Strategies:
Strategic planning refers to the process of defining a strategy as well as deciding on the resources that allocated to pursue a strategy – as the means to achieve firms’ goals.
While procedural aspects govern the development, implementation, and evaluation of digitization strategies, owing to their novel character, one first needs to define which content aspects digital transformation strategies should consist of the following four key elements and the framework are the result of preliminary works, including literature analysis and multiple case studies and interviews.
1.1 The Four Dimensions of Digital Transformation Strategies
Independent of the industry or firm, digital transformation strategies have certain elements in common. These elements can be ascribed to four dimensions: use of technologies, changes in value creation, structural changes, and financial aspects.
We will outline these four corner-stones of a digital transformation strategy are explained in some detail.
The use of technologies addresses a company’s attitudes towards new technologies as well as its ability to exploit these technologies. It therefore contains the strategic role of IT for a company and its future technological ambition.
A firm needs to decide whether it wants to become a market leader in terms of technology usage with the ability to create own technological standards, or whether it will resort to already established standards and sees technologies as means to fulfill business operations.
While being a technological market leader can lead to competitive advantages and can create the opportunity of other firms becoming dependent on one’s technological standards, it might be more risky and required certain technological competences.
From a business perspective, the use of new technologies often implies changes in value creation. These concern the impact of digital transformation strategies on firms’ value chains, i.e. how far the new digital activities deviate from the classical – often still analog – core business.
While further deviations offer opportunities to expand and enrich the current products and services portfolio, they accompanied by a stronger need for different technological and product-related competencies and higher risks owing to less experience in the new field.
The digitization of products or services can require or enable different forms of monetization, or even adjustments to firms’ business scope, since other markets or new customer segments addressed.
With different technologies in use and different forms of value creation, structural changes needed to provide an adequate basis for the new operations.
Structural changes include variations in a firm’s organizational setup, especially concerning the placement of the new digital activities within the corporate structures, but also whether it is mainly products, processes, or skills that are affected most by these changes.
If the extent of the changes is small, it might be more reasonable to integrate the new operations into existing corporate structures, while for more substantial changes, it might be better to create a separate subsidiary within the firm.
However, the former three dimensions can only be transformed after considering financial aspects. These constitute both a firm’s urgency to act owing to a diminishing core business and also its ability to finance a digital transformation endeavor; financial aspects are both a driver of and a bounding force of the transformation.
While lower financial pressure on the core business may reduce the perceived urgency to act, companies already under financial pressure might lack external ways to finance a transformation.
Therefore, firms should openly and timeously confront the need to conduct digital transformations and explore their options.
To ensure the successful roll out of a digital transformation strategy and fully exploit its in-tended effects, it is essential to closely align the four different dimensions use of technologies, value creation and structural changes, and financial aspects.
Figure 2 illustrates the dependencies between the different dimensions as part of the Digital Transformation Framework (DTF), which supports firms in the assessment of a firm’s current abilities and the formulation of a digital transformation strategy.
1.2 Procedural Aspects of Digital Transformation Strategies
Owing to its wide scope, digital transformation is a continuous complex undertaking that can substantially shape a company and its operations.
It is therefore important to ensure adequate and clear responsibilities for the definition and implementation of a digital transformation strategy.
If a digital transformation strategy is approached half-heartedly, firms may lose their scope and may encounter operational difficulties.
Companies should therefore ensure that the person who is operationally responsible for the digital transformation strategy has sufficient experience in transformation projects and directly align his or her incentives with the strategy’s targets and progress.
To date, there is no clear answer on which senior manager should be in charge of a digital transformation strategy.
In addition to CIOs or even CEOs, potential candidates include dedicated business transformation managers or the fairly new role of the Chief Digital Officer (CDO).
Given the longer duration of the transformation processes, this should preferably be one and the same person over time.
Further, beginning with the initial planning phase, top management support is essential along the whole transformation process, since digital transformation strategies, affect the entire company and there may therefore be resistance in different areas of the company.
To deal with such resistance, transformation leadership skills are essential and require the active involvement of the different stakeholders affected by the transformations.
Use of technologies changes in value creation financial aspects structural changes, Besides adequate staffing for both the initial phase and further implementation, firms need to find procedures for formulating, implementing, evaluating, and – if necessary – adapting digital transformation strategies.
This can be a complex endeavor and experts from inside and outside the company might be needed as additional support.
Further, since diffusion of digital technologies can change swiftly, there typically is high uncertainty concerning the digital transformation strategies’ underlying assumptions.
Hence, digital transformation strategies should be subject to continuous re-assessment, in which both the underlying assumptions as well as the transformation progress to date are evaluated.
To ensure that early actions can be taken if expectations are not met, clear procedures on the re-assessment of digital transformation strategies are needed.
This not only concerns the intervals between reassessments, but also the definition of procedures and measures to evaluate intermediate progress and thresholds upon which corrective actions can be taken.
Such methods are important to ensure management credibility and to avoid decision-making biases, for instance if large sunk costs impede the willingness to counter steer.