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

December 29, 2023

In the part two of this series we have looked at positioning digital transformation using the technological perspective. In this part we will see how product and value chain complement the remaining facets of devising a digital business transformation strategy. 

Product Perspective 

The third wave of technology-enabled transformations encountered nowadays is allowing technologies to be an integral part of the products themselves, which is regarded as a fundamental difference form what we have seen before. New smart connected products are emerging as a result of the immense improvements in processing power, device miniaturisation and the network benefits of ubiquitous wireless connectivity mentioned above. They share physical components (mechanical and electrical items), smart components (sensors, microprocessors, data storage, controls, software operating systems and digital user interfaces) and connectivity components (ports, antennae, protocols and networks enabling communication with the product cloud). Having these core components, they offer greater opportunities for new functionality, more reliability, higher utilisation and further capabilities that transcend the traditional product boundaries. Thus, the new features of products in the digital world allows firms to reformulate their value propositions by combining products and utilising their embedded data. 

Value Chain Perspective 

The software-intensive nature of the above mentioned smart, connected products support the co-creation of value together with stakeholders and customers, and additionally restructure the entire value chain activities. In terms of the design and development activities, now rely more on software engineers than mechanical engineers. Their designs need to accommodate remote servicing in addition to fine-tuning flexibility to meet new customer requirements or performance hiccups. The new emphasis on the software’s functionality further diminishes the complexity previously associated with products’ physical layers. 

Due to this increased software functionality, manufacturing activities can even shift their assembly at the customer end, where software is uploaded and configured. We are now witnessing the emergence of smart factories and national initiatives such as Industry 4.0, possibly the largest world-wide trend in manufacturing, requiring cloud-based systems and networked machines to optimize production. Today’s term ‘internet of things’ takes tracking activities in logistics to a completely new level, as it eliminates the RFID scanning process and relies on interaction between objects. Moving on to the marketing and sales activities, data retrieved from smart, connected products enables companies to conduct finer customer segmentation, to tailor their offerings and to develop more sophisticated pricing strategies that are in line with the data they extract and analyse. Moreover, even the after-slate service activities are reshaped as companies shift form reactive to preventive and proactive servicing activities.  

External Environment - Customer and Network Perspective 

Digital transformation is fundamentally different to previous IT-enabled transformation because of the specific trends observed when companies engage with customers. Looking at transformations in media, telecommunications and technology companies, there are three specific trends — 

— Digital Interactions - The features of digital technologies allow people to have more active interactions with content since they are capable of creating, eliminating or consuming it when and how they want. 

— Digital Distribution - The diffusion of digital technologies allows content to be widely distributed to customers as a result of the increased number of available channels and devices. 

— Ubiquitous Digital Reach - Digital Interconnectivity overcomes physical barriers and allows companies to reach more people and build a customer network based on interest rather than geographical location. 

These trends in our digital era embody a change in customer behaviour, as they are now more informed, communicate more with other customers and are forming even higher expectations, regarding digital service provision that spans across all channels and industries. Customers nowadays expect companies to anticipate their expressed demands, as well as still their still unknown future needs. Companies that embrace these new demands will succeed, while others will no longer be able to compete. We also emphasize on how the focus of it activity is shifting form the center of an enterprise to its edge to be able to engage with consumers who are digitally connected and activated. In particular, consumer-centric service industries need to realise new strategic value at the edge, where consumers are considered ot be co-creators of value, knowledge organisers and important factors of production. 

Another defining feature of digital transformation is the emergence of network competition. Here value networks, regarded as interdependent firms coordinating closely to deliver value to consumers in the form of products of services, shift the locus of industry competition from the individual companies competing against one another to a value network competing together in the market place. The key attributes are - 

— Increased cooperation, information sharing and intensity of collaboration; 

— Co-specialised investments and;   

— Long term, repeated interaction based on trust and strong relationships formed among partners.  

Internal Organization Structures 

Digital transformation is often described as a continuous, complex and revolutionary undertaking that even goes beyond company borders. The uniqueness of digital transformation lies in risk-taking being a cultural norm as companies seek new levels of competitive advantage. It will not have a completion date because of the accelerated developments in digital technology and fast-changing customer behaviour requiring businesses to be quick to continuously change and adapt themselves. Accordingly, digital transformation substantially shapes a company in its entirety and demands major changes in its organisational structures, as well as a reassessment of its norms and values. The ability to digitally transform a complete restructuring, as well as the introduction of new roles, are necessary. 

This is supported by the fact that the classical functional model of separate functional units (i.e. logistics, production, sales, finance, it) is breaking down. The transformation permeates every art of the business and involves the entire business, from the board to the front-line staff, rendering preceding silo operations a failed approach. Some functional roles often overlap and blur and thus the creation of cross-functional teams is encouraged to better link and coordinate internal form activities. A potential solution is to introduce interdisciplinary teams representing the business, as well as the it side, with an operational lead. 

The newly introduced data-intensive environmental leads to the formation of new units such as customer success management units or unified data-organization units to ensure enterprise-wide data integration. There is also the necessity of having a bimodal IT operation, where digital IT and traditional IT, sometimes referred to as two-speed IT, coexist. Furthermore, new digital technologies, arguably a reason why CIOs are often not in the best place ot take charge of digital transformation. In response, some firms appoint new positions at the top management level, for example, a Chief Digital Officer (CDO), to work alongside the CIO and to take care of the digital products and services at the customer interface. 

Conclusion 

The objective of this blog has been to show the state of digital business transformation strategies. It reveals the reasons why companies digitally transform and illustrates companies’ internal motivations, as well as their external triggers. The content of digital transformation is also framed and we distinguish between the business dimensions that are being transformed and the areas that are being impacted by the transformation. Finally, we identify multiple dimensions regarding the content of the strategy formulation in the digital era, and also comment on the strategy process. This three-part series additionally adds novel insights regarding the positioning of digital transformation and the key characteristics that distinguish it from the previous technology-enabled ones. 

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