1.1. Strategy and Digitalisation: An Introduction
We live in the digital age, a revolution that impacts people, groups, and organisations. Such a paradigm shift is influencing companies and the way they do business. Integrating and exploiting new digital technologies is one of the biggest challenges that companies currently face (Heavin & Power, 2018).
Overall, new digital technologies offer the opportunity to transform processes and activities to create more value and sustain competitiveness (Majchrzak, Markus, & Wareham, 2016). All sectors and types of organisations are somehow and to a different extent, influenced by new technologies, such as mobile devices, social media, analytics, and the cloud, which offer exciting opportunities and challenges. New technologies are developed every year. Someone describes them dividing between primary (e.g. mobile, social, cloud, Big Data, and IoT) and secondary or emerging (e.g. 3D printing, wearables, virtual and augmented reality, artificial intelligence (AI), drones and robotics, and deep learning algorithms) (Spremic, 2017).
In recent years, firms in almost all industries have conducted several initiatives to explore those mentioned above new digital technologies and exploit their benefits. This frequently involves transformations of crucial business operations and affects products and processes, as well as organisational structures and management practices. Companies need to establish management practices to govern these complex transformations. In this regard, a necessary approach is to formulate a digital transformation strategy to integrate the complete coordination, prioritisation, and implementation of a digital transformation within an organisation (Matt, Hess, & Benlian, 2015).
The exploitation and integration of digital technologies often affect large parts of companies and even go beyond their borders by impacting products, business processes, sales channels, supply chains, and sometimes entire industries. Potential benefits of digitalisation are manifold and include increases in sales or productivity, innovations in value creation, as well as novel forms of interaction with customers, among others. As a result, business models can be reshaped or replaced (Downes & Nunes, 2013).
Thus, as anticipated, the process of using new digital technologies has been recently called âdigital transformationâ in the literature and by practitioners. However, what is a digital transformation? In order to fully understand its meaning, it is necessary to understand the difference between three distinct but interrelated concepts: digitisation, digitalisation, and digital transformation (Verhoef et al., 2019):
Digitisation: Integrating digital technologies within existing tasks. In other words, it could be considered the process of converting information from a physical format to a digital one. Examples are converting a VHS cassette to a Blu-Ray disc; scanning a paper document; and saving as a PDF.
Digitalisation: Using digital technologies to alter existing business processes and to create and capture more value. It converts processes to be more efficient, productive, and profitable. Examples could be saving a companyâs document in a cloud instead of local folds and hard drive; allowing people to get access to a vast amount of data in real-time; or introducing an IoT machinery in production processes.
Digital transformation: It is the transformation of business activities, processes, products, and models to exploit the opportunities of digital technologies fully. It profoundly affects the way of creating and capturing value, engendering the development of new business models. In other words, it leverages digitalisation to reshape and innovate the current business model. Examples could be collecting data from clients, analyse it, offering new products/services according to their needs; introducing an IoT machinery in production processes, and changing the production patterns in such a way to increase efficiency and efficacy.
Therefore, digital transformation can be defined as the process through which companies converge multiple new digital technologies, enhanced with ubiquitous connectivity, to reach superior performance and sustained competitive advantage, by transforming multiple business dimensions, including the business model, the customer experience (comprising digitally enabled products and services) and operations (comprising processes and decision-making), and simultaneously impacting people (including skills talent and culture) and networks (including the entire value system). This is in line with the recent definition provided by Warner and Wäger (2019, p. 19), which stated that:
Digital transformation is an ongoing process of strategic renewal that uses advances in digital technologies to build capabilities that refresh or replace an organizationâs business model, collaborative approach, and culture.
Therefore, digital transformation can be comprehended as a continuous process of climbing the scale of digital maturity by employing digital and other technologies and organisational practices to create a digital culture and find new sources of value (IvanÄiÄ, VukĹĄiÄ, & SpremiÄ, 2019). This maturity will enable the company to provide better services, gain a competitive advantage, and effectively respond to actions in a complex environment. Ultimately, companies that successfully employ digital transformation enjoy better returns on their assets and are generally more profitable (Westerman, Tannou, Bonnet, Ferraris, & McAfee, 2012).
Not everything will be different in the digital world, and not all should embrace digital strategies in the same way. Large traditional companies can face the competition of innovative digital start-ups by approaching an agile transformation. As such, the digital transformation is something happening in both traditional and high-tech companies, to a different extent. In this context, traditional companies are players belonging to industries such as automotive, retail, and financial services. Threatened by the digital economy they are at risk if they cannot change their business models and activities according to the digitised world. Unlike digital companies such as Amazon, Airbnb, and Google, traditional companies sometimes do not have the competencies, skills, and resources to quickly embrace a digital transformation strategy. As such, the paradigm shift is more problematic for them.
For this reason, they need a clear and agile strategy, integrating information systems and business strategy analysis. As a result, a digital transformation strategy aims to coordinate, prioritise, and implement a traditional firmâs adaptation, to manage its journey to achieve the desired future state of being in a digital competitive world (Matt et al., 2015). The digital transformation strategy does not involve just the implementation of digital resources. However, it involves adapting critical structural and organisational aspects, the use of advanced information technologies (IT), and the improvement of the current business models.
Therefore, as we will explore during the next sections and chapters, a digital transformation should consist of a planned strategy. This strategy will need to define in which areas the transformation will take place, how it will take place, what resources will be used, and the timeline of the transformation. A digital strategy, thus, involves both the IT and business strategies. Consequently, digital strategy is inherently transfunctional, as IT is pervasive in functions such as operations and marketing. Hence, it is reasonable to infer that a fusion of business and IT strategy composes the digital strategy. This contrasts the traditional view of IT as a âfunctional level strategy that must be aligned with the firmâs business strategyâ (Bharadwaj, El Sawy, Pavlou, & Venkatraman, 2013, p. 472). In other words, there is no longer a distinction between the two strategies. In practical terms, the emergent digital strategy is both business centric and technology oriented in the sense that both market logic and new technologies can drive the company to pursue a new strategy with new dynamics, goals, objectives, and investments.
A strategy is defined as a synonym of policies, objectives, tactics, goals, and programs, by strategic management theories. More specifically, Miller and Dess (1996) defined strategy as a set of plans or decisions to help organisations achieve their objectives. Porter (1996) defined strategy as performing different activities to those performed by rivals or performing the same activities differently. Wright, Kroll, and Parnell (1997) defined strategy as the set top management plans to achieve results consistent with the organisational mission and objectives. Mintzberg, Ahlstrand, and Lampel (1998) defined strategy as the mediating force between the organisation and its surroundings, focussing on decisions and actions that come naturally.
Therefore, while it is agreed that strategy concerns all the actions and decisions to achieve objectives, digital strategy can be defined as an â⌠organizational strategy formulated and executed by leveraging digital resources to create differential valueâ (Bharadwaj et al., 2013, p. 472). Furthermore, a digital transformation strategy seeks to provide insights into how such an organisation-wide digital strategy might be developed and implemented (Hess et al., 2016; Matt et al., 2015). For these reasons, it is possible to assume that the digital transformation strategy does not replace any former strategy but will need to be aligned with them. In reality, organisations pursue one of the following two options: (1) develop an explicit digital transformation strategy or (2) develop a business strategy that incorporates components regarding investments in digital tools.
Why do companies need a digital strategy? Because the digital transformation process should be managed as a strategic approach if the company wants to achieve the expected results. As such, sharing a common digital vision is a vital factor for the successful outcome of digital transformation endeavours. Still, every company develops its strategy according to its own needs and the stage of its digital transformation process. A digital transformation strategy signposts the way towards digital transformation and guides managers through the transformation process resulting from integrating and using digital technologies.
Despite the great interest in this topic and its importance from a managerial perspective, how to embrace digital transformation is still not entirely clear. Moreover, digital transformation is different from traditional forms of strategic changes in a way that digital technologies have increased the speed of change processes, resulting in an environment that is much more volatile, uncertain, complex, and ambiguous. This means that elements such as vision, mission, values, goals, objectives, resources implemented should be analysed and revised more often in a digital context. Besides, even in traditional industries, aspirations are very high, and executives would succeed in digital transformation by developing new offerings and changing their companiesâ business models. However, a McKinseyâs survey suggests that less than 30% of companies succeed in this challenge and even less in traditional industries such as oil and gas, automotive, infrastructure, and pharmaceuticals (McKinsey & Company, 2019). This is because the evolution of digital technology offers great opportunities and challenges for companies and institutions. Facing these challenges and seizing the digital opportunities is far from easy, as digitalisation touches every aspect of an organisation and requires an unprecedented effort to coordinate people, processes, and technologies. Precisely for this reason, digital transformation must start with an appropriate development of the strategy and its broad meaning. Indeed, digital strategy must become an integral part of corporate, business, and functional strategies. In this sense, an effective strategy must be based on forecast an...
