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Strategic leading of digital transformation in large established companies

A multiple case-study

Written by Janne Hyvönen

Paper category

Master Thesis

Subject

Business Administration>General

Year

2018

Abstract

Master Thesis: The elements of digital transformation are now obvious. Digital innovation is something that companies should consider if they want to remain competitive. In order to respond to the threat of digital disruption and take advantage of the possibilities of digital innovation, many companies have begun to intentionally enhance their digital capabilities and resources (Sebastian et al., 2017; Svahn, Mathiassen, and Lindgren, 2017). This phenomenon in which existing companies aim to increase the level of digitalization is often referred to as digital transformation (DT) (Hess et al., 2016; Sebastian et al., 2017; Singh and Hess, 2017). Digital transformation mainly involves existing companies that need to address the possibilities and threats that digital innovation brings to their current businesses. As mentioned above, digital innovation may rapidly and severely change the competitive dynamics of the industry, which is why digital transformation has a high priority in many companies (Hess et al., 2016). There is very little academic literature on digital transformation. A literature review by Gerster (2017) shows that only 2.3% of articles published in leading IS journals between 2007 and 2016 involved topics of digital transformation, innovation, and digital technology. As he pointed out, the practitioner literature and the increasing scientific literature cover all aspects of the transformation well. However, there is no holistic view that addresses digital transformation, which is why contributions to the field are important. Since digital transformation is not a good topic in the academic literature, it lacks a clear definition. However, in the practice-oriented literature, the topic of digital transformation has attracted more and more attention. The practice-oriented literature views digital transformation as the use of new digital technologies and innovations to change different elements of an organization to achieve business improvement (Bonnet, McAfee, and Westerman, 2014; Hess et al., 2016; Kane et al., 2017) . Question What are these elements of an organization that is changing in digital transformation? Many practice-oriented publications cover the topic of digital transformation from different perspectives, which makes it more difficult to define the changing elements of a company in digital transformation. Hess et al. (2016) proposed a digital transformation framework that includes four key dimensions: the use of digital technology, changes in value creation, structural changes, and financial aspects. In turn, Sia, Soh, and Weill (2016) examined the digital transformation of DBS Bank through the four elements of structure, process, technology, and personnel. In addition, Kane et al. (2017) pointed out that in order to achieve digital maturity, companies need to adjust their strategy, workforce, culture, technology, and structure to meet the expectations of different stakeholders. 2.3.1 Strategic Decisions of Digital Transformation Digital transformation has created new features for strategy formulation and also brought new strategic decisions for managers. As companies adopt digital innovations, new possibilities have emerged in the company's strategy that were not possible before. Bharadwaj et al. (2013) integrated these new possibilities into four key themes of digital business strategy: scope, scale, speed, and the source of business value creation and capture. The scope of the company can expand digital resources by understanding power, and develop new strategies around new products and services. For example, Amazon created cloud services (AWS) as their key digital resource to support the underlying connection between e-retail, hardware (such as Kindle), and online video streaming (Prime video). In this way, they first enter the service layer, thereby realizing new possibilities at the device and content layer (Yoo, Henfridsson, and Lyytinen, 2010). In addition, the use of digital platforms enables companies to break through traditional industry boundaries and expand the company's scope in this way. For example, Apple redefines the mobile entertainment ecosystem with the iPhone, creating a way to acquire and consume text, video, and music in a portable device. This in turn broke industry barriers by entering the book and newspaper industry, the film industry, and the music industry. (Bharadwaj et al., 2013) Digital innovation also enables companies to expand their business in new ways. First, the increased availability of cloud computing services provides companies with strategic dynamic capabilities to expand or shrink their business as needed. By using cloud services, companies can flexibly adjust resources according to competitive pressure requirements. Second, as more and more products and services become digitized and interconnected, network effects appear within multilateral platforms, which in turn creates the potential for rapid scale. This theme already plays a role in, for example, mobile app stores, but the idea can be extended to other areas, such as automobiles and healthcare, as they become more digital. Third, the increase in the amount of information provides new possibilities for business expansion. As Huang et al. (2017) found that one of the keys to the rapid expansion of the case company is the company's ability to build and monitor innovation opportunities by analyzing large amounts of data. Finally, the size of the enterprise can be expanded through alliances and partnerships, because the company shares digital assets with other companies in areas where it does not see a competitive advantage. For example, many banks are opening up their application programming interfaces (APIs) to allow 3rd party developers to create their own applications using bank data. This can provide bank customers with better customer service, and the bank does not need to use its own resources for development. (Bharadwaj et al., 2013) By leveraging digital innovation, companies can gain a competitive advantage through speed. Read Less