Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Digitalization Bibliography
| Technology Main Page
The purpose of this article is to update the authors' earlier research: Westerman, G., D. Bonnet and A. McAfee. 2014. The nine elements of digital transformation. MIT Sloan Management Review (Spring): 1-6. See below for a brief summary of that paper. 1
Executive awareness of how digital technology can create competitive advantage has increased dramatically since 2014, but becoming a digital master remains challenging. Digital masters use innovative digital technologies to improve their businesses, and leadership to envision and drive organizational change in profitable ways. Digital transformation has become more complex, but also more important as the risk of falling behind increases. New ways to transform the fundamentals of value creation have increased as advances in the internet of things, artificial intelligence, virtual and augmented reality, and 5G have emerged. Digital masters are taking advantage of these changes to create a competitive advantage.
The authors revisited the elements of digital capability to reflect opportunities provided by new digital technologies. See the new elements of digital capability below.
The elements related to customer experience (experience design, customer intelligence, and emotional engagement), and internal operations (core process automation, connected and dynamic operations, and data-driven decision making) are still important. Employee experience has expanded and now has its own set of elements (augmentation, future-readying, and flexforcing). The elements of business model innovation have also expanded to include the increase in multisided platform businesses and global platform players such as Amazon and Google (digital enhancements, information-based service extensions, and multisided platform businesses). The digital platform has also become more important as the foundation of all the other elements in the company (core, externally facing, and data).
Transforming the Customer Experience
Experience Design: Compelling customer experiences are hard to design and deliver. They require creativity, and technology (using tools such as journey mapping, ethnographic studies, customer personas and design thinking) to gain an understanding of human behavior through skilled listening and constant experimentation.
Customer Intelligence: Machine learning can provide real-time customer intelligence that enables highly personalized interactions to deliver proactive customer services.
Emotional Engagements: Companies are using digital technology to solicit and enable customer participation across their value chains, e.g., Starbucks' MYStarbucksidea.com, and LinkedIn profiles.
Transforming Operations
Core Process Automation: Companies are moving beyond traditional automation approaches such as enterprise resource planning, manufacturing execution, and product life cycle management systems to digitally reinvent operations. For example, Amazon's distribution centers deliver inventory to workers rather than requiring workers to collect inventory.
Connected and Dynamic Operations: The ability to connect machines, models, and processes has been enhanced by the growing availability of cheap sensors, cloud infrastructure, machine learning, and concepts such as Industry 4.0, digital threads, and digital twins. For example, construction companies link drone-based observations to blueprints to identify problems before they cause serious damage.
Data-driven Decision Making: Decisions based on backward-looking reports are no longer adequate. Today, connected devices, new machine learning algorithms, smarter experimentation, and real-time data enable more-informed decisions.
Transforming Employee Experience
Augmentation: Companies are using robotics and other digital technologies to augment employee productivity and performance. For example, a shipyard used augmented reality to build giant complex aircraft carriers and submarines to see what's behind the wall (wires, pipes, etc.) before drilling or performing maintenance.
Future-readying: New models of managing learning are being developed to create learning experiences that are more atomized, digitized, and personalized. For example, one company uses a method referred to as application challenges, where workers receive a short lesson, then apply it immediately, and promptly receive feedback from their peers.
Flexforcing: Companies are building agility into their talent sourcing systems by multiskilling employees to create agile specialists.
Transforming Business Models
Digital Enhancements: Many companies are digitally enhancing their business models. For example, a construction tools and property provider created a tools-on-demand program for its clients, making a variety of tools available through a subscription service that includes repairs and customized services.
Information-based Service Extensions: Information-based services combining sensors, communication networks, apps, and analytics are being provided by many companies to expand their product-based business models. For example, Michelin connected its products using embedded sensors that transmit data on usage, distance, and maintenance needs to provide its customers with tire management services that deliver improved cost control and fewer breakdowns. Their business model is based on selling problem free kilometers rather than tires.
Multisided Platforms: Multisided platforms are well known in the taxi service, hospitality, and retail industries and are spreading to other areas. For example, a German steel and metal distributor launched a proprietary online platform to distribute its products, and invited its competitors to join the platform to establish a digital marketplace for steel, metal, and other industrial products.
Transforming the Digital Platform
Core Platform: A core platform is needed to provide a strong technology-based foundation for a company's operational and transactional systems that power its key processes.
Externally facing Platform: An agile externally facing platform is also needed to power the company's websites, apps, and processes that connect customers and system partners.
Data Platform: A data platform is also needed to perform intense analytics and to build and test algorithms that use unstructured data (text, images, voice) to improve customer experiences, or internal operations.
Digital Transformation
Digital transformation involves using technology to radically improve the performance of an enterprise. Digital technologies can be used to enhance products and processes, and perhaps more importantly provide a way to reinvent the business. Digital technologies and leadership provide a company with the capability to envision and drive organization change to gain competitive advantage.
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Footnote:
1 Westerman, Bonnet, and McAfee define digital transformation as the use of technology to radically improve the performance of an enterprise. Briefly, their 2014 paper identified three key areas of digital transformation based on interviews with 157 executives in 50 companies in 15 countries. Each key area included three elements as follows:
Transforming Customer Experience
Customer Understanding, e.g., using technology to identify what leads to customer satisfaction or dissatisfaction.
Top-line Growth, e.g., using technology to enhance the sales experience.
Customer Touch Points, e.g., developing customer apps, self-service tools, etc.
Transforming Operational Processes
Process Digitization, e.g., automating processes that allow workers to focus on innovation and creativity rather than repetitive tasks.
Worker Enablement, e.g., separating the work process from the location of the work.
Performance Management, e.g., developing transactional systems that produce data on products, regions, and customers that can be used to enhance decisions.
Transforming Business Models
Digitally Modified Businesses, e.g., augmenting physical systems with digital offerings, and using digital to share information across the organization's silos.
New Digital Businesses, e.g., a sports apparel manufacturer introduced digital products such as GPS devices.
Digital Globalization, e.g., companies share services globally to promote efficiency and reduce risk.
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Cusumano, M. A., D. B. Yoffie and A. Gawer. 2020. The future of platforms: Platforms power some of the world's most valuable companies, but it will get harder and harder to capture and monetize their disruptive potential. MIT Sloan Management Review (Spring): 46-54. (Summary).
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