For Review Only
Implementing a Digital Strategy: Learning from the
Experience of Three Digital Transformation Projects
Journal:
California Management Review
Manuscript ID
CMR-03-19-000002-IP-DT.R2
mstype:
Invited Paper - Digital Transformation
Keyword<br><br>IMPORTANT!</b>
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keywords from list. If desired
keyword does not appear, choose
keyword with closest representation.
Add keywords not found in our list in
the 2nd Keyword section below this.:
Business strategies, Case studies, Data management,
Implementing strategy, Strategic management
Keyword<br><br>This section is
optional</b>, and you can use it to
identify important keywords for your
article that you could not find in our
list in the previous section.:
digital transformation, digital strategy, strategy implementation
Abstract:
The recent development of digital technologies and the
extraordinary amount of data that devices and applications collect
each day increasingly drive companies to radically transform the
business architecture through which they create and appropriate
value. However, companies may fail to extract value from digital
transformation due to the disconnection between strategy
formulation and strategy implementation. Accordingly, this work
aims to unearth the anatomy of the process through which
companies implement a digital transformation strategy. Through
the analysis of three case studies, we construct a framework that
supports companies in implementing a digital transformation
strategy and thereby innovate their business model.
UC Berkeley, CMR, 2000 Center Street, Suite 400, Berkeley, CA 94704-1996
California Management Review (cmr.berkeley.edu)
For Review Only
1
Implementing a Digital Strategy: Learning from the Experience of Three Digital
Transformation Projects
Abstract
The recent development of digital technologies and the extraordinary amount of data that
devices and applications collect each day increasingly drive companies to radically transform
the business architecture through which they create and appropriate value. However,
companies may fail to extract value from digital transformation due to the disconnection
between strategy formulation and strategy implementation. Accordingly, this work aims to
unearth the anatomy of the process through which companies implement a digital
transformation strategy. Through the analysis of three case studies, we construct a framework
that supports companies in implementing a digital transformation strategy and thereby
innovate their business model.
Keywords: digital transformation; digital strategy; strategy implementation.
“Many companies define great digital transformation strategies, but there is a huge difference between having a
well-reasoned digital strategy on paper and successfully implementing it […] Most digital transformation
projects fail due to poor strategy execution”
Adriano Gerardelli, Director of Digital Strategy & Innovation, PricewaterhouseCoopers (PwC)
The remarkable progress of digital technologies and the increasing pervasiveness and
reliability of high-speed internet services have radically reshaped the operations and business
models of companies
1
, leading to a series of substantial changes in their activities, processes,
and capabilities
2, 3
. Actually, a growing number of companies have adopted a digital
transformation strategy, i.e., a strategy leveraging digital technologies to transform how they
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create and appropriate value. Of course, adopting digital transformation strategies requires
companies to question and revise the current architecture of their value creation and
appropriation models, and effectively assimilate the disruption ensuing from the introduction
of digital technologies to sustain their competitive advantage.
In this regard, a requirement for firms adopting digital transformation strategies is
renewing their business models in light of the changes that digital transformation induces, so
that the new digitally enabled business model is consistent with the business strategy, thereby
leading to superior competitive performance.
4, 5, 6
In particular, the pervasiveness of new digital technologies allows: i) increasing the
flexibility of products and services by supporting the continuous evolution of their scope,
features, and value, even after they have reached the market;
7
ii) lowering the barriers across
industries, favoring connections, exchanges, and partnerships among companies operating in
different sectors;
8
and, iii) supporting companies in accessing continuous, timely, and reliable
data streams.
9
Digital transformation may lead to notable advantages for firms, such as products and
services that are more efficient and consistent with customer needs,
10
a shorter innovation
process and time to market,
11
extending the offering and creating related digital ecosystems.
12
Moreover, digital transformation favors the interconnection among different industries, by
leading firms in reaping new opportunities to create and appropriate value through the
digitization and connectivity
13
. For instance, Becton Dickinson, a medical equipment
manufacturer, has been developing interests related to the software industry and analytics to
increase the effectiveness of its products
14
. Also, the attention of companies as Google,
Apple, and Uber towards the automotive industry, through the development of autonomous
vehicles, is another example of how digital transformation reduces barriers between different
industries.
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However, the adoption of digital transformation strategies also entails relevant
challenges.
15, 16, 17
In fact, according to recent estimates, 66% to 84% of digital
transformation projects fail,
18
which is a vast number considering the costs, both monetary
and otherwise, of putting in place these projects. One major challenge refers to ensuring
consistency between strategy formulation and strategy implementation
19,
20,
21
, which despite
their interdependence are deemed distinct concepts. Specifically, digital strategy formulation
refers to defining a guiding policy on creating and appropriating value by exploiting digital
technologies to achieve long-term objectives, considering factors related to the external
environment, the technological potential in the current competitive scenario, and the market
evolution. Therefore, digital strategy formulation should identify the elements of the firm’s
business model that must be modified according to the new strategy, as well as the scope of
the digital transformation.
Differently, digital strategy implementation refers to how firms translate the digital
strategy formulated into a concrete plan and set of actions,
22, 23, 24
i.e., how they put into effect
the new digitally enabled business model. Therefore, the careful implementation of a digital
strategy is crucial to ensure consistency between the firm’s actions and the objectives defined
in the digital strategy formulation.
25
In fact, the existing body of knowledge implicitly assumes that once a digital
transformation strategy has been defined, implementation will follow (e.g.,
26, 27
). However,
corporate practice shows that this is not the case, and senior executives cannot achieve any
benefit from digital transformation strategies if they cannot effectively implement them.
28,
29
Extant studies point out that effective strategy implementation is more critical to avoid
failures as compared to good strategy formulation
30,
31
, since on the one hand a precise
implementation allows to adapt to evolving conditions
32
, thus correcting for an inaccurate
formulation
33
, on the other hand a good formulation is not valuable if not properly executed
34
.
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A prominent example of this is General Electric (GE). In the last seven years, GE’s top
management planned to digitally transform the firm. However, while deemed an appropriate
strategic choice in the current competitive environment, GE failed to implement this strategy
to the point of having to fire over 100 employees at the software operation facility that had
been created to support GE’s digital strategy.
35
Recently, John Flannery, GE’s CEO, pointed
out that the company is “still deeply committed to [digital], but we want a much more
focused strategy.”
36
Given such disconnection between strategy formulation and
implementation, and the crucial importance of implementation for a digital transformation
strategy to succeed also in relation with formulation
37, 38, 39, 40
, our aim is to understand how
firms can implement a digital transformation strategy. Specifically, we describe and analyze
three cases of firms that digitally transformed their business (i.e., ABB, CNHi, and
Vodafone), supported by a “digital companion” globally renowned for its excellence in the
execution of digital transformation strategies, namely, Microsoft. The rich body of qualitative
evidence allowed us to identify the critical resources, capabilities, and activities, as well as
the stakeholders that need to be taken into account when a firm implements a digital
transformation strategy, i.e., the building blocks of a digital transformation strategy. These
building blocks make up our framework illustrating the main pillars that the companies we
analyzed used to ensure consistency between their strategy formulation and implementation,
thus leading to successful digital transformation projects. In particular, since digital
transformation strategies may substantially change how companies create and appropriate
value, this emerging framework allows companies to renew their business models, conceived
as the “conceptual and architectural implementation of a business strategy.”
41, 42
Our study offers a number of contributions to theory and practice. From a theoretical
standpoint, we contribute to the emerging literature stream on digital transformation.
43, 44, 45
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