What strategies and organizations are needed for digital transformation? (Part 1)

The following article comes from the CEIBS Business Review (CEIBS), written by Shi Weilei, Ding Chunchun, and Phil He.

Image Source

The key to digital transformation is to establish a set of digital ecosystems which organically connects the necessary conditions, mechanisms and results of transformation to remain invincible in the competition.

CBR Guide

1. Enterprises use two main categories of mechanisms to conceive and implement digital transformation: innovation and integration.
2. Innovation mechanisms involve creating new resources, processes, and capabilities for an organization, while integration mechanisms involve integrating and matching these resources, processes, and capabilities with existing resources, processes, and capabilities.
3. In the digital age, companies must have flat management, make decisions quickly and enlarge the decision-making power of front-line employees.
4. The results of digital transformation usually fall into three categories: the new business model, the change of organizational structure and the transformation of the business model.

The digital transformation strategy of enterprises around the world is in full swing. What difficulties and obstacles will enterprises in traditional industries face in digital transformation? What impact will digital transformation bring to the original business model? How does the enterprise make correspond to top-level design and strategic planning? How to carry out relevant organizational structure?

Through case analysis of different enterprises, we summarize the theoretical framework of digital transformation that can be used across industries, aiming to design effective digital transformation for traditional enterprises.

Figure 1 is the theoretical framework of digital transformation strategy summarized through case analysis. Digital transformation strategy, in short, is to promote the transformation of enterprises -- new business model, new organizational structure and business model through technological change, organization, environment and other external necessary conditions, with the innovation mechanism and the integration mechanism as the internal mechanism.

We need to clarify exactly what a digital transformation strategy is. In our research, we find that IT is often easy for enterprises to confuse digital transformation with traditional IT-based organizational transformation. Digital transformation is an organizational transformation triggered and shaped by the wide spread of digital technology. Digital transformation differs from the past IT-based organizational transformation in at least three ways.

First, digital transformation involves different technologies than traditional enterprise systems. Digital SMACIT (the convergence of social, mobile, analytics, cloud, and Internet of Things) is generative, malleable, and combinatorial.

Second, many digital technologies address broader ecosystems and demands rather than focusing solely on internal enterprise systems.

Finally, the results of digital transformation go beyond the changes facilitated by IT-based organizational transformation.

Digital technology redefines the value proposition in the transformation process, while traditional IT transformation supports the value proposition. The result of digital transformation is the emergence of entirely new organizations, not the strengthening of old organizational identities.

The necessity of digital transformation

In the traditional organization theory, scholars attach great importance to the harmonious match between environment and enterprise. That is, enterprise transformation is usually based on significant changes in the external environment. However, digital transformation has unique mechanisms, and technological transformation is particularly important in the external environment, so we study technological transformation as a separate aspect.

The following is our multi-dimensional analysis framework, namely, the three conditions of the digital transformation of enterprises. The birth and application of various digital technologies shaped the precursor of digital technology, especially SMACIT technology, which makes enterprises armed with digital technology. After digital technology enters the organization, it interacts with and influences each other, thus forming new technology and organization. In addition, technology and organizations will embed the environment (including the country at the macro level, the industry at the medium level and consumers at the micro level).

Necessity Condition No. 1: Technological change

Technological forces are constantly pushing to create a new world. Humanity is standing on the eve of a new era. Traditional industries are leveraging emerging digital technologies such as 5G, cloud computing, AI, big data and the Internet of Things, and the development focus of the digital economy is shifting from consumer Internet to industrial Internet.

The development of digital technology constantly promotes the progress of human productivity: from the agricultural age to the industrial age, from the information age to the future digital economy age. In the agricultural age, technological progress was slow, as were productivity iterations; After the industrial age, productivity accelerated. The steam engine, electricity, the Internet and other technologies accelerated the renewal and transition of productivity for nearly a century (Figure 2).

Necessary Condition No. 2: Organization

Through communication efficiency, border-less organization and flat hierarchy, the means of digital transformation and organizational form changed a lot. With more flexible organisms in the trend of the development of organizational change, it can be found with less staff and more senior managers, the basis of the formation of a more humane inverted pyramid structure. This can also better adapt to future enterprise competition.

Necessity Condition No. 3: The environment

The intensification of industry competition and the faster change of technology has become the external environment of digital transformation. Consumers are changing dramatically, and the digital consumers of the native generation are making higher demands on businesses. Their demands are not only more personalized, but they are also making new demands at a faster rate.

Need more help? Check out the Zentao blog. They have more articles on properly running a business, software management, building cross-functional teams, and so much more.

--

Author bio :

CEIBS Business Review: Founded in 2008, CEIBS Business Review is an institutional media brand deeply engaged in mainstream business management innovation. From the three dimensions of strategy, organization and talent, we are committed to becoming the "thinking spark" and "decision-making reference" for millions of professional elites and accompanying the long-term progress of managers of large enterprises in China.