Digital Transformation

AI and Platforms
Who I am
Assistant Professor of Strategy at ESCP Business
School

Formerly:

• Assistant Professor at Politecnico di Torino

• Visiting scholar at IESE Business School (Barcelona)

Research activities
Background
Strategy in the context of SMEs
B.Sc. and M.Sc. in Management Engineering –
Politecnico di Torino Decision-making processes in early-stage start-ups

Ph.D. «Management» – Politecnico di Torino Science commercialisation and university-industry

technology transfer

2
DESIGN OF THE COURSE

3
Course Objectives

• Learning the key components and drivers of Digital Transformation

• Understanding the main technology innovations today and the expected future developments

• Deep dive on Platforms and AI

• Learn how to shape and plan for a Digital Transformation

4
 Roadmap

#1: #3: #5: #7: #8:

Digital Digital Platforms Platforms AI
Transformation Transformation

#2 #4 #6
#9 #10:
Hands on Hands on Hands on
Hands on Final
practice on DT: practice on DT: practice on
practice on AI: Presentation and
Case Study Case Study Platforms:
Volkswagen Case Study on AI
Case Study
Group

YELLOW = CLASS // BLUE= GROUP TASK TO BE COMPLETED IN CLASS // GREEN = REQUIRES PREPARATION IN ADVANCE
5
Assessment
• Individual Assessment (30%): Based on class discussion of case
studies
• Group Assignment (20%): Based on Groupwork (AI)
• Individual final exam (60%) → Two open-ended questions on a
short case + 8 multiple choice questions

6
Digital Transformation

7
Agenda

1. Ice-Breaking: What is DT?

2. The driving forces of DT

3. Competing on DT

4. An evolutionary perspective of DT

5. The waves of technology innovation

6. How to implement DT

7. Bonus: An organizational perspective on the process of converting data into relevant knowledge

8
Ice-Breaking
What is DT?

9
Some Ice-Breaking Questions

What is Digital Transformation (DT)?

Why is DT important for businesses?

Why is DT so hard for businesses?

What are the key figures (roles) that need to take care of
DT?

10
 Why is DT important for businesses?

A matter of survival
“At least 40% of all businesses will die in the
next 10 years… If they don’t figure out how to
change their entire company to accommodate
new technologies.”

JOHN CHAMBERS,

Executive Chairman, Cisco System

11
 Why is DT so hard for businesses?

A matter of commoditization

“In Today’s era of volatility, there is no other way

but to re-invent. The only sustainable
advantage you can have over others is agility,
that’s it. Because nothing else is sustainable,
everything else you create, somebody else will
replicate.”

JEFF BEZOS, Amazon Founder & CEO

12
What are the key roles that need to take
care of DT?

A matter of leadership (and organization)

“IT leaders, CIOs specifically, need to stop being

so passive. I view the role of IT, the role of the
CIO as being frankly one of the most important,
if not the most important role at the leadership
table today. Because company CIOs that can’t
understand how to use technology to change
their business models are going to find
themselves somewhat out of jobs.”

JEFF IMMELT, former CEO, GE

13
The driving forces of Digital Transformation

14
Pool

• Who is using a traditional bank?

• Who is using a NeoBank (digital native)?

• Why?

• What Are The Differentiation Factors?

15
Changed customer behaviors (1/5)
CONSUMER BEHAVIOURS
% respondents

Appetite for propositions addressing core needs (financial +

50% nonfinancial i.e. home, car, health)

57% Appetite for personalization of services

78% Willingness to share data for reciprocal benefits

81% Trust their banks to look after their data

59% Want to see their bank blending physical and digital

Source: Accenture Global Consumer Survey 2019

16
Changed customer behaviors (2/5)

https://www.broadbandsearch.net/: Key Internet Statistics to Know

17
Changed consumer behaviors (3/5)
Global transaction value of buy now, pay later (BNPL) in e-commerce from 2019 to
2021, with forecasts from 2022 to 2026 (in billion U.S. dollars)

576

481

386

300

214

120
60
34

2019 2020 2021 2022 2023 2024 2025 2026

Note(s): Worldwide; May 2022;

Source(s): Statista 18
Changed customer behaviors (4/5)

19
Changed customer behaviors (5/5)

• The propensity to use digital channels is very

high also on senior customers

• In Italy, 15-20% of customers will increase the

use of digital channels, compared with 5-13%
in other countries

• McKinsey forecasts that up to 35% of complex

needs will be handled in a completely remote
way

Source: McKinsey, Reshaping retail banking for the next normal, 2020

20
From a technological point of view, which main phenomena have driven
the digital revolution?

21
Exponential evolution of technology
Moore’s Law:
Transistors per microprocessor

22
Exponential evolution of technology
Magnetic data storage
Historical cost of computer memory and storage

23
Exponential evolution of technology
Bandwidth
Average internet connection speed in the United States from 2007 to 2017 (in Mbps),
by quarter
20
Average speed in megabits per 18
16
14
12
second

10
8
6
4
2
0
Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17

Note(s): United States; 2007 to 2017

Source(s): Akamai Technologies; ID 616210 24
What all these exponential changes have
triggered?

25
What characterizes the digital age?

Digitization → Digitization refers to the taking off data and turning it into a digital asset.
Examples: music, movies, other forms of data….

Cloud Computing → The ability to take data and upload it to a cloud server and share it with other
devices and with other people.
It facilitates digitization.

IoT → Everything from your cell phone, to your personal computer, to increasingly
appliances, your automobile, even our built environment, all are having sensors
that are collecting data that are uploaded to the Cloud.

Platforms → Increasingly our data is exchanged on platforms. Platforms become a very

important mechanism by which we collect and aggregate data.

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What characterizes the digital age?

Digitization

Cloud Computing

Data Analytics → Data is important as they enable higher-order

analytics to get increased insights, forecasts,
IoT and predictions in the world.

Platforms

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What characterizes the digital age?

Artificial → The use of machine learning algorithms and the like to

Intelligence provide intelligences that can do everything.
Example: try to identify credit card fraud or identify whether
someone should receive a loan or not.

Automation → Particular application of AI, not limited to cars or drones, but

also involving manufacturing, and software systems.

Data Analytics
Blockchain → Blockchain has an ability to transform any variety of
processes where you have a ledger system. We see it in
finance and supply chain management.

Additive → In combination with the data and analytics and the artificial
Manufacturing intelligence, AM enables new ways of reconstructing supply
chains, influencing the place and space that these activities
take place.

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Competing on DT

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How to compete in such a landscape?
An arms race to build out the digital infrastructure?
Spending on digital transformation technologies and services worldwide from 2017 to
2026 (in trillion U.S. dollars)
4,0
Spending in trillion U.S. dollars

3,5

3,0

2,5

2,0

1,5

1,0

0,5
2017 2018 2019 2020 2021 2022* 2023* 2024* 2025* 2026*

Note(s): Worldwide; 2017 to 2022

Source(s): IDC; Statista; ID 870924 30
A 20-fold increase in IT spending, investing in that digital
infrastructure, translated just in x3 increase in productivity
Solow’s paradox

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Challenges of competing on technology

Impacts are diffuse & complex

Benefits are delayed

Benefits are competed away

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Core principle of any (not only digital) strategy

“If everyone can do it, it's difficult to create and capture value from it”

More formally:

“In a perfectly competitive market, no firm realizes economic profits (rents)”

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The red queen effect

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Finding the sweet spot

Values
What is our mission?
What is our scope?
What do we value?
Will digital
technology
VCP= Valuable Competitive Position
investments
provide me that
competitive
advantage? VCP
Opportunities
Capabilities
What does the market
demand? How do we What are our
create and strengths?
Who else, if anyone,
sustain Where might we have a
offers this value
value? competitive advantage?
proposition?

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Three phases of digitization as a template for a VCP

1. Value
(digitize data)

2. Connectivity
(share data on platforms)

3. Aggregation
(leverage data to create value)

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An example on the music industry

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A virtuous cycle to drive competitive advantage &
scalability

• This cycle drives the creation of competitive

advantage
Increasing
Transaction • Examples:

• Amazon for online retailing

Driving • Google for search engines
Scalability • Scalability in a digital context drives winner
Lowering Generating More take all dynamics
Transaction Data
Costs

Improving
Algorithms
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DT’s impact on deconstruction of the value chain
How do firms create competitive advantage along the value chain?

Market-Ready End User

Material Communities
Historically:
• Economies of scale
Customer • Economies of scope (Vertical Integration)
• Specialization
• ….
Manufacturer

Digital Age:

Suppliers • Bilateral flow of data

• Access to critical data at multiple levels
Suppliers

Raw Input

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Example on the telecommunication industry
Once upon a time (1900-2000)
Key activities:
• Network creation
• Phones rental

Assets owned:
• Network
• Phones

Revenue streams origin:

Value-chain organization: • Phone as a service (Fixed + Pay Per Use)
Vertically integrated companies

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Example on the telecommunication industry
Nowadays (2000-…)

New
services

Operator

Handset
Manufacturer
Value-chain organization:
Vertically disintegrated companies

Network
Provider

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Example on the telecommunication industry
Nowadays (2000-2023)

New
services Key activities:
• From Products to Services

Operator
Assets owned:
• From Tangibles (bottom) to Intangibles
(data, knowledge)

Handset
Manufacturer Revenue streams origin:
Value-chain organization:
Vertically disintegrated companies • From objects/services to data

Network
Provider

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Example on the telecommunication industry
Tomorrow (2023-…)

Fathom
AI Based
Services

New
services

Operator

Value-chain organization:
Further disintegration?

Handset
Manufacturer

Network
Provider
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Further Examples

Telecommunications Retail Energy Finance

Incumbents

Value chain
disruptors

44
Takeaways

Digital Age emphasizes:

• Data as starting point for value-added services

• Ecosystems importance
• Platforms importance
• Value chains transformation

Multiple and sudden reshuffles of competitive

positions

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An evolutionary perspective on DT
A (non exhaustive) list of technologies

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Sixty+ years of technology innovation
TECHNOLOGY INNOVATION DRIVERS, FROM AUTOMATION TO DIGITAL BUSINESS

ACCOUNTING PROCESS DIGITAL SALES &

DIGITAL
AUTOMATION AUTOMATION SERVICE BUSINESS
DATA,
Personal
BLOCKCHAIN, AI,
Mainframes Computers Internet / Mobile
PLATFORMS

1970 1990 2000 TODAY

Exponential Technology Progress

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Mainframe

In 2019, mainframes were (still) used by:

• 92 of the world’s top 100 banks

• 10 out of 10 of the world’s top insurers

• 18 of the top 25 retailers

• 70% of Fortune 500 Companies

Mainframes are high-performance

computers with large amounts of
memory and processors that process
billions of simple calculations and
transactions in real time.

48
Client Servers - PC

• Distributed processing power

• Graphical user interface

• Mouse

• Local software installation

The client-server architecture is a • Personal / Internal usage

distributed application framework dividing
tasks between servers and clients, which
either reside in the same system or
communicate through a computer network
or the Internet.

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Web 1.0 - eCommerce

• Simpler graphic and less processing power

• Accessible (almost) anywhere / anytime

• Accessible by final customers

Web 1.0 was all about fetching, and

reading information

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Web 2.0 – Cloud, Mobile

• Rich graphic and high processing power

• APP

• Accessible anywhere / anytime

• Provided in cloud

Web 2.0 is all about reading, writing,

creating, and interacting with the end
user.

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Typical situation in a large corporate

(PS: HIGHLY SIMPLIFIED)

52
Big Data, Analytics, Visualization

BIG DATA

ANALYTICS

VISUALIZATION

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Robotic Process Automation

RPA Process Steps PROs

• Replaces manual steps with • Copy-Paste • Speed

limited / no added value with a • Visual check on two platforms • Lowers operational risks
broad set of algorithms that can
be performed by computers • Spreadsheet manipulation • Availability 24X7
(macros, screen scraping, web • Document composition • Auditability
scraping, office automation etc.)
• Email composition
• Report preparation CONs
• ….
• Weak integration – must be
updated if user interface /
formats change

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Robotic Process Automation

Examples are unlimited, in all industries

• Airline tickets
• Call center – customer profile / complaints log
• Account closure
• 4 eyes procedures
• Net Asset Value (NAV) calculation
• Reporting
• …

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Robotic Process Automation

Contracts Claims Pay

Bank Customer

Check Check Close Claim

Coverage Limits

Open Claim

Submit
Request

Check Fraud General

Requests Disbursement
Ledger

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Robotic Process Automation

Contracts Claims Pay

Bank Customer

Check Check Close Claim

Coverage Limits
RPA
RPA
RPA Open Claim
RPA

Submit RPA
Request

Check Fraud General

Requests Disbursement
Ledger

57
Artificial Intelligence

The Waves Of Technology Innovation

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API

Application Programming Interface

Programs / machine interacting without a user
interface, through standard data interfaces. Simple
examples: API

- Weather forecast
- Stock value
- Traffic
- Social media
- ...

59
DLT/Blockchain

DLT is a decentralized database managed by multiple participants, across multiple nodes.

Blockchain is a type of DLT where transactions are recorded with an immutable cryptographic
signature called a hash. The transactions are then grouped in blocks and each new block
includes a hash of the previous one, chaining them together, hence why distributed ledgers
are often called blockchains.

60
Quantum computing

A quantum computer made by researchers in China has solved a calculation in

4.2 hours that would take a classical computer thousands of years. This
demonstration of what the researchers call “quantum computational
advantage” […]
https://www.newscientist.com/article/2290832-quantum-supremacy-has-been-achieved-by-a-more-complex-quantum-computer

“Nature isn't classical, dammit, and if you want to make

a simulation of nature, you'd better make it quantum
mechanical, and by golly it's a wonderful problem,
because it doesn't look so easy.”
R. Feynman
IBM Quantum System One in Ehningen, Germany
IBM Research, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons

61
The Waves Of Technology Innovation
How DT disrupts and transforms

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The disruptive effect of tecnology innovation
COMBINED EFFECT OF DISRUPTIVE TECHNOLOGIES

• Adoption rate is accelerating

• Opportunity for new entrants to

leverage the combinatory effect of
parallel innovations

• Challenges for incumbent to get rid of

legacies (technology, skills, people…)
to implement new capabilities

Source: WEF/Accenture - Digital Transformation Initiative

63
6
4

Three decades of digital disruption

1995 2013 2022

Disruptive Technologies: Big Bang H o w I n c u m b e n t s S urv iv e a n d
C a t c h i n g the W a v e Disruption Thrive
O n e of t h e m o s t co n sist en t patterns In recen t years a new—disquieting— R e s e a r c h o n t h e world’s b i g g e s t
in b u s i n e s s is t h e failure of l e a d i n g form of disruptive in n o vat i o n h a s c o m p a n i e s s h o w s that digital
c o m p a n i e s to stay at t h e t o p of their e m e r g e d . It doesn’t follow C l a y t o n disruption is less destructive t h a n yo u
industries w h e n t e c h n o l o g i e s or Christensen’s classic m o d e l […] m i g h t think.
m a r k e t s c h a n g e . […]

https://hbr.org/1995/01/disruptive- https://hbr.org/2013/03/big-b a n g - https://hbr.org/2022/01/how-

t ech n o l o g ies -c a t c h i n g - th e- disruption i n c u m b e n t s - survive-a n d -
wave thrive
J o s e p h L. B o w e r a n d C l a y t o n Larry D o w n e s a n d P a u l N u n e s J u l i a n Bi rk i n s h a w
M. Christensen

64
6
5

Three decades of digital disruption

1995 Innovator’s
“Dilemma Zones”

Disruptive Technologies: Ca t ching

Performance
t he W a v e
O n e of t h e m o s t co n sist en t patterns in
b u s i n e s s is t h e failure of l e a d i n g
c o m p a n i e s to stay at t h e t o p of their
industries w h e n t e c h n o l o g i e s or m a r k e t s
c h a n g e . […]

https://hbr.org/1995/01/disruptive- Time (!)

t ech n o l o g ies -c a t c h i n g - th e-
wave
• Industries re a c h maturity
J o s e p h L. B o w e r a n d C l a y t o n
• Executives have t i m e to test
M. Christensen n ew technologies a n d
prepare to shift
• I n c u m b e n t s c a n j u m p f rom on e S-
curve to t h e next

65
6
6

Three decades of digital disruption

2013
B i g Ban g “Sudden Death”
“Disrupti Line
on Zones”

B i g B a n g Disruption

Performance
In recent years a new—disquieting—
form of disruptive in n o vat io n h a s
e m e r g e d . It doesn’t follow C l a y t o n
Christensen’s classic m o d e l […]

https://hbr.org/2013/03/big-b a n g -
disruption
Time
Larry D o w n e s a n d P a u l N u n e s

• B i g B a n g disruptors destroy
industries before S - curves re a ch
maturity
• Shift f rom on e S -curve to th e n ext
h a p p e n s suddenly
• I n c u m b e n t s w h o can’t join their
customers in th e l ea p f rom S -curve to
t h e n ex t quickly disappear

66
6
7

Three decades of digital disruption

2022
H o w I n c u m b e n t s S u r v i v e a n d T hriv e

R e s e a r c h o n t h e world’s b i g g e s t
c o m p a n i e s s h o w s that digital
disruption is less destructive t h a n yo u
m i g h t think.

https://hbr.org/2022/01/how-
i n c u m b e n t s - survive-a n d -
thrive

J u l i a n Birkin sh aw

67
6
8

The shark fin of adoption

Retail
GPS services
In the new industry model disruptive
products and services are adopted
Taxi services
suddenly.
Hospitality
Customers fall in just 2 groups: trial users
Travel agencies (often participating in development) and
Music everybody else
Incumbents cannot wait for the market to
Banking
change and choose a fast-follower
approach

68
6
9

The shark fin of adoption – Implications (1/2)

• Difficult for manufacturers to identify new innovation as fads versus

trends.
→ Assessing the cultural elements and deep insights behind each case.
Retail
GPS services
• Decision making becomes riskier and uncertainty increases
Taxi services
Hospitality
Travel agencies • The innovation maturity cycle is shorter. Risk of being copied or
Music replaced by new technologies.
Banking → R&D costs must be recouped over fewer years.

• Product launch plans require a Big Bang model.

→ Important to expand rapidly in sales channels and communication.
→ Excellent execution and implementation will be key, as well as
fearlessness and grit.

• Gaining penetration quickly is the key variable, and detecting problems in

the adoption curve is a fundamental issue in order to rectify plans quickly
and take action.

• Working using a generational innovation model.

→ Do not think of one single product, but of a platform, with successive
generations that will improve the initial product.

69
7
0

The dilemma of incumbents

Innovation Agenda: Trasformation Agenda:

Strategic Alignment
• In n o vat i o n Lab s • Tran s f o rm t h e core
• D i g i t al Native First • Legacy modernization
(mobile, analytics…)
• S al es digitization
• D i g i t al blueprint
• O p erat i o n s digitization
• D i g i t al attackers
• D i g i t al culture
• E c o s y s t e m play
• …
• …

70
A strategic blueprint for DT

71
Key strategic areas to be monitored when undergoing a
DT process

Technology → How to use new technologies?

Strategy → What changes in value creation?

Organisation → What are the main structural changes?

Finance → What are the financial dimensions of Digital Transformation?

72
Strategic questions about the use of new technologies

Strategic Question Strategic Options Description

How significant is your firm’s Enabler IT as an enabler of strategic goals
IT to achieving strategic IT is seen as a support function to reach
goals? Supporter
strategic goals
The firm is at the forefront of innovating
Innovator
new technologies
How ambitious is your firm’s
The firm actively looks for opportunities
approach to new digital Early adopter
to implement new technologies
technologies?
The firm relies on well-established
Follower
solutions

Source: Hess, T., Matt, C., Benlian, A., & Wiesböck, F. (2016). Options for formulating a digital transformation strategy. MIS Quarterly
Executive, 15(2). 73
Strategic questions about changes in value creation
Strategic Question Strategic Options Description
Distribution of analog products over digital
Electronic sales channels
channels
Extension of the classic product to digital
Cross-media
How “digital” is your channels
interface to the
Enriched-media Digital enrichment of classic product
customer?
Content platforms New content-based offerings
New offerings without direct relation to
Extended business
content (analog/digital)
Revenues from the user for access to or the
Paid content
use of the content
How will you create Revenues from add-ons based ona free basic
Freemium
revenue from future product
business operations? Advertising Selling of attention
Revenues from products complementary to
Selling complementary products
the core business
Source: Hess, T., Matt, C., Benlian, A., & Wiesböck, F. (2016). Options for formulating a digital transformation strategy. MIS Quarterly 74
Executive, 15(2).
Strategic questions about changes in value creation

Strategic Question Strategic Options Description

Content creation Creation of content (analog or digital)
Content aggregation Aggregation of content (analog or digital)
What will your future
Content distribution Distribution of content (analog or digital)
business scope be?
Content platforms Management of content platforms
Other Other business model

Source: Hess, T., Matt, C., Benlian, A., & Wiesböck, F. (2016). Options for formulating a digital transformation strategy. MIS Quarterly 75
Executive, 15(2).
Strategic questions about structural changes
Strategic Question Strategic Options Description
Group CEO The group’s chief executive officer

Who is in charge of the The CEO of the business unit that tackles the digital
CEO of business unit
digital transformation transformation endeavor
endeavor? Group CDO The group’s chief digital officer
Group CIO The group’s chief information officer
Do you plan to Digital operations are fully integrated into an
Integrated
integrate new organization’s current structures
operations into existing
structures or create Digital operations are implemented separately from the
Separated
separate entities? core business

Products and services Changed products and services

What types of
operational changes Business processes Improvement of business processes
do you expect?
Skills A new set of skills based on digital technologies

Source: Hess, T., Matt, C., Benlian, A., & Wiesböck, F. (2016). Options for formulating a digital transformation strategy. MIS Quarterly 76
Executive, 15(2).
Strategic questions about structural changes

Strategic Question Strategic Options Description

Internally Rely on the resources that already exist
Do you need to acquire
new competencies? If Partnerships Foster partnerships
so, how do you plan to Takeovers Accumulate know-how via takeovers
acquire them?
External sourcing Source additional know-how from outside

Source: Hess, T., Matt, C., Benlian, A., & Wiesböck, F. (2016). Options for formulating a digital transformation strategy. MIS Quarterly 77
Executive, 15(2).
Strategic questions about the financial dimension of DT

Strategic Question Strategic Options Description

Margins in the core business remain mostly unaffected by
Low
How strong is the digital technologies
financial pressure on
Digital technologies affect core business margins, but the core
your current core Medium
business remains profitable
business?
High Digital technologies erode margins
How will you finance Internal Finance digital transformation through internal funds
the digital
transformation External External financing necessary to finance digital transformation
endeavor?

Source: Hess, T., Matt, C., Benlian, A., & Wiesböck, F. (2016). Options for formulating a digital transformation strategy. MIS Quarterly 78
Executive, 15(2).
How to implement Digital Transformation?

79
Critical questions on how to find a way to DT

Where do we start?

Do I take a course in coding and Python or do I hire a new team?

Do I need to identify a brand-new product in a new market?

Should I automate our internal processes?

Would a new app to serve our clients be transformational enough?

Do we need to move all of our services to the Cloud?

80
Mapping the Path to Digital Transformation
The four layers of a DT stack

Strategy How do we use data analytics to transform our business?

Functions How do we use data analytics in business processes?

Technology How do we analyze data?

Infrastructure How do we organize data?

81
Mapping the Path to Digital Transformation
The Digital Transformation Stack
How do we use
Improving Creating Leveraging Building Driving data analytics to
Judgment Value Ecosystems Agility Growth transform our
Strategy business?

How do we use
Digital Digital Digital People Digital data analytics in
Marketing Operations Finance Analytics Communic. business
Functions processes?

Data Artificial Internet of How do we

Blockchain Crowds
Science Intelligence Things analyze data?
Technology

Digitizing Cloud Data Data Organizing How do we

Data Computing Integrity Security IT organize data?
Infrastructure

82
Combining digitization and digitalization: objectives

Digitalization

External

New customers
Focus on
Growth
(Revenues) New products

New pricing models Internal

Process
Focus on
Digitization Efficiency
(Cost) Utilization

Costs agility

83
8
4

The Digital Transformation Journey

D iffe re n t iat io n
Agenda
Digitalization

Digital Transformation
Journey

Optimization
Agenda

Digitization
84
8
5

The Digital Transformation Journey

D i f f er en t i at i o n A g e n d a
Digitalization
1. Digital Capability / Maturity Assessment
B
2. Competitive L a ndsc a pe
3
Digital Transformation Journey
3. Opt imization A g e n d a
2
4. Differentiation A g e n d a

1 Optimization Ag enda
5. Target State Definition

A Digitization
6. Digital Transformation Journey (actions)

85
Some (general) takeaways

86
Digitization vs Digitalization vs. Digital Transformation

Digitization
The process of changing from analog to digital form, also
known as digital enablement. Said another way, digitization
takes an analog process and changes it to a digital form
without any different-in-kind changes to the process itself.
Gartner Glossary

→ any time you translate something into bits and bytes –

for example, by scanning a photo or a document – you
are digitizing that object.

87
Digitization vs Digitalization vs. Digital Transformation

Digitalization:
The use of digital technologies to change a business
model and provide new revenue and value-producing
opportunities. It is the process of moving to a digital
business.
Gartner Glossary

→ the rise of digitalization coincides with the acceleration

and mass marketing of new digital technologies,
like cloud computing, machine learning, artificial
intelligence, business intelligence, and the Internet of
Things, in the last decade.

88
Digitization vs Digitalization vs. Digital Transformation

Digital Transformation
Anything from IT modernization (for example, cloud
computing), to digital optimization, to the invention of new
digital business models.
Gartner Glossary

→ The overall effect of digitalization and digitization

across an organization is called digital transformation –
more of a journey than an outcome.

89
Digitization vs Digitalization vs. Digital Transformation

TRIGGERS

Digital
Digitization Digitalization
Transformation

TRIGGERS

90
Some (key) open questions

91
Some benefits of digitalization trigger key questions

DIGITAL TWIN:
Digitalizing the product or the manufacturing process allows the creation of digital copies.

This allows remote levels of collaboration with the customer at the design stage and enables many more stages of
interaction in design cycles.

How to use this capability?

92
Some benefits of digitalization trigger key questions

DIGITAL TWIN = Efficiency

In Medium- and hi-tech sectors (aerospace, oil and
gas, automotive) DT enables the real time detection
of:

• Engineering content (diagrams, specifications and

configurations), which describes the physical asset
in digital terms
• Physical constraints (operating capacities,
throughputs and pressures) that restrict how each
asset physically behaves
• Operating parameters (input energies,
consumables, by-products and emissions) that
constrain the asset’s performance

93
Some benefits of digitalization trigger key questions

DIGITAL TWIN = New Value Propositions and Value Chains

In medium-low tech such -as textiles- DT enables:

• New models of sales and customer relations (e.g., made-to-measure

clothing)

• The introduction of much more simulation and digital design in the

context of increased complexity due to competition on time and
material complexity.

Question:

• What value is created for the customer and who controls it?

94
Some benefits of digitalization trigger key questions

DATA:

In manufacturing, digitization is leading to large amounts of data

related to product quality, to be shared with more demanding
industrial customers in terms of product traceability along the supply
chain and cyber security.

Question:

• What are the organizational implications of this new

"transparency“? And the strategic ones?

95
Key takeaways

1. DT is triggered by an exponential technology process

2. Combinatory effect of emerging technologies

3. Digitization: internal, cost-focused, non transformative

4. Digitalization: external , revenue-focuser, transformative

5. Competition on DT goes beyond simple investments

6. Digital Transformation Journey

7. Digital Transformation Stack

96
Thank you

97
Bonus
An organizational perspective on the process of
converting data into relevant knowledge

98
Bonus contents
How firms’ organizational knowledge and structures should be redesigned to take
advantage of their data-rich operational environments?

99
Key problem
Digitalization is a transformative process for established firms. What are the ways
through which firms can digitally transform their operations to improve their
decision making?
• A growing volume of data leads firms to leverage algorithms to obtain useful insights, patterns and correlations
automating operational decision-making.

but…

• Simply acquiring new information and knowledge does not necessarily lead to improved operational decision-
making processes

then

• Firms should be able to acquire, assimilate, transform and exploit this new knowledge to promote new and/or improved
operational decision-making mechanisms. How?

100
Context

Number of Number of
Market cap
Company Specialisation employees interviewed
(Euros, March 2021)
(2020) informants

Generation,
transmission, Around
Company E distribution and 83.43 B 28
retailing of 60,000
electricity

Transmission of Around
Company T 12.29 B 17
electricity 5,000

101
 Absorptive capacity dimensions

Acquisition Assimilation Transformation Application

Combine existing knowledge Incorporate transformed 4 phases to support data conversion

Identify and acquire critical Analyse, process, interpret and
data for operations through understand the information
and insights from the knowledge extracted by into knowledge
assimilated information to algorithms into frontline activity
sensors derived from algorithms
create new knowledge procedures

(1) – Layering (3) – Line employees’

Data acquisition is a involvement
Combinative capabilities associated with absorptive capacity dimensions

general-purpose activity Line employees’

characterised by high levels involvement results in (4) – Horizontal
of technical specialisation, system-level and context- integration
which does not depend on
specific knowledge being Horizontal integration
Coordination

the extent to which data

capabilities

scientists have accumulated used to fine-tune and mechanisms allow the

industry-specific validate the output recombination and
knowledge. generated by algorithms. internalization of line
employees’ tacit and
(2) – Cross-functional interfaces codified knowledge
Cross-functional interfaces realised through new liaison resulting from algorithms.
roles (i.e., business translator) allow the internal search of
relevant data and the interpretation and understanding of
the information derived from algorithms. 6 activities to support improved
(5) - Formalisation operational decision-making
The formalisation of
capabilities
System

operational work increases

the accuracy and the
quantity of the data that
can feed algorithms.

(6) - Socialisation
Socialisation tactics instil a
data-driven culture in the
Socialisation
capabilities

workforce and allows

legacy experiential
approaches to be blended
with data-driven
102
approaches when dealing
with operational decisions.
 Absorptive capacity dimensions

Acquisition Assimilation Transformation Application

Combine existing knowledge Incorporate transformed

Identify and acquire critical Analyse, process, interpret and
and insights from the knowledge extracted by
data for operations through understand the information
assimilated information to algorithms into frontline activity
sensors derived from algorithms
create new knowledge procedures “Data scientists conduct work that is
(1) – Layering (3) – Line employees’
highly specialised, and which is
Data acquisition is a involvement characterised by a low level of
Combinative capabilities associated with absorptive capacity dimensions

general-purpose activity Line employees’

characterised by high levels involvement results in (4) – Horizontal industry-specific competences on the
of technical specialisation,
which does not depend on
system-level and context- integration electrical domain: they do not care
specific knowledge being Horizontal integration
Coordination

the extent to which data

about the electrical part, but they are
capabilities

scientists have accumulated used to fine-tune and mechanisms allow the

industry-specific validate the output
generated by algorithms.
recombination and
internalization of line
bulimic of data, and they have a high
knowledge.
employees’ tacit and level of technical skills in algorithms.”
codified knowledge
(2) – Cross-functional interfaces
Cross-functional interfaces realised through new liaison resulting from algorithms. (Middle Manager – Head of a HRM
roles (i.e., business translator) allow the internal search of unit, Company E)
relevant data and the interpretation and understanding of
the information derived from algorithms.

(5) - Formalisation
The formalisation of
capabilities
System

operational work increases

the accuracy and the
quantity of the data that
can feed algorithms.

(6) - Socialisation
Socialisation tactics instil a
data-driven culture in the
Socialisation
capabilities

workforce and allows

legacy experiential
approaches to be blended
with data-driven
103
approaches when dealing
with operational decisions.
 Absorptive capacity dimensions

Acquisition Assimilation Transformation Application

Combine existing knowledge Incorporate transformed

Identify and acquire critical Analyse, process, interpret and
and insights from the knowledge extracted by
data for operations through understand the information
assimilated information to algorithms into frontline activity
sensors derived from algorithms
create new knowledge procedures

(1) – Layering (3) – Line employees’

Data acquisition is a involvement “Our data scientists are not interested in
Combinative capabilities associated with absorptive capacity dimensions

general-purpose activity
characterised by high levels
Line employees’ delving deeply into the understanding of
involvement results in (4) – Horizontal
of technical specialisation, system-level and context- integration the technical problems of our sector. […]
which does not depend on
specific knowledge being Horizontal integration many of them don’t even want to talk
Coordination

the extent to which data

capabilities

scientists have accumulated used to fine-tune and mechanisms allow the

industry-specific validate the output recombination and so much with our technical
knowledge. generated by algorithms. internalization of line
employees’ tacit and
departments or with the line workers.
(2) – Cross-functional interfaces codified knowledge For this reason, we have created the
resulting from algorithms.
Cross-functional interfaces realised through new liaison
roles (i.e., business translator) allow the internal search of
business translator role. A business
relevant data and the interpretation and understanding of translator is accountable for the
the information derived from algorithms.
development of the business questions
(5) - Formalisation that need to be addressed by the data
The formalisation of
capabilities

analysis run by our scientists.”

System

operational work increases

the accuracy and the
quantity of the data that
(Top Management Team, Company E)
can feed algorithms.

(6) - Socialisation
Socialisation tactics instil a
data-driven culture in the
Socialisation
capabilities

workforce and allows

legacy experiential
approaches to be blended
with data-driven
104
approaches when dealing
with operational decisions.
 Absorptive capacity dimensions

Acquisition Assimilation Transformation Application

Combine existing knowledge Incorporate transformed

Identify and acquire critical Analyse, process, interpret and
and insights from the knowledge extracted by
data for operations through understand the information
assimilated information to algorithms into frontline activity
sensors derived from algorithms
create new knowledge procedures

(1) – Layering (3) – Line employees’

Data acquisition is a involvement
“We are retrieving data about past
Combinative capabilities associated with absorptive capacity dimensions

general-purpose activity Line employees’

characterised by high levels
of technical specialisation,
involvement results in (4) – Horizontal maintenance operations. Unfortunately,
system-level and context- integration
which does not depend on
specific knowledge being Horizontal integration these data are incomplete and
Coordination

the extent to which data

capabilities

scientists have accumulated used to fine-tune and mechanisms allow the inaccurate because no procedures
validate the output recombination and
industry-specific
knowledge. generated by algorithms. internalization of line were in place that obliged operators to
employees’ tacit and
codified knowledge
document the type of intervention
(2) – Cross-functional interfaces
Cross-functional interfaces realised through new liaison resulting from algorithms. done on the grid. We know the past
roles (i.e., business translator) allow the internal search of
relevant data and the interpretation and understanding of
downtimes of our distribution grid, but
the information derived from algorithms. we did not document the type of spare
(5) - Formalisation
parts that were replaced or the type of
The formalisation of interventions that were conducted. This
capabilities
System

operational work increases

the accuracy and the is a problem because it hinders the
quantity of the data that
can feed algorithms.
application of machine learning, since
we cannot train our algorithms by
(6) - Socialisation
Socialisation tactics instil a
making inference on any type of
data-driven culture in the association between the work done on
Socialisation
capabilities

workforce and allows

legacy experiential the grid in the past and its behavior.”
approaches to be blended (Middle Manager – Maintenance Unit,
with data-driven
approaches when dealing Company E) 105
with operational decisions.
 Absorptive capacity dimensions

Acquisition Assimilation Transformation Application

Identify and acquire critical Analyse, process, interpret and

Combine existing knowledge Incorporate transformed “We are launching communication
and insights from the knowledge extracted by
data for operations through understand the information
assimilated information to algorithms into frontline activity initiatives about our new strategy of
sensors derived from algorithms
create new knowledge procedures making the grid smarter. In these
(1) – Layering (3) – Line employees’ initiatives, we stress the importance of
Data acquisition is a involvement line involvement in combining their
Combinative capabilities associated with absorptive capacity dimensions

general-purpose activity Line employees’

characterised by high levels
of technical specialisation,
involvement results in (4) – Horizontal operational knowledge to formulate
system-level and context-
which does not depend on
specific knowledge being
integration
Horizontal integration
improvement suggestions for our
Coordination

the extent to which data

capabilities

scientists have accumulated used to fine-tune and mechanisms allow the algorithms.”
validate the output recombination and
industry-specific
knowledge. generated by algorithms. internalization of line (Middle Manager – Head of a HRM unit,
employees’ tacit and Company T)
(2) – Cross-functional interfaces codified knowledge
Cross-functional interfaces realised through new liaison resulting from algorithms.
roles (i.e., business translator) allow the internal search of
relevant data and the interpretation and understanding of
the information derived from algorithms.

(5) - Formalisation
The formalisation of
capabilities
System

operational work increases

the accuracy and the
quantity of the data that
can feed algorithms.

(6) - Socialisation
Socialisation tactics instil a
data-driven culture in the
Socialisation
capabilities

workforce and allows

legacy experiential
approaches to be blended
with data-driven
106
approaches when dealing
with operational decisions.
 Absorptive capacity dimensions

Acquisition Assimilation Transformation Application

“We have applied machine learning
Identify and acquire critical Analyse, process, interpret and
Combine existing knowledge Incorporate transformed algorithms in a backward logic to let the
and insights from the knowledge extracted by
data for operations through
sensors
understand the information
derived from algorithms
assimilated information to algorithms into frontline activity algorithms understand the reasons for
create new knowledge procedures
past breakdowns in our generation
(1) – Layering (3) – Line employees’ plants. The reaction has often been
Data acquisition is a involvement
defensive. When faced with the
Combinative capabilities associated with absorptive capacity dimensions

general-purpose activity Line employees’

characterised by high levels
of technical specialisation,
involvement results in (4) – Horizontal diagnostics generated by the algorithm,
system-level and context- integration
which does not depend on
specific knowledge being Horizontal integration employees questioned their efficacy in
Coordination

the extent to which data

capabilities

scientists have accumulated used to fine-tune and mechanisms allow the an attempt to prove their lack of
industry-specific validate the output recombination and
knowledge. generated by algorithms. internalization of line mistakes in running or doing the
employees’ tacit and
codified knowledge
maintenance of the machinery, even
(2) – Cross-functional interfaces
Cross-functional interfaces realised through new liaison resulting from algorithms. when a breakdown or a micro stoppage
roles (i.e., business translator) allow the internal search of
relevant data and the interpretation and understanding of
was not really due to their actions.
the information derived from algorithms. They did not truly seize the
(5) - Formalisation opportunities of learning something
The formalisation of new. We want to fight this. It causes
capabilities
System

operational work increases

the accuracy and the stress and a lack of learning. To do this,
quantity of the data that
can feed algorithms.
we are building a no-blame culture
where failure is not punished and
(6) - Socialisation
Socialisation tactics instil a should be communicated and shared.”
data-driven culture in the (Top Management Team – Thermal
Socialisation
capabilities

workforce and allows

legacy experiential Generation Unit, Company E)
approaches to be blended
with data-driven
107
approaches when dealing
with operational decisions.
 Absorptive capacity dimensions

Acquisition Assimilation Transformation Application “Last week, I witnessed a discussion between a

Combine existing knowledge Incorporate transformed young and an older installer. The younger one
Identify and acquire critical Analyse, process, interpret and
data for operations through understand the information
and insights from the knowledge extracted by said: 'There is too much voltage on the
assimilated information to algorithms into frontline activity
sensors derived from algorithms
create new knowledge procedures power line, we have to introduce a new
transformer station'. The older one answered:
(1) – Layering
Data acquisition is a
(3) – Line employees’ 'How is that possible?' He went to check: no
involvement
Combinative capabilities associated with absorptive capacity dimensions

general-purpose activity Line employees’ way! It was impossible. The younger one had
characterised by high levels
of technical specialisation,
involvement results in (4) – Horizontal made a mistake in the calculation.
system-level and context- integration
which does not depend on
specific knowledge being Horizontal integration
Coordination

the extent to which data

capabilities

scientists have accumulated used to fine-tune and mechanisms allow the When the older one commented on it, the
industry-specific validate the output recombination and younger one replied: 'No, the system gave me
knowledge. generated by algorithms. internalization of line
employees’ tacit and that answer, I'm sure! You have to build the
(2) – Cross-functional interfaces codified knowledge transformer station'. And the older one said:
resulting from algorithms.
Cross-functional interfaces realised through new liaison 'No, electrotechnical speaking, I can carry 20
roles (i.e., business translator) allow the internal search of
relevant data and the interpretation and understanding of kW for 700 meters with that section of
the information derived from algorithms. cable’.
(5) - Formalisation
The formalisation of In fact, you know what the problem was?
capabilities
System

operational work increases There had been a dummy load (a person who
the accuracy and the
quantity of the data that was illegally stealing energy from the grid)
can feed algorithms. and the younger installer had miscalculated
(6) - Socialisation
the load, but couldn't bypass the problem.”
Socialisation tactics instil a (Middle Manager – Distribution unit; Company
data-driven culture in the E)
Socialisation
capabilities

workforce and allows

legacy experiential
approaches to be blended
with data-driven
108
approaches when dealing
with operational decisions.
Combinative capabili
(6) - Socialisation
Socialisation tactics instil a
Absorptive capacity dimensions data-driven culture in the

Socialisation
capabilities
workforce and allows
Acquisition Assimilation Transformation Application
legacy experiential
approaches to be blended
Combine existing knowledge Incorporate transformed
Identify and acquire critical Analyse, process, interpret and with data-driven
and insights from the knowledge extracted by
data for operations through understand the information approaches
assimilated information to algorithms into when dealing
frontline activity
sensors derived from algorithms with operational decisions.
create new knowledge procedures

Key (1) – Layering (3) – Line employees’

resources in Data acquisition is a
Data Information
involvement Knowledge Learning
ilities associated with absorptive capacity dimensions
a data-driven general-purpose activity
context Line employees’
characterised by high levels involvement results in (4) – Horizontal
of technical specialisation, system-level and context- integration
which does not depend on Data scientists (for the fine-
specific
tuningknowledge being Horizontal integration
Coordination
the of algorithms) Functional middle
capabilities
Dataextent to which
architects and data
data used to fine-tune and mechanisms allow the
scientists have + managers (for decision-making
engineers (for accumulated
the design of validate the output recombination
industry-specific Business translators (for the Boundary spanningand units processes)
large-scale datasets)
knowledge. generated by algorithms.
interpretation and internalization of line
between research, +
Key roles +
understanding of the operation and tacit
employees’ training
and(for Line employees and the
in a data- Business translators (for the
information derived from the recombination of knowledge)
codified knowledge cross fertilisation of
driven internal search(2)of –relevant
Cross-functional
data) interfaces
Cross-functional algorithms) +
resulting from algorithms. approaches based on
context + interfaces realised through new liaison
+ Line employees (for the seniority (for the
roles Managers
(i.e., business translator) allow the internal search of
(for the
Line employees (for the internalisation of knowledge) implementation of the
formalisation
relevant dataofand
the operational
the interpretation and understanding of
interpretation of the operational prescriptive and predictive logics
processes)
the information derived from algorithms.
process underlying the in their operational processes)
algorithms)
(5) - Formalisation
The formalisation of
capabilities

Key Interpretation and

Internal work
searchincreases
and Recombination and
System

activities in a operational understanding of the Knowledge use and

organisation of the internalisation of new and
data-driven the accuracy and the information produced by exploitation
relevant data existing knowledge
context quantity of the data that algorithms 109
can feed algorithms.
110