Digital Transformation Strategies

Abstract

In recent years, firms in almost all industries have conducted
a number of initiatives to explore new digital
technologies and to exploit their benefits. This frequently
involves transformations of key business operations and
affects products and processes, as well as organizational
structures and management concepts. Companies need to
establish management practices to govern these complex
transformations. An important approach is to formulate a
digital transformation strategy that serves as a central
concept to integrate the entire coordination, prioritization,
and implementation of digital transformations within a
firm. Despite first research efforts and the frequent
challenges encountered in practice, academia still
lacks specific guidelines for firms on how to formulate,
implement, and evaluate digital transformation strategies.

Full text

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*** This is a working paper version of the article: ***
Matt, C.; Hess, T.; Benlian, A. (2015): Digital Transformation Strategies, Business and In-
formation Systems Engineering, 57(5), 339–343,
http://link.springer.com/article/10.1007/s12599-015-0401-5.
Digital Transformation Strategies
Christian Matta, Thomas Hessa, Alexander Benlianb
Institute for Information Systems and New Media
Ludwig-Maximilians-Universität München, Ludwigstr. 28,
80539 Munich, Germany
e-mail: matt@bwl.lmu.de; thess@bwl.lmu.de
Chair of Information Systems & E-Services
Technische Universität Darmstadt, Hochschulstraße 1,
64289 Darmstadt, Germany
e-mail: benlian@ise.tu-darmstadt.de
Keywords: Digital transformation framework, cross-functional strategy, digital technologies
1 Background and Basic Understanding
In recent years, firms in almost all industries have conducted a number of initiatives to ex-
plore new digital technologies and to exploit their benefits. This frequently involves transfor-
mations of key business operations and affects products and processes, as well as organiza-
tional structures and management concepts. Companies need to establish management prac-
tices to govern these complex transformations. An important approach is to formulate a digital
transformation strategy that serves as a central concept to integrate the entire coordination,
prioritization, and implementation of digital transformations within a firm. We define digital
transformation strategies and differentiate them from related concepts, describe their main
elements as parts of a general framework, and show opportunities for further research in this
field.

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The exploitation and integration of digital technologies often affect large parts of companies
and even go beyond their borders, by impacting products, business processes, sales channels,
and supply chains. Potential benefits of digitization are manifold and include increases in
sales or productivity, innovations in value creation, as well as novel forms of interactions with
customers, among others. As a result, entire business models can be reshaped or replaced
(Downes and Nunes 2013). Owing to this wide scope and the far-reaching consequences, a
digital transformation strategy seeks to coordinate and prioritize the many independent
threads of digital transformation. Owing to their company-spanning characteristics, they cut
across other business strategies and should be aligned with them (Figure 1).
Fig. 1 Relation between digital transformation strategy and other corporate strategies
While there are various concepts of IT strategies (Teubner 2013), these mostly define the cur-
rent and the future operational activities, the necessary application systems and infrastruc-
tures, and the adequate organizational and financial framework for providing IT to fulfill
business operations within a company. Hence, IT strategies usually focus on the management
of IT within a firm, with only a narrow impact on driving innovations in business develop-
ment. To some degree, this constricts the product-centric and customer-centric opportunities
that arise from new digital technologies, which often cross firms’ borders. Further, IT strate-
gies present system-centric roadmaps on the future uses of technologies in a firm, but they do
not necessarily account for the transformation of products, processes, and structural aspects
that go along with the integration of technologies.
Digital transformation strategies take on a different perspective and pursue different goals.
Coming from a business-centric perspective, they focus on the transformation of products,
processes, and organizational aspects owing to new technologies. Their scope is more broadly
designed and explicitly includes digital activities at the interface with or fully on the side of
customers, such as digital technologies as part of end-user products. This depicts a clear dif-
Corporate strategy
Operational strategy
(Products, markets,
processes)
Functional strategy
(Finance, Human Resources,
IT, …)
Digital transformation strategy

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ference to process automation and optimization, since digital transformation strategies go be-
yond the process paradigm, and include changes to and implications for products, services,
and business models as a whole.
Similar to the previous discussion on the alignment between business strategies and IT strate-
gies (Henderson and Venkatraman 1993), it is critical to get a close fit between digital trans-
formation strategies, IT strategies, and all other organizational and functional strategies. Re-
search has addressed this issue and has sought to consolidate IT strategies and business strate-
gies into a comprehensive “digital business strategy” (Bharadwaj et al. 2013). Digital business
strategies often discuss the possibilities and the effects of digital technologies for firms. For
instance, Oestreicher-Singer and Zalmanson (2013) shed light on the connection of content
and community, and prove that community-based digital business models can create profita-
ble revenue streams in times of ‘freemium’ business models. Drnevich and Croson (2013)
show how IT can impact on a firm’s business-level strategies and its capabilities. Therefore,
while digital business strategies often describe desired future business opportunities and strat-
egies for firms that are partly or fully based on digital technologies, they do typically not in-
clude transformational insights on how to reach these future states. In contrast, a digital trans-
formation strategy is a blueprint that supports companies in governing the transformations
that arise owing to the integration of digital technologies, as well in their operations after a
transformation. Despite first research efforts and the frequent challenges encountered in prac-
tice, academia still lacks specific guidelines for firms on how to formulate, implement, and
evaluate digital transformation strategies.
2 Two Perspectives on Digital Transformation Strategies
Strategic planning refers to the process of defining a strategy as well as deciding on the re-
sources that are allocated to pursue a strategy – as the means to achieve firms’ goals. While
procedural aspects govern the development, implementation, and evaluation of digitization
strategies, owing to their novel character, one first needs to define which content aspects digi-
tal transformation strategies should consist of. The following four key elements and the
framework are the result of preliminary works, including literature analysis and multiple case
studies and interviews.
2.1 The Four Dimensions of Digital Transformation Strategies
Independent of the industry or firm, digital transformation strategies have certain elements in
common. These elements can be ascribed to four dimensions: use of technologies, changes in
value creation, structural changes, and financial aspects. We will outline these four corner-

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stones of a digital transformation strategy are explained in some detail. The use of technolo-
gies addresses a company’s attitudes towards new technologies as well as its ability to exploit
these technologies. It therefore contains the strategic role of IT for a company and its future
technological ambition. A firm needs to decide whether it wants to become a market leader in
terms of technology usage with the ability to create own technological standards, or whether it
will resort to already established standards and sees technologies as means to fulfill business
operations. While being a technological market leader can lead to competitive advantages and
can create the opportunity of other firms becoming dependent on one’s technological stand-
ards, it might be more risky and requires certain technological competences. From a business
perspective, the use of new technologies often implies changes in value creation. These con-
cern the impact of digital transformation strategies on firms’ value chains, i.e. how far the
new digital activities deviate from the classical – often still analog – core business. While
further deviations offer opportunities to expand and enrich the current products and services
portfolio, they are often accompanied by a stronger need for different technological and prod-
uct-related competencies and higher risks owing to less experience in the new field. The digit-
ization of products or services can require or enable different forms of monetization, or even
adjustments to firms’ business scope, since other markets or new customer segments are now
addressed. With different technologies in use and different forms of value creation, structural
changes are often needed to provide an adequate basis for the new operations. Structural
changes include variations in a firm’s organizational setup, especially concerning the place-
ment of the new digital activities within the corporate structures, but also whether it is mainly
products, processes, or skills that are affected most by these changes. If the extent of the
changes is fairly small, it might be more reasonable to integrate the new operations into exist-
ing corporate structures, while for more substantial changes, it might be better to create a sep-
arate subsidiary within the firm. However, the former three dimensions can only be trans-
formed after considering financial aspects. These constitute both a firm’s urgency to act ow-
ing to a diminishing core business and also its ability to finance a digital transformation en-
deavor; financial aspects are both a driver of and a bounding force of the transformation.
While lower financial pressure on the core business may reduce the perceived urgency to act,
companies already under financial pressure might lack external ways to finance a transfor-
mation. Therefore, firms should openly and timeously confront the need to conduct digital
transformations and explore their options.
To ensure the successful rollout of a digital transformation strategy and fully exploit its in-
tended effects, it is essential to closely align the four different dimensions use of technologies,

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value creation and structural changes, and financial aspects. Figure 2 illustrates the dependen-
cies between the different dimensions as part of the Digital Transformation Framework
(DTF), which supports firms in the assessment of a firm’s current abilities and the formulation
of a digital transformation strategy.
Fig. 2 The digital transformation framework
2.2 Procedural Aspects of Digital Transformation Strategies
Owing to its wide scope, digital transformation is a continuous complex undertaking that can
substantially shape a company and its operations. It is therefore important to ensure adequate
and clear responsibilities for the definition and implementation of a digital transformation
strategy. If a digital transformation strategy is approached half-heartedly, firms may lose their
scope and may encounter operational difficulties. Companies should therefore ensure that the
person who is operationally responsible for the digital transformation strategy has sufficient
experience in transformational projects and directly align his or her incentives with the strate-
gy’s targets and progress. To date, there is no clear answer on which senior manager should
be in charge of a digital transformation strategy. In addition to CIOs or even CEOs, potential
candidates include dedicated business transformation managers or the fairly new role of the
Chief Digital Officer (CDO). Given the longer duration of the transformational processes, this
should preferably be one and the same person over time. Further, beginning with the initial
planning phase, top management support is essential along the whole transformation process,
since digital transformation strategies affect the entire company, and there may therefore be
resistance in different areas of the company. To deal with such resistance, transformation
leadership skills are essential and require the active involvement of the different stakeholders
affected by the transformations.
Use of
technologies
Changes in
value
creation
Financial
aspects
Structural
changes

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Besides adequate staffing for both the initial phase and further implementation, firms need to
find procedures for formulating, implementing, evaluating, and – if necessary – adapting digi-
tal transformation strategies. This can be a complex endeavor, and experts from inside and
outside the company might be needed as additional support. Further, since diffusion of digital
technologies can change swiftly, there typically is high uncertainty concerning the digital
transformation strategies’ underlying assumptions. Hence, digital transformation strategies
should be subject to continuous reassessment, in which both the underlying assumptions as
well as the transformational progress to date are evaluated. To ensure that early actions can be
taken if expectations are not met, clear procedures on the reassessment of digital transfor-
mation strategies are needed. This not only concerns the intervals between reassessments, but
also the definition of procedures and measures to evaluate intermediate progress and thresh-
olds upon which corrective actions can be taken. Such methods are important to ensure man-
agement credibility and to avoid decision-making biases, for instance if large sunk costs im-
pede the willingness to counter-steer.
3 Further Research Opportunities
While the basic foundations on digital transformation strategies have been laid, there are vari-
ous opportunities for further research, which can be divided into at least three different topics.
3.1 Elements and Success Patterns of Digital Transformation Strategies
The Digital Transformation Framework describes the cornerstones of the transformation
along four dimensions. Future research should seek to further identify and concretize common
elements that are attributable to these four dimensions. This pertains in particular to the dif-
ferent attributes companies could adopt for each of these elements. Empirical insights could
help comparing digital transformation strategies across different industries to assess common-
alities as well as differences, so as to increase success rates. One key question relates to the
optimal extent of digitization that a firm should achieve, since higher use of digital technolo-
gies may not always be desirable (Grover and Kohli 2013). Future research should analyze
whether a firm’s size or the extent to which its core products can be digitized have different
influences in this respect. Likewise, it is of high interest whether successful patterns for B2C
companies differ from those of B2B companies.
Further, digital transformations are often accompanied by changing skill sets that are neces-
sary for the transformation itself, but also for regular operations thereafter. This sourcing issue
appears to be both difficult and essential. While current staff members may have a different,
less tech-savvy mindset and may lack the required technological capabilities to cope with the

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upcoming changes, new, highly skilled, and focused staff members might be difficult to find,
given the particular location of a firm. Research could support firms by providing guidance on
the assessment of their existing technological capabilities and on procedures to weigh up their
current options, but also on the design of training procedures for current employees and new
hires.
3.2 Procedural Aspects and Responsibilities
Owing to limited empirical evidence, ambiguity about conventions on how to formulate and
reassess digital transformation strategies remains. This is reinforced by the high uncertainty
that results from swift technological changes and makes necessary adjustments to the digital
transformation strategy at a later stage more likely. This calls for concrete recommendations
for procedures on the continuous refinement of digital transformation strategies, such as how
to observe and evaluate technological developments and how to test their impacts in con-
trolled environments within the company. Other key questions include the desired extent of
digital transformations and the granularity as well as the temporal extent of digital transfor-
mation strategies, which could vary from swift, one-time actions to multiple successive pro-
jects.
In addition to the definition of procedural aspects, further insights are required to solve ques-
tions of responsibilities, particularly related to the new CDO role officer in the planning and
deployment of digital transformation strategies (Horlacher and Hess 2014). Owing to the
cross-functional characteristics and the far-reaching scope of a digital transformation strategy,
a dedicated CDO might be useful to take responsibility for digital transformation strategy
(CIO 2013). Research should analyze the necessity for a dedicated CDO position in greater
detail and should formulate guidelines for the definition of this new role. For companies em-
ploying both a CIO and a CDO, research should provide recommendations for the concrete
alignment between both; such research can build upon prior research on CIO-CEO alignment
(Johnson and Lederer 2010).
3.3 Integrating Digital Transformation Strategies into Firms
As noted, digital transformation strategies have a cross-functional character and need to be
aligned with other functional and operational strategies. However, the alignment of IT strate-
gies with other strategies has remained a difficult and controversial endeavor. Given the rather
recent appearance of digital transformation strategies, further evidence is needed on how this
alignment can be conducted in practice – not only related to IT strategies but also from an
organizational perspective. In this respect, the interaction of digital transformation strategies
with business development and business models also needs to be assessed from a responsibil-

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ity perspective. Since digitization strategies cut across various other strategies at the same
time, complex coordination efforts might be needed. Research should provide guidelines for
firms to help structure these processes in order to achieve shared goal-setting, the alignment
of different strategies, and cooperation between various people and entities throughout a firm.
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