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How big old companies navigate digital transformation

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New digital technologies present both game-changing opportunities for-and existential threats to-companies whose success was built in the pre-digital economy. This article describes our findings from a study of 25 companies that were embarking on digital transformation journeys. We identified two digital strategies-customer engagement and digitized solutions-that provide direction for a digital transformation. Two technology-enabled assets are essential for executing those strategies: an operational backbone and a digital services platform. We describe how a big old company can combine these elements to navigate its digital transformation.
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September 2017 (16:3) | MIS Quarterly Executive 197
Elements of Successful Digital Transformation12
New digital technologies, particularly what we refer to as SMACIT3 (social, mobile, analytics,
cloud and Internet of things [IoT]) technologies, present both game-changing opportunities and
existential threats to big old companies. GE’s “industrial internet” and Philips’ digital platform for
personalized healthcare information represent bets made by big old companies attempting to cash
1 Janis Gogan is the accepting senior editor for this article.
2 This research was previously reported in the Proceedings of the Thirty Seventh International Conference on Information Systems,
Dublin, Ireland, December 2016. We thank the Track Chairs, Associate Editor and Reviewers of the Practice Track for their feedback
and suggestions on our original submission.
3 This acronym is pronounced “smack it”—as in, score a digital strategy home run when you SMACIT out of the baseball park.
There are more digital technologies than implied by this acronym, including articial intelligence, blockchain, robotics and virtual
reality. SMACIT is intended as shorthand for the entire set of powerful, readily accessible digital technologies.
How Big Old Companies Navigate Digital
Transformation
New digital technologies present both game-changing opportunities for—and existen-
tial threats to—companies whose success was built in the pre-digital economy. This

-
gagement and digitized solutions—that provide direction for a digital transformation.
Two technology-enabled assets are essential for executing those strategies: an opera-

can combine these elements to navigate its digital transformation.1, 2
Ina M. Sebastian
MIT Sloan Center for Information Systems
Research (U.S.)
Jeanne W. Ross
MIT Sloan Center for Information Systems
Research (U.S.)
Cynthia Beath
University of Texas at Austin (U.S.)
Martin Mocker
MIT Sloan Center for Information Systems
Research (U.S.) and Reutlingen University
(Germany)
Kate G. Moloney
MIT Sloan Center for Information Systems
Research (U.S.)
Nils O. Fonstad
MIT Sloan Center for Information Systems
Research (U.S.)
198 MIS Quarterly Executive | September 2017 (16:3) misqe.org | © 2017 University of Minnesota
How Big Old Companies Navigate Digital Transformation
in on opportunities offered by digital technologies.4
LEGO is developing an engagement platform to
supplement its enterprise systems with the ability
to interact with customers and innovate rapidly.5
These big old companies are rethinking how they
will compete in the digital economy, and they are
investing in new technologies and new capabilities
to reposition themselves as digital leaders.
In recent years, “born digital” pioneers (such as
Amazon, Facebook and Google) have grown into
powerful behemoths, while companies that had long
dominated their industries found their traditional
value propositions under threat. Most leaders of big
old companies believe their companies can retain
leadership positions by taking advantage of both
their existing strengths and the capabilities offered
by digital technologies. But what must they do to
succeed? That is the question we set out to answer in
a study of 25 large, successful companies initiating
digital transformations. Most of these companies
were “big” (with a mean size of 82,297 employees),
and most were “old” (with a mean age of 104 years.)
Our research method and sample are described in the
Appendix.
Most big old companies’ digital transformations
are at an early stage—in most industries, the vast
majority of established companies’ revenues still
come from traditional products and services.6 Thus,
research on successful digital transformation is
currently limited to identifying trends that signal
improved capabilities to apply SMACIT and related
technologies, and to the growing accessibility of
electronic data to enrich products, services and
customer relationships.
Our study revealed three essential elements for a
successful digital transformation:
1. A digital strategy that denes a SMACIT-
inspired value proposition
2. An operational backbone that facilitates
operational excellence
4 For more information about these companies’ digital innovations
and their leaders’ expectations, see https://www.ge.com/digital/indus-
trial-internet and http://www.usa.philips.com/healthcare/innovation/
about-health-suite.
5 El Sawy, O. A., Kraemmergaard, P., Amsinck, H. and Vinther, A.
L. “How LEGO Built the Foundation and Enterprise Capabilities for
Digital Leadership,” MIS Quarterly Executive (15:2), June 2016, pp.
143-166.
6 The annual reports of successful, well-established companies like
BNY Mellon, Kaiser Permanente, Aetna, GE, Schneider Electric,
Philips and the Schindler Group highlight their continued depen-
dence on traditional sources of revenue even as they make signicant
investments in digital initiatives.
3. A digital services platform that enables rapid
innovation and responsiveness to new market
opportunities.
In this article, we explain how these three
elements position big old companies for success in
the digital era. We describe the digital initiatives of
several companies in our study and offer evidence
that shows how these efforts will contribute to
long-term digital success.7 We conclude with
recommendations for leaders of companies that are
ready to embark—or have already embarked—on
their digital transformation journeys.
Two Digital Strategies
As leaders in big old companies recognize the
opportunities created by new digital technologies
to integrate their existing business capabilities
with new capabilities made possible by SMACIT
technologies, they are dening their companies’
digital strategies.8 These are not merely technology
strategies. Rather, they are business strategies
that incorporate the opportunities that the digital
economy presents.9 We dene a digital strategy
as: A business strategy, inspired by the capabilities
of powerful, readily accessible technologies (like
SMACIT), intent on delivering unique, integrated
business capabilities in ways that are responsive
to constantly changing market conditions. A digital
strategy guides leaders’ efforts to create new value
propositions by combining their companies’ existing
capabilities with capabilities enabled by SMACIT
and other digital technologies.
7 In this article, we reference initiatives at Kaiser Permanente,
Schindler Group, LEGO Group, Schneider Electric, Ferrovial and
USAA. The Appendix includes links to our published case studies
and shorter vignettes for these and other companies included in our
study.
8 For more on developing digital strategies, see Ross, J. W.,
Sebastian, I. M. and Beath, C. M. “How to Develop a Great Digital
Strategy,” MIT Sloan Management Review, November 8, 2016, avail-
able at http://sloanreview.mit.edu/article/how-to-develop-a-great-
digital-strategy/.
9 We distinguish digital strategies from more traditional IT
strategies—a digital strategy being the company’s high-level business
strategy, while an IT strategy is set to enable a business strategy. This
distinction is also made in Bharadwaj, A., El Sawy, O. A., Pavlou, P.
A. and Venkatraman, A. “Digital Business Strategy: Towards a Next
Generation of Insights,” MIS Quarterly (37:2), June 2013, pp. 471-
482. IT strategies are thoroughly reviewed in Peppard, J. and Ward, J.
“Beyond Strategic Information Systems: Towards an IS Capability,”
Journal of Strategic Information Systems (13:2), July 2004, pp. 167-
194. For a broad review of different types of technology-related strat-
egies, see Chen, D. Q., Mocker, M., Preston, D. S. and Teubner, A.
“Information Systems Strategy: Reconceptualization, Measurement,
and Implications,” MIS Quarterly (34:2), June 2010, pp. 233-259.
September 2017 (16:3) | MIS Quarterly Executive 199
How Big Old Companies Navigate Digital Transformation
We found that company leaders who recognize
the opportunities presented by new digital
technologies articulate one of two types of digital
strategy: customer engagement or digitized
solutions. In our sample of 25 companies, eight
were pursuing a customer engagement strategy, and
13 were pursuing a digitized solutions strategy. The
remaining four were experimenting with applications
of digital technologies but had not yet formulated a
clear digital strategy and thus had not embarked on a
transformation journey.
Customer Engagement Strategy
Just as Amazon’s introduction of customer
recommendations and user-friendly online
interactions created a passionate base of loyal
customers, a company pursuing a customer
engagement digital strategy seeks to build customer
loyalty and trust by providing superior, innovative,
personalized and integrated customer experiences.
A customer engagement strategy typically aims
to create a seamless, omnichannel experience
that makes it easy for customers to order, inquire,
pay and receive support in a consistent way from
any channel at any time. Such a strategy relies
on analytics applied to a growing repository of
customer data, to better understand and anticipate
varying customer demands. In addition, this type of
digital strategy facilitates ongoing communications
between a company and its customers and, where
appropriate, with a larger community.
An example of a company pursuing a customer
engagement strategy is Kaiser Permanente, a U.S.
non-prot integrated healthcare organization.
Healthcare in the United States is shifting from
volume-based to value-based care, with a focus on
increasing access while also cutting costs. Kaiser
Permanente is attempting to reduce costs and
improve individual patient health by facilitating
both preventive and traditional care. This involves
shifting from a hospital-centric view of healthcare
to a patient-centric view. EVP and CIO Richard
Daniels explains:
“We need to make it easy for people to
get access to care anytime and anywhere,
preferably from any device, so that they
can reach us. They can have access to their
care team, and we want to provide them
[with] leading-edge technology, like video
[consultation] with your doctor from your
smartphone.”
Kaiser Permanente is capitalizing on
opportunities created by SMACIT technologies in at
least three ways:
1. Offering increased opportunities for patient
interaction with care delivery teams by
supplementing visits and calls with channels
like video, text and email
2. Investing in data analytics to identify needs
for—and most effective approaches to—
personalized outreach, particularly when
it encourages patient adherence to medical
regimens
3. Leveraging social media to develop
communities of patients who have similar
interests and to create care circles that
engage patients and their families with care
providers.
Ten years ago Kaiser Permanente was criticized
for inconsistent customer service.10 As it delivers on
its customer engagement strategy, it is earning the
healthcare industry’s highest “net promoter” scores.11
Seventy percent of Kaiser Permanente’s members
are actively engaged online, and studies conducted
by the company reveal that actively engaged
members are healthier, adhere more to prescribed
medications, are more satised and are twice as
likely to stay with the organization. Like other big
old companies pursuing customer engagement
digital strategies, Kaiser Permanente is leveraging
digital technology to build customer loyalty, which,
in turn, is building competitive advantage.
Digitized Solutions Strategy
A digitized solutions strategy aims to reformulate
a company’s value proposition by integrating a
combination of products, services and data. This
type of digital strategy is driven by R&D efforts
10 See Goldsmith, J. “An Interview with George Halvorson: The
Kaiser Permanente Renaissance, and Health Reform’s Unnished
Business,” Health Affairs, September 30, 2014, available at http://
healthaffairs.org/blog/2014/09/30/an-interview-with-george-
halvorson-the-kaiser-permanente-renaissance-and-health-reforms-
unnished-business/.
11 At many companies we studied, net promoter score (NPS) is the
key metric used to track customer satisfaction. Information on Kaiser
Permanente’s 2016 NPS can be found in “Kaiser Permanente Again
Ranks No. 1 in Customer Loyalty”, Kaiser Permanente Feature
Story, June 29, 2016, available at https://share.kaiserpermanente.org/
article/kaiser-permanente-ranks-no-1-customer-loyalty/
200 MIS Quarterly Executive | September 2017 (16:3) misqe.org | © 2017 University of Minnesota
How Big Old Companies Navigate Digital Transformation
that seek to anticipate—rather than respond to—
customer needs. Just as Steve Jobs trusted his
instincts (rather than customer input) to guide
product innovation at Apple, a company pursuing
a digitized solutions strategy tries to imagine what
it could do for customers by combining existing
competencies with the capabilities offered by
digital technologies. An effective digitized solutions
strategy invariably involves collecting and using
additional data—often gathered through sensors. In
many cases, digitized solutions may shift company
revenues from the sale of products to recurring
revenue from ongoing services.12 An example of
such a shift is GE’s expectation of subscription
revenue from its asset performance management
offering, delivered via its Predix platform-as-a-
service (PaaS).
One company in our study that is pursuing a
digitized solutions strategy is the Schindler Group,
a global provider of elevators, escalators and related
services. The elevator and escalator industry is
highly competitive, which severely constrains prot
margins. Schindler has set out to create digitized
solutions with the aim of establishing a unique
space in the industry. Its products move one billion
people a day—all within buildings in urban areas.
Management thought that Schindler’s competency in
moving people, combined with digital technologies,
would position it to provide mobility solutions
beyond buildings. Schindler has therefore embraced
a strategy called “urban mobility solutions” for
experimenting with a much wider range of products
and services. The rst innovation that went into
production involved using its PORT technology13
and sensor equipped elevators to grant access to
registered guests at a building and direct them to
their hosts.
“When you have our PORT technology on
your phone, the building will recognize you
and know where you want to go, so you don’t
need your badge. If you’re a visitor, we send
you a message on your smartphone, and then
you can ow into the building without signing
12 For more on how digital technologies are transforming compa-
nies and competition, see Porter, M. E. and Heppelmann, J. E. “How
Smart, Connected Products are Transforming Companies,” Harvard
Business Review (93:10), October 2015, pp. 96-114; and Porter, M. E.
and Heppelmann, J. E. “How Smart, Connected Products are Trans-
forming Competition,” Harvard Business Review (92:11), November
2014, pp. 64-88.
13 For more information, see http://www.schindlerportna.com/
in at the reception desk.” Michael Nilles,
Chief Digital Ofcer, Schindler Group
As part of its digitized solutions strategy,
Schindler applies analytics to enhanced sensor data
to develop both predictive maintenance models
and smart algorithms that optimize routes to any
destination in buildings and assign elevators.
Like other big old companies pursuing a digitized
solutions strategy, Schindler is leveraging digital
technologies to offer integrated products and
services that distinguish it from competitors.
Choosing a Digital Strategy
A digital strategy is valuable only if it drives
resource allocation and capital investments. Many
business leaders are reluctant to commit to one
digital strategy, in part because they believe that
digital success involves both customer engagement
and digitized solutions. But our research found that
the best strategies guided both strategic choices
and operational decisions, and that committing
to one strategy paid off. Companies like Kaiser
Permanente, LEGO and USAA (a U.S. nancial
services company) that were pursuing a customer
engagement strategy achieved greater customer
satisfaction and loyalty. Companies like Schindler
and Schneider Electric that were pursuing a digitized
solutions strategy gained new sources of revenue.
The value of strategic focus is well established, but
the more noteworthy nding from our study may be
that success with the chosen strategy eventually also
led to outcomes associated with the other strategy.
At USAA, for example, seamless channel
integration not only generated member delight
and loyalty (at USAA customers are referred to as
members), but led to increased product integration.
USAA’s responsiveness to members’ needs led it
to change its website so that its nancial products
were listed according to a member’s life events.
This new arrangement was helpful, but it quickly
became clear that members would nd it even more
helpful if those products were actually integrated.
That led USAA to create integrated solutions like
AutoCircle—a one-stop shop for buying, insuring
and nancing an automobile.
Similarly, Schindler’s pursuit of digitized
solutions meant the company had to engage with
customers to convince them of the benets of those
solutions. This led Schindler to design customer
engagement tools that communicate the status of
September 2017 (16:3) | MIS Quarterly Executive 201
How Big Old Companies Navigate Digital Transformation
Schindler’s (and some partners’) equipment to
customers (usually facility managers).
In short, our study reveals that there is a natural
synergy between the two digital strategies. Despite
this synergy, however, our research suggests that it
is essential to commit to one digital strategy or the
other. Committing to one strategy helps leaders
make tough choices related to resource allocation.
Moreover, digital technologies present so many
opportunities that, without clear investment criteria,
leaders will nd themselves reacting to immediate
one-off opportunities rather than proactively
designing their business for digital success. In
particular, they will nd it difcult—or even
impossible—to develop and use two technology-
enabled assets that our research found are essential
for executing a company’s digital strategy.
Two Technology-enabled
Assets are Essential to
Executing a Digital Strategy
The companies we studied found it easier to
articulate a digital strategy than to execute it. In fact,
all the companies we studied (and we specically
sought out proactive companies for this research) are
still at early stages of their digital transformations.
(Indeed, we cannot declare that any of the companies
we studied have successfully completed a digital
transformation.)
We observed enormous variation in companies’
abilities to deliver new digital services, such as a
seamless omnichannel customer experience or a
well-integrated IoT-based service. To consistently
deliver new digital services, our research revealed,
a company needs two technology-enabled assets:
an operational backbone and a digital services
platform.
The operational backbone supports efciency
and operational excellence, while the digital
services platform supports business agility and
rapid innovation. Both the operational backbone
and digital services platform depend on a base of
technology, but what makes them powerful is the
business capabilities that the technology enables.
Our research on business transformation initiatives
suggests that these capabilities are the critical
enablers of digital business success.
An Operational Backbone Enables
Operational Excellence
To compete in the digital economy, companies
must, at a minimum, be able to awlessly
execute transactions and provide access to critical
operational data. To accomplish this, they need
a strong and scalable operational backbone (also
referred to as a digitized process platform).14 We
dene an operational backbone as the technology
and business capabilities that ensure the efciency,
scalability, reliability, quality and predictability of
core operations.
Companies have been building operational
backbones since the late 1990s, when
implementations of ERP and customer relationship
management (CRM) systems targeted the benets of
standardized and integrated systems and processes.15
Each company’s operational backbone is focused on
its own unique strategic requirements, but the most
common elements include:
A “single source of truth” for critical data
(e.g., customer, order and product data)
Seamless and transparent transaction
processing
Standardized back ofce shared services.
Although many businesses have been building
operational backbones for many years, only 15
companies in our sample had operational backbones
that supported their digital strategies. The other
10 had managed to survive without wiring in
14 For more information on digitized process platforms, see Ross,
J. W., Weill, P. and Robertson, D. Enterprise Architecture as Strategy:
Creating a Foundation for Business Execution, Harvard Business
Press, 2006.
15 For more on how standardization and integration of processes
has paid off, see Bradley, R., Pratt, R., Byrd, T. A. and Simmons,
L. “The Role of Enterprise Architecture in the Quest for IT Value,”
MIS Quarterly Executive (10:2), June 2011 pp. 19-27; Tamm, T.,
Seddon, P. B., Shanks, G., Reynolds, R. and Frampton, K. “How
an Australian Retailer Enabled Business Transformation Through
Enterprise Architecture,” MIS Quarterly Executive (14:4), December
2015, pp. 181-193; and Venkatesh, V., Bala, H., Venkatraman, S. and
Bates, J. “Enterprise Architecture Maturity: The Story of the Veterans
Health Administration,” MIS Quarterly Executive (6:2), June 2007,
pp. 79-90.
202 MIS Quarterly Executive | September 2017 (16:3) misqe.org | © 2017 University of Minnesota
How Big Old Companies Navigate Digital Transformation
operational excellence.16 Without an operational
backbone, however, they lacked seamless operations.
As a result, they did not have the basic competencies
needed to execute a digital strategy.
Companies with operational backbones were
increasingly able to automate repetitive processes,
thus enhancing speed and accuracy. Moreover, the
reliability provided by the operational backbone
allowed management to focus on strategic issues
rather than ghting res. LEGO and Kaiser
Permanente offer examples of how powerful
operational backbones give companies the
operational excellence critical to executing their
digital strategies.
LEGO’s Operational Backbone. In 2004,
LEGO (renowned for construction kits using the
iconic LEGO brick) could not reliably and cost-
effectively deliver its products to retailers. Its
supply chain problems were so severe at the time
that LEGO was facing bankruptcy.17 Jørgen Vig
Knudstorp, LEGO’s CEO, recognized that xing the
supply chain was essential to business success:
“One of the things that dawned on me when
I arrived at the LEGO Group was that
basically you have an allocation problem.
You are producing 100,000 components
every minute, 24 hours a day, 365 days
a year. And you have to allocate them in
optimal quantities at different sites, so that
you can deliver a set of nished products
at Walmart in Arkansas on Tuesday at 5:00
p.m. (and not 5:00 a.m.) in optimal order
quantity, optimal transportation quantity,
optimal manufacturing batches and so on.”
LEGO addressed its crisis by leveraging an
under-used ERP system to get its supply chain
processes under control. That effort was sufcient to
turn the company around, but leadership recognized
that other processes were still creating costly
16 The fact that 60% of the companies in our sample have a
value-adding operational backbone suggests that we were success-
ful in recruiting technologically mature companies for our study.
Our recent survey of 171 senior IT leaders found that only 28% of
established companies have value-adding operational backbones. See
Ross, J. W., Sebastian, I. M and Jha, L., and the Technology Advan-
tage Practice of The Boston Consulting Group, Designing Digital
Organizations—Summary of Survey Findings, MIT CISR Working
Paper No. 415, February 2017, available at http://cisr.mit.edu/blog/
documents/2017/02/28/mit_cisrwp415_ddosurveyreport_rosssebas-
tianbeathjhabcg.pdf/.
17 For details on LEGO’s business turnaround, see Robertson, D.
C. Brick by Brick, Crown Business Books, 2013.
inefciencies. To address these problems, LEGO
followed its supply chain management initiative with
programs that standardized processes related to HR
management, manufacturing and product lifecycle
management. By 2012, these efforts had provided
efcient, reliable core processes and transparent
master data, and had improved customer satisfaction.
With the operational backbone in place, management
could now focus on dening and pursuing a digital
strategy—one that focused on developing the
builders of tomorrow.
Kaiser Permanente’s Operational
Backbone. The operational backbone at Kaiser
Permanente is built around the electronic health
record (EHR). U.S. healthcare providers generate
a great deal of data about patients, but as patients
interact with multiple caregivers, the data relating
to an individual tends to be poorly integrated.
Poorly integrated systems and data lead to
frustrated patients and clinicians, who must cope
with incomplete information, delays in follow-up
actions, inaccurate billing and even medical errors.
By taking a disciplined approach to managing its
EHR processes and patient data, Kaiser Permanente
introduced an extraordinary level of operational
excellence. In turn, operational excellence positions
the company to pursue a digital strategy centered
on enhanced collaboration between healthcare
providers, patients and their families.
    
Backbones. For big old companies, developing
an operational backbone is a long, expensive
and transformative journey. Our study revealed
that even companies with powerful operational
backbones need to continuously invest in
improvements and extensions. Many leaders told
us that their operational backbones provided a slew
of operational and strategic benets, including
cost savings, reliability that generated prots and
customer satisfaction, scalability following the
launch of new products and markets, and the ability
to integrate new acquisitions. These types of benet
have helped companies compete for many years.
The new—and critically important—benet of an
operational backbone is that it also establishes a
strong and stable foundation for introducing new
digital products and features. It frees up management
attention to pursue digital innovations and ensures
that existing business capabilities can be integrated,
as needed, with new digitally enabled capabilities.
September 2017 (16:3) | MIS Quarterly Executive 203
How Big Old Companies Navigate Digital Transformation
In our study, we also learned that while an
operational backbone is necessary, it is not sufcient
for successfully executing a digital strategy. A digital
services platform is also needed.
A Digital Services Platform Enables
Rapid Innovation
Because an operational backbone is designed
for reliability and efciency, it does not offer
the speed and exibility that companies need
for rapid digital innovation. Thus, in addition to
an operational backbone, companies also need a
digital services platform, which we dene as the
technology and business capabilities that facilitate
rapid development and implementation of digital
innovations.
The architecture of a digital services platform
must facilitate experimentation and provide
reusable technology and digital services. Common
characteristics of digital services platforms include:
Digital components that enable a variety
of technical and business services (e.g.,
biometric authentication, customer alerts)
Platform as a service (PaaS)—a cloud-
based hosting environment for storing and
accessing loosely connected services
Repositories for massive amounts of data,
whether from public sources (e.g., from
social media), purchased or derived from
sensors
Analytics engines for converting data into
meaningful insights
Connections to data and processes that reside
in the company’s operational backbone.
Recognizing that their operational backbones
were not designed for rapid digital innovation,
leaders in our study were beginning to design and
build digital services platforms.
Kaiser Permanente’s Digital Services
Platform. Kaiser Permanente launched its
“Generation 2 Platform” in June 2014. This platform
supports technology components for developing
clinical and operational services that can be
assembled via a cloud-based self-service portal
(21 services at the time of our study, with many
more planned). As of 2016, the portal had delivered
more than 1,000 systems—all within one day of a
request. New systems enable Kaiser Permanente to
create new opportunities for caregivers and patients
to share data, consult, commiserate and learn. The
Generation 2 platform, along with the IT services
management model, has greatly improved Kaiser
Permanente’s capacity to produce digital innovations
across clinical and operational departments.
“Our vision is really simple: it’s to be as
easy as Amazon. You can go to their website;
you get recommendations, you know what
you can order—you don’t need training
to use their website. You can click on how
much it’s going to cost, you can have a
payment transaction, and then there’s almost
perfection in their logistics. Your package is
tracked. You get alerts. It’s all self-service,
self-enabled.” Mike Sutten, Senior Vice
President and Chief Technology Ofcer,
Kaiser Permanente
LEGO’s Digital Services Platform. LEGO is
building an “engagement platform” that supports
experimentation and rapid introduction (and,
as necessary, elimination) of functionality. The
engagement platform will allow the company to
continuously adapt its digital interface according
to the preferences of individual customers, thus
providing a personalized digital experience. For
LEGO toys with digital capabilities, the platform
will facilitate rapid software updates, so that even
older kits will provide new experiences. Finally, the
platform will provide an environment for working
with digital partners on joint product development
and for giving approved partners access to LEGO
functionality.
Risks of Not Having a Digital Services
Platform. A company that fails to design and
build a well-dened digital services platform risks
falling behind competitors that can rapidly act on
digital opportunities. Developers can build digital
functionality without a digital services platform but
will likely generate a messy collection of individual
services (i.e., APIs) that create new risks and hinder
reuse. If instead they choose to build digital services
on their operational backbone, development will be
slow and expensive. Because operational backbones
are built to ensure the integrity of transactions and
master data, companies carefully manage releases
for maintenance, upgrades and enhancements.
However, when applied to digital services, this
approach will severely limit innovation and,
ultimately, competitiveness.
204 MIS Quarterly Executive | September 2017 (16:3) misqe.org | © 2017 University of Minnesota
How Big Old Companies Navigate Digital Transformation
How Big Old Companies
Accommodate Both an
Operational Backbone and a
Digital Services Platform
Regardless of whether a big old company chooses
a customer engagement or digitized solutions digital
strategy, the most proactive companies in our
research needed both an operational backbone and
a digital services platform to deliver the efciency,
reliability, speed and agility that the competitive
environment demands. Although these two assets
support very different business capabilities, they are
complementary. Digital services invariably have to
link up with the operational backbone. Consider, for
example, a company that collects IoT sensor data to
help its customers manage the performance of their
assets (such as GE’s aircraft engines or Schneider
Electric’s connected energy management products).
The digital service will rely on an operational
backbone to provide customer data, invoicing and
related transaction processing services. Similarly,
operational backbones will be of limited value in a
digital economy if they prevent companies from
bringing innovative new services to market rapidly.
Thus, big old companies that successfully transform
will be those that can build and leverage both of
these technology-enabled assets.
Given the history of technology, one might
expect that an important distinction between an
operational backbone and a digital services platform
would be the technology on which each is built.
However, we found that the important distinction is
not technological. All 12 companies in our research
that had implemented a digital services platform
were relying on the cloud—most often a public
cloud. And, although most of the 15 companies with
an operational backbone had built it on mainframe
technologies, these backbones increasingly ran, at
least in part, on some form of cloud services.
For example, Ferrovial (a Spanish multinational
that builds, manages and operates infrastructure
projects and related services) found it could
accelerate development of its operational backbone
by using software as a service (SaaS) offerings.
With this shift to the cloud, Ferrovial’s 70,000
employees adopted new standardized HR and
purchasing processes in six months. Similarly,
Schneider Electric installed a cloud-based CRM
system to facilitate cross selling in its diverse
businesses.18 In 18 months, this system was adopted
by 25,000 employees in 100-plus countries, and
cross-selling increased by 20%. We expect that
many more companies will turn to SaaS to accelerate
development of their operational backbones.
Thus, technology differences between operational
backbones and digital services platforms are
beginning to disappear. Nevertheless, we found
that the different characteristics of these two assets
give rise to two very different sets of management
practices. Table 1 summarizes these contrasting
requirements.
Companies have different objectives for the two
technology-enabled assets. Reliability and efciency
are essential requirements for an operational
backbone. Henrik Amsinck, LEGO’s CIO, explains
that his enterprise platform runs “beneath the human
interaction” and is “the IT below all the business
processes that run the LEGO Group end to end—all
the software and hardware and wiring.”
In contrast, Jørgen Vig Knudstorp, LEGO’s CEO,
highlighted that a digital services platform must
facilitate rapid innovation:
“There are new spaces where software
development is still at the edge and
revolutionary — areas like consumer
interaction and new products. What is the next
upcoming disruptive gaming or consumer-
engaging technology that could really impact
our business and our business model? That
evolution is unlikely to take place anywhere
near our [enterprise platform] development
center.”
Companies pursue these two different objectives
by applying different architectural principles to
the two technology-enabled assets. Roadmaps
and traditional architecture reviews guide the
development of an operational backbone’s
standardized business processes and controlled
access to enterprise data. In contrast, a digital
services platform relies on cross-functional
development teams that apply user-centered design
techniques to develop and assemble reusable plug-
and-play business and technology components.
In turn, the different goals and design principles
lead to two different approaches to development.
18 See Karunakaran, A., Mooney, J. and Ross, J. W. Accelerating
Global Digital Platform Deployment Using the Cloud: A Case Study
of Schneider Electric’s “Bridge Front Ofce” Program, MIT Sloan
CISR Working Paper No. 399, January 2015.
September 2017 (16:3) | MIS Quarterly Executive 205
How Big Old Companies Navigate Digital Transformation
Most companies still use traditional development
methods to build their operational backbones—
although some interviewees mentioned that their
traditional waterfall approach is evolving to a more
collaborative, scaled-down “fast waterfall.” Even
using SaaS to build an operational backbone requires
each new enterprise process to be deliberately
developed and implemented.19
In contrast, companies rely on agile development
to deliver new services via their digital services
platforms. Small cross-functional teams use
iterative, agile methods to build and test new
services with minimum viable products. Kaiser
Permanente has implemented a DevOps model,
which requires near-continuous deployment of
new code to dramatically reduce cycle times for
launching innovations. Amazon introduces new code
onto its digital services platform every 11 seconds.20
It appears that, over time, DevOps capabilities will
become a competitive necessity.
The objectives for digital services platforms
are also causing traditional funding models to be
disrupted. Traditional project funding approval
is just too slow for continuous delivery of digital
services—hence the rising popularity of pay-for-
19 DevOps, a compound of “development” and “operations,” is
a software development and delivery approach designed for high
velocity. One company’s overview of DevOps can be reviewed at
https://aws.amazon.com/devops/what-is-devops/.
20 This number was reported in Bort, J. “Former EMC exec:
Google’s cloud efforts against Amazon are like ‘a Microsoft phone’
— too little too late,” Business Insider, August 11, 2016, available at
http://www.businessinsider.com/google-vs-amazon-in-cloud-is-like-
a-microsoft-phone-tech-exec-says-2016-8. It may be more frequent
by now.
use models (similar to cloud and vendor servicing
models). In several of the companies in our study,
funding is shifting to discrete purchases by business
units, on an as-needed basis. Kaiser Permanente
allows clinical and administrative departments to
purchase technology services on its Generation
2 platform directly from the IT organization.
Departments are billed monthly and can acquire
or discard services depending on their needs and
budgets.
Most established companies have been building,
enhancing and leveraging their operational
backbones for many years, so most participants in
our research were experienced with the management
practices in the left-hand column of Table 1.
Practices in the right-hand column were newer,
however. In general, the business and IT leaders we
interviewed were just starting to recognize the need
for—and then to adopt—these new practices.
The Impact of Digital
Transformation on the IT Unit
As companies build new technology-enabled
business capabilities, they introduce fundamental
business changes. At most of the companies
we studied, these changes had rst—and most
profoundly—affected the IT unit.
Kaiser Permanente transformed its IT
organization by adopting a service-centric operating
model. It now designs standard assemblies for IT
services chosen by its business users. As part of
Schindler’s IT transformation, the company created
Schindler Digital Business AG, which comprises
Table 1: Operational Backbones and Digital Services Platforms Require Fundamentally
Different Management Practices
Operaonal Backbone Digital Services Plaorm
Management
Objective
Business efciency and technology reliability Business agility and rapid innovation
Architecture
Principles
Standardized end-to-end business processes;
transparency into systems; data access
Plug-and-play business and technology
components
Data Single source of truth for transactional data Massive repositories of sensor/social media/
purchased data
Key Processes Roadmaps; architecture reviews Cross-functional development; user-centered
design
Delivery Method Fast waterfall/regular software releases/SaaS
adoption
Agile and DevOps;19 use of MVP (minimum
viable product) concepts and constant
enhancements
Funding Major project/program investments Continuous funding by business owners
206 MIS Quarterly Executive | September 2017 (16:3) misqe.org | © 2017 University of Minnesota
How Big Old Companies Navigate Digital Transformation
teams focused on the operational backbone and
teams specically charged with digital innovation by
building and maintaining digital services.
“We have put them together as a new
organization, fully focusing on this digital
innovation part of the company. We need
to have these people understanding that
this is [their primary role], so when waking
up in the morning they should think about
digital business and not something else.
That was super important: having this clear
commitment.” Michael Nilles, Chief Digital
Ofcer, Schindler Group
To enable new requirements for integration across
vertical business units, some IT units are serving
as integrators. At Schneider Electric, for example,
the CIO deployed two architects just to facilitate
changes involving multiple parts of the company
so that the company could implement its digitized
solutions strategy:
“I needed to work more as an orchestrator.
The business leaders need to design their
operating models, but we need some central
thinking about how the design of all those
businesses would impact Schneider on the
whole and how we could purposefully create
commonalities across the business to gain
more scale.” Hervé Coureil, CIO, Schneider
Electric
As companies create integrated customer
experiences and digitized solutions, many are
reorganizing their IT units around services. Kaiser
Permanente’s Chief Technology Ofcer described
the IT services management model as a great shift—
from allocating funds to a few high-value projects to
funding many small transactions:
“It [the IT services management model]
reduces the barrier to entry, so the risk
of failure—of it not being successful—is
greatly minimized, and the cost to enter is
also much lower. You can scale it very, very
quickly for huge success. By doing that, we
enable a lot more creativity and innovation,
and we enable medium-sized projects to go
ahead … In the past you’d have to consult
with everybody because if it didn’t work,
then your department just blew $50,000, and
someone else’s pet project didn’t get funded.”
Mike Sutten, Senior Vice President and Chief
Technology Ofcer, Kaiser Permanente
Although the IT unit was usually the rst part
of a company to transform, participants in our
research also anticipated that changes in the IT unit
would eventually be reected throughout the entire
company. At Kaiser Permanente, for example, new
digital services enabled more rapid innovations
in delivering healthcare. Initially, the company
incrementally introduced these changes, but
redesign of the larger organization was expected to
facilitate more dramatic—and important—changes
to healthcare delivery over time. We anticipate that
many of the changes our interviewees described
will cascade across the entire enterprise. At some
companies, that transformation is already underway.
Recommendations for
Digital Transformation at
Big Old Companies
SMACIT and other digital technologies have
created a moment of truth for big old companies:
they bring new customer expectations, younger,
more nimble competitors and revolutionary
managerial approaches. Since past success does
not ensure future success, older companies will
need to transform to take advantage of digital era
opportunities.
Figure 1 summarizes our research ndings on the
digital transformation journeys big old companies
will have to undertake. They must choose either a
customer engagement or digitized solutions strategy,
and this choice will shape priorities for building two
essential technology-enabled assets: an operational
backbone and a digital services platform. The
operational backbone will ensure efciencies of
scale for critical transactional and decision-making
capabilities. The digital services platform will
ensure rapid innovation of critical digital offerings
for customers. These two assets allow a company to
execute its chosen digital strategy and, ultimately,
to deliver both customer engagement and digitized
solutions.
It is not easy for big old companies to let go of
legacy systems, processes and cultures. To transform
themselves to digital businesses, they must embark
on a protracted journey. From our research, we
September 2017 (16:3) | MIS Quarterly Executive 207
How Big Old Companies Navigate Digital Transformation
provide ve recommendations for mapping a
successful journey.
1. Define a Digital Strategy
By articulating a digital strategy (whether
customer engagement or digitized solutions) a
company’s leaders can focus employees on clear
objectives. With clear direction, a company can start
building integrated, difcult-to-replicate capabilities
to deliver on that strategy.
2. Act Now to Invest in an Operational
Backbone
Today, investing in an operational backbone is
a necessary prerequisite for success in the digital
economy. Without such a backbone, a company will
lack the foundational capabilities that are needed
to enable its digital services platform to provide
transaction transparency (e.g., the supply chain) and
access to customer data, and to support standardized
business processes (e.g., customer account opening,
secure access, orders, payments). Just reaching
agreement on which operational capabilities are most
critical is an extraordinary leadership challenge. To
get started in a meaningful way, senior managers
should focus on building just one capability
critical to the company’s digital strategy, such as
a well-designed customer database or a supply
chain management system. A company without an
operational backbone should seek help from cloud
providers, vendors, business process outsourcers—
anyone who can accelerate the delivery of reusable,
efcient and reliable operational capabilities.
3. Architect a Digital Services Platform
IT leaders can begin to dene the architecture
for a digital services platform by focusing on a
small set of digital innovations they believe will
be critical to business success. Once a company
has established the data requirements for a small
set of critical business components and has set up
APIs for accessing the needed data, it can then
build (or technology partners can help it build) the
infrastructure needed to protect, connect, analyze
and support innovative digital services.
4. Design the Digital Services Platform
with Partners in Mind
Our study suggests that effective leaders
recognize that customers, suppliers and other
stakeholders will want to develop innovative
business services or front-end apps that also
become integrated capabilities (or common business
services). The digital services platform should
therefore be designed with those extensions in mind.
5. Adopt a Services Culture
Business and IT teams will jointly dene, design,
deliver, price, prioritize, implement, enhance
and discard new business services. Companies
Figure 1: Elements of Digital Transformation at a Big Old Company
208 MIS Quarterly Executive | September 2017 (16:3) misqe.org | © 2017 University of Minnesota
How Big Old Companies Navigate Digital Transformation
are beginning to structure themselves around the
services they provide. They are empowering service
owners to deliver the innovations and efciency that
customers and employees expect. This transition is
difcult, so it is prudent for the IT organization to
start learning how to manage services—i.e., how
to dene and deliver IT services to business and
IT partners. Organizations that have adopted the
ITIL framework (a set of practices for IT service
management that focuses on aligning IT services
with the needs of business) have long embraced this
approach to IT management. Over time, we believe,
designing around business services will become the
way most companies do business.
Concluding Comments
In an old-school divide-and-conquer approach,
managers focused on optimizing the performance
of their business unit or function. However, a
divide-and-conquer mindset is not well suited to
digital transformation. The most exciting SMACIT
opportunities integrate products and services
across functional, organizational and geographic
boundaries. To succeed digitally, big old companies
need to embrace new organizational structures
and processes that empower their people to
collaboratively experiment with technologies and
deliver integrated products and services to their
customers.
Companies that fail to adopt new technologies
and fail to heed the need for digital transformation
are likely to be left trailing behind in the dust.
September 2017 (16:3) | MIS Quarterly Executive 209
How Big Old Companies Navigate Digital Transformation
Appendix: Research Methodology
We solicited participants for our study by
approaching CIOs in the 85 companies that sponsor
the MIT Sloan Center for Information Systems
Research (CISR), as well as CIOs in another four
companies that we knew were becoming more
digital. Boston Consulting Group also invited CIOs
from companies that its consultants knew were in the
midst of digital transformations.
We asked prospective study participants if
they would like to participate in research on how
companies were redesigning for the digital economy.
While many responded that they were too early
in their transformation journeys to participate
in the study, and a few were concerned about
the condentiality of their digital initiatives, 25
companies agreed to participate. As shown in the
table below, the companies came from a variety of
industries. Most were big companies (thousands of
employees) and old (only one was less than 25 years
old).21
Between June 2014 and October 2016, we
interviewed three senior executives at each of the
21 We have used broad ranges in the table to protect company
condentiality. Most companies in our sample were old. The mean
and median ages were 104 years and 107 years, respectively. Only
one company was founded after 1990. The youngest was 18 years
old; the oldest was 184 years old. Most of them were big companies,
with mean and median number of employees of 82,297 and 27,900
respectively. Only four had less than 10,000 employees. The smallest
had over 7,500 employees, and the largest had over 344,000.
Research Sample Company Demographics
Company Industry Number of Employees Year Founded
1 Heavy Manufacturing 50,000 - 99,999 Before 1900
2 Heavy Manufacturing > 300,000 Before 1900
3 Heavy Manufacturing 50,000 - 99,999 Before 1900
4 Heavy Manufacturing 10,000 - 49,999 Before 1900
5 Heavy Manufacturing 10,000 - 49,999 1950 - 1999
6 Other Manufacturing > 300,000 1900 - 1949
7 Other Manufacturing 100,000 - 300,000 Before 1900
8 Other Manufacturing 100,000 - 300,000 Before 1900
9 Other Manufacturing 100,000 - 300,000 Before 1900
10 Other Manufacturing 10,000 - 49,999 1900 - 1949
11 Other Manufacturing 10,000 - 49,999 1900 - 1949
12 Pharmaceuticals 10,000 - 49,999 1950 - 1999
13 Civil Engineering 50,000 - 99,999 1950 - 1999
14 Financial Services 100,000 - 300,000 Before 1900
15 Financial Services 10,000 - 49,999 1900 - 1949
16 Financial Services 10,000 - 49,999 Before 1900
17 Life and Health Insurance < 10,000 Before 1900
18 Software/IT Services 100,000 - 300,000 1950 - 1999
19 Software/IT Services < 10,000 1950 - 1999
20 Software/IT Services 10,000 - 49,999 1950 - 1999
21 Information Services < 10,000 1950 - 1999
22 Information Services < 10,000 Before 1900
23 Healthcare 100,000 - 300,000 1900 - 1949
24 Department Stores < 10,000 1900 - 1949
25 Government 10,000 - 49,999 1900 - 1949
210 MIS Quarterly Executive | September 2017 (16:3) misqe.org | © 2017 University of Minnesota
How Big Old Companies Navigate Digital Transformation
25 participating companies—at least one from the
IT organization and at least one from a business
function. The interviews were semi-structured and
conducted by video or phone, with each taking about
an hour. The interviews explored:
1. How the company assesses digital technology
opportunities and how its industry is
changing
2. The business strategies that the company’s
leaders were formulating to address digital
opportunities
3. Organizational design changes (if any) that
the company was implementing to execute its
digital strategy.
We recorded and transcribed each interview. After
coding the transcripts (manually or using the NVivo
qualitative data analysis software), we prepared
cases or shorter vignettes. For two companies, we
conducted additional interviews and wrote full case
studies. For the other companies, we summarized
the interviews in vignettes written using a standard
template (background, strategic context, business
model changes, design changes).
We asked each company for permission to
publish the case study or vignette. In addition to
the two full case studies, nine companies approved
their vignettes for publication. The following case
studies and vignettes can be downloaded from
CISR’s website (http://cisr.mit.edu/publications-and-
tools/publication-search/five-ways-to-face-digital-
disruption/):
Andersen, P. and Ross, J. W. Transforming
the LEGO Group for the Digital Economy,
MIT Sloan CISR Working Paper No. 407,
March 2016.
Beath, C. M., Moloney, K. G. and Ross, J.
W. The Principal: Beneting from a Service-
Oriented Architecture, MIT Sloan CISR
Working Paper No. 413, April 2016.
Beath, C. M. and Ross, J. W. USAA: Dening
a Digital Experience, MIT Sloan CISR
Working Paper No. 410, April 2016.
Betancourt, P., Mooney, J. and Ross, J.
W. Digital Innovation at Toyota Motor
North America: Revamping the Role of IT,
MIT Sloan CISR Working Paper No. 403,
September 2015.
Fonstad, N. O. and Ross, J. W. Ferrovial:
Leveraging Internal and External Resources
to Innovate Competitively, MIT Sloan CISR
Working Paper No. 409, April 2016.
Kagan, M. H., Sebastian, I. M. and Ross,
J. W. Kaiser Permanente: Executing a
Consumer Digital Strategy, MIT Sloan CISR
Working Paper No. 408, March 2016.
Scantlebury, S. and Ross, J. W. Schneider
Electric: Redesigning Schneider Electric’s
Operating Model, MIT Sloan CISR Working
Paper No. 412, April 2016.
Sebastian, I. M., and Ross, J. W. The
Schindler Group: Driving Innovative
Services and Integration with Schindler
Digital Business AG, MIT Sloan CISR
Working Paper No. 411, April 2016.
After preparing the cases and vignettes, we
conducted a cross-case analysis. We recorded the
qualitative codes about business model changes,
design changes and various other themes in an Excel
spreadsheet.
The following table details the status of the
companies in our study, in terms of their digital
strategy and whether they were building an
operational backbone and/or a digital services
platform. Companies fall into four groups: 1) Those
that had built both an operational backbone and
a digital services platform, 2) Those that have an
operational backbone, but have not yet started to
dene a digital services platform, 3) Those that
only have a digital services platform and 4) Those
with neither (not included in the table). Differential
shading in the table highlights differences according
to each company’s digital strategy (customer
engagement, digitized solutions or no digital strategy
articulated).
Most digital services platforms are still under
construction or in the design phase. In our study,
12 of the 25 companies had created, or were in the
process of designing, a digital services platform.
In most cases (the 10 companies in Group 1), the
operational backbone was developed before the
digital services platform. The two digital strategy
types were equally represented in Group 1 (ve
companies per strategy type), suggesting that both
technology-enabled assets (an operational backbone
and a digital services platform) are essential,
regardless of whether the digital strategy focuses on
digitized solutions or customer engagement.
September 2017 (16:3) | MIS Quarterly Executive 211
How Big Old Companies Navigate Digital Transformation
Digital Strategies and Characteristics
of the Technology-enabled Assets
Company Strategy Operaonal Backbone Characteriscs
Digital Services Plaorm
Characteriscs
Group 1
1 DS Global standardized operational processes
(packaged software)
Proactive and predictive monitoring with
sensor data
3 DS Global standardized operational processes
(packaged software)
Telematics and performance management with
sensor data
7 DS Standardized shared customer relationship
management (cloud)
Proactive and predictive monitoring with
sensor data
9 DS Enterprise-wide standardized operational
processes—mostly cloud
Aggregation and analysis of health, lifestyle,
clinical data from sensors, devices, EHRs
13 DS Standardized shared CRM; business process
outsourcing (cloud)
Digital platform for innovation (in progress)
6 CE Standardized operational processes; central
customer database (mostly cloud)
Customer experience platform with telematics
and analytics
11 CE Global standardized operational processes
(mostly packaged)
Customer engagement platform focused on
real-time community (in progress)
15 CE Centralized customer database (home grown) Personalized, exible customer experience
within a topic area (in progress)
16 CE Centralized customer database and reusable
SOA components (home grown)
Continually adjusted customer experience
with analytics and behavioral economics (in
progress)
24 CE Enterprise-wide EHR system (packaged
software)
Same-day delivery of technology services to
clinical and operational departments
Group 2
20 DS Standardized key business processes and
organizational management system (home
grown)
N/A
26 CE Enterprise-wide standardized operational
processes (home grown)
N/A
5 N/A Global standardized operational processes
(packaged software)
N/A
10 N/A Global standardized operational processes
(packaged software)
N/A
12 N/A Global standardized operational processes
(home grown)
N/A
Group 3
2 DS N/A Performance management with sensor data
19 DS N/A Knowledge, data, real-time community services
with analytics, facilitation of interactions
DS = digitized solutions strategy
CE = customer engagement strategy
N/A indicates that the company did not articulate a digital strategy during our interviews
Group 4, comprising eight companies (4, 8, 14, 17, 18, 21, 22 and 25), had neither an operational backbone nor a digital services platform.
This group is not included in the table.
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How Big Old Companies Navigate Digital Transformation
The ve companies in Group 2 had built their
operational backbone but had not yet dened a
digital services platform, although we believe they
were close to doing so. Three of these companies
were likely held back by difculties they were
experiencing in choosing a digital strategy. In the
other two, opportunities arising from new digital
technologies were only beginning to come into focus
in their industries; customer expectations had not yet
begun to change, so pressure to change was low.
The two companies in Group 3, both with
digitized solutions strategies, were each building
a digital services platform but had not developed
a strong operational backbone. One of these
companies, in the software/IT services eld, and
comparatively young and small in terms of our
sample, can be classied as “born digital.” Born-
digital companies invariably build digital services
platforms before they build operational backbones
because they don’t need to manage the scale of a
large company. The other company, a manufacturing
business, was developing new, innovative solutions
that focused on collecting, analyzing and providing
insights about equipment. It had decided to move
more aggressively on building a digital services
platform, which is key to its new business model,
than on building an operational backbone. In a way,
this company was taking a start-up approach to its
new digital solutions.
Seven of the eight companies in Group 4 with
neither an operational backbone nor a digital
services platform had selected a digital strategy but
were struggling to execute on it and to start their
digital transformation. Leaders in Group 4 were
only beginning to articulate the characteristics of
the two technology-enabled assets they would need.
Most of these businesses were constrained by their
silo structures both in business operations and IT
management.
September 2017 (16:3) | MIS Quarterly Executive 213
How Big Old Companies Navigate Digital Transformation
About the Authors
Ina M. Sebastian
Ina M. Sebastian (isebasti@mit.edu) is a research
scientist at the MIT Sloan School’s Center for
Information Systems Research (CISR), where she
studies how large enterprises transform for success
in the digital economy. Her current research areas
are digital strategies and organizational redesign,
digital workplace and talent management, and
collaboration across organizational boundaries in
ecosystems.
Jeanne W. Ross
Jeanne Ross (jross@mit.edu) is a principal
research scientist at the MIT Sloan School’s Center
for Information Systems Research (CISR), where
she lectures, conducts research and directs executive
education courses on IT management practices. She
studies digital transformations of large enterprises
and the implications of technologies like cloud,
mobile, data analytics and articial intelligence.
Cynthia Beath
Cynthia Beath (cbeath@mail.utexas.edu) is
Professor Emerita at the McCombs School of
Business, University of Texas at Austin. She
earned her M.B.A and Ph.D. degrees from UCLA.
Before embarking on her academic career, she
worked in private industry in several information
systems development and consulting positions. Her
research, which focuses on the joint management
of information technology assets by IT, its vendors
and its clients, has been published in leading
information systems research journals. Her work has
been supported by grants from the National Science
Foundation, SIM International, IBM and others.
Martin Mocker
Martin Mocker (martin.mocker@reutlingen-
university.de) is a professor of information systems
at ESB Business School, Reutlingen University,
Germany. He is also a research afliate at the MIT
Sloan School’s Center for Information Systems
Research (CISR). His research on managing
business complexity, business architecture and
digitization has been published, for example, in
Harvard Business Review, Sloan Management
Review, MIS Quarterly and European Journal of
Information Systems.
Kate G. Moloney
Kate Moloney is a research specialist at the
MIT Sloan School’s Center for Information
Systems Research (CISR). She researches how
large companies leverage new technologies
to create business value. Her current research
focuses on articial intelligence and blockchain
technologies. She is particularly interested in the
emergent enterprise and social challenges that these
technologies present.
Nils O. Fonstad
Nils Fonstad (nilsfonstad@mit.edu) is a
research scientist at the MIT Sloan School’s
Center for Information Systems Research (CISR)
and is currently researching competitive digital
innovation. Drawing on both in-depth qualitative
data and survey data, he studies what investments
and innovation practices distinguish the most
competitive rms. He has also studied how
organizations dene, access and foster new skills
and leaders for operating and innovating digitally.
In 2010, he co-founded with CIONET the annual
European CIO of the Year Awards to raise awareness
of the expanding strategic roles of digital leaders.
Nils earned his Ph.D. degree from MIT Sloan School
of Management.
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... For many incumbent companies, the looming examples of Kodak and Nokia have become an imperative to embark on DT to remain relevant and avoid obsolescence (Chanias et al., 2019;Lucas and Goh, 2009;Vuori and Huy, 2016). Research on DT provides a thorough view on incumbent companies' attempts to deliberately transform their business strategy and organisational structure (Chanias et al., 2019;Sebastian et al., 2017;Svahn et al., 2017;Tumbas et al., 2018;Yeow et al., 2018;. They, transforming their business strategy, seek to explore digital technologies for digital innovations and a digital value offering (Hansen and Sia, 2015;Porter and Heppelmann, 2014), digital business models (Loebbecke and Picot, 2015;Westerman and Bonnet, 2005) and digital strategies (Bharadwaj et al., 2013;Fitzgerald et al., 2013). ...
... They face competition from born-digital firms, large and small, which are renown for a culture and identity which foster and hone both empowerment and experimenting for digital innovations (Sebastian et al., 2017;Seo, 2018). On the backdrop of converging markets, senior managers may argue for a new strategy and structure to respond to competitive demands, and a need to develop capabilities matching their new born-digital competitors' (Seo, 2018;Yeow et al., 2018). ...
... In their DT strategies, incumbent companies outline a process blueprint for transforming their value offering to exploit digital technologies and their structure to support their digital strategy's execution Matt et al., 2015;Sebastian et al., 2017). This strategic view places emphasis on the possible digital innovations and digital technologies' leverage for such innovations and thus, guides incumbent companies' efforts for exploring digital technologies in generating new value offerings and business models (Li et al., 2016;Yeow et al., 2018). ...
Chapter
Research on digital transformation (DT) provides a thorough view on companies' attempts to transform their business strategy, value offerings, processes, and organisational structure. Such transformation has also been linked to implications for organisational culture and identity. Less is known, however, about incumbent companies' deliberate efforts to change organisational culture and identity as part of their DT efforts. In this paper, we conduct an ethnographic study of a German car manufacturer's DT process with a specific focus on its attempts to change its culture and identity. Zooming into the car manufacturer's HR function, we draw on the concept of institutional work to outline its efforts to change the organisational culture and identity towards one that supports the manufacturer's DT agenda. Further, deploying paradox theory, we found that the carried out institutional work exposes four paradoxes: Paradox of Infrastructural Change, Paradox of Task Duality, Paradox of Power Allocation and Paradox of Rooted Practices. We contribute to DT research illustrating the significance of culture and identity change and by identifying four paradoxes, which require to be managed for an organisation to progress toward its DT objectives, emerging from such change. We further substantiate and illustrate the usefulness of both institutional work and paradox theory to study DT, related institutional change and its processual dynamics.
... The process of change initiated by digital transformation has been long associated with large high-tech firms (Loonam et al., 2018;Sebastian et al., 2017). However, it is increasingly evident how the phenomenon is also involving smaller firms in several industries, for example, health care, ICT, tourism, retail, and financial services (Pelletier & Cloutier, 2019). ...
... With few exceptions (Barnes et al., 2012;Ivers et al., 2016), digital transformation and digital data management were mainly studied in large and/or high-tech firms (e.g., Loonam et al., 2018;Sebastian et al., 2017). However, digital transformation has also progressively affected small and medium-size enterprises (Pelletier & Cloutier, 2019). ...
Article
This study aims to explore digital transformation and the level of sophistication in the digital data handling strategy by agri-food small and medium-sized enterprises (SMEs). By developing an exploratory multiple-case study that involves fourteen food processing SMEs, this paper identifies a data processing flow made up of the following phases: data generation, data acquisition, data storage, data analysis, and data exploitation. In addition, it shows how data processing flow may occur in a number of ways, thereby classifying the agri-food SMEs’ digital transformation as paper master, digital wannabe, and digital champion. Hence, the article contributes to providing the conceptualization of a data processing flow, which includes the progressive stages in data management identified across firms by proposing a data handling strategy framework. Such a framework offers a snapshot of firms at various levels of digitization in their handling of various kinds of data, thus clarifying how the strategies of data processing flow occur.
... The second cluster summarizes the results from 11 articles on digitalization or digital transformation. These are the research papers by the following authors: Open Journal of Business and Management Sebastian et al. (2017) and Sun et al. (2018). The main findings of the literature section researched are that the digital transformation has also inexorably hit the banking industry. ...
... This goes hand in hand with the need to bundle resources and encourage investment. However, the best digital strategies derived operational decisions and strategic decisions at the same time (Sebastian et al., 2017). This balance must be found and applied in future omni-channel concepts. ...
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Due to increasing digitalization, the German banking sector is undergoing a massive period of change. This threatening challenge is massively influenced by demographic change, supervision and regulation, the low-interest phase and technological progress. In the last twenty years, mergers of regional banks, staff reduction measures and the closure of their traditional bank branches have been the order of the day. Banks in Germany are therefore forced to deal with the introduction of omni-channel concepts. The aim of the research is to make a statement on the extent to which the two distribution channels “bank advisor” and “traditional bank branch” will still play an active role for regional banks in Germany in the future. The results of standardized interviews with bank experts (N = 43) in Germany form the core of this study. This paper summarizes the findings of the quantitative research descriptively. Furthermore, the article critically examines the academic discussion on the digital transformation of banks in Germany, especially savings and cooperative banks. This article is structured as follows: Introduction, Literature Review, Methodology, Results and Discussion, Conclusions, Limits and Directions for further Research. The results of this article can be useful for researchers and bank practitioners to identify and utilize the strategic change potential under omni-channel aspects due to the digital transformation.
... The digital transformation in incumbent banks is happening in a parallel process in the new business and traditional models. This result is consistent with the conclusion from Sebastian et al. (2020). Second, the focus of the digital transformation strategy is to serve customers better. ...
Article
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The influence of Industry 4.0 and the trend of economic globalization has led to growing competition among enterprises in all business sectors, then compelled them to seek new ways to create competitive advantages and sustainable development. Presently, digital transformation plays a critical role across many countries and in all sectors including the agriculture and the rural development. New players have been increasing in the banking sector in which incumbent banks are competing with other traditional banks, fintech, and big tech. Nevertheless, not all banks are successful in digital transformation. By analyzing the practices of two banks in Hungary, this study aims to highlight the digital transformation process which happens at the leading banks and compare and contrast in all dimensions at these transformations. The study results confirm that digitalization in incumbent banks is still at a low and medium level. Moreover, the study outcomes suggest that strategic planning and human resource play key roles in implementing Digital transformation. In addition, digital transformation at traditional banks is not only related to internal; external stakeholders can be drivers or barriers to this process. Government policy and support are important factors to improve the digitalization process in Hungary related to financial services for the agriculture. Based on the results obtained, the authors aim to supplement the lack of research on digital transformation in Hungary.
... For this, we interviewed 423 real estate managers, asking them about the perception of digital practices before and after the start of the pandemic. Digitization, also addressed as Digital Transformation, refers to the use of digital technologies, such as information, computing, communication and connection technologies to promote organizational changes (Sebastian, Ross et al. 2017, Vial 2019. Supported by Ding et al. (2020) we consider that digitalization is defined as the changes that a company goes through as it starts using digital technologies to develop or modify a digitally enabled business model to create more value for the company. ...
Article
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In early March, the newspapers reported the arrival of the Coronavirus in Brazil. The period of confinement directly affected our routines and transformed our consumption habits. Amidst the fear of contagion and uncertainty, people isolated themselves and postponed changes. Previous studies indicate that digital practices were accelerated after the onset of the COVID-19 pandemic, facilitating communication and improving the performance of various sectors of the economy. Thus, to better understand the behavior of Brazilian real estate market professionals in this period, the objective of this research was to verify whether the COVID-19 pandemic accelerated the process of perception of digitalization in real estate websites. To this end, five experts in the digital real estate market were interviewed, asked what are the main items that a quality real estate website should have to improve user experience. Based on the items selected by the experts, a questionnaire was developed and a question was constructed for each item. The questionnaire was sent online to 2144 realtors, asking about the importance of these items before and after the pandemic started. Using a 5-point Likert scale, and strict criteria for analysis, our survey yielded 423 valid responses. The results indicate that regardless of the groups analyzed, the hypotheses confirm that after the beginning of the COVID-19 pandemic, the perception of the importance of digital technology in Brazilian real estate websites was enhanced, increased. Managers took advantage of the pandemic and the availability of digital technology to offer specialized service to customers, thus creating a new competitive scenario. The tools associated with the visualization of the property and information such as ‘360°/Video Tour’, ‘Video Visit Broadcast’, ‘Chatbots’ and ‘FAQ List’ had the greatest increase in perception.
... Egy-egy rendszer kiépítése, a napi működésbe való bevonása időigényes, míg a robotok gyorsabban munkába állíthatók, skálázhatók (képesek lépést tartani a növekedés ütemével). 64 Minden folyamatautomatizálás alapja az, hogy teljes egészében ismerje a szervezet a folyamat minden egyes elemét, kimenetét, elágazását, üzleti hibáit. Lehet, hogy egy-egy folyamatauto-matizálás nem kerül a feltárás során bevezetésre, de jelentős előnye lesz a tervezésnek, hogy megismeri teljes egészében a folyamatot az illetékes vezető és képes lesz feltárni a legidőigényesebb, legkevésbé hatékony elemeit. ...
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A digitális technológiák átkot vagy áldást is jelenthetnek az emberek életében. Mindkettőre egyaránt láttam példát az elmúlt évtizedekben. Az, hogy áldássá vagy átokká válik a technológia, tudatosság, a tudatos választás kérdése. Választani akkor tudunk, amikor ismerjük saját magunkat, a választási lehetőségeinket és valódi lehetőségünk van választani. Sokszor saját képzésünkkel, fejlesztésünkkel ki kell terjeszteni az érdekszféránkat és döntési helyzetbe kell hozni magunkat. Amikor egy gyermek idejének jelentős részét tölti tudattalanul – a szülők hozzájárulásával – kijelzők között úgy, hogy még a tartalmakat sem maga választja (csak sodródik), akkor a gondolkodó ember újra és újra elgondolkodik azon, hogy vajon hasznos volt-e létrehozni e technológiákat. Amikor a robotizáció és az újabb és újabb fejlesztések révén egy automatizált gépsor kiveszi a megélhetést egy már 30-40 éve kétkezi munkával igényes és jó minőségű termékeket előállító szakember kezéből, akkor újra felvetül a kérdés? A technológia áldás vagy átok? Ma Magyarországon – és szerte a világon – a közszolgáltatások jelentős részét online rendszereken keresztül érhetjük el és a folyamatnak nincs vége. A szolgáltatók szerint a váltást azért hozták létre, hogy mindenki gyorsan, utazás nélkül intézhesse ügyeit. Igen, de amikor az erdei tornaverseny rajtvonalánál egyaránt jelenik meg a futóversenyen a csiga, a kígyó és az oroszlán, akkor a célba érkezés sorrendje garantálható. Ha pedig azt szeretnénk, hogy mindenki célba érjen és lehetőség szerint viszonylag gyorsan, akkor mindenkinek a képességeit leginkább támogató eszközt és az ahhoz kapcsolódó tudást szükséges biztosítani. Nem várhatunk arra, hogy – mint ahogy az erdei futóverseny résztvevői közül mindenki lábat növesszen – úgy mindenki képes legyen feldolgozni az egyre gyorsuló digitalizáció egyes állomásait, technikáit, szoftvereit. Hihetjük azt, hogy a generációk képesek lesznek átadni egymásnak a tudást, de egyrészt a generációk nem egységesek, másrészt nem mindenkinek van szándékában átadni a tudást. Ma egy vállalkozó nem lehet sikeres a digitális megoldások ismerete nélkül. A szakmák folyamatos változáson mennek keresztül, ahol a fiatalok – és kevésbé fiatalok – úgy szerezhetik meg a végzettségüket, szakképzettségüket, ha az adott szakterület legújabb technológiáit, eszközeit, szoftvereit megismerik. De mi lesz azokkal a százezrekkel, akik 10-20-30 éve indították el a vállalkozásukat. A vásárlók, megrendelők becsatornázása, az ügyvitel, a megrendelések és az ezekre adott válaszok – szolgáltatások és termékek – sem nélkülözhetik a digitális eszközök használatát. Ma, ha egy üzleti partner az üzleti megbeszélést Skype-on vagy Teams-en szeretné megvalósítani, akkor nem mondhatjuk neki, hogy: Elnézést, a gépemen nincs még telepítve a program! vagy Elnézést, de nem értek a videókonferenciához. A szakadék egyre nő és gondolhatjuk, hogy majd a piac megoldja ezt a problémát és az erősebb – és digitálisan felkészültebb – marad majd talpon, de addig egyes térségekből eltűnnek a szakemberek. Ma a vállalkozások csak egy része tekinthető digitálisan felkészült vállalkozásnak (DFV) és amíg a változás eléri azt a szintet, amikor minden vállalkozó képes és alkalmas lesz a szakmájában legalább minimális technológiai szintet elérni, addig városok veszítenek versenyképességükből és térségek iparágai szűnhetnek meg csupán azért, mert nem tudjuk felkészíteni őket. Láthatóvá vált, hogy mind a lakosság, mind a vállalkozói szektor – ami dolgozók, vezetők (lakosság) tudáselemeiből áll össze – egy-egy meghatározó rétege még nem készült fel a változásra. A szemléletformálás, a szemléletalakítás elengedhetetlen ahhoz, hogy elérjük a gyorsabb fejlődést és versenyképes Magyarországot hozzunk létre. Amíg gazdasági szakemberek azon dolgoznak, hogy bizonyos mutatószámok alapján elérjünk egy meghatározó fejlődést, addig a regionális fejlődés nem kiegyenlített. A felzárkóztatás és a felzárkózás végső soron mindig egyéni törekvések elemeiből áll. Országos szinten hiába megfelelő a foglalkoztatás, ha egyes településeken a lakosság 20%-a nem jut munkához vagy nagyobb térségekben élők nem elégedettek a munka- vagy fizetési körülményeikkel. A zöldségtermesztésből élő megrendeléseitől megfosztott szentesi Jóska bácsit nem érdekli a GDP emelkedése, ha a lengyelországi hatékonyabb termelőtől beszerzett termék olcsóbb és jobb minőségű és ezért elvesztette megrendeléseit. Ő már nem képes megtanulni a hidrokultúrás zöldségtermesztést és főleg nem képes lefinanszírozni a fejlesztéseket. Ma egy asztalos hagyományos, kézi technikával gyönyörű bútorokat tud készíteni, de a gépesítése fejlesztésével a hatékonysága több 100%-kal tud fejlődni és így az bevételei visszaforgatásával, új gépek vásárlásával vagy fogyasztási cikkek vásárlásával támogathatja a helyi vállalkozók fejlődését. Ha segítünk egy-egy magánszemélynek vagy vállalkozónak sikeressé válni alkalmazottként vagy üzletemberként, akkor egy-egy térségnek is segítünk, mely kialakíthat egy pozitív spirált. A fenti fejlődési folyamat kizárólag az oktatási rendszer bizonyos szintjeinek fejlődésén keresztül érhető el. Elmondható, hogy amíg a generációs technológiai tudáselemek igen nagy eltéréseket mutatnak, addig a jelenlegi technológiai szint elérése igen nagy energiabefektetést igényel. Gondoljunk csak bele, hogy milyen nehéz megtanítani egy korábban DOS programon nevelkedett ismerősünket a Windows használatára vagy a nyomógombos telefonról „átszoktatni” az okostelefonra. A folyamatos tanulás és fejlődés mellett a technológiai is fejlődik, így a szemlélet és a módszertan fejlődése nélkül lehetetlen lehozni a lemaradást. Az oktatási rendszernek és a szülők fejlődésének köszönhetően a lemaradás újratermelődését is meg kell állítania úgy, hogy még egy-két generációval idősebb oktatók (és szülők) tanítják a gyermekeket. Ennek az anomáliának a feloldásához hasznos lesz majd más kultúrák, gazdaságok jó gyakorlatainak megismerése, a hibás gyakorlataink elengedése és a kettő közötti bölcs különbségtétel. Hiszem és vallom, hogy egy sikeres település és egy sikeres vállalkozás működtetéséhez hasonló tulajdonságok szükségesek. Bár tudom, hogy más a forrás, más a „megrendelő”, mégis mindkettőben egy adott közösség szinergikus együttműködésével, együtt gondolkodásával, az ember megbecsülésével, bizalomteli légkör kialakításával lehetséges elérni hatékonyabb működést, örömteli környezetet, elégedett közösségeket. Ha az ember jól érzi magát a környezetében, akkor a benne lévő tudást sokkal szívesebben és önzetlenebbül „adja le”, adja át másoknak is. A pozitív spirál kialakítására nagy szükség van a mai 21. századi Magyarországon. A jó szándékot, a jó példákat támogatja a technológiai fejlődés, a digitalizáció és hiszem, hogy ez az eszköz – jó kezekben – képes pozitív irányba mozgatni cégek és térségek életét. Könyvem megírásával a célom, hogy egyrészt felhívjam a figyelmet egyes jelenségek természetére, megoldási gondolatokat, ötleteket adjak bizonyos területeken megjelenő hiányokra, lemaradásokra és bemutassak jó gyakorlatokat is. A tanulás, tanítás és nevelés hármasa végighalad a fejezeteken, hiszen legyen szó bármilyen területen lévő fejlődésről, az tanulás nélkül nem valósulhat meg. A vállalkozások vezetői és alkalmazottai is csak a tanulás és gyakorlás útján fejlődhetnek. A családi generációk az értékátadás példáján keresztül haladhatják meg a korábbi generációk eredményeit. A településeknek és közösségeiknek szintén nem szégyen tanulni a sikeresebb települések példáiból, tanulni a versenyszféra működéséből, irányításából és megismerni azt annak érdekében, hogy kielégíthessék az igényeiket, szükségleteiket. Valójában mindenki szolgáltat és igényeket elégít ki, legyen szó szülőről, vállalkozóról, cégvezetőről, alkalmazottról vagy egy település vezetőjéről. Reméljük, hogy a pozitív példák előbb-utóbb markáns változást hoznak térségeinkbe és a bizalomteli környezet általánossá válik szerte Magyarországon.
... However, the theoretical arguments about the direction of the effect of the age of organizations on the degree of technological innovation are not conclusive (Hollenstein, 2004). In fact, some studies argue that the age of organizations can favour the adoption and implementation of technologies (Karshenas and Stoneman, 1995;Alderete and Gutiérrez, 2014;Sebastian et al., 2017) while others argue that it can represent an obstacle in terms of resistance to change and experience in adopting advanced technologies (Dunne, 1994). ...
Article
In recent years, driven by the spread of the COVID-19 pandemic, digital transformation in the healthcare sector is becoming increasingly important. Digital healthcare technologies, if adopted in a targeted manner and implemented in a cost-effective way, make it possible to reduce healthcare inequalities, improve the quality of healthcare provided and increase the well-being of citizens. The importance of digital transformation in healthcare is also attracting interest from academics. However, at present, there are few studies aimed at examining the degree of digital transformation in healthcare and the drivers of the adoption and implementation of digital solutions by healthcare facilities. This study aims to fill this gap by analysing the level of digital transformation of Italian hospitals and the factors that can affect this level of digital transformation. The analysis, conducted on a sample of 103 hospitals, shows a positive and significant impact of the hospital size, hospital age and hospital teaching status on the level of digital transformation. Furthermore, in relation to hospital complexity, it shows a positive effect of the presence of the emergency room and a non-significant influence of the number of hospital departments on the level of digital transformation.
Article
Background: Digital transformation is by itself a fragmented area, due to different perspectives encountered in the literature. The research problem addressed in this paper is a general lack of consent on the content of digital transformation and the lack of a comprehensive framework for implementing digital transformation initiatives. Purpose: The aim of this paper is to identify distinct key activities of digital transformation through a systematic literature review, and in doing so contribute to defining the scope of digital transformation and the structure of digital transformation as a process. Study design/methodology/approach: This research was conducted by means of a systematic literature review, with the aim to ascertain the general structure of the digital transformation process through identification of its key activities. Finding/conclusions: A total of 19 items were identified as activities of digital transformation, which were subsequently distributed among the 6 distinct stages of the digital transformation process, in an effort to advance the understanding of the notion and the scope of digital transformation through clarification of its content. Limitations/future research: The results of this research should be instrumental for the future research aimed towards developing generic, universal guidelines for companies seeking to embark on digital business transformation journeys.
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The digital transformation of small businesses is different from larger businesses. Applying large business management approaches on a smaller scale may lead to missed opportunities to achieve meaningful digital transformation. In this paper, we explore what is the relevant design knowledge needed to guide small business digital transformation. To answer this question, we systematically reviewed small business and IS literature to identify seven key characteristics relevant to digital transformation. Based on these characteristics, we propose 20 mechanisms for small business digital transformation that are justified and illustrated using retrospective analysis of nine different cases across three continents. While some of the mechanisms are well known and relate to larger organizations, we also identified mechanisms that are unique to the small business context. With that, our contributions are twofold. We contribute to theory by identifying relevant design knowledge for small business digital transformation, and to practice by proposing mechanisms and real-world examples, especially for the design of small business platform providers.
Article
Enterprise architecture (EA) helps an organization to develop and articulate a vision for its use of IT to support its strategic business priorities and facilitates the journey to realize this vision. We describe how EA enabled a successful billion-dollar business transformation at a leading Australian retailer and the value that EA provided. The lessons from this case are valuable for other organizations embarking on a transformation journey.
For more on how standardization and integration of processes has paid off, see
  • R Bradley
  • R Pratt
  • T A Byrd
  • L Simmons
For more on how standardization and integration of processes has paid off, see Bradley, R., Pratt, R., Byrd, T. A. and Simmons, L. "The Role of Enterprise Architecture in the Quest for IT Value," MIS Quarterly Executive (10:2), June 2011 pp. 19-27;