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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.
AUDI AG has historically focused on producing and selling premium vehicles but has begun to experiment with providing mobility services, built around car sharing. Its response to the so-called sharing economy addressed strategic and transformational challenges. Strategically, the company pursued additional sources of revenue from targeted, premium mobility services, rather than the less segmented services provided by competitors such as BMW and Zipcar. AUDI AG also transformed its organizational structure, processes and architecture to balance autonomy for innovation and integration for competitiveness.
Royal Philip's goal was to use innovation to improve the lives of three billion people a year by 2025. To reach that goal, the company was shifting from selling medical products in a transactional manner to providing integrated healthcare solutions based on digital health technology ("HealthTech").
This shift required a dual transformation. On one hand, the company needed to transform how healthcare was conducted. Healthcare professionals would have to change the way they worked and reimbursement schemes needed to change to incentivize payers, providers, and patients in vastly different ways. On the other hand, Philips needed to redesign how it worked internally. The company componentized its business, introduced digital platforms, and co-created solutions with the various stakeholders of the healthcare industry.
In other words: Royal Philips was transforming itself in order to reinvent healthcare in the digital age.
To deliver on a digital value proposition, companies must fundamentally re-architect. In other words, they must redesign their processes, systems, roles, data, and habits to allow them to iteratively create, enhance, an replace digital offerings. This briefing examines how Royal Philips is transforming its value proposition - and its entire company - to seize the opportunities presented by digital technologies.
Successful digital business strategies rely less on strategic analysis and big bets than on experiments and learning. Consider, for example, that Airbnb grew out of the belief that people would pay to sleep on air mattress on a stranger's floor. Similarly, Instagram started as an app for checking in and hanging out with friends (and sharing pictures) that proved complicated to use. Twitter's founders had first tried a podcasting platform, Odeo, which Apple made obsolete with iTunes. AUDI AG had to kill of its "share a car with five friends" app before rolling out more successful mobility services in a number of countries. The digital successes did not grow out of a comprehensive upfront analysis. Digital strategy emerges from an idea - often, not a particularly good idea.
PI Chile, a subsidiary of the Principal Financial Group, adopted a new digital vision in 2017 and initiated a transformation of the company with the goal of using digital offerings to help many more customers reach their financial goals. To do this, PI Chile had to wrap its legacy applications in APIs, build a reusable digital platform for the new offerings, and learn what kinds of tools and information customers would and could use. In addition, PI Chile was experimenting with entirely new ways of working for those staff who were developing the new offerings. The company's new accountability framework sought to empower teams to make key decisions quickly. In a short time, PI Chile was well on its way to becoming designed for digital.
Successful digital offerings are created at the intersection of what technologies can deliver and what customers want and will pay for. That point of intersection, however, has proved to be elusive. To find it, companies must experiment repeatedly, cocreate with customers, and assemble cross-functional development teams - and the insights gleaned along the way must be shared internally.
In this article, we discuss how several of the nearly 200 companies we've studied have built and exercised these capabilities. We also take a close look at how one company, Schneider Electric, is using them to acquire and share customer insights.
Established companies are facing two transformations involving digital technologies: becoming digitized and becoming digital. The platforms enabling these transformations are fundamentally different in their purpose, target state, success metrics — and especially, in the key responsibilities of senior leaders. Because of these differences, companies will need to apply new rules new roles, processes, metrics, and norms — to the new digital platform. To develop new rules leaders should (1) separate the teams working on the digital platform, (2) allow digital platform leaders to experiment with new rules, and (3) identify new leaders and coach them to succeed with new rules. Given the time it takes to establish new rules, companies need to start breaking old rules now.
The variety and interdependencies of enterprise systems that digitize large organizations’ processes have grown significantly, resulting in complex enterprise systems landscapes. Avoiding such complexity requires addressing the IT-business engagement gap between (inadvertent) producers of complexity in the business and those in IT who have to manage it. We identify mechanisms for tackling three components of this gap: 1) bridging the awareness gap through information sharing, 2) narrowing the incentive gap through shared goals, and 3) closing the authority gap by evening out power differentials through empowerment.