Articles - Digital Transformation

HOW DIGITAL TRANSFORMATION IMPACTS COMPANIES

Our latest Executive Horizons survey reveals that engaging all stakeholders in the process, developing a culture of failure tolerance, and sharing knowledge are among the most effective ways of keeping up to speed in the digital economy. But how is digital transformation really impacting companies?

 

In the 90s, many companies invested heavily in digital computing technologies, attracted by the enormous potential of streamlining all aspects of business. As the digital economy increasingly melded with the traditional one, some organizations were able to transform, while others disappeared and new players took root by basing their business models on an extended value proposition and cooperation with customers. In the new ways of doing business that have developed, we can see the clear effects on companies of digital transformation, along with the specific role of information systems.  

 

CHANGES IN THE VALUE CHAIN

Digital transformation has radically changed the traditional producer-distributor-customer relationship. This is particularly the case for the intermediary position of distributor, or wholesaler. We can see this disruption, for example, in the disappearance of retail stores in the book, CD, video and travel sectors. At the same time, digital transformation has led to the evolution of networked mediation strategies, in which a group of players form partnerships and alliances to co-create an offering and co-produce value. Companies now have to quickly acquire new skills and know-how in order to extend their control over the entire chain.

 

INCREASING IMPORTANCE OF SERVICES

The standardization of industrial products and the emergence of low-cost strategies mean that companies can no longer rely on technical superiority to differentiate themselves from the competition. With pricing now a key issue, the most effective way for companies to stand out from their competitors is by associating services and integrating solutions into their product offerings. The changing nature of the relationships between the different players in the same industry value chain and the growing importance of services are dramatically changing the business environment.

 

EVOLUTION OF BUSINESS MODELS

The role of customers and partners now extends beyond traditional boundaries and has had a major impact on business models. Customers now participate actively the development of products and services, and both inform and influence other consumers. The role of partners such as suppliers and distributors can be constantly reinvented according to need (providing resources, skills, complementary service offerings, access to the customer, and so on.) For these reasons we can observe three major characteristics in emerging business models:

  • Co-production of the value proposition
  • Strengthening of the relationship with customers, leading to an increased need for in-depth knowledge about customers and the personalization of the relationship
  • Management of resources and partnerships

 

ROLE OF INFORMATION SYSTEMS

Information systems play a vital role in the landscape of the new digital economy. Their success depends to a large extent on:

  • Maximizing and mastering IT architecture
  • Optimizing inter-organizational processes and successfully connecting customers, suppliers and partners via the information system
  • Closely aligning IT and business strategy to boost agility and innovation

 

Based on the white paper “How Information Systems Enable Digital Transformation: A Focus on Business Models and Value Co-production” by Marie-Hélène Delmond, Fabien Coelho, Alain Keravel, and Robert Mahl (January 2016).   

Marie-Hélène Delmond

Associate Professor, HEC Paris