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Executive commitment in digital transformations
A framework for identifying executive digital commitment, barriers to the commitment and how to overcome them.
Master Thesis
Copenhagen Business School
Cand.merc.
Management of Innovation & Business Development
Authors:
Frederik Sparre Willumsen (study no.110158) Lars Gustav Thunborg (study no.111390)
Supervisor:
Ditte Kristein Brammer
Hand-in date: May 17th, 2021 Total number of characters: 269.420
Total number of pages: 119
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1. Abstract
Digital technologies are rapidly changing both society and the business world, demanding organizations to adapt if they wish to survive and succeed. While the necessity to digitally transform concerns both born-digital and traditional pre-digital organizations, many organizations are still lacking digital commitment from their executive management. It is well-established that the executive commitment is key to successful digital transformations, but no research has been made to determine what digital executive commitment actually entails, what barriers can hinder the commitment, or how such barriers can be overcome to increase the commitment to digital transformation. This study aims to answer these exact questions and thus contribute to filling the academic gap on the subject. In this context digital transformation is defined as the continuous process of creating internal value through improved digital operational excellence (digitizing), increasing customer value through digitally enabled offerings (digitalizing), and development of all the organizational elements that enables such internal and external value creation (enablers).
Through a qualitative case-study based on 18 in-depth interviews with 13 highly relevant and skilled practitioners across a broad selection of organizations, six commitment criteria are found to be necessary for a full executive commitment to a digital transformation. Additionally, five predominant barriers are found to be hindering executive management from making such full commitment. Lastly, the research recommends six approaches to overcoming the commitment barriers that hinder the executives in making the commitments to digital transformation. The collective findings culminate into the framework for executive digital commitment. This framework provides practitioners with a valuable conceptual tool for both identifying the commitments they need to make, barriers that could be hindering them, as well as work out how to overcome the barriers. Resultingly, this research contributes with important findings and insights for both academia and the practitioners seeking to increase the success of digital transformations through the commitment of the executive management.
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2. Table of contents
1. Abstract ... - 2 -
2. Table of contents ... - 3 -
3. Introduction ... - 6 -
3.1 Problem formulation ... - 8 -
3.2 Research question ... - 9 -
4. Methodology ... - 10 -
4.1 Research philosophy ... - 10 -
4.2 Research approach ... - 11 -
4.3 Research strategy ... - 11 -
4.4 Choice of methods ... - 12 -
4.5 Time horizon ... - 13 -
4.6 Data collection ... - 14 -
4.6.1 Primary data collection ... - 14 -
4.6.2 Secondary data collection ... - 15 -
4.7 Criteria for research evaluation ... - 16 -
4.7.1 Analysis and coding of data ... - 16 -
4.7.2 Ensuring data quality ... - 17 -
4.8 Limitations ... - 19 -
4.9 Delimitations ... - 20 -
4.10 Structure ... - 21 -
5. Literature Review ... - 22 -
5.1 Digitizing ... - 23 -
5.2 Digitalization ... - 25 -
5.3 The line between digitization and digitalization ... - 27 -
5.4 Digital transformation ... - 28 -
5.5 Gap in literature relating to commitment to digital transformation ... - 33 -
6. Theoretical Foundation ... - 37 -
6.1 The Role of Executive Management in Digital Transformation ... - 38 -
6.1.1 Understanding DT ... - 38 -
6.1.2 Setting the formal context for digitalization ... - 39 -
6.1.3 Leading change ... - 39 -
6.2 Capabilities ... - 41 -
6.2.1 Employee Capabilities ... - 42 -
6.2.2 Organizational Capabilities ... - 46 -
6.3 Customer interaction ... - 50 -
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6.4 Culture ... - 52 -
6.5 Modern ways of working ... - 56 -
6.5.1 Lean Startup ... - 56 -
6.5.2 Agile ... - 59 -
6.5.3 Design thinking ... - 60 -
6.5.4 Accountability framework ... - 61 -
6.5.5 The enabling role of MWW ... - 63 -
6.6 Sub-conclusion of theoretical foundation ... - 65 -
7. Executive Commitment to Digital Transformation ... - 67 -
7.1 Setting digital corporate strategy ... - 68 -
7.1.1 Committed to all three pillars of DT ... - 69 -
7.2 Communicating the digital Strategy ... - 71 -
7.3 Owning the digital strategy ... - 72 -
7.4 Prioritizing the digital transformation ... - 73 -
7.5 Adopting modern Ways of Working ... - 75 -
7.6 Creating a digital culture ... - 77 -
7.7 Sub-conclusion on executive commitment to digital transformation ... - 79 -
8. Identifying Barriers to Digital Commitment ... - 81 -
8.1 Intangibility of digital transformation ... - 81 -
8.2 Lack of resources ... - 83 -
8.2.1 Prioritization ... - 84 -
8.3 Lack of digital capabilities in executive management ... - 86 -
8.4 Rigid processes and organizational structure ... - 88 -
8.5 Rigid executive culture ... - 90 -
8.5.1 Enabling effect of culture on DT ... - 90 -
8.5.2 Path dependency ... - 90 -
8.5.3 Internal focus ... - 91 -
8.5.4 Control over autonomy and empowered teams ... - 91 -
8.5.5 Fear of failure ... - 92 -
8.7 Sub-conclusion on barriers to digital commitment ... - 93 -
9. Overcoming Barriers to Digital Commitment ... - 95 -
9.1 Become aware of commitment criteria and identify commitment barriers ... - 95 -
9.2 Focus on communication and conversation ... - 96 -
9.3 Recruit digital talent to and develop capabilities in the executive management ... - 98 -
9.4 Utilizing external resources ... - 101 -
9.5 Creating a digital culture ... - 102 -
9.6 Starting small ... - 104 -
9.7 Sub-conclusion on overcoming barriers to digital commitment ... - 107 -
10. Framework for Executive Digital Commitment ... - 108 -
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11. Individuality of Digital Transformations ... - 112 -
11.1 Maturity, size, age ... - 112 -
11.2 Industry, market, customers ... - 113 -
11.3. Public vs. private organizations ... - 114 -
12. Practical Implications ... - 115 -
13. Theoretical implications ... - 116 -
14. Further Research ... - 117 -
15. Conclusion ... - 118 -
16. Bibliography ... - 120 -
17. Appendix ... - 125 -
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3. Introduction
The digital revolution is currently transforming entire industries and the overall competitive landscape. Established business models are challenged by changing customer expectations and
behaviors, as well as new and rapidly growing market entrants with disruptive digital business ideas (Wrede, Velamuri, & Dauth, 2020)
It has become inevitable that every business leader must deal with the continuous digital revolution of society and transform their organization to keep up with the accelerating pace of change (Brennen
& Kreiss, 2016). Digital is not just a game for the born-digital organization, but a megatrend to which traditional pre-digital organizations must adapt. A statement from one of the largest Danish companies, Grundfos, stresses the importance of the responsibility this puts on the executive management (EM) of every organization: “Having a clear and strong sponsorship from the top executive management and a dedicated owner who takes responsibility of the agenda is the first step, and a key part of succeeding with the digital transformation” (Møller, Hjortegaard, & Bule, 2017, p.
39). It thereby becomes incredibly interesting how the executive can live up to this responsibility and secure the prosperity of their organization.
While much evidence in the literature emphasizes the commitment from EM to digital transformations (DT) as a key success criterion, no research seeks to discover what exactly such a commitment entails, what barriers could hinder the commitment, or what could be done to overcome such barriers and increase the digital commitment. This thereby exposes a gap in the literature which this research contributes to fill. An important step in working with this field is understanding DT, digitization, and digitalization which for many are difficult concepts to grasp. This is partly because of the inconsistent use of the terms by both practitioners and academics, which will be made up for with new and clear definitions provided by this research. A qualitative approach of careful conduction, transcription, coding, and analysis of more than 12 hours of interviews will be utilized to fill the gap in literature concerning executive commitment to DT. The study is based on 18 in-depth qualitative interviews with 13 different highly relevant and skilled practitioners across a broad selection of organizations.
- 7 - The new definition of DT provided by this research will be derived from a meticulous review of existing literature on the subject. The resulting definition compartmentalizes the three pillars of DT into confined concepts each with a unique purpose and meaning that makes for easier understanding and application in both academia and practice. Making DT the continuous creation of internal efficiency and customer value through digitally enabled solutions by using enablers. The five elements of: the role of management, employee and organizational capabilities, customer interactions, culture, and modern ways of working are found to be the most predominant enablers of DT. A theoretical foundation is subsequently built by outlining existing theory on these enablers to advance the understanding of DT and provide support for the data analysis.
Through a careful analysis of the collected data, this research contributes to filling the gap in literature on what full executive commitment to a DT entails by firstly deriving six commitment criteria to which an EM should to be committed. Subsequently, five predominant barriers hindering executive management to fully commit to a DT are found. The final analytical chapter thereafter suggests six ways to overcome the barriers to full digital commitment. Resulting from the analytical chapters, a framework for executive digital commitment is created, illustrating the commitment criteria, barriers, and ways of overcoming the barriers. The following discussion offers examples of how the elements of the framework interlink as well as how individual characteristics of firms could affect the executive commitment and the strength of certain barriers. Through the discussions of practical and theoretical implications it is deduced that the framework offers practitioners and executive managers a valuable conceptual tool to evaluate commitments to a digital transformation, which barriers are causing problems and how to overcome them. Secondly, by identifying the gap in literature and contributing to filling it, this research offers academia a new perspective on DT that can facilitate more comprehensive analysis of how firms work with DT and the important executive commitment necessary for successful DTs.
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3.1 Problem formulation
To increase profits, cut costs, and to provide its customers with products and services that better serve their needs, firms have long focused on the digital landscape to do so. With relatively novel firms disrupting or imposing threats on industries through digital business models, it should not come as a surprise that firms that are less digital in its core are looking to make the transition. Even though previous research has produced countless material on the subject of DT, the majority of firms are still struggling with their DTs (Mckinsey & Company, 2018).
Research shows that DT is not going from point A to point B, with B as the end-state, but rather as the continuous reconfiguration and optimization of the firms’ business models through digital means (Ross et al., 2019). This means that the DT is essential even for firms that are born digital. Prior research confirms DT being a continuous process and further outline the continuous commitment from EM as a key requirement for successful digital transformations (Wrede et al., 2020). However, no research investigates what it means to be committed to a DT or how to attain such commitment.
Initial communication with leading consultants in the field of digital transformations indicate that the commitment to DT from EM is essential to success, but simultaneously posing a widespread challenge that is often overlooked.
The lack of attention to this executive commitment to a DT points out an important gap in both academic and professional environments that needs to be explored further. The authors of this study therefore deem it crucial to investigate what full commitment to a DT from EM entails. Because conversations with consultants indicate that EM often lack commitment to the DT, the authors believe there to be barriers that hinder EM from committing to the DT, which is also overlooked by academia.
This research therefore also aims to systematically discover the barriers to digital commitment and how such barriers can be overcome to attain the full executive commitment to DT.
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3.2 Research question
With an abundance of frameworks for implementing digital transformation as well as extensive research pointing to commitment from executive management as being key in digital transformation, what are the main barriers keeping an executive management from fully committing to a digital transformation, and how can they overcome these barriers?
1. What is a digital transformation and what does it mean for an executive management to fully commit to a digital transformation?
2. What constitute the main barriers to digital commitment from an executive point of view.
3. How can such barriers to executive digital commitment be overcome?
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4. Methodology
The following section will provide a detailed account of the various choices and techniques utilized to structurally outline the research and answer the research question(s) in focus. Mainly, it deconstructs the researchers’ relationship to knowledge, choices made for how research has been conducted, the sources used, and furthermore, how legitimate data was attained and presented.
The Research Onion Model by Mark Saunders, Philip Lewis, and Adrian Thornhill will be applied to structurally outline the methodological choices made for this research. The model includes the six layers of research philosophy, approach, strategy, choices of methods, time horizon, and lastly techniques and procedures for data collection. Not only does the model serve to guide the reader, but furthermore as a tool to guide the research itself, facilitating research within the set boundaries.
4.1 Research philosophy
As philosophy of research constitute the initial layer of the Research Onion it is crucial to specify how this research perceive ontology and epistemology. Ontology, referring to how the nature of reality is assumed by the researcher, and epistemology pertaining to the researcher's relationship to knowledge in what constitutes legitimate knowledge and what contributions to knowledge can be made (Saunders et al., 2016).
This research adopts the constructivist philosophy, also referred to as social constructionism (Saunders et al., 2016). In constructivism, individuals’ views and beliefs are assumed to be influenced by society and their own experiences. This relationship differs from other philosophical paradigms such as positivism, where knowledge is assumed to be uncovered only from empirical observations and objective truths. Because of its relation to experimentation, leading to either validation or refutation of facts, the positivist paradigm is closely linked to natural sciences in which tested hypotheses leads to the establishment of universal laws (Veal & Darcy, 2014). Other paradigms such as critical realism, assumes that what you see is what you get and that no interaction with your subject is necessary in order to uncover the truth about reality (Saunders et al., 2016). Had the research conversely aimed at investigating what digital offerings exist in a specific industry, this paradigm
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Because of an assumption that a lack of full commitment to DT is influenced by firm-specific conditions and capabilities as well as the individual managers own views and experiences, it is believed that constructivism is the most appropriate philosophical choice. As “reality is constructed through social interaction in which social actors create partially shared meanings and realities”
(Saunders et al. 2016, p. 130) the epistemological validity and legitimacy of knowledge is also established through such interactions. Due to the constructivist nature of this study, it should be noted that the goal is not to establish a new objective truth, but to extract learnings from several individual contexts. By processing these learnings, they can be conceptualized into a framework from which they can be applied to a new situation through subjective adaptation.
4.2 Research approach
The second layer of the Research Onion Model considers the procedure of generating new knowledge (Saunders et al., 2016). Most commonly utilized approaches are deduction and induction, in which the deductive approach attempts to confirm or deny a pre-formed hypothesis or theory. Alternatively, the inductive approach combines relevant data and observations that forms explanations of the subject in question (Veal & Darcy, 2014). Due to the research utilizing previously established theories and models, one can make the argument that some aspects of the deductive approach have been applied.
However, the majority of this research adheres to the inductive approach as it seeks to outline causal relationships between observations and theory in an explanatory manner.
4.3 Research strategy
With the intention of designing research that deconstructs the real-life problem of inadequate commitments to DT, a well thought out research strategy must be prepared and completed in regard to the conduction of the research. Saunders et al. (2016) specify a case study as “an in-depth inquiry into a topic or phenomenon within its real-life setting” (p. 184). Case studies are often linked with the demonstration of desired capabilities, or the lack of such using illustrative case firms (Veal &
Darcy, 2014). It is however stated that the case in question may comprise of both individuals and firms, but as well the process of change in a firm (Saunders et al., 2016).
- 12 - Due to the complexity of DT, as well as the difficulty in observing the specific occurrence in lack of commitment to DT from EM from an outside perspective, this research does not aim to follow a few specific case firms. Instead, the strategy of the research is to work with a wide range of practitioners including a mentorship program with PA Consulting. Through the collaboration, the research aspires to gain valuable insights from all practitioner’s and PA’s experience as they are experts in the field of organizational transformations and technology. PA will moreover be used as a sparring partner throughout the process to help guide the research in the right direction.
Saunders et al. (2016) indicate case studies as including both qualitative and quantitative research, often utilizing the mixed method approach. This characterization is furthermore assessed as a key merit to case studies by Veal & Darcy (2014), stating that “Flexibility in data collection strategy allows researchers to adapt a research strategy as the research proceeds” (p. 374). The researchers acknowledge that a mixed-method case study could potentially be beneficial. However, as the research question(s) are expected to be answered without quantitative data, this research is a qualitative case-study.
4.4 Choice of methods
The researcher have acknowledged that adhering to a mixed-method approach, allowing for the accumulation and analysis of quantitative can sometimes provide more complete results. However, the researchers find it more valuable to merely allow for qualitative data as it is believed to better enable causal relationships to be drawn between individual occurrences and theory. Veal and Darcy (2014) enforce this argument by stating that through the collection of qualitative data, one receives a detailed and holistic understanding of the behavior, attitude, and/or situation of the subject in question.
Regarding choosing the design of research, it is deemed necessary to outline the purpose of the research in question. Saunders et al. (2016) declare research as mainly following either an exploratory, descriptive, explanatory, or evaluative purpose. To incorporate all vital knowledge, it is moreover stated that a research can combine the aforementioned purposes as research tends to change as it progresses (Saunders et al., 2016). This research will therefore apply different purposes along the course of investigation. During the initial stages of the research, it was resorted to open ended
- 13 - questions in semi- and unstructured interviews in order to reveal circumstances and gain knowledge of the case of interest, giving it an exploratory purpose (Saunders et al., 2016). According to Saunders et al. (2016) this type is beneficial since it provides freedom to explore the topic. As research progressed to the collection and reviewing of literature, it transitioned into what is referred to as the
“extension of a piece of exploratory research...”, namely descriptive research (Saunders et al., 2016).
Here, the purpose is as the name entails, to describe what is. Because this purpose may leave the reader without conclusions, it serves as a forerunner to the last purpose of this research. To respond to the research question, it will necessitate that causal relationships are drawn between the variables of what it means to be fully committed to DT, what impedes managers from committing, and ultimately how to overcome such. Doing so, the research will have an explanatory purpose, where these relationships are clarified (Saunders et al., 2016). In the event of further research, the investigation could potentially take the evaluative stand to determine how DT would affect the performance of firms after a full commitment to it has been achieved.
4.5 Time horizon
With the intent of exploring what it means to be fully committed to a DT and how barriers to the commitment can be overcome, this research is as previously stated, a case study. Investigating the aforementioned elements in a single point in time this research utilizes the “snapshot” time horizon.
A longitudinal study, in which the research would be revisited yearly would unquestionably provide more comprehensive data, accurate findings, as well as the ability to monitor how the development in digital commitments would affect firm performance. Due to limitations in time, the said format is unfortunately not possible. However, the snapshot time horizon can be employed to reveal previous and current states of the case in a reliable manner (Saunders et al., 2016). Using Gant charts for planning, it should moreover be noted that the researchers have taken provisions to ensure the effectiveness of research.
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4.6 Data collection
4.6.1 Primary data collection
The qualitative primary data play a significant role in this research as it aims at exploring and explaining a phenomenon which have gotten very little attention from previous studies and theories.
Because this study focuses on a complex problem that can be difficult to observe from outside organizations, consultants will be utilized as an essential source of information due to their experience. As consultants often interact and work with organizations in transformational phases, they are in the unique situation of observing the organizational problems from an outside perspective.
In line with an initial exploratory purpose, the primary data collection utilized unstructured in-depth interviews to provide the contextual information and understanding needed to search the wider subject for the most important areas. To allow for the most comprehensive data collection, the authors conducted 18 interviews with 13 subject with roles ranging from consultants, C-level managers, board members, a Vice President of Product, and a Digital Advisor. In order to produce generalizable findings, the authors furthermore chose interviewees working in varying sectors such as industrial, energy, consulting, and software industries. By keeping the interviews unstructured, the experts were able to guide the conversation to the most interesting subjects and areas. As the study progressed and as the researchers became more aware of essential areas and gained sufficient knowledge to conduct semi-structured interviews, these were used to explore selected areas more specifically. Subsequently the purpose of the data collection continued with a semi-structured approach but with the explanatory purpose of explaining the phenomena and problems highlighted by experts in the exploratory phase.
Furthermore, table 1 as seen below illustrate an overview of the interviews held.
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The secondary data gathered for this research has been utilized to expand the researchers’
understanding of the topic of DT and its surrounding elements to facilitate expertise on the subject.
This research has applied information from academic literature in the form of peer-reviewed articles and books. Besides, some statistical information from websites of reliable consulting firms such as McKinsey and PA Consulting has been utilized to support the qualitative secondary data.
Furthermore, the secondary data has had an instrumental role in the creation of the literature review and theoretical foundation of this research. In such it has been applied in accordance with the descriptive approach outlined by Saunders et al. (2016) to outline what has previously been researched on the subject of DT the elements that surround the concept.
Moreover, the topic of DT is characterized by significant terminological inconsistencies throughout the literature. This primarily concerns the terms digitization, digitalization and digital transformation which will be outlined in section 5. For the purpose of simplicity, consistency and avoiding misunderstandings, references to sources which use other definitions of the terms will be “translated”
to the terminology of this study. In cases when such sources are directly cited the change term is inserted in a square bracket and a foot note will explain the nature of the correction. For example:
[digital transformation1].
1 Source uses the term “digitalization” in a way corresponding to the definition of “DT” of this research.
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4.7 Criteria for research evaluation
4.7.1 Analysis and coding of data
To process the qualitative data produced through interviews the authors have utilized the foundational method for qualitative analysis called thematic analysis (Saunders et al., 2016). After conducting the interviews, an AI based software called otter.ai was used to transcribe the interviews from the audio recordings. To ensure the correctness and quality of these transcriptions, the authors then combed through the transcripts while listening to the audio recordings. Thereby further familiarizing with the data in the process. This familiarity and immersion into the data is essential for subsequently coding of the transcriptions (Saunders et al., 2016). In the processes, the transcriptions have been edited to not include disturbing sounds, unfinished sentences, and words where the interviewee subjects are not outlining something of importance. The inclusion of such would most likely confuse the messages and create difficulties in the coding process. Thereby also ensuring more clean data which is easier to read and navigate. The coding further organizes the data and prepare it for analysis by highlighting units of data. The software NVivo was utilized in the coding process to allow for a structured and consistent method. In the process, the researchers highlighted sentences, or complete sections and assigned it to a code in the software program. In many cases the highlighted sections would also pertain to more than one code. To expedite the analysis, a set of subcodes were assigned to
“overcoming barriers” to specifically allocate important findings for the third analysis chapter.
Utilizing the NVivo coding permitted the authors to effortlessly visualize the collected data pertaining to a certain area of analysis. The list of codes as seen below (figure 2) has continuously been updated with new codes as the research progressed.
- 17 - Every code refers to a theme, term, phenomenon or meaning which is considered relevant to answering the research question. The iterative nature of the learning process has led to re-reading and re-coding of previous interviews with the new codes which have been generated during the research.
Codes have been generated by the authors throughout the process of research but have also been adopted from the existing theory and literature as well as from terms used by interview participants.
4.7.2 Ensuring data quality
For the purposes of ensuring that the data used in this research upholds a high quality, the authors have carefully chosen and evaluated the data and the method of obtaining such data. The authors do not have an influence on the underlying quality of secondary sources. Therefore, the quality of such data has been secured through careful and critical selection of secondary sources and the purpose for which it is used. Furthermore, the researchers have applied triangulation, in which more than one research approach has been used to gain a broader and more valid understanding of the data (Veal &
Darcy, 2014). Such approaches relate to collecting secondary data from several sources, and including
- 18 - many interviewees with ranging backgrounds. The methodical reflections and measures taken to secure high primary data quality are explained in the following sections.
Biases is a data quality issue that is inevitable in qualitative studies but needs to be mitigated (Saunders et al., 2016). In order to limit interviewer bias, the authors (as interviewers) have been careful in how and in what tone questions have been asked as well as the non-verbal behavior expressed. To furthermore limit confirmation bias, the interviewers have been careful not to ask leading questions, that could to a high degree confirm biases from the authors. Interviewee bias is difficult to influence but by careful interpretations of the interviews it is for example possible to identify potential biases that would put their organization or themselves in a positive (or negative) light and adjust for this. The research has attempted to overcome participation bias by including respondents from different consultancy firms, small and large technology firms as well as C-level and board members from industrial and energy firms in the data sample. Overall, biases have been mitigated as much as possible through thorough preparation, execution, and processing of the interviews. Such preparation includes, for example, obtaining the appropriate level of knowledge about the research topic, interviewees, organizations in question and the interviews situational context as well as providing interviewees with the topic of discussion and questions before interviews (Saunders et al., 2016).
Cultural differences are limited since the interviews conducted have primarily been with interviewees of similar cultural backgrounds as the authors as interviewers. Furthermore, it should be noted that similar business-related educational backgrounds between interviewers and interviewees contribute to better understanding, flow and execution of the interviews.
The researcher have taken provisions to ensure reliability and validity of the research. Due to the complex and dynamic nature of the situation investigated using in-depth and semi structured interviews they are not intended to be scientifically replicated by other researchers. Instead, the establishment of reliability takes form in the meticulous documentation and explanation of the methodological choices made in the data collection and analysis thereof to establish dependability of the findings (Saunders et al., 2016). A high level of validity on the other hand has proven to be more easily achieved by building a connection empowered by trust between interviewer and interviewee while “using clarifying questions, probing meanings and by exploring responses from a variety of
- 19 - angles” (Saunders et al., 2016, p. 400). Lastly, reliability and validity has been increased by preparing interviewees by emailing them relevant information and a list of topics before the interviews as well as sending follow-up questions after the interview to give them an opportunity to express details forgotten during the interview. This also gives the interviewees the chance to bring or forward other relevant secondary information and documentation contributing the triangulation of the data.
4.8 Limitations
As research tends to be highly time consuming and this investigation conducts a “snapshot” case study in a matter of months, it is asserted that the research is limited by a short timeframe. If more time had been available, it would inconceivably have allowed for more comprehensive data collection and analysis. However, it should be declared that the authors have pursued maximum efficiency to conduct the most comprehensive research possible under the relatively constrained timeframe.
Moreover, a large amount of valuable data have been gathered through the literature review and the collaboration with PA Consulting. However, it would have been beneficial to collaborate with case companies that due to a current lack of commitment to DT are not achieving the full benefits of a DT.
Due to the difficulty of from an outside perspective finding case firms where the EM are uncommitted to a DT this was unattainable.
Lastly, as the ongoing situation with the Covid-19 pandemic limits physical contact, the authors have mainly conducted interviews, supervision and mentorship meetings through online modes. Even though it has sufficed in providing the necessary knowledge, it would have been preferred by the authors to mainly conduct physical meetings as that mode can be argued to bring better interaction with the subjects through non-verbal communication.
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4.9 Delimitations
In consideration of the earlier summarized limitations that are out of the control of the authors, it is imperative to furthermore outline the boundaries to the research set by the authors. The purpose of this is to keep the confines of research focused enough to produce precise findings in the topic of choice. Moreover, it also serves the reader to illustrate why boundaries were set, what alternative options were available and why these were rejected.
Prior research has focused on the prerequisites and implementation stages of DT, often forsaking the concealed obstacle in that firms lack full commitment from their EM to a DT. This research strives to fill the academic gap in what constitute the barriers to commitment as well as how those can be overcome. Thus, the investigation lies within the boundaries of the commitment to DT as it is believed this aspect halters DT to the utmost extent. Due to the assumed interrelated nature of prerequisites and implementation of DT playing a large role in the success of the effort, it will not be possible to completely reject them as aspects of analysis. Nonetheless, as the boundary has been set around commitment to DT, prerequisites and implementation of such will be analyzed with an intent to uncover commitment criteria, barriers, and ways to overcome them. Because of the large cultural difference between public and private organizations and that innovations are rarely created in public organizations, the researchers have taken the decision to narrow the focus of the research to not include public organizations. Furthermore, the term EM consistently surface in the study, by which is meant the top levels of decision-makers in a firm. The term does not include managers that are not in the absolute top of organizational hierarchies such as project or marketing managers, as they are not deemed to have the same decision power as more senior executives. It does however include owners, board members, C-level officers, vice presidents, and presidents but not managers on a lower level, such as project or marketing managers.
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4.10 Structure
The main research question has been broken down into three sub questions with the purpose of making these essential areas subject to careful processing, analysis and evaluation. The objective of the first sub question is to explain the themes, concepts and theories necessary to understand what constitutes a digital transformation as well as what it means for executive management to be fully committed to it. The understanding of DT will be derived from a review of the existing literature on the subject while the question of EM commitment will be attained from detailed analysis of the intended collection of primary data. Figure 3, as seen below provides an overview of the structure and composition of the research.
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5. Literature Review
With the distinct focus of this research on the lack of commitment to DT, the researchers believe it to be vital to review existing literature on DT to outline the gap this research aims to fill. To do this it is important to first have a clear understanding of what a DT is and what it comprises. In this regard digitizing and digitalizing are essential to understand. The terms digitizing, digitalizing and digital transformation has for some time been overused as buzz words describing any digital trend and development in society: “we do not explicitly differentiate between the different terms' meanings but use them interchangeably for any influences of digital aspects on firms” (Wrede, Velamuri, & Dauth, 2020, p. 1564). When adopted by the masses and used interchangeably without the full understanding of the terminologies their value and usefulness diminish. Also, within academia there is a lack of consistency in the use of the concepts while the distinctions and definitions are often unclear (Gobble, 2018; Ritter & Petersen, 2020). The academic articles will therefore be explained in this literature review, not only to outline the gap in the literature, but also provide the reader with a solid understanding and contextual foundation from which to understand the research. It is furthermore essential to present clear definitions of the terms and concepts used in the research while outlining why they are important to understand the subject at hand. Thereby, easing the communication, explanation, and understanding of the findings of the research, while avoiding further misunderstandings and misinterpretations that has led to the current confusion on the topic. The literature review concludes with the definitions presented in table 4.
- 23 - The following sections will unfold these concepts, how they are portraited in the literature, and explain why this research has decided on the respective definitions. The rest of the research will thereafter revolve around these definitions.
5.1 Digitizing
The first digital term that is important to understand is digitizing. In its simplest form digitizing means transforming something from an analog state into a digital form of 0’s and 1’s called bits (Brennen
& Kreiss, 2016; Ritter & Petersen, 2020). This creates more efficient communication and storing of information at a fraction of the cost. A simple example is starting to use digital archives instead of physical paper documents in boxes stored for several years. Some literature only include this very basic definition of digitizing, whereas others elaborate and expand it to include more comprehensive changes and optimizations to the internal processes by “streamlining existing processes such as building an operational backbone or introducing ERP-systems through a standardized process where the end-state is known” (Ritter & Petersen, 2020, p. 181; Mergel, Edelmann, & Haug, 2019). As digitizing is focused on optimizing processes to create a more effective organization it can cut costs, reduce errors, and create significant value for the organization itself while it does not directly change the organizations’ value-creation activities (Verhoef, et al., 2021; Ross et al., 2019; Gobble, 2018)
Verhoef, et al. (2021) describes digitizing and digitalizing as stages in a digital transformation, thus implying that one should be completed to move on to the next. While it is a common conception that incumbents always start their digital journey by digitizing, Woerner & Weill (2021) find that this is only the case for 25% of organization in 2019. They find that 18% start with a focus on digitalization, and 26% switches back and forth between digitizing and digitalizing. Thus, digitizing is not a stage that has to be finished to get to the next just as it does not simply stop when digital systems are in place. Ross et al. (2019) explains the need for continuous improvements on digital systems to avoid ending up with legacy systems. Legacy systems are complex, inflexible, inefficient, and outdated operating systems that is often found in larger incumbent organizations who have built the systems in the early days of the internet. Although legacy systems can also be found in more modern organizations who have neglected the optimization of their systems.
- 24 - These old systems were often built as individual silos with the aim of conducting a specific task within that silo (Ross et al., 2019). When the firm evolves, it then requires more and more linkages between these silos as operations become dependent on the connection between systems. For example, a firm launching a new CRM system might require for it to have integration with the current ERP system. In exhibit 1, Ross et al, illustrate how integrations are often created as quick fixes by having people manually bridging the gaps between the silos. The arrows between the silos represent people manually retrieving and transferring information from one silo to another. These are both costly and extremely ineffective. When a firm relies on legacy systems and manual processes their operational efficiency is significantly impeded as data and processes are siloed and not shared or readily available for the right people.
The purpose of digitizing is to build an effective operational backbone that create holistically automated and seamlessly integrated processes for operational excellence (Ross, 2019). The legacy systems are evidence of the importance of continuous digitization, to optimize operational efficiency and avoid rigid systems. Organizations should not stop digitizing when they have built an effective operational backbone, as these systems will become legacy systems over time if left unattended. By building connected internal systems as shown in figure 1, that support the core operations, firms will reduce, or even eradicate non-value adding activities. In some cases, building an operational backbone requires a full reconstruction of the system to make it into the modular structure required
- 25 - for a fully integrative and adaptive operational backbone (Ross, 2019). While digitizing does not directly affect the products and value proposition of an organization, it does bring information about the business and customers into a central place where it is readily available for employees to take advantage of. Thus, enabling the organization to utilize this information to increase current value for customers through digitalization (Bloomberg, 2018).
5.2 Digitalization
The second important term to understand is digitalization. In many definitions digitalization is a more complex and comprehensive digital change than digitizing. Cheng Gong and Vincent Ribiere (2020) define digitalization as using digitized information to create new revenue opportunities, as well as improving or even replacing internal processes. Thereby, being somewhat limited in their definition of digitalization to the basic form of transitioning something from analog to digital information. As previously outlined digitizing relates to more than this basic form as it also includes the optimization and rebuilding of internal systems and processes. Gong and Vincent’s (2020) perspective on digitalizing is thus too closely related to, and in fact overlap with, the already outlined definition of digitizing.
Romero, et al. (2019) neglects the difference between digitizing and digitalizing entirely by using digitalization to include both phenomena. Thus, the assertion that digitalization also relates to the digital optimization of internal processes results in more inaccurate terminology. However, they agree with most literature in that digitalization is about creating digitally enabled outputs that provide increased value to customer. Neither Joakim Björkdahl (2020) differentiate between the two concepts, making the argument that digitalization is “increased generation, analysis, and use of data in order, on one hand, to increase the firm’s internal efficiency, and on the other hand to grow the firm by adding value for customers through the change from analog to digital formats.” (p. 18). By grouping both digitizing and digitalizing under the term of digitalizing, these researchers fail to specify what kind of value the digital initiative is creating, internal value for the organization or external value for the customers.
In Brennen & Kreis’ (2016) definition of digitalization, they have a very specific scope in mind.
Namely how it has influenced society and interaction between people. They specify that digitalization
- 26 - is “the way many domains of social life are restructured around digital communication and media infrastructures.” (p. 1). Their definition is directed at how the digitalization is changing society and thereby changing the markets and industries in which organizations are operating. Even though digital technologies affect society and consumer behaviors, which organization ultimately respond to, the aim of the research is to uncover the organizations’ barriers in committing to DT. Although very interesting observations regarding the changes to society, their definition is not focusing on the digitalization of organizations and is therefore not relevant when analyzing how organizations can best digitalize themselves.
Bloomberg (2018) defines digitalization as the action of conceiving value for customers by providing digital offerings that utilize the insights gathered from digital systems. Similarly, Ross, et al. (2019) refer to digitalization as a creating new digital offerings that deliver increased customer value through a seamless customer experience directly to a customer, willing to pay for it. This is furthermore supported by global research and advisory firm, Gartner, stating that digitalization is when the firm creates new revenue streams by providing value to customers (Bloomberg, 2018). Digitalization thus refers to both new completely digital products and services such as online streaming of music and movies, or when the firm offers a digital solution that adds value to an existing physical product/service. An example of this is supermarkets offering apps that lets consumers see weekly deals, attain discounts, create digital shopping lists or even scan and pay for the groceries themselves.
The definitions from Ross, Bloomberg, and Gartner highlight how digitalizing specifically creates value to customers, and thus clearly differentiate from prior definitions that collect both internal and external value from digital under one term.
Romero, et al. (2019) neither, differentiates between digitizing and digitalizing, making the assertion that digitalization is related to improving business processes using digital solutions. However, all processes should be designed to create outputs that provide value to customers (Romero, Flores, Herrera, & Resendez, 2019, p. 3). Other authors, such as Joakim Björkdahl make the argument that digitalization relate to a larger change, namely, the whole restructuring of the firm around digital. In such it has become the norm to instill the role of Chief Digital Officer (CDO) to drive the restructuring. With the introduction of a digital advocate on the highest level in the organization, the digital agenda is heightened to a strategic level and involved the full organization. Digitalization is
- 27 - thus not merely portrayed as smaller initiatives in isolated parts of the organization but rather as company-wide initiatives. (Björkdahl, 2020).
5.3 The line between digitization and digitalization
As a result of several varying views on digitizing and digitalizing existing in the current literature, the line between the terms has become blurry and thus the communication of them unprecise. Some authors define digitization in its most basic form of changing information from analog to digital form.
Digitalization is then described as every subsequent digital initiative after having transferred information from analog to digital. Unfortunately, the ultimate result is that the two concepts are not separated enough. Clear and understandable definitions that divide a DT into meaningful and consumable parts are therefore paramount for the communication of a digital strategy and for the researcher to assess what are creating most barriers to commitment. (Kotter, 1995; Wrede et al., 2020). Some sources are not even distinguishing between the terms at all. A contributor to the confusion around the definitions of these two terms also originates from the fact that languages such as Danish, Swedish, and German does not differentiate between the words (Wrede et al., 2020). These languages only have one word that resembles digitalizing and vaguely describes any form of technological progress. In any transformation activities, executive commitment and support is described as key. Furthermore, it is essential to the success of an organizational transformation that the changes and their purpose are communicated clearly, so that everyone involved understand them and their implications (Goksoy, 2016).
To be able to identify whether a barrier to DT originates in the firms’ digitization or digitalization efforts, it is vital to clearly separate the concepts in their definitions. Ross et al. (2019) separates the two by examining whether it impacts operations or new value propositions. “In developing digital offerings, business leaders apply digital technologies to create customer solutions. Digital technologies, however, can have just as big an impact on existing operations as they do on new value propositions. We distinguish these two potential impacts of digital technologies as the difference between digitized and [digitalized2].” Even though the concepts should be categorized separately, they are closely related “For instance, when sensors are used to transmit performance data from a
2 The term “digital” used by Ross et al. (2019) correspond to the definition of “digitalization” by this research
- 28 - leased machine to the manufacturer, that is digitization. When that transmitted data is used to anticipate and prevent failures, optimize planned maintenance schedules, and improve the product, that is digitalization.” (Gobble, 2018, p.2). If these machines were only used in the organization’s own production, then the anticipation and prevention of failures, optimizing planned maintenance schedules, and improving the internal production would be digitization as it creates internal value for the organization but does not directly affect the customers. The distinction therefore has a significant impact on both the end results and the methods to achieving it:
It’s important not to confuse the two. Business executives who think they are leading a digital transformation when they are, in fact, digitizing may achieve operational excellence on an outdated
value proposition. This may elevate competitiveness in the short term, but it’s not likely to lead to digital success. Consider the limitation of being the best taxi company in town when Uber and Lyft
arrived on the scene. (Ross et al., 2019, p. 127).
This unquestionably highlights the importance of fully grasping digitization and digitalization as well as clearly communicating the concepts to the involved parties to align the organizational efforts in achieving the desired outcome. It is equally as important that the terms are defined in a logical way that divide the comprehensive DT in a way that provides for meaningful units of analysis. As a result of the reviewed literature, the authors have reached the following definitions of digitization and digitalization that will be utilized for the remainder of the report:
Digitization: Converting analog information into digital form and using digital technologies to create internal value for an organization by improving operational excellence.
Digitalization: Product, service and business model innovation that create customer value through digitally enabled solutions.
5.4 Digital transformation
DT has often been used to describe any kind of progression in an organization’s use of technology or digital solutions (Gong & Ribiere, 2020). Thereby, becoming a vague umbrella term that cannot be clearly communicated, making it difficult to work with. The confusion regarding the term can be largely attributed to the fragmented interpretations by practitioners and in the literature that varies
- 29 - significantly in their definitions. None of which have been universally accepted (Appio, Frattini, Messeni, & Neirotti, 2021). A DT is not identical across organizations but differentiate depending on both the organizations internal and external circumstances (Weill & Woerner, 2017). Since every DT is different, it is understandable that the concept can become confusing but for this research it is imperative to have a definition of DT that is as unambiguous as possible. The following sections will gather and review various definitions of DT from the literature with the purpose of accounting for its complexity. Subsequently arriving at how this research defines a DT, which allows for it to be analyzed in the specific context of this research and answer the research question.
Some authors like Bekkhus (2016) focus solely on digital transformations as affecting firm performance with the use of technology: “The use of digital technologies to radically improve the company’s performance.” (p. 2). Gerald C. Kane also imply a focus on performance by stating that DT aides in battling competition: “The best understanding of digital transformation is adopting business processes and practices to help the organization compete effectively in an increasingly digital world.” (Kane, 2017, p. 2). In addition to performance, Kane furthermore connects DT to organizational elements in adopting new business processes and practices. Thus, increasing the level of complexity in the definition beyond merely increasing performance. However, while Bekkhus (2016) state that the increased performance should be driven by the use of digital technologies, Kane (2017) does not specify the use of technologies but focuses on the business processes and practices to drive digital performance. Even though performance is a central aspect in both sources, the links to whether it's intended for internal or external value as well as its connection to organizational elements are lacking. Neither Kane (2017), nor Bekkhus (2016) specifically mention or differentiate between digitization or digitalization, Kane (2017) however vaguely refer to the area of digitization by mentioning improving processes and practices. Bekkhus on the other hand, focus on performance, which can be a reference to both digitization and digitalization, however he does not break down the concepts.
While other authors such as Fitzgerald et al. (2013) also define DT as the use of digital to increase performance, they furthermore specify what technologies can be used and what area of the business it improves. They define DT as: “The use of new digital technologies (social media, mobile, analytics or embedded devices) to enable major business improvements (such as enhancing customer experience, streamlining operations, or creating new business models)” (Fitzgerald et al, 2013, p. 2).
- 30 - Balakrishnan & Das (2020) does not specify the exact technologies used like Fitzgerald et al, (2014), but they mention that DTs improve the business through enhanced customer experience, operational processes, and business models. However, besides merely mentioning the effect on the business model, Balakrishnan & Das (2020) define the DT as affecting all components of such. They thereby imply the creation of a completely digital business without stating what components of the organization that need to be digital.
...DT refers to the process of transforming the business into digital business in which allied technologies transform all business model components, including value proposition and value delivery, in a meaningful and integrated manner... Through DT, firms target three critical areas of improvements: customer experience, operational processes, and business models. (Balakrishnan &
Das, 2020, p. 531)
By breaking down DT into the three critical areas of operational processes, customer experience and business model Balakrishnan & Das concretize the large concept to easily consumable components.
Thus, providing a clearer definition where each critical aspect can be specifically analyzed.
Another author that breaks DT down into three similar areas is Verhoef, et al. (2021). Initially Verhoef, et al. (2021) define DT as “a change in how a firm employs digital technologies, to develop a new digital business model that helps to create and appropriate more value for the firm” (p. 889).
That definition is very focused on the digitalization to create more value for the firm to capture. Thus, not explicitly including either digitizing or the organizational elements as driving forces in their definition. However, they later argue that a DT is a multidisciplinary concept that require changes to the organization, its strategy, operations, IT, supply chains and marketing. Digitizing and the organizational elements are thereby included as important factors. Verhoef, et al. (2021) then goes on to define phases of digital transformation as digitization, digitalization, and digital transformation.
DT is thereby both the overarching concept and one of the three phases. Making it DT a subset of itself. This overlap gives rise to confusion around the terminology of DT and its content.
While the phases (or stages) provide a good componentization of DT it implies that digital transformation is a sequential process, starting with digitization and ending with DT. This can be
- 31 - criticized from the perspective of Weill & Woerner (2017) who states that there are several DT pathways and that the best first step in a DT is not necessarily digitization. The notion of DT phases can be further criticized of the sequential construct: “...being digital relates to digital value propositions which necessitate ongoing, and iteratively, testing and revising offerings in the marketplace, as the end state is not known.” (Ritter & Petersen, 2020, p. 181). Ritter & Petersen (2020) would therefore argue that digitizing, digitalizing and DT cannot be described as phases to be completed before moving on, but should rather be viewed as a holistically ongoing process.
Because of the rapid and constant stream of new technology, firms need to be able to adapt proactively or in response to technological advances. With the acceleration of the technological landscape, demands of customers are likewise advanced continuously (Møller, Hjortegaard, & Bule, 2017). To keep up with the changing customers’ demands and stay competitive, DT is rather an iterative process about continuously changing, optimizing, experimenting, and learning through digital solutions.
Resultingly, the conceptualizations of Verhoef et al. (2021) does not provide a usable definition of DT despite having several relevant considerations.
With the notion that technology plays an important role in digitization and digitalization, it is no surprise that a large stream of literature focus on the technological aspects when defining DT (Mergel et al., 2019; Fitzgerald et al., 2013; Bekkhus, 2016). Nevertheless, merely utilizing technology is not enough to accomplish a DT. Building long-term adaptability to change and continuously improve its digitization and digitalization carries large implications for organizational change beyond technology (Ritter & Petersen, 2020). Therefore, a number of authors place a larger focus on the transformation of the organization in their definitions of DT (Kane, 2017; Gong & Ribiere, 2020; Glich & Sieweke, 2020). This further emphasizes the multifaceted nature of DT’s as pertaining to both the increased use of digitization and digitalization however also requiring the organization to change beyond these technological initiatives.
The literature review can thus assert Balakrishnan & Das (2020) as having the most useable definition for the purpose of this research as it includes both organizational aspects and internal and external focused technological perspectives categorized in an analyzable manner. However, Balakrishnan &
Das (2020) focus on how the technology influence the organization, whereas it is also important (especially for this study) to consider how the organizational aspects affect the use and adoption of
- 32 - technology. Furthermore, with the criticism of DT portrayed as distinct phases but in reality being a continuous process, this study deems it necessary to incorporate this aspect into the definition itself.
Digitizing and digitalization as explained in the previous segments are clearly essential elements in a DT and will therefore by the definition of this research compose the first two pillars of a DT.
Digitizing and digitalizing however, cannot create a DT without making several other changes to the specific elements of the organization that ultimately enhances the use of digitizing and digitalizing (Mergel et al., 2019). While the review of the literature on DT finds a consensus that organizational changes are necessary for a successful DT, neither academics nor practitioners agree on what change should be made or which are most important. This also relates to the individuality of DT. This research’s literature studies have identified streams of literature that points towards several organizational elements as essential enablers of DT. The five most predominant ones will be explored in sections 6.1 the role of EM in DT, 6.2 capabilities, 6.3 customer interaction, 6.4 culture, and 6.5 MW, to gain the theoretical foundation used to analyze the primary data. Furthermore, this study finds it necessary to define a third pillar of DT that relates to these organizational elements. The third pillar of DT, is defined as all the organizational elements that drives digitization and digitalization, which is referred to as “Enablers”
In the endeavor to create a useful definition for the purpose of examining the barriers to executive management’s commitment to a DT, this literature review has thus defined the third and last pillar of a DT. Connecting the findings from the previous sections on the need for a definition of DT that encapsulates both the value internally and externally, by using the organizational elements, this research’ definition of a DT thereby is:
Digital transformation is the continuous process of incorporating the three pillars of digitization, digitalization, and enablers.
In other words:
Digital transformation is the continuous process of creating internal value through improved digital operational excellence (digitizing), increasing customer value through digitally enabled
offerings (digitalizing), and development of all the organizational elements that enables such internal and external value creation (enablers).
- 33 - As mentioned, no universally accepted definition of DT exists, and this definition is not indented as an attempt to achieve that. Rather this definition organizes a DT in three easily understandable and communicated components (pillars) that enables practitioners to work with each component in very intentional ways. Likewise, it allows for researchers to make each component a unit of analysis. In the case of this research the enablers and their influence on digitizing and digitalizing are analyzed with the purpose of uncovering potential barriers to digital commitment. As mentioned, a DT is different for every organization and the enablers are what really separates the different DTs. This study will therefore not be able to cover all possible enablers, and each organization will have to explore which enablers is most important to them. The theoretical framework will highlight and explain some of the most predominant enablers from the literature: the role of leadership, capabilities, culture, (modern) ways of working, customer interaction/demands.
5.5 Gap in literature relating to commitment to digital transformation
Even though many definitions of DT fail to explain the complexity of the phenomenon, with the abundance of literature depicting DT one might wonder if there is a need for more research on the topic. Nevertheless, vast amounts of statistical data point to the fact that firms are in fact struggling with their DT’s. For example, a PA Consulting survey show that 76% of UK organizations from a broad range of industries have failed to even confront digital competitors (Kichela & Mettler, 2021).
Forbes presents data detailing that out of firms that do confront digital concerns, 84% of DT projects fail to deliver the expected ROI (Lewis, 2019). McKinsey data support this by stating that while organizational transformations are hard, DT’s are even harder. Adding that only 16% of surveyed firms that had undertaken DT’s had improved performance (McKinsey & Company, 2018).
There are many argued reasons for the failure to capture value from DT such as lack of clear strategy, uninspiring leadership, and unwillingness to adapt (Lewis, 2019). While many factors are also argued to be important for the success of DT’s, EM commitment is regarded as key: “Research on broader strategic change has shown that top management commitment is a key driver of organizational transformation's success” (Singh, Klarner, & Hess, 2020).While Wrede et al. (2020) argue that
