The New Elements of Digital Transformation
The authors revisit their landmark research and address how the competitive advantages offered by digital technology have evolved.
Since 2014, when our article “The Nine Elements of Digital Transformation” appeared in these pages, executive awareness of the powerful and ever-evolving ways in which digital technology can create competitive advantage has become pervasive.1 But acting on that awareness remains a challenging prospect.
It requires that companies become what we call digital masters. Digital masters cultivate two capabilities: digital capability, which enables them to use innovative technologies to improve elements of the business, and leadership capability, which enables them to envision and drive organizational change in systematic and profitable ways. Together, these two capabilities allow a company to transform digital technology into business advantage.2
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Digital mastery is more important than ever because the risks of falling behind are increasing. In 10 years of research, we have seen digital transformation grow increasingly complex, with a new wave of technological and competitive possibilities arriving before many companies mastered the first. When we began our research, most large traditional enterprises were using digital technologies to incrementally improve parts of their businesses. Since then, this first phase of activity has given way to a new one. Advances in a host of technologies, such as the internet of things, artificial intelligence, virtual and augmented reality, and 5G, have opened new avenues for value creation. More important, leaders now recognize the need for — and the possibility of — truly transforming the fundamentals of how they do business. They understand that they have to move from disconnected technology experiments to a more systematic approach to strategy and execution.
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2. G. Westerman, D. Bonnet, and A. McAfee, “Leading Digital: Turning Technology Into Business Transformation” (Boston: Harvard Business Review Press, 2014); G. Westerman, M. Tannou, D. Bonnet, et al., “The Digital Advantage: How Digital Leaders Outperform Their Peers in Every Industry,” Capgemini Consulting and MIT Center for Digital Business, Nov. 5, 2012, www.capgemini.com; and G. Westerman, C. Calmejane, D. Bonnet, et al., “Digital Transformation: A Roadmap for Billion-Dollar Organizations,” Capgemini Consulting and MIT Center for Digital Business, Nov. 17, 2011, www.capgemini.com.
3. J. Buvat, M. Slatter, R. Puttur, et al., “Understanding Digital Mastery Today: Why Companies Are Struggling With Their Digital Transformations,” Capgemini Consulting, July 3, 2018, www.capgemini.com.
4. A. DeNisco Rayome, “How Sephora Is Leveraging AR and AI to Transform Retail and Help Customers Buy Cosmetics,” TechRepublic, Feb. 15, 2018, www.techrepublic.com; and N. Walters, “At Sephora and Ulta, the Pandemic Is Changing the Makeup Buying Experience,” Dallas Morning News, May 29, 2020, www.dallasnews.com.
5. K. Lake, “Stitch Fix’s CEO on Selling Personal Style to the Mass Market,” Harvard Business Review, May-June 2018, https://hbr.org; D. Newman, “Stitch Fix: A Useful Case Study for Retail’s Digital Transformation,” Forbes, Sept. 9, 2019, www.forbes.com; and “Stitch Fix Announces Fourth Quarter and Full Fiscal Year 2019 Financial Results,” Globe Newswire, Oct. 1, 2019, https://investors.stitchfix.com.
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8. Westerman, et al., “Leading Digital.”
9. “Schindler Ahead: Smart Urban Mobility,” Schindler, www.schindler.com.
10. “How We Use Real-Time Data Analytics to Manage Complex Supply Chains,” Flex, July 10, 2018, https://flex.com.
11. See, for example, S. Freedberg Jr., “Huntington-Ingalls Sinks $2B Into Shipyards: Digital Plans and Computerized Welding,” Breaking Defense, April 4, 2018, https://breakingdefense.com.
12. A. Lundberg and G. Westerman, “The Transformer CLO,” Harvard Business Review, January-February 2020, https://hbr.org.
13. Lundberg and Westerman, “Transformer CLO.”
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16. K. Hannon, “How to Boomerang Back to Your Old Job,” AARP, Nov. 9, 2018, www.aarp.org.
17. Westerman, et al., “Leading Digital.”
18. M. Wade, D. Bonnet, and J. Shan, “Lifting the Lid on Disruption Fever,” Journal of Strategy and Management 13, no. 4, (July 24, 2020): 495-501.
19. “Multichannel Retail Report: 2020 Edition,” Ampersand, 2020, https://ampersandcommerce.com.
20. R. Casadesus-Masanell, O. Gassmann, and R. Sauer, “Hilti Fleet Management (A): Turning a Successful Business Model on Its Head,” Harvard Business School case study 717-427, May 2017 (revised September 2018); and C. DeBoer, “Hilti Tools On Demand Scales Tool Leasing for Businesses,” Pro Tool Reviews, July 13, 2019, www.protoolreviews.com.
21. W. Ulaga, F. Dalsace, and C. Renault, “Michelin Fleet Solutions: From Selling Tires to Selling Kilometres,” IMD case study 510-103-1, 2015.
22. “Klöckner: Trailblazing the Steel Industry,” World Economic Forum, 2019, http://reports.weforum.org.
23. “Chinese Tech Giants Alibaba and JD.com Have Won Over Luxury Brands,” Retail Insight Network, April 9, 2019, www.retail-insight-network.com.