Lecture 1
Verhoef et al. 2021
The Need for Digital Transformation:
1) World Wide Web and its world wide adoption + an increasing number of accompanying technologies.
2) Due to these new digital technologies, competition is changing dramatically. Not only has the competition
become more global, but the intensity has also increased as big
3) Consumer behavior is changing as a response to the digital revolution (e.g. online shopping)
The Phases of Digital Transformation:
1) Digitization: The process of making information digitally available and accessible (the encoding of analog
information into a digital format)
2) Digitalization: The process of considering how digitized information can best be used to simplify certain
operations (Through digitalization firms apply digital technologies to optimize existing business processes by
allowing a more efficient coordination between processes, and/or by creating additional customer value
through enhancing user experiences)
3) Digital Transformation: The process of devising new business applications that integrate all the digitized data
and digitalized applications (describes a company-wide change that leads to the development of new
business models, which may be new to the focal firm or industry. Firms compete and can attain a competitive
advantage through their business models, which is defined to represent “how the enterprise creates and
delivers value to customers, and then converts payment received to profits”. Digital transformation introduces
a new business model by implementing a new business logic to create and capture value)
Digital transformation means a change at the strategic level that affects a company’s entire business
model
Digital assets and capabilities needed for digital change: digital assets, digital agility, digital networking capability
and big data analytics capability.
Organizational structure: separate business units, agile organizational forms, and digital functional areas.
Digital growth strategies: the most prominent growth strategy involves the use of digital platforms.
2 key drivers behind such growth: the platform’s high scalability and reinforcing network effects. (Platforms
can grow quickly and handle a growing number of users, including customers, suppliers, complementary service
providers, because the costs of serving additional users are low and in the case of digital platforms sometimes
negligible).
Slides:
Digital technologies are creating upheaval in our economy—but this trend is by no means recent
Phases:
-Mainframes/ corporate networks – 1995 (HP, IBM)
-PC and web – 1995 – 2005 (Microsoft, yahoo, ebay, aoi)
-Cloud and mobile – 2005 – 2015 (google, facebook)
-Ubiquity – 2015 – (amazon, Airbnb, Netflix) the fact of appearing everywhere or of being very common.
→ Industry boundaries are being merged because digital technology makes this possible.
Examples:
-IBM today is no longer producing hardware, instead it engages in AI, blockchain etc. new applications that are
possible through the web.
-Apple targets car production
,Digital businesses are transforming how value can be created, captured, shared and delivered with
significant equality.
Our economy is being re-architected from
separate industries into a massive network
or “ecosystem” of related businesses
(Redefining products in certain services
gives rise to industry spanning forms, which
means that we are now seeing that the
economy is being rearchitected into a
massive ecosystem.)
-Industries are being fused
-A creation of a networked economy is
created
An example for a massive ecosystem is the
Ant Group, a platform that organizes
different participants around a common hub
(Ant Financial Platform).
To understand the impact of digital
transformation, we need to reflect on firms’
business and operating model
Traditional Business model:
● Value creation: Innovation efficiency
● Value capture: Competition, isolating mechanisms
● Value delivery: Sales channels, bundling and unbundling
In the “old” economy, scale, scope, and learning are the key drivers of business performance
Traditional operating model:
● Scale (the more you produce, the lower the cost per unit → fixed cost regression): Volume, complexity,
customers → example Ford: assembly line system
● Scope (Benefit from having different related goods that you produce): Variety, range → example GM: a car
for every purse and purpose
● Learning (how can you use the knowledge in your organizations in different ways and how effectively can
you do it?): R&D, continuous improvements, IP generation → example Toyota: just-in-time
In the digital economy, firms’ operating and business models are being radically reshaped
,Scale: Limited marginal costs: costs of transferring (Netflix) to another country,costs of adding (the Netherlands)
is marginal.
Scope: Aggregation and modularity across markets. Connecting different markets. For example banks moving
into the car industry.
Learning: Constant innovation and machine learning can improve learning possibilities within the organization
Running traditional and digital businesses requires different logics regarding organization, processes, and KPIs
, What happens when a digital firm collides with a traditional product industry?
What happens when a firm that has competed in a product market starts to compete with a digital firm, targeting
the same consumer needs in a different way?
1) Traditional operating model: more customers → non-linear growth
● Decrease of value creation as the number of customers increase
● Diseconomies of scale: increase average unit cost with each
additional unit.
● Running at full capacity one additional car means you should
increase your production line (buy new machine)
2) Digital operating model: more customers → exponential growth
● Increase of value creation as the number of customers increases
● Network effect → benefit side higher
● Marginal costs of additional unit are low → cost side lower
● Cross-fertilization
Exam questions
1)Digital transformation differs from digitalization in that it implies:
● A change to the it infrastructure
● A change to the business model
● A change to the operating model (can also be correct as it is deeply affected by digitalization)
● A change to the production process
2)Which of the following statements are true?
● Digitιzation is a necessary condition for digital transformation
● Digitalization is a necessary condition for digital transformation
● Digitalization primarily concerns the operation model
● None of the above digitization you convert some analog files into digital ones, digitalization aims for
more efficient operation processes (not model). Digitalization is a change to your business and
operating model of the firm.
Lecture 2
What is a digital platform?
A digital platform can improve experiences for customers, employees, and partners. Digital technologies present
opportunities for enterprise leaders to rethink their business to create better experiences for customers,
employees, and ecosystem partners, and to lower costs.
Platforms pose several managerial challenges, such as:
● How can I compete with platform firms?
● Can I transform my business into a platform?
● How can I design a platform?
● How can I scale a platform?
● How do platforms create and deliver value?
Verhoef et al. 2021
The Need for Digital Transformation:
1) World Wide Web and its world wide adoption + an increasing number of accompanying technologies.
2) Due to these new digital technologies, competition is changing dramatically. Not only has the competition
become more global, but the intensity has also increased as big
3) Consumer behavior is changing as a response to the digital revolution (e.g. online shopping)
The Phases of Digital Transformation:
1) Digitization: The process of making information digitally available and accessible (the encoding of analog
information into a digital format)
2) Digitalization: The process of considering how digitized information can best be used to simplify certain
operations (Through digitalization firms apply digital technologies to optimize existing business processes by
allowing a more efficient coordination between processes, and/or by creating additional customer value
through enhancing user experiences)
3) Digital Transformation: The process of devising new business applications that integrate all the digitized data
and digitalized applications (describes a company-wide change that leads to the development of new
business models, which may be new to the focal firm or industry. Firms compete and can attain a competitive
advantage through their business models, which is defined to represent “how the enterprise creates and
delivers value to customers, and then converts payment received to profits”. Digital transformation introduces
a new business model by implementing a new business logic to create and capture value)
Digital transformation means a change at the strategic level that affects a company’s entire business
model
Digital assets and capabilities needed for digital change: digital assets, digital agility, digital networking capability
and big data analytics capability.
Organizational structure: separate business units, agile organizational forms, and digital functional areas.
Digital growth strategies: the most prominent growth strategy involves the use of digital platforms.
2 key drivers behind such growth: the platform’s high scalability and reinforcing network effects. (Platforms
can grow quickly and handle a growing number of users, including customers, suppliers, complementary service
providers, because the costs of serving additional users are low and in the case of digital platforms sometimes
negligible).
Slides:
Digital technologies are creating upheaval in our economy—but this trend is by no means recent
Phases:
-Mainframes/ corporate networks – 1995 (HP, IBM)
-PC and web – 1995 – 2005 (Microsoft, yahoo, ebay, aoi)
-Cloud and mobile – 2005 – 2015 (google, facebook)
-Ubiquity – 2015 – (amazon, Airbnb, Netflix) the fact of appearing everywhere or of being very common.
→ Industry boundaries are being merged because digital technology makes this possible.
Examples:
-IBM today is no longer producing hardware, instead it engages in AI, blockchain etc. new applications that are
possible through the web.
-Apple targets car production
,Digital businesses are transforming how value can be created, captured, shared and delivered with
significant equality.
Our economy is being re-architected from
separate industries into a massive network
or “ecosystem” of related businesses
(Redefining products in certain services
gives rise to industry spanning forms, which
means that we are now seeing that the
economy is being rearchitected into a
massive ecosystem.)
-Industries are being fused
-A creation of a networked economy is
created
An example for a massive ecosystem is the
Ant Group, a platform that organizes
different participants around a common hub
(Ant Financial Platform).
To understand the impact of digital
transformation, we need to reflect on firms’
business and operating model
Traditional Business model:
● Value creation: Innovation efficiency
● Value capture: Competition, isolating mechanisms
● Value delivery: Sales channels, bundling and unbundling
In the “old” economy, scale, scope, and learning are the key drivers of business performance
Traditional operating model:
● Scale (the more you produce, the lower the cost per unit → fixed cost regression): Volume, complexity,
customers → example Ford: assembly line system
● Scope (Benefit from having different related goods that you produce): Variety, range → example GM: a car
for every purse and purpose
● Learning (how can you use the knowledge in your organizations in different ways and how effectively can
you do it?): R&D, continuous improvements, IP generation → example Toyota: just-in-time
In the digital economy, firms’ operating and business models are being radically reshaped
,Scale: Limited marginal costs: costs of transferring (Netflix) to another country,costs of adding (the Netherlands)
is marginal.
Scope: Aggregation and modularity across markets. Connecting different markets. For example banks moving
into the car industry.
Learning: Constant innovation and machine learning can improve learning possibilities within the organization
Running traditional and digital businesses requires different logics regarding organization, processes, and KPIs
, What happens when a digital firm collides with a traditional product industry?
What happens when a firm that has competed in a product market starts to compete with a digital firm, targeting
the same consumer needs in a different way?
1) Traditional operating model: more customers → non-linear growth
● Decrease of value creation as the number of customers increase
● Diseconomies of scale: increase average unit cost with each
additional unit.
● Running at full capacity one additional car means you should
increase your production line (buy new machine)
2) Digital operating model: more customers → exponential growth
● Increase of value creation as the number of customers increases
● Network effect → benefit side higher
● Marginal costs of additional unit are low → cost side lower
● Cross-fertilization
Exam questions
1)Digital transformation differs from digitalization in that it implies:
● A change to the it infrastructure
● A change to the business model
● A change to the operating model (can also be correct as it is deeply affected by digitalization)
● A change to the production process
2)Which of the following statements are true?
● Digitιzation is a necessary condition for digital transformation
● Digitalization is a necessary condition for digital transformation
● Digitalization primarily concerns the operation model
● None of the above digitization you convert some analog files into digital ones, digitalization aims for
more efficient operation processes (not model). Digitalization is a change to your business and
operating model of the firm.
Lecture 2
What is a digital platform?
A digital platform can improve experiences for customers, employees, and partners. Digital technologies present
opportunities for enterprise leaders to rethink their business to create better experiences for customers,
employees, and ecosystem partners, and to lower costs.
Platforms pose several managerial challenges, such as:
● How can I compete with platform firms?
● Can I transform my business into a platform?
● How can I design a platform?
● How can I scale a platform?
● How do platforms create and deliver value?
