Lecture 1 – Introduction to Digital Transformation Strategy
What is different about digital strategy? From quantitative to qualitative change –
Adner, R., Puranam, P., & Zhu, F. 2019
The digital transformation of innovation and entrepreneurship: Progress,
challenges and key themes – Nambisan, S., Wright, M., & Feldman, M. 2019.
Digital transformation: A multidisciplinary reflection and research agenda –
Verhoef, P. C., Broekhuizen, T., Bart, Y., Bhattacharya, A., Qi Dong, J., Fabian, N.,
& Haenlein, M. 2021.
What is digital transformation and why should we care about it?
o Innovation
o Change
o Data
o Efficiency
o Technology
o Future
o Modernization
o Digitalization
o Etcetc
1. Understand the difference between digitalization, digitization and digital
transformation
2. Analyze technologies with regard to their business implications
3. Apply your knowledge to different industries and
Digital Transformation
Digital technologies are creating upheaval in our economy – but this trend is by
no means recent.
o Mainframes/ corporate networks – 1995 (HP, IBM)
o PC and web – 1995 – 2005 (Microsoft, yahoo, ebay, aoi)
o Cloud and mobile – 2005 – 2015 (google, facebook)
o Ubiquity – 2015 – (amazon, Airbnb, Netflix) the fact of appearing
everywhere or of being very common.
IBM today is no longer producing hardware, instead it engages in AI, blockchain
etc. new applications that are possible through the web.
Our economy is being re-architected from separate industries into a massive
network or ecosystem of related businesses.
Apple targets car production
o Industry boundaries are being merged because digital technology makes
this possible.
Digital businesses are transforming how value can be created, captured, shared
and delivered with significant equality.
,Redefining product 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.
How are these networks governed, how to enter/exit etc.
A creation of a networked economy is created
9) The market value of these firms varies greatly.
What is it that makes firms like Netflix so valuable, how do they achieve this?
o Strategies
o Competition
o Consequences
An example for a massive ecosystem is the ant group, a platform that organizes
different participants around a common hub.
Ant Group: platform that organizes different participants in a “hub”.
Impact of Digital transformation: how does a firm create and deliver value
Business model vs Operating value
o Business model: value creation & value capture and sharing
, o Operating model: scale, scope and learning
Operating Model
What are economies of scale, scope and learning?
Old world
o Scale: the more you produce, the lower the cost per unit fixed cost
regression
o Fixed costs are spread over more units efficiency increases
Production/ administrative
o Volume, complexity and customers
o Assembly line system
o Scope: Benefit from having different related goods that you produce
o Lamps for cars also produce bicycle lights
o Variety and range
o A car for every purse and purpose
o Learning: how can you use the knowledge in your organizations in different
ways and how effectively can you do it?
o Continuous improvements in IP generations, R&D
o Just in time
Digital world
However, digital operating models transform value creation and capture
opportunities. Value creation, capture and delivery.
Network effects: nr of people that use a certain good or application, increases the
value for other users exponential increase
Scale:
o Limited marginal costs: costs of transferring (Netflix) to another country,
costs of adding (the Netherlands) is marginal.
Scope:
o Aggregation and modularity across markets. Connecting different markets.
For example banks moving into the car industry.
Learning:
, o Constant innovation and machine learning can improve learning
possibilities within the organization
Shows how businesses in digital world scale larger & connect more easily
14)
Organization in traditional operating model vs. digital operating model:
We now have a more integrated organization line.
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?
o Traditional operating model: more customers non-linear growth
o Decrease of value creation as the nr of customers increases
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)
o Digital operating model: more customers exponential growth
o Increase of value creation as the nr of customers increases
Network effect benefit side higher
Marginal costs of additional unit are low cost side lower
Cross-fertilization
What is different about digital strategy? From quantitative to qualitative change –
Adner, R., Puranam, P., & Zhu, F. 2019
The digital transformation of innovation and entrepreneurship: Progress,
challenges and key themes – Nambisan, S., Wright, M., & Feldman, M. 2019.
Digital transformation: A multidisciplinary reflection and research agenda –
Verhoef, P. C., Broekhuizen, T., Bart, Y., Bhattacharya, A., Qi Dong, J., Fabian, N.,
& Haenlein, M. 2021.
What is digital transformation and why should we care about it?
o Innovation
o Change
o Data
o Efficiency
o Technology
o Future
o Modernization
o Digitalization
o Etcetc
1. Understand the difference between digitalization, digitization and digital
transformation
2. Analyze technologies with regard to their business implications
3. Apply your knowledge to different industries and
Digital Transformation
Digital technologies are creating upheaval in our economy – but this trend is by
no means recent.
o Mainframes/ corporate networks – 1995 (HP, IBM)
o PC and web – 1995 – 2005 (Microsoft, yahoo, ebay, aoi)
o Cloud and mobile – 2005 – 2015 (google, facebook)
o Ubiquity – 2015 – (amazon, Airbnb, Netflix) the fact of appearing
everywhere or of being very common.
IBM today is no longer producing hardware, instead it engages in AI, blockchain
etc. new applications that are possible through the web.
Our economy is being re-architected from separate industries into a massive
network or ecosystem of related businesses.
Apple targets car production
o Industry boundaries are being merged because digital technology makes
this possible.
Digital businesses are transforming how value can be created, captured, shared
and delivered with significant equality.
,Redefining product 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.
How are these networks governed, how to enter/exit etc.
A creation of a networked economy is created
9) The market value of these firms varies greatly.
What is it that makes firms like Netflix so valuable, how do they achieve this?
o Strategies
o Competition
o Consequences
An example for a massive ecosystem is the ant group, a platform that organizes
different participants around a common hub.
Ant Group: platform that organizes different participants in a “hub”.
Impact of Digital transformation: how does a firm create and deliver value
Business model vs Operating value
o Business model: value creation & value capture and sharing
, o Operating model: scale, scope and learning
Operating Model
What are economies of scale, scope and learning?
Old world
o Scale: the more you produce, the lower the cost per unit fixed cost
regression
o Fixed costs are spread over more units efficiency increases
Production/ administrative
o Volume, complexity and customers
o Assembly line system
o Scope: Benefit from having different related goods that you produce
o Lamps for cars also produce bicycle lights
o Variety and range
o A car for every purse and purpose
o Learning: how can you use the knowledge in your organizations in different
ways and how effectively can you do it?
o Continuous improvements in IP generations, R&D
o Just in time
Digital world
However, digital operating models transform value creation and capture
opportunities. Value creation, capture and delivery.
Network effects: nr of people that use a certain good or application, increases the
value for other users exponential increase
Scale:
o Limited marginal costs: costs of transferring (Netflix) to another country,
costs of adding (the Netherlands) is marginal.
Scope:
o Aggregation and modularity across markets. Connecting different markets.
For example banks moving into the car industry.
Learning:
, o Constant innovation and machine learning can improve learning
possibilities within the organization
Shows how businesses in digital world scale larger & connect more easily
14)
Organization in traditional operating model vs. digital operating model:
We now have a more integrated organization line.
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?
o Traditional operating model: more customers non-linear growth
o Decrease of value creation as the nr of customers increases
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)
o Digital operating model: more customers exponential growth
o Increase of value creation as the nr of customers increases
Network effect benefit side higher
Marginal costs of additional unit are low cost side lower
Cross-fertilization
