The Process of Digital Transformation

Andi Ilham Said, Ph,D

Abstract:

Digitalization has changed almost all of our life. The way people interact for instance has change
dramatically because of digitalization. Covid 19 forced people to work distance, IT and digital application
has become and effective solution. Business today is in the era of transition from IT industrialization to
the era of digitalization. In the era of digitalization, the focus of change is on business models, the
capabilities needed are digital leadership, seeing network as potential partner, and offering to
consumers are new value creation. There are 7 stages the company should go through 7 in doing digital
transformation namely blending the leader's vision, diagnosing corporate ecosystem, mapping
corporate current position, establishing transformation direction, auditing corporate digital
transformation readiness, designing transformation road map, considering impacts of digital
transformation.

Key words: Transformation process, Digital Transformation, Transformation Audit, Digitalization Process,
Digitalization Era

I. Introduction

It is undeniable that digitalization has become the main center driving tremendous changes that have
occurred in the world in the past two decades. Digitalization has changed the life of the world,
including organizations. Many organizations even die because they cannot face digital-based
changes. During Covid 19, around 52% of companies went bankrupt or were acquired because they
could not keep up with the digitalization trend (Arsyad Rasyid, Chairman of the Indonesian Chamber
of Commerce and Industry). Others were forced to change their business models to stay afloat like
Kodak and Fuji Film. On the other hand, there are also new organizations, new industries that rely on
capabilities in the digital field such as Amazon, Google, and Zoom.

According to Gartner (2014) the world today is in the era of transition from IT industrialization to the
era of digitalization (Diagram 1). In the era of digitalization, the focus of change is on business
models. That's why digitalization structs the business a lot. The capabilities needed are digital
leadership. This means that leaders in this digital era do not have to be IT experts but the most
important thing is to have a digital mindset with a vision for the future of utilizing digital in their
business processes. In building a network has also changed, from earlier utilizing the network as a
potential customer to a potential partnership. The value offered to consumers is also changing, from
technology for effectiveness and efficiency to new value creation. As we see in e-commerce that can
offer ease of service in making transactions or purchasing products or services.
 Diagram 1: Digitalization Era

Source: Gartner, Taming the Digital Dragon: The 2014 CIO Agenda, Insights From the 2014 Gartner
CIO Agenda Report.

II. Digital Transformation Process

In undergoing digital transformation, the company will go through 7 very important processes. The
seven processes are blending the leader's vision, diagnosing corporate ecosystem, mapping
corporate current position, establishing transformation direction, auditing corporate digital
transformation readiness, designing transformation road map, considering impacts of digital
transformation. (Diagram 2).
Diagram 2: Transformation Stages

1. Blending the leader's vision

Transformation is a major change made in a short period of time. Generally not more than 3
years. Transformations that take more than three years will usually fail because it could be that
the leader has undergone a change. The new leader is no longer committed to the
transformation plan because he has a new agenda that is no longer in line with the previous
transformation plan. Major changes also lead to complications in decision making. The huge
risks that may be faced if the transformation fails, which although accompanied by the
possibility of great benefits, will be the reason for the disagreement of leaders in decision
making.

BOD and BOC with different backgrounds and interests will have different views and positions. If
these differences cannot be found to meet compromise, it will be difficult when the
transformation agenda is implemented. Those who disagree or hesitate, will continue to be
obstacles and continue to try to influence others. This situation will slow down work and
transformation achievements. This is where the role of the highest leader, in this case the
president director, as the inspiration and prime mover of transformation, to unite all opinions
and views in one common vision of transformation.
 The common vision should be shown by the existence of an agreement document that is
pledged jointly in front of the internal and external organization. This unanimity of view should
be done wholeheartedly, without the slightest hesitation or opposition. Based on this
understanding, a transformation team was subsequently formed which was chaired directly by
the President Director and all other directors. When executing the transformation, it is
necessary to appoint the head of the transformation implementation team.

2. Diagnosing Corporate Ecosystem

Company diagnostics are needed to ensure the initial position of transformation by

understanding stakeholder expectations, business ecosystem situations, and both external and
internal forces.

a. Stakeholder expectations.

Stakeholder expectations become decisive in the transformation process. Even though they
tend to have different interests and bargaining power towards organizations. Generally,
each organization will have various stakeholders (Diagram 3). The types also vary, ranging
from owners, suppliers, consumers, employees, governments, associations, mass media,
etc. Understanding and satisfying the expectations of each stakeholder will reduce
resistance and increase support when implementing the transformation.

Diagram 3: Stakeholders

Clayton (2014) map the stakeholders into 4 quadrants based on their power and interest
(Diagram 4). The first quadants is stakeholders whose interest is high and strength is also
 high. For this type of stakeholders, they should be directly involved in the transformation
process, both in planning and in execution. The second quadrant is stakeholders with great
power but little interest. Company should satisfy the expections of these stakeholders
without involving them directly in the transformation process.
For the third quadrant where stakeholders have little power but big interest. In this
situation, stakeholders should be given complete but proportional information in
accordance with GCG rules on information disclosure. Meanwhile, stakeholders with
situations in the fourth quadrant whose strength and interest are small, can be given
minimum effort and just monitoring their activities.

Diagram 4: Stakeholder Map

Source: Clayton, Mike (2014) The Influence Agenda: A Systematic Approach to Aligning
Stakeholders in Times of Change Palgrave Macmillan.

b. The situation of the business ecosystem.

The situation of the business ecosystem consists of the macro environment and the
industrial environment. In analyzing the macro environment, there are 6 things that need to
be considered, namely the political, economic, social, technological, environmental, and
regulatory situations. The macro situation will influence the industrial environment.
According to Porter (1980) there are 5 forces in the industrial environment that will affect
the organization. The five forces are the bargaining power of suppliers, competition
between players in the industry, bargaining power of consument, bargaining power of
substitute products, and bargaining power of new entrants.
The dynamics that occur in the industrial environment, which can also result from the
dynamics that occur in the macro environment will have a direct effect on the company.
 The more dynamic the ecosystem environment, the more it needs accuracy in responding
to it. Wrong and right in anticipation may determine the existence of the company. One
form of corporate response is transformation. The greater the dynamics of the industry, the
greater the urgency and escalation of transformation that needs to be carried out. In
today's all-digital era, digital transformation is the most widely done.

3. Mapping Corporate Current Position

The results of the macro and the industry analysis above can be used to identify whether there
is an external situation that encourages companies to carry out digital transformation and how
fast that transformation must be carried out. According to Carsten Lund Pedersen and Thomas
Ritter (2022), there are two questions that need to be answered by companies that will carry out
transformation. First, is the transformation driven by internal needs or external forces? The
answer to this question will give consequences on the level of imperative of the company in
carrying out transformation. Generally, impulses that come from outside will be more coercive
than impulses that come from inside. When the push comes from inside, the company can still
weigh transformation decisions according to the company's capabilities and readiness. The
second question is, does it need to happen quickly, or do you have more time to transform? The
answer to this question will have an impact on the urgency of transformation. The combination
of these two questions will result in 4 types of business transformation (Diagram 5).

Diagram 5: Four Types of Business Transformation

Source: Carsten Lund Pedersen and Thomas Ritter, 4 Types of Business Transformation, Harvard
Business Review, June 21, 2022

The first quadrant is when the impulse from internal and the transformation can still be delayed,
it is called slow-motion transformation. In this position, companies that feel the need to carry
out digital transformation have no obligation or necessity from outside parties so it does not
need to be done immediately. In this situation, the company can make better preparations.
Preparations that need to be made are include technology, infrastructure, and superstructure,
business processes, and human capital. The second quadrant is called sprinted transformation,
which is a situation where although the initiative comes from internal, there is an urge to be
 carried out immediately considering the internal push or threat from outside which if not done
immediately can reduce the competitiveness of the company.

Furthermore, the third quadrant is called negotiated transformation, which is a situation where
the impetus for change from other parties does not need to be done immediately. This situation
usually occurs when regulations that force can be applied after preparation time. For example,
when the government stipulates the replacement of analog TV channels to digital within 2 years
after the regulatory decision, then all analog television transmitters still have 2 years before the
obligation of changing to digital.

The 4th quadrant is the most severe situation because of the force of change coming from
outside that must be carried out as soon as possible. For example, when the Covid-19 Pandemic
occurred quickly and suddenly, then everyone had to work from home, then, many business
processes had to be done online so that some industries were forced to change their business
processes to digital in a short time.

4. Establishing Transformation Direction

After knowing the company's position in transformation, the next step is to set the direction of
transformation. The direction of transformation is the main strategy that will be used to plan
strategies. According to Nathan Furr et.all (2022), there are 4 pillars of digital transformation.
(Table 1). The first is IT Uplifts which only focuses on modernizing existing IT in order to create
flexible platforms and ecosystems of tools. This is the simplest digital transformation. The
second level is digitizing operations which aims to optimize existing business which will result in
cost reduction, efficiency, and optimization.

The third level is digital marketing which transformation is carried out on the renewal of digital
tools for marketing, e-commerce, and customer acquisition. The goal is to ensure
up-selling/cross selling, market/wallet share, and increased brand value. The highest pillar is the
fourth pillar, the formation of new ventures. The new ventures are built from the existence of
new business models and products. The goal is to create growth opportunities for the company.
Tabel 1: The Four Pillars of Digital Transformation

Source: Nathan Furr, Andrew Shipilov, Didier Rouillard, and Antoine Hemon-Laurens, The 4
Pillars of Successful Digital Transformations, Harvard Business Review, January 28, 2022

Meanwhile, according to Pisano (2015), innovation will change two things, namely business and
technology (Diagram 6). Routine innovation occurs when innovation only slightly changes
technology and the way of doing business, such as innovation in the next generation BMW 3
Series. In this change, the way of doing business remains relatively the same, BMW is sold in the
same place in the same way, while the technology has not changed radically, only facelifted.
Next, disruptive innovation where technology changed only slightly, but the way of doing
business changed drastically, as happened with online taxis.

The third is radical innovation. Here innovation in technology changed radically while the way of
doing business was relatively the same. For example, biotechnology innovation in
pharmaceutical companies. The drugs are sold still in pharmacies or in drug sales places and
hospitals, although innovation in terms of technology is completely new. The biggest impact of
innovation is on Architectural Innovation where technology and the way of doing business
changed significantly. This happens with the digitization of photo technology. Formerly analog
technology, turned into digital, with very different business processes because with digital
technology it was no longer required to print photos.

Diagram 6: The Innovation Lanscape

Source: Pisano, G.P. You Need an Innovation Strategy. Harv. Bus. Rev. 2015, 93, 44–54.

When the diagrams of Furr et.all (20220 and Pisano (2015) are combined, we will obtain the
Transformation Direction (Diagram 7).

Diagram 7: Digital Transformation Direction

In Diagram 7, we can see that in quadrant of digitizing operations, technology do not change as
well as the way of doing business, so it still categorized as routine innovation. In the quadrant of
IT uplift, technology changed drastically while the way of doing business was still the same, that
 is why we categorized it as radical innovation. In the quadrant of digital marketing where the
way of doing business changed drastically while operating technology was relatively the same,
so it can be categorized as disruptive innovation. Furthermore, when new ventures are formed,
usually technology and the way of doing business changed drastically.

By understanding the position of digital transformation, companies will more easily devote their
digital transformation focus on the top priorities that need to be done. Furthermore, the
company needs to set a new mission, vision, and values that will become a guidance to plan its
strategy. The preparation was carried out by BOD and BOC together after obtaining input from
key stakeholders.

5. Auditing Corporate Digital Transformation Readiness

A transformation readiness audit is conducted to find out how the organization is currently
positioned in digital transformation. According to Chamorro (2021), there are 5 essential
components of a digital transformation, namely People, Data, Insight, Action, and Results.
(Diagram 8). The five components are connected with four connecting media, namely first
technology that connects the People and Data component. Second, data science that connects
the Data and Insights component. Third, Process, People, and Culture that connects the Insights
component with Action, and fourth is New ways of doing things that connect the Action and
Results component. To complete the four media, there are 3 processes that need to be passed,
namely the digitization process for technology media, the analytical process for data science
development and process, people and culture, then the operations process which is also used
for process, people and culture and new ways of doing things.
 Diagram 8: Components of a Digital Transformation.

Source: Tomas Chamorro-Premuzic, The Essential Components of Digital Transformation,

Harvard Business Review, November 23, 2021Merancang transformasi

6. Designing Transformation Road Map

a. Types of tansformation

Tipe transformasi akan diambil dari hasil analisis pada tahap 3 pemetaan posisi
menggunakan matrix Carsten Lund Pedersen and Thomas Ritter (2022).
The type of transformation will be taken from the results of the analysis in stage 3 of
position mapping using the matrix of Carsten Lund, Pedersen and Thomas Ritter (2022).

b. Transformation themes
The transformation theme is adjusted to the Mission, Vision, and Goals, and the Value
generated by the analysis in stage 4 of setting the direction of transformation.

c. Dimention and Transformation initiatives

The transformation dimension is taken from the results of the assessment of the
organization against 5 essential components of a digital transformation that has been
carried out in stage 5 of the transformation readiness audit. While the transformation
initiative was developed from the concept built by Rogers (2016). According to Rogers,
there are 5 domains in digital transformations. (Diagram 9).
 Diagram 9: 5 Domain of Digital Transformation

Source: David L. Rogers, “The Digital Playbook Transformation,” Columbia Business

School Publishing, 2016.

The five are customer, competition, data, innovation, and value or abbreviated as CCDIV.
These five domains will be the basis for the development of digital transformation
programs. This means that in each dimension, it is necessary to develop programs that
strengthen the 5 domains. (Tabel 2)
Tabel 2: Dimention and Iniative Program

Dimention Initiative Year of

Domain
Component Media Process Program Implementation
People Techology Digitizations Customers
Competition
Data
Innovation
Value
Data Technology Digitizations Customers
and Data and Competition
Science Analythics Data
Innovation
Value
Insights Data Science Analythics Customers
and Process, and Competition
People, Operations Data
Culture, Innovation
Value
Action Process, Analythics Customers
People, and Competition
Culture and Operations Data
New Ways of Innovation
Doing Things Value
Results New Ways of Operations Customers
Doing Things Competition
Data
Innovation
Value
 d. Transformation roadmap

Transformation roadmap is series of programs that need to be carried out annually to

achieve transformation goals. The development of the transformation roadmap is
developed from Tabel 2 (Dimension and Initiative Programs) by compiling the
Transformation Roadmap (Table 3).

Tabel 3: Transformation Roadmap

Mission
Vision
Strategic Objectives
Value
Year Yearly Objective Program Theme
1
2
3
4
5

e. Action Plan
Action plan is the elaboration of each program on roapmap into execution plan. (Table 4).

Tabel 4: Transformation Action Plan

Program
Program’s Objective
Activities Acitivity’s PIC Duration Resources Schedule
Objective
1
2
3
4
5

7. Considering Impacts of Digital Transformation

Before executing a digital transformation plan, companies need to consider its impacts. There
are at least 6 things that are usually affected by digital transformation, namely: business model,
strategic knowledge, functional capabilities, technology support, risk management, and
managing stakeholders.

a. Business Model
The business model describes how organization operates its business in offering and
delivering products to customer segments, creating products, and then earning profits.
Almost certainly, digital transformation will change the company's business model because
transformation will change the business environment and competitive situation. The
change demands a new competitive advantage. The success of the company in controlling
 its business model will save survival. One of the widely used business model concepts is the
concept of Canvas Business Model (CBM) proposed by Osterwalder and Pygneur (2010).
CBM visually describes the business model into 9 elements (Diagram 10).

Diagram 10: Canvas Business Model

Source: Osterwalder and Pigneur, Model Business Generation, 2010

There are 9 elements in CBM, namely customer segment, value proposition, channels,
customer relationship, revenue stream, key activities, key resources, key partners, and cost
structures. The nine elements are connected one to each other in generating revenue and
profit for the company. This connection will enhance the cooperation between front and
back stage.

b. Strategic knowledge
Knowledge is the supra structure that underlies the process of creating an organization's
products and business. Digital transformation will also change the need for strategic
knowledge. For example, a telecommunication company that transform from landline
businesses to digital telecommunication companies directly change the needs of its
strategic knowledge, from the knowledge of the operation and utilization of
telecommunication machines and networks to knowledge about applications,
programmers, and digital technology of telecommunications.

c. Functional Capabilities
With the change in business model, the functional capability will also change. For example,
when an power plant company realize that their cable networks can be used also to deliver
internet data, then decide to enter the internet new business as an internet provider. It
turns out that with this new business, functional capabilities undergo changes. Marketing
must be more aggressive because before it was focused only on Business to Business (B to
B) relationships, then it must be able to combine B to B and B to C (business to Consumers)
strategy. Other functionalities such as operations, finance, human capital also underwent
changes.
 d. Technology support
Digital transformation will largely depend on success in providing new technologies,
particularly information technology. Digital connectivity requires new applications that will
connect, even in realtime, from upstream to downstream, from the end supplier to the end
consumer. Digital transformation that leads to the formation of a new business ecosystem
even requires applications that become a platform for all elements in the ecosystem. In the
electric car ecosystem, for example, applications will be needed in the form of platforms to
connect in real time car owners, car factories, spare parts factories, car battery factories,
spare parts distributors, car distributors, car repair shops, spare parts sales shops, insurance
companies, payment systems, etc.

e. Risk Management
Digital transformation will bring benefits on the one hand, but there will also risks on the
other hand. In business, usually behind the benefits there will be risks or behind the risks
there will be potensial benefits. This risk needs to be anticipated so the possible risk can be
mitigated, prevented, and protected. When the company digitizes its business system, from
upstream to downstream which brings convenience in the transaction process between
suppliers and companies, between companies and consumers, however when the internet
down, then system and application, will immediately stop. As an impact, the operation of all
lines of the organization will also stop suddenly. The impact will be huge if the
disconnection occurs for long time. Therefore, the causes that allow the situation occur,
need to be prevented and protected to reduce its impact.

f. Managing stakeholder.
Each industry have different stakeholders. Among them, there are those who are the main
stakeholders who play an important role in the continuity of the organization. In the
banking business, for example, customers with very large deposits or loans will become
stakeholders who need to be considered even to be involved in the transformation process.
For this reason, the expectations of these key stakeholders need to be well understood. If
they ask to be involved, it is good to be involved from the design process to the
implementation process so that they really understand the changes that are happening and
the benefits for meeting their expectations.

Summary
1. Digitalization has become main factor behind tremendous changes that have occurred in the world
in the past two decades. In fact, digitalization has changed the life of the world, including
organization’s life.
2. Business today is in the era of transition from IT industrialization to the era of digitalization In the
era of digitalization, the focus of change is on business models, the capabilities needed are digital
leadership, seeing network as potential partner, and offering to consumers are new value creation.
3. There are 7 stages the company should go through 7 in doing digital transformation namely
blending the leader's vision, diagnosing corporate ecosystem, mapping corporate current position,
 establishing transformation direction, auditing corporate digital transformation readiness,
designing transformation road map, considering impacts of digital transformation.
References:
1. Carsten Lund Pedersen and Thomas Ritter, (2022) 4 Types of Business Transformation, Harvard
Business Review, June 21.
2. Clayton, Mike (2014) The Influence Agenda: A Systematic Approach to Aligning Stakeholders in
Times of Change Palgrave Macmillan.
3. David L. Rogers, (2016) The Digital Playbook Transformation, Columbia Business School
Publishing.
4. Gartner, Taming (2014) the Digital Dragon: The 2014 CIO Agenda, Insights From the 2014
Gartner CIO Agenda Report.
5. Nathan Furr, Andrew Shipilov, Didier Rouillard, and Antoine Hemon-Laurens, (2022) The 4 Pillars
of Successful Digital Transformations, Harvard Business Review, January 28.
6. Osterwalder, A, and Pigneur, Y. (2010) Business Model Generation, New Jersey: John Wiley &
Sons.
7. Pisano, G.P. (2015) You Need an Innovation Strategy. Harv. Bus. Rev. 93, 44–54.
8. Tomas Chamorro-Premuzic, (2021) The Essential Components of Digital Transformation, Harvard
Business Review, November 23.