Digital transformation: A multidisciplinary reflection and research agenda

Introduction
Objective
The need for digital transformation
The phases of digital transformation
Strategic Imperatives of Digital Transformation
● Digital resources
Digital Assets
Digital Agility
Digital Networking Capability
Big Data Analytics Capability
● Organizational structure
Separate Business Units
Distinct Business Units
Agile Organizational Forms
Digital Functional Areas
● Metrics and goals
Conclusion
 Digital transformation: A multidisciplinary reflection and research agenda

Introduction
The landscape of business has undergone a seismic shift due to digital transformation and the
subsequent innovation in business models. This transformation has not only changed consumer
behaviors and expectations but has also posed significant challenges for traditional companies and
industries. Consumers now navigate through various digital touchpoints, interact with firms and peers
effortlessly, and expect a seamless experience. Concurrently, traditional firms have found themselves
outpaced by digital entrants like Alibaba and Amazon, causing disruptions across industries. The effects
are profound, with established giants such as Toys 'R' Us, Claire’s, and RadioShack facing bankruptcy due
to the rise of online retailers.

The impact of digital transformation extends beyond retail,instead reshaping sectors like music,
television, film, and hospitality, as seen with Spotify, Netflix, Booking.com, and Airbnb.

Despite the undeniable impact and far-reaching consequences of digital transformation, the academic
realm has only recently begun to grapple with these dynamics. Terms like digital transformation,
digitization, and their related concepts have garnered attention, primarily in the realms of digital
advertising, social media effects, multi-channel strategies, and business model innovation. However,
these explorations have often remained confined within specific business domains, missing the
opportunity to foster a comprehensive, cross-disciplinary dialogue on the subject. This study seeks to
bridge this gap by providing a multidisciplinary perspective on digital transformation.

Objective
We have the following three objectives:

First, to identify the external factors that have strengthened the need for digital transformation. Second,
to discuss the strategic imperatives that result from digital transformation regarding (1) required digital
resources, (2) required organizational structure, (3) growth strategies, and (4) required metrics. Third, to
present a research agenda that guides future (inter)disciplinary research on digital transformation.

The need for digital transformation

There are three significant external factors propelling the necessity for digital transformation. First, the
advent of technologies like the World Wide Web, broadband internet, smartphones, and cloud
computing has fueled the growth of e-commerce. With e-commerce global sales projected to reach
$4.88 trillion in 2021, the proliferation of digital technologies indicates the urgency for firms to undergo
digital transformation. Second, the competition landscape is shifting as digital technologies disrupt
industries and empower tech giants like Amazon, Alphabet, and Alibaba. These firms are dominating
various sectors, reshaping valuations, and challenging traditional business norms. Lastly, consumer
behavior is evolving in response to the digital revolution, with online purchases, digital touchpoints, and
mobile devices influencing customer journeys. Consumers are becoming more connected, informed, and
active, co-creating value and demanding adaptability from businesses. Embracing new digital
technologies is crucial for firms to remain relevant and competitive in this changing landscape.

The phases of digital transformation

 Digital transformation: A multidisciplinary reflection and research agenda

The process of digital transformation is characterized by three distinct phases: digitization, digitalization,
and digital transformation. These phases encompass the evolution of a firm's engagement with digital
technologies and the subsequent changes in its business model.

Digitization involves converting analog information into digital format, facilitating storage, processing,
and transmission by computers. It focuses on tasks such as using digital forms, surveys, or applications
for internal financial processes, without fundamentally altering value creation activities.

Digitalization goes further, leveraging digital technologies to modify existing business processes. This
phase introduces new communication channels, enhances customer interactions, optimizes distribution
methods, and improves business relationship management. It aims to enhance both cost savings and
process efficiency while enhancing customer experiences.

Digital transformation is the most comprehensive phase, reshaping the entire company and its business
model. It introduces new business logic that creates and captures value in innovative ways. This phase
involves fundamental changes to the firm's core processes, routines, and capabilities, enabling
interactions across borders with stakeholders. Digital transformation leverages digital technologies to
enable strategic shifts in the business model and foster competitive advantage.

For established firms, digital transformation can be particularly challenging due to legacy systems and
conflicts between traditional and new methods. These firms often initiate change through digitization
and digitalization before fully embracing digital transformation. The different phases of digital change
bring about distinct strategic imperatives, impacting digital resources, organizational structure, growth
strategies, and performance metrics.

Strategic Imperatives of Digital Transformation

● Digital resources
Resources are the assets and capabilities that a firm possesses, including physical, intellectual, human,
and organizational assets. In the context of digital transformation, firms need to acquire, develop, or
access new digital assets and capabilities to redefine how they create and deliver value to customers.
Here, we highlight several essential digital assets and capabilities crucial for successful digital change:

Digital Assets
These encompass data storage, information infrastructure, communication technologies, and associated
tools. Modern firms heavily invest in developing and acquiring digital assets to effectively compete in
the digital age. These assets enable the efficient processing and management of digital information, a
critical aspect of digital transformation.

Digital Agility
This refers to a firm's ability to rapidly adapt to changes in the digital environment. Firms must be
flexible and responsive to emerging digital trends, technologies, and customer preferences. Digital
agility allows firms to seize opportunities and address challenges promptly, facilitating their digital
transformation journey.
 Digital transformation: A multidisciplinary reflection and research agenda

Digital Networking Capability

Building and nurturing digital networks is essential for successful digital transformation. These networks
involve collaborations, partnerships, and interactions with various stakeholders, including customers,
suppliers, and other businesses. A robust digital networking capability enhances a firm's reach,
collaboration potential, and access to valuable resources.

Big Data Analytics Capability

With the proliferation of digital technologies, firms generate vast amounts of data. The ability to analyze
and derive actionable insights from this data is crucial for informed decision-making and innovation. Big
data analytics capability empowers firms to optimize processes, enhance customer experiences, and
develop data-driven strategies.

By catering to all these firms can navigate the challenges and opportunities presented by the digital era
and ultimately achieve successful digital transformation.

● Organizational structure
Separate Business UniIn addressing the multifaceted challenges of digital transformation, the
need for organizational adjustments becomes evident. Specifically, the adaptability of the
organizational structure assumes critical importance in the context of digital change. This is
particularly pronounced in the case of forming a flexible organizational structure capable of
embracing digital transformation. Prior research emphasizes that digital transformation
inevitably influences the organizational framework, advocating for the implementation of a
malleable structure encompassing distinct business units, nimble organizational forms, and
specialized digital functional domains.

Distinct Business Units

Given the tendency of incumbents to exhibit sluggishness in identifying valuable technologies and
promptly responding to the imperatives of digital change, the importance of swift reaction and the
mitigation of conflicts arising from digital technologies cannot be overstated. To navigate these
challenges, the realm of business model innovation underscores the establishment of autonomous
business units, isolated from the corporate headquarters. This separation facilitates experimentation,
rapid learning, and minimizes the risks of cannibalization and internal discord.

Agile Organizational Forms

Traditional hierarchical organizational structures with multiple tiers of management and top-down
decision-making are proving inadequate in the rapidly evolving digital landscape. Bureaucratic
constraints impede responsiveness and innovation. To cultivate digital agility, enterprises necessitate
adaptable organizational forms that enable swift reactions to ongoing digital shifts.

For instance, ING's digital transformation journey embraced the Spotify model, characterized by self-
organizing teams vested with autonomous decision-making. This approach fosters agility, employing
iterative cycles to test and revise market assumptions promptly. Some entities embrace the holacratic
organizational approach, fostering self-management for responsive, purpose-driven operations
 Digital transformation: A multidisciplinary reflection and research agenda

Digital Functional Areas

An integral facet of digital transformation is the augmented reliance on IT and analytical functions.
Notably, the IT function itself is transitioning from a communication or data flow-enabling role to an
orchestrative one that supports digital value creation via swift and explorative responses. Beyond the
shift within the IT department, upgrading employees' digital skills in marketing and service operations is
essential for value enhancement. In terms of human resource management, digital transformation
necessitates attracting employees with digital and analytical proficiencies, potentially replacing the
existing workforce. This entails sourcing individuals with expertise in online and mobile marketing as
well as data analysis, effectively altering the landscape of traditional roles. A significant challenge for
incumbent firms is competing for such talent against digital-native entrants, with tech giants and
FinTech startups often being more appealing choices (Deutsche Bank, for instance).

● Metrics and goals

To harness the full potential of digital transformation, digital enterprises must gauge performance
enhancements using key performance indicators (KPIs), fostering learning and refining business models.
KPI relevance shifts across transformation phases. While digitization and digitalization phases trigger
metric adjustments (e.g., tracking website clicks, video views, and mobile downloads), outcome-
oriented measures like ROI, profitability, and revenue growth persist for firms in these stages.

However, for new business models emerging from digital transformation, the focus extends to
intermediate process metrics alongside revenue goals. These metrics offer nuanced insights, particularly
in the transformation phase, including online sentiment, engagement, network co-creation, and value
sharing. Traditional incumbents often prioritize profitability, while digital entrants emphasize growth
metrics (e.g., user numbers, sales) to foster network effects.

For incumbents pursuing digital transformation, balancing growth and profitability is imperative,
necessitating enhanced customer experiences and cost reduction through automation. This dual
objective presents challenges, prompting suggestions to establish separate digital initiatives for growth,
mimicking startup dynamics to drive transformation.

Conclusion
This study has embarked on a comprehensive exploration of digital transformation, aiming to offer a
multidisciplinary perspective that illuminates its intricacies and implications. We have embarked on a
journey that commences with the rationale behind the necessity for firms to embark on digital
transformation, emphasizing the influences of shifting digital technologies, heightened competition in
the digital landscape, and evolving customer behaviors. Our endeavor has led us to delineate three
distinct phases of digital transformation: digitization, digitalization, and the profound digital
transformation itself. Each phase has illuminated specific demands on organizations, encompassing
digital resources, organizational structure, growth strategies, and performance metrics.

This study has also unveiled a trail of questions and unexplored dimensions, igniting a call for future
research to traverse. These contemplations encompass the sequence and optimization of phases in
digital transformation, the concepts of digital readiness and resilience, and the nuanced effects of the
transformation on firm performance. The quest for comprehending the development, impact, and
relative significance of digital resources calls for further scholarly engagement. Organizational structures
 Digital transformation: A multidisciplinary reflection and research agenda

that harmonize agility and efficiency in the context of digital transformation await investigation, as does
the evaluation of self-organizing teams' efficacy in catalyzing digital change.

In essence, this endeavor has illuminated the sprawling landscape of digital transformation, and the
road ahead is ripe with research opportunities. The interplay of these themes and their interdisciplinary
relationships bear the promise of unveiling a more holistic understanding of digital transformation's
essence and intricacies. This research agenda serves as a guiding light, inviting scholars from diverse
domains to collectively illuminate the path toward a digitally transformed future.