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Management of Digital Transformation — lecture notes

IT modernization, digital optimization, digital business model (how do we transform business into a digital age), digitization

  • Less than 30% succeed in digital transformation

    • There are many changes around us, and lots of

  • Companies invest a lot in digitazion but there is no actual digitization benefits

    • There is a negative impact if you don't do, but not much added value short term, it takes years

  • You need top management backup

  • IT is an amplifier, good organization -> great, if its bad now -> it will get worse, more messy

  • New Technology -> New Organization Methods -> Strategy change

    • Strategy is an integrated set of choices that position you in a playing field to win

    • Choice of playing field

  • KPI

    • ROI of digital investments, % of annual tech budget on bold initiatives, time to market, leader's incentive, top technical talent

  • Example: Ford why its hard to digitize: Over 150 vendors, its hard to change software, everything is already cost optimized, but not for updates

    • its all written by other companies, the IP is at the vendors, they can't understand it

    • New companies like Tesla, chinese EV: Start from the software side

Goal of Lecture #

  • How does digitalization change my industry -> strategy

  • How can I act upon this change?

  • How can we organize ourselves?

  • How to ensure adequate cyber security?

Physical vs Digital

  • Marginal Production & Distribution cost is low for digital, field updateability, customer usage data actionable

Digitization leads to customer problem solutions consisting of hardware products, software products and or service products that are connected to the internet

  • Example: Steinway (Piano Company) Digitizazion:

    • Records what LangLang plays, and you can buy subscription to replay exactly what he played at the concert

Business Model: Describes how a company creates, captures and delivers value #

  • Articulates value proposition, Identifies market segment, Revenue mechanism, Value chain, Cost structure and profit potential, position of the firm within the value network, competitive strategy

  • Strategy chooses which business model

Value proposition

  • Products & services, Gain creators, Pain relievers

Customer profile

  • Gains, Pain, Customer Job

Business model innovation process

  • Business model pattern is a proven solution to recurring problems, 90% of innovations are a recombination of existing business model patterns

    • Razor and blade (oil lamps by rockerfeller),

  • Freemium:

    • KPI: DAU (daily active user), MAU, Conversion rate (2-5% usually), CAC (customer acquisition cost), CLV (customer lifetime value)

  • E-commerce

    • Producer to Customer, skipping wholesaler and retailer

      • Direct customer contact: transaction info, cross selling -> innovation

      • One goal, one organization, one margin -> cost, price, profitability

      • Challenge: marketing and distribution

  • Long Tail

    • Blockbuster (things with high turnover) vs Longtail (things that don't get bought a lot)

    • Diminishing transaction cost (lower storage, shipping)

    • 60% if Amazon came from long tail products

  • Network Economics

    • The more people join, the more benefit it has

      • Diminishing returns (true for resource based economy)

        • There is equilibrium, many players, competition, moderates price

      • Increasing returns (what you want)

        • No equilibrium, monopoly

    • Always search for a network effect in your company

    • Tipping point

      • Value of adoption > Cost of adoption to user

        • Most companies struggle to reach tipping point

    • Lock-in: Collective switching cost gets high after tipping point

  • Platforms, successful with nothing

    • Builds upon data network effects

Even if you have a new better technology you need to have installed base and complementary goods

  • The reason why there is so much API, many people can develop and increase complementary goods

### Ecosystems

  • Multilateral set of partners that need to interact in order for a focal value proposition

  • Establish network effect

  • Software and cloud on top of products (fish model)

Subscriptions

  • Net promotion score: Customer experience score (how likely you would promote the product to your friend (promoter - detractors))

  • Switching to subscription has impact on earnings for company

  • Only invest less than the recurrent profit

  • Manage the churn, because it counts

  • KPIs

    • LTV (life time value) > 3x CAC (customer acquisition cost)

    • Payback period for CAC (CAC/MRR): 12 months or less

    • Annual churn rate: 10-20%

    • Revenue growth per sales and marketing dollar M = (QRR(t) - QRR(t-1) )*4/SM(t-1)

  • IoT boosts products to services

Guest Lectures Axpo & SMG #

  • Incorporating a lot of AI into both Energy sector and Marketplace

    • Smart Grids, Energy storage systems, digital twins, cirtual power plants, EV and Vehicle to grid, microgrids, demand forecasting, predictive maintenance

    • Fraud detection, image tagging, ai generated listings, customer care agents

Technology Toolbox #

  • Innovation Diffusion

    • You have engineers who use it, then companies and then general public

    • You have different usergroups during lifecycle, what features do you need for each group

    • Sometimes innovation comes from users, lead user innovation

      • They or a smart company sees it will turn it into a business

      • Talk to users know their pain, they are happy to help

    • How to move out of the Chasm

      • In the niche market gain credibility, everyone knows you

      • Slowly expand to neighboring markets

  • Lessons learned from tech entrepreneur

    • Patience: It will take lots of iterations to a well rounded solution

    • Focus: geat tech does not make a strong product, develope a geat product for a small niche and build from there

    • Target existing budget: If use case has no budget or customers don't have know how, move on

    • Read the "bible": Crossing the Chasm

    • Transition from being tech obsessed to market obsessed:

    • Market obsession is not customer obsession:

    • Don't build unproven on top of unproven:

    • No network or platform yet: Build for direct value

    • Ownership: The core team needs to feel real ownership and must operate with flexibility and freedom

    • People First paradigm

  • Disruptive technology

    • New tech starts out worse but will slowly move along the S curve

    • Sometimes established players don't see it and lose it

    • Move towards high end of market

    • Reason why its difficult for existing firms to capitalize on innovation is because their processes and business model that make them good at existing business make them bad at competing for disruption

    • Value proposition changes over time

  • Ambidextrous organization

    • Make a way smaller but full organization, with its own culture

  • Dominant Design

    • Once dominant design emerges (after product innovation), you should focus on efficiency (Process innovation)

  • Hype Cycle

    • Technology in short term get overestimated, in the long run they get underestimated

    • We can usually accuratly forecast technological maturity, but never application (what we do with it)

  • Transaction cost

    • IT changes transaction cost, thats why it shapes industy

Guest Lecture Digitization in the Automotive Industry Prof Wortmann

  • Industry is in flux

Look through different lenses when analyzing a buisiness